Macroeconomic stability and reduced debt

Macroeconomic stability and reduced debt

All of Mauritania’s macroeconomic indicators are now set to green, after extensive reforms to its monetary, fiscal and banking frameworks


Like the rest of the world, Mauritania has been buffeted by COVID-19, the war in Ukraine and rocketing energy prices. Despite these challenges, the country’s macroeconomic stability has actually been strengthened, thanks to targeted measures undertaken by the government, particularly the monetary ones implemented by the Central Bank of Mauritania (BCM). Because the nation imports a large part of the goods it consumes, one substantial issue it faced was rising worldwide inflation, says the BCM’s governor, Mohamed Lemine Dhehby, who describes the bank’s mandate as, above all, “to ensure price and financial stability.”

To keep domestic inflation under control, “BCM tightened its monetary policy and increased its key rate twice in 2022. In total, we raised it by 300 basis points to 8%,” reveals Dhehby. The central bank also increased the mandatory reserve rate of banks operating in the country from 6% to 8%, which reinforced bank deposits and further reduced liquidity on the market. In addition, “We have renovated the framework of our monetary policy and deepened the money market by diversifying liquidity management instruments,” he explains. “Consequently, we obtained an exceptional result for inflation, which fell from 11% year-on-year on December 31, 2022 to 3% on September 30, 2023. Furthermore, we have not experienced a price-wage spiral.” 

BCM also took actions on the foreign exchange market to prevent any major depreciation of Mauritania’s currency, the ouguiya, against the US dollar. “We have a fairly stable currency and BCM is currently reforming the foreign exchange market to introduce more flexibility in its management. Obviously, we are not going to float the currency right away, but we are going to float it within bands that will widen or narrow as the market deepens,” states Dhehby. “Regarding foreign exchange reserves management, we have improved our capacities in this and now hold the equivalent of five to six months of imports.” BCM has successfully adapted its investment policy as well, he adds: “In 2021, the bank achieved $2.5 million in income from $2.4 billion in reserves. Over the first nine months of 2023, we generated $50 million in revenue, on reserves that had fallen to around $1.8 billion due to increases in the price of basic necessities like fuel.”

BCM has bolstered its regulation of the 18 banks that operate in the country too. “We have developed new tools and stress tests. The results of our simulations have not detected any crisis warning signs and our banks show good general health and stability,” Dhehby declares. “All banks have also made clear progress in internal governance. It is a sector that is growing significantly and contributing significantly to national wealth.”

To boost financial stability even further, Mauritania has reformed its budgetary processes to introduce medium-term spending frameworks, reduced the complexity of tax regimes and improved its debt portfolio. “A few years ago, we were classified as being in severe debt. In 2021 and 2022, we renegotiated some debts, including one with Kuwait that was reduced and rescheduled over 20 years. We also renegotiated a Saudi loan on very concessional terms. Thanks to this, our debt-to-GDP ratio fell by half to 42%.” As a result, in 2023 the International Monetary Fund confirmed that the country’s risk of debt distress had dropped to moderate.

The government’s ongoing efforts to preserve Mauritania’s macroeconomic stability, strengthen its fiscal and monetary policy frameworks and improve governance are supported by a 42-month IMF Extended Fund Facility and Extended Credit Facility with a value of about $87 million that was signed in 2022. An IMF first review of the country’s reforms to date held in October 2023 foresaw that “the authorities’ economic and financial program is on track and its implementation has been satisfactory.” According to Dhehby, “All Mauritania’s macroeconomic indicators are green and consistent with the forecasts of the program agreed with the IMF.”

Also in October, the IMF approved a $253-million Resilience and Sustainability Facility program for strengthening the nation’s resilience to climate shocks, enhancing its disaster risk management capacities and expediting its transition to cleaner energy. As Dhehby points out, “Usually, the IMF concludes programs with countries experiencing significant macroeconomic imbalances. That is not the case with Mauritania. We signed up with the IMF for the purpose of better management, technical assistance, good surveillance and because of our commitment to macroeconomic stability.”

The bank’s reforms have helped the country prepare for the natural gas revenues that will start flowing in next year, he asserts: “I can’t tell you exactly how the income will be distributed, but part will be used to pay off our most expensive debts, part will finance budget deficits because we want to ensure social safety nets and part of the gas windfall will be used to improve our foreign exchange reserves, for which our monetary and exchange rate policy frameworks are now reformed. Therefore, we will be able to manage these reserves in a rational and optimal manner.”

Another focus of BCM is supporting the financial sector’s digitalization. “Mauritania has passed laws on electronic money and digital payments, and today almost all our banks have their own electronic solutions, which Mauritanians have fully embraced,” says Dhehby. Progress has also been made on digitalizing BCM’s own processes. For example, it has implemented real-time electronic clearing systems and set up a central securities depository, making it possible to digitize the whole money market and facilitating the establishment of a future stock exchange. Furthermore, comments the governor, “We have created a sandbox for fintech within the central bank and distributed approvals to a number of fintech firms for their solutions. Currently, we are working on an instant payment switch project with the World Bank for interoperability. After we achieve that, financial inclusion in the country will leap up, which we have big ambitions for.”

The sector’s digitalization mirrors that of the wider economy, Dhehby states: “Mauritania is a country that is modernizing, digitalizing, diversifying and growing, while also managing its public finances and currency well, following all international standards of governance, and preserving its macroeconomic balances.”