Mauritania—Letter of Intent

Nouakchott, November 18, 2002

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler:

The government of Mauritania recently held discussions with International Monetary Fund (IMF) staff on the sixth review of the program supported under the Poverty Reduction and Growth Facility (PRGF).

The government considers that program execution in 2002 is consistent with the established objectives. The quantitative performance criteria and quantitative benchmarks for end-June were met, as were all continuous performance criteria under the arrangement. All the structural performance criteria and benchmarks were also met, except for the criterion concerning the publication of the audited 2001 financial statements of the Central Bank of Mauritania (BCM) and the related audit opinion. This was due to technical reasons related to delays by the external auditors. The 2001 BCM financial statements and related audit opinion were received from the auditors on October 16 (preliminary) and on November 2 (final) and were published on November 12, 2002. The government requests a waiver for the nonobservance of this criterion and the completion of the sixth review of the program supported under the PRGF.

The government wishes to initiate discussions as soon as possible on a program to be supported by a new arrangement under the PRGF. In the context of the discussions with IMF staff, the government has set objectives for 2003 based on the policies established in the Poverty Reduction Strategy Paper (PRSP), especially in the framework of the 2003 budget law. During the coming year, the government intends to pursue its structural reforms, in particular with a view to strengthening the performance of the exchange market, increasing fiscal transparency, improving absorption capacity to speed up the pace of social spending, and rehabilitating the National Social Security Fund (CNSS).

To enhance the performance of the exchange market, the central bank has set up a foreign exchange committee which each day establishes the central bank's intervention policy objectives for the expanded exchange market (MCE). Every morning, the central bank announces an opening buying and selling rate for foreign exchange. At the same time, all-the-market buying and selling orders at "best price" will be eliminated. The central bank is determined to intervene regularly in the foreign exchange market and to place sufficient foreign banknotes at the disposal of authorized intermediaries to ensure that the market performs smoothly. The BCM will also make sure that the commercial banks play their role as an intermediary which, among other things, requires them to provide foreign exchange for all their clients.

The government is in the process of drafting the budget execution law for 2001, which will be submitted to parliament at the same time as the 2003 budget, and from January 2003, will start regular production of monthly government flow of funds tables (TOFE). The production of the TOFE will be computerized subsequent to the reorganization of the divisions of the treasury (government accounting office) and the computerization of the treasury accounts. The government also intends to strengthen the Inspectorate General of Finances. High priority will be given to computerizing expenditure procedures with the twofold objective of increasing fiscal transparency and improving expenditure tracking. The choice of consultant to take charge of computerizing expenditure on goods and services will be made before the end of the year.

Studies on (i) the reorganization of the CNSS, including the social plan accompanying the reduction of human resources; (ii) the definition of a renewed social protection policy; and (iii) the computerization of the CNSS, will be completed before the end of the first quarter of 2003, and implementation of their conclusions will start in the second quarter of 2003. At the same time, the CNSS is continuing its efforts in the areas of internal reorganization, identification of taxpayers, increased command over the tax base, and investigations to provide a better assessment of entitlement to benefits. Pending the final version of the actuarial study by the ILO, the government will put in place a program in 2003 to alleviate the CNSS's difficult financial situation.

The government is convinced that the implementation of these policies will enable it to meet the agreed objectives. It is understood that the government will remain in contact with Fund staff and will consult the IMF from time to time, on its own initiative or whenever the Managing Director so requests, regarding Mauritania's economic and financial policies.

Sincerely yours,