documentBy Christine Lagarde
A speech by International Monetary Fund Managing Director Christine Lagarde, to the Economic, Social and Cultural Council in Mali on January 9, 2014:
Mr. President of the Economic, Social and Cultural Council, Members of Government, Presidents of National Institutions, Members of the Diplomatic Corps and International Organizations, Members of the Economic, Social and Cultural Council, Ladies and Gentlemen,
It is a great honor for me to speak before your Council at such an important moment for your great country. As I stand here today, I am reminded of the old Malian proverb: "The talisman of a hunter is his perseverance" [Dònsòya la basi ye timinandya ye] « Le talisman du chasseur, c'est sa persévérance ». Perseverance is indeed what best symbolizes the spirit of the Malian people.
Today Mali is showing courage and perseverance, as it emerges from a very difficult period in its recent history. The successful presidential and parliamentary elections, with the record high voter turnout, attest to Mali's determination to leave the political and security crisis of 2012 firmly behind and to restore its democratic tradition.
As you know very well, the priority now is to steer the economy from crisis to recovery. I would like to talk today about how the gains of the past decade can be built upon to lay the foundations for a strong and resilient economy—where the dividends of growth are more widely shared.
Respectable track record
The ten years preceding the crisis were indeed impressive. Mali boasted a robust growth rate of about 5.5 percent on average between 2001 and 2011—well above the average for countries in the West African Economic and Monetary Union (WAEMU) (of 3.9 percent).
Mali was also one of the countries in Sub-Saharan Africa that made most progress towards the Millennium Development Goals. To mention but a few—between 2001 and 2011:
- Primary school enrollment increased, with 7 out of every 10 children now enrolled compared to 4 children in 2001;
- Literacy rates were doubled for both youth males and females;
- Child mortality was almost halved; and
- Finally, while admittedly still high, important strides were made in reducing poverty.
But the task is far from finished. Mali has a fast-growing population and largely untapped economic and human potential. The challenge today is to strengthen economic fundamentals to accelerate growth and job creation, and to make an even more 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. Equipping young Malian people with the appropriate skills and tools will be key in boosting the growth potential of the economy
Throughout all the challenges of recent years, the IMF has always been a close partner of Mali. We were among the first to provide emergency funding after last year's events, and last month we approved financing through our Extended Credit Facility. Our commitment is unwavering to help Mali reach its development objectives.
With this in mind, I would like to share with you my thoughts on three issues likely to shape Mali's economic prospects in the near term:
- The global economic environment;
- The outlook for Sub-Saharan Africa; and
- Finally, the policy agenda that will enable Mali to seize the opportunity to create strong, sustainable and inclusive growth.
1. Global Economic Environment
First, the global economic environment. Our revised forecasts on the global outlook will be released in a few weeks, so I will not be discussing numbers, but only trends..
Five years after the financial crisis, the world economy is gradually on the mend. But the recovery is uneven and subdued, and its underlying dynamics are shifting.
Driven by robust private sector activity, growth in the United States is gaining ground, implying an eventual normalization in financial conditions. In Japan, there have been important steps to stimulate growth. And Europe is slowly emerging from a deep recession, though important challenges remain to be addressed.
At the same time, emerging market economies are slowing, following several years in which they were the main engine of global growth. As financial conditions in advanced economies normalize, the risk of heightened volatility in financial markets may create new challenges in emerging market economies and further slowdown their growth. There is also the risk of potential spillovers to countries in Sub-Saharan Africa, particularly those that are more financially integrated with the global economy (including from higher commodity prices and foreign direct investment flows).
2. Outlook for Sub-Saharan Africa
Which brings me to my second point: the outlook for Sub-Saharan Africa. Here the news is encouraging.
In fact, Sub-Saharan Africa has been the second-fastest-growing region in the world in recent years, just after Asia. In many countries, this growth has contributed to higher living standards and faster poverty reduction. Low inflation, reduced levels of public debt, and adequate foreign exchange reserve levels – have shielded much of the region from the global financial crisis.
The improvement is particularly significant in Mali's neighborhood. Thanks to the recovery in Côte d'Ivoire, which has been working hard to recover the ground lost after years of civil strife, the West African Union (WAEMU) has been one of the fastest growing regions in Africa. This is an obvious benefit for Mali—since part of your exports and imports are with your neighbors.
Overall, we expect Sub-Saharan Africa to enjoy continued robust growth—which our projections in October place at 5 percent in 2013 and close to 6 percent in 2014. But this outlook is not without risks. Policymakers should remain vigilant to threats from slower demand in emerging market economies, unfavorable changes in commodity prices, or higher financing costs.
We will have the opportunity to revisit some of these issues in depth in May when we hold a conference in partnership with the Government of Mozambique to which all Sub-Saharan Africa countries have been invited—including your Minister of Economy and Finance. Appropriately titled "Africa Rising", the conference will take stock of Africa's economic successes, as well as the challenges going forward.
3. Unlocking Mali's Potential
Let me now turn to my third topic and the main issue for today's meeting—unlocking Mali's potential.
Although the global outlook suggests a relatively benign external environment for Mali, your country is facing some difficult challenges of its own as it emerges from a turbulent period.
Consolidating peace, advancing national reconciliation, and ensuring political stability are key objectives. And rightly so—political stability is essential for good economic performance. And vice versa—a strong, healthy economy improves the prospects for political stability and social peace. Fostering inclusive growth, where individuals across the broad spectrum of the economy can benefit and thrive, is an important part of this process.
Mali's challenges are formidable; but so are its opportunities. This country has large untapped, economic potential—including a wealth of natural resources. Agriculture is one example.
If rivers can be harnessed to irrigate large swathes of uncultivated land, production can be expanded significantly. Agriculture, which today provides most employment, could thus create additional jobs for the fast-growing population. It could also increase, as well as diversify, exports to neighboring countries that are net food importers.
Unleashing these opportunities means tackling other bottlenecks. A major one is underdeveloped infrastructure, which unless addressed, is going to hold back growth.
The lack of power, for instance, is a big brake on expansion.
You all know what this means. Without reliable power, there are power outages. Companies are forced to produce the electricity that they need, which drives their costs up. Children cannot study in the evening. Cooking is done on wood stoves, or stoves using other polluting fuel sources—fuels that families spend hours collecting in fields and forests.
A thriving economy will also require a strong base of human capital. So investment in education and training are crucial. The emerging labor force must have the basic skills and the skills that match business demand.
In other words, unlocking Mali's potential will require large investments—both in the public as well as the private sector. A policy agenda that has inclusive growth as an overarching objective can, in turn, help solidify the dividends from such investment. So we need three P's: public investment, private investment, and participation for all. Let me take up these issues in turn.
3.1 Unlocking Mali's Economic Potential—Public Sector Investment
The first "P": In terms of public sector investment, creating fiscal space to accommodate additional spending calls for action on two fronts. First, Mali needs to mobilize more tax revenue; and second, it needs to make better use of existing resources.
There is certainly room to increase tax revenue. At 15 percent, Mali's tax revenue-to-GDP ratio is lower than it should be. Efforts to raise revenue should focus on broadening the base—by strengthening tax administration and phasing out exemptions—and improving compliance.
There is also a need to make better use of existing resources.To begin with, Mali has a large energy subsidy bill—amounting to about 100 billion CFAF. This is more than the budget of the ministry of health. Gradually removing these subsidies would free up budgetary resources that could be directed instead to priority investments for the development of Mali.
At the same time, it is crucial to embark on reforms to improve governance and public financial management.
Allow me to be frank: improving governance means addressing corruption. Malians themselves know best that corruption poses a threat to democracy, and undermines the rule of law. It discourages investment by hindering the development of fair market structures, and by distorting competition. And it frays the social fabric and undermines trust in the political system and government institutions.
That is why President Keita's call to make the fight against corruption a priority has received widespread popular support. Stronger institutions and improved governance will contribute to an environment where everyone can benefit.
In this context, persevering with reforms of public financial management is key. These reforms should help to tighten expenditure control; and reassure international donors about Mali's capacity to manage aid inflows, without jeopardizing hard-won gains in debt sustainability.
Mali has also benefited from debt relief granted under initiatives supported by the international community. Continuing to rely primarily on grants and concessional financing to support development projects will be crucial in preserving the fiscal space that has been created.
3.2 Unlocking Mali's Economic Potential—Private Sector Investment
So these are some priority issues for the public sector. What about the second "P"—the private sector? It also has a key role to play in unleashing Mali's potential.
But the right conditions need to be in place for the private sector to assume the role of the engine of growth. This will require an improvement in the business environment.
In the IMF's experience, financial sector development and increased access to financial services can be a critical factor in promoting private sector expansion and the economy's progress. By providing a larger pool of funding and more diverse products, financial development fosters private sector growth and can help meet infrastructure needs.
Let me give you one example that struck me. In Mali, only about 10 percent of the population has a bank account. If banks collected more deposits, they would have more stable resources to provide credit to the economy.
And if contract enforcement were stronger, banks would be more willing to provide credit. A more developed land titling system could also offer greater opportunity to use land as collateral for financing the development of agriculture.
These and other steps toward financial inclusion will not only improve the business environment but also the overall economic environment from which everyone will benefit.
3.3 Unlocking Mali's Economic Potential—Participation of All
This brings me to my last "P"—participation of all.
I am reminded here of a saying by Albert Einstein: "All that is valuable in human society depends upon the opportunity for development accorded the individual."
We need to ensure that overall growth is more equitable and inclusive; that everyone gets to participate in the benefits of growth.
The IMF's global experience indicates that a more balanced distribution of income generates more sustained growth and greater economic stability. So while Mali's agricultural expansion over the past few years has helped lift the incomes of many rural households, urban incomes seem to have lagged. Going forward, the benefits of economic growth need to be more broadly shared.
This is also true in terms of gender. According to a recent IMF study, countries where women are held back by outdated obstacles and attitudes tend to have lower per capita income—by as much as 27 percent. This is not good for women, or for men, or for Mali. Removing obstacles to female participation in economic activity must rank high on the policy agenda. Again, let me frank: women are key to unlocking Mali's potential.
This all adds up to an ambitious agenda of reforms. Malian wisdom says that "You cannot pick up a pebble with one finger." [Bolokoni kélé tè bèlè ta : on ne peut pas prendre un caillou avec un seul doigt de la main.]
The stakeholders in Mali's development are diverse, as is the composition of your Council, with representatives from all walks of life. Yet, like the fingers of one hand, they are all working together toward a common goal—that of unleashing Mali's potential.
Your development partners, including the IMF, stand ready to help Mali unlock its growth potential.
Together, let us pick up all the pebbles on the way that will lead to a better life for all in Mali.