Statement by Mr. Ngueto Tiraina Yambaye, Executive Director for Mali and by Mr. Oumar Diakite, Advisor to the Executive Director, June 8, 2016

The political situation has continued to stabilize, following the signing of the peace agreement in June 2015. However, security conditions remain fragile as jihadist groups that were not part of the agreement continue to perpetrate terrorist attacks on civilians and guerrilla attacks on UN and Malian forces. On the macroeconomic side, the recovery continued in 2015, with strong GDP growth, low inflation, and strengthening of the fiscal position. The near-term outlook is positive, with continued robust output growth, but subject to substantial risks owing mainly to the fragile security situation.

Abstract

The political situation has continued to stabilize, following the signing of the peace agreement in June 2015. However, security conditions remain fragile as jihadist groups that were not part of the agreement continue to perpetrate terrorist attacks on civilians and guerrilla attacks on UN and Malian forces. On the macroeconomic side, the recovery continued in 2015, with strong GDP growth, low inflation, and strengthening of the fiscal position. The near-term outlook is positive, with continued robust output growth, but subject to substantial risks owing mainly to the fragile security situation.

On behalf of our Malian authorities, we would like to thank the Executive Board, Management, and Staff for their continued support to Mali’s efforts to maintain macroeconomic stability and raise economic growth. The authorities’ strong commitment to reforms has led to a satisfactory implementation of their ECF-supported program and helped them make good progress in entrenching macroeconomic stability. All performance criteria and indicative targets in 2015 were met with significant margins in most cases. All but one structural benchmark expected for the Fifth Review were implemented and progress is being made towards meeting the remaining benchmark.

The authorities have achieved this good performance despite facing significant challenges in creating the conditions for lasting stability and security in the country as terrorist attacks are on-going. While revenue mobilization was exceptionally strong in 2015, exceeding the authorities’ target to increase the tax to GDP ratio by 1 percent a year, additional space is critically needed to address the unforeseen requirements for maintaining peace and security in the country. In this context, our authorities are requesting an augmentation of access which they hope will catalyze additional assistance of the international community to meet the additional domestic and external financing needs induced mostly by the Peace Agreement implementation and the vulnerabilities of the current account. Our authorities are also requesting an extension of the ECF program to end-2017. This will allow them to consolidate the progress made to date and maintain the momentum in their efforts to mobilize domestic resources and improve public finance management.

Recent Economic Developments and Performance under the ECF

In 2015, real GDP growth remained strong at 6 percent following the rebound of 2014. The performance of the agricultural sector was strong as a result of good pluviometry. The tertiary sector was strengthened by increased activity in the telecommunications and non-market services. The economic growth for 2016 is projected to remain robust at 5.3 percent despite the slower growth in agricultural output. The rate of inflation reached 1.5 percent at end 2015 and is expected to remain moderate at 1 percent in 2016 on the basis of normal food production and low global inflation.

In the external sector, the current account deficit (including grants) of the balance of payments widened to 5 percent of GDP from 4.7 percent in 2014. This situation resulted from the decline in gold prices and the increase of imports associated with the strong economic growth which offset the impact of declining oil prices. The current account deficit is projected to increase to 5.7 percent of GDP in 2016 as a result of the decrease in gold exports and the increase of imports needed for public investments. The current account deficit is expected to be financed mainly by foreign aid and FDI.

In the banking system, financial soundness indicators continued to improve. The risk-weighted capital ratio increased from 14 percent in December 2014 to 14.8 percent in December 2015 and nonperforming loans (NPLs) continued to decline. With regard to the microfinance sector, financial stability continued to improve with the share of NPLs decreasing from 13.3 percent to 7.4 percent over the same period.

In the fiscal sector, the revenue mobilization was strong in 2015 and exceeded the authorities’ target. Tax revenue increased by 1.5 percent of GDP reflecting a favorable level of taxation on petroleum products which compensated for the underperformance in the collection of direct taxation. The disbursement of grants increased by 0.5 percent of GDP from an increase of project grants while general and sectoral budget support recorded a significant shortfall. On the other hand, expenditures increased by 0.9 percent of GDP and the overall fiscal deficit (including grants) was estimated at 1.8 percent of GDP in 2015 compared to 2.9 percent of GDP in 2014. On a cash basis, the deficit reached 3.2 percent of GDP as a result of the clearance of arrears accumulated in 2014. The authorities continued their efforts in 2015 to prevent any accumulation of arrears. These efforts supported business cash flows and the reduction of NPLs in the banking sector.

The overall performance under the ECF program continued to be satisfactory. All performance criteria and indicative targets in 2015 were met. Two out of the three structural benchmarks were observed, one on time and the other with a slight delay. The audit by the public sector oversight agency (CGSP) of contracts designated “defense secret” or “essential government interest” was completed in a timely manner. Regarding the AFRITAC recommendations for improving the database for public debt, the authorities adopted an action plan and prepared a report on the implementation of these recommendations in mid-April 2016. With respect to the benchmark on improving compliance with budgetary rules which is not yet fully met, the Council of Ministers adopted a decree in March 2016 granting power to the Minister of Economy and Finance to appoint Directors of finance and equipment. This nomination process is expected to be completed by end-June 2016.

Economic and Financial policies in the medium term

The new strategic framework for economic growth and sustainable development (CREDD) approved in March 2016 will be the reference for guiding the authorities’ economic and financial policies for the period 2016–18. It integrates the Government’s action plan (PAG) adopted in April 2013 and the peace and reconciliation agreement (APRM) signed in May 2015. The CREDD is based on three pillars: (i) promotion of inclusive and sustainable growth; (ii) improvement in the access to basic social services; (iii) strengthening institutional and sustainable development.

Fiscal Policy and Reforms

The authorities will continue to implement prudent fiscal policies in compliance with their commitments under the WAEMU multilateral surveillance. They intend to maintain the overall fiscal balance (including grants) at levels compatible with debt sustainability and the WAEMU convergence criteria of 3 percent by 2019. The macro-fiscal framework for 2016 has been revised to account for additional expenditures related mostly to the need to implement the 2015 Peace Agreement and the critical investment projects envisaged notably in the northern areas of the country. The authorities will also continue their efforts to mobilize domestic resources, notably by strengthening tax collection, controlling exemptions and streamlining spending.

On the revenue side, the objective is to increase revenue by 0.75 percent of GDP in 2016 by broadening the tax base and strengthening tax administration. The authorities intend to continue the reforms initiated at the Tax, Customs and Government property administrations supported by a results-based management framework to enhance revenue collection. They intend to continue their efforts to gradually reduce exemptions notably by presenting as an annex to the budget laws all the exemptions granted under the tax, customs, investments and mining codes and an estimate of the loss of revenue for the budget. A central file of tax and customs duties exemptions will also be established and analyzed in order to identify exemptions granted by type of tax, legal reference, and beneficiaries with the aim of reducing them. The exemptions granted to donor-financed development projects will also be proposed for cancellation in order to reduce tax and customs frauds.

In order to preserve fiscal revenue on petroleum products, the authorities will continue implementing the new petroleum product price adjustment mechanism which will pass on the evolution of petroleum products prices to retail prices within a margin of 3 percent a month. In doing so, they will determine the level of taxation consistent with the appropriate domestic price for petroleum products.

The authorities are in the process of simplifying fiscal legislation with the objective of reducing the administrative burden on taxpayers and simplifying tax collection. For example, the simplification of the minimum tax applied to small tax payers with a uniform rate of 3 percent which was introduced in the 2015 budget showed the benefits of such simplification by facilitating compliance by the informal sector. The authorities also intend to increase revenue from mining and oil activities with the assistance of the IMF Trust Fund on managing natural resource wealth. It is also envisaged to improve the environment for private sector investments by modernizing the mining and petroleum codes based on international standards.

On the expenditure side, the authorities will continue their efforts to improve the regulatory framework for public financial management in the context of regional directives and regulations. In this regard, the directives related to the transparency code, budget laws, public accounting, and the government chart of accounts and flow of funds table (TOFE) have already been transposed into Malian laws. They will also continue to improve the preparation, execution and control of the budget, and treasury operations. On the latter, the accounts held by public administrative agencies operating under the direct control of the government have been integrated in the single Treasury account opened at the regional central bank (BCEAO) as a first phase. The second phase which concerns the accounts held by other public administrative entities is ongoing.

The authorities also intend to pursue the implementation of the national internal control strategy for 2012–15 aimed at enhancing the capacities of internal control structures and improve the new procurement code adopted in 2015. To further improve the business environment and transparency in public procurement, the procurement code will be further improved by limiting and clarifying the scope of activities eligible for non competitive bidding with the technical assistance of the World Bank.

Debt policy

The Malian authorities remain committed to meet their external financing needs in line with the preservation of debt sustainability. They will continue to seek primarily highly concessional loans to finance critical investment projects. For 2016, a ceiling of approximately US$426 million of non concessional borrowing is envisaged to finance critical investments in the transport and electricity sectors. An additional amount of US$50 million is also envisaged for projects with high returns to be identified and for which concessional financing is not available. The authorities will continue to consult with IMF staff before finalizing these loan agreements. In the framework of the new Fund debt policy, a detailed borrowing plan has been prepared outlining each loan agreement underlying the 2016 budget execution.

Debt management continues to be improved with the implementation of measures recommended by the AFRITAC technical assistance mission in 2014. In addition, with the operationalization of the National Debt Committee, all loans or publicly guaranteed contracts will be examined by the Committee and a yearly debt strategy document published and annexed to the budget.

Structural Reforms

The implementation of structural reforms will also be steadfastly pursued to further improve the business environment. In this regard, the authorities will speed up their efforts to promote notably the stability and development of the financial sector, to ensure the financial viability of the electricity sector and increase the mobilization of resources for infrastructure investments as well as the improvement of labor skills and economic governance.

The authorities are cognizant of the need to address the weaknesses of the financial sector which is critical for maintaining Mali on the path of sustainable growth. In this regard, the new bank created by the merger of the Housing Bank (BHM) with the Malian Solidarity Bank (BMS) will be strengthened by opening its capital to private investors and eventually divesting the equity stake of the government. In order to address the risks in the banking sector, the authorities will continue to strengthen the credibility of the credit reporting bureau by intensifying communication campaigns and increase consent from clients of financial institutions. The action plan for the reform in the microfinance sector will also be implemented. Specific measures have been prepared with the assistance of the World Bank including the audit of microfinance institutions in difficulty, the revocation of operating permits for institutions to be liquidated and the adoption of favorable compensation of small depositors.

In the electricity sector, the government will continue its efforts to improve the financial situation of the electricity company (EDM). The authorities will closely monitor the financial situation of EDM and ensure that measures are taken to reduce the company’s deficit and meet its financial obligations. Actions to promote good governance will also be pursued, notably in the judicial system where efforts are being made to publish decisions by the commercial and other courts in cases of illicit enrichment. The new Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) legislation was approved by the National Assembly in February 2016. Within the harmonization framework of the WAEMU, the authorities intend to improve the legislation to FATF standard and are preparing an action plan for implementation which will support their efforts to improve economic and financial governance.

Conclusion

Our Malian authorities remain committed to the ECF program. In this regard, they will continue to implement the reforms aimed at achieving strong economic growth, preserve macroeconomic stability and improve public financial management as well as the business environment. In view of Mali’s satisfactory progress under the ECF arrangement, and the authorities’ strong commitment to pursue reforms, we would appreciate Directors’ support for the completion of the Fifth Review under the Arrangement, the Augmentation of Access, the extension of the program through December 2017 and the modification of performance criteria.