Mauritania: An economy dependent on the mining sector and international situation

Jade Castaner – castanerj@afd.fr

The consequences of the war in Ukraine, especially the rise in energy and food prices, have increased Mauritania’s economic challenges. The dependence on the mining of metal ores and fishing leads to economic growth that is volatile and vulnerable to the international situation. In the current context, the external and public accounts have been weakened, as the situation has got considerably worse since the Covid-19 pandemic. The IMF program, planned for 2023, should facilitate fiscal consolidation and enable more inclusive and sustainable growth. The medium-term economic outlook is positive as a result of the increase in metal production and the start of gas production announced for the end of 2023.

While Mauritania ranks 158 th out of 191 countries in terms of human development (HDI, 2021), just above the limit of the “low human development” category, economic growth remains insufficient to significantly increase per capita income in a context of strong demographic pressure (+3.2% a year). The sociopolitical situation remains fragile, aggravated by regional tensions, in the Western Sahara and Sahel.

Fragile economic growth at a time of monetary tightening

With an economy lacking in diversification, Mauritania mainly depends on the extractive sector – copper, gold and iron – (30% of GDP and over 70% of exports) and the agriculture sector (20% of GDP and 31% of formal employment in 2020 according to the World Bank). Its vulnerability to changes in international mineral prices and climatic hazards leads to high volatility in economic growth. The average annual growth rate thereby stood at 1.5% over the period 2007-2012, against 4.3% between 2013 and 2018. While the health crisis brought economic activity to a halt in 2020 (-0.9%), real GDP growth finally reached 2.4% in 2021. It is estimated at 4% in 2022 according to the IMF, thanks to the dynamism of the mining, fisheries and agriculture sectors.

The war in Ukraine and the appreciation of the dollar have added to inflationary pressures. At national level, in November 2022, inflation has reached its highest level since 2004 at 12.2% year-on-year, driven by rising food prices (19.3% year-on-year in November 2022). The IMF estimates that it reached 7.1% on average in 2022, against 3.8% in 2021. In response, the Central Bank of Mauritania (BCM) has begun tightening its monetary policy by raising its key interest rate to 7% in August 2022 (+200 bp). The increase in prices and poor weather conditions could undermine the economic recovery and increase food insecurity, which is already a concern. Over 12 million people are threatened by famine in the Sahel region, including 900,000 in Mauritania, three times more than in 2019.

Negative effect of rising world commodity prices on external and public accounts

In 2020, the structurally high current account deficit (12.8% of GDP on average over 2010-2019) was reduced to its lowest level since 2011, but still reached 6.7% of GDP. It has benefited from an increase in exports, driven by the rise in the prices of gold (+30%) and iron ore (+90%), and moderate imports as a result of the economic slowdown caused by the pandemic. In 2021, the current account deficit increased to 9.4% of GDP due to the rise in the trade deficit. Despite the rise in prices in 2022 and the increase in metal production, pressures on the current account balance remain significant and its deficit is estimated to have further increased to 11.6% of GDP in 2022, mainly reflecting the increase in food and oil prices (23% and 19% of imports in 2021, respectively). In the short term, imports of capital goods, in particular for gas projects, will contribute to a large trade deficit. The external financing requirement is thereby estimated at over 22% of GDP in 2022, covered by FDI ($950 million in 2022), budgetary aid (in particular from the World Bank) and loans from multilateral donors. Foreign exchange reserves are volatile, but have increased since 2019 and were at a comfortable level of 5 months of imports of goods and services at the end of 2021, supporting the country’s external position.

In terms of public finances, the government is attempting to lessen the impact on prices of the war in Ukraine. The IMF estimates that the fiscal surplus, which had been maintained despite the pandemic due to the increase in extractive industry revenues, gave way to a deficit of 2.1% of GDP in 2022. Government support to the economy has led to an increase in public spending (+11% in 2022), in particular through food and energy subsidies.

The commissioning of the gas field and new IMF program should improve macroeconomic stability

Despite the turmoil caused by the international situation, the economic and financial outlook is positive due to the Greater Tortue Ahmeyin (GTA) offshore gas project, jointly signed with Senegal in 2018. Production is expected to start in late 2023 and reach 2.5 Mt of liquefied natural gas a year in the first years of operation and 10 Mt by 2030. According to the IMF, this expansion in the gas sector, which targets both the domestic market and exports, could generate an acceleration of real GDP growth to 8% in 2024, after just under 5% in 2023. This would significantly reduce the current account deficit and attract FDI.

The IMF estimates the public debt ratio, which had been declining since 2020, at 51% of GDP in 2022 and that it will fall below 50% of GDP as of 2024, as a result of the good prospects for economic activity and a limited budget deficit. However, the risks lie in the debt profile, which is vulnerable to external shocks and dependent on donor financing. It is mainly external and held by multilateral and bilateral donors, as the domestic market lacks depth. Mauritania has also obtained the cancellation of 95% of the interest on its debt to Kuwait , which accounted for 13.5% of GDP in 2021. In 2021, the external public debt was mainly denominated in dollars (45%) and Kuwaiti dinar, meaning it is highly exposed to the foreign exchange exposure and the wave of monetary tightening in developed countries. While the ouguiya lost almost 2% of its value against the dollar in 2022, the country is therefore faced with the risk of an increase in repayments and government debt levels.

In this context, Mauritania has requested IMF financing. While the last IMF program reached completion in March 2021, a prior agreement for a new program was concluded in November 2022 for $82.8 million. The program aims to improve the budgetary framework and business climate, and reduce public debt.