Statement by Mr. Raghani, Executive Director and Mr. Sidi Bouna, Senior Advisor for the Islamic Republic of Mauritania April 23, 2020

Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Islamic Republic of Mauritania


Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Islamic Republic of Mauritania

I. Introduction

The impact of the global pandemic on Mauritania has been severe. Although the numbers of infections and fatalities from the disease have remained low, economic conditions have deteriorated significantly. Commodity exports have declined abruptly due to weak external demand while economic activity has contracted sharply from the measures put in place by the authorities to contain the spread of the virus. Financing needs to implement the riposte program are substantial, estimated at 5.0 percent of GDP for the balance of payments and 4.4 percent of GDP for fiscal needs.

Given the significant deterioration in the country’s economic conditions, the authorities request the Fund’s emergency assistance under the Rapid Credit Facility (RCF). The weakening of the outlook occurred immediately after the staff mission to Nouakchott to assess the country’s performance under the ECF’s fifth review. Although the review confirmed Mauritania’s continued strong performance, a program recalibration is now required due to the impact of the COVID-19 outbreak.

The authorities wish to express their deep appreciation to Management and staff for their rapid response to the request for emergency assistance. They are hopeful that the Fund’s financing will help catalyze donor support to meet the country’s large financing needs. They would also like to reiterate their firm commitment to the objectives of the ECF arrangement, and they intend to resume discussions with staff on remaining program reviews as soon as the conditions permit.

II. Economic Impact of the Pandemic

Growth has been revised downward substantially, with all sectors of the economy affected. Real GDP is now estimated to contract by 2 percent in 2020 compared to a 6.3 percent expansion projected prior to the crisis. The current account deficit has widened, and it is now expected to reach 17.3 percent of GDP in 2020 from 10.6 percent of GDP in 2019 despite the fall in oil prices due largely to weaker commodity exports. An increase in fiscal expenditures to address the pandemic, combined with a projected sizeable decline in fiscal revenues due to the economic contraction as well as temporary tax relief for certain essential goods will result in a significant deterioration of the primary fiscal balance from a surplus of 5.2 percent of non-extractive GDP to a deficit of 3.2 percent.

The economic situation in Mauritania could worsen further, giving rise to larger financing needs due to the extremely elevated uncertainty that characterizes the country’s outlook. The latter is dependent on the global progress to fight the spread of COVID-19. The risk that the pandemic could last longer than expected or even degrade would adversely affect Mauritania and, in turn, would require additional support from the donor community. Mauritania is also facing other major risks notably a deterioration in the security situation in the Sahel region, the effects of climate change and the impact of the significant volatility in international oil prices on the launch of off-shore gas production.

III. Policy Responses

1. Early Response

The authorities have acted swiftly to protect the population from the spread of the coronavirus and alleviate its impact on the economy. They have cancelled international flights and closed land borders —except for the transit of medication, food and other essential goods. Schools have also been closed as well as non-essential businesses while strict measures have been taken to confine the population to their homes. The government has put in place a plan to contain the spread of the coronavirus which involves reinforcing the capabilities of the health system to monitor the disease and enhancing its ability to treat infected persons.

2. Fiscal Policy

In the early stages of the crisis, the government increased fiscal spending in the health sector, in social protection, and in support to businesses and agriculture. The need to further mitigate the economic impact of the pandemic required significant additional spending, in particular to support SMEs and local farmers, in addition to health and social protection. Security spending will also increase to ensure that confinement and containment measures are effectively implemented and complied with. Part of these additional expenditures will be offset by efforts to reprioritize non-essential spending and make room for the more urgent measures required by the crisis.

A special social assistance fund has been established to collect public and private contributions as part of a national and solidarity effort to mitigate the health and economic impact of the coronavirus. The funds collected will be used to purchase medical equipment and supplies and supporting households and businesses that have been most affected by the crisis. The authorities are committed to a transparent reporting of all the resources used in the fight against the pandemic, including the ones collected under the special social assistance fund. The funds will be audited by the Court of Auditors (Cour des Comptes) and the findings will be made public.

While Mauritania has contained its public debt levels in recent years, the country’s external debt service remains elevated. The authorities welcome the staff’s acknowledgement that Mauritania’s debt is sustainable although the risk of debt distress remains high. They commit to implementing medium-term fiscal policies consistent with the preservation of debt sustainability. They also very much welcome the recent G20 initiative to suspend debt service to low income countries and call on Mauritania’s creditors to grant debt relief under the initiative. This will help increase fiscal space for urgent essential spending.

3. Monetary Policy and the Financial Sector

In response to the crisis, the central bank (Banque Centrale de Mauritanie) has acted rapidly by lowering its key interest rate as well as banks’ reserve requirements. These actions are part of efforts to support the economy and provide liquidity to the financial system. The monetary authorities will continue to monitor the financial sector and ensure that inflation remains in-check. They agree with staff that given current circumstances, a flexible approach to banks’ requirement to raise their minimum capital and their liquidity ratios is warranted.

IV. Conclusion

The Fund’s emergency assistance under the RCF will provide much-needed resources to address the severe impact of the pandemic on the economy. However, Mauritania’s financing needs remain large and additional donors’ support is urgently needed to meet those needs. Given that access under the RCF only covers one third of Mauritania’s external financing needs, the authorities are hopeful that the approval of the RCF will help mobilize additional resources from the donor community.

The authorities are determined to resume their prudent policies and sound reforms under the ECF as soon as the crisis abates and the economy recovers, with a view to reinforcing macroeconomic stability, enhancing economic resilience and fostering inclusive growth. They reiterate their firm commitment to the objectives of the ECF-supported program. They wish to reiterate their deep appreciation to the Executive Board, Management and staff for their continued support.