International Monetary Fund (Washington, DC)

8 January 2014

Mali on the Mend as Reforms Resume after Security Crisis

analysis

  • Mali emerging from worst security, political crisis in its recent history
  • Public spending to focus on reconciliation, recovery, poverty reduction
  • Country now benefits directly from improved regional security situation

Mali’s economy is on the mend, with donor assistance and business confidence gradually returning after the worst security and political crisis in the West African country’s recent history. Mali’s new $46 million IMF loan supports a structural reform agenda that aims to strengthen the foundations for robust, poverty-reducing growth.

The IMF’s Executive Board approved December 18 a new arrangement for Mali under the Extended Credit Facility for $46.2 million. The approval enabled the immediate disbursement of $9.2 million. Mali has a fast growing population and largely untapped potential. Long-standing priorities are to strengthen economic fundamentals to accelerate growth and job creation, and to make a meaningful dent in poverty by ensuring that growth is inclusive. Unlocking Mali’s potential will require significant investment not only in infrastructure but also in the country’s biggest asset—its people—through education and health.

Security, political crisis
In early 2012 insurgents took control of northern Mali, and a military coup in March 2012 destabilized the country’s political situation. Prospects have been improving following the French-led military intervention in early 2013, which drove the rebels out of the towns in northern Mali and allowed the government to start restoring control over the entire territory.
Since then, progress in political normalization has been encouraging: a successful presidential election, formation of the new government, and legislative elections have demonstrated Mali’s commitment to its democratic tradition. Mali was one of Africa’s strong performers in the ten years preceding 2012. The economy boasted a robust growth rate of about 5.5 percent on average between 2001 and 2011—well above the average for West African Economic and Monetary Union members of 3.9 percent.

Calmer neighborhood
Mali is expected to benefit from relatively stable external conditions in the near term. The region’s prospects are favorable. Sub-Saharan Africa is set to enjoy continued robust growth driven by strong investment in infrastructure and productive capacity, and by rising inflows of foreign direct investment and other financing opportunities.

The improvement in Mali’s neighborhood—within the West African Economic and Monetary Union—is particularly significant, with Cote d’Ivoire working hard to recover the ground lost after years of civil strife. Mali benefits directly from improvement in the security situation in Cote d’Ivoire, as much of its trade moves through Abidjan. In addition, encouraged by the restoration of political stability and security and by the good performance of the government’s policies supported by two loans totaling $33.8 million under the IMF’s Rapid Credit Facility in January and June 2013, donors have pledged $4.4 billion in support of Mali’s nascent recovery.

Progress against poverty
Mali was also one of the countries in sub-Saharan Africa that made the most progress toward the United Nations’ poverty-fighting Millennium Development Goals. Between 2001 and 2011

• Primary school enrolment increased, with 7 out of every 10 children enrolled compared with 4 out of 10 in 2001;
• Literacy rates were doubled for both youth males and females;
• Child mortality was almost halved; and
• Important strides were made in reducing admittedly still high poverty.

Mali’s immediate priority is twofold: deal with the legacy of the 2012 crisis, and resume the structural reform agenda that was interrupted by the crisis. Meeting the first objective will require advancing reconciliation between the south and the north of the country, improving governance, and consolidating the nascent recovery.

Besides unlocking access to IMF financial support, Mali’s new Extended Credit Facility arrangement will act as a catalyst for mobilizing broader donor support. Regular IMF program performance reviews should give the necessary reassurance to donors on the quality of domestic economic policies. The expected large donor support should help alleviate the country’s fiscal pressures in the near term (see chart).

Three key priorities
Importantly, the loan arrangement will help promote policies that respond to Mali’s current challenges. The 2014 fiscal program contributes to macroeconomic stability by keeping expenditures in line with revenues. The composition of public spending reflects the key priorities—national reconciliation, recovery, and poverty reduction.

To accelerate the pace of much-needed public investment, the government will create more room for spending in its budgets. It will do so by: mobilizing tax revenue through reforms of tax policy and tax administration, and a reform of fuel pricing and taxation; and by improving efficiency of spending through public financial management reforms.

The government will also take steps to improve the business environment. Entrepreneurs face one of the world’s most challenging business environments in Mali, and improving the business climate thus becomes a priority. Action areas include: combating corruption; increasing access to finance; and improving the quality of public goods, such as education, transport and irrigation infrastructure, power supply, and the judicial system.

The IMF’s partnership with Mali involves more than financial support and policy advice. Mali has been an active user of IMF technical assistance over the years. Most recently, since the improvement in the security situation allowed it, the IMF has intensified technical assistance in public finance, debt management, statistics, and the financial sector.

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