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
Our Malian authorities thank the Executive Board, Management and Staff for their longstanding support to Mali in its efforts to weather severe difficulties. The spread of the coronavirus is putting a heavy pressure on an already fragile health system and seriously disrupting economic activity. Moreover, the pandemic adds to other daunting challenges, including recurrent terrorist attacks and inter-community tensions which have resulted in increased budget pressures, including humanitarian assistance and security spending sometimes at the expense of critical social and development projects.
To contain the spread of the COVID-19 and cushion the economic impact on households and businesses, the authorities are implementing a bold response plan consisting of containment, fiscal and financial measures. Their response plan is expected to widen the fiscal deficit from 3.5 percent of GDP projected prior to the crisis to 6.2 percent of GDP in 2020. Furthermore, the decline in gold and cotton exports, migrant remittances and foreign direct investment will open up a balance of payments financing gap estimated at 3.1 percent of GDP.
Against this backdrop, the government is requesting an urgent disbursement under the Rapid Credit Facility (RCF) amounting to SDR146,7 million, equivalent to 78.6 percent of quota, in addition to the debt service relief obtained under the Catastrophe Containment and Relief Trust (CCRT) on April 13, 2020. They are also requesting a rephasing of access under the current ECF arrangement. The RCF disbursement should catalyze financial assistance from other donors and help provide the fiscal space necessary to fight the pandemic and mitigate economic disruptions caused by social and travel restrictions.
Impacts of the COVID-19 Pandemic
Mali experienced its first two cases of COVID-19 on March 24, 2020, and since, this number has increased to 293 with 17 fatalities as of April 22, 2020. Emergency containment measures were put in place, such as the suspension of commercial flights, the closure of land borders, and a nightly curfew. These measures are altering the supply of goods, notably to the manufacturing sector, and significantly slowing down activity in hotels and restaurants. In addition, the mining sector, which is a major driver of economic growth and tax revenues, is facing a serious risk of slowdown with some mining companies already operating at reduced capacity or closing temporarily. Prior to the crisis, the outlook was favorable with growth projected to remain strong at 5 percent in 2020. With the emergency containment measures, combined with the deterioration of global economic conditions, real GDP growth is now expected to decline to 0.9 percent.
The Pandemic Riposte Plan
The government has established a comprehensive response plan to prevent the spread of the virus and strengthen the country’s health capacities, in collaboration with the World Health Organization (WHO) and the World Bank. Health expenditures will be increased substantially to develop testing capacities, promote health sensitization campaigns, and upgrade quarantine and hospitalization infrastructures.
To respond to the needs of the most vulnerable segments of the population and businesses, major actions are underway which include emergency food aid and direct monetary transfers to poor households, the payment of electricity and water bills for two months for consumers of the social tariff bracket, the waiver of VAT on electricity and water bills for three months for all consumers, as well as tax rebates for affected economic sectors such as transport, travel and hospitality. Furthermore, the Treasury will accelerate the clearance of payment obligations with a view to easing the liquidity constraints of enterprises in difficulty.
In order to accommodate the increase in spending related to the fight against the immediate crisis, the authorities intend to suspend or reduce non-essential expenditures, including capital outlays outside the health sector. Notwithstanding these efforts, the fiscal deficit will inevitably increase this year. The authorities are actively engaged with the donor community to fill the financing gap. A special fund has also been created to receive contributions from the private sector and citizens, which will be run in line with budgetary and accounting procedures.
In the financial sector, the resources of the Guarantee Fund will be increased to facilitate bank credit to the enterprises and SMEs in the sectors affected by the crisis. The regional central bank (BCEAO) is also involved in supporting economic activity while maintaining financial stability. It has taken measures to increase the liquidity available to banks on preferential terms, developing support mechanisms to SMEs in difficulty through a dedicated refinancing instrument, postponing deadlines for loan repayment in collaboration with banks, and extending the availability of digital means of payment while reducing their cost.
While implementing the pandemic response plan, the authorities will ensure that the new spending measures are temporary and aimed to address the specific needs induced by the crisis. In line with their concern to ensure the most transparent and efficient use of the RCF resources and those provided by external partners and domestic contributors, all COVID-19 spending will be subjected to quarterly reporting and to an independent and comprehensive audit. Furthermore, the authorities will publish regularly on the Government’s website the documentation on public procurement projects, together with ex-post validation of delivery and the names of companies and beneficiaries.
The ECF Program and Post-Pandemic Policies
Despite the difficult near-term outlook, the authorities remain committed to implementing the ECF-supported program and making significant strides in their development agenda as soon as the health crisis abates. While the discussions on the second review under the ECF could not take place in a timely manner given the current circumstances, the preliminary data point to the reaching of performance criteria and notable progress on structural reforms, including in public financial management.
The authorities agree on the importance of accelerating the reforms aimed at the digitization and modernization of the tax and customs administrations, in order to ensure the continuity of tax collection. Other critical reforms will be pursued, notably to make the energy sector more efficient, advance the fight against corruption, and improve the AML/CFT framework.
Conclusion
The Malian authorities face urgent fiscal and balance of payments needs stemming from their policy response to strengthen the capacities of the health system to deal with the coronavirus outbreak, and cope with the severe economic disruptions. They remain determined to pursue the WAEMU convergence criteria and implement the structural reforms aimed at achieving higher, more sustained and inclusive economic growth.
In view of the country’s increased financing needs and the authorities’ strong commitment to macroeconomic stability and development agenda, we would appreciate Directors’ approval of the requests for emergency financing under the RCF and the rephasing of access under the ECF.