Mali: Staff Report for the 2018 Article IV Consultation and Eighth and Ninth Reviews Under the Extended Credit Facility Arrangement
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2018 Article IV Consultation and Eighth and Ninth Reviews Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Mali

Abstract

2018 Article IV Consultation and Eighth and Ninth Reviews Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Mali

Context: Fragility and Security Challenges

1. Mali is a fragile state with a challenging security situation and an undiversified economy (box 1). Fragility is rooted in the country’s geographical position, and challenging social, economic and security conditions. The situation has worsened since 2012. Mali’s landlocked position increases production and trade costs. High poverty rates and weak human capital, mainly due to limited access to basic services, constrain growth. Persistent insecurity weighs on the government’s budget. The share of security spending in Mali’s budget has been increasing, making the preservation of much needed spending on social services and development challenging (Text Figures 1 and 2) and discourages investment and growth. With agriculture accounting for over 30 percent of GDP, and cotton and gold for over 80 percent of exports, the country is vulnerable to adverse weather conditions and commodity price fluctuations.

Text Figure 1.
Text Figure 1.

Mali: Military and Security Spending

(Percent of GDP)

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Sources: Malian authorities and IMF staff estimates.
Text Figure 2.
Text Figure 2.

Selected Sahel Countries: Military Spending

(Percent of GDP)

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Sources: Stockholm Internaternational Peace Research Institute Military Expenditure database; and IMF staff estimates.

2. Despite a robust performance in recent years, growth has been volatile and not inclusive. The economy is rebounding from the contraction triggered by the 2012 heavy offensive of armed groups that lasted most of the year and a failed military coup. The security situation has since been tense despite the conclusion in 2015 of a peace agreement between the 2013 democratically-elected government and the main armed groups. Despite this challenging environment, GDP growth has averaged 6.3 percent per year since 2013. However, growth has been volatile and per capita growth continues to be weak relative to peers (Figure 4). Also, poverty and inequality remain high, calling for more inclusive policies over the medium term (Text Figure 3).

Figure 1.

Government Spending and Economic Classification 1/

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

1/ Coverage refers to general government as per World Economic Outlook.2/ Dashes are the averages of SSA.3/ Healthy life expectancy (HALE) is a measure of health expectancy that applies disability weights to health states to compute the equivalent number of years of life expected to be lived in full health.Sources: IMF FAD Expenditure Assessment Tool (EAT), World Economic Outlook, World Development Indicators, IMF Investment and Capital Stock Dataset, World Bank, World Health Organization, and World Economic Forum.
Figure 2.
Figure 2.

Mali: Macroeconomic Developments, 2011–19

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Sources: Malian authorities; and IMF staff estimates and projections.
Figure 3.
Figure 3.

Mali: Fiscal Developments, 2010–19

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Sources: Country authorities; and IMF staff estimates and projections.
Figure 4.
Figure 4.

Mali: Social and Development Indicators

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Source: World Bank, World Development Indicators; World Bank, Education Statistics; and World Bank, Health Nutrition and Population Statistics.
Text Figure 3.
Text Figure 3.

Mali: Poverty and Income Inequality

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Source: World Bank, World Development Indicators; and staff estimates.

3. The fiscal space has remained tight. The tax revenue-to-GDP ratio rose significantly in recent years (about 0.85 percentage point of GDP per year during 2012–16) albeit from a low level. Military and security expenditures have more than doubled since 2012 (text Table 1). The authorities plan to offset the expected 2018 shortfall in external financing by additional recourse to domestic debt. The resulting deterioration of debt indicators highlights the need to optimize the use of the available fiscal space.

Text Table 1.

Mali: Selected Fiscal Indicators

(Percent of GDP)

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Sources: Ministry of Finance; and IMF staff estimates and projections.

4. Implementation of past policy recommendations was broadly satisfactory (Text Table 2). The authorities are making notable progress in stabilizing the macroeconomic situation. but implementation of structural reforms has been mixed.

Insecurity and Fragility

Mali’s multi-faceted fragility is rooted in ethnic and political violence, poor governance, and unequal development. Mali has a total population of about 18 million inhabitants, 10 percent of which live in the northern regions. High population growth rates, insecurity in the North and the Center, and recurrent drought have led to persistent poverty. The country ranks at the bottom of the UN Human Development Index (175th out of 188 countries, in 2015). Development indicators fall short of the Sustainable Development Goals and lag those of peer countries (Figure 3).

In 2012, the country was hit by a deep political and security crisis with long-lasting effects. In early 2012, armed Tuareg groups rebelled over persistent perceptions of exclusion and a failure to implement better political representation and gained control over Northern Mali, helped by Jihadist groups. Army officers overthrew the incumbent government, considered responsible for failing to quell the rebellion. Dissent among the rebel armed groups led to further conflict within Northern Mali. After almost a year of brutal control by Islamist groups, French-led military forces and a large UN peacekeeping contingent helped the Malian army drive these groups out of the main northern cities. Stabilization efforts continued with the democratic election in 2013 of President Keita, who signed a peace agreement with a coalition of rebels in June 2015.

The security and political crisis caused a sharp recession in 2012. Real GDP contracted by 0.8 percent because of the suspension of donor support following the military coup, and sharp decline in services (trade, hotel and restaurants), construction and public works. Banks suffered losses estimated at 0.3 percent of GDP through the theft of banknotes, the looting of buildings, and an increase in nonperforming loans. Drastic budget constraints forced the government to reduce capital spending by over 30 percent.

The security crisis also led to a humanitarian crisis. Over 420,000 people were displaced to the south of the country and neighboring countries putting upward pressure on social spending. Human rights violations are frequent, particularly those of women (over 50 percent of displaced) and children (30 percent of displaced). In the northern regions, the availability and quality of basic social services (education, health, water and sanitation, etc.) were adversely affected by growing insecurity. Over 90 percent of health centers and education establishments in these regions have closed.

Security conditions remain fragile in Mali and unrest is spreading to neighboring countries. Notwithstanding progress in stabilizing the country, some areas are still beyond the control of government forces. Significant delays in implementing the 2015 peace process are contributing to the proliferation and fragmentation of armed groups, which are increasingly staging violent attacks on Malian, French and UN forces and on civilians, causing considerable casualties. Since 2015, these attacks have spread to central and southern Mali and neighboring countries, particularly Burkina Faso and Niger. Prevailing insecurity in Mali inhibits the government’s ability to deliver services to underdeveloped regions to reduce inequalities that have fueled the conflict, and govern effectively. Societal frustration with slow progress in improving governance and reducing poverty and inequality is growing.

Regional efforts are expected to improve the effectiveness of the military response to jihadism and insecurity threats. Faced with the deterioration of the situation on the borders of Mali, Burkina Faso and Niger, the G5 Sahel regional organization, which groups these three countries, as well as Mauritania and Chad, reactivated in 2017, with the support of France, the EU and other partners a joint anti-jihadist force project, initially launched in November 2015. The G5 Sahel joint force is also endorsed by the UN Security Council.

Recent Developments and Program Implementation

A. Recent Developments

5. Mali’s economic recovery continued in 2017 amid persistent security challenges. Recent economic developments and the macroeconomic outlook remains largely unchanged compared to the seventh review (see EBS/17/209; Figures 23 and 5, Text Table 1, Tables 16).

  • Preliminary data suggest a GDP growth of 5.3 percent for 2017. Growth was supported by good harvests and a robust performance of the tertiary sector. Economic activity also benefitted from the impact of vigorous capital spending. Inflation was subdued at 1.1 percent, well below the regional ceiling.

  • The external position improved but remains weak. The overall balance of payments narrowed by 4.6 percentage points from 2016 to a surplus of 0.7 percent of GDP in 2017 reflecting less private capital outflows. In addition, higher inflows of grants and multilateral loans (due to carryover from delayed disbursements from 2016) increased the capital and financial account surplus by about 3 percentage points to 5.6 percent of GDP. The current account deficit contracted somewhat to 6 percent of GDP in 2017, reflecting improvement in the services and trade balances.

  • The 2017 fiscal outturn at end-June and end-December is in line with the program. Good revenue performance at end-June contributed to reducing the deficit compared to program projections, but capital expenditures and, to a lesser extent, current expenditures have been under executed. Preliminary data indicate that the 2017 fiscal deficit was contained to 2.9 percent of GDP, below the program targets of an overall fiscal deficit at 3.5 percent of GDP (on a payment-order basis) and a basic deficit of 1.1 percent of GDP. Expenditures were cut in response to a shortfall in external support of about 0.8 percent of GDP (0.5 and 0.3 percent of GDP shortfall in budget support and project loans, respectively) and revenues came in slightly above target.

6. The external sector assessment highlights the need to boost structural competitiveness. The real effective exchange rate is broadly consistent with fundamentals but structural competitiveness remains weak (Box 2).

7. Debt vulnerabilities remain moderate but need to be monitored closely. Mali’s updated debt sustainability analysis confirmed a moderate risk of debt distress (Annex I). Domestic public debt increased sharply in 2016 and 2017, reflecting the government’s strategy of using domestic financing to offset lower disbursements of foreign loans and grants.

8. The financial sector is stable but stress has intensified. Although the capitalization of banks has increased, the persistently elevated level of non-performing loans (16.7 percent in December 2017) remains unresolved (Table 9). The high concentration of banks’ loan portfolio also remains a source of concern. The microfinance sector grew rapidly, but progress in liquidating failing microfinance institutions remains limited.

Text Table 2.

Mali: Implementation of Key Recommendations from the 2015 Article IV Consultation1/

article image

See IMF Country Report No. 15/339, Mali: 2015 Article IV Consultation Staff Report.

External Sector Assessment

In 2017, the current account deficit (including grants) contracted to an estimated 6 percent of GDP, compared to 7.2 percent of GDP in 2016. The trade balance improved by 1.2 percentage point to a deficit of 15.7 percent of GDP, reflecting an increase in export of cotton. Mali’s real effective exchange rate (REER) has depreciated by about 5 percent since 2014, mainly driven by the US dollar appreciation.

Mali’s external position is estimated to be broadly consistent with fundamentals based on the EBA-lite methodology. The CA model estimates a current account gap of about −0.5 percent of GDP relative to its adjusted norm of −5.5 percent at end-2017. Assuming a current account elasticity of 24 percent, the methodology suggests a REER overvaluation of 2.4 percent. The IREER panel regression shows a larger undervaluation of 14 percent. Given the margin of error, staff is of the view that both the CA and the REER are in line with fundamentals.

Mali’s weak business environment and slow progress in improving governance inhibit competitiveness and export diversification. Mali lags its regional comparators in dealing with expanding electricity coverage, enhancing access to finance, strengthening investor protection, and improving health and education standards. Exports are poorly diversified across products and markets.

A01ufig1

Exchange Rate Assessment EBA-lite

(In percent of GDP)

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B. Performance under the Program

9. On July 7, 2017, the Executive Board completed the seventh review under the Extended Credit Facility (ECF) supported program approved on December 18, 2013, but subsequent discussions were delayed. The authorities have since reached a consensus with stakeholders and moved a governance reform against illicit enrichment forward, thereby allowing for the completion of the eighth and ninth reviews.

10. All quantitative targets for the eighth review (end-June 2017 test date) and for the ninth review (end-December 2017 test date) and all continuous performance criteria were met.

  • For the eighth review, the ceiling on government bank and market financing was met with a significant margin. The gross tax revenue target was met with a small margin. The indicative targets on the basic fiscal balance and on poverty-reducing expenditure were observed (MEFP, table 1, ¶9).

  • For the ninth review, all quantitative targets were met (MEFP, Table1, ¶10). The authorities continue to strengthen measures to implement results-based management in tax revenue collection agencies, a step that has already helped bolster revenues in recent years. They are also implementing measures to contain spending in line with available resources, including in the context of program-budgeting framework. The authorities have also made strides in improving their expenditure management tools to ensure the monitoring and evaluation of program-budgeting performance starting in December 2018 (structural benchmark for end-May 2018).

  • The continuous PCs on external payment arrears and contracting and guaranteeing of new external debt on non-concessional terms were also met.

11. Progress on structural benchmarks has been slower than expected with only half of the structural benchmarks met as planned (MEFP, Table 3 and ¶11).

  • In August 2017, the authorities conducted a public information campaign with key stakeholders to explain the costs of current practices, the need for reform and the advantages of a more flexible petroleum pricing mechanism. The authorities have also implemented a form of an automatic fuel price adjustment mechanism since September 2017 to ensure that monthly changes in domestic retail fuel prices follow international price movements within a 3 percent margin. However, as the international fuel prices are expected to rise, the authorities are working on a comprehensive strategy to enhance fiscal revenue from petroleum products.

  • In August 2017, the authorities carried out the second phase of the Integrated Debt Management System project, by developing complementary modules for the calculation of debt ratios, the calculation of the present value, the production of debt statistics, and debt simulations. Some technical issues are being resolved to ensure transfer of public entities’ deposits to the BCEAO, thereby completing the implementation of a treasury single account (TSA). Therefore, this benchmark is proposed to be reformulated to target the rate of transfer of government deposits in the TSA and reprogrammed to end-June 2018.

  • The implementation of the 2014 Law against illicit enrichment faced legal challenges, inhibiting the achievement of the targeted 20 percent transmittal rate of government officials’ financial disclosures, which was reached in February 2018. The authorities now target a transmittal rate of 35 percent and 50 percent in June 2018 and October 2018, respectively. The measure on reducing the investment threshold for tax exemption to CFAF 100 million (from CFAF 12.5 billion) is proposed to be reprogrammed to end-July 2018.

  • Furthermore, the authorities have made headways in implementing the recommendations of the 2017 report on compliance of the expenditure management software (PRED) and financial and accounting information system (AICE) with the new budgeting and accounting processes (MEFP, ¶49).

Macroeconomic Outlook and Risks

12. The macroeconomic outlook remains broadly positive (Text Table 3). Real GDP growth is projected at 5 percent in 2018, and slowing slightly thereafter to settle around 4.7 percent in the medium term, Mali’s long-run estimated potential rate of growth. This baseline assumes implementation of structural reforms conducive to private sector-led growth, and more efficient public investment that would remain a driver of growth as the budget consolidates. While supply shocks will continue to cause occasional spikes, inflation would remain moderate at about 2 percent. After a small deterioration in 2018 (¶13), the fiscal position should improve over the medium-term reflecting the authorities’ determination to implement policies to abide by the WAEMU fiscal deficit convergence criterion. The current account deficit is projected to deteriorate somewhat to about 6.5 percent of GDP in 2018, due to rising oil prices and worsening terms of trade, but stabilize over the medium term as investment and import growth remain constant. The current account deficit will be fully covered by capital inflows as investment and import growth remain constant.

13. This outlook is facing downside risks (Text Table 4. Risk Assessment Matrix). The most immediate risk to the outlook remains the volatile security situation. A spread of violent attacks could dampen private sector confidence and affect economic growth and public finances. Agricultural output also remains vulnerable to adverse weather conditions, while high dependence on gold and cotton exports (about 65 percent and 15 percent of total exports, respectively) leaves Mali’s balance of payments vulnerable to international commodity price fluctuations. External risks arise from shifting terms of trade, reductions in donor funding, and falling FDI.

Authorities’ Views

The authorities broadly concurred with staff’s projections and assessment of risks. They agreed with staff’s views on growth and inflation prospects for the medium term, but saw the scope for potentially revising projections during the next review to reflect the impact of a new gold mine coming on stream soon as well as of rising oil prices. The authorities agreed with staff projections of revenues and expenditures for the medium term which will strengthen the fiscal stance, and in turn contribute to improving the external position.

Text Table 3.

Mali: Key Economic Indicators, 2014–23

(percent of GDP)

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Sources: Malian authorities; and IMF staff estimates and projections.

Defined in Table 3, footnote 3.

Mali: Risk Assessment Matrix1

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The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.

Policy Discussions

Policy discussions focused on addressing near-term issues and critical medium-term challenges. The policy priorities are anchored on the National development plan (CRED). In the short term, the fiscal strategy is defined by WAEMU regional rules, financing availability, and debt sustainability concerns. Over the medium term, discussions centered on increasing fiscal space, encouraging sustainable growth and competitiveness, promoting financial sector efficiency, and enhancing economic governance to lift impediments to growth.

A. Near-Term Challenge: Preserving Macroeconomic Stability in an Election Year with Security Challenges and Lower External Financing

14. The 2018 budget adopted in late December 2017 projects an overall deficit of 3.3 percent of GDP that is in line with the adjustment path laid out in the staff report for the seventh review and consistent with reaching the WAEMU deficit criterion of 3 percent of GDP by 2019 (MEFP, ¶7).1

  • Tax revenues are expected to increase by 0.6 percent of GDP, underpinned by measures to reduce exemptions and improve tax administration (Text Table 4). The law to stop granting new discretionary tax exemptions and reducing other exemptions will be fully implemented in 2018. Measures to improve tax administration both at customs and general tax directorate are also expected to boost revenues.

  • Appropriations for current spending are projected to increase by 0.8 percentage points of GDP, mostly reflecting an increase in the wage bill. Wages and salaries are projected to increase by 0.5 percent of GDP on account of new recruitments in the police and security personnel, statutory advancement of civilian and military personnel and the financial impact of agreements with civil servant unions. Spending on goods and services are projected to increase by 0.1 percent of GDP as the authorities will reduce other spending to accommodate election-related spending of 0.5 percentage point of GDP. Appropriations for capital outlays are projected to increase by 0.7 percentage points of GDP. Domestically-financed outlays would increase by 0.8 percentage point of GDP, attributable mainly to the acquisition of equipment by the administrations as well as the support of the Law of Orientation and Military Programming and the Law on Programming on Internal Security. This increase is also attributable to the implementation of road projects, the upgrading of health facilities and agricultural investments. At the same time, externally-financed capital expenditure would decline by 0.1 percentage point of GDP as projects by key donors expired in 2017 and are likely to be renewed starting in 2019.

Text Table 4.

Mali: Impact of Tax Revenue Measures1/

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Sources: Malian authorities; and IMF staff calculations.

Revenue gains compared to the 2017 outcome.

15. The budget deficit is expected to be financed through greater reliance on domestic and regional sources. Donors reduced their budget support as well as project aid for 2018. Multi-year support programs of key donors expired in 2017 and key donors reduced their budget support in 2018, but are expected to gradually increase their support starting in 2019. Hence, for 2018, the authorities now project about 1.2 percent of GDP of external support (0.4 budget support and 0.9 project grants). Discussions with key donors, including the World Bank and the EU, indicate that preparatory work for starting new operations and increased engagement is underway, reestablishing the catalytic role of the ECF. The authorities intend to compensate by increasing CFA-denominated financing on the domestic and regional market.2 Given the high import content of publicly-financed investment projects, the larger reliance on domestic financing is expected to have a small negative impact on WAEMU reserves. However, the impact is minor and more than offset by the sizable Eurobond issuance by its two largest countries and the BOAD (West African Development Bank).3 Hence, the increase in domestic and regional financing is consistent with the debt sustainability analysis and with available resources at the regional market and does not generate discernible risks to reserve adequacy at the union level. Staff encouraged the authorities to remain vigilant to execute the budget as planned and resist temptation to relax the fiscal stance in the electoral context.

16. In the context of limited fiscal space, external support is key to help accommodate priority spending while maintaining public finances on sound footing. Given Mali’s fragility and instability risks, increasing domestic and regional financing to offset lower external financing is appropriate as resources are available on the regional market. However, staff underlined that the increased recourse to the regional and domestic markets needs to be temporary as higher borrowing costs would reduce future fiscal space and worsen the debt stability assessment. Further internal adjustment would be needed if financing conditions change or other risks materialize, including higher oil prices, persistent shortfalls in external support, tightening conditions on the regional market, higher-than-projected election-related spending, and tax revenue shortfall. As local and national elections are nearing, social tensions could also give rise to political pressures to increase spending. The adjustment could take the form of nonpriority spending cuts or rephasing investment spending to better align it with available financing. Staff emphasized the need for the authorities to step up efforts to reach out to donors and accelerate structural reforms to secure more concessional external financing.

Authorities’ Views

17. The authorities shared staff analysis of the near-term fiscal challenges. They reiterated their commitment to execute the budget as planned. They added that the 2018 budget includes adequate appropriations for election-related spending without undermining medium-term fiscal sustainability. However, should more spending become unavoidable, additional revenue will be sought or other non-priority spending items, in particular on goods and services, will be cut to remain within the budget envelop and preserve the consolidation path agreed in the program. The authorities saw the shortfall in external support 2018 as temporary and explained that their reform momentum will continue to ensure that external support will gradually recover to historical trends starting in 2019. They are working with key donors, including the EU and the World Bank, to help advance reforms and to expedite preparatory for work for launching new support programs.

B. Medium-Term Challenge 1: Creating Fiscal Space

Accelerating Reforms to Broaden the Tax Base and Enhance the Efficiency of Public Spending

Revenue Mobilization

18. The authorities and staff concurred that sustained revenue mobilization is key to financing priority spending while preserving fiscal sustainability. The emphasis placed by the authorities on efforts to increase revenue mobilization in the context of their ECF supported program has served them well, with ambitious programmed revenue targets having often been met with significant margins. Over 2012–16, tax revenues have increased on average by 0.8 percentage points of GDP in Mali, 0.5 percent of GDP above the WAEMU average. This performance is the result of the authorities’ efforts, with IMF technical assistance support, to implement tax policy measures, including increasing tax rates, tax base expansion, and improvements of tax payers’ compliance, through stronger tax and customs administrations. Tax revenue increased to an estimated 15.2 percent of GDP in 2017 (from 11.9 percent of GDP in 2012). Staff analysis shows that Mali could improve the collection at the borders revenue collection further by 1½–2 percentage points of GDP. This can be achieved through a combination of tax policy and customs administration reforms (Text Figure 4).4 The authorities agreed with staff’s conclusions on the potential impact of modernizing the tax and customs administrations and improving their efficiency to sustain recent gains and move closer to meet the revenue target set at 20 percent of GDP by the WAEMU Convergence Pact (MEFP, ¶¶16-21) (Selected Issues Paper on tax potential). To meet their revenue targets, the authorities will continue to implement tax base broadening measures, a gradual reduction of exemptions and step up revenue collection. They intend to accelerate the reform of the system of incentives for the tax and customs inspectors in the context of a comprehensive strategy for improving human resource management (MEFP, ¶30). Skill-based modernization of human resources has been an important pillar of modernization efforts in the Directorate of Customs.

Text Figure 4.
Text Figure 4.

Mali: Customs Revenue: Actual vs. Potential,

(percent of GDP)

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Sources: Authorities; and IMF staff calculations and estimations.

19. The authorities and staff concurred on the need to improve the management of the mining sector in order to harness its sizable potential, while closing loopholes to shore up corporate income tax proceeds from multinational companies. Malian mining legislation and international corporate tax system are hampered by the coexistence of several parallel mining codes, and an investment code alongside the general tax code which weakens the overall tax balance (Boxes 3 and 4). The authorities are in the process of updating the mining code with a view to reconciling a desire to attract international investors and a sufficient taxation of the mining rent (MEFP, ¶23). The objective is to strengthen the Malian international taxation framework and align it closer with international standards. In 2016, Mali enacted transfer pricing regulation to strengthen the application of the arm’s length principle and to implement a transfer pricing documentation requirement.5 Going forward, staff encourages the authorities to pursue their efforts to strengthen their transfer pricing legislation through the implementation of efficient thin-capitalization rules, to maintain the effectiveness of its withholding tax system through adequate international tax treaties and to mitigate the risks of potential abuses to special tax regimes.6 In order to effectively implement its transfer pricing legislation, Mali should continue its efforts to develop solid capabilities including training dedicated specialists and creating operational tools adapted to its actual challenges. The authorities concurred with staff on the need to identify appropriate policy responses to profit shifting and base erosion. They underscored the importance of capacity building, including through staff training and creating effective operational tools to effectively implement its transfer pricing legislation (MEFP ¶22, Table 4).

Developments in Mineral Taxation1

Reforms in mineral taxation are a priority in the authorities’ program. Mali’s mining sector (mineral) currently represents about 6.5 percent of GDP; 65 percent of total export; and 20 percent of total fiscal revenues. Mali is Africa’s third-largest gold producer after South Africa and Ghana, with reserves estimated in 2017 at some 830 tons. Total output from the ten large-scale gold mines reached 50.9 tons in 2016. With two new projects, the expected mining production could go up to 60 tons of gold by 2018. The country also has small-scale mining activities and small manganese and iron mining operations.

The mining taxation reforms aimed at increasing tax progressiveness and public revenues, while preserving the competitiveness of the sector (Figure 1). The mining codes governing the operations of mining companies are managed by four directorates in three different ministries, fragmenting their administration and enforcement. Three mining codes (MCs) coexist in Mali, the 1991, 1999 and 2012 ones, and define the sector-specific taxes, duties, levies and royalties and include fiscal stability provisions. Compared to the 1991 MC, the 1999 and 2012 codes tried to develop a more effective taxation of multinational business income. The main changes introduced by the 1999 and 2012 MCs relate to: (i) introduction of a 10 percent free equity participation, (ii) elimination of the five years CIT exemption applicable after the production start, (iii) elimination of the 45 percent CIT tax rate and application of the 30 percent General Tax Code rate, and introduction of a 25 percent reduced CIT rate for the first 15 years of production in the 2012 code, (iv) increase in transparency by online publishing tax agreements and feasibility studies of companies holding mining rights, and (v) introduction of a 10 percent capital gains tax from the direct transfer of mining rights. In addition, a company can only opt to a more favorable tax regime if it adopts the regime in its entirety. The 2012 MC made additional changes, including: (i) the introduction of a tax on “excess production” by applying a general CIT rate to production exceeding projected output by more than 10 percent; (ii) narrowing the stability clause scope by excluding duties, levies and mining royalties; and (iii) redefining the ring-fencing provisions suggesting that one company could acquire several permits.

A01ufig2

Mali: Progressivity of the Mining Fiscal Regimes

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Source: IMF (2015); Mali: Mining and Petroleum Taxation (Diagnostics Assessment).

However, changes have been constrained by stability clauses, Seven out of the ten mining companies still operate under the 1991 mining code due to lengthy fiscal stability clauses. The fiscal stability clauses–freezing the tax regime at the time when the exploration permit is obtained – seem to be particularly generous. First, the stability clauses are 30 years long, while the productive life of mines are much shorter (about 10 to 15 years). Second, the 1991 stability clauses are asymmetrical as companies could freely opt for more favorable tax provisions to reduce the tax burden. Third, the payback period seems to be short, generally less than five years. Finally, the long stability clauses lead to co-existence of several tax regimes for the same activity and “special” negotiated agreements for extensions.

Internationally, the attractiveness of Mali’s tax regime, as it applies to mining, is mixed. Based on the average effective tax rates, Mali’s 2012 tax regime provides for a smaller share of mining rent going to government in Mali than in similar countries in the region. However, the tax regime turns to be more regressive than in comparable countries, meaning that the share of mining rent going to the Malian government is relatively larger for less profitable projects.

Looking ahead, the government has engaged in a new review of the mining code with the desire to attract the international investors needed to maximize mineral resource rent and sufficient taxation of that rent. This reform should involve: (i) establishing a ring-fencing principle, (ii) streamlining the institutional organization of various mandatory levies, (iii) reducing the duration of stability clauses, and (iv) improving the progressivity of the mining taxation regime.

Text Figure 5.
Text Figure 5.

Mali: Mining Taxation

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

For more information see IMF (2015); Mali: Mining and Petroleum Taxation (Diagnostics Assessment).
Expenditure Efficiency

20. Enhancing the efficiency of public spending could further increase the “effective” fiscal space and support growth:

  • A more efficient delivery of public services could yield better outcomes and would also provide for contingency in case the assumptions underpinning the existing fiscal space calculations do not materialize or if financing conditions change and external support doesn’t materialize. While the overall level of public expenditure to GDP in Mali remains below the SSA average, spending has risen rapidly over the past decade. However, expenditure is generally less efficient than in peer countries. Health and education expenditures in percent of GDP are in line with SSA averages but indicators in terms of outcomes are much lower, highlighting the scope for efficiency gains. Similarly, while public investment levels have recovered since the 2012 dip, the quality of infrastructure remains below peer countries (Figure 1).

International Taxation

Aggressive tax optimization practices of multinational companies (MNE), including transfer pricing, pose a risk to the Malian fiscal revenues. In 2015, the corporate income tax (CIT) reached 2.4 percent of the country’s GDP, with MNEs representing more than 80 percent of CIT revenues.1 International tax optimization practices additionally impact taxes on income from securities (IRVM) on interests and dividends as well as withholding taxes. While the mining and telecommunication sectors are traditionally the most important for the Malian economy, the growth of other industries such as the financial services, the oil and the building sectors creates additional risks of CIT avoidance.

Mali is vulnerable to international tax optimization, including transfer pricing. In 2015, 60 percent of FDI flows in Mali may be estimated as transiting through low-tax offshore jurisdictions.2 In addition, 29.5 percent of Malian MNEs accounted negative taxable results in 2016 against 16 percent of all companies under the normal CIT regime, which tends to indicate CIT optimization schemes.3

Mali has recently enacted transfer pricing regulations to strengthen the applicability of the arm’s length principle and to implement a transfer pricing documentation requirement. 4 In addition, the Malian international tax legislation includes withholding taxes on service fees, interests and dividends paid to overseas persons, which limits the incentive for MNEs to overprice these transactions. The limited network of international tax treaties generally maintains the applicability of these withholding taxes.

Mali’s Exposure to Thin Capitalization Risk

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Source: CDIS, and IMF staff calculations.

Nevertheless, Mali’s international corporate tax system suffers from the coexistence of several mining codes (see box on mining taxation in Mali) and of an investment code alongside the general tax code, which weakens the overall balance of the CIT legislation. Tax incentives create loopholes which may be utilized by major CIT taxpayers to artificially reduce their CIT paid in Mali. In addition, Mali has not yet enacted an effective thin-capitalization4 regime despite the weight of the capital-intensive sectors such as mining and telecommunications.

1 Excluding the two simplified tax regimes (“impôt synthétique” and “régime de l’impôt réel simplifié”) for companies with a turnover below FCFA 50 million. 2 In 2015, the coordinated direct investment survey (“CDIS”) displayed investments of $454 million from Barbados and $1,380 million from the United Kingdom. Since the United Kingdom does not report any investment in Mali in the CDIS, these investments may be attributed to the British Overseas Territories and Crown Dependencies. 3 Sources: Direction Générales des impôts du Mali; and IMF staff calculations. 4 Thin capitalization refers to a tax optimization practice consisting in pushing down to an affiliate a high level of debt compared to equity, so that the indebted company may deduct from its taxable basis more interests than a normally leveraged company.
  • Mali’s infrastructure gap is large and constrains trade and growth. Mali lags SSA and other developing regions in virtually all dimensions of infrastructure performance (Text Figure 6). The government, with external support from donors, has increased capital spending notably in recent years. However, addressing Mali’s public infrastructure needs will require sustained spending. The regulatory frameworks for procurement in public-private partnerships has been introduced in 2016 and has yet to demonstrate its ability to attract private investment for infrastructure projects. The impact of public investment on growth can be enhanced by implementing policies that foster the efficiency of public investment.

  • The June 2017 Fund mission on public investment management assessment (PIMA) assessed that the efficiency of public investment is comparatively low in Mali (Text Figure 7). The Public Investment Efficiency Index attributes Mali a rating of 0.57 on a scale of 0 to 1, below the average of sub-Saharan African countries (0.64) and emerging countries (0.73) - illustrating how far Mali is away from the efficiency frontier (Box 5). The efficiency gap reflects gaps in governance, ineffective oversight of infrastructure suppliers, inadequate processes for appraisal and selection of projects, poor cash management, and lack of maintenance for fixed assets (Selected Issues Paper on the PIMA Report). Staff encouraged the authorities to implement the recommendations of the PIMA mission, which call for improving administrative practices to produce more sustainable infrastructure, of better quality. Notably, an evaluation of all major projects prior to their submission for selection (including through a cost-benefit analysis) would help improve public financial management and public investment management systems. (MEFP Table 4)

Text Figure 6.
Text Figure 6.

Mali: Selected Quality Indicators of Infrastructure, 20161

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Sources: World Economic Forum, Global Competitiveness Index; and IMF staff estimates.1 1–7(best).
Text Figure 7.
Text Figure 7.

Mali: Indicators of Efficiency of Public Investment

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Source: IMF Staff calculations
Authorities’ Views

21. The authorities are committed to improving the efficiency of public investment. They concurred with the findings and recommendations of the PIMA and have committed to implement an action plan to: (i) raise public investment managers’ accountability and stewardship; (ii) strengthen the social-economic impact of investment spending; and (iii) accrue and maintain existing infrastructure in the long term. The authorities aim to reduce the efficiency gap identified in mission’s report by reducing expenditures that do not directly contribute to fixed capital formation and improve improving project performance (MEFP, ¶38). These measures will build on the authorities’ efforts to implement program based budgets and results-based management, in accordance with WAEMU harmonized public finance framework.

The Efficiency of Public Investment

The Malian authorities have long sought to boost public investment in a bid to foster development. In the aftermath of the Algiers peace agreements, public investment has become a forefront objective to rebuild war-damaged infrastructures and reduce infrastructure gaps. To support the authorities’ efforts, an IMF TA mission undertook in June 2017 an assessment of Public Investment Management (PIM). The PIMA report, which was published in April 2018, assesses the efficiency of public investment and provides a number of recommendations to guide future work to enhance it.

Mali’s public investment management (PIM) presents a wide efficiency gap relative to peer comparators, although its framework appears strong. In 2015, despite years of strong, albeit volatile capital spending, Mali had one of the lowest capital stocks per capita ratio in the sub region. The quality of, and access to infrastructure was noticeably poor for health infrastructure (Text figure 4). Staff analysis show that in Mali, the framework for PIM is paradoxically strong (see figure below) compared with peer countries. However, this PIM system fails to deliver durable and quality fixed capital formation. On average, about 43 percent of the potential value of public investment in Mali is lost to inefficiencies in the investment process. This gap is composed of additional costs related with corruption and fraud, cost overruns, time delays, inadequate maintenance, and suppliers lack of capacity to deliver quality infrastructure. Closing this efficiency gap could substantially increase the economic dividends from public investment.

Looking ahead, there a need to focus on making some critical improvements, while preserving the PIM framework. The most urgent task will be to raise PIM’s efficiency through better implementation, building staff capacity, and a results-oriented culture of management.

A01ufig3
Sources: Mali PIMA 2017, Taiclet and al.

Preserving Debt Sustainability

22. The DSA shows that Mali remains at a moderate risk of debt distress (Annex I). However, domestic public debt increased from about 2 percent of GDP to 11 percent of GDP between 2009 and 2016 (Text Figure 8). The rapid growth in domestic debt has narrowed the country’s borrowing space. Given the authorities’ commitment to adhere to the WAEMU targets, the medium-term fiscal consolidation path, anchored in generating a primary fiscal balance to stabilize the debt-to-GDP ratio below 50 percent in PV terms should support efforts to preserve long-term debt sustainability. The government’s increased reliance on the regional market financing of the deficit has increased the present value of public debt to 26.5 percent of GDP 2017, from 23.5 percent of GDP in the June 2017 DSA (Country report EBS/17/209). While recognizing the need for domestic borrowing to offset the shortfall in external financing in 2018, staff stressed that the higher recourse to domestic borrowing must remain a short-lived strategy. Staff also advised against bond issuance by syndication as their cost is significantly higher than bond issuance by tender and they could undermine the regional agency UEMOA-Titres. It encouraged the authorities to step up efforts to secure more concessional external borrowing and strengthen debt management.

Text Figure 8.
Text Figure 8.

Mali: Total Public Sector Debt 2010—18

(in percent of GDP)

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Sources: Malian authorities; and IMF staff estimates and projections.
Authorities’ Views

23. The authorities agreed with the staff assessment and the need for further strengthening of debt management. They agreed that the rising share of domestic debt, which includes regional borrowing with shorter maturities, will increase the cost of debt and weigh on public finances in subsequent years. To reduce such impact, they intend to step up efforts to secure more concessional external borrowing and strengthen debt management, including by favoring bond issuance by tender (MEFP, ¶58). Given the roll-over risks associated with the domestic debt, they will seek longer maturity obligations when tapping the regional financial market, consistent with Fund TA missions’ recommendations. At the same time, they noted that they expanded the investors base by issuing a Sukuk in March 2018 for CFAF 150 billion that attracted investors from outside the WAEMU. The authorities are also taking steps to expedite the implementation of the single treasury account, improve the quality of cash flow management, and match short-term debt instruments with liquidity needs as recommended by Fund TA (MEFP, ¶¶41-44).

C. Medium-Term Challenge 2: Promoting Sustainable Growth and Competitiveness

24. Reducing the infrastructure gap is key to sustaining growth and reducing poverty. Promoting inclusive and sustainable growth is a key pillar of the government’s development framework.7 However, achieving strong economic growth and reducing poverty hinges on tackling critical social and infrastructure gaps. The existing capacity in roads, agricultural development, education, and health is insufficient. Access to electricity is low and its cost is high. Insufficient investment and modernization have led to high energy costs, which in turn increase the cost of doing business and reduce the attractivity of the country for the investors (Text Figure 9). The Malian public electricity company (EDM) is poorly managed and its performance indicators have deteriorated in recent years. To bridge the gap between its cost and revenues, EDM relies on government subsidies, which are poorly targeted and benefit mainly the wealthiest living in urban centers served by EDM (Box 6). The projected increase in oil prices is likely to widen the gap, requiring higher subsidies and weigh on the state budget. Progress has been slow in implementing reforms recommended by the World Bank. Staff urged the authorities to expedite the electricity sector reform (Box 6), following the World Bank advice, to increase the efficiency of EDM and ensure more reliable provision of electricity to businesses and households (MEFP, ¶65).

Text Figure 9.
Text Figure 9.

Mali: Access to Electricity

(in percent of population)

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Sources: World Bank, Sustainable Energy for All database; World Energy Council; and IMF staff estimates.

25. Further measures to improve the business environment are needed to provide a favorable environment for strong private sector investment and contribution to growth. Mali’s external sustainability assessment indicates that the exchange rate is broadly in line with fundamentals, but structural competitiveness problems remain, underscoring the need for improving the business environment (Box 2, Text Figure 10). At the current juncture, the security situation is likely to weaken the current business environment. Access to financing and corruption are among the most problematic factors perceived by market participants. Staff encouraged the authorities to improve competitiveness by removing structural bottlenecks, including by improving the business climate and developing human capital and improving the efficiency of public investment.

26. Economic diversification is essential to enhance the inclusiveness of growth. However, Mali’s output structure has changed little over time and the country remains highly dependent on cotton and gold for exports, which leaves it exposed to fluctuations in international commodity prices and to local weather events.

  • There has been only modest change in Mali’s output structure over time (Text Figure 10). In 2016, the agricultural and service sectors (including public services) each accounted for around 35 percent of economic activity, with the mining and manufacturing and construction sectors accounting for 8, 7, and 4 percent, respectively. The main changes in Mali’s output structure since 1980 have been the emergence of the gold mining and telecommunications sectors and the modest declines in the shares of the agricultural and manufacturing sectors. The construction sector has also doubled its share of output over this period.

  • With exception of some improvement since the mid-2000s, export diversification has stagnated, and export quality has been generally stable (Figure 4). In 2016, cotton and gold represented 80 percent of exports. Mali’s export diversification indices have remained relatively low throughout the past five decades and are still lower than many other LICs, primary commodity producers, the SSA or the WAEMU averages. The export complexity (Text Figure 11), an index that measure the sophistication of a country’s exported products, shows that Mali exports few products and that the exported products are not very sophisticated.

Text Figure 10.
Text Figure 10.

Mali: Output Structure

(percent of output)

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Sources: UN National Accounts
Text Figure 11.
Text Figure 11.

Mali: Diversification Trends

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Authorities’ Views

27. The authorities agreed with the need to improve competitiveness and boost growth by removing structural bottlenecks. In this regard, they will undertake actions to further improve the business climate and develop human capital that could ease production constraints and support investment. To improve the investment framework and increase the attractiveness of FDI, the authorities have also enacted a PPP law in 2016 and created a PPP unit, with the technical and financial support from the World Bank.

The Electricity Sector

The energy sector in Mali is inefficient and structurally unbalanced, which limits its ability to effectively support the development of a fast-growing country such as Mali. The performance indicators of the public utility company, EDM, have fallen sharply in recent years. While its average cost of production has risen sharply during 2009–15, the average tariff remained broadly unchanged during the same period. This creates a significant financial imbalance in the sector, which discourages private sector participation and forces the Malian Government to make large budget transfers to subsidize the sector. These transfers are likely to increase with the projected increase in oil prices, further straining public resources.

The deteriorating financial situation of EDM is most attributable to a widening gap between available supply and growing demand. The demand for power from domestic users and large industrial complexes-notably in the mining sector, has increased by close to 15 percent per year over the 2010–16 period. Over the same period, electricity deliveries increased by an average 10 percent per year and the number of customers also increased by an average 11 percent per year to 459,000. Following this trend, EDM’s turnover is projected to double over the next five years, from 1.8 to 2.5 percent of GDP. Consequently, electricity production and investment costs are high and on an upward trend. Due to regulated prices, technical losses and poor payment discipline, EDM revenue cannot offset the rapidly rising expenses. In 2016, the cost of producing power averaged FCFA 110,6 per kilowatt-hour, reflecting an energy mix skewed in favor of more expensive thermal production (60 percent of total production), compared with regulated retail prices averaging FCFA 98 per kilowatt hour. This price gap between production costs and retail prices per kw/h is rapidly widening at the same pace as EDM operating losses. Technical and non-technical losses (mostly due to deteriorating and overloaded electricity grids and poor payment discipline) have further weakened EDM’s revenue. In the absence of recapitalization, continued losses have depleted EDM’s shareholder equity1 while the enterprise was reaching out to creditors to replenish its cash supply. Consequently, EDM’s nominal debt burden more than doubled over 2013–17. The equity/debt ratio has plummeted over the same period.

EDM losses impose an overwhelming burden on government finance and debt. The Government has constantly assisted the company to weather its losses, sustain investment and purchase combustible with a combination of transfers and tax exemptions. This long-standing policy of keeping nominal tariffs below cost burdens the government budget. Over 2015–17, budget transfers and tax expenditure to close EDM treasury shortfalls averaged CFAF 65 billion (about 43 percent of total electricity sales in Mali).

The implementation of the strategy developed in 2014 holds promise to improve the situation. In 2014, a task force, composed of the Ministry of Finance, the Ministry of Energy and Water, the regulatory agency and EDM, proposed a timetable, starting in 2014, for gradually aligning the tariff with the cost by 2018. The strategy also entailed cost-cutting measures, priority investments in hydroelectric power and solar energy, links to neighboring country electricity grids, and tariff adjustment averaging 3 percent annually. This strategy is yet to be implemented, starting with tariff adjustments on wealthier segments of consumers, differentiated during peak consumption hours to smoothen electricity consumption and reduce production costs for peak hours.

1 Shareholders’ equity measures the robustness of the company’s balance (assets-liabilities). The equity/debt ratio is often used as a measurement of a company’s ability to sustain its debt.

D. Medium-Term Challenge 3: Strengthening Financial Sector Development and its Contribution to Growth

28. Despite improvements in recent years, financial intermediation remains weak and access to financial services limited, undermining their potential contribution to economic growth and poverty reduction.

  • Asset quality appears to be relatively weak (Text Figure 12). Gross nonperforming loans (NPL) and provisions to gross nonperforming loans stood at 17.3 percent and 57 percent respectively in June 2017. However, these ratios include a large volume of old claims that should no longer be included in banks’ balance sheets.8 Nonetheless, even without these old claims, it is estimated that NPLs would be about 12 percent and the coverage ratio would be about 60 percent. In addition, the high concentration of credits, whether sound or impaired, could lead to a high volatility in the NPL ratios as the largest banks typically have the same large borrowers. Moreover, banks continue to hold large amount of non-operating real estate assets acquired through the call-in of guarantees. High uncertainties about their valuation remain a source of risk. Staff encouraged the authorities to develop the overall strategy drawing on the recommendation of the 2017 IMF technical assistance mission to reduce NPLs and improve asset quality. In particular, staff stressed the importance of using a specialized entity to process non-operating fixed assets, including a review of their quality, and streamlining processes in the legal framework.

  • Short-term credits largely dominate credits to the private sector. Short-term credits to the private sector account for about 75 percent of total credits, above the WAEMU average.9 Sectoral shares in short-term credit remain stable overtime, reflecting to some extent credit rollover over a long period.10 The uncertainty related to the availability of rollover credits increases risk and is a disincentive for long-term investments. Liquidity risk tied to long-term projects, difficulties in enforcing contracts, information asymmetry, and macroeconomic and political instability are major factors that make banks reluctant to provide firms with long-term credit. Staff encouraged the authorities to strengthen the new credit information bureau (BIC) to promote credits to the private sector.

  • The level of financial inclusion in Mali is low relative to Sub-Saharan Africa and low-income countries (Text figure 13). The number of microfinance institutions (MFIs) has been growing rapidly in recent years (about 3 percent of total assets of the financial system), but their role as key players in providing financial services to the lower-income segment of the population, particularly in rural areas, has been compromised by fallouts from the financial distress of two large MFIs in 2009. Staff urged the authorities to expedite the implementation of the national emergency plan adopted in March 2015, including further enhancing the regulatory framework for MFIs, building their capacity, and securing stable resources for them. This would help better manage risks through efficient credit assessment and stronger recovery mechanism. This would also improve confidence in basic financial services among low-income households, which in turn would improve financial inclusion. Mobile banking is picking up and commercial banks are in the process of extending their financial services. Staff encouraged the authorities to play a bigger role in the development of mobile banking, notably by consuming some of the basic mobile financial services (wage payment and other transfers to and from SMEs), which in turn could foster higher financial inclusion.

Authorities’ Views

29. The authorities agreed to take actions to improve financial deepening and asset quality. They continue to strengthen the financial regulatory framework by supporting the development and full operation of the credit bureau set up in May 2015 (MEFP, ¶63). The authorities further considered that the Banking Commission’s new bank resolution powers will permit addressing effectively the situation of ailing banks. They are in the process of developing a strategy to address NPLs (MEFP, ¶64). They also agreed on the need to enhance the regulatory framework for MFIs, build their capacity, and secure stable resources as defined in the action plan adopted in June 2016. They have also agreed to expedite liquidation of failing MFIs.

Text Figure 12.
Text Figure 12.

Mali: Asset Composition

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Source: BCEAO
Text Figure 13.
Text Figure 13.

Mali: Financial Inclusion

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Sources: World Bank, FinStats database.

E. Medium-Term Challenge 4: Enhancing Economic Governance and Fighting Corruption

30. Governance and control of corruption remain challenging in Mali. According to the Worldwide Governance Indicators, most Mali’s governance indicators have been on a declining trend in recent years (Text Figure 14). Mali’s perceived public corruption score, as evaluated by Malian citizens is 32 out of 100 (with zero being the worst possible score).11 There is also a strong perception that the justice system is corrupt, with laws and contracts enforced arbitrarily. Serious lapses in public financial management caused a delay in the ECF-supported program first review set for mid-2014. This has placed corruption at the center of public debate and the fight against corruption has been articulated as a key political objective.

Text Figure 14.
Text Figure 14.

Mali: Worldwide Governance Indicators

(Score −2.5 to 2.5)1/

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Source: Worldwide Governance Indicators 2017.1/ Score (ranges from −2.5-weak to 2.5-strong governance performance).

31. The authorities are working to strengthen the legal and institutional framework for governance, but implementation is slow. Laws to fight corruption and illicit enrichment were passed in 2013 and 2014, but without a noticeable increase in indictments or convictions. In its reports, the Office of the Auditor General (AG), an independent agency tasked to audit public spending, has uncovered several large cases of corruption, most of which have not resulted in prosecutions. The implementation of the 2014 law against illicit enrichment stalled in late 2017 amidst disagreement with civil servant unions about the scope of asset declarations by government officials to the Supreme Court and the role of the newly created anti-corruption office. However, the Malian authorities succeeded in brokering a consensus among stakeholders to move this key governance reform forward and asset declaration resumed. Concerning the integrity of public financial management, the authorities, with Fund TA support, are bolstering transparency and controls in budgeting and procurement, as indicated in program benchmarks and commitments. Staff urged the authorities to expedite transmittal to the Supreme Court of declaration of assets by government officials subject to such requirement, while ensuring that the Central Office against Corruption starts monitoring the declaration process and analyzing declarations as they are received. Staff also encouraged the authorities to further strengthen the framework for combating corruption, improve transparency, and proceed with a coherent implementation of the legislative and regulatory framework for AML/CFT.

Authorities’ Views

32. The authorities reiterated their unwavering determination to fight corruption and improve governance. They intend to expedite the implementation of the law against corruption and illicit enrichment, including the transmittal of asset declarations of senior government officials to the Supreme Court (MEFP, ¶¶11, 52-54). They agreed with key stakeholders that the law will be fully applied to the most senior officials who are explicitly mentioned therein. They reached 20 percent of declaration rate for those explicitly named by the law (some 1,479 civil servants) at end-February 2018. They are aiming to reach 35 percent by June 30, 2018 and 50 percent at end-October 2018. They will take appropriate administrative measures to ensure full compliance. The multi-stakeholders panel is also working on the more comprehensive list of those subject to asset declaration, which is expected to be finalized by end-August, 2018. The authorities are committed to sanctioning corrupt public officials and implementing the recommendations of the AG (MEFP, ¶55). The General Control of Public Services will publish the last available report on the implementation of the recommendations on the Government website before June 30, 2018. This report will be updated each year. The authorities will further strengthen the framework for combating corruption, improve transparency, and implement of the legislative and regulatory framework for AML/CFT (MEFP, ¶55).

Program Issues

33. Structural conditionality for 2018 continues to focus on the need to further increase tax revenue, improve the efficiency of spending, and strengthen governance. With this objective, the program includes several measures to strengthen tax and customs administration, supported by technical assistance from the Fund, as well as to progressively reduce tax exemptions (MEFP, ¶11 and Table 4). The program also incorporates measures to strengthen public procurement, budget practices and process, and transparency (MEFP, ¶¶ 25, 31-32, 37–39).

34. There are risks to the program, but the capacity to repay the Fund is adequate. In addition to the risks to the outlook described in paragraph 10, the program’s key risks are: (i) tighter liquidity conditions could reduce bank financing to the government; (ii) the implementation of the new pricing mechanism for fuel products could stall, negatively affecting tax revenue; (iii) there could be resistance to the implementation of plans to reduce tax exemptions, which could also hurt revenue; (iv) fiscal decentralization poses a risk, although the gradual approach being pursued by the authorities and the adoption of other safeguards will help to limit it; and (v) political support for economic adjustment and reform could wane as the 2018 presidential elections approach. The authorities, however, see scope to increase tax collection by improving revenue administration to broaden the tax base and reduce evasion, reducing tax exemptions, as well as firmly implementing new pricing mechanism for fuel products. They are also prepared to lower non-priority spending in the event of revenue shortfalls, or in case there is a need to accommodate higher security. The capacity to repay the Fund is assessed to be adequate (Table 11). The program is fully financed, with financing needs for 2018 expected to be met by a combination of external borrowing, donor support and Fund financing.

35. Safeguards assessments: An updated safeguards assessment of the BCEAO, completed in April 2018, found that the central bank has maintained a strong control environment since the last assessment in 2013 and its governance arrangements are broadly appropriate. In addition, audit arrangements have been strengthened, International Financial Reporting Standards (IFRS) were adopted as the accounting framework beginning with the 2015 financial statements, and a 2016 external quality review of the internal audit function found broad conformity with international standards. The BCEAO’s risk management framework established in 2014 is also progressing well with implementation of its work across the bank.

Other Issues

36. Exchange regime. Mali, a member of the WAEMU, accepted the obligations under Article VIII, Sections 2, 3 and 4 of the Fund’s Articles of Agreement as of June 1, 1996, and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions. The WAEMU’s exchange regime is a conventional peg to the euro.

37. The authorities and staff concurred on the need to build capacity for a successful implementation of Mali’s economic program. The authorities noted that the technical assistance delivery in 2017 and their priorities for 2018 are consistent with those identified in the capacity development framework pilot project, in which they have been participating since 2017 (Annex I). Within this framework, the overarching policy priorities looking forward remain: (i) conduct prudent macroeconomic policies and maintaining fiscal discipline so as to preserve debt sustainability and avoid accumulation of payments arrears; (ii) increase domestic revenue by enlarging the tax base to meet growing demand for public goods and services, accommodate growing needs for security and peace consolidation, and over time substitute for declining donor support; improving the efficiency of public spending; (iii) enhance public financial management; (iv) address weaknesses in the banking sector to reduce risks to financial stability; and (v) address data weaknesses and gaps, especially in the areas of real sector and short term economic indicators.

Staff Appraisal

38. The economy has recovered from the 2012 contraction, and the outlook is broadly favorable. This recovery was aided by the authorities’ substantial strides in restoring macroeconomic stability and structural reforms set in motion during the ongoing ECF-supported program. Keeping the reform momentum will be critical to maintaining robust growth rates.

39. However, the strong macroeconomic performance did not significantly reduce poverty and inequality. The authorities’ commendable efforts in increasing the amount of pro-poor spending should be supplemented by more emphasis on the effectiveness of these outlays. The ongoing decentralization of resources and powers to local governments and the strengthening of budget management at the local government level will help improve the execution of poverty-related spending. The authorities’ ongoing efforts to address large infrastructure and skills gaps, enhance the efficiency of spending, foster economic diversification and private sector development, and improve governance and transparency need to be pushed on for greater inclusiveness.

40. The 2018 budget is in line with program objectives and the WAEMU-wide targets while including adequate security and election-related spending during a challenging electoral year. The fiscal projections provide adequately for priority spending, including security, election and decentralization, and are underpinned by realistic revenue increase from reducing exemptions and improving tax administration. Nevertheless, the authorities will need to remain vigilant to execute the budget as planned and resist temptation to relax the fiscal stance due to the electoral context.

41. With limited fiscal space and a favorable growth outlook, fiscal policy efforts over the medium term should continue to focus on consolidation. The authorities’ commitment to reaching the WAEMU convergence criteria while adequately providing for security and decentralization related spending is welcome. This will also help them address debt-related vulnerabilities and reduce pressures on the current account deficit.

42. Creating fiscal space hinges on fostering revenue mobilization and strengthening the efficiency of public spending. Despite recent improvements, Mali’s tax-to-GDP ratio remains well below the 20 percent WAEMU target, highlighting the existing potential for mobilizing additional tax revenues by broadening the tax base, a more efficient taxation of the mining sector and strengthening tax administration. At the same time, containing tax expenditures and improving the efficiency of public investment spending would also free resources to support growth and social spending.

43. Recently adopted transfer pricing regulation could be further strengthened. Malian protection against aggressive transfer pricing practices could benefit from implementing clear and easy-to-apply methods. The authorities are encouraged to issue administrative guidelines and develop relevant tax administration capacities over the medium-term.

44. Financial sector reforms are needed to further strengthen the sector’s resilience and enhance its contribution to growth. While the recent improvement in some financial soundness indicators is welcome, risks stemming from the concentration of bank credits on a few borrowers and economic activities need to be addressed. It is also important to implement an overall strategy to reduce the high NPL ratio and preempt issues related to real estate assets in banks’ balance sheets. The authorities are encouraged to foster financial inclusion, including by expediting the implementation of their comprehensive plan to consolidate microfinance institutions and reform the microfinance sector, and supporting the development of a nascent mobile banking sector.

45. Further improvement to the business environment is key to attracting FDI, boosting structural competitiveness and promoting the private sector. While Mali has made progress in improving its business environment, efforts should continue to remove remaining barriers, including corruption, insufficient power supply and poor transport infrastructure, limited access to costly credit, and shortage of skilled labor. The external sector assessment, while indicating that Mali’s external position is broadly in line with fundamentals, corroborates the need to boost structural competitiveness and to improve export diversification.

46. Staff welcomes the authorities’ continued efforts to improve governance and stresses the need to strengthen implementation and enforcement going forward. The authorities have taken important steps to strengthen the legal and institutional framework to fight corruption. The asset declaration by government officials is a critical tool in improving transparency and accountability of the public sector. This measure should be supported by strong enforcement and continue to follow the implementation schedule as agreed under the program. Consolidating improvements in the PFM system’s integrity and transparency are also important to the authorities’ efforts.

47. The Malian economy faces risks. Political tensions in the context of the 2018 national elections and fragile security conditions, coupled with an uncertain external environment pose important downside risks. In addition, Mali is vulnerable to adverse weather conditions and international commodity price shocks, owing to the economy’s high dependence on agriculture and cotton and gold as the two main export products. In responding to the contingencies that could emanate from these risks, the authorities are encouraged to reallocate budgetary resources while safeguarding priority social spending. Strong policy commitments under the program will be needed to safeguard macroeconomic stability during this period.

48. Based on Mali’s performance under the program and the authorities’ recent efforts to move forward with structural reforms, staff supports the authorities’ request for completion of the eighth and ninth reviews of the program supported by the ECF supported program. The attached Letter of Intent and Memorandum of Economic and Financial Policies set out appropriate policies to pursue the program’s objectives. The capacity to repay the Fund is adequate, and risks to program implementation are manageable.

49. Staff recommends that the next Article IV consultation for Mali be held on the 24-month cycle.

Figure 5.
Figure 5.

Mali: Growth Performance

Citation: IMF Staff Country Reports 2018, 141; 10.5089/9781484358993.002.A001

Table 1.

Mali: Selected Economic and Financial Indicators, 2013–23

article image
Sources: Ministry of Finance; and IMF staff estimates and projections.

IMF Country Report No. 17/209, Mali: Seventh Review Under the Extended Credit Facility Arrangement.

Total revenue, plus general budgetary grants, plus revenue from HIPC debt relief, minus total expenditure and net lending excluding foreign-financed capital spending.

Includes BCEAO statutory advances, government bonds, treasury bills, and other debts.

Table 2.

Mali: National Accounts, 2012–17

article image
Sources: Malian authorities; and IMF staff estimates and projections.
Table 3.

Mali: Consolidated Fiscal Transactions of the Government, 2013–23

(Billions of CFA francs)

article image
Sources: Ministry of Finance; and IMF staff estimates and projections.

IMF Country Report No. 17/209, Mali: Seventh Review Under the Extended Credit Facility Arrangement.

Adjustment to account for the difference between the definitions of the government in the fiscal table and the monetary situation.

Total revenue, plus general budgetary grants, plus revenue from HIPC debt relief, minus total expenditure and net lending excluding externally financed capital spending.