On December 2, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 and completed the fourth review of Mali’s performance under an economic program supported by a three-year Extended Credit Facility (ECF) arrangement. The Board’s decision enables the disbursement of SDR 4 million (about US$5.5 million), bringing total disbursements under the arrangement to SDR 22 million (about US$30 million).
In completing the review, the Executive Board approved the authorities’ request for the modification of the performance criterion on non-concessional external borrowing in light of the new policy on debt limits that became effective in June 2015. The Executive Board approved the ECF arrangement for Mali on December 18, 2013 for SDR 30 million (about US$41 million), see Press Release No. 13/524).
The program performance through June was strong, with all performance criteria and most structural benchmarks met. The 2016 program features a somewhat higher fiscal deficit compared to 2015 to allow for increased public investment and reconstruction spending. The program’s structural component incorporates measures to support continued revenue growth, strengthen public financial management, and promote good governance.
Mali’s recovery has entered its third year. After a 7 percent spurt in 2014, reflecting a return to more normal levels of agricultural production and a strong pickup in manufacturing, growth is moderating in 2015, but is projected to remain robust in the near term (at over 5 percent). The external current account is projected to strengthen in the near term but would weaken thereafter, mainly as a result of less favorable terms of trade. Robust public capital inflows and foreign direct investment should allow Mali to finance these deficits and even slightly strengthen its imputed international reserve position. The overall fiscal deficit is expected to remain contained in the near term and decline over the medium term, keeping nominal public debt below 40 percent of GDP. Tax collections are expected to continue strengthening, with revenue gains allowing to create space to accommodate higher public investment and social spending.
Following the Executive Board’s discussion, Mr. David Lipton, Deputy Managing Director and Acting Chair, made the following statement:
“The Malian authorities have continued to take necessary steps to ensure that the goals established under their Fund-supported program are achieved. Program performance through June was solid, enabling the authorities to strengthen their fiscal program for 2015. The program for 2016 allows for a somewhat higher, but still moderate, fiscal deficit to accommodate increased capital spending and reconstruction needs. This is expected to be accompanied by continued robust GDP growth, although the challenging security situation represents a risk to the economic outlook.
“The turnaround in tax revenue growth observed in 2015 is particularly welcome, and follows various measures taken by the Ministry of Economy and Finance early in the year. Higher tax revenue, together with improvements in the quality and efficiency and spending, is key to creating additional space to finance infrastructure and social expenditure to support growth and poverty reduction. However, going forward, it would be important that further increases in revenue rely on broadening the tax base, including through the reduction of large exemptions.
“The authorities’ continued efforts to strengthen public financial management are also welcome. Further improvements in this area are important to support overall fiscal discipline and help the adequate use of public resources.
“Fiscal decentralization should help improve accountability over public spending, and provide increased support to Mali’s less-favored regions. It is important that this is implemented gradually and that adequate transparency and accountability mechanisms are put in place to help ensure that resources transferred to local governments are well-used.
“Reforms aimed at improving the business environment are key to boosting Mali’s economic prospects. The authorities’ agenda under their Fund-supported program targets areas with documented weaknesses. Progress in these areas, notably in improving governance and lightening the administrative burden for taxpayers, is crucial to raising growth and employment, and ultimately to reducing poverty.”
Executive Board Assessment2
Executive Directors commended the authorities for the recent strong macroeconomic performance featuring robust economic growth, low inflation, and a sustainable fiscal position. While the economic outlook is favorable, Directors also pointed to key downside risks, particularly those stemming from Mali’s still fragile security situation. They welcomed the recent peace agreement between the government and rebel groups, but noted that the recent tragic events in Bamako underscore the need for continued efforts to strengthen security with support from the international community.
Directors commended the authorities for their commitment to policies aimed at safeguarding macroeconomic stability and fostering inclusive economic growth. In particular, they supported the efforts to increase tax revenue mobilization and improve the quality and efficiency of spending in order to create space for basic infrastructure and social expenditures. They concurred that additional revenue mobilization should take place through broadening the tax base and reducing exemptions. Directors also encouraged the authorities to step up ongoing efforts to strengthen public financial management to support the adequate use of public resources while maintaining sound public finances. A cautious approach to taking on additional non-concessional financing will further ensure the preservation of debt sustainability.
Directors supported the authorities’ plans to move gradually with fiscal decentralization with the goal of improving the accountability over spending while increasing support for less-favored regions in the country. They underscored that this process should be phased in tandem with an increase in the administrative and absorption capacity of local governments, and be accompanied by adequate transparency and accountability mechanisms.
Directors emphasized that boosting long-term sustainable growth will require diversifying Mali’s sources of growth and export base through reforms to improve infrastructure, education, and the business environment. Private sector activity and investment would be facilitated by better regulation, lower labor taxation, increased labor force participation, particularly by women, and improved governance.
Directors called on the authorities to continue their efforts to address weaknesses in the financial sector to help promote financial inclusion, stability, and growth. This includes cleaning up the balance sheets of banks with high NPL levels, reducing credit concentration on a few large borrowers, and strengthening the microfinance sector. Directors welcomed the authorities’ plans to restructure the Malian Housing Bank, which should reduce fiscal risks and make the institution attractive to private investors. They also called for continued work on strengthening the AML/CFT framework.
1 Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:imf.org/external/np/sec/misc/qualifiers.htm
Source: International Monetary Fund (IMF)