Abstract
First Review Under the Extended Credit Facility Arrangement, Request for a Waiver of Nonobservance of a Performance Criterion and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Mali
Introduction
1. On behalf of the Malian authorities, we would like to thank the Executive Board, Management, and staff for the continued Fund support which has helped Mali in its efforts to maintain macroeconomic stability and advance reforms despite a deteriorating security environment. The authorities are making every effort to implement the measures envisaged under the ECF-supported program and make significant strides in their development agenda. The first review of the program has shown that progress is being made on several fronts, including the revenue performance which was notable in 2019.
2. However, the increase in terrorist attacks claim heavy casualties and take a toll on development and social expenditures. While the authorities remain focused on implementing a sustainable fiscal policy compatible with debt sustainability and the West African Economic and Monetary Union’s (WAEMU) convergence criteria, an increase of the fiscal deficit ceiling for 2020 under the program from 3 percent to 3.5 percent of GDP is needed. This will enable to raise social and development expenditures particularly in the regions of the country where fragility is heightened by insecurity. The authorities’ request is being made in the context of on-going discussions within the WAEMU to adjust the convergence criterion on the fiscal deficit to help address the needs of member countries facing security risks like Mali.
II. Recent economic Developments and outlook
3. Economic growth is projected to reach 5.1 percent in 2019 up from 4.7 percent in 2018 and inflation is expected to be somewhat negative due mainly to domestic supply conditions. Increased budget support from development partners in 2019 helped budget execution. The overall fiscal balance should stand at -2.9 percent of GDP in 2019. The overall balance of payments would remain positive owing to a sharp increase in exports, and the capital and financial accounts.
4. In the medium term, the economic outlook is favorable despite the downside risks related to insecurity, climate change and exogenous shocks. In 2020 real GDP growth is projected at 5 percent and inflation should be kept very low at 0.6 percent.
III. Performance under the ECF program
5. Performance under the ECF-supported program is broadly satisfactory. All performance criteria at end-September 2019 were met except the criterion on the ceiling on domestic arrears. This criterion has been exceeded in the third quarter due to cash flow constraints resulting from the settlement of the very high amount of arrears generated in 2018, and delays in the disbursement of external budgetary loans. Accordingly, the authorities request a waiver for the nonobservance of this criterion.
6. Regarding structural benchmarks, four out of seven have been met. The other three structural benchmarks linked to the next review of the program are expected to be implemented within the timeframe initially established.
IV. Medium term policies and structural reforms
Fiscal Policy
7. Improving efficiency and modernizing procedures in the tax and customs administration remains a priority in the authorities’ reform agenda. The mobilization of tax revenues which stood at 14.6 percent of GDP in 2019 against 11.9 percent of GDP in 2018 was remarkable. Despite this achievement, the authorities are mindful of the need to further increase their efforts in mobilizing domestic resources to finance social and development spending. A comprehensive plan will be implemented to address tax noncompliance which will include controls, crosschecking of information with customs, Treasury and other agencies, and setting up a central management entity for collection activities. The Government also intends to generalize the use of online procedures (e-filing and e-payment) to all companies subject to the VAT. Furthermore, a new customs code taking into account international best practices was submitted to the National Assembly and is expected to be adopted in the first semester of 2020. The interconnection of data systems to manage goods in transit with Senegal customs will be effective at the end of March 2020, followed by Côte d’Ivoire and other countries (Benin, Burkina Faso, Guinea, Niger and Togo). Furthermore, the Government plans to adopt the necessary measures (structural, technical and IT) for a rigorous application of transaction valuation throughout the country as of March 31, 2020 through an action plan developed to this effect.
8. On tax policy, key actions will include preserving fiscal revenue on petroleum products by rigorously implementing the domestic pricing mechanism for petroleum products. The authorities will step up their efforts to broaden the tax base including by instituting a new property tax on developed and undeveloped land by 2021. Moreover, the registration of land and property titles in the database of Information System on Land and Real Estate Titles (SITFI) will be significantly improved. The Government also plans to review certain provisions of the General Tax Code in order to tax the income of non-governmental organizations which provide services or carry out works under the same conditions as for-profit companies. The payment of certain taxes through mobile banking services will be promoted by the end of 2020 and this measure is expected to add many taxpayers from the informal sector to the tax base.
9. The authorities recognize that improving the efficiency of expenditures also contributes to increasing fiscal space for addressing development needs. In this regard, they will continue to improve expenditure management while protecting social and priority spending, including investments envisaged in the 2019 supplementary budget and the 2020 budget. Furthermore, they will improve medium- term transparency and predictability of budget transfers and grants, particularly in the agriculture sector. Furthermore, The Government will continue to strengthen the selection and execution of investment projects, based on the recommendations of the 2017 PIMA, in order to maximize fiscal efficiency, and economic returns. In this regard, it will improve the systematic ex-ante evaluation of projects, ensure regular technical review of project evaluations, and strengthen the legal framework governing Public-Private Partnerships (PPPs) to mitigate fiscal risks.
10. The authorities will continue to improve cash management and control of budget execution. As all payment arrears from 2018 have been cleared, they are committed to control the level of “float” and avoid the recurrence of arrears. The consolidation of the Treasury Single Account (TSA) will be pursued and its coverage will also be expanded to include deposits from 50 national public institutions by the end of 2020, with the remaining institutions being integrated in subsequent years.
V. Financial Sector
11. The authorities are committed to further deepen the financial sector. In this regard, they intend to capitalize on the rapid development of mobile banking to offer administrative services such as the payment of certain taxes. This will promote access to basic banking services for people excluded from the banking system, and change payment systems, especially for small and medium-sized enterprises. To further strengthen financial sector stability, the authorities will support the process of removing non-operating fixed assets from banks’ balance sheets in order to ensure compliance with the prudential norms enforced in the WAEMU.
VI. Structural Reforms and Governance
12. The Government is pursuing the implementation of the restructuring plan of Energie du Mali (EDM-SA) with support from the World Bank. The plan which aims at stabilizing the financial situation of the company by 2025 includes the restructuring and refinancing on more favorable terms of the company’s debt owed to banks. These actions should help the government to gradually eliminate subsidies to EDM-SA in the medium term, with the exception of transfers necessary to maintain the social tariff to preserve the most vulnerable segments of the population.
13. Efforts are also underway to draft a new Investment Code which streamlines tax and customs exemptions, as well as a draft law on special economic zones with the view to make the industrial sector more competitive.
14. The Government is also keen to reduce gender inequalities by promoting increased income and economic empowerment of women, notably in the shea sector. It plans to support the creation and formalization of 400 women’s cooperatives as well as capacity building in cooperative and financial management for 50,000 beneficiaries which should help them to increase their access to finance.
15. The commitment to further foster transparency in public financial management and tackle corruption remains strong. The revision of the Law on illicit enrichment will be stepped up with the view to make it more effective and inclusive. Awareness campaigns will be conducted to ensure greater compliance with rules governing asset declarations. To this effect, a website will be designed to provide information on the procedure of declarations of assets, the number of declarations made, and the sanctions for noncompliance. The authorities look forward to the Governance diagnostic mission of the Fund scheduled in early 2020 and will consider its recommendations for additional policy measures to reinforce governance and fight corruption.
16. On AML/CFT, the finalization of the National Risk Assessment (ENR) is underway and a Peer Review (Mutual Evaluation) of the framework has been done. The final report was st approved by the 21 meeting of the Ministerial Committee of GIABA held in Senegal on November 16, 2019. The development and implementation of the national AML / CFT strategy is expected during the first quarter of 2020.
Conclusion
17. The Malian authorities are committed to pursuing sound policies and reforms to preserve macroeconomic stability, and consolidate the foundations for strong and inclusive growth. In view of Mali’s satisfactory performance under the ECF- supported program, we would appreciate the Executive Board’s completion of the first review under the arrangement, and the approval of the authorities’ request for a waiver of nonobservance of the performance criterion on non-accumulation of domestic arrears.