IMF FORESEES STABLE MACROECONOMIC OUTLOOK FOR MALI

UNCLAS SECTION 01 OF 02 BAMAKO 000349

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAID ETRD EINT EAGR ML
SUBJECT: IMF FORESEES STABLE MACROECONOMIC OUTLOOK FOR MALI
IN 2009

REF: 09 BAMAKO 340

1.(U) Summary: On May 19 the International Monetary Fund
(IMF) concluded its annual review of Mali's three-year
Poverty Reduction and Growth Facility (PRGF). Speaking to
the international donor community on May 18, the IMF said
Mali was well positioned to weather the global economic
crisis and predicted a stronger balance of payments scenario
for 2009 based in large part on the optimistic assumption
that Mali will succeed in privatizing its national
telecommunications company, SOTELMA, within the year. Maret
said Mali had met its 2008 targets but cautioned that there
were delays with some structural reforms. He said budgetary
policy would be loosened in 2009 to allow for greater
investment in the agricultural sector. Meanwhile,
contractual tax exonerations to the mining sector and the
restructuring of the Malian Housing Bank, together with high
internal debt, remained obstacles to the adoption of sound
fiscal policy. On May 20, however, one of Mali's main
business leaders provided the Embassy with a noticeably less
rosy view of Mali's economic future. End summary.

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Mali Escapes Economic Crisis, For Now
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2.(U) On May 18 IMF African Department Deputy Division Chief
Xavier Maret said Mali would be largely insulated from the
2009 global economic crisis. Speaking alongside Mali's newly
appointed Minister of Economy and Finance, Sanoussi Toure,
Maret said Mali's GDP remained stable as gold, which accounts
for 80 percent of Mali's export revenue, continued to fetch a
high price on the world market. Maret said remittances,
tourism, and foreign direct investment would decline in 2009
but that this would be offset by an increase in revenue from
customs, taxes from the mining industry, and petroleum
products. The GOM would further increase revenue by
following World Bank and IMF recommendations to raise the
state-owned electricity company's tariffs for businesses and
wealthier households.

3.(U) Maret said global decreases in food and petroleum
prices had lessened financial pressures for Malian consumers
and businesses. The IMF predicted that balance of payments
would improve in 2009 once the GOM completed the
privatization of the telecommunications parastatal company
SOTELMA. This privatization process, however, recently
suffered a serious setback when the GOM rejected a takeover
bid from the Moroccan telecommunications company Maroc
Telecom. Maroc Telecom had offered to purchase SOTELMA for
approximately USD 330 million, or USD 70 million less than
the GOM's asking price. After more than three months of
negotiations with Maroc Telecom to fashion a deal, Mali
rejected Maroc Telecom's offer in May and must now issue a
new tender for SOTELMA. The IMF acknowledged some delays in
structural reforms such as the privatization of the cotton
parastatal CMDT, but remained nonetheless optimistic that
these needed reforms would take place in 2009.

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Budgetary Policy and the Agricultural Sector
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4.(U) Mali's internal debt, estimated between 200-300 billion
CFA (400-600 million USD),is a considerable obstacle to
economic growth. Maret said IMF efforts to work with the GOM
to reduce the debt were complicated by indirect accounting
methods in the national budget. In 2009, the GOM faced an
additional outlay of 57 billion CFA (114 million USD) in the
return of value-added tax to mining companies and the
restructuring of the Malian Housing Bank (BHM). As a result
of these costs, the budget deficit in 2009 would rise above
1.5 percent of GDP. Although this is 0.3 percent more than
the IMF had initially forecasted, Maret said this would have
limited negative effects on the economy.

5.(U) The IMF said budgetary policy in 2009 would be driven
by investment in the agricultural sector as the Malian
government sought to increase cereal and cotton production.
Mali's cotton production has dropped substantially in recent
years (reftel). Maret said the key aspect of any
agricultural program would include first and foremost payment
to cotton producers for the 2008/9 campaign. To date, just
39 percent of cotton producers have been paid - a statistic
that threatens to undermine the 2009/2010 campaign. Maret
estimated that Mali needed 20 billion CFA (40 million USD) to
finance successful cotton campaign this year. World Bank
Senior Agricultural Economist Agadiou Dama told the Embassy
on June 2 that the WB was finalizing a USD 70 million
allocation to Mali's agricultural sector, though he did not
specify how much of this would be earmarked for cotton.

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Germany's representative at the IMF meeting indicated that
Germany may also provide additional assistance as it is
increasing its bilateral aid to Mali.

6.(U) Maret said it was difficult to ascertain exactly what,
in budgetary terms, the GOM intended to allocate to the
agriculture sector. He complained that GOM decisions on
agricultural subsidies were often ad hoc and driven by short
term political considerations. Maret advised the GOM to keep
subsidies to a minimum and implement rigorous oversight of
any future subsidies, which has not been done in the past.

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Local Industrialist Is Less Optimistic
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7.(SBU) In contrast to the generally positive economic
outlook presented by the IMF, a leading local businessman
said that the country's internal debt was stifling the
private sector. On May 20 Cyril Achcar - Director of the
Achcar Group which owns two of Mali's three flour mills, the
local airline Mali Air Express, a large detergent factory,
and a candy factory - said that some local companies had been
driven out of business as they awaited payments for goods and
services provided to the government. According to Achcar,
these payments were routinely delayed by more than one year.
Achcar also challenged the IMF's assumption that global
decreases in food and fuel prices somehow lessened financial
pressures for Malian consumers and business. Achcar said the
purchasing power of Malian consumers was not rising fast
enough to fuel economic growth and attributed any increases
in consumption to nothing more than modest population growth.

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Comment: An Optimistic IMF?
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8.(SBU) Mali's relative insulation from instability
associated with the global financial crisis is largely a
function of Mali's reliance on gold exports. During a
separate meeting with the Ambassador on May 13 the IMF team
noted that Mali's good fortune in this regard was
attributable not to GOM decision making but rather to chance
as gold is one of the few commodities to experience a rise in
global prices. Mali's gold deposits, however, are dwindling
and, with 70 to 80 percent of its export revenues dependent
on gold, a sudden drop in prices could have serious
consequences. The IMF's bet that Mali will manage to
privatize SOTELMA in 2009 and resurrect Mali's rapidly
sinking cotton sector may be overly optimistic. Any
potential economic good news for Mali in 2009 may also be
offset by a less than propitious business environment.
Companies like Achcar's, which have been in Mali since before
independence and enjoy a near monopoly, will continue to
thrive. But Achcar's comments underscore the difficulties
for smaller companies or those seeking to break into the
market. With a slow rise in consumer demand and a government
unable to pay its bills on time, Mali's business climate
remains a difficult place in which to fuel economic growth.
LEONARD