Statement by Kossi Assimaidou, Executive Director for Mali, January 28, 2013

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.

On behalf of the Malian authorities, I would like to thank the Executive Board, Management and staff for the long-standing support of the Fund to Mali, including during periods of severe difficulties. My Malian authorities view the current episode of adversity as another moment when the Fund can play a critical role in restoring macroeconomic stability and bringing the country back to a path of stronger growth and poverty reduction. Already, the international community has extended its support to Mali in efforts to combat terrorism, restore the country’s territorial integrity, and alleviate the suffering of the populations severely affected by the situation in Northern Mali, which has considerable spillover effects to the whole country and potentially large regional implications. In this regard, my Malian authorities are particularly thankful to all countries that are contributing to these efforts in restoring stability.

My Malian authorities are appreciative of the valuable technical and policy advice received from the Fund in the context of the 2012 Article IV consultation and discussions for possible support under the Rapid Credit Facility (RCF). The economic program supported by the current ECF, which was approved in December 2011 started well but was derailed since March 2012 by various shocks which took a heavy toll on the Malian economy. The authorities have decided therefore to end the current ECF program which has lost ground and to request assistance under the RCF. The new arrangement is expected to finance part of the balance-of-payments deficit anticipated for the period 2012-2013, and catalyze budget support from other donors. Despite the challenges, my authorities are committed to implement policies anchored on fiscal policy designed to preserve macroeconomic stability and consolidate key improvements in public financial management.

Recent Economic Developments and Performance Under the Current ECF Arrangement

Economic Developments in 2012

In 2012, the Malian economy was subject to various shocks, notably: (i) the unfavorable agricultural campaign in 2011 and the resulting food crisis which affected an estimated 3.6 million people; (ii) the insecurity and humanitarian crisis in the northern regions of the country following the attacks perpetrated by rebels and terrorist groups. An estimated 420,000 people fled the country to find refuge in neighboring countries; (iii) episodes of political and social unrest since March 2012, which lasted several months before a transitional government of national unity was formed with the priority to win back the occupied regions with the help of the international community, and organize presidential and legislative elections.

While GDP growth was expected to reach 5.6 percent in 2012 during the preparation of the State budget, it is now believed that GDP will contract by 1.5 percent as a result of the slowdown of activities in the secondary sector–with the exception of gold and cotton production—as well as the tertiary sector. The suspension of aid by donors severely impacted construction, hotels, and tourism activities. Overall, GDP contraction was limited by abundant and well spread rainfalls which boosted agricultural output by 8 percent. Annual average inflation reached 5.6 percent by end-October 2012—double of the target pursued in the West African Economic and Monetary Union (WAEMU)—notably as a result of the bad harvest in 2011.

The overall deficit of the balance of payments is expected to be elevated in 2012. While the current account deficit should improve as a result of gold and cotton exports, the improvement is not expected to compensate for the deterioration of the capital and financial accounts resulting from the sharp drop in foreign aid.

At end-September 2012, money supply grew by 11 percent on an annual basis, due to the use by the government of its deposits to finance the budget deficit. Banks which suffered damages and losses closed their subsidiaries in the northern part of the country following attacks and lootings. However, the stability of the banking sector has not been significantly affected as of September 2012. All the banks except one were in compliance with the minimum capital adequacy ratio of 8 percent. Nonperforming loans increased slightly to 7.5 percent of the total. Loans which were not repaid for more than six months because of the crisis will be included in the amount of nonperforming loans, in accordance with prudential regulations.

With regards to fiscal policy, the government’s prompt actions help contain spending at a level compatible with revenue and available cash flow. Priority was given to the payment of salaries, pensions, scholarships, military and security expenditures, and to the extent possible to social expenditures in health, education and social protection. The authorities also reduced subsidies on energy (petroleum products and cooking gas). Despite the shortfall in fiscal revenue and the suspension of foreign aid, the government managed to contain the fiscal deficit at 0.7 percent of GDP, as a result of drastic cuts in domestically- financed investment expenditures and an accumulation of arrears on foreign debt servicing. However, the government has contacted all the foreign creditors with whom it accumulated arrears to inform them of the situation and the financial difficulties that the country is facing, and that it intends to meet its obligations as soon as it can. The authorities have also successfully contacted WAEMU banks to request the refinancing on the same terms of the treasury bills and bonds that will mature in 2012.

Performance under the ECF

The economic program supported by the ECF started on sound footing before losing ground since March 2012 due to a series of adverse shocks described above. In December 2011, all performance criteria, except one, were met thanks to strong performance in terms of revenue collection and expenditure control. The only exception was the zero ceiling on the non-accumulation of external public payments arrears. However, since March 2012, some of the objectives of the program supported by the ECF could not be reached because of the effects of the shocks, notably a deterioration of the fiscal performance, the destruction of equipment at the customs administration, the contraction of economic activity, and the suspension of budget support grants by donors. Notwithstanding these challenging events, the authorities pressed on the implementation of structural measures, particularly during the second half of the year. Indeed, albeit with some delays, the authorities managed to meet all the structural benchmarks for that period.

Policies for 2013 Under the RCF

While awaiting the resumption of budget support grants by donors, the authorities will continue to implement a prudent fiscal policy aimed at containing expenditures below available revenue and deposits in the banking sector, in order to avoid new arrears on domestic and foreign debts. In that context, the 2013 budget submitted by the government to the National Assembly in October 2012 does not envisage any budget support for 2013. However, if budget support were to materialize, the authorities will submit an amended budget to the National Assembly. The Government will continue to give priority to spending in education, health and social protection in compliance with the strategic framework for growth and poverty reduction (CSCRP) for the period 2012-2017 which was adopted in December 2011.

The authorities will also continue to improve the management and transparency of public finances and address the weaknesses identified in the public expenditures and financial accountability (PEFA) review of 2011, notably revenue collection, domestic debt management, and public accounting and external control of public finances. In this regard, the authorities will pursue the implementation of the governmental action plan aimed at modernizing the management of public finances during the period 2011-2015, albeit with better targeting of priorities and less resources. In order to increase revenue performance, the authorities are committed to reforming the tax, customs and government property administrations and policies. Among the actions planned are the identification and gradual elimination of tax exemptions, the preparation of a strategy to bring domestic energy prices in line with the evolution of international prices, and efforts to enhance the functioning and performance of the value-added tax (VAT) which accounts for about 40 percent of tax revenue.

With regards to the management and transparency of public expenditures, the Government will transcribe in the Malian legislation and regulations, the WAEMU directives related to transparency, public accounting, budgetary nomenclature and flow of fund table for the public administration. The draft laws and regulations have already been submitted to the WAEMU Commission for review. The authorities will also continue their efforts towards establishing the single Treasury account—which were interrupted by the events of March 2012—in line with the study completed in September 2011. To date, the authorities have already transferred the accounts of public entities in seven banks (with the exception of project accounts) to the Central Bank of Western African States (BCEAO). With external assistance, the authorities will pursue the implementation of the national strategy for internal control of public finances for the period 2011-15 adopted in 2011. In this respect, the staffing of the accounting section of the Supreme Court will be increased and this accounting body will be transformed into a Government Accounting Office as soon as possible, in accordance with the WAEMU directives.

The authorities continue to attach high importance to the preservation of debt sustainability. Despite the government’s fiscal austerity efforts, the current difficult economic conditions have led to the accumulation of about $58 million of external arrears at end-2012. The authorities have sent letters to Mali’s creditors to explain the current constraints on public finances and to reaffirm their commitment to clear these arrears as soon as possible.

Conclusion

In order to restore and preserve macroeconomic stability, my Malian authorities are requesting Fund support under the RCF. The RCF is critical to providing my authorities with the means to sustain their adjustment efforts in a context of tremendous and exceptional economic and security challenges, and to catalyze other donors’ budget support.

Mali’s past performance under Fund programs has been generally satisfactory, and my authorities are committed to continue to implement policies that would not aggravate the current economic problems, to restore macro-stability and to renew with their track record of good economic performance. I would therefore appreciate Directors’ favorable consideration of my authorities’ request for Fund support under the RCF.

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
Author: International Monetary Fund. African Dept.