1. At the outset, I would like to thank staff for the insightful report and useful policy discussions held with the Malian authorities in the context of the sixth review of the current PRGF arrangement. As has been the case with staff reports on previous reviews under the current arrangement, the authorities have expressed their consent to the publication of the reports on the fifth and sixth reviews. As the current PRGF-supported program is about to expire, the authorities are hopeful that the Fund will continue to provide its useful policy advice, particularly in the framework of the successor arrangement which they intend to request next year.
2. The staff report already provides a useful account of recent macroeconomic developments and a testimony of the sound economic performance in Mali. In particular, it describes how real GDP growth estimated at 5.3 percent in 2006 surpassed its trend, in spite of a marked decline in cotton production and CPI-based inflation was contained below 2 percent. Therefore, this statement will focus on highlighting recent performance under the expiring PRGF arrangement. Afterwards, it will offer some insights based on the authorities’ perspective about how best the successor Fund arrangement could support their policy agenda.
Performance Under the PRGF Arrangement
3. As noted by staff, the authorities’ record of program implementation is satisfactory. Like in the past, they have continued to conduct prudent macroeconomic policies, meeting all but one quantitative performance criteria and indicative targets set for this last review. The quantitative performance criterion on the concessionality of external financing was missed, as the level of concessionality associated with the Islamic Development Bank (IsDB) financing of an electricity generation project contracted in July 2007 was deemed insufficient. Prompt implementation of this project was viewed by the authorities as critical to cope with the rapidly rising demand for electricity and to avoid significant losses in terms of GDP growth that could potentially stem from inadequate electricity supply starting from 2009. I would therefore call on Directors to consider favorably the authorities’ request for waiver of the quantitative performance criterion on the concessionality of external financing. At the same time, given that the availability of concessional resources and grants has become increasingly limited, it would be useful that donors’ pledges for aid scaling-up materialize into concrete actions in the case of low-income countries like Mali. Otherwise, should the donor community continue to fail to honor its promises, maintaining the required minimum grant element at their current levels would severely constrain growth in Mali and other similar low-income countries, thereby reducing drastically their chances for achieving the MDGs. Therefore, it would be opportune that the definition of concessionality in Fund arrangements be revisited by lowering the minimum grant element required for loans contracted by low-income countries, including least developed ones.
4. On the structural front, implementation of a number of measures pertaining to the reform of the fiscal, financial, and energy sectors and the privatization agenda has proceeded effectively and on a timely basis. All structural benchmarks but one related to the sale of government shares in the Banque Internationale du Mali (BIM) were met; and in line with the missed benchmark, it is expected that the call for bids related to this sale will be issued by February 2008.
5. At the time of the fifth review, the authorities were hoping that they would be able to submit to the parliament by end-April 2007 two bills aimed at improving the ability of the housing bank, Banque de l’Habitat du Mali (BHM), to recover nonperforming loans and at reducing the deficit of the civil service pension fund, Caisse des Retraités du Mali (CRM). They were finally able to submit to the parliament last September the bill related to the BHM. As for the bill on the CRM reform, my authorities are keeping up with their efforts to build consensus with social partners and they are determined to submit it to the Parliament in the coming days. In this light, we would welcome Directors’ support for the authorities’ request for waiver of nonobservance of performance criteria, and the completion of the sixth review under the PRGF-supported program.
Addressing Policy Challenges Ahead
6. Prospects for the Malian economy remain favorable, with real GDP projected to grow at 4 ½ percent and inflation expected to be contained around 2 percent. In addition, comfortable levels of reserves will be maintained and external debt kept around the low level it reached after Mali benefited from MDRI debt relief. Against this background, Mali is still faced with daunting policy challenges, including weak economic diversification, significant capacity constraints, and high vulnerability to shocks. My Malian authorities are determined to address these challenges, and in their endeavors, they will continue to value Fund advice in its core areas of expertise.
Fiscal Policy and Reform
7. On the revenue side, the authorities will continue implementing measures aimed at enhancing revenue mobilization. These will include close monitoring and streamlining of tax exemptions, phase-out of discretionary exemptions granted for certain goods and improvements in the effectiveness of tax agencies and the efficiency of taxation. In this regard, notable steps have already been taken to accord only legally backed exemptions and strengthen customs administration through the introduction of anti-fraud techniques and the use of actual values of petroleum products in customs operations.
8. On the expenditure side, it is the authorities’ intention to continue to abide by the need for prudence in the conduct of fiscal policy. For the current fiscal year, the authorities have thus far managed to keep current and capital expenditures in check, at levels well below initial program projections. While endeavoring to make higher room for poverty reducing expenditures, they will stand ready, if additional external financing is unavailable, to make necessary adjustments in nonpriority expenditures with a view to meeting fiscal targets, limiting recourse to domestic financing, and ensuring full financing of the 2008 budget. In the same vein, a governmental initiative supported by a number of development partners is underway to facilitate stronger involvement of local administrations in the process of decision-making on public spending, which will contribute to boosting pro-poor expenditure.
9. Improving public finance management and fiscal transparency will continue to rank high on the authorities’ agenda. The existing government’s action plan for the improvement and modernization of public finances has benefited from the conclusions of the Public Expenditure and Financial Accountability analysis completed early this year. The plan will continue to be refined with a view to better integrating all phases of the budget execution process.
Financial Sector Development
10. In view of the enormous scope for further financial sector development in Mali and the significant vulnerabilities facing this sector, the ongoing regional FSAP and the upcoming bilateral FSAP mission will be welcome. In particular, these missions could be useful in better identifying and addressing vulnerabilities in the financial sector while providing, if warranted, guidance for updating the financial sector development strategy that was recently finalized by the authorities in close collaboration with the Fund and Bank staffs. As the World Bank is also involved in the sector, notably through its financial sector development project, there will be scope for continuous, close coordination between the Bretton-Woods Institutions in Mali. Going forward, it will be important for the staffs to keep in mind the need to avoid duplicating efforts, to take into account implementation capacity constraints, to exercise caution in integrating FSAP recommendations into future program conditionality, and to ascertain that consistent policy advice is provided in the context of these various initiatives.
11. The authorities remain committed to a prompt but effective implementation of the privatization program. At this stage, it is expected that privatization of a number of public enterprises, including the BIM, the cotton company, CMDT, and the state telecommunications company, SOTELMA, will be finalized in 2008, as initially scheduled. A series of measures are being taken by the authorities to improve the long-term financial situation of Énergie du Mali (EDM) prior to finalizing the process of re-privatization of the company. Given previous unsuccessful privatization attempts and the fact that most companies destined to privatization currently face a difficult financial situation, the authorities are determined to press forward with their privatization agenda while paying due attention to need to maximize its effectiveness. Within the timeframe already set for the privatization program, it will therefore be useful that staff advice in the context of the next IMF-supported program be consistent with the pace at which the authorities wish to implement this program, so as to achieve this objective.
Fostering Growth for Further Poverty Reduction
12. Under past and current PRGF arrangements, Mali has achieved and maintained macroeconomic stabilization and kept its fiscal program on track. Key structural conditions were implemented, albeit with delay in some cases. Yet, available evidence shows that the incidence of poverty in Mali has only declined from 68.3 percent in 2001 to 59.2 percent in 2005. While appreciable, this rate of poverty reduction falls short of the authorities’ original objective, as set forth in their first Poverty Reduction Strategy Paper (PRSP), due to a number of factors which include the insufficient rate of economic growth.
13. Another key challenge facing the authorities is thus to foster growth and to translate sound economic performance into significant poverty reduction. In order to address this challenge, the authorities and staff concur that stronger private sector-led growth and public sector performance will be of critical importance. Staff indicates however that economic growth will be short of the PRS’ 7 percent target in view of current trends and reform plans. Yet, the authorities have developed in the second PRSP a credible strategy which, in their view, will contribute to accelerating economic growth by increasing the focus on sectors with strong growth potential and addressing impediments to strong growth. In the context of the successor Fund arrangement and technical assistance to Mali, it will therefore be useful to put more emphasis on these issues and to provide appropriate staff advice in the Fund’s core areas of competence in support of the authorities’ strategy and reform plans, as spelled out in Mali’s second PRSP.
Successor Fund Arrangement
14. It is the stated intention of the Malian authorities to maintain closer program relationship with the Fund. While the authorities have expressed their preference for a new PRGF-supported program, they are still in the process of exploring the most suitable form of program engagement with the Fund in light of Mali’s specific circumstances. Ultimately, their ambition is to graduate from the use of Fund resources and request a Fund arrangement under the PSI. However, based on their ongoing assessment of current circumstances, if a PSI is proven unwarranted at this stage, they envisage to continue their relationship with the Fund in the form of a new PRGF arrangement.