Mali’s Malignant Sahel Streak

Following French military intervention in the north against Islamic and tribal rebels international donors met in a hastily-arranged session to offer resumed economic aid, including a rapid credit facility from the IMF to succeed the previous derailed program. An Article IV update was prepared which underscores the depth of output, fiscal, banking system and agricultural damage already in train with the army’s earlier coup and regular government interference. The Finance Minister has stayed in office and presided over 1.5 percent GDP contraction in 2012 as a drought accompanied security deterioration to leave one-third of the population in food distress on inflation over 5 percent. Mining and cotton exports held up, but $250 million in central bank reserves were tapped to keep the current account deficit to 7.5 percent of GDP as $60 million in bilateral and multilateral debt arrears accumulated. On the fiscal front banks agreed to roll over $275 million in treasury bills issued through the West African regional exchange as northern networks absorbed physical losses with NPLs before provisions at one-fifth the portfolio. In 2013 central bank accounts will again be accessed to cover the balance of payments hole as a mobile phone auction will raise additional budget revenue. Increased social spending is needed to handle almost half a million displaced people from the fighting while tax collection lags at just 15 percent of GDP. Defense will remain the largest outlay along with basic education, followed by public administration. Energy prices will adjust more to international levels and miners may face a higher profits levy, and future external funding will be mainly grants. The state housing and development banks could be sold or shuttered, and the foreign-dominated system may be at risk from exposure to other government-run borrowers even as the new $10 million minimum capital standard is met. Micro-finance institutions should be better monitored and the central credit register expanded to include small and midsize firms, the Fund advised. The return of normal weather and launch of another gold project this year are positive for the outlook, but the political transition is fluid, with an international force due to replace the French while attacks continue, and the uncertain timetable for fresh elections.

Elsewhere in the zone Cote d’Ivoire is again experiencing ruling party defections after completing a third sovereign bond swap, and presidents have been under armed assault in Guinea-Bissau and the Central African Republic. Senegal under new leadership has pursued a debt strategy of lengthening local maturities as a second external issue is sidelined with the area’s troubles. Former president Wade’s supporters have been reluctant to embrace the Sall team and insist on maintaining showcase projects and food and fuel subsidies. A controversial statue celebrating African independence by North Korean architects could remain prominent in the absence of the original grand designs.