Statement by Kossi Assimaidou, Executive Director for Mali

Ex Post Assessments are intended to provide an opportunity to step back from continuing program relations to consider an analysis of the economic problems facing the country, review progress under IMF-supported programs, and draw forward-looking lessons for future IMF engagement. The program objective of macroeconomic and financial stability was broadly achieved, as evidenced by the moderate fiscal deficits, low and relatively stable rates of inflation, and the maintenance of a sustainable external debt position; but raising economic growth remained a challenge. Structural reforms are also necessary to encourage investment and employment.

Abstract

Ex Post Assessments are intended to provide an opportunity to step back from continuing program relations to consider an analysis of the economic problems facing the country, review progress under IMF-supported programs, and draw forward-looking lessons for future IMF engagement. The program objective of macroeconomic and financial stability was broadly achieved, as evidenced by the moderate fiscal deficits, low and relatively stable rates of inflation, and the maintenance of a sustainable external debt position; but raising economic growth remained a challenge. Structural reforms are also necessary to encourage investment and employment.

1. My Malian authorities are thankful to the Board, Management, and the staff for the valuable policy advice they continue to receive from the Fund in support of the implementation of their economic program supported by the Extended Credit Facility (ECF). As the current ECF arrangement is headed toward its final months, they much appreciate the inclusive approach adopted by staff in the preparation of the Ex-Post Assessment (EPA) of the Fund’s longer-term program engagement that is being considered by the Board along with the staff report.

2. Economic developments in 2010 were characterized notably by robust growth, low inflation, better-than-expected fiscal performance, weaker external position, and improved financial soundness indicators. In addition, program performance has been strong, with all end-December 2010 performance criteria and indicative targets being met, except for the indicative target on priority spending. On the structural front, all but one benchmark were implemented, thus translating into further improvements in tax and customs administration, lower vulnerabilities in the banking system, and better management of public finances. At the same time, the establishment of a system for managing and ensuring timely payment of value added tax credits to eligible companies—which is the essence of the missed benchmark—is underway.

Policy and Reform Agenda for 2011

3. The reform agenda will continue to place a heavy focus on measures aimed at increasing the efficiency of tax and customs administration, further improving debt management, strengthening public financial management and the financial system, and advancing reforms in the cotton sector.

4. On the fiscal front, prudence will continue to guide the authorities’ policies, materializing into efforts aimed at containing the basic fiscal deficit. In this endeavor, necessary spending and revenue adjustments will be made in the context of the forthcoming supplementary budget. On the revenue front, additional resources are expected to be secured by improved tax collection and higher non-tax revenue. The implementation of the recently adopted pass-through mechanism of international oil prices to domestic prices will help protect revenue from taxation of petroleum products and thus limit the budgetary impact of higher global oil prices. Other key revenue-enhancing measures will include the three-year action plan to be developed with a view to streamlining tax legislation as well as the phasing out of the preferential import tax regime benefiting some gold mining companies and the value-added tax exemptions granted to their subcontractors. On the expenditure front, better management of non-priority capital spending is expected to play a key role going forward.

5. Implementation of the government public financial management action plan will be pursued. In particular, steps will be taken to ensure increased compliance of budget preparation, execution and transparency with regional standards. In this connection, specific measures that are envisaged include analyzing the implications of transferring accounts held by government entities in commercial banks to the Treasury account at the central bank and improving the presentation of fiscal tables.

6. In order to strengthen debt management, the authorities plan to put in place a comprehensive database of domestic debt contracts and government guarantees. While preference will continue to be given to concessional financing, the authorities will determine with staff in the context of the next DSA exercise the level of nonconcessional borrowing that could be consistent with the need to preserve debt sustainability.

7. Financial sector reform will continue to be guided by the authorities’ financial sector development strategy. In particular, work will continue to be undertaken toward completing the restructuring of the state housing bank (BHM) and increasing capital requirements of banks and other financial institutions. Strengthening the supervision of microfinance institutions will also remain central in the financial sector reform agenda; so will be improving credit access to small and medium-sized enterprises.

8. Cotton sector reform will be pursued with the ultimate aim of completing the ongoing process of privatizing the cotton ginning company, CMDT, while safeguarding the viability of the cotton sector. Recent progress made toward this goal relates to the recent selection of an investor interested in buying two of the four CMDT subsidiaries. Efforts will be made to find other potential buyers of remaining subsidiaries.

9. It is the authorities’ view that an augmentation of access under the Extended Credit Facility (ECF) would contribute to mitigating the impact of the recent and ongoing crises in Cote d’Ivoire and Libya on the balance of payments. The main transmission channels of these crises include lower remittances, weaker foreign direct investment, and increased vulnerabilities in the banking system. In view of Mali’s exposure to these external shocks, Directors’ support for the requested augmentation of access under the ECF would be welcome.

Ex-Post Assessment of Longer-Term Program Engagement

10. At this juncture, the Ex-Post Assessment (EPA) of the Fund’s longer-term program engagement in Mali is timely and welcome. Encouragingly, the EPA notes that some of the key achievements under the last Fund-supported programs under review relate to the maintenance of macroeconomic and financial stability and sustainable external debt position. However, the EPA conclusion that the last two Fund-supported programs were only partially effective in achieving core objectives calls for further improvements in program design.

11. While the recent streamlining of conditionality is a step in the right direction, there seems to be scope for program design to do a better job of helping achieve growth and poverty reduction objectives’ set forth in Mali’s Fund-supported programs. Indeed, as noted in the EPA report, although both Fund-supported programs under review placed a heavy focus on growth in line with the recommendations made in the 2003 EPA, growth was still weaker than average growth in Sub-Saharan Africa.

12. While the EPA rightly stresses the need for the Malian authorities to diversify the economy and promote private sector development to raise the country’s growth potential, it would have been useful if it had underscored how program design could better contribute to this desirable goal. For instance, program conditionality on public debt and insufficient external financing constitute, in the authorities’ view, key impediments to the achievement of adequate levels of public investment needed for strong and sustainable economic growth. Unfortunately, the EPA disregards how program requirements in the area of debt management may have constrained program growth objectives. Moreover, while the heavy focus of program conditionality on fiscal reform may have been useful in maintaining moderate levels of fiscal deficits, it is not clear that it contributed to creating fiscal space for development spending. Indeed, as the authorities noted in their response to the EPA, implementation of structural conditions on the fiscal front may have led to fiscal consolidation but their effects on economic growth have not been always perceptible.

13. In the concluding section of the EPA report, staff notes that the lack of ownership by key domestic stakeholders was the primary cause of the slow implementation of structural reforms. Unfortunately, it does not explicitly identify other factors related to program design that could have played a role in explaining the uneven program performance on the structural front. For instance, the EPA conclusion that implementation of structural reforms improved in recent years following greater ownership and the streamlining of the reform agenda seems to suggest that aspects of program design might have contributed to this outcome but the report does not further elaborate on this issue. In addition, the EPA questions whether program measures related to the privatization of CMDT are likely to solve the problems facing the cotton sector and whether the privatization of the BHM could be completed without taking steps to improve the soundness of the bank.

14. Based on the good program performance and the policy objectives under the ECF, I would appreciate Directors’ favorable consideration of my authorities’ request for the completion of the sixth review and modification of the performance criteria for the seventh review under the ECF.

Mali: Ex Post Assessment of Longer-Term Program Engagement: Staff Report; Statement by the Executive Director for Mali; and Public Information Notice on the Executive Board Discussion
Author: International Monetary Fund