Mali: Requests for Disbursement Under the Rapid Credit Facility And Rephasing of Access Under the Extended Credit Facility Arrangement—Press Release; Staff Report; and Statement by the Executive Director for Mali

Requests for Disbursement Under the Rapid Credit Facility and Rephasing of Access Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Mali

Abstract

Requests for Disbursement Under the Rapid Credit Facility and Rephasing of Access Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Mali

Context

1. The COVID-19 outbreak hit at a time when the country is facing a challenging security and social situation. Incidence of terrorist attacks in the northern and central regions remains high, causing significant population displacement and constraining policymaking (Text Figure 1). Social tensions are adding to the difficult security environment, with mass street protests for decisive action to defeat terrorism and wage-related teacher union strikes paralyzing the education sector for weeks. Timid signs of easing tensions emerged from the December 2019 national inclusive dialogue between political and social partners, which instilled a renewed momentum to the implementation of the 2015 Peace Agreement and enabled the holding of the twice-postponed legislative elections on March 29 and April 19, 2020.

Text Figure 1.
Text Figure 1.

Mali: Security and Social Situation in Regional Context

Citation: IMF Staff Country Reports 2020, 153; 10.5089/9781513543079.002.A001

2. The authorities have been implementing a reform program supported by the IMF’s Extended Credit Facility (ECF). The main objective of the program is to support strong and inclusive growth, create fiscal space to safeguard social and infrastructure spending in the face of mounting security expenditures, and support reforms to improve governance. The first review under the ECF arrangement was completed on January 8, 2020.1 Discussions under the second review—to assess the end-2019 fiscal outcomes and recalibrate the program going forward—are infeasible in light of the existing pandemic-related restrictions, the magnitude of the shock, and the uncertainty around the macroeconomic outlook, and will resume when circumstances allow. Preliminary data suggest that the 2019 quantitative performance criteria have been met. Importantly, revenue administration efforts helped tax collections recover from the 2018 shortfall. Structural reforms continue to advance, including in customs administration and public financial management.

Impact of the Pandemic, Outlook and Risks

A. Pre-COVID Developments

3. Prior to the COVID-19 shock, the economy was performing well despite persistent security challenges. Preliminary data suggest that growth remained at 5 percent in 2019, around its potential rate, as most economic activity is concentrated in southern areas that are not affected by the security crisis (Text Figure 2). Despite robust growth, inflation was negative through most of 2019 and in early 2020, reflecting supply effects of high food production and lower transportation prices, as well as low imported euro-area inflation. The current account deficit narrowed to 4.2 percent of GDP in 2019 on account of high gold exports, and together with stronger inflows of public sector financing contributed to an improved external position.

Text Figure 2
Text Figure 2

Mali: Growth, Inflation, Current Account, 1999–2019

Citation: IMF Staff Country Reports 2020, 153; 10.5089/9781513543079.002.A001

Source: IMF staff estimates

4. The fiscal position strengthened in 2019. On preliminary data, the overall deficit narrowed by 3.1 percentage points to 1.7 percent of GDP in 2019, compared with the 3 percent of GDP ceiling under the program. The bulk of the turnaround was due to a programmed recovery in taxes from their 2018 slump, supported by several IMF technical assistance missions to strengthen tax and customs administration. Tax revenue performance was slightly better than programmed, but the overperformance relative to the deficit targets was largely driven by a restraint in spending (1.2 percent of GDP) as a result of delayed budgetary support. Preliminary data suggest that all central government arrears were cleared by end-2019. Although some domestic arrears accumulated again in early 2020 due to continued cash management challenges, they will be cleared as part of the government’s package of measures to support the economy. Public debt reached 40½ percent of GDP at end-2019, with external debt at 26.4 percent of GDP.1

5. The economic outlook was also positive. Activity was projected to settle around its potential growth rate of 5 percent. The deflationary pressures of 2019 were expected to gradually ease, and inflation was projected to return to the regional WAEMU2 target of 2 percent over the medium term. The current account deficit was expected to widen gradually from 4–5 percent of GDP with an anticipated decrease in gold exports. Fiscal policies targeted overall deficits of 3–3½ percent of GDP, with public debt remaining relatively low and sustainable (DSA Update Annex).

B. Initial Impact and Response

6. Mali has been materially affected by the COVID-19 outbreak. The first cases of COVID-19 were confirmed on March 24, later than in most countries, but the number of cases quickly escalated to 293 (seventeen deaths) by April 22. The government responded proactively to the global emergence of the pandemic. In mid-March, it introduced preventive containment measures, which included the suspension of commercial flights from affected countries (except cargo flights), the closure of land borders, the suspension of all public gatherings, the prohibition of social, sports, cultural and political gatherings of more than 50 people, and the closure of schools, night clubs and bars. In addition, the government has set up a crisis response unit and quarantine facilities. Following the emergence of COVID-19 cases in Mali, the government established a night curfew to strengthen the measures in place on preventing the spread of the virus. A lockdown in the capital, where most cases are concentrated is being considered, but has not been imposed yet. On April 10, the authorities announced a set of comprehensive measures to support the economy and the most vulnerable segments of the society (Box 1).

Text Figure 3.
Text Figure 3.

COVID-19 Trajectories in the Region

Citation: IMF Staff Country Reports 2020, 153; 10.5089/9781513543079.002.A001

Source: Johns Hopkins University and staff calculations. As of April 21, 2020

7. The external shocks and the needed containment measures have had a large adverse impact on the economy. The hospitality industries (hotels, restaurants, transport) are already affected, with the steep fall in activity forcing a downsizing in the workforce without the safety net of unemployment insurance. The external supply shocks are slowing imports of manufacturing inputs and production. The collapse in external demand will also dampen exports, especially of cotton (mainly exported to Asia). As these initial effects reverberate through the economy, household income and consumption will fall, business activity and investment will further retrench with the decline in demand and cash flow pressures, and unemployment will rise. Poor access to basic health services or amenities, high levels of informality and poverty, a fragile health system and shortages of medical supplies and facilities, all could exacerbate the economic and social fallout of the pandemic, especially for the most vulnerable.

C. Outlook and Risks

8. As a result of the COVID-19 outbreak, the 2020 outlook has deteriorated significantly:

  • Growth. Overall, growth is expected to slow to below 1 percent in 2020, compared to 5.1 percent projected at the time of the first review of the ECF, reflecting the impact of the pandemic. The negative output gap will close gradually over the next three-four years, along with the recovery of the world and domestic markets.

  • Inflation. The outlook for inflation remains broadly unchanged. Potential upside pressures from supply disruptions and policy support will likely be offset by the large output gap and the fall in oil prices, which are expected to be gradually passed through to domestic prices.

  • External position. Staff projects a deterioration in the overall balance of payment position in 2020, creating a BOP financing need of about 3.1 percent of GDP. The current account deficit will likely narrow to around 3.6 percent of GDP in 2020, driven notably by a large improvement in terms-of-trade (lower oil and higher gold prices). The contraction of imports due to a lower energy bill, trade disruptions and lower domestic demand is expected to be larger than the loss in earnings from exports (especially of cotton exports to Asia) and lower remittances from Europe, the US and the region. At the same time, a decline in FDI and other private inflows will weigh on the financial account, whose deterioration will more than offset the improvement in the current account.

Downside risks to the outlook dominate. These stem from the potentially larger-than-expected impact of the pandemic on the economy, especially if a lockdown or quarantines becomes necessary. A deeper and more drawn out impact of the pandemic will also pose downside risks to the recovery projected after 2020, particularly in light of the already precarious social and security situation. Rain-dependent agriculture remains vulnerable to the vagaries of the weather and to potential pandemic-related disruptions to its cycle. High dependence on gold and cotton exports leaves Mali’s external position vulnerable to the global demand and prices of these goods. Other downside risks relate to the potential for a deterioration in the security situation and political instability. On the upside, growth may benefit from good agricultural production if this can remain relatively insulated from the containment measures, and from the possible improvement in security conditions should the planned acceleration of the 2015 peace agreement take place.

Text Table 1.

Mali: Selected Economic Indicators 2016–211/

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

Program refers to First Review under the ECF (IMF Country Report No. 20/8). Fiscal variables refer to central government.

Policy Issues and Discussions

The authorities’ near-term priority is to contain the humanitarian and economic fallout from the pandemic, while maintaining macroeconomic stability. The related measures will inevitably have a significant impact on the economic outlook and will open a large but temporary fiscal and balance of payments financing gap, which is expected to be filled by support from the developmental partners and existing resources in the domestic market. The authorities remain committed to the objectives of the ECF arrangement and to an early return to the program targets once crisis-related priorities subside.

A. Fiscal Policies

9. The fiscal deficit will widen to accommodate measures to deal with the COVID-19 pandemic crisis. Staff projects the 2020 fiscal deficit to widen from the 3.5 percent of GDP targeted at the first review of the program to 6.2 percent of GDP (Text Table 2).4 In particular:

  • Tax revenues are expected to decline to 13.3 percent of GDP in 2020, 2.2 percentage points below program projections. This reflects, among other things: (i) a decline in the share of trade-linked revenues due to disruptions in international trade and a lower oil import bill; (ii) pandemic-related difficulties in compliance by firms and households, and in tax collections by the government in the absence of fully developed internet-based services; (iii) the absence of one-off collection of tax arrears, which boosted revenues in 2019; and (iv) recent measures to combat the crisis (Box 1).

  • Non-tax revenues are also expected to fall short of projections, especially on account of likely delays in the sale of a telecommunication license in the current economic environment (0.5 percent of GDP).

  • The decline in revenue is expected to be partially offset by higher grants (additional 0.5 percent of GDP), with some crisis-related support already approved by international institutions.5

  • Emergency budget spending to contain the outbreak and mitigate its economic and social impact is estimated at 2.2 percent of GDP for 2020, accompanied by accelerated payments to the private sector. Announced measures focus on strengthening medical care capacity and income support for the most affected households and firms (Box 1).

  • To offset the revenue losses and the higher spending needs, non-essential spending will be reprioritized. A supplementary budget containing the crisis measures and a revised revenue outlook will be proposed at end-April, 2020.

Text Table 2.

Mali: Financing Needs, 2020

(Percent of GDP)

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Sources: Malian authorities; and IMF staff estimates.

10. The larger fiscal deficit will open a financing gap estimated at 2.9 percent of GDP in 2020 (Text Table 2). To finance the gap, the authorities are seeking assistance under the Rapid Credit Facility (RCF), which would cover about forty percent of the gap. The remaining gap is expected to be covered in part by assistance from the World Bank (an additional 0.3 percent of GDP in budgetary support relative to earlier commitments) and the West African Development Bank’s (BOAD) recently approved support for WAEMU countries, consisting of a concessional loan of CFAF 15 billion to Mali (about 0.1 percent of GDP) and debt service relief for part of 2020. The authorities also intend to request the debt service suspension from official bilateral creditors and are actively engaged with other international donors in obtaining grants and concessional financing to close the remaining gap of around 1 percent of GDP.

11. Under the baseline fiscal outlook, Mali’s public debt remains sustainable. The RCF disbursement will not have a material impact on Mali’s debt sustainability and capacity to repay the Fund. Based on an update of the DSA that includes the macroeconomic impact of the COVID-19, Mali’s external and overall risk of public debt distress remain moderate. Overall debt dynamics remain sustainable, with some space to absorb shocks. All public and publicly guaranteed external debt and total public debt ratios remain below their corresponding thresholds under the baseline scenario (see the DSA Update Annex).

12. The fiscal outlook for 2020–21, however, remains highly uncertain. The current projections assume that the pandemic outbreak will be resolved during the second half of 2020. A longer and deeper impact of the pandemic, requiring more extensive fiscal measures to address the crisis, will result in a further deterioration of the fiscal outlook, with a delayed or partial recovery of the tax base. Furthermore, potential realization of the contingent liabilities related to state-owned enterprises (especially electricity and water) represent a downside risk for the fiscal outlook. To minimize risks, establishing a clear temporal horizon for the crisis measures and preparing contingency plans in case the crisis is deeper than expected would help.6 Risks surrounding the financing of the remaining gap are also high – if additional financing (through grants or concessional loans) is not identified, the investment plans will not be executed as projected in the baseline.

13. The authorities are committed to returning to the ECF program fiscal objectives when the pandemic’s effects have abated. They are confident that the extra resources from international donors will preserve the economic fabric of the country and allow for a quick recovery, a significant reduction of the fiscal deficit in 2021 and a steady increase of the tax-to-GDP ratio. Instrumental to achieving these goals is the authorities’ commitment to the program’s governance and fiscal transparency objectives. In this vein, the authorities recognize the importance of safeguarding donors’ financial assistance towards this crisis to ensure it is used for its intended purpose and, toward that end, have committed to undertaking and publishing an independent and robust third-party audit of this spending in about a year’s time; report quarterly on the spending of the emergency funds; and publish regularly on its website documentation on large public procurement projects, together with ex-post validation of delivery along with the name of awarded companies and the name of their beneficial owner(s).

Measures Announced by the Malian Government to Combat COVID-19

The government responded to the pandemic with preventive containment measures in early March, followed by a package of supportive measures to vulnerable households and ailing firms announced on April 10.

As preventive containment measures, the government imposed the suspension of commercial flights (except cargo flights), the closure of land borders, a night curfew, the suspension of all public gatherings, the prohibition of social, sports, cultural and political gatherings of more than 50 people, the closure of schools, night clubs and bars. Working hours have also been reorganized to end earlier to protect civil servants. Retail markets remain open (at reduced schedule) to prevent disruptions in the supply of population with basic goods, while 20 million masks are expected to be distributed shortly. The government has also set up a crisis response unit and is stepping up sensitization campaigns.

To support the healthcare response, the government is strengthening testing capacities, expanding quarantine and hospitalization facilities, and improving medical care capacities through a planned support to the health sector (including bonuses to health workers).

Social measures in support of poorest households. These measures include the setup of a special fund to provide targeted income support to the poorest households, a mass distribution of grains and food for livestock to poorest households, the supply of electricity and water free of charge to the poorest consumers for the months of April and May 2020 (which will increase subsidies to state-owned suppliers), a 3-month exemption from VAT on electricity and water tariffs, and a 3-month exemption from customs duties on the import of basic food (rice and milk).

Support to firms hit by the economic slowdown from the preventive containment measures. These measures include an SMEs-support guarantee fund of 0.2 percent of GDP; support to the public electricity and water utilities; clearing budget arrears accumulated during this year; and granting tax deferral and relief to ease liquidity constraints on the hardest-hit companies, especially in the hospitality sector (hotels, restaurants, transportation). In addition, the government urged commercial banks to restructure ailing firms’ debt, building on the framework set up by the regional central bank (BCEAO) to support firms with repayment difficulties.

Mali: Policy Measures to Combat Crisis

(preliminary estimation)

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Sources: Malian authorities.

B. Providing Liquidity and Safeguarding Financial Stability

14. While the financial system appears broadly stable, pockets of vulnerability could emerge if the disruption caused by the COVID-19 is significant. The banking sector appears to be adequately capitalized with an overall capital adequacy of 13½ percent in 2019. Banks are profitable, but non-performing loans remain relatively high at 10½ percent at the end-2019, of which about half are provisioned. Given the concentration of bank lending in manufacturing, real estate, hospitality, and wholesale and retail trade sectors—sectors that are experiencing supply chain and business disruptions—earnings and asset quality could be notably affected, especially in banks with elevated credit concentration risk.

15. The regional central bank (BCEAO) adopted a number of measures to preserve financial stability and provide additional liquidity. On March 21, 2020, the BCEAO announced (i) increasing the total liquidity made available to banks by weekly and monthly auctions; (ii) extending the collateral framework to access central bank refinancing; (iii) setting-up a framework with the banking system to support firms with COVID-19 repayment difficulties; (iv) allocating CFAF 25 billion to the trust fund of the West African Development Bank (BOAD) to increase the amount of concessional loans to eligible countries to finance urgent investment and equipment expenses; (v) communicating on the special program for refinancing bank credits granted to SMEs; (vi) initiating negotiations with firms issuing electronic money to encourage its usage; and (vii) ensuring adequate provision of banknotes for satisfactory ATM operation. On March 23 the BCEAO raised the liquidity made available to banks at its weekly and monthly auctions allowing average refinancing rates to remain relatively close to the floor of the 2.5 to 4 percent monetary policy corridor. Finally, on March 27 the BCEAO announced a full allotment strategy at a fixed 2.5 percent interest rate thereby allowing banks to satisfy their liquidity fully at a lower cost. Discussions on monetary, macro-prudential and financial sector issues are conducted with the authorities at the regional (WAEMU) level.

Access and Capacity to Repay

A. Access Level and Modalities

16. The authorities are requesting a disbursement in an amount equivalent to 78.6 percent of quota (SDR 146,667,600) under RCF following the COVID-19 pandemic shock, along with the rephasing of the ECF arrangement (Annex I). Based on the urgent balance of payments and fiscal needs caused by the sudden COVID-19 pandemic shock, Mali qualifies for a disbursement under the exogenous shock window. Emergency policy responses should focus on immediate measures to mitigate the severe short-term socio-economic impact caused by the pandemic. While Mali successfully completed the first review of its Fund-supported ECF arrangement, the second review cannot be concluded immediately as travel and other COVID-19 related restrictions, as well as the uncertainty around the outlook, make discussions infeasible at this point. To address the immediate crisis needs, it is proposed that the ECF outstanding purchase under the second review of SDR 20 million (10.7 percent of quota) be made available on August 31, 2020, and the outstanding purchase under the third review in the same amount be made available on January 11, 2021 (Table 8).

Table 1.

Mali: Selected Economic and Financial Indicators, 2017–25

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

IMF Country Report No. 20/8, Mali : First Review Under the Extended Credit Facility Arrangement.

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

Table 2a.

Mali: Consolidated Fiscal Transactions of the Government, 2017–25

(Billions of CFAF)

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

1 IMF Country Report No. 20/8, Mali: First Review Under the Extended Credit Facility Arrangement.

Commitment basis

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

Table 2b.

Mali: Consolidated Fiscal Transactions of the Government, 2017–25

(Percent of GDP)

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

IMF Country Report No. 20/8, Mali: First Review Under the Extended Credit Facility Arrangement.

2 Commitment basis

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

Table 3a.

Mali: Balance of Payments, 2017–25

(Billions of CFAF)

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

IMF Country Report No. 20/8, Mali : First Review Under the Extended Credit Facility Arrangement.

Includes financing by the international community for imports of security services in relation to the foreign military intervention in the country.

The grant for the debt service falling due in the 18 months from October 14, 2020 is subject to the availability of resources under the CCRT.