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
We would like to express our appreciation for the Fund’s continued support to the Malian authorities’ efforts to safeguard macroeconomic stability and foster sustainable and inclusive growth. The authorities value the constructive dialogue held with staff during the 2018 Article IV consultation and the eighth and ninth reviews under the Extended Credit Facility (ECF).
The policy discussions focused notably on ways to increase available fiscal space, foster inclusive growth, and promote financial sector development. The authorities broadly concur with staff on policies needed to consolidate fiscal sustainability, achieve strong and inclusive growth, and make progress toward meeting the sustainable development goals (SDGs). Reflecting their strong commitment to program objectives, they have endeavored to make inroads in implementing these policies, notwithstanding a challenging domestic and regional environment.
In this light, the staff report and the Selected Issues paper appropriately highlight issues related to the country’s fragility and security challenges. Indeed, persistent insecurity in some parts of the country following the 2012 crisis has adversely impacted economic activity and the country’s fiscal position, notably by hindering investment and growth and crowding out priority spending. The authorities are determined to continue their efforts to overcome fragility along with their regional peers and in this process, they look forward to continued support of the country’s partners, including the Fund.
Performance under the ECF-Supported Program
Program implementation under the ECF continues to be broadly satisfactory, despite the difficult socio-political and security conditions. On the quantitative front, all performance criteria and indicative targets at end- June and end-December 2017 were met.
Progress on structural benchmarks was slower than expected during the second half of 2017, partly because of social tensions, including recurrent strikes carried out by trade unions. Still, the authorities managed to advance some reforms, notably the transmission of a sizable number of assets declarations to the Supreme Court. Going forward, the authorities remain committed to promoting good governance and fighting corruption and illicit enrichment.
In particular, the authorities continued to implement fiscal policies with a view to preserving debt sustainability and meeting their commitments under the WAEMU convergence framework. Revenue mobilization was strong in line with the end-June 2017 target, while expenditures were contained below programmed levels. As a result, the overall fiscal deficit is estimated to be about 2.9 percent of GDP in 2017, thus exceeding program expectations. This performance is particularly commendable at a time when military and security spending has consumed an increasing share of public spending as reported by staff.
Medium term outlook and economic and financial policies
Despite tighter financing conditions, real GDP growth for 2018 is projected to remain strong at around 5 percent driven mainly by the agriculture and services sectors. At the same time, the current account deficit is expected to widen to 6.5 percent of GDP amid the deterioration in the terms of trade and the increase in the fiscal deficit. In view of staff’s analysis of the impact of insecurity on the Malian economy, sustained improvement in security conditions will likely be associated with significant payoffs in terms of economic performance and outlook.
Over the medium term, the authorities are mindful that expanding the fiscal space will be critical, particularly in view of increasing resource needs generated notably by the security situation, the implementation of the decentralization process, and infrastructure investments. To this end, the reforms undertaken to enhance revenue mobilization and improve effectiveness of public expenditures will be pursued.
On the revenue side, the analyses carried out during the Article IV consultations showed that while Mali has achieved strong tax revenue collection relative to its peers, there is still significant room for improvement, including through a combination of fiscal policy and administration reforms. In this regard, the authorities intend to accelerate reforms undertaken by the administrations in charge of tax, customs, and State property and land registry with the aim to broaden the tax base, reduce exemptions and better control and verify imports to reduce fraud. Moreover, the authorities will continue their efforts to implement a results-based management framework in the revenue administration and promote tax compliance.
The authorities have also stated their commitment to continue implementing the pricing formula for petroleum products, notably with a view to containing fiscal risks.
The efforts to streamline tax legislation will be pursued with the aim of reducing the administrative burden on taxpayers and simplifying tax collection. In this regard, the authorities will endeavor to clarify the role of concerned stakeholders, reform the law on regional and local development taxes, and expand the tax base. Creating a strong legal framework that is business-friendly, while protecting the tax base remains a priority of the Malian authorities. In this connection, they will continue to develop their capacity to address aggressive tax optimization practices by strengthening the legal framework for transfer pricing and enforcing transfer pricing regulations in compliance with international standards.
On the expenditure side, strengthening the regulatory framework for public financial management has continued to rank high on the authorities’ agenda. In this connection, progress was made in ensuring the transposition of many regional directives and regulations into Malian laws. Furthermore, similar steps were also recently taken with regard to the financial regime of local governments and their entities in charge of collecting taxes.
The authorities will also pursue their efforts to improve the process of preparation, execution and control of the budget. In this regard, they have implemented program budgeting and results based management in the 2018 budget, which will also facilitate the review of the effectiveness of public expenditures. Other areas targeted for improvement include cash management and the implementation of the Single Treasury Account (STA), and strengthening the control of public finances.
Despite noticeable progress in recent years, the Malian authorities see scope for further improving the efficiency of public investments. The Article IV discussions and the recent public investment management assessment (PIMA) show that the efficiency of public expenditures is weak, notably in the health and education sectors. Moreover, while the institutional framework for the management of public investments is strong in comparison to peer countries, per capita stock of fixed capital per capita remains among the weakest in the region as noted by staff. The authorities will strive to improve the socioeconomic impact of projects, consolidate the investment efforts and maintain infrastructure over time.
The authorities will continue to implement structural reforms needed to overcome constraints to private sector development. In this connection, the authorities are mindful that the provision of adequate and reliable electricity is critical for private sector development and economic growth and diversification. In this regard, they will pursue their efforts to reform the electricity sector with the assistance of the World Bank notably to adjust tariffs, reduce operational costs and technical and non-technical losses. This should help reduce the need for subsidies from the Government and put EDM on a sustainable financial footing. In parallel, they will explore ways to further improve the management and financial situation of the electricity company (EDM).
The Article IV consultations highlighted that financial deepening is also a challenge that the authorities must confront. In view of the low ratio of private sector credit to GDP, they are taking steps, in collaboration with regional authorities, to address financial sector vulnerabilities, including by revising the accounting methods for provisioning nonperforming loans and strengthening the new bank resulting from the merger of the Housing Bank (BHM) and the Malian Solidarity Bank (BMS). Improving the effectiveness of the microfinance sector and developing mobile banking are also key priorities in the authorities’ plans to foster financial inclusion. In the process of promoting financial development and inclusion, the authorities will give due consideration to staff’s recommendation, including strengthening the leasing market to bridge the gap experienced by small and medium enterprises (SMEs).
Conclusion
The Malian authorities are determined to fulfil their commitments under the ECF-supported program. They will continue their efforts to implement strong macroeconomic policies, improve public financial management and achieve strong and inclusive growth. In view of Mali’s satisfactory progress under the ECF arrangement, we would appreciate Directors’ support for the completion of the eighth and ninth reviews of the Fund-supported program.