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Mali

Author(s):
International Monetary Fund
Published Date:
March 2008
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I. Macroeconomic and Structural Developments

A. Sound Economic Performance But Only Modest Poverty Reduction

1. Supported by a favorable external environment, Mali has maintained good macroeconomic performance (Tables 14, Figure 1).

Table 1.Mali: Selected Economic and Financial indicators, 2004–08 1/
20042005200620072008
Prel.Prel.Proj.Proj.Proj.
National income and prices (percent change)
Real GDP2.26.15.34.14.8
GDP deflator-0.72.15.12.64.2
Consumer price inflation (average)-3.16.41.52.02.5
External sector (percent change)
Terms of trade (deterioration -)1.5-10.715.71.16.7
Real effective exchange rate (depreciation -)-3.93.93.13.2
Money and credit (contribution to growth of broad money)
Credit to the government1.91.3-12.10.22.4
Credit to the economy8.1-1.111.510.33.2
Broad money (M2)-2.49.510.98.08.4
Investment and saving (in percent of GDP)
Gross domestic investment21.722.322.422.923.3
of which: Government7.47.68.48.68.3
Gross national savings13.414.117.716.517.5
of which: Government2.42.02.32.22.1
Gross domestic savings13.513.719.416.618.1
Central government finance and debt (in percent of GDP) 2/
Revenue17.417.917.717.117.8
Grants4.04.139.75.34.3
Total expenditure and net lending24.025.225.426.026.4
Overall balance (payment order basis, excluding grants)-6.6-7.3-7.7-8.9-8.6
Basic fiscal balance 3/0.4-0.20.3-0.7-1.2
External sector (in percent of GDP)
Current external balance, including official transfers-8.3-8.2-4.7-6.4-5.8
Current external balance, excluding official transfers-10.3-10.4-6.7-8.1-7.0
Exports of goods and services24.625.630.626.726.1
Imports of goods and services-32.9-34.2-33.6-32.9-31.3
Debt service to exports of goods and services6.47.43.73.43.4
Stock of External debt48.847.920.022.624.4
Memorandum items:
Nominal GDP (in billions of CFA francs)26112829313233443653
Overall balance of payments (in millions of US dollars)-178.396.4105.557.553.5
Interest rate (in percent; end of period) 4/5.05.05.0
Gross international reserves (in millions of US dollars)861.3941.61,181.51,266.51,350.8
(In months of next year’s imports)6.46.16.16.36.6
U.S. dollar exchange rate (end of period)498.4541.5514.9
Sources: Malian authorities; and Fund staff estimates and projections.

2006 data after adjustment for MDRI

Fiscal numbers for 2007 are program figures.

Revenue (excluding grants) less total expenditure (excluding foreign financed investment projects and HIPC initiative related spending).

End-of-period money market interest rate.

Sources: Malian authorities; and Fund staff estimates and projections.

2006 data after adjustment for MDRI

Fiscal numbers for 2007 are program figures.

Revenue (excluding grants) less total expenditure (excluding foreign financed investment projects and HIPC initiative related spending).

End-of-period money market interest rate.

Table 2.Mali: National Accounts, 2004-08
GDP Weight

(2002,

percent)
200420052006

Est.
2007

Proj.
2008

Proj.
(annual percentage change, at constant prices)
Primary sector32.3-4.47.04.44.36.3
Agriculture17.4-11.09.94.84.47.7
Food crops, excluding rice10.7-12.114.910.08.06.0
Rice3.5-12.011.16.07.36.0
Industrial agriculture, excl. cotton0.9-11.46.03.06.06.0
Cotton2.4-5.0-9.8-21.6-27.231.8
Livestock9.87.33.04.04.04.0
Fishing and forestry5.12.64.03.84.64.6
Secondary sector25.42.67.98.2-3.24.6
Mining11.4-17.318.917.8-11.35.1
Industry7.621.11.10.9-2.01.9
Energy1.915.06.010.010.010.0
Construction and public works4.48.04.03.04.05.0
Tertiary sector34.56.64.29.46.34.8
GDP (at factor cost)92.11.46.17.33.35.3
Indirect taxes7.911.36.0-15.114.6-1.1
GDP (at market prices)100.02.26.15.34.14.8
Nonmining real GDP88.64.05.24.25.64.8
(percentage of GDP, unless otherwise indicated)
Gross national saving13.414.117.716.517.5
Of which: domestic saving13.513.719.416.618.1
Gross domestic investment21.722.322.422.923.3
Memorandum items:
External current account balance1-8.3-8.2-4.7-6.4-5.8
Nominal GDP (billions of CFAF)2,6112,8293,1323,3443,653
Sources: Malian authorities; and Fund staff estimates and projections.

Including official transfers.

Sources: Malian authorities; and Fund staff estimates and projections.

Including official transfers.

Table 3.Mali: Balance of Payments, 2004-10 1
2004200520062007200820092010
Prel.Projections 2
(billions of CFAF, unless otherwise indicated)
Current account balance
Excluding official transfers-268-293-208-270-257-220-204
Including official transfers-216-232-149-214-212-202-184
Exports, f.o.b.516580807724769826883
Cotton fiber18114014210977101105
Gold269359580520582599635
Imports, f.o.b.-578-657-727-762-799-835-868
Petroleum products-123-156-196-194-172-178-171
Trade balance-62-7780-38-30-915
Services (net)-154-166-175-172-160-140-146
Income (net)-103-109-176-127-137-146-152
Of which: interest due on public debt-16-18-15-11-13-16-18
Private transfers (net)51596366707478
Official transfers (net)51616057451921
Capital and financial account127301204243240247204
Capital account (net)8077121213678104115
Capital transfers8077121213678104115
Debt forgiveness0010850000
Project grants707012713678104115
Financial account47224-100810716114389
Private (net) 3195-36106818-48
Official (net)46130-9729894125137
Errors and omissions-5-1900000
Overall balance-94515530274520
Financing94-51-55-30-27-45-20
Foreign assets (net)65-81-78-40-40-50-26
Of which: IMF (net)-16-11-611000
HIPC Initiative assistance293022111356
Financing gap0000000
Memorandum items:
External trade(annual percentage change)
Export volume index-6.319.14.5-10.5-3.46.73.7
Import volume index0.17.6-3.95.61.93.37.8
Export unit value2.0-5.633.30.39.90.73.1
Import price0.55.715.2-0.82.91.2-3.6
Terms of trade1.5-10.715.71.16.7-0.56.9
External current account balance(percent of GDP, unless otherwise indicated)
Including official transfers-8.3-8.2-4.7-6.4-5.8-5.1-4.2
Excluding official transfers-10.3-10.4-6.7-8.1-7.0-5.6-4.7
External public debt48.847.920.022.624.426.527.9
Debt service to exports of goods and services (after debt relief, in percent)6.47.43.73.43.43.63.5
NPV of debt-to-exports (percent)110.044.040.845.852.056.762.1
Commodity prices:
Petroleum (crude spot; US$/barrel)37.853.464.363.868.868.566.8
Gold (US$/ounce)408.2444.9610.0690.0725.0765.0805.0
Cotton (US cents/pound), f.o.b63.551.253.055.055.556.056.5
Sources: COMEX gold futures prices; Malian authorities; and Fund staff estimates and projections.

Presented according to the Balance of Payments Manual (5th edition).

2006–10 data after adjustment for MDRI (IMF, IDA, and AfDB).

Reflects mainly the amount and timing of investments in the gold sector and includes short-term capital flows.

Sources: COMEX gold futures prices; Malian authorities; and Fund staff estimates and projections.

Presented according to the Balance of Payments Manual (5th edition).

2006–10 data after adjustment for MDRI (IMF, IDA, and AfDB).

Reflects mainly the amount and timing of investments in the gold sector and includes short-term capital flows.

Table 4.Mali: Monetary Survey, 2003-07
Dec.Dec.Dec.DecMarMarJunSepDecDec
2003200420052006200720072007200720072008
Prel.Prel.Proj.Prel.Prel.Proj.Proj.Proj.
(In billions of CFAF)
Net foreign assets423.2367.5428.9524.0534.7530.5535.1544.7564.0604.0
Central Bank of West African States (BCEAO)384.7319.3399.9460.0492.5489.0495.9502.5500.0540.0
Commercial banks38.548.229.064.042.241.539.342.264.064.0
Net domestic assets363.0399.7411.4408.0383.8354.6432.5418.8442.5486.7
Credit to the government (net)-74.9-59.7-26.4-128.2-110.2-115.6-104.2-116.4-124.6-100.4
BCEAO, net91.895.483.422.535.420.4
Commercial banks-166.1-166.9-130.0-180.3-183.1-159.7
Other-0.611.920.229.632.235.1
Credit to the economy482.8521.7516.0575.2561.2537.4580.8602.5634.4654.4
Other items (net)-44.9-62.3-78.2-39.1-67.3-67.1-44.2-67.3-67.3-67.3
Money supply (M2)786.2767.2840.3932.0918.5885.1967.6963.51,006.51,090.7
Currency outside banks340.9275.4344.9343.7323.1326.2
Bank deposits445.2491.8495.4588.2562.0641.5
Base Money (MO)474.2402.7462.3449.4538.9473.9480.1515.9538.9554.3
Contribution to the growth of broad money
Net foreign assets22.1-7.18.011.31.70.71.22.84.94.0
Net domestic assets3.44.71.5-0.40.3-5.72.64.26.94.4
Of which: credit to the central government-7.61.94.3-12.11.81.42.61.10.22.4
Memorandum items:
Money supply (M2)25.5-2.49.510.96.1-5.03.813.98.08.4
Base Money (MO)32.0-15.114.8-2.819.95.56.814.819.92.9
Credit to the economy17.38.1-1.111.57.0-6.61.022.710.33.2
Velocity (GDP/M2)3.33.43.44.43.53.53.53.53.53.3
Money Multiplier (M2/M0)1.71.91.82.11.71.92.01.91.92.0
Currency outside banks / M2 (in percent)43.435.941.036.936.533.735.935.9
Sources: BCEAO; and Fund staff estimates and projections.

Includes the impact of MDRI from IMF. Debt stock relief in the amount of SDR 75.0655 million was granted to BCEAO. This was onlent to the government in CFA francs in the amount of CFAF 64.669 billion. At the date of debt relief, January 6, 2006 debt relief was equivalent to CFAF 58.826 billion. The BCEAO therefore experienced a loss of CFAF 5.842 billion.

Sources: BCEAO; and Fund staff estimates and projections.

Includes the impact of MDRI from IMF. Debt stock relief in the amount of SDR 75.0655 million was granted to BCEAO. This was onlent to the government in CFA francs in the amount of CFAF 64.669 billion. At the date of debt relief, January 6, 2006 debt relief was equivalent to CFAF 58.826 billion. The BCEAO therefore experienced a loss of CFAF 5.842 billion.

Figure 1.Mali: Inflation and External Developments

Sources: Malian authorities; and staff estimates.

  • Real GDP grew in 2006 by 5.3 percent, its trend rate, but is expected to slow this year (Figure 1). Surging gold prices and production in 2006 boosted growth, notwithstanding a sharp drop in the cotton crop (about 22 percent). Growth in 2007 is expected to slow to about 4 percent, as cotton output declines further (about 27 percent) owing to late rains and gold production dips stemming from technical difficulties at a few mines.
  • Other macroeconomic indicators are positive. Consumer price inflation is expected to remain around 2 percent in 2007. Mali’s terms of trade should again improve, with higher gold prices more than offsetting the increase in oil prices, although the trade balance may slip back into deficit on account of weak cotton and gold exports. Foreign exchange reserves remain comfortable at about six months of imports.

Gold: Price and Revenues, 2002-06

2. Mali’s per capita income growth, while steady, has allowed only limited progress toward the Millennium Development Goals. Annual growth in nongold income per capita averaged less than 2 percent in 2004–06, supporting only a gradual reduction in poverty.1 Mali’s human development indicators, as measured by the UN classification, continue to be among the weakest in the world (Table 10).

Table 5.Mali: Central Government Consolidated Financial Operations, 2004-08 1
20042005200620072008
ProgramRev. Proj.Draft

Budget6
Staff

Projections6
(billions of CFA francs)
Revenue and grants558.0621.61,798.7768.1763.1827.5807.9
Total revenue454.7506.6554.2586.9581.9649.4649.4
Budgetary revenue 2412.0461.3504.5539.9534.9597.4597.4
Tax revenue393.3446.2478.6509.7504.7574.2574.2
Nontax revenue18.715.125.930.230.223.223.2
Special funds and annexed budgets42.645.349.747.047.052.052.0
Grants103.3115.01,244.5181.2181.2178.1158.5
of which: MDRI grants 1,31,085.21.91.9
Total expenditure and net lending625.8712.7796.3891.3886.31,033.7963.7
Budgetary expenditure592.2644.7752.6893.6888.6967.1898.1
Current expenditure350.0376.6411.8462.5459.0496.9493.6
Wages and salaries 4121.7137.8147.9160.3160.3190.6175.9
Interest17.218.315.514.114.114.614.6
of which: Domestic1.52.31.02.82.81.71.7
Other current expenditure211.0220.5248.4288.1284.6291.7303.1
Capital expenditure 5242.2268.1340.8431.1429.6470.2404.5
of which: Externally financed152.8170.0228.7268.2268.2308.5257.3
Special funds and annexed budgets42.645.349.747.047.052.052.0
Net lending 5-9.022.7-6.0-49.3-49.314.613.6
Overall fiscal balance (payment order basis)
Excluding grants-171.2-206.1-242.1-304.4-304.4-384.3-314.3
Including grants-67.9-91.11,002.4-123.2-123.2-206.2-155.9
Adjustment to cash basis7.9-10.30.00.00.00.00.0
Overall fiscal balance (cash basis, incl. grants)-60.0-101.41,002.4-123.2-123.2-206.2-155.9
Financing60.0101.4-1,002.4123.1123.1187.5155.9
External financing (net)74.5108.8-890.5134.2134.2185.4153.8
of which: Budgetary loans0.019.340.125.825.847.547.5
of which: Amortization-37.0-40.5-1,053.3-30.9-30.9-32.7-32.7
of which: MDRI-1,020.5
of which: Debt relief, HIPC Initiative28.730.022.210.510.512.712.7
Domestic financing (net)-14.6-7.4-111.9-11.0-11.02.12.1
Banking system14.533.2-100.21.61.624.224.2
Net credit to the government15.233.8-99.81.71.724.224.2
of which: IMF repurchases-16.7-14.1-64.70.00.00.00.0
of which: IMF drawings1.11.03.12.02.00.00.0
Privatization receipts1.29.70.98.18.18.18.1
Other financing-30.2-50.3-12.6-20.7-20.7-30.2-30.2
Financing gap (+/-, shortfall/excess)0.00.00.00.00.018.70.0
(percent of GDP, unless otherwise indicated)
Revenue and grants21.422.057.422.422.822.722.1
Total revenue17.417.917.717.117.417.817.8
Budgetary revenue 215.816.316.115.816.016.416.4
Special funds and annexed budgets1.61.61.61.41.41.41.4
Grants4.04.139.75.35.44.94.3
of which: MDRI grants 1334.70.10.1
Total expenditure and net lending24.025.225.426.026.528.326.4
Current expenditure13.413.313.113.513.713.613.5
Wages and salaries 44.74.94.74.74.85.24.8
Interest payments0.70.60.50.40.40.40.4
Other current expenditure8.17.87.98.48.58.08.3
Capital expenditure 59.39.510.912.612.812.911.1
of which: Externally financed5.96.07.37.88.08.47.0
Net lending, special funds & annexed budgets 51.32.41.4-0.1-0.11.81.8
Overall fiscal balance (payment order basis)
Including grants-2.6-3.232.0-3.6-3.7-5.6-4.3
Excluding grants-6.6-7.3-7.7-8.9-9.1-10.5-8.6
Overall fiscal balance (cash basis, incl. grants)-2.3-3.632.0-3.6-3.7-5.6-4.3
External financing2.93.8-28.43.94.05.14.2
Domestic financing-0.6-0.3-3.6-0.3-0.30.10.1
Financing gap0.5
Memorandum items
External Budgetary assistance2.43.33.42.22.32.42.4
Public saving75.04.45.25.45.54.14.2
Basic fiscal balance80.4-0.20.3-0.7-0.8-1.7-1.2
Wages and salaries/fiscal revenues (percent)30.930.930.931.431.833.230.6
Resources due to MDRI 90.40.60.60.50.5
(billions of CFA francs)
External Budgetary Assistance62.094.3106.376.276.287.787.7
Public Saving 7129.7123.7162.9185.0183.5150.8155.1
Basic fiscal balance89.4-6.28.8-25.7-25.7-63.1-44.3
Resources due to MDRI 913.719.419.419.519.5
Nominal GDP2,6112,8293,1323,4283,3443,6533,653
Sources: Ministry of Finance; and Fund staff estimates and projections.

Including the impact of MDRI on payment order basis. The AfDB reimbursed in 2007 debt service paid in 2006.

For 2006 tax reimbursements are reclassified from domestic financing to negative domestic revenue.

Grants devoted exclusively to debt relief under the MDRI.

Excluding public enterprises of an administrative nature (EPA).

2007 includes CFAF 44 billion recapitalization of CMDT as a capital transfer and reduction in net lending.

Draft budget for 2008 includes impact of CRM reform. IMF staff projections for 2008 include spending measures to close the financing gap and offset an absence of CRM reform (CFAF 5 billion).

Total revenue less current spending (not including interest payments on public debt) and less net lending.

Excluding grants, externally financed capital expenditures, and HIPC-financed spending.

Additional resources from debt service savings due to MDRI, net of HIPC relief already granted.

Sources: Ministry of Finance; and Fund staff estimates and projections.

Including the impact of MDRI on payment order basis. The AfDB reimbursed in 2007 debt service paid in 2006.

For 2006 tax reimbursements are reclassified from domestic financing to negative domestic revenue.

Grants devoted exclusively to debt relief under the MDRI.

Excluding public enterprises of an administrative nature (EPA).

2007 includes CFAF 44 billion recapitalization of CMDT as a capital transfer and reduction in net lending.

Draft budget for 2008 includes impact of CRM reform. IMF staff projections for 2008 include spending measures to close the financing gap and offset an absence of CRM reform (CFAF 5 billion).

Total revenue less current spending (not including interest payments on public debt) and less net lending.

Excluding grants, externally financed capital expenditures, and HIPC-financed spending.

Additional resources from debt service savings due to MDRI, net of HIPC relief already granted.

Table 6.Mali: Quarterly Central Government Consolidated Financial Operations, 20071
MarchJuneSept.Dec.
Prog.ActualProg.ActualProg.Actual
(billions of CFA francs)
Revenue and grants156.0150.9351.8362.7553.1768.1
Total revenue117.4135.5264.1281.0410.8586.9
Budgetary revenue2108.0120.6243.0251.5377.9539.9
Tax revenue101.9118.4229.4242.6356.8509.7
Direct taxes21.333.448.071.374.6106.6
Indirect taxes86.085.5193.6177.9301.1430.1
Nontax revenue6.02.213.68.921.130.2
Special funds and annexed budgets9.414.921.229.532.947.0
Grants38.715.487.681.7142.2181.2
Projects & sectoral budgetary34.915.466.772.0104.6139.4
Budgetary3.80.020.97.437.739.9
MDRI 1,32.31.9
Total expenditure and net lending208.6162.6431.9392.8653.0891.3
Budgetary expenditure200.6148.2411.2364.2622.0893.6
Current expenditure109.791.3223.5207.7337.4462.5
Wages and salaries 440.139.180.279.6120.2160.3
Goods and Services43.429.588.074.8132.0182.2
Transfers and subsidies22.118.748.347.874.5105.9
Interest4.14.17.15.610.614.1
Domestic debt0.70.71.40.82.12.8
External3.43.45.74.88.511.3
Capital expenditure90.956.9187.7156.5284.6431.1
Externally financed67.141.2134.1103.9201.2268.2
Domestically financed23.815.753.652.683.4162.9
of which: Capital transfers543.7
Special funds and annexed budgets9.414.923.529.535.347.0
Net lending5-1.4-0.5-2.8-0.9-4.2-49.3
Overall fiscal balance, payment order basis
Excluding grants-91.2-27.1-167.8-111.8-242.2-304.4
Including grants-52.5-11.7-80.2-30.2-99.9-123.2
Cash adjustment0.00.00.00.00.00.0
Overall fiscal balance (cash basis, incl. grants)-52.5-11.7-80.2-30.2-99.9-123.2
Financing52.511.780.230.299.9123.1
External financing (net)27.120.772.156.499.2134.2
Loans32.225.882.360.7114.5154.6
Project loans32.225.864.460.796.6128.8
Budgetary loans0.00.017.90.017.925.8
Amortization-7.7-7.6-15.5-11.8-23.2-30.9
Debt relief2.62.55.37.57.910.5
Domestic financing (net)25.4-9.08.1-26.20.7-11.0
Banking system16.06.010.314.49.71.6
of which: IMF (net)1.01.01.01.02.02.0
of which: Other items net15.65.510.314.59.41.9
Privatization receipts0.00.50.00.50.08.1
Other financing9.3-15.5-2.2-41.2-9.1-20.7
Financing gap0.00.00.00.00.00.0
Sources: Ministry of Finance; and Fund staff estimates and projections.

Including the impact of MDRI on payment order basis. The AfDB reimbursed in 2007 debt service paid in 2006.

Tax reimbursements are reclassified from domestic financing to negative domestic revenue.

Grants devoted exclusively to debt relief under the MDRI.

Excluding public enterprises of an administrative nature (EPA).

Includes CFAF 44 billion recapitalization of CMDT as a capital transfer and reduction in net lending.

Sources: Ministry of Finance; and Fund staff estimates and projections.

Including the impact of MDRI on payment order basis. The AfDB reimbursed in 2007 debt service paid in 2006.

Tax reimbursements are reclassified from domestic financing to negative domestic revenue.

Grants devoted exclusively to debt relief under the MDRI.

Excluding public enterprises of an administrative nature (EPA).

Includes CFAF 44 billion recapitalization of CMDT as a capital transfer and reduction in net lending.

Table 7.Mali: Banks’ Compliance with Selected Prudential Norms, 2003–xsJune 2006
Prudential RatiosCompliance Limits and RatiosNumber of Banks Complying
Dec.Dec.Jun.Dec.Jun.Dec.Jun.
2003200420052005200620062007
Effective capital> CFAF 1 billion12/1211/1312/1413/1414/1515/1614/16
Risk-weighted capital adequacy ratio> 8 percent11/1211/1311/1413/1412/1514/1613/16
Liquidity coefficient ratio (liquid assets to short term liabilities)> 75 percent3/98/119/146/119/1510/1210/12
Division of risk (total and individual)Total: 8 times capital Individual:

75 percent capital
4/1212/135/1410/149/1514/165/16
Transformation ratio (stable resources to fixed assets & medium & long-term loans.)> 75 percent5/1211/138/1410/1411/1513/1613/16
Participation in non-bank companies/effective capital< 15 percent12/1213/1314/1414/1415/1516/1615/16
Nonoperational fixed assets/effective capital< 15 percent10/1211/1312/1411/1412/1514/1614/16
Fixed assets/effective capital< 100 percent12/1212/1314/1412/1413/1514/1612/15
Credit to management/effective capital< 20 percent10/127/1310/148/1410/1513/1612/16
Risk-concentration ratio< 60 percent0/120/130/141/140/1501/161/16
Sources: BCEAO
Sources: BCEAO
Table 8.Mali: Medium-Term Outlook, 2004-10
1999-2003200420052006 1/2007200820092010
Est.Projections
(Annual percentage change)
Output supply and demand
Real GDP4.72.16.15.34.14.84.85.4
Primary sector4.6-4.47.04.44.36.35.05.6
Secondary sector5.22.67.98.2-3.24.65.73.5
Tertiary sector4.96.64.29.46.34.83.75.4
Aggregate demand (contribution to output growth)
Consumption3.52.45.1-1.46.22.42.84.0
Gross investment1.21.11.91.31.41.60.70.8
Of which: changes in inventories1.0-2.03.2-1.0-1.20.00.0-0.2
Net foreign balance0.0-1.3-0.95.4-3.50.81.20.6
Prices, period average
GDP deflator3.0-0.72.15.12.64.22.54.7
CPI inflation1.4-3.16.41.52.02.52.52.5
Terms of trade-1.31.5-10.715.71.16.7-0.56.9
(In percent of GDP; unless otherwise indicated)
Investment and saving
Gross domestic investment20.821.722.322.422.923.322.922.5
Government7.37.47.68.48.68.38.28.1
Nongovernment13.814.314.714.014.215.014.814.4
Gross national savings13.313.414.117.716.517.517.818.3
Gross domestic saving13.513.513.719.416.618.119.219.5
Government0.41.10.50.41.00.11.41.3
Nongovernment13.112.413.219.015.618.017.818.2
Central government finance 2/
Total revenue and grants19.321.422.057.422.422.121.721.2
Total revenue15.017.417.917.717.117.818.117.7
Fiscal revenue12.715.115.815.314.915.715.815.5
Non-tax revenue and special accounts2.32.32.12.42.32.12.32.2
Grants 3/4.34.04.139.75.34.33.63.5
Total expenditure and net lending 4/22.124.025.225.426.026.425.525.1
Of which: Current expenditure11.913.413.313.113.513.513.313.2
Of which: Capital expenditure9.19.39.510.912.611.110.910.8
Overall balance (payment order basis, excl. grants)-7.1-6.6-7.3-7.7-8.9-8.6-7.4-7.4
External sector
Current external balance, including official transfers-7.5-8.3-8.2-4.7-6.4-5.8-5.1-4.2
Current external balance, excluding official transfers-9.4-10.3-10.4-6.7-8.1-7.0-5.6-4.7
Exports of goods and nonfactor services26.924.625.630.626.726.126.125.1
Imports of goods and nonfactor services34.432.934.233.632.931.329.928.1
Debt service ratio after debt relief8.56.47.43.73.43.43.63.5
Gross international reserves
(In millions of US$)4558619421,1821,2671,3511,4241,482
(In months of next year’s imports)4.96.46.16.16.36.66.87.1
External public debt86.248.847.920.022.624.426.527.9
Source: Malian authorities; and staff estimates and projections

Includes MDRI from IMF and IDA.

Fiscal numbers for 2007 are program figures.

Excludes general budgetary grants from 2007 onwards.

Data on a payment order basis.

Source: Malian authorities; and staff estimates and projections

Includes MDRI from IMF and IDA.

Fiscal numbers for 2007 are program figures.

Excludes general budgetary grants from 2007 onwards.

Data on a payment order basis.

Table 9.Mali: Compliance with WAEMU Convergence Criteria, 2004-07(Ratios in percent, unless otherwise indicated)
Ratio2004200520062007
Est.Proj.1
Primary criteria
Basic fiscal balance / GDP>=00.4-0.20.3-0.7
Inflation (annual average percentage change)<=3-3.16.41.52.0
Total nominal debt / GDP<=7048.847.920.022.6
Domestic arrears accumulation (in billions of CFA francs)<=00.00.00.00.0
External arrears accumulation (in billions of CFA francs)<=00.00.00.00.0
Secondary criteria
Wages / fiscal revenue<=3530.930.930.931.4
Domestically financed investment / fiscal revenue>=2022.722.017.329.9
Current account deficit, excl. current official transfers / GDP<=510.310.46.78.1
Fiscal revenue / GDP>=1715.115.815.314.9
Sources: Malian authorities; and staff estimates and projections.

Fiscal data for 2007 are program figures.

Sources: Malian authorities; and staff estimates and projections.

Fiscal data for 2007 are program figures.

Table 10.Mali: Millennium Development Goals, 1990-04 1
19901995199820012004
Goal 1: Eradicate extreme poverty and hunger2015 target=halve 1990 $1 a day poverty and malnutrition rates
Income share held by lowest 20%..5......
Malnutrition prevalence, weight for age (% of children under 5)..27..33..
Poverty gap at $1 a day (PPP) (%)..37......
Poverty headcount ratio at $1 a day (PPP) (% of population)..72......
Poverty headcount ratio at national poverty line (% of population)....64....
Prevalence of undernourishment (% of population)....32..28
Goal 2: Achieve universal primary education2015 target = net enrollment to 100
Literacy rate, youth total (% of people ages 15-24)........24
Persistence to grade 5, total (% of cohort)70..788479
Primary completion rate, total (% of relevant age group)10.51321.332.344
School enrollment, primary (% net)21..404746
Goal 3: Promote gender equality and empower women2015 target = education ratio to 100
Proportion of seats held by women in national parliament (%)....121210
Ratio of girls to boys in primary and secondary education (%)58.9..68.371.374.4
Ratio of young literate females to males (% ages 15-24)........52.3
Share of women employed in the nonagricultural sector (% of total nonagricultural employment)36........
Goal 4: Reduce child mortality2015 target = reduce 1990 under 5 mortality by two-thirds
Immunization, measles (% of children ages 12-23 months)4352546175
Mortality rate, infant (per 1,000 live births)140131..124121
Mortality rate, under-5 (per 1,000)250233..224219
Goal 5: Improve maternal health2015 target = reduce 1990 maternal mortality by three-fourths
Births attended by skilled health staff (% of total)..23.7..40.6..
Maternal mortality ratio (modeled estimate, per 100,000 live births)......1200..
Goal 6: Combat HIV/AIDS, malaria, and other diseases2015 target = halt, and begin to reverse, AIDS and other major diseases
Children orphaned by HIV/AIDS......5900075000
Contraceptive prevalence (% of women ages 15-49)..7..8..
Incidence of tuberculosis (per 100,000 people)303.6......281.3
Prevalence of HIV, female (% ages 15-24)......2..
Prevalence of HIV, total (% of population ages 15-49)......22
Tuberculosis cases detected under DOTS (%)..1417.517.718.8
Goal 7: Ensure environmental sustainability2015 target = various
CO2 emissions (metric tons per capita)0000..
Forest area (% of land area)12....1110
GDP per unit of energy use (constant 2000 PPP $ per kg of oil equiva..........
Improved sanitation facilities (% of population with access)36....45..
Improved water source (% of population with access)34....48..
Nationally protected areas (% of total land area)........3.7
Goal 8: Develop a global partnership for development2015 target = various
Aid per capita (current US$)54.253.331.629.543.2
Debt service (PPG and IMF only, % of exports of G&S, excluding workers’ remittances)15161196
Fixed line and mobile phone subscribers (per 1,000 people)1.31.72.9836.2
Internet users (per 1,000 people)000.21.73.8
Personal computers (per 1,000 people)..0.30.81.23.2
Total debt service (% of exports of goods, services and income)12131186
Other
Fertility rate, total (births per woman)7.47.37.26.96.8
GNI per capita, Atlas method (current US$)260230240220330
GNI, Atlas method (current US$) (billions)2.32.42.62.64.3
Gross capital formation (% of GDP)2322.920.93119.7
Life expectancy at birth, total (years)4647.147.447.748.3
Literacy rate, adult total (% of people ages 15 and above)........19
Population, total (millions)8.910.1111213.1
Trade (% of GDP)50.957.36083.664.3
Source: World Bank (http://ddp-ext.worldbank.org/ext/ddpreports).

Figures in italics refer to periods other than those specified.

Source: World Bank (http://ddp-ext.worldbank.org/ext/ddpreports).

Figures in italics refer to periods other than those specified.

Mali: Real GDP and Agriculture Growth

(percent)

B. Financial Program on Track

3. The fiscal program was on track through end-June 2007, and new corrective measures (see ¶11) should put the end-year targets in reach. All fiscal targets and performance criteria were met (Attachment I, Annex I).

Fiscal Developments, 2000-07

(percent of GDP)1

1Includes MDRI grants of 34.6 percent of GDP in 2006.

  • The overall fiscal deficit (including grants) was 1 percent of GDP at end-June, compared with the program target of 2½ percent (Table 6). Although external budget assistance was lower than expected, the deficit was financed without the authorities resorting to domestic financing.
  • Revenue performance was ½ percent of GDP above target through the end of June, but a shortfall in customs collections (¾ percent of GDP) could jeopardize end-year targets. Larger-than-expected tax exemptions, most notably those granted on an exceptional discretionary basis and for petroleum products, largely explain the shortfall.2 Although the authorities have ensured a steady revenue stream from excise taxes on petroleum products (TIPP) by keeping levels stable (ongoing structural benchmark), they maintained constant indicative price ceilings by allowing retail margins to fluctuate and artificially lowering the base for customs duties and VAT.
  • Spending was disciplined through June. Discretionary current spending was ½ percent of GDP below forecasts. Capital spending was 20 percent below forecasts-which is not uncommon at mid-year.

4. Mali has continued implementing its public finance management (PFM) action plan, which is being revised following the public expenditure and financial accountability (PEFA) assessment completed in January 2007. Its PFM action plan was implemented satisfactorily in 2006 and the first half of 2007 and included projects to integrate the spending chain (from payment orders to payment execution) and create a joint database between the Budget and Treasury Directorates (structural benchmark; Attachment I, Annex II). In response to other weaknesses identified by the PEFA assessment, notably weak monthly reporting of budget execution, poor public access to budget information, and delays in payments (a concern also raised by private sector representatives during discussions). In response, the authorities are revising their action plan for 2008.

5. State-owned enterprises are generating a growing—if largely indirect—burden on public finances that risks undoing the generally disciplined budget implementation. Following losses in 2005 that necessitated a large recapitalization (1.4 percent of GDP),3 the cotton ginning company (CMDT) continues to make losses (about ½ percent of GDP a year), despite the creation of the surveillance committee for cash flow operations. The state-owned energy company (EdM) also had modest losses in 2006; without more cost savings or rate increases, the company’s losses will be even greater in 2007. Losses at public enterprises lead to arrears to the public and private sectors, erode the companies’ net worth, and could eventually require government transfers (see ¶9).

C. Structural Reform Program Moving Forward

6. The authorities completed most of their ambitious structural reform agenda for the sixth PRGF review, albeit with some delays. Partly because of difficulties in implementing reforms during an electoral season, one of the two structural performance criteria for end-April was not completed (the draft legislation to reform the civil service pension fund was not submitted to parliament), and one was fulfilled with a delay (new legal powers for bad loan recovery by the state-owned housing bank (BHM)). The authorities have met all but one of the structural benchmarks for the end of March (Attachment I, ¶1)

  • Civil service pension fund. Although the draft 2008 budget (submitted to parliament on October 1) incorporates the impact of CRM reform, the relevant draft reform legislation has yet to be submitted to parliament as legally required discussions with the unions were concluded only in early-October. The authorities still intend to submit the legislation by November and realize its fiscal savings starting in 2008, as planned. In the event this proves unattainable, the authorities have identified savings of just over 0.1 percent of GDP in lower priority spending in transfers, goods and services, and personnel, that offset the full financial impact of not enacting the legislation in 2008 and leave overall spending unaffected (Attachment I, ¶2, 3, and 7).
  • Banking sector. Legislation to give BHM more legal authority to recover its debts, submitted to parliament in September 2007, should help BHM recover nonperforming loans (NPLs) from large developers.4 With deposit withdrawals back to normal, BHM has kept its liquidity ratio well above the 25 percent minimum (ongoing structural benchmark) and resumed modest lending activities, with the delay in submitting the above legislation not negatively affecting the operations of the Bank. BHM’s viability now depends on its ability to recover NPLs and increase lending.
  • Privatization program. The consultant for the privatization of CMDT was selected in March 2007, in time to complete privatization in 2008. However, the authorities have not issued a final call for bids for the government’s shares in BIM, the only end-June structural benchmark not met. They intend to do so in February 2008 (Attachment I, ¶3) and reaffirmed their intention to privatize BIM and initiate the privatization process of BHM (Attachment I, ¶11) in 2008.

II. Seeking Stronger Results

A. Poverty Reduction Through Faster Growth

7. Mali’s second-generation poverty reduction strategy (PRS) appropriately focuses on accelerating private sector growth, but its action plan needs to be more specific.5 Based on current trends and reform plans, staff projects the economy’s real growth will remain at its trend rate of about 5 percent, short of the PRS’s 7 percent target. Two keys to raising growth are (i) improving the business environment through legal and regulatory reforms, and (ii) making the state more efficient in its core areas of responsibility and strengthening its governance, notably by making public finances more accountable and transparent.

8. To enhance the efficiency and soundness of the financial sector and boost growth, the authorities completed a new Financial Sector Development Strategy in October, in cooperation with the IMF and the World Bank. The priorities are to strengthen the balance sheets of public institutions, increase private sector ownership, and expand access to credit in the banking sector (Figure 2, Table 7).6 The staff encouraged the authorities to follow through with plans to sell its shares in BIM and BDM in coordination with the sale of shares owned by BCEAO. The strategy will be updated after the regional FSAP (planned for the end of 2007) and Mali’s subsequent FSAP.

Figure 2.Mali: Financial Soundness Indicators, 2002-06 1/

Source: BCEAO

1/ Data up to August 2006,

2/ Data up to June 2006

9. Other priorities are to strengthen Mali’s business climate, reinvigorate its privatization program, and develop its infrastructure and human capital.

  • The Investor’s Advisory Council, chaired by the president, will work to remove impediments to starting new business, reduce labor market rigidities and improve access to financial services. The authorities have committed to follow up aggressively on audit reports and to reinforce the judicial system. At state-owned enterprises (SOEs), the priority is to address governance problems to improve productivity and safeguard the public finances. A long-term goal at SOEs is to disengage the state.
  • The authorities have committed to complete the privatization of the telecommunication company (SOTELMA) and CMDT in 2008, and prepare EdM for re-privatization (Attachment I, ¶11).
  • Mali’s high illiteracy, poor health indicators, and undeveloped infrastructure remain major structural barriers. The PRS aims to improve the provision of core public goods and services.

B. Maintaining Fiscal Discipline While Improving Public Spending

10. Corrective measures should reduce the projected revenue shortfall in 2007 and continued economies in spending should close the remaining gap. The over performance besides customs was attributable to higher-than-projected corporate income tax revenues (especially in the gold sector), which are paid once a year in April, while indirect domestic tax collection shortfalls were expected to persist. Corrective revenue measures amounting to about 1 percent of GDP include limiting discretionary exemptions, gradually restoring the full value of petroleum product imports as the tax base, improving import verification (including through the use of scanners and more visual inspections), fighting smuggling and fraud through new mobile enforcement units, and collecting tax arrears from large companies. The authorities intend to protect key fiscal targets through savings in spending to close the remaining gap (Attachment I, ¶6), while protecting allocations to priority social sectors. In particular, the authorities can limit expenditure by strictly enforcing the November deadline for commitments, as they have done when necessary in the past, and avoiding the need for transfers to CMDT or EdM.

11. While consistent with the PRSP priorities, the authorities’ draft 2008 budget has a financing gap of about 0.5 percent of GDP. A large increase in domestically financed capital spending (1 percentage point of GDP) and a cash advance to CMDT (0.6 percent of GDP) are principally responsible for the gap. Staff recommended that, unless additional external financing materializes, planned spending increases be trimmed to fit available resources, with savings in lower priority current and capital spending.7 The authorities intend to explore external financing possibilities, including at the donor conference in early December 2007 to support the new PRS, before considering specific expenditure reductions. Nevertheless, the authorities intend to remain cautious on the pace of spending in the first half of 2008 and take measures, in consultation with IMF staff, if necessary to assure full financing of the budget (Attachment I, ¶7) – as they have consistently done in the past. The authorities also indicated that they would protect poverty reducing expenditures, especially in the social sectors.

  • Assuming that spending measures close the financing gap, the overall deficit, including grants, would rise modestly over 2007 (by ½ percent of GDP), while the deficit before grants would decline.8
  • The budget targets an increase in the revenue-GDP ratio of ⅔ percent of GDP, which is feasible only if planned revenue measures are fully implemented (Attachment I, ¶8). These measures focus on curtailing exemptions (by rapidly phasing out discretionary exemptions and strengthening the monitoring of legal exemptions), pursuing computerization, and modernizing administrative procedures. The authorities are also considering key measures recommended by the September 2007 FAD mission, notably for strengthening tax operations, establishing a medium-sized taxpayer office, broadening the tax base (particularly through better tax compliance from large companies), and improving collaboration among revenue departments.
  • Overall spending would remain roughly stable relative to GDP after the spending measures. CRM reform, while integrated into the budget (for a net savings of just over 0.1 percent of GDP in 2008), inflates the wage bill because of higher government pension contributions. The wage bill also rises because the government agreed with unions in July to increase base wages by 5 percent in 2008 and 2009.
  • The authorities plan to issue multiyear domestic bonds worth about ⅔ percent of GDP. Staff acknowledged the authorities’ financing needs and the currently low level of domestic debt (1.4 percent of GDP) and domestic debt servicing (less than 0.1 percent of GDP). Staff nevertheless stressed that market rates on domestic debt are more expensive than concessional external financing, weakening debt dynamics.

12. To enhance the poverty impact of public spending, the authorities need to improve its composition and effectiveness. Reining in the cost of civil service pensions and boosting labor productivity in the public sector will support this goal. As the PRSP highlights, meeting social goals depends as much on reinforcing the impact of spending as on increasing its level. By gradually shifting government spending decisions from central to regional offices (déconcentration),9 the authorities aim to respond more directly to the population’s needs using the same financial management and audit systems. These reforms, along with debt service savings from MDRI (about 0.5 percent of GDP per year), would both create fiscal space and ensure value-for-money.

13. The authorities reiterated their intent to continue to rely on external grants and concessional loans. As shown in the latest debt sustainability analysis (DSA),10 current policies would maintain debt sustainability even if fiscal deficits were about 4 percent of GDP. They would also more evenly distribute the benefits of debt reduction across generations. However, debt sustainability depends on the return on public investment, underlining how important it is to select high-yield projects. If Mali’s average level of concessionality were to fall much below its current 50 percent level, debt sustainability would deteriorate.

14. In July 2007, the authorities signed a loan and lease agreement with the Islamic Development Bank (IsDB) to finance additional electricity generating capacity, with concessionality well below the program floor.11 In their view, the financing involved was critical to cover urgently needed capital investments to avoid power shortages. With electricity generation not keeping pace with increasing demand and impediments to achieving lower cost generating capacity through Mali’s interconnection program with neighboring country power grids, the authorities decided to finance a large and more efficient 60 megawatt power plant to run on lower-cost heavy fuel oil (HFO), instead of the diesel currently used in a number of small, old, inefficient units.12 The World Bank agrees with the authorities’ view on the criticality of investment in the energy sector, and is assessing the related financing package. The Bank assessment is expected shortly. Under a new World Bank credit under preparation, the Bank is assisting the authorities to find ways to reduce the cost of financing for the sector. IMF staff regretted the need to rely on nonconecessional financing, even though this was understood to be a one-time operation with limited impact on debt sustainability.13 For their part, the authorities intend to strengthen debt management and enhance consultation with the Bank and Fund on external financing issues.

C. Intention to Request New PRGF to Support Reforms

15. The authorities have indicated a preference to continue their relationship with the Fund under a successor low-access PRGF arrangement. Although the authorities expressed openness to a PSI, they considered that a PRGF was better adapted to their current circumstances. The authorities intend to request a PRGF arrangement after the Article IV mission planned in early 2008. The World Bank is preparing its new Country Assistance Strategy for Mali planned for early 2008. In addition to the ongoing portfolio, the Bank will rely on annual development policy loans to support the government in key structural reforms, as well as on investment operations targeting energy, agricultural productivity, and urban development.

III. Staff Appraisal

16. Mali has continued its broadly successful economic program supported by the PRGF arrangement. The authorities have consolidated macroeconomic stability through disciplined fiscal policies and other measures, despite continued vulnerability to external shocks. External and public debt are more sustainable thanks to prudent policies and positive external developments, including Multilateral Debt Relief Initiative inflows and high gold prices. However, staff was disappointed by the rapid rise in tax exemptions in 2007, especially of a discretionary nature, which has undermined revenue performance.

17. Mali has also carried out important structural reforms, although some measures envisioned under the program are unfinished. Privatization in the cotton sector is on track; but recurrent losses could jeopardize its completion and hurt public finances. Telecommunications and electricity are also moving toward privatization. The soundness of the banking sector has improved now that BHM has stabilized, and the adoption of a new financial sector development strategy should propel reforms. Public finance management has improved. However, reform of the costly civil service pension system has stalled.

18. As the PRSP rightly highlights, faster growth and poverty reduction will require deeper and swifter structural reforms. Priorities include developing the financial sector, improving the business climate, and providing core public goods. Further reducing the state’s role in setting and supporting prices in the cotton, electricity, and petroleum sectors would decrease economic distortions and strengthen public finances.

19. The authorities’ macroeconomic framework for 2008 and beyond would foster stability as long as current policy principles are upheld. The authorities need to resolve the financing gap in 2008 without resorting to nonconcessional financing. Their commitment to assure full financing and take measures if necessary, combined with their track record in fiscal responsibility, provide reassurance. They also need to strengthen debt management and increase transparency of borrowing. In this regard, the authorities’ assurance that recent nonconcessional financing for the electricity sector was an exceptional stop-gap measure associated with the electricity crisis is welcome. Although the borrowing can be absorbed within the debt sustainability outlook, it will be important that the authorities avoid recourse to higher-cost domestic financing going forward to maintain debt sustainability and encourage growth in private sector credit.

20. unfulfilled structural measures under the program should be completed speedily. A waiver for the delay in submitting to parliament the law to strengthen the power of BHM to collect NPL can be justified because it had a minimal impact on the Bank’s operations. Likewise, the hold up in the CRM reform has been partly beyond the control of the authorities, who were required to consult with social partners, and the authorities have appropriately identified cost savings in the event of further delay. However, reforming CRM remains essential to longer-term fiscal sustainability. Delays in issuing the calls for bids for BIM are also regrettable although the revised timetable would still enable BIM’s privatization in 2008.

21. With a renewed political mandate, the authorities have an opportunity to reinvigorate the reform agenda. Implementation of the PRS through a detailed action plan could give reforms renewed impetus and accelerate progress towards achieving the MDGs. A successor PRGF arrangement would anchor the authorities’ commitments to pursue sound policies and structural reforms.

22. On the basis of the authorities’ satisfactory record of program implementation the staff recommends completion of the sixth review under the current PRGF arrangement, approval of the requests for waivers, and extension of the arrangement by one month to allow the processing of the request for the disbursement under the PRGF-ESF Trust.

Attachment I

Bamako, October 16, 2007

Mr. Rodrigo de Rato

Managing Director

International Monetary Fund

Washington, D.C. 20431

USA

Dear Sir:

1. I am pleased to inform you that the Malian government has completed the last phase of its program under the Poverty Reduction and Growth Facility (PRGF). On the basis of recent performance, the government would like to request a waiver concerning the delay in implementing the two structural performance criteria that had not been met at end-April 2007, and non observance of performance criteria on the concessionality of external financing. In doing so, it requests the completion of the sixth and final review under the PRGF arrangement, as well as the disbursement of the final tranche of the program.

2. The performance criteria and quantitative benchmarks set for end of December 2006, end-March and end-June 2007 have been met, very often considerably ahead of time. Faced with a situation where there was a pressing need to enhance electricity generation capacity, the government in July obtained financing from the Islamic Development Bank under conditions that do not comply with a program criterion (annex 1). In addition, two structural performance criteria could not be met within the deadline (annex 2). These related to submitting draft bills on the reform of the Caisse des Retraites du Mali (CRM) and on strengthening the legal powers of the Banque de l’Habitat du Mali (BHM) to enable it recover nonperforming loans, to the National Assembly during its April session. The draft bill for BHM was submitted to the National Assembly in September. Following the completion of consultations with the social partners in early-October, the bill for CRM will be submitted by November. Due to delays in discussions with the consultant in charge of the dossier, the call for bids for the sale of government shares in the Banque Internationale du Mali (BIM—structural benchmark) could not be published before the end of June. All other criteria and benchmarks in the sixth review have been observed.

3. In order to complete the implementation of the components of the structural reform program that was initiated in 2004, the government will have submitted the two draft bills mentioned above to the National Assembly for consideration by November. The call for bids for the sale of government shares in BIM will go out by February 2008. Furthermore, the government will be accelerating the preparation of the tariff studies, which will be completed by end-December 2007. Subsequently, it will prepare a plan of action aimed at ensuring the financial viability of Electricité du Mali (EdM).

4. The economic outlook for Mali remains positive and we intend to take advantage of the good economic situation to consolidate macroeconomic management and enhance structural reforms. The cornerstone of our economic and social development strategy remains the focus on creating the enabling conditions for sustainable acceleration of growth, mainly through the development of the private sector. This orientation, which is enshrined in the second generation Poverty Reduction and Growth Strategy Paper (PRGSP, 2007–11), is the best means to ensure sustained poverty reduction and progress toward attaining the Millennium Development Goals (MDGs). This strategy seeks to improve the business environment, to strengthen public infrastructure, in particular in the areas of energy and transport, and to reform government with a view to refocusing on its core functions and the provision of quality public services. In order to facilitate the achievement of the objectives of the PRGSP, the government wishes to continue to enjoy the support of its technical and financial partners with whom we shall continue to apply the principles of the Paris Declaration on Aid Effectiveness. The government also intends to lay the foundation for a new PRGF agreement starting in 2008.

5. We estimate that GDP growth will be slightly below the trend rate, at roughly 4½ percent, as a result of the fall in cotton and gold production. Macroeconomic indicators nevertheless remain favorable. Inflation is below 2 percent and foreign assets have increased in light of high gold prices. According to our projections, the trade balance is expected to deteriorate slightly while foreign exchange reserves are sufficient to cover about six months of imports. With MDRI, Mali’s external debt had been brought down to about 20 percent of GDP at the end of 2006. In order to prolong debt sustainability, the government restates its commitment to selecting high quality projects, and only resorting to external financing of a concessional nature.

6. Budget implementation in 2007 has recorded a shortfall in customs revenue, following discretionary exemptions accorded for various goods. In order to reverse this trend, a series of measures were implemented in September. They include (a) the reduction of exemptions that do not have a specific legal basis; (b) progressively taking into account the actual values of petroleum products for customs collections, and (c) introducing scanners to fight against customs fraud. In addition, a number of mechanisms will shortly be put in place to strengthen the control of legal exemptions awarded to mining companies, some companies under the investment code, and EdM. Once these measures are taken into account, the budgetary revenue gap at the end of 2007 could be about CFAF 5 billion (0.2 percent of GDP). To ensure we meet key fiscal targets for the end of 2007, we plan, if necessary, to compensate for this shortfall entirely with expenditure savings, although we will ensure that poverty reduction spending is preserved.

7. The government attaches great importance to maintaining sound macroeconomic management and strengthening debt management. To this end, the draft 2008 budget law provides for the continuation of a prudent budgetary policy, in line with the policy that has been implemented during the current program supported by the PRGF. The budget deficit will be financed by grants and concessional external loans, in order to limit the use of domestic financing to a small amount. The reform of the CRM is integrated into the 2008 budget. In the unexpected event that CRM reform is not enacted in time for the 2008 budget, we commit to fully offsetting the financial impact by realizing savings of just over 0.1 percent of GDP in nonpriority spending. We will ensure the full financing of the budget, working in consultation with IMF staff.

8. Efforts to increase government revenue will continue. In particular, the 2008 budget law forecasts are based on the continuation of close monitoring of tax and customs exemptions. Furthermore, in addition to maintaining existing measures, other measures will be implemented in order to improve the performance of revenue agencies, thus extending assessment and increasing the yield of various taxes and duties. The level of taxes and duties on petroleum products will be preserved, and we are examining the possibility of a uniform rate for the excise tax (TIPP) on all import corridors, in line with the WAEMU directive and the rules of international trade.

9. Improving the quality of public spending remains a high priority. In consultation with our external partners, a number of activities arising from the conclusions of the Public Expenditure and Financial Accountability (PEFA) analysis have been integrated in the program of action for governmental improvement and modernization of public finances (PAGAM-GFP). In the medium term, we intend to continue increasing the resources allocated to poverty reduction and to reorient the expenditure components, taking advantage, among other things, of the savings made on debt service as a result of the MDRI. There will be no accumulation of arrears of external or domestic payments (according to WAEMU rules), and no new nonconcessional external loans will be contracted or guaranteed by the state.

10. The government is equally determined to go ahead with structural reforms, in particular in priority areas such as privatization, the banking sector, the pension system, and the cotton sector. Once the law authorizing the reform of the CRM has been adopted, the government will publish rapidly an order implementing the selected parametric reforms, in consultation with its social partners, in order to gradually reduce the fund’s deficit and its cost to the state. The government also intends to adopt draft texts governing the reform of the public pension system of non-civil service workers (INPS). In addition, and with the help of our partners, we plan to draft a strategy to improve labor productivity in the public sector, including by increasing incentives to enhance performance and deconcentrate public services.

11. In collaboration with IMF and World Bank staffs, we have drafted an overall strategy for strengthening and developing the financial sector. This strategy will be revised in the light of the regional Financial Sector Assessment Program to take place in October 2007. Following the call for bids, the privatization process for the Banque Internationale du Mali will be completed in 2008 and a similar process will be initiated for BHM. Privatization of the cotton company, CMDT, also scheduled for 2008, is expected to go ahead, in line with the approved timetable and operational outline, even though the company’s recurrent difficulties continue to weigh on the private sector and make direct financial support of the government indispensable. We shall also continue with the restructuring of EdM, ensure its long-term financial viability, and create a regulatory environment in 2008 that will promote a successful reprivatization. In particular, we will take into consideration the results of the tariff study under way. Finally, privatization of the Société de Télécommunications du Mali (SOTELMA) is expected to be completed during 2008.

12. The government considers that the measures and policies of the economic and financial program should make it possible to attain our objectives. Nevertheless, we remain ready to adopt additional measures that might become necessary to this end, and will consult with Fund staff concerning the adoption of these measures, in line with Fund practice in such matters.

13. The government authorizes you to publish the present letter of intent on the sixth review, as well as the staff reports on the fifth and sixth reviews under the PRGF arrangement as well as the Joint Staff Advisory Note.

Very truly yours,

/s/

Abou-Bakar Traoré

Minister of Economy and Finance

Attachment 1. Annex 1Mali: Quantitative Performance Criteria and Indicative Targets for March-December 2006 1
2006
MarchJuneSeptemberDecember
Performance CriteriaActualIndicative TargetsActualPerformance CriteriaActualIndicative targetsActual
(billions of CFA francs)
Quantitative performance criteria and indicative targets
Net domestic financing of the government, program ceiling-23.0n/a-81.9n/a-96.5n/a-90.9n/a
Net domestic financing, adjusted ceiling and actual-9.5-65.4-80.7-86.8-88.4-95.5-93.4-111.9
Cumulative change in government external payments arrears 2, 30.00.00.00.00.00.00.00.0
Domestic0.00.00.00.00.00.00.00.0
External0.00.00.00.00.00.00.00.0
New external borrowing at terms of one year or more contracted or guaranteed by the government on nonconcessional terms 2,30.00.00.00.00.00.00.00.0
New short-term external debt (less than one year) contracted or guaranteed by the government 30.00.00.00.00.00.00.00.0
Financial performance indicators
Cumulative tax revenue 4109.392.8218.7208.0350.0320.3469.9478.6
Cumulative wage bill 229.833.474.568.1111.8105.0149.0147.9
Basic fiscal balance 436.06.319.223.924.921.3-7.98.8
Memorandum items:
External budgetary assistance during the year 518.42.143.141.963.455.481.784.1
HIPC Initiative debt relief4.95.98.813.212.217.812.422.2
Expenditure financed with HIPC Initiative resources7.25.28.812.412.217.812.422.2
Balance of HIPC Initiative resources-2.30.6............

All numbers are cumulative from January 2006. Program includes impact of MDRI from Q2 2006. For definitions and explanations, see Technical Memorandum of Understanding.

Maximum.

These performance criteria will be monitored on a continuous basis.

Minimum.

Excluding use of Fund resources and HIPC resources.

All numbers are cumulative from January 2006. Program includes impact of MDRI from Q2 2006. For definitions and explanations, see Technical Memorandum of Understanding.

Maximum.

These performance criteria will be monitored on a continuous basis.

Minimum.

Excluding use of Fund resources and HIPC resources.

Attachment 1. Annex 1Mali: Quantitative Performance Criteria and Indicative Targets for March-December 20071
2007
MarchJuneSeptemberDecember
Performance CriteriaActualIndicative TargetsActualIndicative TargetsActualIndicative targetsActual
(billions of CFA francs)
Quantitative performance criteria and indicative targets
Net domestic financing of the government, program ceiling25.4n/a8.1n/a0.7n/a-11.0n/a
Net domestic financing, adjusted ceiling and actual29.2-9.033.1-26.2........
Cumulative change in government external payments arrears 2,30.00.00.00.00.0..0.0..
Domestic0.00.00.00.00.0..0.0..
External0.00.00.00.00.0..0.0..
New external borrowing at terms of one year or more contracted or guaranteed by the government on nonconcessional terms 2,30.00.00.00.00.033.1*0.0..
New short-term external debt (less than one year) contracted or guaranteed by the government 30.00.00.00.00.0..0.0..
Financial performance indicators
Cumulative tax revenue 4101.9118.4229.4242.6356.8..509.7..
Cumulative wage bill 240.139.180.279.6120.2..160.3..
Basic fiscal balance 4-21.516.6-28.5-0.4-33.1..-25.7..
Memorandum items:
External budgetary assistance during the year53.80.038.97.455.7..65.7..
HIPC Initiative debt relief2.62.55.37.57.9..10.5..
Expenditure financed with HIPC Initiative resources2.62.55.37.57.9..10.5..

All numbers are cumulative from January 2007. For definitions and explanations, see Technical Memorandum of Understanding.

Maximum.

These performance criteria will be monitored on a continuous basis.

Minimum.

Excluding use of Fund resources and HIPC resources.

Contract signed with the Islamic Development Bank in July 2007 for the procurement of equipment for EdM. The financing comprises a loan of CFAF 4.4 billion and a lease for CFAF 28.7 billion. The weighted average level of concessionality is calculated at 8.5 percent.

All numbers are cumulative from January 2007. For definitions and explanations, see Technical Memorandum of Understanding.

Maximum.

These performance criteria will be monitored on a continuous basis.

Minimum.

Excluding use of Fund resources and HIPC resources.

Contract signed with the Islamic Development Bank in July 2007 for the procurement of equipment for EdM. The financing comprises a loan of CFAF 4.4 billion and a lease for CFAF 28.7 billion. The weighted average level of concessionality is calculated at 8.5 percent.

Attachment 1. Annex IIMali: Structural Measures, October 2006–June 2007
MeasuresDateStatus
Structural Performance Criteria
1. Submission to the National Assembly of a draft law authorizing the parametric reforms designed to gradually reduce the CRM’s pension deficit over the medium termEnd-Apr. 2007Not met. Authorities intend to submit by November 2007, draft law under consideration to incorporate required discussions with the unions concluded in early-October.
2. Submission to the National Assembly of a draft law to strengthen BHM’s legal authority to recover its debts in accordance with ¶20 of the LoIEnd-Apr. 2007Met in September
Structural Benchmarks
1. Interconnect revenue agencies, in particular, the customs and tax departmentsEnd-Dec. 2006Met
2. Launch of a one-stop shop for new investorsEnd-Dec. 2006Met
3. Maintain constant hydrocarbon excise tax (TIPP) rates in 2007OngoingMet
4. Ensure that the BHM maintains a minimum liquidity ratio of 25 percentOngoingMet
5. Publish the consultant contract for the privatization of CMDTEnd-Mar. 2007Met
6. Select the consultant to conduct the tariff study for EdMEnd-Mar 2007Met
7. Complete the project integrating the spending chain and implementing a joint database (Budget Directorate- Financial Control-Treasury Directorate)End-Mar. 2007Met
8. Recruit a privatization consultant for the sale of SOTELMAEnd-Mar. 2007Met
9. Publish the final call for bids related to the sale of the government’s shares in BIMEnd-June 2007Not Met
1Estimates from the recent household survey suggest that headcount poverty declined from 68 percent in 2001 to 64 percent in 2006. The first-generation PRS targeted a reduction to 48 percent by 2006.
2Total exemptions for all tax agencies were an estimated 3.2 percent of GDP in 2006 and are on pace to exceed 4.0 percent of GDP in 2007, compared with a projected 2.4 percent.
3The government plans to recapitalize CMDT by the end of 2007 by converting debt owed to the government into equity. This operation, however, would not give CMDT the liquidity it urgently needs.
4More than two-thirds of BHM’s total NPLs are to a few large developers.
5See Mali: Joint Staff Advisory Note (see document posted separately).
6Mali’s level of nonperforming loans, at around 20 percent, is among the highest in the WAEMU region, and is in large part attributable to BHM and other public banks.
7Table 5 presents the authorities’ draft budget and staff projections, which both include staff’s best estimates of external assistance following consultations with donors. Staff projections include reductions in spending plans to close the gap, distributed among spending items.
8The disbursements and subsequent spending from the financing for the emergency investment in the electricity sector will occur in 2008. The 2008 fiscal framework may need to be revised once the authorities have decided whether the investment will be capital spending by the government or net lending to the electricity company.
9Spending under the déconcentration initiative has risen from 2 percent of the total in 2006 to 14 percent in 2007.
10Mali: Debt Sustainability Analysis (see Supplement 1 to this report that follows).
11The loan and lease agreement amounts to 1 percent of GDP with a level of concessionality of 8.5 percent.
12Between 2001 and 2006, energy consumption increased by an average 11.4 percent a year. Mali’s interconnection program with neighboring countries is expected to be operational only from 2010; however, given the current power shortages faced by other countries in the region, it is unclear how much additional capacity Mali would be able to obtain.
13Including the IsDB loan and lease agreement in the 2006 DSA would decrease the average concessionality of new borrowing from 50 percent to 42 percent, having a minimal impact on debt service indicators

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