Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-6909-MLI

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

OF SDR 41.6 MILLION (US$60 MILLION EQUIVALENT)

TO THE

REPUBLIC OF MALI

FOR AN

ECONOMIC MANAGEMENT CREDIT

JUNE 4, 1996

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

Currency Unit = CFAFUS$ 1.00 = CFAF 499.4SDR I = CFAF 739.6

WEIGHTS AND MEASURES

Metric US EquivalentI meter (m) = 3.28 feet (ft)1 kilometer (km) = 0.62 miles (mi)I square kilometer (km2) = 0.39 square miles (sq. mi)I metric ton (t) = 2,205 pounds (lb)I kilogram (kg) = 2.2046 pounds (lb)

FISCAL YEAR

January 1 - December 31

FOR OFFICIAL USE ONLY

ACRONYMS

AEF African Enterprise FundAfDB African Development BankBOAM Bank of Africa MaliBCEAO Banque Centrale des Etats de I 'Afrique de I 'Ouest (West African Central Bank Zone)CAS Country Assistance StrategyCFA Communaute Financiere Africaine (African Financial Community)CFAF CFA FrancCIDA Canadian Intemational Development AgencyDNAE Direction Nationale des Affaires Economiques (National Economic Affairs Directorate)DNTP Direction Nationale des Travaux Publics (National Public Works Directorate)DRS Debt Reporting SystemESAF Enhanced Structural Adjustment FacilityESW Economic and Sector WorkEU European UnionFAD Fiscal Affairs DepartmentGDP Gross Domestic ProductGGG Groupement des Grands Garages de Bamako (Association of Large Garages of Bamako)GNFS Goods and non-factor servicesGNP Gross National ProductIBRD Intemational Bank for Reconstruction and DevelopmentICR Implementation Completion ReportIDA Intemational Development AssociationIEC Information, Education and CommunicationIFC Intemational Finance CorporationIMF Intemafional Monetary FundMIGA Multilateral Investment Guarantee AgencyNFS Non-factor servicesNGO Non-Govemmental OrganizationPAGE Projet d 'Appui a la Gestion Economique (Economic Management Operation)PER Public Expenditure ReviewPESAP Public Enterprise Sector Adjustment OperationPFP Policy Framework PaperOECD Organization for Economic Cooperation and DevelopmentOED Operations Evaluation DepartmentONAP Office National des Produits Petroliers (National Office of Petroleum Products)SAL Structural Adjustment LoanSDR Special Drawing RightSGS Societe Generale de Surveillance (Pre-shipment Inspection Agency)SOMAM Societe des Minoteries du Mali (Flour Mill Company of Mali)SPA Special Program of Assistance for AfricaSSA Sub-Saharan AfricaUNDP United Nations Development ProgramUSAID United States Agency for Intemational DevelopmentVAT Value-Added Tax

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization.

REPUBLIC OF MALI

ECONOMIC MANAGEMENT CREDIT

Table of Contents

Page No.

Credit and Program Summary ..................... ........................................ i

L. THE ECONOMY

A. Past Adjustment Efforts .............................. ....................... IB. Recent Developments ...................... ............................... 2C. Poverty under Adjustment .................................. ................... 4D. Medium Term Prospects and Financing Requirements ..................... 4

IL BANK GROUP OPERATIONS

A. Bank Assistance Strategy . .................................................... 6B. Lessons Learned from Past Adjustment Operations ......................... 7C. IFC and MIGA ..................................................... 7D. Collaboration with IMF and Other Donors ..................... ................. 8

111. MALI'S MEDIUM TERM REFORM PROGRAM

A. Redressing Fiscal Imbalances ..................................................... 8B. Addressing Gender Issues .................................................... 12C. Education and Health Reforms ..................................................... 13D. Private Sector Development .................................................... 13E. Civil Service Reform ........................... ......................... 14

IV. THE PROPOSED ECONOMIC MANAGEMENT CREDIT

A. Domestic Resource Mobilization .................................................... 14B. Expenditure Efficiency and Effectiveness .................. ...................... 16C. Addressing Gender Issues .............................................................. 18D. Budgetary Impact of Proposed Reform Measures ........................... 18

V. CREDIT FEATURES AND IMPLEMENTATION ARRANGEMENTS ... 19

VI. RECOMMENDATION .............................................................. 23

ANNEXES

ANNEX A. Mali at a glanceANNEX B. Key Social IndicatorsANNEX C. Selected Economic and Financial IndicatorsANNEX D. Matrix of Policy MeasuresANNEX E. Letter of Development PolicyANNEX F. Performance Monitoring IndicatorsANNEX G. Timetable of Key Project Processing EventsANNEX H. Status of Bank Group Operations

This operation was prepared by a team comprising Messrs./Mmes Victoria Kwakwa (Sr. Economistand Task Manager, AF5CO), Fabien Nsengiyumva (Economist, AF5CO), Linda McGinnis (ResidentRepresentative, Bamako), Roseleen Mba-Kalu (Operations Analyst) and Nanasamudd Chhim,(Research Analyst). Ms. Atossa Shafa provided administrative support. Messrs. Birger Fredriksenand Hasan Tuluy are respectively the Acting Department Director and the Acting Managing DivisionChief for the operation. Mr. Fran,ois Laporte is the Lead Economist.

REPUBLIC OF MALI

ECONOMIC MANAGEMENT CREDIT

Credit and Program Summary

Borrower: Republic of Mali

Beneficiary: The Government of the Republic of Mali

Amount: IDA Credit: SDR 41.6 million (US$60 million equivalent)

Terms: IDA Credit: Standard IDA terms with 40 years maturity

ProgramDescription: The proposed operation will support the Government of Mali's efforts to

deepen fiscal adjustment and provide a stable macroeconomic environmentthat is conducive to sustained private sector-led growth. It will ensureimproved quality of fiscal adjustment through greater reliance on expansionof revenues and closer coherence with long-term social developmentobjectives. Its main objectives are to: (i) improve domestic resourcemobilization and reduce distortions in the existing system of direct taxation;(ii) improve the efficiency, effectiveness, and the poverty focus of publicexpenditures; and (iii) support measures to address gender-basedconstraints on access to land and credit for women. The operation willsupport both policy and administrative reforms, critical for achievingneeded fiscal adjustment. It is an integral part of the Country AssistanceStrategy (CAS) presented to the Executive Directors on January 5, 1995and is fully consistent with the Government's Medium Term ReformAgenda. The Government's Letter of Development Policy is attached inAnnex E.

Poverty category: Poverty focused. The proposed Credit would support the reallocation ofexpenditures to sectors where there are clear and proven links betweenpublic expenditure and poverty alleviation, notably primary education,health, agricultural extension and road maintenance. The componentsupporting activities to improve access to land and credit for womenshould also help poverty reduction efforts given the higher incidence ofpoverty amongst women in Mali.

Benefits: The revenue measures will help Mali move closer to achieving the objectiveof reducing dependence on external budgetary aid, thus ensuring thatavailable external aid funds can be channeled into financing investments forlonger term development. Simplification and reduction in the distortionaryimpact of the system of direct taxation will help establish a more supportive

ii

environment for private sector investment. The expenditure measures willimprove the efficiency of public resource use and help expand primaryenrollment and health coverage which are important for Mali's longer termgrowth. The activities to improve access to credit and to land for womenwill help women participate more fully in economic activity. Overall, theoperation will help improve fiscal balance, thus promoting the stablemacroeconomic environment needed for sustained growth and povertyreduction.

Risks: The main risks are those of resistance to the proposed reforms by groupslikely to be affected, weak technical capacity to carry out reforms, andexcessive pre-election spending that could derail the financial program.The first risk is mitigated by Government efforts to build consensus aroundthe reform program and to hold extensive discussions with key interestgroups on the specific reforms proposed under the operation. The secondrisk is addressed through the components of the operation geared atbuilding capacity through organizational and administrative changes andtraining, particularly in the customs and domestic tax departments and inthe budget unit. The third risk could be mitigated through Government andBank efforts to continue to include key pressure groups (notably studentsand unions) in the policy dialogue and through close monitoring of thefinancial program.

EstimatedDisbursements: - SDR 14.0 million would be released at effectiveness;

- SDR 6.9 million would be released during 1997, subject to satisfactoryreview of the 1996 macroeconomic program and fulfillment of the specificconditions for the release of the second tranche;

- SDR 6.9 million would be released during 1998, subject to satisfactoryreview of performance of the 1997 macroeconomic program and fulfillmentof the specific conditions for the release of the third tranche. Thesetranches will be canceled if conditions for the given year are not met;

- Two floating tranches of SDR 6.9 million each would be released uponsatisfaction of specific measures related to fiscal reform and to gender.The latest date for the disbursement of these floating tranches would beDecember 31, 1998, the closing date for the operation.

Rate of Return: Not Applicable

Appraisal Report: Not Applicable

Map: Not Applicable

Product ID: ML-PA- 1735

REPORT AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE EXECUTIVE DIRECTORSON A PROPOSED

ECONOMIC MANAGEMENT CREDIT TO THE REPUBLIC OF MALI

1. I submit for your approval the following report and recommendation on a proposedEconomic Management Credit to the Republic of Mali for SDR 41.6 million, the equivalent ofUS$60 million. The Credit, an integral part of the Country Assistance Strategy (CAS), wouldsupport adjustment efforts to increase domestic resource mobilization and reduce distortions inthe existing system of direct taxation; improve the efficiency, effectiveness and poverty focus ofpublic expenditures; and address gender issues, notably gender-based constraints in access to landand to credit. It would be provided on standard IDA terms, with an amortization period of 40years. Mali's adjustment efforts are also supported by the International Monetary Fund (IMF)through a second three-year Enhanced Structural Adjustment Facility (ESAF), the first yeararrangement under which was approved by the IMF Board in April 19961, by the EU, the AfDBand by bilateral donors.

1. THE ECONOMY

A. Past Adjustment Efforts

2. In the early 1 980s, years of economic mismanagement, coupled with international oil priceshocks, deterioration in world prices of key exports and severe droughts, culminated in growingmacroeconomic imbalances in Mali. No longer able to service its external debts or pay its civilservants, the Government of Mali launched a series of adjustment and stabilization programsbeginning in 1982. The underlying objective was to lay the foundations for sustained growth byrestoring macroeconomic equilibria and transforming the economy from a state-controlled to amarket based system. Key elements of this effort were market liberalization and improvements inthe incentive and regulatory framework. In addition, measures were put in place to reducebudgetary deficits, public enterprise operating losses and public sector arrears. Regardingsequencing of reforms, fiscal and public enterprise issues were addressed first, followed byfinancial sector reforms, internal liberalization, and finally, trade reform. Substantial progress wasmade in reducing economic and financial imbalances until the pace of reforns slowed noticeablyin 1986. In 1988, the Government resumed its adjustment program deepening efforts at themacroeconomic level and broadening the reform program to cover a wide range of sectors,notably agriculture, transport, health and education. With the exception of slippage in late 1992and in 1993, linked to the process of political transition, and delays in executing education sectorreforms, the program has been steadfastly executed.

A first three-year ESAF arrangement approved in August 1992, was successfully completed in December1995.

2

3. Until 1994, internal adjustment was the sole instrument for achieving an appropriate realexchange rate given the fixed nominal exchange rate policy of the CFA zone. This strategy wasdesigned to reduce domestic cost structure and prices below those of competitor countriesthrough the pursuit of stringent anti-inflationary fiscal and monetary policies. Internal adjustmentproved ineffective in achieving the needed real exchange rate depreciation, due in part to thesignificant nominal devaluation of the currencies of competitor countries, the depreciation after1985, of the US dollar vis-a-vis the French Franc to which the CFA was tied, and declining termsof trade. By end 1993, estimates indicated that the real exchange rate was overvalued by as muchas 30 percent in domestic currency terms. The devaluation of the CFA franc by 50 percent inforeign currency terms in early 1994 was a recognition of the limits of the internal adjustmentstrategy and a bold step to effect the realignment of the real exchange rate needed to improveoverall competitiveness.

4. The adjustment effort has succeeded in moving Mali closer to a market based economy.Factor and product markets have been liberalized, extensive trade reforms have been put in place2 ,and Government participation in economic activity has been significantly scaled back, creatingroom for private sector growth. Further structural reforms are needed particularly to: (i) improvethe functioning of the financial sector; (ii) enhance the efficiency of the civil service; (iii) increasethe level of domestic resource mobilization while reducing the distortionary impact of the existingsystem of direct taxation; (iv) increase efficiency in the allocation, the use and the poverty impactof public expenditures; (v) address gender-based constraints to the participation of women ineconomic activity (notably constraints in access to land and to credit); and (vi) rapidly expandaccess to basic education and health services to a greater segment of the population whileimproving quality of service provision. As discussed in paras. 22-34 below, reforms under points(i) and (ii) will be supported under IDA financed operations currently under preparation, reformsunder points (iii), (iv) and (v) are supported under the proposed operation, while reforms andinvestments to rapidly increase the provision of basic social services are being supported underongoing and planned future operations (para. 32).

B. Recent Developments

5. Political Developments. Over the last 5 years, Mali has made a remarkable transitionfrom a repressive military regime to a multi-party democracy. During the last year and a half, theGovernment has succeeded in firming up its authority, initially weakened in the face of growingpolitical clout of labor unions and student groups. This has helped regain the momentum of thereform process and a concerted effort is being made to build broad consensus around key nationalissues including the reform program. An active communication campaign in the aftermath of thedevaluation, coupled with intense consultations with labor unions, helped ensure relative socialcalm and success in the implementation of accompanying measures. In August 1994, theGovernment conducted a series of nationwide town meetings on pressing issues facing thecountry, including reforms in the education sector. Continued success in explaining the reformstrategy will be critical in neutralizing remaining pockets of resistance, winning broad support fordeeper reforms, and ensuring their effective implementation. As part of the process of

2 The exchange rate system is however not market based.

3

democratization, the Government plans to implement a program of political and administrativedecentralization which will be put in place over the next few years. As the country prepares forpresidential and legislative elections in 1997, the challenge for the Government will be to stay thecourse of reform and ensure that the financial program is not derailed by excessive electionspending.

6. Economic Developments 1988-1993. Significant progress was made on the stabilizationfront over the period. Inflation was contained at under 3 percent per annum, from a high of over10 percent in the pre-reform era. The overall fiscal deficit (commitment basis and excludinggrants), declined from 10.5 percent in 1988 to 8.5 percent in 1990, and from 12.1 percent in 1991to 9.6 percent in 1993. Despite declining terms of trade, the external current account deficit(excluding official transfers) improved marginally to 12.9 percent of GDP in 1993 from 14.4percent of GDP in 1989. Growth performance also improved, averaging about 3 percentannually. However, this was lower than projected and barely sufficient to keep up with rapidpopulation growth estimated at about 3.1 percent annually.

7. Post-devaluation Developments 1994-1995. Mali has successfully managed its post-devaluation stabilization performance. Given the high import content of consumption, in theaftermath of the devaluation, macroeconomic balances worsened relative to their 1993 levels.The overall fiscal deficit and the current account deficit increased to 13.7 percent and to 18.2percent of GDP respectively and inflation rose to 33.2 percent. However, considerable groundwas regained in 1995. Budgetary revenues exceeded projected levels by about 12 percent,allowing a decline in the fiscal deficit to 10.5 percent of GDP, compared to the program target of12.4 percent. The current account deficit declined to 15.2 percent of GDP and inflation asmeasured by the GDP deflator was reduced to 12.7 percent. A table of selected economic andfinancial indicators is provided in Annex C.

8. The improved competitiveness has already provided a boost to economic activity in Maliand signs of recovery are noticeable across key sectors of the economy. A few industries that hadbeen closed prior to the devaluation, have now resumed operations, creating an estimated 600new jobs. The financial viability of the key cotton sector has been restored and gross sectorprofits amounted to CFAF 32 billion and CFAF 42 billion respectively in the 1994 and 1995 cropyears, allowing payments to cotton farmers over and above the floor price received of aboutCFAF 23 billion3 . Local rice is now able to compete on the local market with imports from Asiawithout recourse to high levels of protection and Malian livestock is also competitive on sub-regional markets with imports from the European Union and Latin America. Export performancehas been impressive with volumes increasing on average 12.4 percent annually over 1994 and1995. Much of this increase came from traditional exports (cotton, livestock and gold) but non-traditional exports such as fruits and vegetables are also experiencing some growth. Overallgrowth of the economy, which was a low 2.3 percent in 1994, increased to 6 percent in 1995, duemainly to the improved competitive position of the agriculture and the mining sectors,

After the devaluation, the floor price of cotton was increased to CFAF 125 per kilogram from CFAF 85 perkilogram and farmers' share of sector profits was increased to 35 percent from 25 percent.

4

strengthened domestic demand resulting from a shift of consumption patterns in favor of locallyproduced substitution goods, and favorable rainfall during the 1994/95 crop season.

C. Poverty under Adjustment

9. Data from a 1989 household budget survey indicate that about 73 percent of thepopulation live below the poverty line4. The bulk (90 percent) of the poor live in rural areas, butthere is evidence of increasing urban poverty. With limited growth, progress in reducing povertyover the adjustment period has also been limited. Key reforms in agriculture have benefitedsegments of the rural population, notably cotton and rice farmers. The organization of farmers inthe rice and cotton producing zones has given these groups a much stronger voice in decisionmaking in their respective sub-sectors. This augurs well for future incomes. In the rice sector,the liberalization of produce marketing and processing and the restructuring of the rice parastatalhas given farmers the opportunity to mill their rice paddy with private millers, adding value andthus attracting larger margins than was the case in the pre-reform period. In the cotton sector, forseveral years, the impact of sector efficiency improvements on farmer incomes was offset byfalling world market prices. However, recent producer price increases allowed by the devaluationand recovery in world market prices have boosted producer incomes.

10. The Government's divestiture program and its withdrawal from distribution, trade andretailing have given more opportunity for a larger segment of the population to enter theproduction and retail trade. On the other hand, other aspects of the program have had a lesspositive impact on urban employment. Close to 9,000 workers lost jobs through theGovernment's public and parapublic sector reform programs between 1988 and 1994. Due to thestagnation in the economy and poor implementation of reinsertion programs, a large number ofthis group was not successfully reintegrated into the private sector, swelling up the ranks of theurban unemployed and underemployed. The ongoing Public Sector Employment And CapacityBuilding Project has helped provide short-term employment for unskilled urban poor throughlabor intensive public works programs, but addresses only a small fraction of total employmentneeds.

D. Medium Term Prospects and Financing Requirements

11. Improvements in competitiveness following the devaluation (real depreciation is estimatedat about 32 percent in domestic currency terms since the devaluation) has improved Mali'smedium-term growth prospects. Good progress in addressing the reform issues outlined belowand in implementing reforms already spelt out in the Sixth Year PFP and supported by thisoperation should help Mali consolidate these competitiveness gains. Real GDP growth isprojected to average 4 to 5 percent annually over 1996-1998, allowing per capita income growthof at least 1.5 percent per annum. This would be a notable improvement over performance duringthe last five years, but cannot be expected to make a significant impact on poverty reductionefforts. It will have to be complemented by policies to ensure that the poor can benefit from

Defined as average level of income allowing daily intake of 2450 calories.

5

growth, e.g. policies to improve access to credit, to education, and training for the poor, as wellas targeted interventions to meet the needs of the most disadvantaged in society.

12. Agriculture will continue to be the main sector of economic activity and further increasesin cotton, cereals, and livestock production are both technically and economically feasible.Significant growth is also expected in non-traditional areas such as high value fruits andvegetables. Growth in agriculture is projected to average about 4.5 percent over 1996-1998.With the recent opening of the Sadiola Hill gold venture, mining sector growth is projected toaverage about 20 percent over the period. Industrial growth linked to agro-processing and totextiles should allow growth of industry (outside of mining) of about 6 percent annually.Construction is expected to continue to show strong growth as overall economic activitystrengthens. Projected increases in tourism should also provide a boost to service sector growth.Given the small size of the domestic market, increased opportunities for intra-regional trade in thecontext of the recently created West African Economic and Monetary Union will be important forachieving the projected overall growth rates.

13. Under the PFP scenario, gross investment would be maintained at about 26 percent ofGDP, with the share of private investment slowly increasing in response to continuedimprovement in the policy environment. Domestic savings would rise to about 14.1 percent ofGDP by 1998 from the current level of 8.8 percent. The current budget surplus would increasefrom 1.8 percent in 1995 to about 3.6 percent of GDP by 1998 and inflation would be broughtdown to the pre-devaluation level of around 3 percent per annum. The current account deficit(excluding official transfers) is projected to decline to 10.6 percent of GDP by 1998. TheGovernment intends to achieve external viability (i.e. eliminate the need for external budgetaryaid) over the medium-term but although domestic savings are projected to increase, Mali willcontinue to depend heavily on external financing for implementation of its investment program.About 85 percent of projected investment is expected to be financed from external sources.

14. Total external financing requirements are estimated to be in the order of about US$1.5billion over 1996-98 (Table 1). The current account deficit, excluding grants, accounts forroughly 68 percent of this requirement, debt amortization 22 percent, and reserves build up 10percent. Disbursements from already identified grants and loans resources (non-adjustment) andprivate capital flows, are projected to provide about 74 percent of the required external financing.The remaining gap will need to be financed by bilateral debt relief, and new quick-disbursing non-project aid, including IDA and IMF adjustment lending. In total, approximately US$380 millionof quick disbursing assistance is required for the 1996-98 period. The proposed credit wouldprovide about 16 percent of this amount. Projected debt relief, existing commitments and IMFresources cover an additional 77 percent. The remaining 7 percent is expected to be covered bynew cofinancing under the Special Program of Assistance for Africa (SPA).

15. Based on the medium-term balance of payments projections and subject to Mali's pursuitof a prudent external debt management policy and receipt of debt relief on Naples terms for all ofits eligible bilateral debt, including that to the People's Republic of China and the RussianFederation, the burden of Mali's debt should be reduced substantially and debt service should besustainable. After debt relief, the debt service ratio would decrease from 14.4 percent of exportsof goods and services in 1995 to 12.6 percent in 2005 and 11.7 percent by 2015 --or the

6

equivalent of 14.5 percent of government revenue and grants in 1995 and 13.2 percent in 2015--levels compatible with Mali's projected repayment capacity.

Table 1. Mali - External Financing Requirements and Resources. 1993-98(In millions of US$)

1993 1994 1995 1996 1997 1998 Total

Est. Program 1996-98

Requirements 459.4 598.9 629.9 548.1 455.1 460.4 1463.6

Current account deficit, excluding 344.6 337.5 374.0 350.2 329.7 316.7 996.6official transfers

Debt amortization 1/ 133.8 130.2 135.4 130.4 85.5 97.8 313.7Changes in external payments -17.6 35.7 -- -- -- -- --

arrears (net accumulation -)Changes in net foreign assets 28.6 118.7 97.7 67.5 39.9 45.9 153.3

(increase +) 2/Other 3/ -30.3 -22.8 22.9 -- -- -- --

Resources 459.4 598.9 629.9 548.1 455.1 460.4 1463.6Non-adjustment grants and loans 296.2 284.4 327.9 336.4 347.1 350.7 1034.2

of which: World Bank 44.0 45.0 56.0 55.0 57.0 58.0 170.0Private capital (net) -6.7 45.0 30.0 10.0 19.7 19.4 49.1

Required quick-disbursing financing 169.9 269.5 272.0 201.7 88.3 90.3 380.3and debt relief

of which: existing commitments 4/ 48.8 134.2 138.2 54.0 0.0 0.0 54.0IMF 13.0 42.0 44.0 31.0 31.0 30.0 92.0

Debt relief 5/ 108.1 93.3 89.8 81.1 28.7 36.2 146.0Proposed operation -- -- -- 20.0 20.0 20.0 60.0Residual gap -- -- -- 15.6 8.6 4.1 28.3

Source: Sixth Year Policy Framework Paper, 1996-98.

1/ Including IMF repurchases.2/ Excluding the change in the net position vis-a-vis the IMF.3/ Including revaluation adjustnent and errors and omissions.4/ Excluding IMF.5/ Including debt rescheduling, debt moratoria and debt under renegotiation (Russian Fed., China), and debt cancellation.

H. BANK GROUP OPERATIONS

A. Bank Assistance Strategy

16. This project is consistent with the Bank Group's Country Assistance Strategy for Malidiscussed by the Board of Executive Directors on January 5, 1995. The main blocks of thisstrategy are to support the Government's efforts to: (i) achieve sustained broad-based growth; (ii)develop human resources and improve the quality of education and health services; and (iii)address the needs of most vulnerable groups through a strengthened social safety net system.These objectives will be achieved largely through investment lending, with adjustment lendingdeclining as a share of the portfolio over the FY96-98 period. This will be complemented by aprogram of Economic and Sector Work (ESW) geared towards promoting national debate and

7

increased awareness of and consensus on key development issues. The approach seeks greaterconsultation and participation by clients and beneficiaries in the preparation and execution ofoperations, and several operations under preparation systematically include consultation withbeneficiaries in their definition and preparation. It also foresees continued close coordination withother donors in an effort to ensure coherence in donor support to Government, and avoidduplication of effort.

17. The lending program emanating from this strategy envisages a significant increase in thelending envelop to Mali as well as a shift in lending in favor of education and health over theFY97-99 period. The increase in lending is justified by Mali's good performance in pursuing itseconomic reform agenda culminating in the 1994 parity change, and the country's overwhelmingneeds. Although the emphasis will be on the social sectors, interventions are planned in severalother sectors. The ongoing Private Sector Assistance Operation, the Transport Sector InvestmentOperation, the planned Financial Sector Reform Operation, and the legal reform component of theInstitutional Development Project under preparation all support key elements of theGovernment's private sector and competitiveness strategy. The Population, Health and RuralWater Supply Operation is the main vehicle for Bank support to Government's efforts to expandbasic health services. In education, the first step of the Government's sector strategy wassupported through the Education Sector Adjustment Operation with cofinancing from Japan, theNetherlands and Belgium. The second step will be supported by a multi donor-financed sectorinvestment operation programmed for FY97. A Pilot Participation Project aimed at addressingthe needs of vulnerable groups through closer collaboration with NGOs is scheduled for appraisalin June 1996. Other key operations in the program include a Rural Infrastructure Operation (withrural roads and water components), and a follow-up Health Sector Investment Operation.

B. Lessons Learned from Past Adjustment Operations

18. The Bank has financed one structural adjustment, two sector adjustment (education andpublic enterprise sectors), and two hybrid credits (one in agriculture and one in education) to Malisince 1988. In addition, a single tranche Economic Recovery Credit was prepared as anemergency response to the parity change of January 1994. An OED evaluation report has beenprepared for the Public Enterprise Operation (PESAP), and an ICR for the SAL I has recentlybeen completed. In both operations, implementation wavered partly as a result of socialdiscontent and political changes. Programs designed to address short-term adverse impacts werepoorly executed and monitored. They were also affected by a lack of distinction betweenreinsertion programs and payment of employment severances, creating unrealistic expectations onthe part of laid-off staff. Key lessons from these two operations include the importance ofensuring: (i) Government ownership and a strong constituency in support of reforms; (ii)institutional capacity to implement and monitor reforms; and (iii) clear objectives and effectivemonitoring of programs to address short-term social impacts of reforms.

C. ILFC and MIGA

19. As of April 30, 1996, the IFC had made 6 investments totaling about US$95.5 million toMali. The IFC's Board has also approved three operations that are yet to be committed (AEF-GGG for US$770,000 in equity, AEF-BOAM for US$230,000 in equity and AEF-SOMAM for

8

US$1.5 million in loan). IFC's investments in Mali cover food, agro-business, tourism, financialintermediation, and mining operations. IFC will continue to focus on the development of small-and medium-scale enterprises through the African Project Development Facility and the AfricanEnterprise Fund. Mali became a member of MIGA in October 1992.

D. Collaboration with IMF and Other Donors

20. Mali's adjustment and overall development agenda is being implemented with strongsupport of several bilateral and multilateral donors. The effective coordination of this multi-sourced assistance is critical for ensuring its improved effectiveness. IDA staff work closely withthe IMiF on macroeconomic program discussions and on the preparation of the PFP. A first yeararrangement under a second three-year ESAF program was approved by the EMF's Board onApril 10, 1996. Donor coordination occurs in various fora: the semi-annual SPA donors'meetings and sectoral donor Round tables, the UNDP Roundtable process (a successfulRoundtable meeting was held in Geneva, September 13-14, 1994), as well as informal and formalcontacts during field missions. IDA staff, both in the field and at headquarters, have and willcontinue to maintain an active dialogue with key donors in Mali on sectoral and macropolicyreform issues, seeking closer collaboration and joint financing of various development projects.

IH. MALI'S MEDIUM TERM REFORM PROGRAM

21. Key elements of the Government's medium term reform agenda include the following:

A. Redressing Fiscal Imbalances

22. Mali's fiscal adjustment since 1988 has achieved some reductions in fiscal imbalances.The overall fiscal deficit (commitment basis and excluding grants) fell by 2 percent of GDPbetween 1988 and 1990, by about 2.5 percent of GDP between 1991 and 1993 (para. 6) and byan additional 3 percent of GDP between 1994 and 19955. Until 1993, the improvements in fiscalbalance, which were needed, relied more on expenditure contraction than on improvements inrevenue performance. The reductions in public spending reflect the elimination of high levels ofgovernment subsidies to the parapublic sector and other wasteful elements of public resource use,which was warranted. However, expenditures in areas such as primary education and health,which should have grown, also suffered. The quality of fiscal adjustment could clearly have beenimproved through greater reliance on revenue expansion6, by ensuring that social sector spendingwas not put at risk and through greater intrasectoral expenditure efficiency. The speed of thereductions in the fiscal deficit may also have been too fast. However, given the inability to usenominal exchange rate depreciation as a policy tool, fiscal stringency was a key instrument forachieving the needed real exchange rate depreciation (para. 3) and had to be used much more

5 Fiscal data from 1988 to 1990 are not directly comparable to data from 1991 due to the integration of severalspecial accounts in the budget in 1991. Similarly, the devaluation of 1994 makes it difficult to compare pre-1994 to post-1994 fiscal data.

6 This could have been achieved without raising tax rates, by addressing fiscal fraud more aggressively andremoving distortions in existing direct tax regime.

9

aggressively than perhaps would have been desirable from the perspective of growth and the shortterm well-being of the population. Strict monetary rules of the West African Central Bank Zoneto which Mali belongs have ensured that monetary financing of the deficit has been limited.Deficits have been financed largely through extemal borrowing7 and to some extent through theaccumulation of domestic arrears. However, since 1994, the quality of fiscal adjustment hasinproved, with increases in spending for education and health and greater intrasectoral efficiencyin the use of education sector resources.

23. Despite progress made, further fiscal adjustment is essential in Mali. Given an averageoverall fiscal deficit including grants of 3.8 percent of GDP (see Table 2) over the last three years,Mali's fiscal stance can be rated as somewhat poor8 . Furthermore, the estimated sustainableprimary deficit of about 3.3 percent of GDP is significantly lower than the actual level of 9.1percent of GDP in 1995. The need for further adjustment is also evident in the continued highlevel of dependence on extemal budgetary aid (over 1994 and 1995, total budgetary aidrepresented about 61 percent of domestic revenues and about 62 percent of current spending9).However, Mali is now at the point where continued disproportionate reliance on expenditurereductions to achieve fiscal balance goals are not sustainable, from the point of view of overallgrowth of the economy as well as from the point of view of achieving key development objectivesin the social sectors and helping to reduce poverty. These objectives must increasingly beachieved through revenue expansion and improved management, poverty targeting and efficiencyof expenditures. The macroeconomic framework projects a reversal of the past trend over themedium term, with expansion in domestic revenues contributing a growing part of projected fiscalbalance gains. Table 2 below shows the key fiscal balance outcomes over 1993-1995, and thetargets for the 1996-98 period.

Table 2. Mali - Key Fiscal Balance Indicators. 1993-98(In percent of GDP) 11

1993 1994 1995 1996 1997 1998

Overall fiscal balance, including grants -4.1 -4.2 -3.0 -5.2 -4.5 -3.9

Overall fiscal balance, excluding grants -9.6 -13.7 -10.5 -10.1 -9.1 -8.1

Primary fiscal balance -8.0 -11.4 -9.1 -8.7 -7.5 -6.6

Current fiscal balance -0.7 -1.2 1.8 1.7 2.6 3.6

I/ A negative number indicates a deficit.

24. Domestic Resource Mobilization. Over the last two years, Mali has maintained a goodtrack record in meeting overall revenue targets, but has not made fundamental improvement in the

7 Large share of grants and concessional loans in Mali's external aid inflows has helped debt management.

8 Using rating guidelines provided in "Adjustment in Africa: Reforms. Results and the Road Ahead", WorldBank, 1994, p. 48. Poor rating indicates deficit of 3.6 to 7.0 percent of GDP.

9 In 1996, total budgetary aid is projected to decline to about 33 percent of total revenues and 37 percent ofcurrent expenditures, almost half in both cases.

10

domestic resource mobilization effort. Targets have been achieved with the help of high levels ofexceptional revenues, such as payments by parastatals of debt obligations to Government, andincome from the sale of public enterprises, which cannot be sustained over time. This furtherhighlights the fragility of fiscal balance gains and their vulnerability to external factors such asworld market cotton price trends and climatic factors affecting cotton production. Revenueeffort, currently at about 13 percent of GDP (see Table 3 below), is considerably lower than theSSA average of about 18 percent and the 17 percent recorded in 1990. In parallel, expenditurerequirements to meet even the most basic objectives in the social sectors are overwhelming, givencurrent low service coverage (primary enrollment is estimated at barely 35 percent, and only 17percent of the population live within a 15 kilometer radius of a health facility), and are increasingrapidly in the face of high population growth.

Table 3. Mali - Revenue Performance Indicators. 1992-95

1992 1993 1994 1995

Budgetary revenuesCFAF billions 89.1 94.0 126.0 160.7As % of GDP 12.1 12.0 12.2 13.1Composition (% of total):

Tax Revenues 88 89 82 79of which:

taxes on international trade 55 50 44 45taxes on income and profits 1/ 16 18 17 17

Non-taxrevenues2/ 12 11 18 21

Source: 6th Policy Framework Paper, March, 1996.

1/ Including taxes on net income and profits, payroll tax, and property taxes.2/ Including payment by parastatals of debts owned to Government, and income form the sale of public enterprises.

25. This background provides a strong case for the urgency of major improvements in Mali'sdomestic revenue performance. Furthermore, revenue sources need to be diversified to reducedependence on trade taxation (currently accounting for about 45 percent of budgetary revenues)and on cotton revenues. Key constraints on improving revenue performance include weak taxadministration compounded by tax fraud, particularly in the use of exonerations, and acomplicated and burdensome system of income taxation. The Government has outlined aprogram to strengthen tax administration and help reduce fraud. Customs fraud is particularlyprevalent in the collection of petroleum revenues, current yields of which are estimated to be atleast 20 percent lower than potential. A major source of difficulty is the practice of declaring apetroleum product that is subject to lower taxes than what is actually imported. The Govemment,in collaboration with an intemational pre-shipment inspection agency (SGS), has already put inplace several measures to try to address petroleum fraud more effectively. In particular, SGS hasbegan using non-falsifiable stickers on all import declaration forms at the point of import, butmuch more needs to be done to make a significant impact on fraud.

I1

26. While important reforms of indirect taxation were implemented under SAL I, directtaxation is still complicated, lacks transparency, and is highly inefficientl'. There is a high degreeof cascading and cumulative tax rates reach as high as 75 percent, imposing a heavy burden on thesmall formal sector. The 1994 Private Sector Assessment identified high levels of direct taxationas a key constraint to private sector growth. There is no specific tax on corporate profits.Businesses are subject to: (i) a schedular tax levied on industrial and commercial profits; (ii) alump sum minimum tax; (iii) a tax on capital income; (iv) a tax on real estate income; and (v) anemployment tax. Industrial and commercial profits as well as non-commercial incomes are alsoincluded in income subject to the general income tax. This structure is cumbersome and hard tointerpret even for tax officials. Furthermore, there are several loopholes stemming from a poorlydefined system of deductions which contribute to further distortionary effects. As regardspersonal income tax, there is no schedular tax on salary income which is included as part oftaxable income under the general income tax and normally deducted at source. Personal incomeis also subject to schedular taxes on real estate, on non-commercial and on capital income. Thecurrent system of family deductions on personal income also favors higher income earners andthus adds to the inequity of the system. Direct taxation currently contributes about 18 percent oftotal tax receipts but could contribute much more if appropriate reforms were put in place.Reforms are also needed to reduce the level of distortions in the current structure and promoteprivate sector growth.

27. Public Expenditure Management and Efficiency. Under the adjustment program,progress has been made in improving public expenditure management. Expenditures have beenreined in, falling from about 28.2 percent of GDP in 1991 to about 25 percent in 1995, and wagespending has fallen from about 37 percent of recurrent spending in 1991 to an estimated 31percent in 1995. External payments arrears have been eliminated"' and most domestic arrears arebeing settled. The budgetary process has also improved. A wide range of expenditures includingthe operations of ten special accounts and funds, have been integrated into a single consolidatedgovemment budget. Foreign-financed investment is now captured and investment budgeting hasimproved with the introduction of the three-year rolling investment program. These changesprovide a more complete picture of central government financial operations, and allow betterassessment and management of overall fiscal stance. However, a multi-donor Public ExpenditureReview carried out in 1993 shows that public expenditures management and efficiency is stillweak in several areas, notably: (i) the absence of a mechanism to ensure that the budget is aneffective tool for implementing Government's stated development priorities; (ii) slow expenditureexecution and poor monitoring due in part to the structure of budgetary allocations'2 and due tothe unreliability of expenditure data; (iii) inadequate provision for maintenance of existing capital

l SAL I envisaged the move to a unitary income tax system but this was not implemented given weaknesses inadministrative capacity and poor outcomes in other countries that had tried to institute this reform.

1 Russian and Chinese debt service is under a moratorium pending debt discussions with these two creditors.

12 For example, some of the allocations made for central ministries are passed on to the regions and executed atthe regional level, complicating the monitoring of execution of this allocation. Furthermore, the breakdownby sector of execution of common funds, managed by the Ministry of Finance but not allocated by theMinistry at budget time, is extremely difficult to obtain.

12

and infrastructure; and (iv) allocations for spending in social sectors that are significantly belowwhat would be needed to make a significant impact on Mali's poor social indicators.

28. Poverty Focus of Public Expenditures. Expenditures in areas where empirical evidenceshows strong links between public expenditures and poverty alleviation are generally low.Education and health outlays followed the trend in overall public expenditures, falling in realterms between 1989 and 1992. This was clearly contrary to the Government's stated objective ofimproving access to basic education and health services. The 1993 PER found that the incidenceof education and health spending on poorer groups was low with expenditures largely benefitingmore privileged groups. Over the past year, the Government has began restructuring educationexpenditures to improve their efficiency and to ensure a larger share for primary education and forquality improvements. In 1994, health expenditures represented barely 8 percent of the recurrentbudget and overall expenditures in the sector averaged less than US$3 per capita, far short of theestimated US$12 needed to finance the cost of a minimum package of basic and preventive healthcare services13. The impact of the low levels of expenditures and the inequities in its distributionare evident in Mali's poor health indicators. To raise health spending to levels needed to providea minimum package of services, even assuming that the burden will be evenly split betweenprivate and public sector, would require that sector budget at least double in absolute terms.While some of the required increases could come through efficiency improvements, significantadditional spending is clearly called for.

B. Addressing Gender Issues

29. There has not been a conscious effort so far to integrate gender issues into the design ofreforms. Nevertheless, a few measures have helped redress some gender-based constraints. Inparticular in 1995 the Government made changes to the income tax code to ensure that womencould also benefit from child tax credits in filing their income tax returns. The revision of theCommercial Code in 1992 removed the requirement for prior authorization from husbands beforewomen could engage in commercial activity. This revision and the Government's policy ofliberalization have helped achieve modest progress in the integration of women in the economy.The share of women engaged in economic activity is estimated to have increased from about 41percent in 1989 to about 47 percent in 1994.

30. Key legal statutes in Mali are broadly gender neutral. The Constitution of the ThirdRepublic, adopted in February 1992, makes explicit reference to the promotion of the rights ofwomen and children. The Land Code of 1986 and the recently prepared decree on awardingirrigated land in the rice growing region of the Office du Niger, for example, clearly bandiscrimination in the award of land on the basis of gender. Nevertheless, there are still certainaspects regarding the implementation that effectively result in gender-biases'4 . More importantly,effective application of most legal statutes is hampered by ignorance and by strong cultural andreligious beliefs about the role of women in society. Thus, women still systematically face more

3 World Development Report 1993, p. 117.

14 For example, most female-headed households do not have the family registration information needed as abasis for applying for land.

13

constraints than men in their access to factors of production such as credit, education and training.For example, UNDP's human development index for women is about half that for men in the caseof Mali. To help redress this, a major public education effort on legal statutes affecting women,closer monitoring of execution of legal provisions, and review and elimination of aspects ofapplication that are gender-biased is needed. This should be an integral part of the reform effort,since it could enhance the productivity of women and thus help achieve the higher growth ratesneeded to make an impact on poverty reduction. It is also important from an equity standpoint,given the higher incidence of poverty among women. The National Commission for thePromotion of Women has already outlined an extensive public education campaign on the issue ofgender as part of an action plan for the promotion of women that was recently adopted by theGovernment. The Bank also financed a seminar on women's legal issues in Mali in 1993.

31. The proposed Credit would provide support to the Government's efforts to address thereform issues described above (paras. 22 to 30). Other reform issues described below will beaddressed through other operations and activities.

C. Education and Health Reforms

32. Under the Education Sector Adjustment Operation, the Government has taken bold stepsto redress distortions in the use of sector resources. It has instituted and began application ofmuch more stringent criteria for award of higher education scholarships and adopted and appliednorms for per student budgetary allocations for textbooks and educational supplies. Double shiftteaching is being expanded, over 650 teachers have already been redeployed from administrativejobs into primary teaching, and a new system of selection for access to post-primary basiceducation based on academic performance and available places has been instituted. As a result ofthese measures, primary school enrollment has increased by about 20 percent over the last twoyears, largely financed through more effective use of existing sector resources. These reforms willbe expanded and monitored in the context of the upcoming Education Sector InvestmentOperation, planned for Board presentation in FY97. Under the ongoing Population Health andRural Water Supply project the Government has reformed health sector management to allowgreater community involvement. It has also adopted and is implementing an essential drugspolicy. Further reforms and investments will be supported under the Health Sector InvestmentOperation planned for FY98. This operation will also support Government efforts to addressMali's high population growth rate.

D. Private Sector Development

33. Improvements in the incentive and regulatory regime under the adjustment program havebeen beneficial for the private sector. Nevertheless, private sector growth is still hampered by:(i) a weak judicial system and difficulty in enforcing business contracts; (ii) inadequate access tocredit; (iii) poor access to and high costs of key factors of production notably transport, energyand telecommunications; and (iv) a distortionary system of income taxation. The InstitutionalDevelopment Project (FY97) under preparation includes a component to strengthen thefunctioning of the legal system and the ongoing Private Sector Assistance Project is beingrestructured to include a component aimed at creating an enabling legal environment for privatesector activity. Steps are already underway to improve the functioning of commercial and

14

administrative courts. The Government is also beginning to address reform issues in the financialsector as part of its efforts to improve private sector access to credit. It has indicated its intentionto privatize one bank and is proceeding with the restructuring of the Postal Checking and SavingsInstitution. A comprehensive strategy for reform of the sector is being prepared in the context ofthe proposed Banking and Financial Sector Reform Operation scheduled for presentation to theBoard in FY98. Under the ongoing Transport Sector Investment Project, Government willrehabilitate the existing road network while expanding coverage and service. The proposedManantali Regional Hydro Electric Project (FY99) should also improve access to energy. Theincome tax reforms proposed under this Credit are geared towards reducing distortions in theincome tax regime and reducing the tax burden on the small formal sector.

E. Civil Service Reform

34. Under SAL I, the size of the civil service was reduced from over 41,000 to about 36,000employees. This was an important factor in containing wage spending. The program washowever, unable to achieve any appreciable improvements in public sector efficiency, which is stillcharacterized by weak capacity, poor intra and intersectoral distribution of staff and betweenurban centers such as Bamako and smaller towns and rural areas, and a lack of both incentives toperform and sanctions for inappropriate behavior. The limited success of the earlier reform effortwas due in part to resistance from labor unions which gained increasing political power in thetransition to democracy and the failure to fully incorporate this group in the definition of thereforms earlier on. The Government is currently preparing a Public Sector Management Strategy,in broad consultation with the population as a whole and labor unions in particular. This isexpected to form the basis of a multidonor-financed Institutional Development Project planned forFY97.

IV. THE PROPOSED ECONOMIC MANAGEMENT CREDIT

35. The proposed operation fits within the Government's medium term reform agenda andwould support efforts to deepen and improve the quality of fiscal adjustment. It will emphasizethe importance of ensuring that long term social development objectives are not put at risk duringthe process. The specific objectives are to help the Government: (i) improve domestic resourcemobilization and reduce distortions in the existing income tax system; (ii) improve the efficiency,effectiveness, and poverty focus of public expenditures; and (iii) support measures to addressgender-based constraints in access to land and credit for women. A detailed matrix of policymeasures is provided in Annex D.

A. Domestic Resource Mobilization

36. The credit will support a program of fiscal reforms comprising administrative as well aspolicy measures to: (i) strengthen tax administration; (ii) reduce fiscal fraud; and (iii) simplifydirect taxation. The goal is to increase the level of revenue mobilization while ensuring thatrevenues are raised in the least distortionary manner. These measures take into account therecommendations of IMF technical assistance and are consistent with the actions included in therecently-approved arrangement under the ESAF.

15

37. Administrative Reforms. The Government has outlined a program of administrativereforms for both customs and domestic tax departments. The reforms draw on therecommendations of IMF technical assistance in these areas, provided since 1992. In thedomestic tax department, reforms will help modernize services and improve capability formonitoring and recovery of taxpayer obligations. Key measures include: (i) the creation of a largetaxpayer'5 unit at the national level to improve taxpayer monitoring; (ii) improvement in thecurrent taxpayer identification system to better detect delinquent accounts; (iii) reorientation ofaudits, particularly of the VAT, to ensure they are more frequent, rapid and well-targeted; and (iv)increased computerization of tax accounts, particularly in the large taxpayer unit. These reformswill be implemented during 1996-98. Implementation of administrative reforms in the customsdepartment is already well-advanced and is beginning to bear fruit. In 1995, average monthlycustoms receipts reached an unprecedented level of about CFAF 6 billion, an increase of about 33percent from performance in 1994. However, it is widely acknowledged, even by the customsdepartment, that monthly receipts could easily reach as high as CFAF 10 billion. This credit willsupport the completion of reforms to realize this potential. Key measures include reorganizingCustoms to enhance internal control procedures, revising employee incentive systems,restructuring the audit units, stepping up valuation controls and redeploying personnel to covermajor international trade corridors. The Government will also ensure that essential equipment isallocated to operational units, in particular to combat smuggling, and streamline and simplifycustoms clearance and duty collection procedures, while enhancing control over import valuationand warehousing.

38. In addition, under the credit the Government will: (i) put in place a system for regularcross-checking of data on declarations of petroleum imports and actual import values recordedbetween SGS and the customs department to help better monitor petroleum import volumes andvalues; (ii) post customs agents at all petroleum product depots to ensure permanent monitoringof petroleum products imports; and (iii) undertake revision of the mining code (the largest sourceof exonerations on petroleum imports) to remove unwarranted exonerations while ensuring asector environment that is competitive and attractive to investors.

39. Policy Reforms. The Government has outlined a program of reforms to direct taxation,aimed at expanding the tax base, simplifying the structure and introducing greater transparency.Key elements of this package include: (i) the introduction of a single tax on larger firms at a rateof 35 percent for stockholder companies and 25 percent for individually owned companies leviedon consolidated income (i.e. business and other incomes) and with a clearer definition ofdeductible expenses (to close existing tax loopholes); (ii) the creation of a tax for small andinformal sector firms, regrouping the current tax known as patente, tax on commercial andbusiness income and the value-added tax; (iii) the replacement of the general income tax by asimplified tax levied on salary income only and with the number of tax brackets reduced from thecurrent number of ten to a maximum of five. These reforms should also help eliminate thecascading element of the existing structure, in which the same income source is taxed severaltimes.

15 Defined as taxpayers with taxable incomes above CFAF 200 million.

16

B. Expenditure Efficiency and Effectiveness

40. Budget Preparation. Based on the recommendations of a multi-donor public expenditurereview carried out in 1993, the Government has already outlined and is implementing a programof reforms aimed at strengthening the budget process. A fundamental objective is to movegradually to a system of budgeting by objective over the medium term. Key elements include:(i) establishing and implementing a single budget nomenclature for use by both the budgetdepartment and the treasury; (ii) preparing a budget procedures manual and ensuring its regularuse by all staff involved in budget preparation; (iii) consolidating current central ministryallocations that are passed on to regions for execution into the regional budgets;(iv) computerizing the entire budget preparation process, currently largely done manually,(v) improving the presentation of budget documents to ensure greater transparency and ease ofinterpretation; and (vi) staff training. The credit will support this reform program. Staff trainingin particular will be critical for improving capacity to prepare and implement the budget and formaking budgetary policy more consistent with Mali's overall development agenda. To facilitateand improve the effectiveness of the investment program review process, the Government willadopt a format for the presentation of key information on new projects over CFAF 2 billion in sizeentering the investment program for review by the Bank. Information to be provided wouldinclude a short description of the project; its fit within the overall sector developmentstrategy/program; economic analysis; and recurrent cost and debt service implications. Theseforms will be prepared early enough in the budget cycle to allow comments to be incorporatedbefore presentation to the National Assembly.

41. Monitoring Expenditure Execution. Monitoring of overall expenditures is carried outin the context of the financial program. However, details on expenditure execution are notmonitored regularly and are extremely difficult to obtain. Under the credit, the Government willinstitute a regular annual review of expenditure to feed into the next budget cycle. These reviewswill: (i) evaluate expenditure execution vis-a-vis budget allocations, explaining any shortfalls oroverruns and propose recommendations for the next budget cycle; (ii) identify expendituresexecuted in violation of existing budget execution procedures and take needed corrective actions;(iii) provide information on the regional and sectoral breakdown of expenditures; and (iv) closelymonitor expenditures in key areas with poverty links, notably primary education, health,agricultural extension and road maintenance. A special effort will be made in monitoring theexecution of the investment budget, which is very weak. The Government is already conducting adetailed analysis of investment expenditures over the 1993-95 period. This should provide morereliable data on public investment spending in Mali and a firmer basis for future projections ofexpenditures. The annual reviews will be discussed with the Bank and the IMF during the mid-year program reviews.

42. Poverty Focus of Expenditures. The credit will support measures to continue theGovernment's efforts to restructure expenditures in favor of financing primary education, healthservices, and agricultural extension, and away from salary spending towards increased suppliesand maintenance. The program will identify specific needs for staff and maintenance in line withkey sector development objectives and provide budgetary allocations to meet these needs. This

17

approach will also ensure that increased expenditures resulting from this restructuring embodyintrasectoral expenditure shifts that promote poverty reduction.

43. In the education sector, targets will be set for budgetary allocations for: (i) new primaryschool teacher recruitment; (ii) maintenance of educational facilities; and (iii) didactic materialsper student. To reach the targeted 50 percent primary enrollment ratio by the year 2000, it isestimated that an average of about 925 additional primary school teachers will need to berecruited annually over the next four fiscal years (i.e. total of 3700 new teachers)16 for the publicschool system. This recruitment will be split between central government and local governmentsunder the Govemment's planned decentralization program. The Govemment has already madebudgetary provision for the recruitment of 600 new teachers (including 300 contractuals) in its1996 budget. An additional 1300 primary school teachers will be recruited by centralGovernment over 1997 and 1998 (600 in 1997 and 700 in 1998). Allocations for didacticmaterials will be set per student at CFAF 2,500 at the primary level; CFAF 5,000 at the lowersecondary level; CFAF 21,000 at the upper secondary level; CFAF 35,000 at the technical level;and CFAF 50,000 at the higher education level"7. Allocations for maintenance of educationalfacilities will be set at about CFAF 300 million in constant terms annually.

44. In the health sector, targets will cover new personnel recruitment and sector maintenancespending allocations. The Government is preparing a long term health sector developmentstrategy which should cover sector financing, resource mobilization and staff management anddevelopment issues. This report will be ready by early 1998 and will support preparation of theupcoming Health Sector Investment Operation. In the meantime, the Government will aim atrecruiting about 550 additional medical and para-medical staff over 1996-98 (150 in 1996 and 200annually in 1997 and 1998). The target for sector maintenance spending will be set at aboutCFAF 2.5 billion in constant terms annually.

45. Road maintenance targets will be CFAF 4.2 billion and CFAF 4.3 billion for 1997 and1998 respectively, in line with needs identified under the ongoing Transport Sector InvestmentOperation. The Government's objective in the area of national agricultural extension is to achieve100 percent coverage by the year 2000. A significant part of the operating costs of the programare currently covered by external donors. Under the second phase of the National Program forAgricultural Extension planned to begin in 1997, the Government and IDA will agree onappropriate Government contribution towards financing of the program's operating costs. A keyobjective will be to increase Government's share from the current level of 15 percent and ensurelonger term sustainability of the program. Specific levels of budgetary allocations for 1997 and1998 will be determined on an annual basis as a function of the operating costs of the extensionprogram for the given year. In addition, greater effort will be made to ensure that women farmersget equal access to extension services notably through recruitment of more female extensionworkers.

16 Assuming that an additional 280,000 children will have to be put into schools between now and the year 2000to reach the 50 percent enrollment target, and utilization of double shift teaching in about 30 percent of allprimary school classrooms (i.e. teacher-student ratio of about 75:1).

17 These amounts are expressed in constant 1996 prices.

18

C. Addressing Gender Issues

46. The Credit supports the integration of gender into the reform program through anassessment of the likely gender impacts of the policy reforms to be supported under the Credit,and activities to facilitate access to land and credit for women. An analysis of the likely genderimpacts of the proposed direct tax policy measures has been carried out. This study, funded andconducted by CIDA, concluded that the proposed direct tax reforms would be gender neutral inimpact. Interviews conducted with women during the study suggested that the proposedsimplification of taxation, particularly for small firms, should be favorable to women because theyare on average less literate than men and therefore more subject to rent-seeking behavior by taxofficials. To facilitate access to land for women, the Government will: (i) adopt the new decreeon the award of land in the Office du Niger region and put in place a system for improvedmonitoring of awards to women under this decree; and (ii) promote greater public awareness onthe legal rights of women as regards access to land, in particular, ensuring that female-headedhouseholds are aware of and have access to any family registration documentation required toapply for land. As regards credit, the Government has already instituted a scheme to providefinancing for small scale activities of women's cooperatives. Initial financing for this program(about CFAF 300 million), run by the National Commission for the Promotion of Women wasprovided under social safety net expenditures in the Government's budget in 1995. So far, aboutCFAF 250 million has been provided in loans at a rate of interest of about 10 percent and therecovery rate is estimated at about 97 percent. The Government intends to provide additionalfinancing in its budget for 1997 to allow the expansion of activities under the program,particularly in areas outside of the Bamako region. The Government will in addition complete theongoing study on access to credit for women, define an action plan for addressing theseconstraints and implement this action plan in accordance with a timetable agreed with IDA.Finally, the Government intends to carry out a broad media campaign on the rights of women andthe benefits to be derived by Mali from the active participation of women in the developmentprocess.

D. Budgetary Impact of Proposed Reform Measures

47. Revenue Measures. The proposed measures should help increase revenues throughimproved efficiency of tax collection agencies, and through a more efficient structure andexpanded tax base for direct taxation. The anticipated efficiency from administrative reforms(paras. 37-38) is reflected in the ratio of customs duties to total imports (rising from 0.19 in 1995to 0.27 in 1998), and in the ratio of taxes on goods and services to total imports (from 0.14 in1995 to 0.18 in 1998), projected in the macroeconomic framework. This should allow an increasein revenue effort from about 13 percent of GDP to about 14 percent by 1998. Preliminaryestimates carried out by the Malian Government indicate that the revenue impact of the directtaxation reforms (para. 39) will be at worst revenue neutral in the short run and should be revenueenhancing over the medium term. This assessment is being updated and firmed up in light of therecently concluded IMF Fiscal Affairs Department mission. The detailed final estimates will bediscussed with the Bank and the IMF during the mid-term review of the macroeconomic programin July/August 1996 and will be taken into account in the implementation of the reforms.

19

48. Expenditure Measures. The additional cost of the proposed expenditure measures isestimated at around CFAF 3.7 billion over the 1996-98 period--roughly 22 percent of the increasein recurrent spending projected in the macroeconomic framework--and can be financed (projectedincreases in interest payments account for about 29 percent of the total increase). Table 4 belowsummarizes the projected impact in the education and health sectors. Overall, the share ofgovernment recurrent budget devoted to health (currently below the WHO target of 10 percent)would increase slightly while the share devoted to education (currently above the SSA average ofabout 18 percent) would decrease slightly. As a result of the measures taken to improve theefficiency and effectiveness of resources available in the education sector (para. 32), this slightdecrease is consistent with accelerated growth of primary education (the share of the educationbudget devoted to primary education would increase from about 40 percent in 1995 to about 46percent in 1998).

Table 4: Mali - Projected Expenditure Impact, 1996-19981s

1996 1997 1998 1996-98

A. Impact of Proposed Measures (CFAF Million)

EducationSchools maintenance 150 10 10 170New teacher recruitment 380 380 440 1,200Didactic material 300 500 500 1,300

Total sector budgetary impact 830 890 950 2,670

HealthNew staff recruitment 130 160 160 450Sector maintenance 200 200 200 600

Total sector budgetary impact 330 360 360 1,050

B. Projected Expenditure Shares (% of recurrent)

Education 22.2 21.7 21.3 --

Health 8.2 8.5 8.7 --

V. CREDIT FEATURES AND IMPLEMENTATION ARRANGEMENTS

49. Credit Amount and Design of Tranching. The proposed credit in the amount of SDR41.6 million (US$60 million equivalent) will meet the dual objectives of supporting importantpolicy and administrative reforms and ensuring availability of needed external funds to help Malifill its financing gap. The tranching of the operation thus distinguishes between two floatingtranches that would be disbursed as and when specific policy reform measures are completed andthree regular tranches that would be disbursed annually upon satisfactory execution of thefinancial program, including revenue and expenditure targets. The conditionalities for the floatingtranches cover complex reforms and this design should ensure that the financial program is notput at risk if delays in the execution of specific reform measures are experienced. The first regulartranche of SDR 14 million (US$20 million equivalent) would be made available upon credit

18 Refers only to the impact of the specific measures described above.

20

effectiveness by August 1996. The other two tranches of SDR 6.9 million (US$10 millionequivalent) each would be released at yearly intervals. These tranches are tied to implementationof the macroeconomic program for the 1996 and 1997 fiscal years respectively and would beautomatically canceled if targets agreed upon are not met at the time of the annual review of themacroeconomic program (i.e., the tranches cannot be carried forward to the next fiscal year). Nodates have been set for the release of the two floating tranches (SDR 6.9 million, equivalent ofUS$10 million each) in order to allow sufficient time for Government to prepare the reforms andensure their support within the population. However, both tranches will lapse if they are notdisbursed by December 31, 1998 (i.e., roughly two and a half years from the projectedeffectiveness date of the above operation).

50. Disbursement. The Borrower will open an account in its Central Bank (BCEAO-Mali).Upon notification of tranche release for each tranche, proceeds of the credit will be deposited bythe Association in this account at the request of the Borrower. If after deposit in this account, theproceeds of the credit are used for ineligible purposes, the Association will require the Borrowerto either: (a) return that amount for use for eligible purposes; or (b) refund the amount directly tothe Association, in which case the Association will cancel an equivalent undisbursed amount ofthe Credit.

51. Accounts and Audit. The Government will be required to submit an audit of the projectaccounts within six months of the end of each fiscal year i.e. by June of the following fiscal year.

52. Implementation and Monitoring. Implementation of the program will be coordinatedby the Ministry of Finance and Commerce. A technical committee comprising members from theMinistries of Education, Health, and the Commission for the Promotion of Women will haveresponsibility for the supervision of the program of reforms supported under the credit. Thiscommittee will ensure overall coordination of the reforms. The program will be jointly monitoredby the Technical Committee in collaboration with the Bank. A series of performance monitoringindicators agreed with the Government is attached in Annex F.

53. Coordination with other donors. The fiscal reform component was identified andoutlined in close collaboration with the IMF and fits within the framework of fiscal and budgetaryreforms agreed between donors interested in this area. It also reflects and is consistent withongoing fiscal administrative reforms supported by bilateral donors such as the USAID andCIDA. The implementation of the program will be monitored in collaboration with the IMF andkey donors providing support in this area through the annual PFP and mid-year review exercises.

54. Agreements Reached and Conditionalities. The Government has met the conditions ofnegotiations by:

(i) submitting a draft Letter of Development Policy which was finalized duringnegotiations in a manner satisfactory to IDA; and by

(ii) finalizing the terms of reference for and launching the study on constraints toaccess to credit for women.

21

The Government has met the condition for Board presentation by submitting to IDA the signedLetter of Development Policy as finalized during negotiations. Furthermore, agreements havebeen reached with the Government, as summarized in Annex D, on the reform measures describedabove and on the following conditions for tranche release:

Conditions for Second Tranche Release.

(i) Revenue Mobilization. Collect during the 1996 fiscal year, domestic revenues inan amount of at least CFAF 184.5 billion.

(ii) Expenditure Restructuring. Execute the following expenditure restructuringmeasures agreed in the 1996 budget as specified in the Government's Letter ofDevelopment Policy:

(a) recruit at least 600 teachers including 300 vacataires for primary schools;

(b) incur expenditures for didactic materials at the rate of CFAF 2,500 per studentat the primary level; CFAF 5,000 per student at the lower secondary level; CFAF21,000 per student at the upper secondary level; CFAF 35,000 per student at thetechnical level; and CFAF 50,000 at the higher education level;

(c) recruit at least 150 new medical and para-medical staff for health facilitieslocated outside Bamako.

(iii) Expenditure Monitoring. Present to IDA a satisfactory review of the execution ofthe 1996 budget with recommendations for the 1998 budget in conformity withterms of reference agreed with IDA.

Conditions for Third Tranche Release.

(i) Revenue Mobilization. Collect during the 1997 fiscal year, domestic revenues in anamount of at least CFAF 200 billion;

(ii) Expenditure Restructuring Execute the following expenditure restructuringmeasures in the 1997 fiscal year as described in the Government's Letter ofDevelopment Policy:

(a) recruit at least 600 additional primary school teachers;

(b) incur expenditures for didactic materials at the rate of CFAF 2,500 per studentat the primary level; CFAF 5,000 per student at the lower secondary level; CFAF21,000 per student at the upper secondary level; CFAF 35,000 per student at thetechnical level; and CFAF 50,000 at the higher education level;

(c) recruit at least 200 medical and para-medical staff for health facilities locatedoutside Bamako;

22

(iii) Expenditure Monitoring. Present to IDA a satisfactory review of execution of the1997 budget with recommendations for the 1999 budget in conformity with termsof reference agreed with IDA.

Conditions for first floating Tranche. The Government will implement the following fiscalmeasures:

(i) Amend in a manner satisfactory to IDA the relevant provisions of the Tax Codepertaining to the taxation of corporate, small business and personal income andenact the implementation decrees relating thereto in accordance with the details setforth in para. 23 of the Government's Letter of Policy;

(ii) Carry out a study of the current tax exemption system in the mining sector, adoptsuch recommendations of said study, as shall have been agreed upon with IDA,and a timetable for implementation of such recommendations satisfactory to IDAand implement these recommendations,

(iii) Adopt a budget preparation methodology satisfactory to IDA in accordance withthe details set forth in para. 26 of the Government's Letter of Policy; and

(iv) Restructure the taxation and customs departments in the Ministry of Finance inaccordance with the details set forth in paras. 19 and 20 of the Government'sLetter of Policy.

Conditions for second floating Tranche. The Government will implement the following genderrelated measures:

(i) Carry out a study to identify any constraints which impede or restrict access tocredit for women, adopt such recommendations of such study, as shall have beenagreed upon with IDA, and a timetable for implementation of suchrecommendations satisfactory to IDA;

(ii) Replenish the Fund For Support of Women's Activities with an amount of CFAF500 million for the purposes of providing small credit to women engaged inincome-generating activities;

(iii) Carry out a media campaign aimed at sensitizing the public on women indevelopment and on women's rights in accordance with para. 45 of theGovernment's Letter of Policy.

Benefits and Risks

55. Benefits. The revenue measures will help Mali move closer to achieving the objective ofreducing dependence on external budgetary aid thus ensuring that available external aid funds canbe channeled into financing investments for longer term development. Simplification andreduction in the distortionary impact of the system of direct taxation will help establish a moresupportive environment for private sector investment. The expenditure measures will improve the

23

efficiency of public resource use and help expand primary enrollment and health coverage whichare important for Mali's longer term growth. The activities to improve access to credit and toland for women will help women participate more fully in economic activity and enhance theirproductivity. Overall, the operation will help improve fiscal balance, thus promoting the stablemacroeconomic environment needed for sustained growth and poverty reduction.

56. Risks. The most important risks in this operation are the following: (i) resistance to thereforms by segments of population to be affected by reforms; (ii) weak capacity to implementreforms; and (iii) pressure for pre-election spending related to the upcoming 1997 elections thatcould derail the financial program. The first risk is being addressed through the Government'scontinued efforts to build consensus around the reform agenda. The direct tax policy reformeffort is in response to private sector groups who have complained several times about theexisting structure to the Government and to the Bank and it is not expected that these reforms beresisted by these groups. Furthermore, the details of the reform proposals will be discussed withinterested private sector groups before implementation. The implementation of the InformationEducation and Communication (IEC) component of the Action Plan on women should alsoreduce resistance to proposed gender measures. As regards the second risk, the operation includescomponents that will improve implementation capacity. The administrative and organizationalchanges that are envisaged for the customs and domestic tax departments should facilitate theimplementation of the direct taxation reforms and the staff training under the budgetary reformprogram will also contribute towards building capacity in budget preparation, execution andmonitoring. Finally, the risk of pressure for increased Government spending could also bemitigated through efforts by the Government and by Bank and IMF missions to Mali to continuedialogue with student and labor groups. The Donor Community as a whole will also have animportant role to play in helping keep Government on course, pointing out the fragility of gains sofar and the need to persevere.

VI. RECOMMENDATION

57. I am satisfied that the proposed Credit will comply with the Articles of Agreement of theAssociation, and recommend that the Executive Directors approve it.

James D. WolfensohnPresident

AttachmentsWashington, D.C.June 4, 1996

ANNEX A

Mali at a glance Page 1 of2-: : :: : : :::: .: : : - :: : :: :: : -.: -.- . - . -: :: .-, -: .... . .. ...

POVERTY and :SOC1AL h : LOW. Development dlamond

Pop k~~~~nt~~-1g94 (me) $72 3.182 ~~~~~~Lifeo expectancy

GNP par c-a . 4 -USsv' S.W: .i Avgae:ahnuIwa gr6wth, 1I04

W-ie:..... . . . . . . . . .... . . . . . 1. 9 ---......--\/nLaborforce ~~~~~) 27 27 ~~~ GNP Grossper primary

PMost .ecent eatime 0d . w. : .y h .e - . ,.:: \ capita/

Uf expectnnay at bldh %U ewa r 49 . 52. 63-..Infant mtality fpe 1.0 A.hX s) -:- :12 82-- SB-Chid mantjtn (. oE .c~ t*n. -. :: .8 .Acces -s to saf wateAc¢ess to safe WX:d.i -% -(pdeh 46 llllttcr(% oppoawsf :: -g -5+ :8 63- 38 -Gros pmibyi enroimt 4% stchvf.g pqmallon) . - .. .-. 71 . :106 - -Mob

-Male-. 46 77.:...... ... .. 11 -Low-in .come g-o

KEY 8CONOMIC .NT.. S ... . .- - c .- - -

18- 19 1 --. onsMdW

Gros domest.: .e .ent- t6.S .- .153. 2--6.5 20..0...... --:=dgan-~ tosfyd s tGOP- : 10<Z-. 28 -0~ 1..il;3 22.0 .

ross do tb .6 -. ....... .. . 44: -14.3 - - -0 w82Gros snationa Iavins/GDP ~:- 41. ........ .:. .: .- .....---. 1.Sav*ngs nvsnei

Cu ans cont balanos; exot - . .ts -- . .19.6- - :.431 .2 .-......................... 82.:: 451- ...... z Interest payinent)lGOP DRS data)a 0 .1- 12 - -- 2.1 - 1I4- Total dabtiDP(QR$daEe) ' ' 45.4 -: '138.9--, 150,1 .-,117.4,-,Total debt sevleixo ets ' )RSdataW - .:'-: 4.0, 18.1 ::- 27.3.-'. -25.4,- Indebbedness:'.resenT vluefdebGDP -- '- '-.8 '.

Preset'd va' '~ ds''''rt ' " ' ' ; 05 '';>

(avenrag,e annual gowwi)- ' - -. '1' .4'.' ' ' - ' -: ': - : '--: . :- -- "---:-'--Low-ncome gioupPee GOP ,''' . ' '' ,,14 .- , 3.4,' - 2.3 ' 8 .0 4.8 -- , -

'-- :- - -18.3'' - 5.0 -'--' Z. ':.'-'-'19 '' -2.S;O:'-,, ', -,''''','-':-'----',''--':-:-.:

... N ,::---::.. ...... - -: :-.. ...................

STRUCTURE Y the ECONOMY1875 1985 1894 1886

(X or GDP at current marketprtces) Orowd rdt. o output and Inveabent (%IPrimary sedtor 61.0 47.3 40.2 4.4.0 ooSecondarysector 10.7 14.8 16.3 16.0 20

Manufacturing 6.8 8.5 6.4 6.2 roj Terliary sector 28.3 37.9 39.0 35.6 o

Private consumption 94.1 100.7 81.3 80.0General govenment consumption 10.2 13.6 12.1 11.2 - t -ofolmports o goods andnon-factor services 31.1 54.6 41.2 3.2

187644 19oC-9C 1884 199C

(average annue/ gn,wl - reai tenn) Orowt rabes df epoaa and Impoits 1%1Agriculture 1.1 5.1 7.5 8.5Industhy 2.8 3.9 1.1 9.3 WAManufacturing .. 4.2 2.2 6.6 1S /

Services 1.3 1.6 -2.5 1.2 tO teD

Private consu mption 1 .6 1 .5 -3.7 8.2 .. .so. S2-i S5General government consumption 4.0 1.5 -10.5 1.4 -:oGross domestic investment 3.5 5.7 23.7 4.0Imports of goods and non-facor services 7.8 0.6 -7.8 16.1Gross national product 1.2 3.7 0.4 7.0 -ExportS -Impo4tm

Note: 1995 data are preliminary estimates.^The diamonds showv four key indicators in the country (in bold) compared wvith Its income-group average, lf data are missing, the diamond wvill

be incomplete.

ANNEX A

Mali at a glance Pae 2 of 2

PRICES and GOVERNMENT FINANCE1976 1986 1964 1996

Dom,nak p befon 1%1(% change)Consumer prkes .. .. 24.8 12.4 4 -

Implickit GOP deflator 18.8 3.3 33.2 12.7 20 <

Govenment finance 10-(%ofGDP) oTotal revenue (incl. annexed budgets) .. 15.3 13.5 14A -. 3 IsCurrent budget balance Orcl. annexed budget .. -0.4 -0.5 2.2OveraN surplusldeficH (excd. grants) .. -14.8 -13.7 -10.5 -GDPdofC

TRADE1976 166 1994 1996

(nVlwons US$) Expolt and Inpot levels (mill. USTotal exports (fob) 176 333 470

Coton 78 150 261 acGold .. 50 69 fianufactures .. . . am mi

Total imports (cii) 489 621 738 GMli ~IVFood 141 79 91 4m FlI lFuel andenrergy 80 58 66 20011 flICapital goods 105 193 235 im0

Export price index. f.o.b. (1987.100) .. 79 90 105 so O l 03 94 05Import price index, c.i.f. (1987-100) .. 73 107 117Merchandisetermns otrade(1987-100) .. 107 84 90 oEodm flimpods

BALANCE of PAYMENTS1975 1986 1994 1996

(nrllions USS)Exports of goods and non-factor services 95 220 394 543Imports or goods and non-factor services 239 578 763 966 Current aecount balance to GDP rato (%IResource balance -144 -38 -369 -424 a*

Net factor income -22 -14 -52 -46 -2 11f1h10113 Netprivatecurrenttransferm 12 87 83 96 4I I I _Cuffent account balance, 4 IIL_ LL

before official transfers -154 -285 -338 -374 40-12

Financing items (net) (ncl. ofricIal transfers) 146 244 425 435 -14.Changes in net reserves 8 40 -87 -61 -16

Memo: -20 Reserves including gold (tWil. USS) 4 29 228 326Conversion rate (locaj4SS) 214.3 449.3 555.2 499.1

EXTERNAL DEBT and RESOURCE FLOWS (LT + ST . IMF) (DRS data)

1976 19fB 19S3 ISS4(millions USS)Total debt outstanding and disbursed 356 1,468 2,640 2.781

IBRD 0 0 0 0IDA 41 224 656 770

Total debt service paid 5 53 40 130 ComposIon of total debt. 1994 mill. US11lBRD 0 0 0 0IDA 0 3 8 12 F G

250Composition of net resource flows B

Official grants (OECD data) 96 157 175 221Ofricial creditors 26 87 40 37Private creditors 2 -2 0 -1Foreign direct Investment 3 3 -20 45 E Portfolio equity 0 0 0 0 1389 C

World Bank program DCommitments 24 72 12 120 462Disbursements 13 29 47 93Principal repayments 0 1 4 6 A-IBRD E - BsarsaNet flows 13 28 43 87 B -IDA D -Ottr multtsterFl - PrtbInterest payments 0 2 5 6 C-IMF G-SShart-twmNet transfers 13 27 39 82

International Economics Department and Country Operations Staff 5-Jun-96

MLI-AAGI JX1S

MALI: KEY SOCIAL INDICATORS ANNEX BPage 1 of 2

Iadcatgf mem.d _ 70.75 1980U5 193.94 AJwee LmePriority Poverty Indicators

POVERTYUpper poverty line local CUrT.

Headcount index % d pop. Lowae poverty line local cus..Headcount index % of pop.

GNPpercapita USS 130 140 250 500 390 1.670

SHORT TERM INCOME INDICATORSUnskilled urban wages local curt. .. ..

Unskilled ural wagesRural ters of trade

Consumer price index 1987-100Lower incomeFoodUrbanRural

SOCIAL INDICATORSPublic expenditume on basic social services % dGDPGross enrollment rtUiosPrimary % schoolagepop. 24 23 31 71 105 104Male 32 30 38 77 112 [OsFemale 17 17 24 64 98 101

Mrtality

Infant mornality per thou. live births 203 ItO 125 92 58 36Unda 5 mniulity .. .. 194 161 101 47

Immiunization

Meamales APegroup .. 11.0 40.0 51.4 62 77.4DPT .. 18.0 35.0 53.5 89.1 82.0

COild malnutrition (under-5) .. .. .. .. 38.2Ufe expeacncyTose yent 39 44 49 52 63 67Female advsnmae 4.0 0.2 3.6 3.5 2.4 6.4

Toed ferility rate binh per -mm 6.5 6.7 7.1 5.9 3.3 2.7Maal morality rate per 100.000 livs bit .. . 1.249

Supphemntary Poverty IndkatorsExpoenditures on soci securnty do ttal v't exp .. 13.3 _.Social ecurity coverge S emon. ative pop. .. .. .

Acss to sfe wster tots of pop .. 16.4 48.8Urban 29.0 46.0 100.0Rural .. 10.0 36.0

Acce= to health cam .. 20.0 ..

Population growth rate GNP per capita growth rate Devdop.t dkamondb(averag anual percent) v w; _ , _ -)

-*T lo+ inUfe expeitmy

4~~~~~~~~~~~~~~

2 0 per F-- 0 -

I ~ .10.

1970-75 11960-I 196994 1970-75 196085 19119-94 cwtomww

EJMaliMAN

- Low-iourns t li

b. Mm dI'l_t dimAi ued fowkr ey i,dl s sbm tavdapd lveb I dee et lw ate ycmp -ed with its inca, pomp. So dt laxb_d.

MALI: KEY SOCIAL INDICATORS AiNNEX BPage 2 of 2

mom Ss_ e NetL.~awsaLqlayw ,eceri 56110 high.

UVA ef esdms Suarea Law- mc_Indicator nuaure 19lO75 1980S 19894 Aftice income g'wau

Resouces and ExpendituresHUMAN RESOURCESPopulation (mre1994) thousands 5,905 7,389 9.524 571.902 3,182.221 1.096,881Age dependency ratio ratio 0.94 0.97 1.01 0.94 0.66 0.63Urban % of pop. 16.2 21.0 26.4 30.6 28.3 55.9Population growth rate annual % 2.0 2.4 3.1 2.8 1.7 1.3Urban 4.3 4.9 5.6 4.9 3.2 2.7

Labor force thousands 3,201 4.047 5.1S0 254,250 1.590,533 4A8.647Agriculture %oflaborforce 91 87 86 65 67 36Industry I 2 2 9 14 26Female 47 47 46 41 39 40Labor participation ratesTotal % of pop. 54 55 54 44 50 45Female 25 26 25 37 41 36

NATURAL RESOURCESArea thou. sq. km 1,240.19 1.240.19 1.240.19 24,273.83 40.391.42 40,594.43Density pop. per sq. km 4.76 5.96 7.45 22.90 77.44 26.66Agricultural land % of land area 26.10 26.29 26.39 50.61 52.42 41.05Change in agricultural and annual % 0.16 0.06 0.93 0.01 0.16 -1.38Agricultural land under imgation % 0.19 0.19 0.24 0.86 17.84 11.40Forests and woodland thou. sq. km .. 132.07 121.44 5,323.14 7.632.00 5,969.25Deforestation (net) % change, 1980-90 .. , 0.84

INCOMEHousehold incomeShare of top 20% of households % of income .. .. ..Share of bo(tom 40% of households .. .. ..Share of bottom 20% of households .. .. ..

EXPENDITUREFood % of GDP .. 46.2 ..Staples 1.. 1.0 ..Meat. fish. milk. cheese, eggs .. 18.9 ..

Cereal imports thou. metric tonnes 120 273 83 14,051 36,922 6S,936Food aid in cereals 107 266 34 5.079 8,516 5,771Food production percapita 1987 100 107 101 102 102 115 102Fertilizer consumption kg/ha 0.1 0.6 0.3 5.3 58.5 46.3ShareofagricultureinGDP %ofGDP 61.0 47.4 42.4 19.5 27.6 14.0

easnigt % of GDP .. 6.5 ..Average household size persons per household .. .. ..

UrbanFixed investment: housing % of GDP .. 3.9 ..

Fuel and power % of GDP .. 5.0 ..

Energy consumption per capita kg of oil equiv. 20 25 22 251 373 1,602Households with electricityUrban % of households .. ..Rural

Transport and coammunication % of GDP .. 8.2 ..Fixed investment: transport equipment .. 2.2 ..

Total road length thou. km 15 13 15

INVESTMENT IN HUMAN CAPITALHealthPopulation per physician persons 42,700 25,392 19,448 .. .. 3,064Population per nurse 2,587 1,348 1,885Population per hospital bed 1,400 .. .. 1,316 1,034 592Oral rehydyration therapy (under-5) % ofcases .. .. 41 37 38EducationGross enrollment rauosSecondary %ofschool age pop. 7 7 9 24 48 63Female 3 4 6 23 42 62

Pupil-teacher raio: primary pupils per teacher 41 34 61 40 39Pupil-teacher ratio: secondary 19 12 16 .. 20Pupils reaching grade 4 % of cohort 69 72 ..Repeater rate: primary % of total enroll 23 30 27Illiteracy % of pop. (age 15+) .. 77 68 53 35Female % of fem. (ale 15+) 85 77 54 46

Newspaper circulation per thou. pop. I 1 5 12 .. 236

World Bank Internutial Economics Department. April 1996

MALI: Selected Economic and Financial Indicators ANNEX CPage I of 2

Actoal Est. Projectd1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

NATIONAL ACCOUNTS ( % of GDP at current market prices)

GDP at m.p. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0Primary sector at fc. 43.4 44.6 42.4 40.2 44.0 .. ..

Secondary sector at fc. 14.8 14.7 15.4 16.3 16.0 .. ..

Tertiary sector at fc. 36.4 35.9 37.3 39.0 35.6 .. ..

Net indirect taxes 5.4 4.8 4.9 4.5 4.4 4.5 4.4 4A 4.3 4.3

Consumption 93.1 94.5 93.6 93.4 91.2 89.0 86.9 85.9 85.3 84.3

Gross domestic investment 22.8 21.9 21.9 26.5 26.0 26.0 26.0 26.0 26.0 26.4Public fixed investment 12.1 9.5 9.3 13.0 12.5 12.0 11.8 11.8 11.6 11.4Private fixed investment 10.7 12.4 12.6 13.5 13.5 14.0 14.2 14.2 14.4 15.0

Resource balance -15.9 -16.4 -15.5 -19.9 -17.2 -15.0 -12.9 -11.9 -11.3 -10.7Exports GNFS 17.6 14.4 15.9 21.3 22.0 21.0 21.7 22.5 22.8 23.0Imports GNFS 33.4 30.8 31.4 41.2 39.2 36.0 34.6 34.4 34.1 33.8

Gross domestic savings 6.9 5.5 6.4 6.6 8.8 11.0 13.1 14.1 14.7 15.7Gross national savings 9.6 7.8 9.0 8.3 10.8 12.9 14A 15.4 16.0 16.8Memorandum Items:GDP at m.p. (current USS million) 2417.9 2846.7 2666.7 1852.8 2463.0 2675.3 2839.0 299:i.7 3169.6 3356.9GNP per capita (current USS; Atlas method) 270.0 310.0 300.0 250.0 250.0 240.0 270.0 280.0 280.0 290.0Average exchange rate (CFAFIUSS) 282.1 264.7 283.2 555.2 499.1 499.4 508.6 516.2 522.6 522.3

REAL ANNUAL GROWTH RATES (1987 orkes) (%)Gross domestic product at m.p. -0.9 8.4 -2.4 2.3 6.0 4.0 4.9 4.5 4.5 4.5Gross domestic income -1.9 6.5 -2.7 2.3 6.7 3A 4.3 4.9 4.6 4.6

REAL ANNUAL PER CAPITA GROWrH RATES (1987 prlces) (%)

Gross domestic product at m.p. -3.7 5.3 -5.2 -0.8 2.7 0.9 1.8 1.4 1.5 1.5Total consumption -5.8 5.7 -6.5 -7.6 3.9 -1.5 -0.9 0.7 0.9 0.6Private consumption -7.2 7.6 -6.1 -6.6 4.8 -1.2 -0.7 1.0 1.0 0.6

BALANCE OF PAYMENTS (current USS mlllion)

Exports GNFS 424.7 409.9 424.2 393.9 542.1 562.9 616.5 672.8 721.4 773.1of which: Merchandise fo.b. 355.9 335.9 349.3 333.2 470.0 483.7 530.9 580.1 620.6 663.4

Imports GNFS 808.2 876.5 836.3 762.8 966.4 964.4 983.7 1029.4 1080.2 1133.1of which: Merchandise fo.b. 446.9 483.6 474.4 434.2 516.3 539.4 557.6 584.9 614.8 648.7

Resource balance -383.5 -466.6 412.1 -368.9 -424.4 -401.4 -367.1 -356.6 -358.8 -360.0Net factor payments -25.2 -29.8 -25.7 -52.3 -45.7 -47.4 -64.6 -65.7 -68.7 -74.3of which: Interest paid (DRS data) 13.6 16.7 15.0 40.2 34.0 39.6 39.4 39.2 39.2 39.2

Net current transfers (official + private) 245.3 257.2 225.4 238.1 215.2 162.6 165.6 172.8 176.1 179.5Netprivatecurrenttransfers 88.6 94.4 93.6 83.4 95.8 98.5 101.7 105.0 109.1 113.2Net official current transfers 156.7 162.8 131.8 154.7 119.4 64.1 63.9 67.8 67.0 66.3

Current account balance, before official capital grants -163.4 -239.2 -212.4 -183.1 -254.9 -286.2 -266.1 -249.5 -251.4 -254.8(including official current transfers)

Official capital grants 137.5 143.6 105.9 99.1 126.2 128.2 129.8 127.9 126.3 124.9Current account balance, after official capital grants -25.9 -95.6 -106.5 -84.0 -128.7 -158.0 -136.3 -121.6 -125.1 -129.9

Memo: Curr asct bal. before all official transfers -320.1 -402.0 -344.2 -337.8 -374.3 -350.3 -330.0 -317.3 -318.4 -321.1

Financing items (net) 168.1 101.7 129.4 170.8 189.6 202.7 153.2 148.9 143.5 148.6Total change in reserves -142.2 -6.1 -22.9 -86.8 -60.9 -44.7 -16.9 -27.3 -18.4 -18.7Net credits from the IMF -9.6 7.9 4.6 31.9 36.9 23.0 23.0 18.4 -12.6 -19.1Gross oflic.reserves change (- increase) -128.0 -15.5 -28.6 -118.7 -97.8 -67.7 -39.9 -45.7 -5.8 0.4Valuation adjustment -4.6 1.5 1.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Memorandum Items:Resource balance as % of GDP -15.9 -16.4 -15.5 -19.9 -17.2 -15.0 -12.9 -11.9 -11.3 -10.7Curr.acct.as%ofGDP(excl.allofficialtransfers) -13.2 -14.1 -12.9 -18.2 -15.2 -13.1 -11.6 -10.6 -10.0 -9.6Curr. acct. as % of GDP (excl. official capital -6.8 -8.4 -8.0 -9.9 -10.3 -10.7 -9.4 -8.3 -7.9 -7.6grants, but incl. all current transfers)

MALI: Selected Economic and Financial Indicators ANNEX cPage 2 of 2

Actual Est. Projected1991 1992 193 1994 1995 1996 1997 1998 1999 2000

REAL ANNUAL GROWIH RATES (1987 Dlrces) (%

Exports of goods & NFS 7.0 3.3 8.5 -6.3 19.8 5.9 11.4 5.1 4.7 4.7Imports ofgoods & NFS -1.8 3.8 -0.3 -7.8 16.1 -1.3 1.7 2.8 3.1 3.4

PUBLIC FINANCE ( % of GDP at current market urices)

Total revenue (excl. grants) 16.1 13.4 13.9 13.5 14.4 13.8 14.5 15.0 15.4 15.8Total expenditures (incl. annexed budgets & spec. funds) 28.2 24.3 23.5 27.2 25.0 23.9 23.6 23.2 22.8 22.6Overall balance, excl. grants (commitm. basis) -12.1 -11.0 -9.6 -13.7 -10.5 -10.1 -9.1 -8.1 -7.4 -6.8Capital expenditure 10.2 8.7 8.9 12.5 12.3 11.9 11.7 11.7 11.6 11.6Foreign financing (net) 14.0 11.7 9.1 18.7 16.4 9.8 9.0 8.4 6.9 6.4(incl. all grants, debt relief; and net IMF)

MONETARY INDICATORS

Velocity (GDP/M2) 4.5 4.8 4.4 4.3 4.4 4.2 4.2 4.2Growth rate of M2(°) 12.6 3.4 8.4 39.1 17.2 13.4 9.1 8.1

PRICE INDICES (1987=100)

Merchandiseexportpriceindex(US$ 1987=100)) 104.8 95.8 90.8 90.1 105.3 102.4 100.3 104.3 106.8 109.2Merchandiseimportpriceindex(US$ 1987=100) 108.0 112.9 109.4 106.7 116.8 118.0 118.1 120.0 122.2 124.4Merchandise terms of trade (USS 1987=100) 97.0 84.9 83.0 84.4 90.2 86.8 84.9 86.9 87.3 87.8Real effective exchange rate (1987=100) (IMF data) 96.2 89.0 87.2 53.4 59.5 .. ..Consumerpriceindex(%growthrate) 1.8 -6.3 -0.6 24.8 12.4 4.5 3.0 2.5 2.5 2.5GDPdeflator (% growthrate) 2.1 1.9 2.6 33.2 12.7 4.5 3.0 2.5 2.5 2.5

Note: Numbers may not add up to totals due to rounding. 3-Jun-96ECONIND.XLS

Mali: Matrix of Policy Measures

Reform issues Measures to be implemented Implementing agency Timing

1. Domestic ResourceMobilization

a. Quantitative targets * Achieve minimum overall domestic revenues of CFAF 184.5 billion for 1996 fiscal year. Ministry of Finance and 1996Commerce (MFC)

* Achieve minimum overall domestic revenues of CFAF 200.0 billion for 1997 fiscal year. MFC 1997b. Administrative

measures

Modemize services and * Create and make operational a large taxpayer unit at the national level to improve taxpayer monitoring. MFC (Tax Department) 1996improve capability formonitoring and recovery * Adopt and implement specific measures to improve the taxpayer identification system to better detect delinquent MWC (Tax Department) 1996of taxpayer obligations. accounts.

* Reorganize audits, particularly of the VAT, to ensure they are more frequent, rapid, and well-targeted. MFC (Tax Department) 1996

* Expand computerization of tax collection units, particularly that of the large taxpayer unit. MFC (Tax Department) 1996-98

* Harmonize customs reference files (nomenclature, taxation rates) with legal texts in force, publish the official MWC (Customs) 1996customs tariff structure and make it available to customs administration and users of customs services.

* Update the customs and the tax codes, publish and distribute updated codes. MFC (Customs) 1996-98

* Institute monthly meetings chaired by the National Office of Petroleum Products (ONAP) and including the National MWC (ONAP, DNAE, 1996-98Economic Affairs Directorate (DNAE), the SGS, and the customs department for regular cross-checking of data on Customs)declarations of petroleum imports and actual import values and volumes.

* Post customs agents at all petroleum products depots to ensure permanent monitoring of petroleum imports. MWC (Customs) 1996

* Revise the mining code, particularly to reduce existing exonerations, and adopt all needed measures to implement MFC / Ministry of 1997the revised code. Mines and Energy

* Complete implementation of ongoing administrative reforms in the customs department, including: MFC (Customs) 1996-98(i) reorganization and strengthening of central services; (ii) reactivation of regional directorates; (iii) strengtheningof internal controls; (iv) redeployment of staff to border areas; (v) establishment of a data base to verify import dataand combat fraud; (vi) strengthening of import verification program; (vii) optimal use of the computerized customsclearance system; (viii) strict application of sanctions and use of performance incentives for customs personnel in thefight against fraud; and (ix) provision of needed equipment.

P Z

0

(-h)

Mali: Matrix of Policy Measures

Reform issues Measures to be implemented Implementing agency Timing

c. Policy reforms * Adopt and implement a synthetic tax for small firms and informal sector taxpayers, regrouping the current pafente, MFC (Tax Department) 1997-98

Reduce distortions, tax on commercial and business income, and the value added tax.expand the tax base, * Adopt and implement a single tax to be levied on consolidated income of large firms, at a rate of 35% for stockholder MFC (Tax Department) 1997-98simplify and introduce companies and 25% for individually owned companies, with a revised definition of deductible expenses.greater transparency

into the direct tax * Replace the existing General Income Tax (IGR) with a tax levied only on salary income, reduce the number of tax MFC (Tax Department) 1997-98system. brackets to a maximum of 5 and abolish the present income splitting scheme (quotientfamilial).

2. ExpenditureManagement

a. Budget * Adopt and apply required legal texts to harmonize the accounting nomenclature in use by the treasury with the new MFC (Budget /Treasury) 1997-98preparation nomenclature used by the budget.

Strengthen the budget * Prepare new budget procedures manual and ensure its regular use by staff in charge of budget preparation. MFC (Budget /Treasury) 1997process with aim to * Introduce budgeting by program on a pilot basis in at least one Ministry MFC (Budget f/reasury) 1998move gradually to asystem of budgeting by * Consolidate current central ministry allocations that are passed on to regions for execution into the regional budgets. MFC (Budget /Treasury) 1998

objective in the mediumobjetive in the medium * Computerize the entire budget preparation process. MFC (Budget /Treasury) 1996-98term.

* Adopt new format for presentation of budget documents to ensure greater transparency and ease of interpretation. MFC (Budget /Treasury) 1997

* Organize staff training on budgeting procedures and budget preparation. MFC (Budget /Treasury) 1996-98

* Adopt a format for the presentation of key information on new projects over CFAF 2 billion in size entering the MFC / Planning Agency 1997-98three year rolling investment program.

* Prepare and adopt budget laws for 1997 and 1998 fiscal years and prepare budget law for 1999 fiscal year, MFC 1996-98satisfactory to IDA.

b. Monitoring * Execute annual reviews of expenditures for 1995, 1996 and 1997 fiscal years in order to: (i) evaluate expenditure MFC 1997-98Execution execution vis-a-vis budget allocations; (ii) identify expenditures executed in violation of existing budget procedures

and take needed corrective action; (iii) provide information on regional and sectoral breakdown of expenditures; andImprove the budget (iv) monitor closely expenditures in primary education, health, road maintenance, and agricultural extension.

process and execution. * Adopt and implement measures to strengthen the monitoring of the execution of the public investment budget and MWC / Planning Agency 1996-98conduct a detailed analysis of the execution of the public investment program for the period 1993-95.

oQ z

Li

Mali: Matrix of Policy Measures

Reform issues Measures to be implemented Implementing agency Timing

c. Poverty Focus Education sector

Ensure intrasectoral * Recruit at least 600 teachers (including 300 vacataires) in the 1996 fiscal year, 600 primary school teachers in the MFC / Ministry of 1996-98expenditure shifts that 1997 fiscal year and 700 primary school teachers in the 1998 fiscal year. in order to reach the targeted 50% Basic Educationpromote poverty primary enrollment ratio by the year 2000.

alleviation. * Allocate and execute annually for didactic materials the aggregate amounts needed to achieve the following norms MFC/ Ministries of 1996-98per student: CFAI 2,500 at the primary level, CFAF 5,000 at the lower secondary leveL CFAF 21,000 at the upper Basic and Highersecondary level. CFAI 35,000 at the technical level, and CFAF 50,000 at the higher education level. Education

* Allocate and execute about CFAF 300 million in real terms annually for school buildings maintenance in the MWC 1996-98education sector

I lealth sector

* Recruit at least 150 medical and paramedical personnel in 1996, at least 200 in 1997, and at least 200 in 1998 for MFC /Ministry of 1997-98health facilities located outside Bamako. Health

* Allocate and execute about CFAF 2.5 billion annually for operations and maintenance spending in the health MFC / Ministry of 1997-98sector. Health

Road maintenance

* Allocate and execute CFAF 4.2 billion for 1997 and CFAF 4.3 billion for 1998 for road maintenance in accordance MFC 1997-98with the Letter of Development Policy for the Transport Sector Investment Operation (Credit No. 2617-MLI).

Agricultural extension

* Allocate and execute expenditures for agricultural extension budgetary amounts in accordance with agreement MFC / Ministry of 1998between IDA and the Malian Government under the second phase of the agricultural extension program planned for Agriculture1997.

3. Addressing GenderIssues

* Adopt the new decree on award of land in the Office du Niger region and put in place a system for monitoring the MFC / Ministry of 1996application of the decree. Agriculture

Improve the integration a Carry out a media campaign aimed at sensitizing the public on legal rights for women in the context of the Action MFC / Commission for 1996of women in economic Plan for the Promotion of Women adopted in January 1996. Promotion of Womenactivities by facilitating * Provide under the social safety net additional financing amounting to CFAF 500 million for the Support Fund for MFC / Commission for 1997their access to land and Women Activities aimed at granting small credits to women involved in income generating activities. Promotion of Women

credit * Carry out a study to identify constraints which impede or restrict women's access to credit and implement the MFC / Commission for 1996-98recommendations in accordance with a timetable agreed with IDA. Promotion of Women

I)D,

0

q

ANNEX EPage I of 9

(Translalion)

MINISTRY OF FINANCE REPUBLIC OF MALIAND COMMERCE

BamakoGENERAL May 30,1996

SECRETARIAT

OFFICE OF THE MINISTER

No.0600/MFC-SG

Mr. James D. WolfensohnPresidentWorld Bank GroupWashington, D. C. 20433

Subject: Letter of Development Policy: Objectives and Strategiesfor Economic Management (1996-98)

Dear Sir:

1. Please be advised that it is the intention of the Government of Mali to institute anambitious economic reform program for the period 1996-1998 so that the conditions essentialfor sustainable social and economic development may be established.

2. The key objectives of the program described in this Policy Statement are to reinforcethe encouraging achievements of the period just completed and, in particular, to ensure thesustainability of the country's macroeconomic framework. The strategies underlying theprogram are expected to ensure financial viability, foster lasting economic growth, reducepoverty, with the ultimate long-term purpose of raising the standard of living of the Malianpopulation, and strengthen regional integration. In addition to their focus on fiscalconsolidation, these strategies accord primary importance not only to structural reforms, whichare indispensable if the economy is to become more flexible and output and exports morediversified, but also to human resources development, control of population growth and thepromotion of women

A. Recent Economic Develonments

3. Mali has made considerable progress in reducing financial imbalances, liberalizing theeconomy, and laying firm foundations for lasting economic growth. The Government's

ANNEX EPage 2 of 9

macroeconomic goals have been achieved: real growth in GDP averaged close to 3% in 1992-94 and 6% in 1995; inflation, measured in terms of the GDP deflator, was kept to an annual2% in 1992-93, and following devaluation to 33.2% in 1994 and 12.7% in 1995; and thecurrent account deficit (excluding government transfers) was held at 18.2% of GDP in 1994and then reduced to 15.2% in 1995. Over the same period, the fiscal deficit was reduced from13.7% to 10.5% of GDP, while credit policy remained cautious. A broad range of structuralmeasures were introduced as well: price liberalization, privatization, dismantling orrestructuring of many public enterprises, and reforms throughout the agriculture sector aimedat cutting costs and diversifying output. In the social sectors, however, although the reformsintroduced have been significant, they have not achieved as much as expected and now need tobe pursued more intensively.

B. Key Reforms in Proeress

4. Lasting improvement in the Government's budgetary situation will remain a key goal ofreform strategy in Mali. In view of the progress made toward stabilization over the period1992-95, the authorities are intent on ensuring the viability of the financial operations ofgovernment departments and agencies so as to reduce the country's dependence on externalbudgetary aid. The fiscal deficit (commitment-based but excluding grants) is expected toshrink from the 1995 figure of 10.5% of GDP to 8% in 1998, but success in achieving this goalwill require continuing revenue growth which does not put too heavy a strain on the privatesector, and continuing application of a moderate expenditure policy.

5. Revenue growth will result from introduction of a series of measures to improve theeffectiveness of governmental collection mechanisms, broaden the tax base, curtail tax evasion,and simplify the direct tax system.

6. The authorities have taken major steps to limit growth in, and improve the structure of,expenditure. Their primary expenditure policy goal is continuing fiscal consolidationaccompanied by adequate allocation of funds for social spending, the investment program, andmaintenance outlays. The Government proposes to avoid all nonbudget expenditure and anyearmarking of revenues for specific expenditures.

7. Application of a strict wages policy will play a crucial part in the attainment of theseobjectives and is to be accompanied by continued tight public-sector payroll management.

8. The authorities will be making a concerted effort to channel expenditure towardpriority sectors. To this end, in consultation with the World Bank, they will conduct an annualexamination of budget execution in time for the findings to be taken into account during theannual budgeting process.

9. In the education sector, the authorities have been engaged since 1995 in a far-reachingreform program to rectify the distortions affecting it and to broaden access to basic education.They have taken steps to increase enrollment rates in basic education and to improve quality ofinstruction at all levels. The practice of double-shift teaching has been extended, and 300teachers in administrative positions have been reassigned to teaching posts in the first cycle ofthe basic system. A plan of action to reduce repeater rates in the basic education system hasbeen launched. In addition, a system of access to the second cycle of basic education, based onpupils' scholastic results and the numbers of classroom places available, has been introduced

ANNEX EPage 3 of 9

for the 1995-96 school year, accompanied by the associated publicity and awareness campaignnecessary for its success. In the case of higher education, a plan of action laying down thebroad outlines of the reform program needed at this level is now in the process of beingexecuted.

10. Once the first phase of these reforms is completed, the Government will be very wellplaced to formulate a ten-year education investment program that will allow a focus onaccelerated expansion of the basic education system, especially where the enrollment of girls isconcerned, and improvements in quality of instruction at all levels.

11. The Government proposes to strengthen the banking and financial sector and improvefinancial market intermediation. As part of its divestiture program, the Government alsointends to seek the total or partial privatization of the Malian banks and credit institutions inwhich it is currently a shareholder. In addition, the Government has committed itself to joiningforces with the World Bank to organize a regional seminar on credit institutions specializing insmall-scale financing (micro-lending).

12. In the interests of women's participation in development, the Government in January1996 adopted and immediately began implementation of a plan of action for the promotion ofwomen. Set up to cover the period 1996-2000, this plan focuses on the main issues urged inboth the African platform at the Beijing Conference and the Plan of Action that was the finalproduct of the Conference, namely: (a) increased participation for women in economicactivity; (b) defense of women's rights and interests; (c) women's fall integration in theeconomic development process; (d) promotion of girls' and women's education; (e)improvement of women's health; and (f) support for institutions working for women'spromotion. One major goal of the plan is improved school enrollment rates among younggirls. In general terms, the plan provides the framework within which the various activitiesproposed will be coordinated.

13. The Government will intensify, through an action plan, its previous efforts to enhancethe effectiveness of the public services, reduce the cost of the public enterprises in the nationalbudget, and expand the role of the private sector in all areas of economic activity. This planspecifies the reforms proposed for each of the enterprises in question, and is currently underdiscussion with the World Bank.

14. In conjunction with the World Bank and other donors, the authorities are preparing aninstitutional development program designed to modernize the public administration andstrengthen its administrative and management capacities. It is planned to hold wide-rangingconsultations with the population as a whole and the social partners in particular in order tosensitize them as to the importance of these reforms.

C. Obiectives and Stratezies of the Economic ManaLyement Proeram (1996-98)

1. Mobilization of domestic resources

15. Since 1991, total tax revenue in Mali has been rising steadily. Over the period 1991-95, there was an increase of approximately 21% in National Directorate of Taxation receipts,with a sharp rise in 1994 compared to 1993.

ANNEX EPage 4 of 9

16. However, despite these encouraging results, the tax effort as a proportion of GDP isstill relatively low. Numerous difficulties still in fact exist in mobilizing public resources,ascribable in part to:

- shortages of equipment throughout the Tax Administration;- lack of training and motivation among Tax Administration personnel;- the narrowness of the tax base;- the static nature of the taxation system;- faulty management of tax exemptions;- uneven distribution of the tax burden;- complexity of the direct taxation system.

17. In order to mitigate these difficulties, and with a view to improved mobilization ofbudgetary resources, measures are planned in accordance with the principles set out in theGovernment's 1996-1998 Economic and Financial Policy Framework Paper and itsMemorandum on Economic and Financial Policies for 1996 . These measures are designed toensure a minimum of CFAF 184.5 billion in total tax receipts in 1996 and 200 billion in 1997.

18. Improvements in the flow of customs revenue are a direct outcome of overall growth inthe Malian economy and greater effectiveness on the part of the Customs Administration. Thelatter is largely a matter of:

- strictness in application of the relevant legislation and regulations;- organizing and equipping customs service agencies appropriately.

Customs revenue, including that earned on petroleum products, rose from CFAF 47 billion in1993 to 55 billion in 1994, and 73 billion in 1995. Petroleum products accounted for CFAF20.2 billion, 19.5 billion, and 21 billion as against projections of CFAF 21.5 billion for 1993and 1994 and 24.5 billion for 1995, respectively. The improvement in recent years can beascribed to specific customs agent training measures, rehabilitation and reequipping of customsborder posts and the major customs clearance centers, and reorganization of customs services.

19. To strengthen the Customs Administration, the authorities propose to: (a) continue toorganize and strengthen the central services and to reactivate the regional directorates; internalcontrol procedures will be strengthened and personnel redeployed in the border areas; (b)create a data base so as to evaluate imports and combat fraud, strengthen the import inspectionprogram and make optimum use of the computerized customs clearance system; (c) applypenalties rigorously and introduce incentives for customs agents in light of their performance infighting fraud; (d) update the Customs Code and publish it so as to make it available to thepublic; (e) harmonize the basic lists of tariffs (nomenclature, charges) used by customs officialswith current legislation, publish the official tariff schedule and make it available to the customsservice and to users of the Customs Administration, and (f) provide the necessary equipment tooperating units.

20. Planned steps to strengthen the Tax Administration consist of: (a) establishment of adivision with authority to conduct tax audits of major taxpayers throughout the country; (b)taxpayer identification system improvements to facilitate tracking of arrears; (c) modificationof tax audit procedures to introduce a special focus on frequent, rapid, and targeted checks ofsources of VAT revenue; (d) increased use of computerization, particularly in the division

ANNEX EPage 5 of 9

responsible for auditing major taxpayers; and (e) updating and publishing of the General TaxCode to make it available to the public.

21. In order to broaden the tax base, exemptions on purchases by government departmentsand agencies, including those purchases financed by donors, will be replaced by procedures forreimbursement of the customs and VAT charges they occasion. Exemptions from customs dutyat lower levels have been eliminated. The Mining Code will also be revised in order to makethe sector more competitive and create an enabling environment that will stimulate both privateinvestment and the development of small individual operations, as well as increasing budgetreceipts from mining operations, particularly through the reduction of current exemptions.

22. Where taxes on petroleum products are concerned, the following are some of themeasures planned to increase revenue and reduce tax evasion on their importation anddistribution: (a) audit of all petroleum products storage facilities; (b) better policing of sectoroperators through closer scrutiny of importers and their operations to ensure that duties arepaid, and product safety labeling by Societ generale de surveillance (SGS) of each shipmentinspected (provided it is in compliance with Malian regulations, especially as regards validity ofimport intent and the consent of the importer concerned); and (c) establishment of a StatisticsVerification Committee with a mandate for representatives of Direction nationale des affaireseconomiques (DNAE), Direction g6n6rale des douanes (DGD), and Societe generale desurveillance to meet monthly under the chairmanship of Office national des produits petroliersfor the purpose of cross-checking petroleum statistics (statements of intent, purchase orders,shipments, declarations of stocks released for consumption, stocks under customs control, andexemptions).

23. In the case of Mali's direct taxation system, the authorities propose to institute reformsthat will reduce the administrative costs associated with application of the tax laws to theprivate sector and broaden the tax base, but without any decline in tax receipts. It is theGovernment's intention to take the following specific steps: (i) introduction and application toall small informal-sector enterprises and taxpayers of a combination tax that incorporates thebusiness license tax (patente), the profits tax (BIC), and the value added tax; (ii) introductionand application of a single tax on the total income of large enterprises, at a rate of either 35%(stockholder corporations) or 25% (other types of corporation and individual businesses),together with clear definition of classes of deductible expenditure; and (iii) simplification of thetaxation of salaries and wages, with elimination of the income-split system (as per number ofdependents) and reduction of the current number of income brackets to a maximum of five.

2. Management of Public Expenditure

24. Despite past efforts to improve budgetary procedures and administration, finalappropriations bills themselves were still not explicit enough regarding spending priorities, andfailed to harmonize the various draft budgets prepared by Directorates of Administration andFinance and by the Regional Directorates of Budget. In addition, a very high percentage ofexpenditure was accounted for by shared costs; the whole budget drafting process wascumbersome and labor-intensive; payroll costs far outstripped spending on plant andequipment; etc.

ANNEX EPage 6 of 9

25. Significant progress in improving the budgetary process was achieved as part of thecountry's first structural adjustment program, carried out with IDA financing. Shared costsare now apportioned separately, spending priorities are defined, especially for such sectors ashealth, education, road maintenance, and spending on plant and equipment by governmentdepartments and agencies. Steps have been taken to manage payroll costs and keep themwithin fixed limits. A start has been made on computerizing budget preparation and themonitoring of budget execution.

26. Nevertheless, continuing efforts are still required to strengthen budgetary procedures inorder to arrive at program budgeting in the medium term, so as to ensure greater consistencybetween the Government's development priorities and the allocation of public funds. Withassistance made available mainly through UNDP, the Canadian International DevelopmentAgency, and the French Cooperation authorities, actions are now under way (i) to computerizethe work of all government departments (DNB, DAF, DRB, etc.) which have responsibilities inthe arena of budget preparation and execution, particularly through staff training and theprovision of software that allows analysis and audit of expenditure, and (ii) to standardizebudget preparation procedures through the use of specially designed model formats, and issueof a handbook of instructions on government budget preparation (to be followed by another onbudget execution). In addition, measures are being put into effect to improve presentation ofthe budget so as to ensure greater transparency and facilitate its interpretation. TheGovernment intends to introduce program budgeting on a pilot basis in at least one ministrybefore the end of 1998. In addition, those allocations by ministry in the national budget thatare earmarked for the regions will be consolidated in the regional budgets. Lastly, the NationalAssembly is currently debating draft legislative instruments on appropriations bills and on thefundamental principles of public sector accounting. Their enactment will contribute to theunderstandability, transparency, and predictability of the governmental budget executionprocess. The resulting new budget nomenclature will be harmonized with the Treasury'saccounting nomenclature.

3. Restructuring of Public Expenditure

Current expenditure

27. The Government has taken steps to improve the structure of its expenditure. Since itsmain objectives are to reduce poverty and spend more effectively, it proposes to focus onensuring that budget appropriations for health services, education, road maintenance, andagricultural extension are adequate.

28. In the education sector, the objective is to raise the enrollment rate in the first cycle ofbasic education from the 1995 figure of 39% to 50% by the year 2000 and then to 70% by2005, without jeopardizing the viability of government financial operations. The educationsector enjoys high priority in the budgetary allocation process, accounting for 20.12% ofcurrent spending in 1994, 21.27% in 1995, and a projected 22.53% in 1996. The 1996 budgetallocation for teaching materials alone is CFAF 4 billion, with half this sum earmarked for basiceducation. Future allocations in real terms for teaching materials will be in accordance withthe following guidelines: CFAF 2,500 for the first cycle of basic education, CFAF 5,000 for thesecond cycle of basic education, CFAF 21,000 for general secondary education, CFAF 35,000for secondary technical and CFAF 50,000 for higher education. At least CFAF 300 million will

ANNEX EPage 7 of 9

be allocated annually to maintaining premises in the education sector. Six hundred teachers(including 300 second-shift teachers) will be recruited for basic education in 1996. A further600 and then 700 teachers will be recruited for the first cycle of basic education in 1997 and1998 respectively. The Ten-Year Education Program is being drawn up by a multidisciplinaryspecialist team. This group will organize the necessary dialogue and consultation with allstakeholders in the Malian schooling system, the general aim here being to arrive at a vision ofthat system which accommodates both the social purposes of education and the imperatives ofaccelerated schooling development. At the same time, the group will provide information andadvice regarding the implications of ambitious school enrollment rates, resulting employmentrates and earning power, etc., on the basis of freely chosen policies and strategies.

29. In the health sector, operating expenses accounted for 7.82% of total budgeted currentgovernment spending in 1994, 8.01% in 1995, and a projected 8.31% in 1996. The rate ofcoverage of a minimum package of activities was 27% in 1995, a figure the Governmentproposes to increase to 45% in 1996 and 65% in 1997. A National Social and Health PlanningCommission has now been set up, while formulation of a Ten-Year Health and SocialDevelopment Plan is scheduled for completion in 1997. The upward trend in budget allocationsto the health sector will continue, reaching approximately 10% of the recurrent budget. Inaddition, some CFAF 2.5 billion annually will be spent on health sector equipment. In 1996150 health and paramedical personnel will be recruited for assignment to more remote areas; afurther 200 will be recruited both in 1997 and 1998.

30. Allocations for road maintenance, which will include coverage of commitmentsassociated with the Transportation Sector Credit Agreement (Credit 2617-MLI), will reach atleast CFAF 4.2 billion and 4.32 billion in 1997 and 1998, respectively. In the sphere ofagricultural extension, 76% of all farmland was covered and 86% of all farms were visited in1995, when the target figures were 60% and 45% respectively. The Government is determinedto see that extension services reach all villages by the year 2000. Allocations of budgetresources for agricultural extension will be in accordance with: (i) the implementation ofactions included as part of the program's second phase, scheduled to start up in 1997; and (ii)whatever constraints may be imposed by the existence of a prudent macroeconomicframework.

Capital expenditure

31. All decisions on public investment must be consistent with a coherent investment policywhich gives primary importance to return on capital and financial viability. The PublicExpenditure Review conducted jointly in 1993 by the Government, the World Bank, and otherdonors revealed a need to improve the effectiveness of public investments. The areas callingfor particular attention were: project selection on the basis of economic criteria, sectorpriorities, and counterpart funding requirements; project impact in terms of recurrent chargesand debt-servicing capacity; and monitoring of project execution.

32. In order to ensure that project selection is consistent with the country's overalleconomic framework, the Government, by the end of June each year, draws up a three-yearrolling public investment program and accompanying capital spending budget covering allprojects funded with domestic and foreign resources.

ANNEX EPage 8 of 9

33. Despite undoubted progress in this sphere, it has to be recognized that the publicinvestment programming/budgeting process still shows signs of gaps and shortcomings thatneed to be rectified. These defects stem from:

- the fact that the three-year investment program and the capital expenditurebudget are not exhaustive enough to reflect the level of public investmentaccurately,

- the unreliability of available statistical data;- the lack of national capacity in the spheres of investment preparation, appraisal,

selection, programming, and monitoring.

34. In the circumstances, the Government intends to take action that will lead to thedevelopment and introduction of a format for the presentation of key information on newpublic investment program projects when they are estimated to cost over CFAF 2 billion. Inaddition, steps will be taken to strengthen the monitoring of the capital expenditure budget.

4. Monitoring and evaluation of expenditure

35. The authorities propose to conduct annual reviews of budgetary execution performanceevery July. This will provide an occasion to: take stock of budgetary execution during thepreceding fiscal year; assess the extent to which budgetary sector objectives were achieved;identify and remove obstacles to successful budgetary execution; and draw lessons that may beapplicable to the budget being prepared for the forthcoming fiscal year. The Government willalso make available to the finance inspectorates the resources they need to perform their publicexpenditure monitoring and evaluation role more effectively.

36. Where capital spending is concerned, despite the significant progress made since Maliintroduced investment programming and budgeting in 1988, investment project monitoringarrangements need to be reorganized and strengthened as the conditions required for effectivetracking of the investment management process are still not in place.

37. Review of the arrangements for monitoring public development projects reveal thatsuch monitoring is not systematic, and that in fact there exists no coherent and comprehensiveprocess for monitoring and evaluating projects or programs. Nearly all effort goes intopreparing projects and seeking funding for them.

38. Consequently the Malian authorities, in a move to ensure that execution of the capitalexpenditure budget is monitored more effectively, have requested World Bank assistance inconducting a detailed analysis of execution of the public investment program over the last threeyears. This study exercise, to be completed by June 1997, is expected to generate reliablestatistics that will facilitate establishment of a more effective system of investment monitoring.It will also provide an opportunity to evaluate current procedures for collecting and processingdata on completed public investment projects, and to formulate recommendations for bettermonitoring of the three-year rolling investment program.

5. Promotion of Women

39. Malian women play an essential part in all sectors of the national economy. Ruralwomen work side by side with men in growing crops, raising livestock, and in exploitingfishery and fuelwood resources.

ANNEX EPage 9 of 9

40. In urban areas, women work as salaried employees of enterprises and public services,where they increasingly perform functions previously limited to men, although they aregenerally shut out of the decision process. Women are also a large component of the workforce in commerce and utility craft production, which essentially are informal sector activities.

41. Women's economic role would have been more significant had there not beennumerous obstacles in their path. In the rural world, women gain access to land only withdifficulty and are not free to dispose of the fruits of their labor as they see fit. Like hercounterpart in the urban world, the rural woman is often unable to read or write and will havereceived no vocational training. Living in poverty and deprivation, having no personal assetsthat give her access to credit, and confined for the most part to the informal sector, where therules of the game are not subject to regulation, she is in no position to engage in projects setup to produce future benefits.

42. With a view to elimination of these obstacles, the Government has instituted numerousactions. For example: amendment of the Commercial Code to enable women to engage incommercial activities without authorization from their husbands; creation of a Women'sActivities Support Fund; launching of two projects in support of women's promotion -projects which offer training in how to manage a business and market its products, and how toset up and run micro-scale income-generating ventures.

43. Where women's access to credit is concerned, the Govcrnment proposes to complete astudy on the subject and to agree with the World Bank on a timetable for implementation ofthe resulting recommendations. In addition, it will allocate CFAF 500 million of social safetynet resources in the 1997 fiscal year to the Women's Activities Support Fund.

44. Where women's access to land is concerned, the Government proposes to adopt theLand Management Decree of the Office du Niger, and to set up an entity to monitorarrangements and procedures for implementation of the provisions of the Decree. This Decreeguarantees women the same access to land as men and should therefore enable them toincrease their incomes and improve their living standards.

45. In order to sensitize the public to women's rights and the role of women in economicdevelopment, it is the Government's intention to conduct a wide-ranging campaign as part of aplan of action for the Promotion of Women to be launched in 1997.

46. All the actions enumerated here, the results of which will be evaluated at regularintervals, are to be accompanied by a massive sensitization campaign, and by measures tostrengthen the institutional capacities of the Women's Development Promotion Authority.

47. The Malian authorities are of the firm opinion that the measures outlined in this PolicyStatement are of a nature to contribute appreciably to strengthening of the foundations forhealthy and sustainable economic growth. They intend to take steps to promote the awarenessand active participation of those concerned in program implementation.

Yours truly,

Soumaila CisseMinister of Finance and Commerce

ANNEX FPage 1 of 2

Mali: Economic Management ProjectPerformance Monitoring Indicators

Policy and Institutional Reform Intermediate Indicators Outcome IndicatorsMeasures1

A. Fiscal Measures * Increase total revenues fromabout CFAF 177.3 billion in

Revenue Mobilization 1995 to CFAF 184.5 billion in1996; CFAF 209.2 billion in1997; and CFAF 232.7 billionin 1998.

1. Reform of direct taxation * Reduce the ratio of * Increase direct tax revenues"outstanding taxes to total tax from CFAF 27.5 billion in

Reduce distortions, simplify obligations assessed" at the end 1995 to CFAF 27.9 billion inand increase transparency of of each fiscal year. 1996; CFAF 32.2 billion insystem of direct taxation 1997; and CFAF 35.8 billion in

1998.

2. Petroleum Revenues * Increase ratio of petroleum * Increase total petroleumrevenues to petroleum imports revenues from CFAF 21.2

Increase revenues and reduce from 39.2% in 1995, to at least billion in 1995 to at least CFAFfraud in the importation and 43.9% in 1996, 47.3% in 1997 26.6 billion in 1996; CFAFdistribution of petroleum and 50% in 1998. 31.2 billion in 1997; and CFAFproducts 36.7 billion in 1998.

3. Strengthen Customs * Increase ratio of customs * Increase customs revenuesadministration revenues (outside petroleum) to (outside petroleum) from CFAF

total imports (less petroleum 51.8 billion in 1995 to at leastModernize services and imports) from 21.8% in 1995, CFAF 60.0 billion in 1996;increase tax recovery capacity to 24.7% in 1996, 27.6% in CFAF 71.1 billion in 1997; and

1997 in 29.7% in 1998. CFAF 80.3 billion in 1998.

4 Strengthen Domestic tax * Increase ratio of domestic tax * Increase domestic tax revenuesadministration. revenues to GDP from 4.3% in from CFAF 43.2 billion inModernize services and 1995 to at least 4.6% in 1996, 1995 to 62.1 billion in 1996,increase capacity to monitor 4.9% in 1997 and 5.1 % in CFAF 71.7 billion in 1997 andtax payers and recover tax 1998. CFAF 79.2 billion in 1998.obligations.

The policy and institutional reform measures are detailed in Annex D.

ANNEX FPage 2 of 2

Mali: Economic Management ProjectPerformance Monitoring Indicators

Policy and Institutional Reform Intermediate Indicators Outcome IndicatorsMeasures2

B. Restructuring of public * Increase the share of education * Increase primary enrollmentexpenditures sector in recurrent expenditures ratio form 35% in 1995 to at

from 21.3% in 1995, to at least least 39% in 1996, 42% inIncrease poverty focus of 22.5% in 1996; 23.5.% in 1997 1997; and 45% in 1998.public expenditures. and 24.5% in 1998.

a Increase the coverage for* Increase the share of basic minimum package of health

education in education sector services from 27% in 1995 torecurrent expenditures from 45% in 1996, 65% in 1997 and55.4% in 1995 to at least 85% in 1998.57.7% in 1996, 59.2% in 1997,and 60.7% in 1998.

* Increase share of health sectorin recurrent expenditures from8% in 1995, to at least 8.3% in1996; 9% in 1997; and 10% in1998.

C. Promotion of Women * Number of women who have* Number of applications for land benefited from loans under the

Promote the integration of by women Fund for Support of Women'swomen into economic activity Activities (FSWA);by facilitating their access to * Volume of loans granted underland and credit. FSWA;

* Number of women outsideBamako region benefiting fromthe FSWA;

* Repayment rate on FSWAloans;

* Ratio of awards of land towomen to requests for land bywomen. (in the Office du NigerRegion).

2 The policy and institutional reform measures are detailed in Annex D.

ANNEX G

Mali: Timetable of Key Project Processing Events

(a) Time taken to prepare Credit 14 months

(b) Prepared by: Government with IDA assistance

(c) First IDA mission: February 1995

(d) Pre- appraisal February 1996

(e) Appraisal': April 1996

(f) Date of Negotiations: May 16-20, 1996

(g) Board Presentation: June 27, 1996

(h) Planned Date of Effectiveness: July 1996

(i) Expected Project Completion: December 31, 1998

Appraisal was done through the Resident Mission in Bamako. There was no formal appraisal mission fromheadquarters.

ANNEX HPage 1 of 3

MALI: Status of Bank Group OperationsIDA Credits in the Operations Portfolio

(As of April 30, 1996)

Original amount in USS DifferenceProject Loan or Fiscal millions between actual

ID Credit No. Year Purpose IDA Cancel- Undis- and expected

lations bursed disbursenents"No. of Closed Credits: 44

CreditsML-PA-1718 C19060 1988 OfficeduNigerll 39.80 7.86 2.53ML-PA-1723 C19980 1989 Power II 33,00 16.81 15.06ML-PA-1725 C22350 1991 Agric. Services 24.40 10.91 8.90ML-PA-1727 C22170 1991 Health/Pop/Rural Water 26.60 12.30 5.94ML-PA-1730 C26170 1994 Transport Sector 65.00 65.70 9.06ML-PA-1744 C21630 1990 Agric. SECAL 53.00 13.61 7.75ML-PA-1745 C23700 1992 Natural Resource Mgt. 20.40 16.50 9.12ML-PA-1747 C24320 1993 Private Sector Assistance 12.00 8.20 1.34ML-PA-1751 C25570 1994 Ag. Research 20.00 15.99 2.66ML-PA-1752 C23710 1992 Public Works & Cap. Buildg. 20.00 0.44 -8.72ML-PA-1752 C23711 1995 Public Works & Cap. Buildg. 10.00 6.62 2.61ML-PA-1755 C27370 1995 Agro-Processing & Trading 6.00 5.63 0.64ML-PA-1756 C23900 1992 Mining Capacity 6.00 5.25 4.20ML-PA-35662 C26730 1995 Education SECAL 50.00 2.35 0.83ML-PA-1746 C28280 1996 Vocational Education & Trg. 13.40 13.00 0.00ML-PA-34617 C28500 1996 Selingue Rehab. 27.30 26.72 0.00

TOTAL 16 credits 426.90 0.00 227.89 61.92

Active Loans Closed Loans TotalTotal disbursed (IBRD and IDA) 218.32 634.18 852.50

Of which repaid 0.00 33,31 33.31Total now held by IBRD and IDA 426.90 560.16 987.06Amount sold 0.00 0.00 0.00

Of which repaid 0.00 0.00 0.00Total undisbursed 227.89 1.07 228.96

a. Intended disbursements as projected at appraisal minus actual disbursements to date.

Note: Disbursement data are updated at the end of the first week of the month.

ANNEX HPage 2 of 3

MALI: STATEMENT OF IFC INVESTMENTSAs of April 30, 1996

(in USS millions)

Original Gross CommitmentsHeld by

Fiscal IFC IFC Partici- Held by Partici- Undisb. incl.Year Obligor Type of Business Loan Equity pants Totals IFC pants Participants

1978 a/ Societe Mamadou Sada Dialloet Freres SARL (SOMACI) Manufacturing 0.64 0.64

1982 a/ Societe Industrielle de Karitedu Mali, S.A. Food and Agribusiness 1.84 0.45 2.29

1992 a/ Labo-Mali Industrial & ConsumerServices 0.10 0.10

1994 Grand Hotel de Bamako Hotels and Tourism 1.02 1.02 0.971994 Societe Miniere de Syama Mining & Extraction

of Metals/Other Ores 25.35 1.41 26.76 26.76 0.311995 Socidte d'Exploitation des Mining & Extraction

Mines d'Or de Sadiola S.A. of Metals/Other Ores 35.00 4.80 25.00 64.80 39.80 25.00 12.99

Total gross commitments b/ 63.95 6.66 25.00 95.61

Less cancellations, terminations,repayment and sales 2.63 0.45 0.00 3.08

Total comnuitments now held c/ 61.32 6.21 25.00 92.53 67.53 25.00 13.30

Pending CommitmentsAEF GGG 0.77 0.77AEF-BOAM 0.23 0.23AEF-SOMAM 1.54 1.54

Total pending commitments 1.54 1.00 0.00 2.54

Total commitments held and pending commitments 62.86 7.21 25.00 95.07

Total undisbursed commitments 7.89 0.00 5.41 13.30

a/ Investments which have been fully cancelled, terminated, written off, sold, redeemed or repaid.b/ Gross commitments consist of approved and signed projects.c/ Held commitments consist of disbursed and undisbursed investment.

ANNEX HPage 3 of 3

Mali: Status of Bank Group OperationsPortfolio Implementation Issues

1. Overall portfolio performance is satisfactory and is expected to improve further following the CountryPortfolio Performance Review held in Bamako in November 1995. Action plans were agreed between the Bankand the Government for addressing generic as well as project specific implementation issues. Two follow-upcommittees (with membership from all key ministries and Departments as well as the Resident Mission) have beenset up to monitor execution of these plans. One of these committees is under the Prime Minister's Chairmanship.

2. As of April 30, 1996, IDA had approved credits in support of 60 operations in Mali. Forty-four (44) ofthese operations had closed, leaving the current portfolio with 16 credits. The undisbursed balance as of April 30,1996 was US$227.89 million. Two projects (Vocational Education & Training and Selingue PowerRehabilitation) totalling US$40.7 million were approved in March 1996 and April 1996 respectively.

3. Of the 16 credits in the current portfolio, there are no over-aged operations. With the exception of thetwo recently approved projects, all credits approved by the Board within the last 12 months have been declaredeffective. However, three credits show disbursement lags of 50% or more. The characteristics of these operationsare noted below:

Natural Resource Management (Cr. 2370-ML). Disbursement lag: about 64%. Disbursements to date:US$5.16 million out of an approved amount of US$20.4 million. The credit became effective onFebruary 11, 1993, about seven months after signing. The disbursement lag is due partly to overlyoptimistic projections on the start of village level investments, which form the bulk of the project at thetime of project appraisal. Village level investments were only able to begin three years into the projectinstead of the two years projected at appraisal. Since these investments were largely local expenditures,this lag was further aggravated by the January 1994 devaluation of the CFA franc which doubled localcurrency equivalent of project funds. The start of village level activities and the increase in the number ofvillages to be covered under the project, agreed after the mid-term review in November 1995, shouldresult in a significant reduction in the disbursement lag.

Mining Capacity (Cr. 2390-ML). Disbursement lag: about 75%. Disbursements to date: US$1.13million out of an approved amount of US$6 million. This credit became effective on March 22, 1993,about eight months after signing. Disbursements have been slow due mainly to long delays on the part ofthe Government in finalizing contracts concluded with consultants for the execution of two studies thatare critical for defining project activities. For this reason, the project was suspended in July 1995. Sincethen, the Government has renegotiated and signed the contracts with the consulting firms, and thesuspension was lifted on May 24, 1996. With consultants starting work in June 1996, disbursementsshould soon improve.

Transport Sector Project (Cr. 2617-ML). Disbursement lag: 90%. Disbursements to date: US$0.91million out of an approved amount of US$65 million. This credit became effective on April 3, 1995,about nine months after signing. Disbursements have been slow due mainly to severe procurement delaysby the implementing agency, the Direction National des Travaux Publics (DNTP). Procurementdifficulties encountered by DNTP and other project implementing agencies are being addressed throughBank's assistance in strengthening the Government's procurement management capacity. With thisassistance and a number of recently processed contracts (valued at about $25 million), disbursements areexpected to pick up by September 1996, reducing the disbursement lag.

4. There are no outstanding audit reports.

Ai

IMAGING

Report No: F- 6909 MLIType: PR