Mauritania Shows Signs of Recovery After Series of Setbacks

Return of political stability was first step toward macroeconomic stability

Rising prices of main commodity exports helping recovery

Medium-term goal is to diversify economy to reduce vulnerability to shocks

In a vote of confidence for the country’s economic reforms, the IMF has just completed the first review of the country’s $118 million arrangement under the Extended Credit Facility (ECF), paving the way for an immediate disbursement of $17 million. The three-year loan, approved in March 2010, marked the resumption of IMF financial assistance to Mauritania after a 19-month hiatus.

We estimate that the economy will grow by 5 percent this year and just over 5 percent in 2011. This growth reflects the authorities’ strong reform agenda, the rebound in prices of Mauritania’s main exports, and the normalization of relations with the international community.

Multiple shocks

The North African country, one of the continent’s poorest, had high hopes for a dramatic change of fortune when oil was discovered off its shores in 2001. Production in Chinguetti, the main oil field, started in 2006 and immediately ran into major technical difficulties, which led output to fall from close to 75,000 barrels per day (bpd) in early 2006 to 23,000 by end-2006. Since then, oil production has steadily declined, with output projected to be as low as 7,000 bpd in 2011 (see Chart 1).

On the back of the unexpected and prolonged fall in oil output, Mauritania was hit hard by the fuel and food crisis and the global recession in 2008–09. In addition, an August 2008 military coup—the second in the past five years—led to a domestic political crisis and the suspension of assistance from many bilateral and multilateral donors, including the IMF.

The combination of these adverse shocks had a profound impact on this desert nation of just over 3 million people. Non-oil real GDP contracted by 1.1 percent in 2009, down from 4.1 percent in 2008. With the decline in oil production, total GDP also fell by 1.2 percent. The fiscal deficit widened and the external position deteriorated sharply, with external reserves dropping below 1.5 months of imports of goods and services. As a result, progress on poverty reduction slowed.

Turning point

The country’s internationally recognized presidential election of July 2009, won by Mohamed Ould Abdel Aziz, marked the return to a constitutional order. This step enabled the international community to resume normal relations with...