1. Since 1992 Mali has made significant progress in liberalizing the economy, reducing macroeconomic imbalances, and creating the conditions necessary for sustainable economic growth. The government has just completed the first two years of a three-year economic and financial program (1996-98) designed to consolidate the gains obtained, achieve financial viability, and economic growth over the medium-term, sufficient to reduce poverty. This program was supported by the IMF under a three-year Enhanced Structural Adjustment Facility (ESAF) arrangement and by the World Bank under the economic management assistance project (PAGE), with additional support from other multilateral and bilateral donors.

2. The current Policy Framework Paper (PFP)—intended for wide dissemination— reviews the impact of the measures implemented in 1997 and outlines the reforms to be undertaken during 1998-2001. It reflects the government's determination to strengthen macroeconomic policies and accelerate structural reforms, to enable Mali to benefit from the Heavily Indebted Poor Countries (HIPC) Initiative. A summary of the major reforms envisaged for 1998–2001, together with a timetable for their implementation, and a summary table on external financing requirements are attached.

4. In the area of government finance, the overall fiscal deficit was equivalent to 7.8 percent of GDP,³ slightly below the 1996 deficit, despite the exceptional outlays on national elections. Total revenue (excluding grants) rose to CFAF 229.7 billion, or 15.5 percent of GDP, owing in particular to the improved performance of revenue collection agencies, notably as a result of the new procedures for verifying exemptions granted to imports of petroleum products, improvement of other customs clearance procedures and a better monitoring of taxpayers identified in the census conducted by the Large Enterprise Division (DGE).

5. Overall budgetary expenditure exceeded expectations, partly as a result of some pressures on the wage bill, the unexpected high cost of the elections in part because of the anticipated second round, and equipment expenditure related to the installation of the new government following the legislative elections. Of the total CFAF 15.9 billion in additional election expenses, CFAF 4 billion was covered by budget appropriations initially allocated to the social safety net. In keeping with the objectives of the last PFP the focus of public expenditure remained on the priority sectors: spending on education and health amounted to the equivalent of 23.1 percent and 8.9 percent, respectively, of current expenditure in 1997. A new three-year public investment program was prepared by the government for 1998-2000, in consultation with the World Bank, with the objective of promoting productive activities and human resources development. Identified and verified domestic payments arrears, including those arising from judicial decisions, were reduced by CFAF 7 billion, in line with the program target.

6. In the monetary and credit area, the regional monetary authorities pursued a prudent policy. Estimated growth of the money stock was 8.6 percent, in line with the growth of nominal GDP. The net creditor position of the government with the banking system stood at nearly CFAF 24 billion at December 31, 1997—a slight increase over December 31, 1996—and credit to the economy rose by 14.5 percent. The slowdown of inflation across the West African Economic and Monetary Union (WAEMU) allowed the Central Bank of West African States (BCEAO) to reduce the discount rate from 6.5 percent in October 1996 to 6 percent in September 1997, while maintaining adequate differentials vis-à-vis French rates. In addition, the committee on the reform of the financial sector prepared a plan of action for microfinance in October 1997.

7. In the external sector, exports grew rapidly, owing to the strong performance of cotton and the increase in gold production. Imports grew more moderately, despite the increased use of petroleum products in developing the mining sector. As a result, the external current account deficit was reduced by about 5 percentage points to 9.3 percent of GDP in 1997.

8. The government continued to carry out the reform program for the public enterprise sector. As part of this effort, the authorities conducted a financial audit of the tobacco and matches (SONATAM) in October 1997, followed by a call for bid on December 31, 1997 for the sale to the private sector of 49 percent of the government shares in that company. A second invitation to bid for the sale of 100 percent of the shares of the company of insurance and reinsurance (CNAR) was issued on that same date. The invitations to bid for the government's minority interest in five other enterprises were unsuccessful.⁴ The government settled the balance of its cross debts with the electricity and water company (EDM). Lastly, it continued to publish economic and financial statistics for the enterprises remaining in its portfolio.

9. In the agricultural sector, the restructuring of the cotton industry continued in accordance with the guidelines set forth in the performance contract between the government, the Compagnie Malienne des Textiles (CMDT), and the cotton producers. As part of the restructuring of the Ministry of Rural Development and Water (MDRE), the human resources inventory was completed and the inventory of material resources is in progress. The taxation of rice imports, established in March 1997, was stabilized and the decree on the export tax on leather and skins was repealed in April 1997.

10. The government maintained the current system of liberalized prices and marketing channels. To improve the regulatory framework, it (i) streamlined the administrative procedures for creating new enterprises by replacing the prior authorization to operate, issued at the one-stop window, with an ex-post declaration for most enterprises not eligible under the investment code; (ii) submitted to the national assembly a draft law instituting the inspection of judicial services in order to bolster the confidence of economic operators in judicial decisions; and (iii) adopted a draft law amending the by-laws of the Chamber of Commerce and Industry of Mali (CCIM), which is expected to facilitate the elections of adjudicators which are more representative of all types of business, including banks, to the commercial courts.

11. In the education sector, 682 new teachers were hired in 1997 for basic education, and expenditure in the education sector continued to focus on primary education, teaching materials, and maintenance expenses. A vocational training and apprenticeship assistance fund was set up to strengthen vocational training, and a ten-year educational development program (PRODEC) was prepared.

12. In the health sector, 179 social/health workers were hired in 1997, and wholesale importers were given working capital of CFAF 240 million from the social safety net funds for the purchase of generic drugs, to promote private sector entry into the importing and distribution of these drugs. A subsidy of CFAF 100 million was paid by the government to provide additional social protection to the most disadvantaged groups, particularly the elderly, who thus enjoyed sizable reductions in medical costs. A new performance contract was signed with the Pharmacie populaire du Mali (PPM) to refocus its operations on strengthening the unit managing essential drugs. Lastly, the government prepared a draft ten-year health and social development plan for the period 1998–2007.

13. Mali continued to pursue an active regional economic integration policy. It agreed with the other members of the WAEMU on the introduction of a common external tariff (CET) on January 1, 2000. The National Economic Policy Committee (CNPE), established in July 1996 as part of the WAEMU multilateral surveillance effort, prepared a new, harmonized consumer price index, published for the first time on January 1, 1998.

15. Deepening structural reforms and improving performance in key sectors of the economy (agriculture, mining, livestock, and industry) will contribute to achieving the growth objective. Some of the sectors will see rapid withdrawal of the state from production and trade in favor of the private sector. Financial policies with continued emphasis in macroeconomic stability, will also bolster investor confidence and increase private investment. Together with the other member countries of the WAEMU, the government will take the necessary steps to secure and solidify the process of regional integration, thus providing Malian economic agents with an expanded market. At the same time, the government will allocate adequate resources for key investments in infrastructure. Improved control of the budget and stricter management of government resources will help generate the public savings needed to finance the expanded public investment required for higher growth.

16. A sustained improvement in the government's fiscal position will continue to be at the core of Mali's adjustment strategy. This will require fiscal consolidation in which policies are to offset a reduction in revenue from import taxes resulting from a tariff reform, while providing adequate allocation for vital services to the social sectors. The goal is to reduce the overall fiscal deficit from 7.8 percent of GDP in 1997 to 4.6 percent in 2001. The success of this effort will require a fair distribution of the tax burden along with a firm control over government expenditure.

17. Revenue collection efforts initiated under the 1997 program will be strengthened to boost tax revenue from 13.3 percent of GDP in 1997 to at least 15.3 percent in 2001. The efforts will entail, in particular, the restructuring of domestic indirect taxation, the adoption of a simplified direct tax system,⁵ and increasing the efficiency of the Large Enterprise Division (DGE). The revenue mobilization efforts will be helped by the mandatory use of the taxpayer identification number by all revenue collection agencies in tax assessment and collections.

18. Regarding taxes on foreign trade, the new procedures for verifying exemptions related to petroleum products imports⁶ will be maintained and extended to externally-financed government contracts.⁷ Moreover, a new customs code (consistent with the WAEMU regulations) will be adopted to simplify customs clearance procedures and strengthen efforts to combat smuggling. Along with its WAEMU partners, the government will undertake a tariff reform that will reduce to four the number of rates applicable to transactions originating outside the WAEMU, and limit the highest rate to 20 percent by January 1, 2000. The reform also calls for the complete elimination of the tariffs applied to approved local products in trade within the WAEMU. To offset the revenue losses caused by these reforms, domestic indirect taxation will have to be restructured and the tax base extended to the agriculture, livestock, mining, and informal sectors so as to ensure a more equitable distribution of the tax burden. This also entails the elimination of all exemptions not clearly justified on social/diplomatic grounds.

19. With regard to expenditure policy, the objective will be to control total spending while rationalizing the structure so as to direct more resources to the social sectors. To contain the wage bill within reasonable limits, and thus preserve the competitiveness of the Malian economy, the government has decided to: (i) merge the payroll and civil service files into a single government employees file; and (ii) restrict recruitment to priority sectors, while filling vacancies in other sectors in such a way as to avoid any net recruitment. These steps will help to control the wage bill, while allowing scope to provide the incentives necessary for greater government efficiency. Total public expenditure and net lending will decline from 23.4 percent of GDP in 1997 to 21.4 percent in 2001, and identified and verified domestic payments arrears will be cleared during 1998 and 1999.

20. To alleviate the impact on the most disadvantaged social groups which may result from the ongoing reforms, the government plans to increase allocations for social programs to CFAF 13 billion in 1998, and catch up with the delays in 1997. Spending on education and health—which accounted for 23.1 percent and 8.9 percent, respectively, of total current expenditure in 1997—will increase during 1998-2001, in line with the targets established in consultation with the World Bank. The government will adopt, in June 1998, the Health and Social Development Program (PRODESS) for the period 1998-2002. The objectives of this program are to expand coverage of health services and improve their quality. Key targets are to increase children immunization rate from 60 percent in 1997 to 97 percent in 1999, create 300 new health centers, and to give intensive training to the health personnel during the period 1998-2002. In the education sector, over 1,200 additional schools will be built during the same period and the availability of books and other teaching material will be increased.

21. The authorities will continue to improve the programming and monitoring of public investment in consultation with the World Bank. They will also implement measures needed to strengthen quarterly monitoring of the physical and financial execution of the investment program. To that end, a quarterly report on execution of the BSI (special investment budget) will be submitted to the government for appropriate decision on measures to correct any problem of implementation. The government will adopt a three-year public investment program no later than December 31 of each year, which will give priority to directly productive sectors and the development of human resources. The government’s counterpart fund obligations will also be regularly monitored. The authorities will undertake an annual public expenditure review by June 30 of each year in consultation with the World Bank.

2.  Monetary and credit policies

22. The regional monetary authorities will continue their efforts to strengthen the role of market mechanisms in determining interest rates, in particular by diversifying the financial instruments available to the central bank, setting up a regional financial market, and deepening open market policies. To promote regional economic integration, the BCEAO is working with other WAEMU institutions to create a regional stock exchange with private sector management. This should provide WAEMU economic agents with better investment opportunities and sources of funds, and offer savers possibilities for diversifying their assets.

23. The authorities will play an active role in the WAMU to promote the development of the regional financial market, particularly the stock exchange. The government will re-examine the taxes on leasing and savings accounts, including the single tax on savings accounts, the tax on services rendered (TPS) levied on interbank loans, and harmonization of the rate of the tax on securities income (IRVM) with the rate in force in other WAMU countries. The government will also implement the recommendations concerning the action plan for microfinance adopted in February 1998, in order to promote the development of decentralized financial systems. Lastly, the government will complete the restructuring of the BIM-SA and will issue an invitation to bid for BMCD ⁸ shares by December 31, 1998. It will support the actions of the WAMU Banking Commission to ensure compliance with prudential ratios and strengthen the financial structure of credit institutions. The government will ultimately withdraw from the other banks. The financial sector action plan will be adopted by the government in August 1998.

24. The government will continue efforts to expand the role of the private sector in the economy. To that end, the regulatory framework will be enhanced through three priority actions: (i) the appointment of adjudicators representative of all sectors of the economy to the commercial courts; (ii) the start-up of the unit responsible for reviewing and monitoring business law; and (iii) the creation of a judicial services inspection agency. The reform of the code of civil procedure will be adopted to make it easier to execute loan guarantees. Among other measures, the government will launch a training program for business law judges, implement an ethics code for all judges, and intensify the control of courts by rigorously applying sanctions against judges convicted of questionable practices. The government will prepare a ten-year development program for the judicial system (PRODEJ), to enable it to function more effectively while observing the principles of impartiality, and due process.

2.  Public enterprise reform

25. As of April 30, 1998, the government had completed privatization of three enterprises: CNAR (sale of 100 percent of its shares as opposed to the 70 percent initially planned); the printing company (EDIM-SA); and the maintenance company (EMAMA). There remains currently 36 public enterprises in the government’s portfolio; it holds a minority share in 16 of these enterprises. By end-1998, the government will complete the action plan for the sector, which was adopted in 1996. It will also extend the program to other enterprises, including the telecommunications company (SOTELMA), the EDM, and the airport authority (ADM).⁹ To monitor the privatization process, the government will establish a national privatization commission.¹⁰ By November 30, 1998, it will also adopt a draft law revising the basic principles on privatization of public enterprises, to facilitate the adaptation of current procedures to market conditions. Privatization receipts expected from the sales of public enterprises will be used, in consultation with IMF staff, to carry out investment projects in the social sectors and to reduce the government’s bank and nonbank debt.

3.  Sectoral policies

a.  Agricultural sector

26. The strengthening of the competitiveness and productivity of the rural sector will remain a key element of the government’s reform program. The pricing and marketing of agricultural products will continue to be free of controls. Special emphasis will be placed on the development of agricultural research, in particular through the implementation of the agreement establishing the Rural Economics Institute (IER). The development of cotton and rice is still a priority for the government in this sector. To this end, the strategy will be designed to tap the potential for expanding the acreage of irrigated land and increasing yield, based largely on increased cost recovery from the beneficiaries.

27. A technical audit of the cotton industry will be completed by September 30, 1998. The measures proposed by the audit to enhance efficiency will be taken into account in the new CMDT performance contract, which will take effect on October 1, 1998. In addition, the amounts borrowed by the CMDT from the stabilization fund will also be repaid in full by the end of the cotton crop marketing year, by November 30, 1998. The government will also define its position on the private sector’s participation in the industry, in consultation with the World Bank and the IMF.

28. During 1998, the government will complete the restructuring of the MDRE, by: (i) redeploying personnel from the ministry and transferring certain activities to the private sector, in particular those related to vaccinations, as recommended in the MDRE’s organizational framework; and (ii) completing the inventory of the Ministry’s material resources.¹¹

b.  Mining and energy sectors

29. In the mining sector, the government will adopt a new mining code by December 31, 1998, in order to encourage the development of small ventures, taking account of their environmental impact and of the sector’s competitiveness.

30. Water and electricity rates were increased by 30 and 12 percent, respectively, on April 1, 1998. These adjustments, which were necessary to ensure the financial viability of EDM, will be accompanied by strict measures aimed at improving cost-effectiveness and reducing late payments on utility bills by the government. Other rate adjustments will be made over the 1999–2001 period. The government has decided to open up the sector to competition and to issue an invitation for bids for the privatization of the EDM in February 1999.

c.  Transport and communications sectors

31. As Mali is landlocked, steps will be taken to maintain road infrastructures system in good condition with a view to increasing road transport efficiency and enhancing competitiveness. To this end, the government will: (i) establish in 1999 a Road Maintenance Fund, financed by user fees, and an Agency to carry out road maintenance work with the participation of the private sector; and (ii) draft a policy for rural transportation and development of rural roads, and for expansion of air and river transport.

32. The government has decided to improve the availability, quality, and cost of telecommunications through efforts to modernize and expand the telecommunications network, including the rural and international telephone services. The telecommunications sector will be opened up to competition in March 1999.

d.  Urban planning and housing

33. Within the framework of the action plan for the development of the urban sector, the government will implement a number of measures during 1998–2000, including completion of the revision of the real estate code and the simplification of related procedures.¹²

4.  Administrative decentralization and institutional reforms

34. Decentralization organizes the sharing of responsibility between the central government and the communes for certain functions, such as, health, basic education, rural water supply, urban planning, and environment. This reform aims to better organize the mobilization and management of government resources, by moving some decision-making on resource allocation closer to the grass-roots level and directly linking specific investments to the mobilization of local resources. The 701 communes, of which 682 are new, will be provided with the appropriate management and supervisory agencies for effective operation after communal elections are held in June and November 1998.

5.  Regional integration

35. The authorities will continue to work within WAEMU toward the implementation of the common external tariff, starting January 1, 2000, and the removal of tariff and nontariff barriers applicable to approved products within the Union. The government will also participate in a number of other regional initiatives, particularly those concerning the harmonization of domestic indirect taxation; the adoption of a Community Investment Code and of the uniform standards of the organization to harmonize business law in Africa (OHADA); and the coordination and convergence of macroeconomic and sectoral policies. For more than two decades, Mali has been a member of the Organization for the Development of the Senegal River (OMVS). In this context, the government intends to take the necessary steps to give substantive authority to the OMVS with regard to navigation issues.

6.  Improvement of statistical data

36. To improve the quality of the information available on economic activity and trends, a special effort will be made to enable the National Directorate of Statistics and Data Processing (DNSI) to complete a comprehensive updating of the national accounts series by December 31, 1999, based on the methodology of the 1993 UN System of National Accounts. This effort will include the training of staff, the provision of data processing support systems and adequate financial resources. The industrial production index will be upgraded by December 31, 1998, particularly through broader sampling. The government intends to request IMF and AFRISTAT support for specific tasks involved in updating the national accounts.

37. The provisional results of the third general population and housing census will be published by June 30, 1998. To enable the government to better target its anti-poverty programs, efforts to collect and analyze social indicators will be strengthened within the framework of the sustainable human resource development observatory.

7.  Technical assistance

38. The government of Mali will continue to need technical assistance from its development partners to support the implementation of the structural adjustment policies described above and to further develop available human resources. Government finance, particularly tax assessment and collection, will be the initial focus of technical assistance. The government will request technical assistance from the IMF to help prepare offsetting domestic tax measures so as to ensure a smooth implementation of the WAEMU common external tariff.

39. The World Bank will provide technical assistance for the implementation of sectoral policies, mainly in the infrastructure and social sectors, the revision of the mining code and for the privatization of SOTELMA and EDM. Multilateral technical assistance will help complete the national environmental action plan, which will strengthen natural resource management.

40. With a view to overhauling the education system, the government completed the drafting of a ten-year education development program (PRODEC) in May 1998, which will support the accelerated expansion of basic education, especially for girls, and an overall improvement in the quality of education. The objective is to raise the enrollment rate for primary education from 47 percent in 1997 to 55 percent by 1999, and to 75 percent by 2008. To achieve this objective, there will be tradeoffs in resource allocation within the sector, sustainable solutions will have to be found to the problems of recruitment, financing, and the status of teachers, and the need for building more school infrastructure will have to be addressed. With this in mind, the government will complete its review of public expenditure in the sector by June 30, 1999.

41. Adequate allocations have been provided in the 1998 budget to cover the costs of: (a) hiring 700 teachers (CFAF 615 million); (b) paying the overtime worked by teachers in the double-shift system (CFAF 278.5 million); (c) maintaining school buildings (CFAF 350 million); (d) providing teaching materials (CFAF 5.2 billion); and (e) constructing, refurbishing, and fitting out schools and universities. Meanwhile, budgetary appropriations for scholarships will not exceed the level of CFAF 4.3 billion for 1998 and 1999. Altogether, these measures will increase the share of education in the government's recurrent budget from 23.1 percent in 1997 to 25.6 percent in 2000, and raise the share of spending on primary education in total education expenditure from 57.3 percent in 1997 to 59.1 percent in 2000. The resources earmarked for education, excluding teachers’ pay and investment outlays, will increase from CFAF 16.0 billion in 1997 to CFAF 18.8 billion in 1998.

2.  Health and population policy

42. The government has prepared a development strategy that will cover the period 1998–2007. A five-year sectoral investment program in health will be presented to a meeting of donors and lenders in June 1998. Arrangements have been made to increase the share of health in current expenditure to 10 percent in the 1998 budget. Hiring of social or health workers will continue at a rate of 200 per year, who will be posted to outlying facilities. Starting in 1999, human resources will be managed in accordance with sectoral investment program needs, to the extent permitted by available resources.

43. The population growth rate, estimated at 3.2 percent in 1995, is still high. The government will focus on the expansion of family planning and reproductive health services, including strengthened information, education, and communications efforts targeting youth and women, with the participation of all concerned.

3.  Women issues

44. The government will continue to implement the 1996–2000 action plan, which aims, inter alia, to: (a) promote the education of girls and women; (b) foster the improvement of women’s health; and (c) increase the participation of women in the economic development process and in environmental protection. The government will take the necessary steps to ensure better incorporation of the gender dimension in development programs. It will continue its actions to inform and raise awareness about women’s rights, especially with regard to their access to land and credit. The government will draft and implement a policy supportive of the family and protective of children.

4.  Promotion of youth

45. The government intends to strengthen national volunteering to assist in the fight against poverty by mobilizing youth. Measures will be implemented to further involve youth and youth associations, NGOs, and economic interest groups (GIEs) in socioeducational activities.

5.  Employment and civil service

46. A comprehensive civil service employment policy will be prepared to ensure the necessary adequation between the human resource needs of the various sectoral reforms and government resources. The control on new recruitment in recent years and the aging of working staff limits the capacity of government administrations to prepare and execute needed reform programs as effectively and quickly as desirable. The government, therefore, will have to rejuvenate and modernize the civil service in sectors other than education and health. However, budgetary constraints require continued strict control of the wage bill. In this context, there will be no net recruitment, except in health and education sectors. In addition, and to improve the general employment situation, the government will explore ways to finance training and apprenticeship programs to better prepare youth for entering the labor market.

49. External financing requirements for the 1998-2000 period are estimated at CFAF 610.5 billion, including CFAF 218.1 billion in 1998, CFAF 201.3 billion in 1999, and CFAF 191.1 billion in 2000. The government expects that these requirements will largely be met by assistance from bilateral and multilateral donors. Loans from the IMF that would be available under the ESAF arrangement during 1998-99 amount to CFAF 31.3 billion (SDR 41.34 million). According to projections, total resources available from the World Bank for the 1998–2000 period should total CFAF 193.8 billion (SDR 255.4 million). The government also expects external assistance from its multilateral and bilateral creditors under the HIPC initiative after the possible completion point at end-1999.

50. In order to maintain its development strategy on a sound financial basis, Mali will continue to seek grants and highly concessional loans. Mali will also continue to manage its external debt prudently. Apart from certain specific cases, which are monitored under ceilings agreed upon with the IMF, the government will neither contract nor guarantee any new nonconcessional external loans (with a grant element of less than 35 percent), with the exception of short-term credit generally granted for imports and loans arising from debt rescheduling or refinancing operations.

51. Mali will continue to make all loans contracted or guaranteed by the government subject to the prior authorization of the Minister of Finance, which will ensure that all debt service payments continue to be made on a timely basis. The government intends to maintain an exchange system that is free of restrictions on payments and transfers for current international transactions. Along with its WAEMU partners, Mali has accepted, with effect on June 1, 1996, the obligations of Article VIII of the IMF's Articles of Agreement.

52. A debt sustainability analysis (DSA), on a loan-by-loan basis and utilizing currency-specific discount rates has been prepared in a collaborative effort involving the staffs of the IMF and the World Bank and the Malian authorities. Based on a preliminary assessment, the Executive Boards of the World Bank and the IMF in Spring 1998, agreed in principle and subject to the views of other creditors that Mali should be considered for assistance under the Heavily Indebted Poor Countries (HIPC) Initiative. The government is determined to pursue far-reaching macroeconomic and structural reforms which, if quickly implemented and completed by December 31, 1999, will enable the country to receive assistance under this initiative.