A mission of the International Monetary Fund (IMF) led by Mr. Amine Mati, visited Nouakchott from September 10 to 24, 2012 in the context of the fifth review of the 2010-2012 three-year arrangement under the Extended Credit Facility (ECF)1. At the end of its visit, the mission issued the following statement:
“The macroeconomic results recorded during the first half of 2012 have been satisfactory. Following the acute drought conditions of 2011, a rebound in agricultural production and an uptick in activity in the building and public works sector are expected to underpin a vigorous recovery of economic growth. Real GDP growth for 2012 is, therefore, expected to reach 6.2 percent, despite the significant fall in mining production and the slowdown in demand from Europe. Inflation remains contained at 6 percent (y-o-y), owing in part to the stable prices of some administered products. However, this macroeconomic performance, achieved in spite of the difficult national and global economic environment, must be further strengthened and sustained in order for the country’s still very high unemployment rates and poverty levels to be significantly reduced.
“Fiscal and external policy space have reached unprecedented levels, thus creating the conditions for making the Mauritanian economy more resilient to exogenous shocks. Indeed, for the first time since 2006, the overall budget balance is expected to be positive. This better-than-expected performance is attributable to intensified revenue collection efforts, substantial mining revenues, and a considerable increase in external assistance (including in the form of grants). Further, despite the significant worsening of the balance of payments current account position, accounted for mainly by high mining sector import levels financed by foreign direct investment, the official reserve position will be strengthened and by the end of the year is projected to reach record levels of around US$750 million, i.e., the equivalent of 5.3 months of imports.
“The mission congratulated the authorities on their implementation of appropriate and coherent macroeconomic policies, which enabled them to meet the end-June 2012 program performance criteria and structural benchmarks with a comfortable margin. The mission also urged the authorities to embrace the enormous challenges posed by their newfound financial comfort, namely preserving their achievements and redoubling their efforts to achieve growth that is more inclusive and conducive to considerably lowering unemployment and poverty rates. In the same vein, the authorities were encouraged to step up implementation efforts with a view to meeting the end-2012 indicative target for pro-poor spending.
“The mission was heartened by the better rainfall prospects for this year, which means that the authorities could considerably streamline the components of the EMEL program, which was put in place to attenuate the effects of the drought. The mission noted with satisfaction the efforts undertaken to eliminate poorly targeted subsidies on energy products. It encouraged the authorities to continue phasing these out, along with the emergency programs, and replace them by a social welfare system that is better targeted to the most vulnerable segments of the population. The introduction of a cash transfer program in the capital and some rural areas constitutes a first step in that direction.
“The mission reached agreement with the authorities on the optimal allocation of a share of tax revenues to the diversification of the productive base of the economy, in particular increasing agricultural investments with a high job creation potential. The mission also invited the authorities to ensure that these new expenditures remain in line with the priorities established in the PRSP, are consistent with absorptive capacity, and comply with the new public procurement procedures.
“The mission also called on the authorities to improve the business climate further, in particular, by bringing on stream the one-stop window. In addition, the mission reaffirmed the importance of putting in place, in the very short run, a new instrument for monetary policy management and of quickening the pace of implementation of structural reforms in the financial sector, public enterprises, and public financial management. The mission noted with satisfaction the start of arrears clearance, the reform aimed at introducing a more progressive tax on wages and salaries, and a salary increase for 2013, in line with the objective of keeping the wage bill under control.
“Further, the objectives set for 2013 are designed to consolidate macroeconomic stability in a global environment that will continue to be challenging. They are targeted towards achieving a real GDP growth rate of more than 6 percent, keeping the inflation rate stable, ongoing implementation of fiscal policy geared towards the development of non-extractive industries, and maintaining adequate levels of foreign reserves. Going forward, discussions on the creation of a transparent mining fund and on the devising of a medium-term debt strategy will also contribute to anchoring these achievements.
“In view of the satisfactory performance of the program objectives, Fund staff will recommend that management request the completion of the fifth review under the three-year ECF arrangement, to be taken up by the Executive Board in November 2012.
“The mission was received by His Excellency, the President of the Republic, and had fruitful discussions with economic and financial policymakers as well as members of parliament, members of the diplomatic corps, and representatives of the banking and business sectors, trade unions, the donor community, and civil society. The mission would like to take this opportunity to thank the Mauritanian authorities, and all those that it met with, for their warm welcome, the quality of the discussions held as well as and the good conditions under which its work was conducted.”
1 The Extended Credit Facility (ECF has replaced the Poverty Reduction and Growth Facility (PRGF), as the Fund’s main tool for medium-term financial support to low-income countries, by providing a higher level of access to financing, more concessional terms, enhanced flexibility in program design features, and more focused streamlined conditionality. Financing under the ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities every two years.
Source: International Monetary Fund (IMF) – Press Release – 25 September 2012