Mali: Staff Report for the 2012 Article IV Consultation, Request for Disbursement Under the Rapid Credit Facility, and Cancellation of the Extended Credit Facility Arrangement—Joint IDA/IMF Debt Sustainability Analysis Under the Debt Sustainability Framework for Low-Income Countries

In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.

Abstract

In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.

I. Background

A. Recent Developments in Public External Debt

1. As a result of the enhanced Highly Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI), Mali’s stock of external debt has declined significantly. Mali’s stock of public and publicly guaranteed external debt declined from 103 percent of GDP in 2000 to 19 percent in 2006 owing to enhanced HIPC debt relief in 2002 and MDRI debt relief in 2006 (Text Table 1). At end-2011, it had increased to 28.1 percent of GDP owing mainly to new loans by the International Development Association (IDA), the African Development Bank (ADB), the Islamic Development Bank (IsDB), and the IMF (mainly through an allocation of SDR 74 million in 2009). All of Mali’s external debt is public and the bulk is owed to multilateral creditors, mainly IDA, AfDB and IsDB.

Text Table 1:

External Debt Stock at Year-End, 2001–11

(billions of CFAF)

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Source: M alian authorities, staff estimates.

Includes August 2009 SDR allocation.

B. Recent Developments in Public Domestic Debt

2. Mali’s domestic public debt is small (4.7 percent of GDP in 2011, Text Table 2). It consists of treasury bills and bonds issued on the regional market of the West African Economic and Monetary Union (WAEMU), and commercial bank loans. Domestic debt has more than doubled between 2009 and 2011 mainly as a result of new issuances of treasury bills and bonds (CFAF 137 billion at the end of 2011), but also owing to an inventory of all loans contracted or guaranteed by the government that the authorities have been conducting as part of their plan to strengthen debt management.

Text Table 2:

Mali: Public Domestic Debt Stock at Year-End, 2001–11

(billions of CFAF)

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Source: Malian authorities, staff estimates.

C. Debt Burden Thresholds Under the Debt Sustainability Framework

3. Mali is a medium policy performer for the purpose of determining the debt burden thresholds under the Debt Sustainability Framework (DSF). Mali’s rating on the World Bank’s Country Policy and Institutional Assessment (CPIA) averaged 3.65 (on a scale of 1 to 6) during 2009–11, making it a medium policy performer. The corresponding external public debt burden thresholds are shown in Text Table 3.

Text Table 3.

External Public Debt Thresholds for “Medium Policy Performers” under the Debt Sustainability Framework

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II. Baseline Scenario Underlying the Debt Sustainability Analysis

4. The central feature of Mali’s medium- and long-term macroeconomic outlook is the steady decline of annual gold production expected to be compensated only in part by other exports. The baseline scenario assumes a continuation of trend GDP growth as agriculture offsets the steady decline of gold production (Box 1). Inflation is expected to remain moderate as prudent fiscal policies are implemented with no recourse to domestic borrowing. The current account deficit is expected to remain stable, as the decline in gold exports is compensated by an increase of other exports including agricultural products and other minerals, and a deceleration in import growth.

Mali: Macroeconomic Assumptions Underlying the Baseline Scenario, 2012–32

  • Real GDP growth is expected to pick up after a 1.5 percent decline caused by the political and security challenges in 2012, and average 5 percent per year, slightly above the trend observed during the last 10 years (4.8 percent). Near term growth is assumed to be slightly higher than average owing to an expected rebound from the current crisis. Gold output is projected to decline by about 2 percent annually starting in 2014. Higher agricultural production is expected to outweigh this decline over time owing to cotton and other agricultural sector reforms. With a projected rapid population growth, the baseline scenario thus assumes low per capita income growth (and therefore no access to middle income status which would reduce concessional financing).

  • Consumer price inflation is projected to remain below the WAEMU convergence criterion of 3 percent.

  • Fiscal policy. The basic fiscal balance (revenue plus budgetary grants minus domestically financed expenditure) is expected to be equal to or greater than zero in order to meet the WAEMU convergence criterion. Tax revenue and domestically financed expenditure are expected to increase in sync by about 4 percent of GDP during 2012–32. Therefore, there is no recourse to domestic borrowing to finance the budget, except for rolling over current stock of domestic debt at market rates. In 2012, the overall fiscal deficit (excluding grants) shrinks to 2.9 percent owing to the suspension of donor budget support after the military coup of March 2012; the deficit is financed by donor project support and the use of government deposits in the banking system. With the resumption of budget support, the overall fiscal deficit (excluding grants) is projected to hover around 5.5 percent of GDP from 2014 onward, and to be financed by external loans for 50 percent and grants for the balance.

  • The non-interest current account deficit is projected to stay at around 5.3 percent, slightly above the historic average (4.7 percent of GDP). Gold exports volumes are expected to decline steadily over time, and the share of gold in total exports is projected to fall from 74 percent in 2012 to about 32 percent in 2032. This decline is projected to be compensated by a gradual increase of other exports (including food, cotton, and other minerals such as cement, phosphate, uranium, bauxite, iron ore, copper, nickel, oil), and a deceleration of import growth. Remittances (in percent of GDP) are projected to remain close to historical average.

  • External arrears. Debt service in 2012 was hampered by the political instability, which contributed to the suspension of budget aid and a weak revenue performance, causing the government to only serve part of the external debt and accumulate arrears to the amount of USD 58 million. The government has duly informed the creditors of its inability to serve its external debt in full for the time being and reiterated its willingness to clear all its arrears as soon as possible. The DSA assumes that these arrears will be paid in five annual installments over the 2014–18 period.

III. Debt Sustainability Analysis

A. External Debt

5. Under the baseline assumptions, all external debt and debt-service ratios remain below the policy-dependent thresholds throughout the projection period (Figure 1). The present value (PV) of external debt is expected to slightly climb from 24 percent of GDP in 2011 to 25 percent in 2032 (Table 1a). As production from existing gold mines declines starting in 2014 and other exports’ growth only partly compensates for that decline, the PV of the external debt-to-exports ratio is projected to increase from 76 percent in 2012 to 143 percent in 2032, below the threshold of 150 percent (Figure 1c). With a projected increase in tax revenue by 4 percent of GDP during the projection period, the PV of the external debt-to-revenue ratio is expected to decline from 135 percent in 2012 to 122 percent in 2032, remaining significantly below the threshold of 250 percent (Figure 1d, Table 1a).

6. Mali’s external debt sustainability is mostly sensitive to an export shock and a hardening of financial terms, limiting the scope for non-concessional borrowing. Under a bound test that reduces exports growth temporarily in 2013–14 with the effect of reducing exports levels permanently by 25 percent, the PV of the debt-to-exports ratio would exceed the threshold in the year 2024 and remain high until the end of the projection period (Figure 1c, Table 1b, Scenario B2). Under a hardening of financial terms, the PV of debt-to-exports ratio would breach the threshold by a large margin in the second half of the projection period and for a protracted period of time (Table 1b, Scenario A2).

B. Public Debt

7. The inclusion of domestic debt does not alter the assessment of Mali’s debt sustainability. Given the small size of Mali’s domestic debt and the absence of recourse to domestic borrowing in the base line scenario, the public debt sustainability analysis closely mirrors the external debt sustainability analysis (Figure 2 and Table 2a). The PV of debt-to-GDP ratio slightly decreases from 29 percent in 2012 to 27 percent in 2032.

8. Mali’s total public debt sustainability is most sensitive to a growth shock. In particular, a permanent decline in long-term GDP growth from 5 percent to 4.7 percent would increase the PV of debt-to-GDP ratio to 37 percent in 2032 (Figure 2; Table 2b, Scenario A3).

IV. Debt Distress Classification and Conclusions

9. The DSA indicates that Mali remains at moderate risk of debt distress based on the external debt burden indicators. As in last year’s DSA, none of the debt burden thresholds are breached over the 20-year projection period under the baseline scenario, and debt sustainability remains mostly sensitive to an export shock and to a hardening of financing terms. However, given the expected decline in gold exports in the medium term, the uncertain prospects for export diversification, and the present political and security situation, Mali’s debt sustainability needs to remain under close scrutiny. The above mentioned factors necessitate recommending that the government continue to limit its external financing to grants and concessional loans.

Figure 1.
Figure 1.

Mali: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2012-2032 1/

Citation: IMF Staff Country Reports 2013, 044; 10.5089/9781475567588.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in 2022. In figure b. it corresponds to a One-time depreciation shock; in c. to a Exports shock; in d. to a One-time depreciation shock; in e. to a Terms shock and in figure f. to a One-time depreciation shock
Figure 2.
Figure 2.

Mali: Indicators of Public Debt Under Alternative Scenarios, 2012-2032 1/

Citation: IMF Staff Country Reports 2013, 044; 10.5089/9781475567588.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in 2022.2/ Revenues are defined inclusive of grants.
Table 1a.

Mali: External Debt Sustainability Framework, Baseline Scenario, 2009-2032 1/

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Table 1b.

Mali: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2012-2032

(In percent)

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Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Table 2a.

Mali: Public Sector Debt Sustainability Framework, Baseline Scenario, 2009-2032

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.

[Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.]

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Table 2b.

Mali: Sensitivity Analysis for Key Indicators of Public Debt 2012-2032

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Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.