Bamako, July 9, 2001

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

Dear Mr. Köhler:

1.  On August 6, 1999, the Executive Board of the International Monetary Fund approved a third three-year arrangement for Mali under the Enhanced Structural Adjustment Facility (ESAF).¹ This arrangement was in support of Mali's economic and financial adjustment program for the period April 1, 1999–March 31, 2002. In accordance with this arrangement, the government of Mali has conducted, with a Fund mission, a second review of the program covering the period April 1, 2000–December 31, 2000. The review covered progress made in implementing the program during 2000, as well as the outlook and economic and financial measures to be implemented by end-2001. The government of Mali remains determined to implement the policies and measures described in the interim poverty reduction strategy paper, as well as in the memorandum of economic and financial policies attached to this letter, together with a technical memorandum of understanding, which supplements the memoranda of July 12, 1999 and August 11, 2000, respectively.

2.  Mali is going through a difficult period, owing to the crisis in the cotton sector, insufficient rainfall for the 2000/01 season, the hike in oil prices last year, and problems in neighboring countries. As a result, real GDP growth in 2000 was only 4.3 percent and is expected to decline by about 1 percent in 2001. In order to restore the conditions for strong, durable, and more equitable economic growth, the government of Mali is determined to prepare and implement during the period April 1, 2001–December 31, 2002 the policies and measures that were set out in the interim poverty reduction strategy paper (I-PRSP), and to ensure that, with the enhancement of additional policies and measures, especially in the cotton sector, Mali can return to an average annual real growth rate of 5 percent over the medium term. To this end, the government has prepared the attached memorandum, setting forth its economic and financial objectives and policies for the period from April 2001 to end-2001.

3.  The government remains committed to widely disseminating its memorandum of economic and financial policies for 2001 and authorizes the IMF to publish it as well and to place it on its website.

4.  All quantitative performance criteria set for September 2000 and quantitative benchmarks set for end-June, end-September, and end-December 2000 were met, as well as the two structural performance criteria under the arrangement. However, there were delays in implementing some structural reforms, in particular the structural benchmark entailing preparation of a set of measures to enhance transparency and efficiency in the financial management of the Compagnie Malienne pour le Développement des Textiles (CMDT) and to lower its production costs. The government has reached an understanding with the IMF staff that the preparation by June 30, 2001 of a short-term crisis resolution plan for the CMDT and the preparation by end-June 2001 of a plan for the repayment of CFAF 30 billion owed by the CMDT to the domestic banking system will constitute prior actions for completion of the second review. The preparation of a medium-term financial restructuring plan by end-December 2001 constitutes a structural performance criterion. The CMDT has already started making progress in improving its internal management and marketing strategies, as well as in lowering its operating cost. The international call for bids to open up the telecommunications sector to competition by granting at least one cellular telephony operating license to private operators has been postponed to October 2001, with approval from the World Bank.

5.  We have reached an understanding on the economic and financial measures to be implemented in order to ensure that the economic objectives of the program for the remainder of 2001 are met. They are set forth in the attached memorandum of economic and financial policies (attachment I). It is to be noted that the increase in the government's expenditure in 2001 reflects primarily onetime outlays to stabilize the economy, as well as to foster social peace and the democratization process. In light of the cumulative impact on the economy of the various shocks and the large financing need that has arisen, the government of Mali is requesting a 5 percent increase in access to quota in the Fund (amounting to SDR 4.665 million), to be disbursed onetime upon the completion of the second review.

6.  To allow sufficient time for the disbursement of resources committed under the three-year PRGF arrangement, the government requests an extension of the arrangement and commitment period from the original date of April 14, 2002 to April 14, 2003.

7.  The government will provide the IMF with any information it may request on progress made in implementing its economic and financial policies and in achieving the program objectives, as described in the technical memorandum of understanding, also attached (attachment II).

8.  The government of Mali believes that the policies and measures spelled out in the attached memorandum of economic and financial policies will enable it to achieve its program objectives. Nevertheless it will adopt any additional measures that may prove necessary for this purpose. The government of Mali will, of its own accord or at your request, consult with the IMF on the adoption of any further measures that may be deemed appropriate. Mali and the International Monetary Fund will also conduct a review of the country's economic program supported by the PRGF arrangement, which is scheduled to be completed no later than December 31, 2001, as well as a review scheduled to be completed no later than May 31, 2002.

Sincerely yours,

/s/ Bacari Koné Minister of Economy and Finance Chevalier de l'Ordre National

 

Attachments: Memorandum of economic and financial policies for 2001 and
technical memorandum of understanding

MALI

Memorandum of Economic and Financial Policies for 2001

Bamako, July 9, 2001

I.  Introduction

1.  Mali is going through a difficult period. The current economic and social conditions are dominated by a crisis in the cotton sector, inadequate rainfall, the hike in oil prices last year, and problems in neighboring countries. The cotton sector crisis was caused by depressed international cotton prices and weaknesses in the management of the Compagnie Malienne pour le Développement des Textiles (CMDT). Given the importance of this sector to the Malian economy, the authorities are determined to introduce a series of short- and medium-term reforms to restructure the CMDT and liberalize the cotton sector, in order to improve its competitiveness. The objective of this reform is to ensure that Mali returns to an average annual growth rate of at least 5 percent in the medium term, thereby enabling it to reduce poverty.

II.  Recent Economic Developments

2.  Because of the difficulties confronting Mali, real GDP growth decelerated to 4.3 percent in 2000 from 6.6 percent in 1999. Inflation, which had remained moderate during the first three quarters on a year-on-year basis, picked up slightly toward the end of 2000 in anticipation of a drop in cereal production in 2001. Nevertheless, the average annual inflation rate was -0.7 percent in 2000. The volume of imports, excluding from the mining sector, declined by about 3½ percent in 2000. Despite increased gold exports, the decrease in the overall volume of exports was sharper than expected. Thus, the current account deficit (excluding grants) fell by about 1½ percent of GDP from 1999.

3.  In the fiscal sector, the basic balance reached a deficit of CFAF 13.1 billion in 2000, compared with the program target of a CFAF 9.6 billion surplus. While the program target for fiscal revenue were met for the first three quarters of 2000, there was a shortfall for the whole year that is estimated at 1.1 percent of GDP. The hike in petroleum prices in the world market, as well as the stabilization of retail prices through the continued application of a taxation mechanism (based on administered prices), resulted in a revenue loss equivalent to 0.7 percent of GDP for the year. Expenditure restraint over the first three quarters of 2000 made it possible, however, to exceed the target for the basic balance of 0.4 percent of GDP during this period.

4.  Credit to the economy declined in 2000 from its end-1999 level, mainly because of the decline in noncrop credit. The difficulties faced by the CMDT explain the accumulation of crop credits (for 1999/2000), which amounted to CFAF 30 billion outstanding at end-September 2000, and for which the commercial banks obtained a government guarantee. The cotton sector crisis had an adverse impact on the microfinance sector, which, although accounting for less than 3 percent of loan activity, saw its bad loans double in number in the first nine months of 2000. At the same time, the government improved its net position with the banking system, largely because of the proceeds from privatization and budgetary support grants received in December 2000. Broad money rose by about 12 percent, essentially reflecting a significant increase in the net foreign assets of the banking system.

5.  All the quantitative criteria and benchmarks were met in 2000 (Table 1). The two structural performance criteria envisaged in the program were met (Table 2); these relate to (i) the adoption of a new taxation system for petroleum products that automatically reflects changes in import prices in retail prices; and (ii) the adoption of an action plan to rehabilitate the financial situation of the retirement fund, Caisse de retraite du Mali (CRM) and the social security agency, Institut national de prévoyance sociale (INPS), based on recommendations contained in their audits. In addition, the sale of 60 percent of the capital of the electricity utility, Energie du Mali (EDM), was completed in December 2000. The new commercial court judges (whose ranks now include representatives of the banking and insurance sectors) were sworn in as scheduled. However, the drawing up of a set of measures to enhance the transparency and efficiency of the CMDT's financial management and to lower its production costs was delayed in 2000. The government has reached an understanding with the IMF that the preparation of a short-term crisis resolution plan for CMDT by June 30, 2001 and the preparation of a plan to repay the CFAF 30 billion owed by CMDT to the domestic banking system by end-June 2001 will constitute prior actions for completion of the second review. The preparation of a medium-term restructuring plan by end-December 2001 constitutes a structural performance criterion for the fourth disbursement. The CMDT has already started making progress in improving its internal management and marketing strategies, as well as in lowering its operating cost. In the telecommunications sector, the international call for bids to grant at least one cellular telephony operating license to a private operator has been postponed until October 2001, with approval from the World Bank.

III.  Macroeconomic Framework for 2001

6.  The cotton sector crisis had a destabilizing effect on the Malian economy, and the government is determined to get a handle on this difficult situation. The significant drop in cotton production in 2000/01 is expected to cause a slowdown in industrial activity and domestic trade. The loss in earnings by cotton producers of about 40 percent in 2001 (coupled with the 16 percent drop during the previous crop year) is also expected to have a negative impact on the demand for services. It is anticipated that real GDP will decline by about 1 percent in 2001, largely owing to the cotton sector crisis, the decrease in cereal production, and adverse secondary effects.

7.  The balance of payments is characterized in 2001 by the contrasting trends for gold and cotton. On the one hand, the mining sector is in full expansion, with two new mines opening up. On the other hand, cotton sector exports are contracting sharply. Mining sector imports are also increasing significantly, while other imports are slumping, owing to the negative repercussions on disposable income of the slowdown in cotton sector activity. The net result is an improvement in the trade balance, which should be practically in equilibrium. However, the current account balance is projected to worsen because of increasing imports of services in the gold sector and the transfers abroad of investment income from this sector. This deterioration is nonetheless projected to be offset by substantial capital inflows, especially in the gold sector, and by a sustained level of foreign aid.

IV.  Program Targets for 2001

8.  The basic fiscal balance will register a deficit of 3.2 percent of GDP in 2001, as against the surplus of 1.4 percent initially programmed, mainly because of a higher level of spending, as well as lower revenue. The increase in government expenditure reflects primarily onetime outlays to stabilize the economy, as well as to foster social peace and the democratization process. The authorities will take all necessary steps to avoid any easing of expenditure controls. In light of the adverse cumulative impact on the economy of the various shocks and the large financing need that has arisen, the government of Mali is requesting a 5 percent increase in access to quota in the Fund (amounting to SDR 4.665 million), to be disbursed onetime upon completion of the second review. If this request is approved, a financing gap of CFAF 51.2 billion would still remain.

9.  The overall level of expenditure is higher than initially programmed, reflecting higher outlays financed by resources freed by the assistance provided under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative), an increase in the wage bill, transfers to cover the investment needs of the EDM, the decision by the Malian authorities to change the treatment of value-added tax (VAT) reimbursements, an upward revision of the costs of the elections, and the cost to the budget related to the financial restructuring of the cotton sector. Thus, fiscal expenditure now includes VAT reimbursements to mining companies (formerly considered to be cash transactions and so classified as nonbank financing). The wage bill will rise from CFAF 73 billion in 2000 to CFAF 82 billion in 2001, following a revision of the pay scales and an increase in bonuses and allowances for certain staff categories (including magistrates, teachers, and health sector employees). Expenditure also explicitly includes CFAF 10.5 billion for a financial transfer to the EDM to compensate for the lack of an across-the-board increase of rates for water and electricity. In order to limit this financial support, the Malian authorities decided to raise the rates for water by 10 percent and for electricity by 5 percent effective July 1, 2001. The government also transferred CFAF 11 billion to the EDM to finance the connection of the Malian electricity network to the Manantali Dam network, and CFAF 7 billion to the CMDT (both of which financed by a World Bank credit). The cost of the elections has been increased by CFAF 6 billion over the programmed amount (to CFAF 9 billion in 2001), owing to the costs of conducting an administrative electoral census, as well as a constitutional referendum planned for September 2001. The costs associated with restructuring the cotton sector include CFAF 18 billion to repay the 1999/2000 crop credit (equivalent to 60 percent of the total amount due to the banks) and CFAF 5 billion to compensate for the CMDT's operating losses in 2001 as a result of the government's decision to raise the producer price to CFAF 200 per kilogram.

10.  To cover these outlays, the authorities are anticipating fiscal revenue of CFAF 288.3 billion in 2001. In spite of the economic crisis, this target should be met in part because increased activity in the mining sector will bring in CFAF 18.9 billion in dividends and other income, as against CFAF 8.3 billion in 2000. The Malian authorities have implemented most of the reforms needed to improve the structure of the tax system with the adoption of the common external tariff (CET) and a single-rate VAT. As such, the measures to be adopted to enhance the collection of revenue will be mainly of an administrative nature. Thus, since January 1, 2001, the single taxpayer identification number has been used systematically by all tax administrations, which has improved communication among the various assessment and collection agencies. The National Directorate for Internal Taxes (DNI) has taken steps to bring the informal sector into the tax base and has allocated additional staff and resources to the tax recovery service, which should improve the tax yield. Finally, other proposals are also being examined, including an excise tax increase on tobacco products.

11.  The Malian authorities are to take a significant step forward with the introduction of a new petroleum product taxation mechanism on July 12, 2001. This system would allow changes in import prices to be passed through to retail prices. This tax mechanism for petroleum products is broadly consistent with the West African Economic and Monetary Union (WAEMU) guidelines with regard to the taxation of these products.

12.  The authorities are aware that additional efforts will be necessary in the coming years to keep spending under control. The wage bill will continue to be maintained within the limits set under the WAEMU convergence criteria. Spending on the elections in 2001 will be restricted to the amount specified of CFAF 9 billion. The authorities will limit capital expenditure on the African Soccer Cup (CAN) to CFAF 10 billion per year until 2002, while capital expenditure from domestic sources in 2001, excluding HIPC Initiative-related resources, will increase by about CFAF 6.4 billion from the 2000 level. Most of this increase goes to priority spending in social sectors, in line with the targets established in the ten-year programs for education (PRODEC) and health (PRODESS), and for the basic infrastructure development program. Other current spending will also be revised downward, in particular by capping scholarships at CFAF 5.6 billion per year as envisaged under PRODEC and by reducing transfers and other current expenditure to levels compatible with government revenues.

13.  Monetary policy conducted at the regional level by the Central Bank of West African States (BCEAO) will continue to be prudent, in accordance with its objectives regarding the CFAF franc-euro exchange rate and the consolidation of the WAEMU's external position. An increase in broad money of about 2.8 percent is planned for 2001. This increase is expected to be matched by a rise in the foreign assets of the central bank and an increase in lending to the government. The net lending to the government takes into account measures to repay the remaining crop credit owed by the CMDT to the banks (CFAF 12 billion). The government of Mali is seeking an equitable burden sharing arrangement with the 40 percent partner in the CMDT. Pending a satisfactory conclusion of these negotiations, and in order to preserve the soundness of the banking system, the government has issued treasury bills to securitize the reimbursement of the CFAF 12 billion that should be the partner's share in the crop credit. The government undertakes the commitment to reimburse the banking system immediately upon receipt of the contribution from the partner. The monetary objectives of the program are described in Appendix I, Attachment II.

V.  Reform Of The Cotton Sector

14.  The government of Mali reaffirms its commitment to implement a policy of liberalizing the economy, which implies that the government will withdraw from the productive, industrial, and commercial sectors, to the benefit of the private sector. The government reiterated at the time of the participatory forum (Etats Généraux) for the cotton sector, held in April 2001, that the cotton sector could not remain excluded from this policy of liberalization. In accordance with the principal conclusions of the participatory forum, the Malian authorities have prepared, in close collaboration with the World Bank, the broad outline of a plan for the reform of the cotton sector and have drafted a short-term financial crisis resolution plan for the CMDT.

15.  The reform of the cotton sector has the following main objectives:

• to lower production cost;

• to establish a market-based pricing mechanism based on free negotiations among economic agents;

• to strengthen producers' organizations so that they can play a more important role in the management of the sector;

• to enhance participation of the private sector, producers, and local government agencies in the development of the sector; and

• to increase the contribution of the cotton sector to the national economy, thereby helping the fight against poverty and improving the standard of living of the population.

16.  To reach these objectives, the strategy adopted by the government is based on the following main components: (i) refocusing the CMDT's operations on ginning and marketing, its core activities linked to the cotton sector; and (ii) completing the liberalization of the sector in the medium term. The refocusing of the company on its core activities will entail notably the withdrawal of the CMDT from the provision of extension services; its progressive withdrawal from its public service activities (the responsibility to provide inputs and equipment, and transportation); and a subsequent scaling down of the size of the company. Moreover, the government reaffirms its commitment to follow a policy of liberalizing the economy and to foster a broader involvement of producers in the management of the sector, in particular by opening up the capital of the CMDT to producers and employees; the government also reaffirms its commitment to strengthen participation of producers in the provision of the services they need (such as advice on rural development, and the supply of inputs, equipment, and transportation services).

17.  During the period 2001–02, the key actions will be (i) preparation and implementation of a financial restructuring plan for the CMDT; (ii) initiation of a program to refocus the CMDT on its core activities in the cotton sector; (iii) implementation of measures that have been identified to strengthen producers' managerial and organizational capabilities; (iv) preparation of a study for an autonomous region and the completion of the terms of reference for the opening up of the Office de la Haute Vallée du Niger (OHVN) region (which will eventually be enlarged to incorporate adjacent areas) to a private sector enterprise; (v) preparation of a study of the steps and options for the complete liberalization of the cotton sector over time; (vi) adoption and implementation of a mechanism for the determination of the producer price for seed cotton that reflects movements in international prices and takes into account prices offered in the sub-region; (vii) completion of a study of the modalities for the transfer of extension services; and (viii) implementation by the CMDT of a more competitive mechanism for marketing cotton fiber for export, namely, one that maximizes receipts. In addition, an institutional reform of the cottonseed oil subsector will be implemented by June 2002 at the latest, with the liberalization of the sale price for cottonseed. The cottonseed oil public enterprise, HUICOMA, will be privatized by June 2002 at the latest.

18.  Over the medium term (2003–05), the conclusions and recommendations of the study referred to in point (v) in paragraph 17 will be validated and implemented in order to complete the liberalization of the cotton sector by opening up the sector to competition and by privatizing the CMDT.

VI.  Other Structural Reforms

19.  In order to control the civil service wage bill more effectively over the medium term, to improve the efficiency of the civil service, and to harmonize the wage scales, the authorities will undertake a diagnostic study of the medium-term wage policy in the civil service. In this context, an action plan for reform of the civil service will be drawn up and discussed with Mali's development partners by March 31, 2002. In the meantime, the government will complete an organizational audit of the civil service by November 2001.

20.  The Malian authorities are continuing to improve the transparency of the government budget. They have already made up for the delay in preparing the final audited budget accounts lois de règlement and sent them to the National Assembly. In April 2001, Mali also hosted an international seminar organized by the IMF in cooperation with AFRISTAT (Economic and Statistical Monitoring Agency for Sub-Saharan Africa) on the theme of the General Data Dissemination System. In addition, the authorities agreed to allow an IMF mission to undertake an assessment of the transparency of government finances, in the context of the Report on the Observance of Standards and Codes (ROSC).

21.  The authorities are determined to persevere in their efforts to limit the government's role in the productive sector. For 2001, the main actions will involve granting a cellular telephony license to a private operator and placing the entire Mali-Senegal railway network under a concession arrangement. Based on the timetable for completing these tasks, the proceeds from privatization in 2001 are expected to be about CFAF 8 billion.

VII.  Poverty Reduction

22.  The authorities prepared an interim poverty reduction strategy paper in 2000, which was considered by the Executive Boards of the International Monetary Fund and the World Bank in September of that year. The government has started the preparation of a full PRSP. This PRSP, which will become the unique frame of reference for Mali's development policies and strategies, will take into account some of the weaknesses identified in the interim PRSP. The government has designed a strategy for broad participation and has established the institutional framework and timetable for preparation of the final PRSP, which is expected to be completed by September 30, 2001. Eleven working groups were created and the preliminary reports of their work submitted in May 2001.

23.  The HIPC Initiative-related resources are integrated into the government budget and are monitored on both the revenue and the expenditure sides, as well as with respect to physical execution. A specific budget line item was inserted into the 2001 budget for monitoring HIPC Initiative-related resources. The prioritization of poverty-related spending (including of HIPC Initiative-related resources) is based on the priorities established through the participatory process in the context of preparing the interim PRSP and, later, the full-fledged PRSP. The PRSP Steering Committee, which is under the supervision of the Minister of Economy and Finance, will prepare by September 30, 2001 a table detailing the poverty reduction programs to be implemented during the period 2002 to 2005.

24.  The ways and means of transferring resources to the technical ministries will follow regular government spending and accounting procedures. The authorities have drafted a memorandum describing the terms and conditions for the transfer and the monitoring mechanisms, in order to ensure the proper utilization of these resources in 2001. In the context of the PRSP, it is envisaged that a monitoring mechanism will be prepared and implemented and regular evaluation reports drafted. The adoption of this new mechanism for monitoring HIPC Initiative-related expenditures will be a structural benchmark for end-December 2001. The introduction of a mechanism to track poverty-related expenditures in the 2002 budget will complement ongoing efforts to harmonize the management of public expenditures relative to budget laws and codes in the context of the WAEMU framework. These reforms, scheduled for implementation by January 2002, will enhance transparency in the execution and monitoring of poverty-related expenditure in general.

25.  In addition to the measures to improve efficiency in poverty-related spending, the government has, with the support of its development partners, decided to gradually implement the procedures for the medium-term expenditure framework (MTEF). To support this MTEF, and to respond to the need for efficiency in the use of poverty-related resources, the government will prepare and implement an action plan under the PRSP to improve governance and transparency in fiscal management. Mali's eventual participation in the GDDS, as a result of ongoing collaboration with the IMF staff, will lend further support to the government's efforts at improving fiscal transparency,

VIII.  Prior Actions

33. The following measures will constitute prior actions for the completion of the second review under the Poverty Reduction and Growth Facility (PRGF) arrangement:

• adoption by the authorities of a letter of development policy for the reform of the cotton sector;

• completion of a short-term plan for resolving the financial crisis of the CMDT;

• completion and validation of a plan to repay before September 30, 2001 the CFAF 30 billion owed by the CMDT to local banks and guaranteed by the government;

• increases in water and electricity tariffs by 10 percent and 5 percent, respectively; and

• implementation of the new taxation system of petroleum products that automatically reflects changes in import prices in retail prices.

IX.  Performance Criteria And Benchmarks

26.  Program implementation will be monitored by means of the quantitative and structural performance criteria and benchmarks that are described in detail in the attached Tables 3 and 4 and in the technical memorandum of understanding (appendix I, attachment II).

MALI

Technical Memorandum of Understanding

July 9, 2001

1.  This technical memorandum of understanding defines the quantitative and structural performance criteria and benchmarks for the program supported by the Poverty Reduction and Growth Facility (PRGF). It also sets out the frequency and deadlines for data reporting to the staff of the International Monetary Fund (IMF) for program-monitoring purposes.

I.  Definitions

2.  Unless otherwise indicated, the government is defined as the central administration of the Republic of Mali and does not include local administrations, the central bank, or any other public entity with autonomous legal personality that is not included in the table of government financial operations (TOFE).

3.  The definitions of "debt" and "concessional borrowing" for the purposes of this memorandum of understanding are as follows:

(a) As set out in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Borrowing (Executive Board Decision No. 6230-(79/140), amended by Executive Board Decision No. 12274-(00/85) (8/24/00), debt is understood to mean a current, that is, not contingent, liability created under a contractual agreement calling for the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services according to an established repayment schedule; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debt can take a number of forms, the primary ones being as follows: (i) loans, that is, advances of money to the obligor by the lender on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans, under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, that is, contracts where the supplier permits the obligor to defer payment until some time after the date on which the goods are delivered or services are provided; and (iii) leases, that is, arrangements under which property is provided that the lessee has the right to use for one or more specified period(s) of time, usually shorter than the total expected service life of the property, while the lessor retains title to the property. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the arrangement, excluding those payments that cover the operation, repair, or maintenance of the property. Under this definition of debt set out above, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

(b) A loan is considered concessional if, on the date the contract is signed, the ratio of the present value of the loan, based on the reference interest rates, to the nominal value of the loan is less than 65 percent (i.e., a grant element exceeding 35 percent). The reference interest rates used in this assessment are the commercial interest reference rates (CIRRs) established by the Organization for Economic Cooperation and Development (OECD). For debts with a maturity exceeding 15 years, the ten-year reference interest rate published by the OECD is used to calculate the grant element. For shorter maturities, the six-month market reference rate is used.

II.  Quantitative Performance Criteria

A.  Net Bank Credit to the Government

Definition

4.  Net bank credit to the government is defined as the balance between the debts and claims of the government vis-à-vis the central bank and commercial banks. The scope of net credit to the government is that used by the Central Bank of West African States (BCEAO) and is consistent with established Fund practice in this area. It implies a broader definition of government than that specified in paragraph 2. Claims of the government include the CFA franc cash balance, postal checking accounts, secured liabilities (obligations cautionnées), and all deposits with the BCEAO and commercial banks of public entities, with the exception of industrial or commercial public entities (EPIC) and public enterprises, which are excluded from the calculation. Government debt to the banking system includes all debt to these same financial institutions. Deposits of the Cotton Stabilization Fund and government securities held outside the Malian banking system are not included in the calculation of the net bank credit to the government.

5.  At end-March 2001, net bank credit to the government as defined above stood at CFAF 32.3 billion.

6.  The change in net bank credit to the government at the date indicated is defined as the difference between the stock on the date indicated and the stock at the end of the previous year. This change was CFAF 5.1 billion as of March 31, 2001.

Adjustment factor

7.  The ceiling on the change in net bank credit to the government vis-à-vis the banking system will be adjusted if external budgetary assistance exceeds or falls short of the programmed amount. Budgetary assistance is defined as grants, loans, and debt relief (excluding project loans and grants, IMF resources, and debt relief under the Initiative for Heavily Indebted Poor Countries (HIPC Initiative). The ceiling will be adjusted downward by the amount by which budgetary assistance exceeds the programmed amount. Conversely, the ceiling will be adjusted upward by the amount by which budgetary assistance falls short of the programmed amount. This upward adjustment may not exceed CFAF 1 billion at end-July 2001, CFAF 3 billion at end-September 2001, and CFAF 10.5 billion at end-December 2001. In the context of the program, cumulative external budgetary assistance is expected to reach CFAF 4.3 billion on July 31, 2001, CFAF 14.6 billion on September 30, 2001, and CFAF 51,2 billion on December 31, 2001. In addition, the authorities will reimburse the banking system as soon as the shareholder, which holds 40 percent of the capital in the CMDT, makes its contribution (CFAF 12 billion) for the repayment of CFAF 30 billion owed by the CMDT to banks.

8.  The ceiling on the change in the net bank credit to the government will be adjusted by the difference between the amount of unspent HIPC Initiative resources programmed and the actual unspent amounts. If the actual amount exceeds (falls short of) the programmed amount, the ceiling will be reduced (increased) by the difference between the actual amount and the programmed amount.

Performance criteria and indicative targets

9.  The ceiling on the change in net credit to the government is established as follows: CFAF 35.7 billion as at July 30, 2001; CFAF 39.9 billion as at September 30, 2001; CFAF 24.4 billion as at December 31, 2001; CFAF 12.0 billion as at March 31, 2002; and CFAF 12 billion as at June 30, 2002. The ceiling is a performance criterion at end-July and end-December 2001, a benchmark as at end-September 2001, and an indicative target for end-March 2002 and end-June 2002.

Reporting deadline

10.  Provisional data on net credit to the government, including a detailed list of the bank account balances of other public entities, will be transmitted on a monthly basis within the four weeks following the end of the month. The definitive data will be provided within an additional four weeks after the provisional data have been reported.

B.  Nonaccumulation of External Public Payments Arrears

Definition

11.  External payments arrears are defined as the sum of (i) external payments due, and (ii) unpaid for external liabilities of the government, and (iii) foreign debt held or guaranteed by the government. The definition of external debt provided in paragraph 3(a) applies here.

Performance criterion

12.  Under the program, the government will not accumulate external payments arrears, with the exception of arrears arising from debt under renegotiation or being rescheduled. The performance criterion on the nonaccumulation of external payments arrears will be monitored on a continuous basis throughout the program period.

C.  Nonaccumulation of Domestic Public Payments Arrears

Definition

13.  Domestic payments arrears are duly certified domestic expenditure commitments for which a payment authorization has been issued (depenses ordonnancées) but for which payment has not been made within 90 days of the date of the payment authorization. Domestic arrears also include expenditure commitments to public enterprises for which the payment authorization has been issued but for which payment has not been made within the same 90-day period.

Performance criterion

14.  Under the program, the government will not accumulate domestic payments arrears. This criterion will be monitored on a continuous basis.

Reporting deadline

15.  The government will report to the IMF staff any accumulation of domestic arrears as soon as the 90-day deadline is reached. Moreover, the government will minimize payment delays and will provide, at the request of IMF staff, data on expenditure commitments, payment orders, and payments.

D.  Ceiling on Nonconcessional External Debt with a Maturity of One Year or More Newly Contracted or Guaranteed by the Government and/or Public Enterprises

Definition

16.  This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Borrowing (Executive Board Decision No. 6230-(79/140), amended by Executive Board Decision No. 12274-(00/85) (8/24/00) but also to commitment contracted or guaranteed for which no value has yet been received.

17.  The concept of "government" for the purposes of this performance criterion includes government as defined in paragraph 2, public institutions of an administrative nature (EPA), public institutions of a scientific and/or technical nature, public institutions of a professional nature, public institutions of an industrial and/or commercial nature (EPIC), and local governments.

18.  In addition to the government, the public enterprises authorized to contract, guarantee or secure nonconcessional borrowing in the context of the program are CMDT, SOTELMA, and RCFM. No other public enterprise shall contract, guarantee, or otherwise secure nonconcessional borrowing.

Performance criterion

19.  A ceiling is set for nonconcessional borrowing. It relates only to borrowing from the West African Development Bank (BOAD), Crédit Commercial de France (CCF), the French Development Agency (AFD), and the Fund of the Economic Community of West African States (ECOWAS). The government and the above-mentioned public enterprises will not contract nonconcessional debt with other creditors.

20.  The cumulative ceiling applicable to the government and the above-mentioned public enterprises from December 31, 2000 until July 31, 2001 is CFAF 10.0 billion; CFAF 15.0 billion until September 30, 2001; and CFAF 25.0 billion until December 31, 2001.

21.  The cumulative ceiling applicable only to the above-mentioned public enterprises for the period from December 31, 2000 to July 31, 2001 is CFAF 8.5 billion; CFAF 8.5 billion until September 30, 2001; and CFAF 8.5 billion until December 31, 2001.

Reporting deadline

22.  Information on any borrowing (terms and creditors) contracted or guaranteed by the government and/or the above-mentioned public enterprises shall be transmitted each month within four weeks following the end of the month.

E.  Ceiling on Short-Term External Debt Newly Contracted or Guaranteed by the Government and/or Public Enterprises

Definition

23.  The definitions in paragraphs 16 and 17 also apply to this performance criterion.

24.  Short-term external debt is debt with a contractual term of less than one year. Import-related loans and debt relief operations are excluded from this performance criterion.

Performance criterion

25.  In the context of the program, the government and public enterprises will not contract, guarantee or secure short-term nonconcessional external debt.

26.  As of March 31, 2001, the government of Mali and public enterprises have no short-term external debt.

III.  Quantitative Indicators

27.  The program also includes indicators on government tax revenues, the civil service wage bill, and the basic fiscal balance.

A.  Floor for Tax Revenues

Definition

28.  Government tax revenues are defined as those that appear in the government financial operations table (TOFE).

Indicators

29.  Quantitative performance indicators for tax revenues are set at CFAF 153.4 billion as of July 31, 2001; CFAF 202.5 billion as of September 30, 2001; CFAF 277.2 billion as of December 31, 2001; CFAF 65.5 billion as of March 31, 2002; and CFAF 140.3 billion as of June 30, 2002.

Reporting deadline

30.  The government shall report tax revenues to IMF staff each month in the context of the TOFE.

B.  Ceiling on the Wage Bill

Definition

31.  The wage bill includes all public expenditure on wages, bonuses, and other benefits or allowances granted civil servants employed by the government, the military, and other security forces, and includes all similar expenditure with respect to special contracts and other permanent or temporary employment with the government. The wage bill excludes, however, wages paid under externally funded projects and transfers to local communities for the payment of teachers' salaries.

Indicators

32.  The quantitative performance indicators for the wage bill are set at CFAF 47.8 billion at July 31, 2001; CFAF 61.5 billion at September 30, 2001; CFAF 82 billion at December 31, 2001; CFAF 21.8 billion at March 31, 2002; and CFAF 43.6 billion at June 30, 2002.

Reporting deadline

33.  The government shall report the wage bill to IMF staff each month in the context of the TOFE.

C.  Floor on the Basic Fiscal Balance Excluding HIPC Initiative Related-Expenditure

Definition

34.  The basic fiscal balance is defined as the difference between total revenues, excluding grants and privatization receipts, and total expenditure plus net lending, excluding capital expenditure financed by foreign donors and HIPC Initiative-related expenditures.

Indicators

35.  The floors for the performance indicators for the basic fiscal balance are set at CFAF 1.6 billion at July 31, 2001; CFAF -5.4 billion at September 30, 2001; CFAF -42.2 billion at December 31, 2001; CFAF -11.9 billion at March 31, 2002; and CFAF 2.7 billion at June 30, 2002.

Reporting deadline

36.  The authorities will report monthly to IMF staff, in the context of the TOFE, provisional data on the basic fiscal balance. These data will be taken from the balances of treasury accounts for the items that are used to calculate this balance. The final data will be provided as soon as the final balances for these accounts are available, but not later than four weeks after the reporting of the provisional data.

IV.  Structural Criteria and Benchmarks

A.  Completion of a Medium-Term Financial Restructuring Plan for the CMDT for the Period 2002-05 Identifying Measures to Lower the Company's Production Costs and Improve its Financial Management (Structural Performance Criterion)

37.  By December 31, 2001 at the latest, the government will prepare a detailed medium-term financial restructuring plan for the CMDT.

B.  Launching of the Call for Bids for the Sale by CMDT and OHVN of Assets (Comprising of Ginneries, Trucks and Agriculture Equipments) Necessary for the Installation of a Private Sector Operator in the OHVN Zone (Structural Performance Criterion)

38.  By December 31, 2001, the government will launch the call for bids for the sale by the CMDT and OHVN of the assets necessary for the effective installation of a private sector operator in the zone currently comprising the OHVN, which will eventually be enlarged to incorporate adjacent areas.

C.  Adoption of a Plan for the Annual Allocation of HIPC Initiative Resources for the Period 2002-05 (Structural Benchmark)

39.  By September 30, 2001 at the latest, the government will submit to IMF staff a plan for the annual allocation of HIPC Initiative resources for the period 2002-05. The plan will be prepared in the context of the poverty reduction strategy paper.

D.  Adoption of a Plan for the CMDT to Withdraw Gradually from it Public Service Activities (Comprising of Rural Roads, Rural Infrastructure and Water Supply) (Structural Benchmark)

40.  By October 31, 2001 at the latest, the government will adopt a plan calling for the progressive withdrawal by the CMDT from its public service activities (rural road construction/maintenance, digging of village wells, supply of irrigation systems, etc.), and it will adopt a corresponding staffing/organizational plan, with in each case appropriate supporting measures.

E.  Completion of an Organizational Plan for the Civil Service (Structural Benchmark)

41.  By November 30, 2001 at the latest, the government will submit to IMF staff the results of an organizational plan of the civil service.

F.  Introduction in the 2002 Draft Budget of Specific Codes to Track HIPC Initiative-Related Expenditures (Structural Benchmark)

42.  The draft 2002 budget submitted to the National Assembly will incorporate specific codes to allow tracking of HIPC Initiative-related expenditures.

G.  Adoption and Implementation of a Mechanism for the Determination of the Producer Price for Seed Cotton that Reflects Movement in the World Market Prices and Takes into Account Producer Prices Offered in Neighboring Countries in the Subregion (Structural Benchmark)

43.  By December 31, 2001 at the latest, the government will adopt and implement a mechanism for the determination of the producer price for seed cotton that reflects movements in international prices and takes into account producer prices being offered in neighboring countries in the subregion.

V.  Additional Information for Program Monitoring

A.  Government Finances

44.  The government will provide IMF staff with the following:

• the TOFE and a breakdown of budgetary revenue and expenditure, including priority expenditure (health, education, and basic infrastructure), and distinguishing HIPC Initiative-related expenditure (these data will be forwarded monthly within six weeks following the end of the previous month for the TOFE and twelve weeks for the breakdown of HIPC-related expenditure);

• quarterly data on the implementation of the public investment program, including a breakdown of the sources of financing (these data will be transmitted within eight weeks following the end of the quarter); and

• monthly data on debt service, including a breakdown of principal, interest, and relief obtained under the HIPC Initiative (these data will be transmitted within four weeks following the end of the month).

B.  Monetary Sector

45.  The government will each month, within four weeks following the end of the month, unless otherwise indicated submit the following:

• the summary accounts of the BCEAO ;

• external assets and liabilities of the BCEAO (within eight weeks);

• summary accounts of commercial banks;

• summary accounts of the banking system;

• lending and deposit interest rates, and the BCEAO's intervention rates and reserve requirement; and

• prudential ratios for bank and nonbank financial institutions (within six weeks), and, if necessary, these same indicators for individual institutions.

C.  Balance of payments

46.  The government will provide IMF staff with the following:

• any revisions of the balance of payments data (including services, private transfers, official transfers, and capital transactions) as soon as the revisions are made; and

• preliminary annual balance of payments data within 12 months of the end of the year concerned.

D.  Real sector

47.  The government will provide IMF staff with the following:

• the harmonized monthly consumer price index disaggregated by category of expenditure every month within two weeks after the end of the month;

• the national accounts within nine months after the end of the year; and

• any revision of the national accounts.

Table 1. Mali: Summary of Data to Be Reported