28 Nov Interview with Mohamed Lemine Dhehby , Governor, Central Bank of Mauritania (BCM)
Business Focus: To begin, I would like to have an overview of the Mauritanian banking sector. The Mauritanian economy experienced sustained growth of 2.4% in 2021, 5.2% in 2022, driven in particular by its potential, its oil, gas and mining sectors as well as a strong agricultural industry. What was the role and performance of the banking sector in this context? What is the health of the Mauritanian banking sector?
Mohamed Lemine Dhehby: The Mauritanian banking sector stands as a beacon of good general health, reflecting a robust and thriving financial landscape. Comprising 18 banks, each with its unique market share, the sector exhibits commendable overall performance. While some banks play a systemic role, others operate with a lesser impact. The regulatory oversight is provided by the Mauritanian Central Bank (BCM), ensuring stability and adherence to established norms.
Governance within the sector has witnessed notable advancements, marking a period of positive transformation. Key measures, such as the separation of the chairman of the board of directors and the general manager, alongside the establishment of a deputy director position, underscore the commitment to sound governance practices. All banks now adhere to comprehensive governance standards, incorporating risk committees, remuneration committees, and other essential components. The appointment of compliance managers with a certain level of independence further attests to the sector’s dedication to robust governance.
Turning attention to profitability, the banking sector showcases a commendable financial performance, with a significant net income recorded by the majority of banks. Notably, only one or two banks face profitability challenges, underscoring the overall strength and resilience of the sector. This growth is not only a testament to the individual success of banks but also contributes substantially to the national wealth, making the banking sector a key player in Mauritania’s economic landscape.
The collective efforts in recent years, particularly in governance enhancements and financial performance, position the Mauritanian banking sector as a dynamic and integral contributor to the nation’s economic well-being. This positive trajectory speaks to the sector’s commitment to excellence, stability, and its vital role in driving Mauritania’s economic prosperity.
BF: The last few years have been marked by a succession of crises: the COVID pandemic, the war in Ukraine, inflation, and also the rise in energy prices. How was the Central Bank of Mauritania able to counter all these different challenges and their impact and guarantee a certain stability for citizens and businesses?
Mohamed Lemine Dhehby: The Central Bank’s mandate prioritizes price stability and financial stability, with secondary considerations for economic activity and employment. Given that Mauritania heavily relies on imports for essential and equipment products, the country contends with the repercussions of global market volatility, leading to significant imported inflation. In response to this challenge, we adopted a prudent monetary policy, implementing two increases in the bank’s key rates, totaling a 300 basis points rise to reach 8%. Simultaneously, we elevated the mandatory reserve rate for banks to 8%, revamped the operational framework of monetary policy, and diversified liquidity management instruments in the money market. The outcome has been remarkable, with inflation decreasing from 11% year-on-year as of December 31, 2022, to an exceptional 3% as of September 30, 2023. This stands out, especially when compared to other countries grappling with higher inflation rates of 5% or 6%.
The success in inflation control can be attributed to the effective tightening of monetary policy, a measure that has proven instrumental in recent months. Notably, the absence of a price-wage loop has further contributed to maintaining moderate underlying inflation, facilitating a favorable economic environment.
On the foreign exchange front, we have achieved a relatively stable currency and are in the process of introducing more flexibility into foreign exchange management. While an immediate floatation of the currency is not on the horizon, we plan to implement a system of floating bands, with their width contingent on market depth. This reform represents a significant step toward enhancing the adaptability of our foreign exchange management.
Ensuring financial stability, we have implemented tools such as stress tests and rigorous analyses of systemic banks’ figures. Simulations examining the impact of rising interest rates on banks have not identified any warning signs of a crisis. All systemic banks exhibit robust stability, indicating a resilient financial sector.
In summary, the Central Bank’s proactive measures, from monetary policy adjustments to currency reforms and financial stability tools, have yielded positive outcomes, fostering economic stability and resilience in the face of global economic challenges.
BF: Mauritania is also preparing to welcome new foreign exchange revenues with the exploration of its gas and oil fields which is planned for the end of 2023, beginning of 2024. How are the Central Bank and also the country’s banks preparing to receive these new investments, these new revenues?
Mohamed Lemine Dhehby: The reform of the foreign exchange market serves as an initial response to proactively manage the influx of new revenues. Concurrently, we have undertaken a comprehensive overhaul of the monetary policy framework, aiming to establish a cohesive and modern monetary and foreign exchange policy. In terms of managing the country’s foreign exchange reserves, significant strides have been made, with current reserves covering 5 to 6 months of imports.
Furthermore, our investment policy has been agilely adapted to the evolving market situation, resulting in substantial income from foreign exchange reserves. In 2021, with reserves at $2.4 billion, the bank generated $2.5 million in income. In 2022, despite a decrease in reserves to around $1.9 billion, we realized $22 million in revenue from reserve management. As of September 30, 2023, with reserves further reduced due to successive crises, we have already generated $50 million in revenue. Notably, the foreign exchange reserves, which stood at $2.4 billion in 2021, have experienced a decline to around $1.8 billion, with the potential to fall further to $1.7 billion by the year’s end. Despite this decrease, proactive measures have resulted in substantial revenue, with expectations of reaching approximately $80 million over the two years.
The anticipated windfall from gas revenues is earmarked for enhancing foreign exchange reserves, benefiting from an already reformed monetary and exchange policy framework. This strategic reform positions us to manage these reserves judiciously and optimally.
While the specific distribution of income is yet to be determined, key priorities have been identified. A portion will be allocated to debt reduction, targeting high-interest obligations. Additionally, revenue will contribute to financing budget deficits, addressing robust social demands. Importantly, a segment of the income will be dedicated to bolstering foreign exchange reserves, acting as a precautionary measure against external shocks. Within the budget allocation, emphasis will be placed on ensuring that social safety nets are a significant component, encompassing both investments and social protection initiatives. This multifaceted approach aligns with our commitment to prudently manage and distribute revenues for the overall benefit of the country.
BF: You are receiving a delegation from the International Monetary Fund (IMF) this week. Can you explain to our readers Mauritania’s situation in terms of international debt?
Mohamed Lemine Dhehby: In January, Mauritania entered into a program with the International Monetary Fund (IMF), a departure from the typical IMF engagements associated with countries facing significant macroeconomic imbalances. At the program’s initiation, Mauritania boasted substantial foreign exchange reserves, robust domestic assets, including the accumulation of budgetary savings from two consecutive years of surpluses, and a moderate debt-to-GDP ratio of 42%. The primary objectives of this partnership were centered around enhanced management, technical assistance, vigilant oversight, and, above all, the preservation of macroeconomic stability.
Currently undergoing the first review – a critical juncture at the six-month mark within the three-year program – the indicators reflect a positive trajectory. All macroeconomic indicators are in the green, attesting to the successful preservation of stability. These indicators align closely with the program’s forecast, demonstrating the efficacy of implemented measures. The comprehensive reforms span the money market, foreign exchange market, and budget, with the introduction of medium-term spending frameworks and the reduction of tax regimes, exemplifying the commitment to planned structural changes.
Notably, the recent history of debt restructuring has played a pivotal role in shaping the country’s economic landscape. In 2018-2019, facing severe debt classification with rates nearing 90% of GDP, strategic negotiations were conducted. Subsequent agreements, such as the renegotiation of a passive debt with Kuwait and a Saudi loan under highly concessional terms, resulted in a substantial reduction in the debt-to-GDP ratio. The passive debt with Kuwait was reduced to its initial level of $82 million and rescheduled over 20 years, providing enormous relief for the Mauritanian economy. Additionally, the renegotiation of these two loans halved the debt-to-GDP ratio to 42%, freeing up significant budgetary space.
This strategic reduction in the debt ratio to 42% paved the way for Mauritania to sign the program with the IMF without encountering difficulties. The successful conclusion of this program underscores the commitment of the country’s authorities to macroeconomic stability. With a fortified economic foundation, prudent fiscal measures, and a forward-looking approach, Mauritania positions itself as a model for effective collaboration and sustainable economic management on the global stage.
BF: Could you present to us the latest progress that has been made in the area of financial inclusion in Mauritania?
Mohamed Lemine Dhehby: Financial inclusion stands as a multifaceted initiative in Mauritania, with a comprehensive national strategy currently undergoing validation at the central bank level. This strategy encompasses various axes and is poised to be governed by institutions that actively engage all stakeholders in the financial landscape.
The realm of Fintech has seen significant advancements, with the establishment of a digilab and sandbox at the bank. Approval processes for fintechs, particularly those involved in electronic money, have been streamlined. Legislative milestones, including the enactment of laws pertaining to electronic money and the digitization of payments, have paved the way for widespread adoption. Nearly all banks in Mauritania have introduced electronic solutions, and the populace has embraced these technologies wholeheartedly.
A pivotal project with the World Bank is in progress, focusing on the implementation of an instant payment switch for interoperability. The achievement of interoperability is deemed essential for a substantial leap in financial inclusion. Although solutions are not yet interoperable, efforts are underway to overcome this obstacle within a matter of months. The collaborative initiative involves signing with the bank and establishing an instant switch that will be adopted by all operators. The landscape of financial inclusion is further enriched by the presence of savings banks, a legacy of a state-led reform in the 1990s. These institutions, strategically dispersed across the country, are actively contributing to the financial inclusion agenda and are developing their own solutions.
To reinforce these efforts, a significant milestone is on the horizon with the planned observance of Financial Inclusion Day on November 28, coinciding with the commemoration of national independence. This dedicated day underscores the ambitious drive toward achieving financial inclusion across all levels of society. The commitment to financial inclusion is further emphasized through budgetary allocations earmarked for inclusive initiatives, reflecting a holistic and determined approach to fostering economic participation and empowerment in Mauritania.
BF: What is the level of digitalization of the banking sector now?
Mohamed Lemine Dhehby: Significant strides in digitalization have been achieved at the central bank in Mauritania, marked by the successful implementation of Real-Time Gross Settlement (RTGS) and electronic clearing systems. These advancements underscore a concerted effort to modernize financial infrastructure, enhancing efficiency and expediting transactions.
A pivotal development in the digital landscape is the establishment of a central securities depository, a transformative initiative that digitizes the entire money market. This foundational step is poised to streamline financial processes and lay the groundwork for the establishment of a stock exchange, contributing to the overall sophistication of the financial ecosystem.
The momentum toward digitization extends beyond financial realms, encompassing core government functions. The virtually complete dematerialization of budgetary processes and expenditures stands as a testament to this commitment. Processes related to taxation, including declarations and payments, have been seamlessly transitioned to online platforms. This digital transformation not only enhances accessibility but also fosters greater efficiency in fiscal operations.
The overarching vision for digitalization is reinforced by the establishment of a ministry of digital transition, a dedicated entity responsible for orchestrating and overseeing numerous projects in the digital domain. This ministry plays a pivotal role in steering initiatives that span various sectors, aligning with the broader national agenda for a comprehensive and inclusive digital transition. The collective efforts in digitalization underscore Mauritania’s commitment to leveraging technology for improved governance, enhanced public services, and sustained economic progress.
BF: What is your final message for USA Today readers?
Mohamed Lemine Dhehby: Mauritania is undergoing a robust phase of growth, meticulously managing its state budget with a keen adherence to governance and technology standards. The nation’s commitment to preserving macroeconomic balances is evident in the implementation of substantial structural reforms aimed at diversifying the economy, embracing digitalization, and placing a prominent focus on addressing climate change.
The ongoing mission by the IMF not only involves a comprehensive review of the existing program but also signifies the definitive evaluation of the Resilience and Sustainability Fund program, a critical initiative that will bring substantial benefits through the Resilience and Sustainability Trust. The proposed action plan outlines bold measures to combat climate change, including the introduction of carbon taxes and reforms in clean energy practices. Mauritania’s dedication to green hydrogen further underscores its commitment to sustainable development.
The country is positioned as a modernizing force, adept at effective public finance management and currency oversight. The rapid digitization efforts align with a broader vision for a technologically advanced nation. Notably, social protection nets are expanding, with significant milestones such as the doubling of retirement pensions and salaries across various social sectors. In a noteworthy move, essential treatments for hemodialysis patients are now provided free of charge.
Under the leadership of the president, a committed five-year plan is in place, allocating 200 billion Ouguiya towards social protection. The tangible outcomes of this commitment include the construction of new cities and the widespread implementation of health insurance. Amid these advancements, the nation continues its steadfast journey of economic diversification, shaping a progressive and resilient trajectory for Mauritania’s future.