Mali: IMF Executive Board Concludes 2012 Article IV Consultation
February 8, 2013
Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.
February 8, 2013
On January 28, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Mali.1 The Board also approved a disbursement under the Rapid Credit Facility (RCF) during the same meeting (See Press Release No. 13/24).
Background
Mali’s economy is struggling under a series of shocks. The poor harvest in 2011, loss of government control over the north part of the country following attacks by rebel groups; and the military coup in March 2012 have all taken a heavy toll. Donors have suspended budgetary support, while awaiting a clear road map toward free elections. It is estimated that GDP declined by 1.5 percent in 2012, while average annual inflation reached 5.3 percent by December 2012 on the back of food price increases. A large balance-of-payments deficit emerged, reflecting higher food imports and the reduction in donor support.
The fiscal position came under pressure in 2012. The government tightened spending to partly offset the revenue losses. Cuts were made in public investment and in implicit subsidies on petroleum products and cooking gas. As a result, the basic budget deficit (revenue and budget grants minus domestically financed spending) was contained at 1 percent of GDP. Despite these efforts, and heavy reliance on net domestic bank financing, Mali ran up arrears on external debt service in the amount of 0.5 percent of GDP.
The financial soundness of the banking sector has weakened in the worsening economic environment. Overall, banks remain well capitalized, but the situation is uneven, and nonperforming loans are on the rise. In the north, banks sustained financial and property damage estimated at 0.3 percent of GDP.
Executive Board Assessment
Executive Directors commended the authorities’ continued commitment to prudent policies despite severe economic and political shocks. Taking note of the challenging internal and external environment for the period ahead, Directors agreed that a new Fund-supported program under the Rapid Credit Facility will help Mali safeguard macroeconomic stability and re-engage with donors. Directors also agreed that, over the medium-term, polices should focus on strengthening the prospects for higher growth and further poverty reduction.
Directors considered that a tight fiscal stance is necessary in the near term. They noted that, while the 2013 budget is consistent with this objective, prudence suggests freezing part of the budgeted capital spending until donor support resumes. More broadly, Directors encouraged the authorities to prioritize expenditures and keep them in line with available resources, while protecting social spending. They also endorsed the plan to increase revenues through tax reforms in a variety of areas and the envisaged adjustment in oil and electricity prices. In this regard, Directors stressed that careful communication and targeted measures to protect the poor will be essential to gain public support.
While acknowledging the difficult financing constraints facing Mali, Directors regretted the accumulation of external arrears and encouraged the authorities to clear them as soon as possible. Welcoming Mali’s intention to meet all current debt service obligations, Directors agreed that strengthening public financial management, especially expenditure management, and implementing West Africa Economic and Monetary Union (WAEMU) directives will support arrear resolution and prevent their recurrence.
Directors underscored that, as the political situation stabilizes, economic policies should focus on fostering strong sustainable growth and further reducing poverty. Priority should be given to strengthening the financial sector, addressing the underlying weaknesses arising from non performing loans and loan concentration in the banks’ portfolios. Improving the business climate and removing structural and institutional bottlenecks will play an important role in boosting competitiveness and diversifying the economy. More investment in roads, irrigation, and education is needed to fully develop Mali’s agricultural potential. A few Directors also pointed to the possible benefits from a reduction in production subsidies in some cotton-producing countries.
| Mali: Selected Economic Indicators, 2009–12 | |||||||||
| 2009 | 2010 | 2011 | 2012 | ||||||
| Est. | |||||||||
| (Percent change) | |||||||||
|
Income and Prices |
|||||||||
|
GDP at constant prices |
4.5 | 5.8 | 2.7 | –1.5 | |||||
|
Consumer price index (average) |
0.0 | 1.4 | 3.1 | 5.4 | |||||
|
Real effective exchange rate (minus = depreciation) |
0.3 | –5.2 | 2.6 | … | |||||
|
Money and credit |
|||||||||
|
Credit to government 1 |
–13.9 | 2.5 | 5.1 | 7.4 | |||||
|
Credit to economy 1 |
7.2 | 8.4 | 15.7 | 6.3 | |||||
|
Broad money (M2) |
16.0 | 9.0 | 15.3 | 11.6 | |||||
| (Percent of GDP) | |||||||||
|
Investment and Saving |
|||||||||
|
Gross investment |
20.3 | 18.4 | 20.2 | 16.3 | |||||
|
Gross national saving |
13.0 | 5.8 | 10.0 | 10.6 | |||||
|
External sector |
|||||||||
|
Current account balance |
–7.3 | –12.7 | –10.4 | –5.8 | |||||
|
Overall balance of payments |
7.2 | –2.1 | –0.6 | –2.5 | |||||
|
Central government finance |
|||||||||
|
Revenue and grants |
21.7 | 20.1 | 21.1 | 17.9 | |||||
|
Expenditure and net lending |
25.9 | 22.8 | 24.8 | 20.0 | |||||
|
Primary balance |
–3.3 | –1.9 | –3.3 | –1.6 | |||||
|
Overall fiscal balance 2 |
–4.2 | –2.7 | –3.7 | –2.1 | |||||
|
Sources: Malian authorities; IMF staff estimates. 1 Change in percent of beginning-of-period broad money. 2 Payment order basis. | |||||||||
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. 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: http://www.imf.org/external/np/sec/misc/qualifiers.htm. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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