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© 2012 International Monetary Fund
August 2012
IMF Country Report No. 12/246
Islamic Republic of Mauritania: 2012 Article IV Consultation and Fourth Review Under the Three-Year Extended Credit Facility Arrangement, and Requests for Waivers of Nonobservance and Modification of Performance Criteria—Staff Report and Supplement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Islamic Republic of Mauritania.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2012 Article IV consultation with Mauritania and fourth review under the three-year Extended Credit Facility arrangement, and waivers of nonobservance and modification of performance criteria, the following documents have been released and are included in this package:
The staff report for the combined 2012 Article IV consultation and fourth review under the three-year Extended Credit Facility arrangement, and waivers of nonobservance and modification of performance criteria, prepared by a staff team of the IMF, following discussions that ended on May 16, 2012, with the officials of Mauritania on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 14, 2012. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A supplement containing a joint IMF/World Bank Debt Sustainability Analysis
A Public Information Notice (PIN) and Press Release, summarizing the views of the Executive Board as expressed during its July 2, 2012, discussion of the staff report on issues related to the Article IV consultation and the IMF arrangement, respectively.
A statement by the Executive Director for the Islamic Republic of Mauritania.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Mauritania*
Selected Issues Paper
Technical Memorandum of Understanding*
*Also included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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International Monetary Fund
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INTERNATIONAL MONETARY FUND
Prepared by the Middle East and Central Asia Department
(In consultation with other departments)
Approved by Daniela Gressani and Dhaneshwar Ghura
June 14, 2012
Fund relations: A three-year SDR 77.28 million (120 percent of quota) arrangement under the ECF was approved on March 15, 2010. Mauritania’s outstanding loans from the Fund were SDR 54.5 million (84.6 percent of quota) as of May 31, 2012.
Discussions: The team comprised A. Mati (head), Y. Zouhar, R. Blotevogel (all MCD), and C. Ebeke (SPR). T. Najeh (Resident Representative) assisted. Discussions were held in Nouakchott during April 29–May16, 2012. The mission met with the president, the governor of the central bank, the ministers of finance, economic affairs and development, energy, fishing, and of rural development, other senior officials, and representatives of the corporate and banking sector, the diplomatic and donor community, civil society, academia, and a wide spectrum of political parties.
Fourth program review: Based on the strong performance under the program, staff recommends its completion with one waiver for the nonobservance of the continuous performance criterion on nonconcessional external debt. Most of the structural reform agenda is progressing well, although three structural benchmarks were missed because of delays in administrative and procurement procedures.
Focus of the Article IV consultation: Discussions centered on the authorities’ immediate challenge of maintaining macrostability in the face of the drought and on building inclusive growth in the medium term.
Exchange rate regime: The exchange rate is de facto classified as other managed arrangement. Mauritania has accepted the obligations of Article VIII, Sections 2 (a), 3, and 4 of the Fund’s Articles of Agreement, and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions.
Contents
Executive Summary
I. Background and Context
II. Recent Economic Developments
III. Report on Policy Discussions
A. Outlook and Risks
B. Short-Term Challenge: Maintaining Macroeconomic Stability in the Face of the Drought and Large Infrastructure Projects
C. Building Inclusive Growth
IV. Program Implementation and Design
V. Staff Appraisal
Tables
1. Selected Economic and Financial Indicators, 2009–12
2. Balance of Payments, 2009–12
3. External Financing Requirements, 2009–13
4a. Central Government Operations, 2008–17
4b. Central Government Operations, 2008–17
5. Monetary Situation, 2008–12
6. Banking System at a Glance, 2008-11
7. Indicators of Capacity to Repay the Fund, 2012–16
8. Selected Economic and Financial Indicators, 2008–17
9. Millennium Development Goals, 1990–2015
10. Access and Phasing Under the Three-Year ECF Arrangement, 2010–13
Figures
1. Recent Economic Developments, 2007–11
2. Real Sector Developments, 2007–11
3. Selected Monetary and Financial Sector Indicators, 2007–12
4. External Sector, 2007–12
5. Fiscal Sector Developments, 2007–11
Boxes
1. Drought: Impact and Emergency Response so Far
2. Mauritania: Spillovers from Europe
3. Monetary Policy (In)Effectiveness in Mauritania
4. Mauritania’s Progress in Diesel Subsidy Reform
5. Business Environment and Governance
Annexes
I. New International Airport
II. Liquidity Management in Mauritania
III. External Stability
IV. Challenges in Tackling High Unemployment in Mauritania
Appendixes
I. Letter of Intent
Attachment I. Technical Memorandum of Understanding
Executive Summary
Mauritania’s economy has performed well in 2011, despite significant challenges. Helped by appropriate policies and high metals prices, real GDP grew 4 percent, inflation fell back below 6 percent, and record fiscal and external buffers were built. This performance materialized even though Mauritania faced a severe drought, a slowdown in Europe, and high international fuel and food prices.
Economic activity will pick up this year and in the medium term thanks to new projects that will temporarily worsen the external deficit. The rebound in cereal production and major infrastructure projects will lift growth above 5 percent, while inflation will remain contained. The external position will significantly deteriorate due to one-off effects linked to major energy investments and the construction of the new airport—before recovering as new mineral production comes on line and nonmetals commodity prices fall.
Notwithstanding the favorable outlook, Mauritania faces important short- and medium-term policy challenges, notably in the social area, where progress in reducing poverty has been slow and unemployment is still high:
In the short term, maintaining macrostability is essential. While a modest fiscal loosening is appropriate to accommodate pressing social needs in the aftermath of the drought, accelerating the phasing out of ill-targeted subsidies is essential to safeguard fiscal sustainability. To guard against upside inflation risks, the authorities will introduce a new T-Bill maturity that is under the sole control of the central bank—but paid for by the Treasury—to gradually absorb excess liquidity. Inflationary pressures from infrastructure projects and exchange rate depreciation should be closely monitored.
Over the medium term, Mauritania needs to diversify away from commodity exports to make growth inclusive. Anchoring fiscal policy on non-mining aggregates, creating a mining fund, strengthening social safety nets, deepening the financial sector, and persevering with the structural reform agenda are necessary to reduce poverty, create employment, and reduce the economy’s vulnerability to exogenous shocks.
Performance under the ECF-supported program remained strong. All quantitative performance criteria for end-December 2011 were met with a relatively large margin. The continuous performance criterion on the contracting of nonconcessional external debt was missed because of delays in the parliamentary calendar. The structural reform agenda is progressing according to plan, with the exception of the three benchmarks on public enterprise audits, external debt strategy, and IFRS quantification, which were missed.
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INTERNATIONAL MONETARY FUND
Prepared by the Middle East and Central Asia Department
June 14, 2012
Contents
I. Relations with the Fund
II. Relations with the World Bank Group
III. Statistical Issues
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INTERNATIONAL MONETARY FUND AND INTERNATIONAL DEVELOPMENT ASSOCIATION
Prepared by the staffs of the International Monetary Fund
and the International Development Association
Approved by Daniela Gressani and Dhaneshwar Ghura (IMF)
and Jeffrey D. Lewis and Marcelo Giugale (World Bank)
June 14, 2012
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This updated joint IMF-World Bank low-income country (LIC) debt sustainability analysis (DSA) continues to show a moderate risk of debt distress for Mauritania.9 Under the baseline scenario, debt burden indicators do not exceed their policy-dependent indicative thresholds, except for a minor and not protracted breach of the threshold for the present value (PV) of the debt-to-GDP ratio. The public sector DSA suggests that Mauritania’s overall public sector debt remains sustainable over the medium term. The country’s vulnerability to fiscal, FDI, exchange rate, and growth shocks highlights the importance of continuing to build fiscal and external buffers, follow a cautious borrowing strategy, and improve debt management. Lack of agreement on debt relief from Kuwait would raise Mauritania’s vulnerability to an external shock but would not affect the risk of debt distress, which would remain moderate.
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Public Information Notice (PIN) No. 12/99
FOR IMMEDIATE RELEASE
August 16, 2012
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
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Press Release No. 12/248
FOR IMMEDIATE RELEASE
July 2, 2012
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
