document of the world bank for official use...

The World Bank Mauritania First Competition and Skills DPF (P167348)

Document of The World Bank

FOR OFFICIAL USE ONLY Report No: PGD32

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROGRAM DOCUMENT FOR A PROPOSED

DEVELOPMENT POLICY GRANT

IN THE AMOUNT OF SDR 36.1 MILLION

(EQUIVALENT TO US$50.0 MILLION)

TO

THE ISLAMIC REPUBLIC OF MAURITANIA

FOR THE

FIRST COMPETITION AND SKILLS DEVELOPMENT POLICY FINANCING

June 25, 2019

Macroeconomics, Trade And Investment Global Practice Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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. Islamic Republic of Mauritania

GOVERNMENT FISCAL YEAR January 1 – December 31

CURRENCY EQUIVALENTS

Exchange Rate Effective as of April 30, 2019 Currency Unit: Mauritanian Ouguiya (MRU)

US$1.00 = MRU 36.47 US$1.00 = SDR 0.72163

ABBREVIATIONS AND ACRONYMS

AfDB African Development Bank IPF Investment Project Financing ADR Alternative Dispute Resolution MEF Ministry of Economy and Finance ARE Regulatory Authority MENA Middle East and North Africa

BCM Central Bank of Mauritania MNEVTT Ministry of National Education and Vocational and Technical Training

BoP Balance of Payments MRU Mauritanian Oughyia

CDD Register of Deposit Development (Caisse des Dépôts et de Développement)

MTEF Medium-term Expenditure Framework

COGES School Management Committees NPL Non-performing Loan CPF Country Partnership Framework ONS Office Nationale de la Statistique DB Doing Business PA Prior Action

DGERSE

Directorate of Studies, Reforms, and Monitoring and Evaluation (Direction Générale des Etudes, des Réformes, du Suivi et d'Evaluation)

PER Public Expenditure Review

DPF Development Policy Financing PFM Public Financial Management DSA Debt Sustainability Analysis PIM Public Investment Management DTIS Diagnostic Trade Integration Study PIP Public Investment Program ECF Extended Credit Facility PPG Public and Publicly Guaranteed EIA Environmental Impact Assessment PPP Public-Private Partnerships

EMIS Education Management Information System (Ecoles Normales des Instituteurs)

PV Present Value

ENIs Teacher Training Schools SCAPP National Strategy for Accelerated Growth and Shared Prosperity (Stratégie de Croissance Accélérée et de Prospérité Partagée)

ESSP Education Sector Support Project SDI Service Delivery Indicators EU European Union SDR Special Drawing Rights

FAID

Development Assistance and Intervention Fund (Fond d ’Assistance et d ’Intervention pour le Développement)

SME Small and Medium Enterprise

FDI Foreign Direct Investment SNIM National Mining Company (Société Nationale des Industries Minière)

FPA Fisheries Partnership Agreement SOE State Owned Enterprise

FY Fiscal Year SOMELEC Electricity utility (Société Mauritanienne d’Électricité)

GCI Global Competitiveness Index SSA Sub-Saharan Africa GDP Gross Domestic Product TA Technical Assistance GoM Government of Mauritania TBs Treasury Bills GRS Grievance Redress Service ToT Terms of Trade

GTA Grande-Tortue/Ahmeyim TVET Technical and Vocational Education Training

IBRD International Bank for Reconstruction and Development UAF Universal Access Fund

ICT Information, Communication and Technology US$ United States Dollars

IDA International Development Association WARCIP West Africa Regional Communications

Infrastructure Project IFC International Finance Corporation WBG World Bank Group IMF International Monetary Fund

.

.

Regional Vice President: Hafez M. H. Ghanem Country Director: Louise J. Cord

Country Manager: Laurent Msellati

Practice Director: Marcello Estevao Practice Manager: Lars Christian Moller

Task Team Leaders: Wael Mansour, El Hadramy Oubeid, Cristina Navarrete Moreno, Arthur Foch


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. ISLAMIC REPUBLIC OF MAURITANIA

MAURITANIA FIRST COMPETITION AND SKILLS DEVELOPMENT POLICY FINANCING

TABLE OF CONTENTS

SUMMARY OF PROPOSED FINANCING AND PROGRAM .......................................................................2

1. INTRODUCTION AND COUNTRY CONTEXT ...................................................................................4

2. MACROECONOMIC POLICY FRAMEWORK ....................................................................................6

2.1. RECENT ECONOMIC DEVELOPMENTS ............................................................................................ 6

2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY ........................................................ 12

2.3. IMF RELATIONS ............................................................................................................................ 16

3. GOVERNMENT PROGRAM ........................................................................................................ 16

4. PROPOSED OPERATION ............................................................................................................ 17

4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION .......................................... 17

4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS .................................................. 19

4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY .......................................... 30

4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS ............................... 31

5. OTHER DESIGN AND APPRAISAL ISSUES .................................................................................... 31

5.1. POVERTY AND SOCIAL IMPACT .................................................................................................... 31

5.2. ENVIRONMENTAL ASPECTS ......................................................................................................... 35

5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS .......................................................................... 35

5.4. MONITORING, EVALUATION AND ACCOUNTABILITY .................................................................. 37

6. SUMMARY OF RISKS AND MITIGATION ..................................................................................... 38

ANNEX 1: POLICY AND RESULTS MATRIX .......................................................................................... 41

ANNEX 2: IMF RELATIONS ANNEX ..................................................................................................... 45

ANNEX 3: LETTER OF DEVELOPMENT POLICY ..................................................................................... 48

ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE .................................................. 60

ANNEX 5: DPF PRIOR ACTIONS AND ANALYTICAL UNDERPINNINGS ................................................. 62

The operation was prepared by an IDA team consisting of Wael Mansour (Senior Economist, GMTA2, co-Task Team Leader), El Hadramy Oubeid (Public Sector Specialist, GGOAW, co-TTL), Cristina Navarette Moreno (Private Sector Specialist, GFCAW, co-TTL), Arthur Foch (Senior ICT Policy Specialist, GTD11, co-TTL), Waly Wane (Senior Education Specialist, GED07), Mohamed Tolba (Education Specialist, GED07), Maimouna Mbow Fam (Lead Financial Sector Specialist, GGOAW), Mamata Tiendrebeogo (Senior Procurement Specialist, GGOPF), Brahim Hamed (Senior Procurement Specialist, GGOPF), Samer Naji Matta (Economist, GMTA2), Micky Ananth (Operation Analyst, GMTA2), Theresa Bampoe (Program Assistant, GMTA2), Sophie Wernert (Senior Council, LEGAM); under the guidance of Louise Cord (Country Director, AFCF1), Laurent Msellati (Country Manager, AFMMR), Lars Christian Moller (Practice Manager, GMTA2), Sophie Naudeau (Program Leader, AFCF1) and Christine Richaud (Lead Economist, GMTA02). Peer Reviewers: Samba Ba (Senior Economist, GMTA1) and Tobias Haque (Senior Economist, GMTSA).


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SUMMARY OF PROPOSED FINANCING AND PROGRAM

BASIC INFORMATION

Project ID Programmatic If programmatic, position in series

P167348 Yes 1st in a series of 3

Proposed Development Objective(s)

Improving the regulatory environment and skills for boosting competition and inclusiveness of the Mauritanian private sector.

Organizations

Borrower: MINISTRY OF ECONOMY AND FINANCE

Implementing Agency: MINISTRY OF ECONOMY AND FINANCE

PROJECT FINANCING DATA (US$, Millions) SUMMARY

Total Financing 50.00 DETAILS International Development Association (IDA) 50.00

IDA Grant 50.00

INSTITUTIONAL DATA

Climate Change and Disaster Screening

This operation has been screened for short and long-term climate change and disaster risks

Overall Risk Rating

Substantial

Results


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Indicator Name Baseline Target

R1: Number of cases solved through alternative dispute resolution mechanisms [0] [2018] [5] [2021]

R2: Number of insolvency cases settled by the courts (as measured by the World Bank Doing Business Indicators) [0] [2018] [>] [5] [2021]

R3: Number of information requests processed at the business and collateral registry [0] [2018] [1000] [2021]

R4: Number of internet providers authorizations granted [0] [2018] [>4] [2021]

R5: Average monthly retail price of one-megabit internet subscription [35] [2017] [25] [2021]

R6: Percentage of rural households with access to the internet [18%] [2017] [28%] [2021]

RI7: Public primary school teachers’ absence rate 29% [2017] 10% [2021]

RI8: Share of in-service teachers who score above the bar on a competence test and are therefore apt to teach

4% [SDI 2017] 35% [2021]

RI9: Number of TVET graduates 2,343 [2017] 4,000 [2021]

RI10: Number of youths benefiting from short-term labor market-oriented training 8,390 [2017] >15,000 [2021]

RI11: Percentage of female youth benefitting from short-term labor market-oriented training 25% [2017] 35% [2021]

. .


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IDA PROGRAM DOCUMENT FOR A PROPOSED GRANT TO THE ISLAMIC REPUBLIC OF MAURITANIA

1. INTRODUCTION AND COUNTRY CONTEXT

1. This program document proposes a first Development Policy Financing (DPF) operation in a programmatic series of three operations. The series is designed to support the Government of Mauritania (GoM) in improving the regulatory environment and worker skills for boosting competition and inclusiveness of the private sector. The proposed operation will be in the amount of SDR 36.1 million (US$50.0 million equivalent). It is aligned with the National Strategy for Accelerated Growth and Shared Prosperity (Stratégie de Croissance Accélérée et de Prospérité Partagée, SCAPP) 2016-2030, and supported by ongoing technical assistance (TA) projects implemented under the World Bank’s FY18-FY23 Country Partnership Framework (CPF). The operation has been prepared following extensive consultation with private sector representatives and in coordination with other partners, including the International Monterey Fund (IMF) and the African Development Bank (AfDB). It builds on the findings of the Systematic Country Diagnostic (SCD 2016), lessons from the previous DPF series (2016-2017) as well as results from past and ongoing analytical work. 2. Economic growth has been largely reliant on a volatile extractives sector that has gone through a boom and bust cycle over the past decade. Extractives industries have been the engine of economic development for over a decade, representing an average of 25 percent of gross domestic product (GDP), 82 percent of exports and 23 percent of fiscal revenues in 2006-2015. The commodity boom in 2009-2014 supported a state-driven development model with significant public investment in infrastructure and a large role for public enterprises. However, the boom did little to encourage economic diversification and private sector-led growth. Growth averaged 4.2 percent during that period, at par with Sub-Saharan Africa (SSA) and was primarily led by domestic demand for non-tradeable services supported by extractives revenues. The sharp decline in global commodity prices since 2014 has brought growth to a grind and exposed Mauritania’s vulnerabilities: a non-diversified economy facing significant challenges of job creation in the private sector. Moreover, the ambitious Public Investment Program (PIP) along with increased foreign borrowing compounded these pressures leading the country to a situation of high risk of external debt distress. Rigidities in exchange rate policies and a lack of monetary policy tools limited the ability of the central bank to address structural imbalances and respond to the terms of trade (ToT) shock, thereby eroding competitiveness. 3. Slowing economic growth puts at risk the recent gains in poverty reduction. Rising per-capita GDP enabled Mauritania to reach lower-middle-income status in 2010, and the poverty rate declined from 44.5 percent in 2008 to 33 percent in 2014. Poverty reduction occurred principally in rural areas and was driven by rural-urban migration, changes in prices of agriculture products, as well as increased social and public capital spending. Income inequality declined substantially as the Gini coefficient fell from 35.3 percent in 2008 to 31.9 percent in 2014. While the income gap between rural and urban areas narrowed, the income distribution within each area remained largely unchanged. The slowdown in economic activity coupled with high fertility rates (4.5 children per woman) and droughts jeopardize these poverty gains. 4. The bust prompted a severe fiscal adjustment that helped restore macroeconomic balance, but the challenge remains to accelerate structural reforms to boost growth and promote the private sector. In 2016-2017, the Government realized the need to address the underlying macro-economic imbalances


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and it embarked on a fiscal consolidation plan that was successful in stabilizing the economy. It also initiated reforms to introduce exchange rate flexibility, improve the effectiveness of the monetary policy, and strengthen the supervisory framework for the financial sector. It has done so with support of an IMF Extended Credit Facility (ECF) program approved in December 2017. This combined with some reforms in the business environment, irrigation, fisheries and livestock, have led to a moderate recovery with growth reaching 3.6 percent in 2017. The challenge ahead is to raise Mauritania’s potential growth rate by boosting competition and skills and enabling a much larger space for the private sector, while maintaining macroeconomic stability. 5. As macroeconomic stability is regained, the Government has turned its focus to structural reforms in support of a private-sector led growth. Mauritania is attempting to recalibrate its development model through a diversification program focusing on improving the enabling environment for the private sector to operate, create jobs and drive growth. To achieve this, the country will need to overcome interlinked structural constraints. Challenges include a limited private sector that is dominated by small and medium enterprises (SMEs) and informality with a business environment that does not enable competition and lacks access to credit. A stark example of weak competition is observed in growth-enabling sectors like telecom and broadband. The situation is aggravated by the dominant presence of the public sector in commercial activities and the small pool of available skills to draw upon from the labor force given the overall low levels of human capital. To tackle these challenges, the proposed program supported by the DPF is designed in three pillars (see paragraph 33 for details): Pillar 1 supports reforms in SMEs’ business environment. This pillar focuses on strengthening access

of economic agents to an efficient and transparent commercial justice system and to reliable information on companies and collateralized assets.

Pillar 2 supports reforms of broadband digital infrastructure. This pillar focuses on removing barriers to investment and competition in the internet broadband market and facilitating equitable access to ICT services.

Pillar 3 supports reforms in basic education and vocational training. This pillar tackles reforms to improve teachers’ training and competence, recruitment systems, and effective deployment.

6. The macroeconomic policy framework provides an adequate basis for the proposed operation. This assessment is affirmed by: i) a favorable medium term growth prospects underpinned by continued strength in fishing and agricultural production and substantial public and private foreign investments in energy, extractives and ports infrastructure; ii) the expected continuation of hitherto successful implementation of a prudent fiscal policy that will further bring down the debt burden; and iii) the continued satisfactory implementation of reforms in foreign exchange markets, active monetary and liquidity-management policies. The macroeconomic policy framework is supported by an IMF ECF program. Downside risks, however, remain substantial. They include pressures on external financing linked with the variation in commodity prices, and political-electoral risks potential leading to fiscal slippages and/or stalled implementation of monetary reforms. 7. The political context has been dominated by the presidential elections. President Mohamed Ould Abdel Aziz has abided to the constitution and has not sought a third mandate. The first round of the presidential elections were held on June 22, 2019, with a high turnout of 62.6 percent. According to the


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Independent National Electoral Commission (Commission Electorale Nationale Indépendante, CENI), Mr. Mohamed Ould Ghazouani, the candidate of the presidential majority, has won 52 percent of the vote. This result still needs to be confirmed by the constitutional council of Mauritania. These elections will be the first transition of power between two democratically elected presidents in Mauritania since independence in 1960. Policy continuity is the order of the day. The President-elect indicated during the campaign that he will continue the economic reforms initiated by the current Government. In his presidential program, he also committed to an inclusion agenda together with a proactive policy to support human capital development.

2. MACROECONOMIC POLICY FRAMEWORK

2.1. RECENT ECONOMIC DEVELOPMENTS

8. Growth has continued to gradually recover in 2018, but the extractives sector remains a drag. Growth increased from 3.0 in 2017 to 3.6 percent in 2018 (0.8 percent per capita). This moderate pick-up was driven by a 5.7 percent increase in the non-extractive sector, namely telecommunications, transport, and the primary sector. The latter has benefitted from past reforms in the fishing sector, favorable weather, and from a publicly financed expansion of irrigated agriculture (Table 1). The transport sector also benefited from the Government’s program aimed at improving Mauritania’s road network. This included the construction of the Bongou-Basseknou road and the launch of the Néma-Achemim corridor. Meanwhile, the extractive sector declined for a second consecutive year by 14.2 percent in 2018. The decline is explained by continued operational problems at the public mining utility, SNIM1, rising production costs and lower iron demand from China. Gold production was adversely impacted by a delay in machinery upgrading. The contraction in extractives also reflected the end of crude oil production.

1 National Mining Company (Société National Minière de la Mauritanie).


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Table 1: GDP Decomposition

Source: National Statistics Office and World Bank Staff Calculations as of April 15, 2019. 9. Inflation remains moderate as the increase in international oil prices was not transmitted to consumers. Overall, inflation increased from 2.3 percent in 2017 to 3 percent in 2018. This rise was fueled by an 8.9 percent rise in the prices of bread and cereals due to higher international prices. In contrast, transport prices remained stable following the government decision not to transmit the rise in international oil prices to the domestic market and thus keeping gasoline prices at the pump fixed. Meanwhile, core inflation2 rose slightly from 1.9 percent in 2017 to 2.2 percent in 2018, reflecting a gradual narrowing of the negative output gap. 10. External pressures have increased in 2018 due to unfavorable ToT and continued production problems in extractives. The external current account deficit widened from 14.3 percent of GDP in 2018 to an estimated 18.0 percent of GDP in 2018. This reflects a surge in imports due to higher oil and wheat prices coupled with increased construction imports3, as well as a decline in mining exports caused by lower iron prices and lower production of iron, gold, and copper4. The deficit was financed through increased foreign direct investment (FDI) linked to the oil and gas off-shore explorations that started in January 2018 and other financial flows from TASIAST, the private gold company. As a result, foreign reserves remained stable at about 3.7 months of imports in 2018. Meanwhile, the Real Effective Exchange Rate remains overvalued between 4-12 percent, according to the IMF’s external balance assessment methodology. 11. The fiscal position strengthened further in 2018 owing to spending restraint. Fiscal consolidation

2 Core inflation excludes food and fuel prices. 3 The increase in construction imports relates to the development of the first deep water port in Nouadhibou and the construction of a new conference center and two hotels to host the African Union summit in June 2018. 4 Iron production dropped by 6.9 percent in the first nine months of 2018 due to the continued operational problems at SNIM. Likewise, gold and copper production declined by 11.9 and 19.9 percent in the first half of 2018, respectively.

2015 2016 2017 2018e 2019p 2020p 2021p 2022p

GDP 1.4 2.0 3.0 3.6 6.7 5.8 6.0 9.7Cons. 0.8 1.6 3.9 4.3 3.8 3.8 4.0 3.9

Private cons 1.1 2.8 3.1 3.5 3.0 3.1 3.2 3.1Public cons -0.3 -1.2 0.8 0.8 0.8 0.7 0.8 0.8

Investment 0.1 -3.9 0.8 1.3 2.4 3.6 2.5 1.7Private inv -1.3 -0.2 1.3 2.2 2.1 3.1 1.9 0.5Public inv 1.4 -3.7 -0.5 -0.9 0.3 0.5 0.6 1.2

Net exports 0.5 4.3 -1.7 -2.0 0.5 -1.6 -0.5 4.1Exp 1.9 0.6 -0.7 -1.1 1.9 0.5 0.9 3.4Imp -1.4 3.7 -1.0 -0.9 -1.4 -2.1 -1.4 0.7

GDP 1.4 2.0 3.0 3.6 6.7 5.8 6.0 9.7Agriculture 1.6 0.9 1.4 1.7 1.7 1.8 1.9 2.0Industry -0.3 -0.3 -0.2 -0.5 2.6 1.7 1.4 5.0

Non-extractive industries 0.3 -0.4 0.9 1.0 0.8 1.0 0.8 1.1Extractive industries -0.6 0.0 -1.1 -1.5 1.8 0.7 0.6 3.9

Services 1.2 -1.9 1.4 2.0 2.0 2.0 2.2 2.3Net taxes -1.1 3.4 0.4 0.4 0.4 0.4 0.4 0.4

(Demand side)

(Supply side)


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helped turn the overall fiscal deficit from 0.2 percent of GDP in 2017 to an estimated surplus of 1.5 percent of GDP in 2018. Moreover, the Government has managed to maintain a primary surplus (including grants) for a third consecutive year. Public spending declined from 27.9 percent of GDP in 2017 to an estimated 26.6 percent in 2018. This was explained by a 1.8 percent of GDP decline in capital spending. Reduced foreign-funded investments resulted from reduced foreign grants and a slower execution of domestically-funded projects is partly explained by reduced use of single-source procurement. Recurrent spending increased by 0.4 percent of GDP as policies to consolidate public sector recruitment were more than fully offset by (i) increased subsidies for fuel and to support the drought-affected livestock sector and (ii) higher interest payments.5 12. Despite revenue loss from fixed domestic fuel prices and a reduction in grants, fiscal revenues increased thanks to the increase in tax collection and one-off license revenue. Total revenues increased from 27.6 percent of GDP in 2017 to 28 percent of GDP in 2018. Continued efforts to strengthen revenue mobilization have boosted consumption taxes which rose by 1.6 percent of GDP in 2018. This was accompanied by the one-time royalty fee for a new gas and oil exploration license (1.3 percent of GDP) in January 2018.6 However, these resources were mainly offset by the 1.2 percent of GDP drop in gasoline excise revenues as the price differential between the higher international oil prices and the fixed domestic retail prices turned negative.7 This was accompanied by the end of crude oil production, a 0.5 percent of GDP decline in mining revenues, and a 0.4 percent of GDP drop in foreign grants.

5 Fuel subsidies were provided in the last quarter of 2018 to local distributors to cover the price differential between higher international oil prices and fixed fuel prices at the pump. 6 The royalty is from ExxonMobil for rights to explore a maritime block in Mauritania’s deep-water zone. 7 These receipts are part of a special accounts called FAID (Fond d ’Assistance et d ’Intervention pour le Développement). The reference price is fixed. Any downward departure from that price provides revenue for the government. Any upward movement of international prices reduces those revenues and could even turn into losses or subsidies. Those excises are not registered under consumption taxes as they are earmarked and placed in this special fund, which is then spent on infrastructure and development projects.


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Table 2: Key Macroeconomic Indicators (2015 – 2022)

*The Kuwait debt worth US$1 billion is part a loan that was contracted in the 1970s from the Kuwait Investment Authority and was not cancelled as part of the HIPIC initiative. The loan is dormant as no interest or principal has ever been paid. The Mauritanian authorities are in discussions with Kuwait to cancel this debt, but no agreement has been reached yet. Commodity price projections for 2019-2021 are from the IMF January 2019 World Economic Outlook. Source: Ministry of Economy and Finance (MEF), National Statistics Office, Central Bank of Mauritania (BCM), IMF, United Nations (UN) Population, World Bank Staff Calculation as of April 15, 2019.

Fiscal (% of GDP) 2015 2016 2017 E2018 P2019 P2020 P2021 P2022Total Revenues 29.3 27.7 27.6 28.0 27.2 27.5 27.4 28.7

Revenues excluding Extratcives and Grant 25.8 24.2 24.3 24.9 24.3 24.4 24.5 25.2Tax Revenues (excl. extractives) 16.7 16.5 17.4 18.4 18.5 18.5 18.6 19.1

Income and corportate tax 6.1 5.6 5.6 5.7 5.7 5.7 5.8 6.1Tax on goods and services 7.9 8.2 8.3 9.4 9.4 9.4 9.5 9.5Tax on trade 2.5 2.8 3.0 3.4 3.4 3.4 3.4 3.5Other taxes 0.3 0.0 0.5 0.0 0.0 0.0 0.0 0.0

Non-tax revenues 9.1 7.7 7.0 6.5 5.8 5.9 5.9 6.1Revenues from fishing 2.8 3.5 3.7 3.7 3.1 3.2 3.2 3.3Dividends from SOEs 0.9 0.6 0.6 0.6 0.6 0.6 0.6 0.7Special Accounts 3.0 2.6 1.8 0.6 0.7 0.7 0.7 0.7Others 2.4 1.0 0.9 1.5 1.4 1.4 1.4 1.4

Extractive Revenues 1.7 1.6 2.3 2.5 2.2 2.4 2.4 3.0Mining Revenues 0.8 0.9 1.3 0.8 1.3 1.4 1.4 1.5Petroleum and Gas Revenues 0.8 0.7 1.0 1.7 0.9 1.0 1.0 1.5

Grants 1.8 1.9 1.0 0.6 0.7 0.8 0.6 0.5

Total Expenditure 32.7 28.2 27.9 26.6 27.1 27.2 27.3 28.4Recurrent Expenditures 18.5 16.6 17.2 17.6 16.6 16.5 16.5 16.8

Wage Bill 7.6 7.4 7.3 7.3 7.5 7.7 7.8 8.0Goods and Services 4.0 3.5 3.5 3.4 3.4 3.4 3.5 3.6Transfers and Subsidies 4.3 3.3 3.1 3.1 2.9 2.8 2.7 2.7Interest Payments 1.1 1.0 1.4 1.6 1.6 1.3 1.2 1.1

external 0.8 0.8 1.2 1.4 1.1 1.0 1.0 0.9domestic 0.3 0.2 0.3 0.2 0.4 0.3 0.2 0.2

Others 1.5 1.3 1.8 2.2 1.3 1.3 1.3 1.4 incl. special accounts 0.2 0.6 0.9 1.3 0.5 0.6 0.6 0.7Capital Expenditure 14.0 11.6 10.6 8.8 10.5 10.7 10.8 11.6

through external resources 5.0 2.7 2.1 1.5 2.4 2.3 2.2 2.1through domestic resources 9.0 9.0 8.5 7.3 8.1 8.4 8.6 9.5

Restructuring & net lending 0.2 0.0 0.1 0.1 0.0 0.0 0.0 0.0

Primary balance (excl. extractives and grant -5.8 -2.9 -2.1 -0.1 -1.2 -1.5 -1.6 -2.1Primary balance (excl. extractives) -4.0 -1.1 -1.1 0.6 -0.5 -0.7 -1.1 -1.6Primary balance (excluding grants) -4.1 -1.3 0.2 2.4 1.0 0.9 0.8 0.9Primary balance -2.3 0.5 1.2 3.1 1.7 1.7 1.3 1.4Fiscal balance (excluding extractives and gr -6.9 -4.0 -3.5 -1.7 -2.7 -2.8 -2.8 -3.2Fiscal balance (excluding extractives) -5.1 -2.1 -2.6 -1.0 -2.0 -2.0 -2.3 -2.7Fiscal balance (excluding grants) -5.2 -2.4 -1.2 0.8 -0.6 -0.4 -0.4 -0.2Fiscal balance -3.4 -0.5 -0.2 1.5 0.1 0.4 0.1 0.3

https://www.imf.org/external/pubs/ft/weo/2019/01/weodata/index.aspx


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Table 3: Key Fiscal Indicators (2015 – 2022)

Source: MEF, World Bank Staff Calculation as of April 15, 2019. Mauritania does not have fiscal data on accrual basis.

13. Despite continued fiscal improvement, public debt levels increased due to the agreement of arrears payment to the central bank. After dropping to 75.7 percent of GDP in 2017, public debt (excl. the Kuwait debt) rose to 81.9 percent of GDP in 2018 despite the continued fiscal surpluses.8 The increase

8 Public sector debt includes central government, the central bank’s debt to Saudi, debt guaranteed by the government to state owned enterprises (SOE).

Fiscal (% of GDP) 2015 2016 2017 E2018 P2019 P2020 P2021 P2022Total Revenues 29.3 27.7 27.6 28.0 27.2 27.5 27.4 28.7

Revenues excluding Extratcives and Grant 25.8 24.2 24.3 24.9 24.3 24.4 24.5 25.2Tax Revenues (excl. extractives) 16.7 16.5 17.4 18.4 18.5 18.5 18.6 19.1

Income and corportate tax 6.1 5.6 5.6 5.7 5.7 5.7 5.8 6.1Tax on goods and services 7.9 8.2 8.3 9.4 9.4 9.4 9.5 9.5Tax on trade 2.5 2.8 3.0 3.4 3.4 3.4 3.4 3.5Other taxes 0.3 0.0 0.5 0.0 0.0 0.0 0.0 0.0

Non-tax revenues 9.1 7.7 7.0 6.5 5.8 5.9 5.9 6.1Revenues from fishing 2.8 3.5 3.7 3.7 3.1 3.2 3.2 3.3Dividends from SOEs 0.9 0.6 0.6 0.6 0.6 0.6 0.6 0.7Special Accounts 3.0 2.6 1.8 0.6 0.7 0.7 0.7 0.7Others 2.4 1.0 0.9 1.5 1.4 1.4 1.4 1.4

Extractive Revenues 1.7 1.6 2.3 2.5 2.2 2.4 2.4 3.0Mining Revenues 0.8 0.9 1.3 0.8 1.3 1.4 1.4 1.5Petroleum and Gas Revenues 0.8 0.7 1.0 1.7 0.9 1.0 1.0 1.5

Grants 1.8 1.9 1.0 0.6 0.7 0.8 0.6 0.5

Total Expenditure 32.7 28.2 27.9 26.6 27.1 27.2 27.3 28.4Recurrent Expenditures 18.5 16.6 17.2 17.6 16.6 16.5 16.5 16.8

Wage Bill 7.6 7.4 7.3 7.3 7.5 7.7 7.8 8.0Goods and Services 4.0 3.5 3.5 3.4 3.4 3.4 3.5 3.6Transfers and Subsidies 4.3 3.3 3.1 3.1 2.9 2.8 2.7 2.7Interest Payments 1.1 1.0 1.4 1.6 1.6 1.3 1.2 1.1

external 0.8 0.8 1.2 1.4 1.1 1.0 1.0 0.9domestic 0.3 0.2 0.3 0.2 0.4 0.3 0.2 0.2

Others 1.5 1.3 1.8 2.2 1.3 1.3 1.3 1.4 incl. special accounts 0.2 0.6 0.9 1.3 0.5 0.6 0.6 0.7Capital Expenditure 14.0 11.6 10.6 8.8 10.5 10.7 10.8 11.6

through external resources 5.0 2.7 2.1 1.5 2.4 2.3 2.2 2.1through domestic resources 9.0 9.0 8.5 7.3 8.1 8.4 8.6 9.5

Restructuring & net lending 0.2 0.0 0.1 0.1 0.0 0.0 0.0 0.0

Primary balance (excl. extractives and grant -5.8 -2.9 -2.1 -0.1 -1.2 -1.5 -1.6 -2.1Primary balance (excl. extractives) -4.0 -1.1 -1.1 0.6 -0.5 -0.7 -1.1 -1.6Primary balance (excluding grants) -4.1 -1.3 0.2 2.4 1.0 0.9 0.8 0.9Primary balance -2.3 0.5 1.2 3.1 1.7 1.7 1.3 1.4Fiscal balance (excluding extractives and gr -6.9 -4.0 -3.5 -1.7 -2.7 -2.8 -2.8 -3.2Fiscal balance (excluding extractives) -5.1 -2.1 -2.6 -1.0 -2.0 -2.0 -2.3 -2.7Fiscal balance (excluding grants) -5.2 -2.4 -1.2 0.8 -0.6 -0.4 -0.4 -0.2Fiscal balance -3.4 -0.5 -0.2 1.5 0.1 0.4 0.1 0.3


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was driven by an 8.2 percent of GDP domestic debt issued to the central bank to repay arrears9. Since most of the debt is on concessional terms, debt-service obligations remain manageable, at about 5.7 percent of revenues in 2018. However, as 87 percent of debt is denominated in foreign currencies, the vulnerability of the public debt stock to exchange rate risks is still very high. 14. The BCM is addressing structural weaknesses of the monetary policy under the IMF program. The absence of monetary policy tools has reduced the effectiveness of the central bank to manage domestic liquidity, respond to terms-of-trade shocks, and act as a lender of last resort. To remedy this, the BCM introduced in 2017 a new lending and deposit facilities and operationalized it in March 2018 by defining the eligible collateral required by banks to participate. The BCM also reduced in November 2018, for the first time in a decade, its policy interest rate from 9 to 6.5 percent. The lower rate reflects better the market dynamics especially that of Treasury Bills (TBs). Such decision renders the policy rate more effective in influencing commercial interest rates and encourages commercial banks to conduct refinancing operations with the central bank. These policy reforms are expected to re-launch the inter-bank market in Mauritania and boost liquidity. Moreover, the BCM issued a new directive in March 2018 on the composition of capital and solvency requirements based on Basel II and III requirements with the aim of strengthening banks’ resilience. This directive also raised the minimum capital to MRU1 billion, which should encourage bank mergers. An emergency refinancing mechanism was also established to provide liquidity to banks experiencing temporary pressures. 15. The banking sector still suffers from several vulnerabilities, despite strong private sector growth. The recovery in aggregate demand, new donors credit lines, and the opening of two new banks led to an increase in private sector credit by 18.8 percent in August 2018 (latest available data), up from 5.6 percent in August 2017. Such rebound was also depicted by growth in money supply (M2), which reached about 8.6 percent in August 2018. Nonetheless, vulnerabilities in the banking sector persist. Despite improvements in supervision and ongoing efforts to write-off old debt, non-performing loans (NPLs) increased from 22.4 percent in 2017 to 22.9 percent by June-2018, well above the SSA average of 10.1 percent (in 2017). This was also accompanied by 4.2 and 5.1 percentage point drops in the provisioning rate and the liquid-to-total assets ratio, respectively. These indicators reflect structural vulnerabilities in the sector linked to weaknesses in the supervisory framework, a narrow deposits base, and low rates of banking and credit concentration.

16. To tackle these constraints, the authorities have strengthened the regulatory framework of the banking sector and adapt it to international standards. With IMF support, Mauritania has adopted a new banking law in July 2018. The law boosts the central bank independence and strengthens the crisis management mechanism by establishing a new framework for bank resolution and depositor protection. The law also expands BCM’s scope of supervision to include insurance companies and the “Caisse des Dépôts et de Développement” (CDD).10 To reduce transactions costs and promote financial inclusion, the BCM is also developing automated payment tools and mobile banking instruments. The BCM also issued a new directive in November 2018 aimed at combatting money laundering and terrorism financing. As a consequence, 700 illegal money transfer service providers were closed by March 2019. 9 The arrears were accrued by previous governments and was not formally recognized till 2018. The Government issued debt instead with a repayment period of 40 years and a 10 years grace period. 10 The CDD is a public financial institution that primarily work on microfinance loans. Its importance resides in the fact that it holds large deposits from State-Owned-Enterprises and as such makes it effectively one of the largest banks in the country. The CDD is currently not regulated by the central bank and does not follow its prudential regulations.


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2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY

17. The medium-term outlook is favorable as growth is projected to average 7.0 percent over the period 2019-2022. The pick-up in growth is likely to be driven by three factors. First,

past reforms that have opened the sector for more competition;

the Grande-Tortue/Ahmeyim (GTA) gas project is expected to significantly raise growth. The development of phase 1 of this project would increase FDI-related construction in 2020-2021 due to some local contracting of onshore project-related investments (such as a breakwater). More importantly, this will be followed by the onset of gas production and exports in 2022. Third, iron production would surge in 2019 (20 percent) as 2 million tons of iron would be additionally produced per year due to the completion of the Guelb-II Project. 18. On the expenditure side, private demand and extractive exports are expected to be the main drivers of growth. Private consumption growth is projected to accelerate as revenues from the primary and services sectors increase. These sectors constitute the main source of income for most Mauritanian households. In addition, private investment is expected to pick-up thanks to port, telecom and extractive-FDI linked to the development of phase 1 of the gas project (Box 1). FDI is expected to average 14.7 percent of GDP in 2019-21 compared to 11.3 percent in 2016-18. This will be supported by higher liquidity and improved competitiveness in the agriculture sector. Extractive exports would also support growth thanks to increased iron exports in 2019 and the onset of gas exports in 2022. These exports would be partly offset by higher infrastructure-related imports linked to the gas project in 2020-2021. Finally, public investment would contribute positively to growth as it recovers after three years of constant decline and the Government uses some of the gas revenues to implement its plan of ameliorating infrastructure.

Box 1: The Grande-Tortue/Ahmeyim (GTA) Project and Prospective Opportunities The GTA is an ultra-deep offshore gas field straddling the maritime borders between Mauritania and Senegal. It is estimated to hold 15 trillion cubic feet (tcf) of gas to be produced in 25 years. A Final Investment Decision (FID) for phase 1 (out of 3) was finalized on December 21, 2018, three years after the resource was discovered. Phase 1, with frontloaded capital spending and lowest gas capacity, would kick-start production in 2022, with an annual capacity of 2.3 million tons (mtpa); while other phases are programmed to follow in 2023 and 2024. Over 2019-2022, this project will benefit the Mauritanian economy through increased FDI and the onset of gas production. While significant progress has been made, technical and financial uncertainties still surround the project. The direct effects, especially those linked to fiscal gains and growth, are not expected to materialize before 2022 when gas extraction and production begins. Before that, this project will indirectly contribute to growth through higher construction-related investments that are necessary from a logistical perspective. There is some reassurance for the medium to long term because of expected fiscal and export inflows starting in 2022. Preliminary estimates indicate that gross aggregate revenues from the full development of the GTA could amount to US$80 billion over a period of 30 years, of which US$14.4 billion of net revenues will go to Mauritania (equivalent to 260 percent of 2018 GDP). These potential dividends, however, are highly sensitive to fluctuations in the price of oil and LNG and could vary between US$4.2 and US$25.5 billion under the price scenarios of US$30/bbl and US$90/bbl respectively. Moreover, these results are sensitive to the completion of the full project.

Source: World Bank. (2019). Macroeconomic Management of Gas Revenues in Mauritania. Washington D.C. forthcoming.


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19. External deficits will narrow owing to increased extractive exports and improved ToT. The current account deficit is projected to significantly decline to 7.7 percent of GDP in 2022 as gas exports come online during that year. Increased mining production, higher iron-export prices, and lower oil-import prices would also contribute to the reduction in the current account deficit. All these developments will more than outweigh the rise in investment-imports linked to extractives and public private partnership (PPP) projects such as the container terminal and the expansion of petroleum storage facilities in Nouakchott11. External financing needs would decrease and would be met by extractive-related FDI as well as long-term disbursements reflecting the foreign-financed public investment pipeline. As a result, international reserves would reach about 5.4 months of imports by 2022 (Table 2).

Table 4: Balance-of-Payments (BoP) Financing Requirements and Sources (2015 – 2022)

(*) includes SNIM disbursement, commercial banks and exceptional financing. Source: BCM, IMF Second ECF Review, World Bank Staff. 20. The Government is expected to maintain its prudent fiscal policy and benefit from gas-related revenues. The primary balance (excl. grants) is expected to remain in surplus and average 0.9 percent of GDP in 2019-2022 (Table 3). The outlook is supported by continued reforms on tax policy and administration, and prudence in terms of transfers to public entities. On the revenues side, the 2017 decision to reform tax expenditures and transfer pricing, coupled with the introduction of a new corporate income tax law planned end-2019 and taxes collected from gas operators, are expected to boost tax revenues by 0.7 percent of GDP12. In parallel, the 0.7 percent of GDP projected rise in mining revenues, due to improved iron production and higher prices, would be accompanied by a 0.5 percent of GDP increase in hydrocarbon revenues stemming from gas resources in 2022. These revenue increases will be partially offset by lower fishery revenues due to the termination of the Fisheries Partnership Agreement

11 The Government has initiated the launch of a US$390 million PPP project in the second half of 2018. The project includes a container terminal and the expansion of the petroleum storage facility in Nouakchott. It is financed by Singaporean investors. 12 Reforms on tax expenditures and transfer pricing have been introduced as part of the World Bank Fiscal Consolidation and Private Sector Support DPF in 2017. They are expected to bring about 0.2 percent of GDP in additional revenues by 2020. The corporate income tax reforms are being introduced as part of the IMF program.

in Million US$ 2015 2016 2017 E2018 P2019 P2020 P2021 P2022Financing Requirements 809 822 704 1,272 1,218 1,542 1,506 790

Current Account Deficit 956 707 709 966 890 1,207 1,062 529Long Term Debt Amortization 163 180 215 239 260 266 376 193Amortization of Saudi Arabia BoP-suppor 3 3 7 67 68 68 68 68Other Short Term Capital Outflows 0 0 0 0 0 0 0 0Errors and Omissions -313 -68 -228 0 0 0 0 0

Financing Sources 809 822 704 1,272 1,218 1,542 1,506 790FDI and portfolio investments (net) 502 271 588 869 659 1,034 959 0Capital Grants 31 8 11 15 70 0 0 0Short term debt disbursements 0 0 0 0 0 0 0 0Long term debt disbursements (excl. IMF) 570 322 242 253 297 385 371 322Other sources (*) -344 261 -52 215 246 215 311 -820Deposit from Saudi Arabia at the Central B 300 0 0 0 0 0 0 0Change in reserves (- means accumulation -201 -3 -25 -70 -92 -189 -118 1,317SNIM medium- and long-term loans -66 -61 -63 -63 -10 48 -16 -29Drawdwn of oil account 16 24 -22 6 0 0 0 0IMF credit (net) 0 0 23 47 47 48 0 0


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(FPA) with the European Union (EU), which used to generate about 1.1 percent of GDP as budgetary inflows between 2013 and 201813. Higher revenues coupled with prudent recurrent spending will create the needed fiscal space to increase capital expenditures by 2.8 percent of GDP over the outlook period. This will enable the Government to execute projects that have been postponed in recent years. Moreover, the efficiency of public investments is also anticipated to improve as the authorities reap the benefits of past public investment management reforms.14 21. Public debt is sustainable, but the risk of external and overall debt distress is high. The latest World Bank-IMF Debt Sustainable Analysis (DSA) carried out in May 2019 reveals that Mauritania remains at high risk of debt distress, with multiple breaches of threshold under the baseline (Figure 1). Capitalization of central bank advances to the Government have increased domestic debt (see paragraph 12). Most public debt is held in foreign currency (87 percent in 2018), which is defined as external debt. The short-term external debt dynamics deteriorate due to increased borrowing for the GTA project but improve in the medium term on account of better macroeconomic prospects. As a result, the present value (PV) of public and publicly guaranteed (PPG) external debt is now projected to remain above the 40 percent threshold until 2025 but will continue downward thereafter. With a breach of the debt service-to-revenue ratio until 2023, reflecting the onset of repayments in 2021 on the Saudi deposit at the BCM, there is a need to maintain a prudent borrowing strategy that favors concessional financing. This will be reinforced by the zero non-concessional borrowing limit which the Government has committed to under the IMF program.15 Moreover, the Government has no access to international capital markets and meets its financing needs primarily through grants and concessional loans from bilateral and multilateral development partners.16

22. The reform momentum for strengthening the monetary and exchange rate policies is expected to continue over the outlook period. As part of the IMF ECF program, the authorities plan to deepen the foreign exchange market and adapt it to international standards. To do so, BCM will introduce a multiple-pricing system to foreign currencies auctions to make it more market driven. This measure would make the exchange rate more flexible and help support external sustainability as it would limit BCM’s intervention in the foreign exchange market. In addition, BCM aims to establish a regulatory framework and a technical platform to create an interbank foreign exchange market in 2019. 13 The FPA allowed the EU fleet to fish in Mauritanian waters for shrimp, demersal fish, tuna and small pelagic fish, up to a total of 287,050 tons a year. It is a 5 years program that ended in October 2018. 14 These reforms include an improved prioritization and monitoring exercise, upgrade in public investment management (PIM) IT systems, and the advancement of procurement reforms. They have been introduced too as part of the World Bank Fiscal Consolidation and Private Sector Support DPF in 2016 and 2017. 15 As the GTA project is expected to yield large revenues in the future (IMF second ECF Review, 2018), the IMF Board agreed to an exception to the debt limit policy, which addresses the non-concessionality of the GTA-related debt. The debt itself, however, is accounted in full in the PPG debt. 16 62.7 percent of external public debt stock, excluding the Kuwaiti debt, is owed to multilateral development donors.


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Figure 1: Indicators of Publicly Guaranteed External Debt (left chart) and Public debt (right chart) under Alternative Scenarios, 2019–2039 (Percent of GDP, %)

Source: World Bank-IMF DSA, May 2019. 23. The macroeconomic outlook is subject to domestic downside risks related to the presidential elections and delays in implementing reforms. The presidential elections held in June 2019 were calm and not associated with significant social unrest. Yet, they could undermine fiscal discipline and put upward pressure on public debt if the new government does not adopt a similar prudent policy. In addition, delays or failures of reform implementation could adversely affect growth prospects in the non-extractive sector. 24. Fiscal risks could also arise from contingent liabilities associated with Mauritania’s state-owned iron-ore company SNIM, which has suffered financial losses in recent years. These problems started in 2015 with the large drop in iron prices and were exacerbated by operational problems due to the delay in the finalization of the Guelb-II Project, and higher production costs driven by the increase in oil prices in 2017-2018. As a result, SNIM’s dividends to the treasury dwindled from more than 2 percent of GDP in 2010-2014 to 0 starting 2015. If SNIM’s financial problems continue, the Government could be faced with pressures to provide debt guarantees or even extend direct transfers to cover losses. This would have repercussions on public debt. 25. External risks could also weigh down on the outlook. Higher-than-expected oil prices would lead to increased fuel subsidies if domestic prices are not increased commensurately. Staff estimates that every US$1 increase in international oil prices above US$69 per barrel could cost the Government an estimated US$1.1 million annually in the form of fuel subsidies if prices are not transmitted to consumers. At the same time, lower mining-export prices worsen the trade and fiscal balances. Given the large financing needs, a lower-than-expected FDI is another downside risk that could erode the reserves buffer, potentially forcing the central bank to react on the exchange rate or return to bilateral external borrowing to close the financing gap.17 Regional security risks in the Sahel is another concern and military expenditures could rise faster than expected. 26. The macroeconomic framework for the proposed operation is adequate. The medium-term outlook for Mauritania is positive with economic growth projected to average 7.0 percent in 2019-2022. 17 The BCM resorted to such borrowing in 2015 with a US$300 million non-concessional loan from Saudi Arabia.

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This is underpinned by strong activity in the primary sector, increasing mining production, and the development of the new offshore GTA gas project. Inflation will remain contained below 4 percent over this period. The Government will maintain fiscal prudence going forward following a successful consolidation effort in recent years. This, coupled with the zero non-concessional borrowing limit under the three-year IMF ECF program, would help maintain public debt on a sustainable path. The IMF program also includes reforms that would help make monetary policy more effective and the exchange rate more flexible. The external current account deficit is financed with substantial extractive FDI inflows supporting a gradual buildup of international reserves.

2.3. IMF RELATIONS

27. Mauritania is currently under a three-year program (2017-2020) with the IMF for an ECF that started in December 2017. The SDR 115.9 million (around US$164 million equivalent) program provides financing to support reforms in the foreign-exchange market and external adjustments, strengthen banking supervision and regulatory framework, and maintain fiscal consolidation. The IMF Board successfully concluded the third review on May 20, 2019. All performance criteria and seven of the nine structural benchmarks for December 2018–April 2019 were met; the remaining two were completed with a one-month delay. The IMF Board decision led to the disbursement of SDR 16.56 million (around US$23.5 million equivalent), thus bringing total disbursements under the arrangement to SDR 66.24 million (about US$91.3 million). The World Bank team is coordinating closely with IMF counterparts and regularly exchanging views on the adequacy of the macroeconomic policy framework and the status of the structural reform agenda. The teams are also coordinating on reforms for public investment management, social safety nets, and the macroeconomic management of the new gas resources.

3. GOVERNMENT PROGRAM 28. The Mauritania Growth and Shared Prosperity Strategy (SCAPP18 2016-2030), adopted by the Council of Ministers on October 19, 2017, forms the basis of economic and social policies. It was developed through consultations and dialogue between the administration, elected officials, academia, civil society ― including for the first time, members of the diaspora ― private sector, and development partners. The SCAPP’s stated objective is to achieve strong, inclusive and sustainable economic growth to meet the essential needs of all citizens and improve their livelihood within a framework of good governance and in alignment with the 2030 Sustainable Development Goals. This vision is built around three pillars: (a) promoting strong, inclusive and sustainable growth; (b) developing human capital and access to basic social services; and (c) strengthening governance in all its dimensions. The SCAPP will be implemented through three five-year action plans, the first covering the period 2016-2020, with bi-annual sectoral evaluations and annual reviews. A dedicated directorate at the MEF has been established to track and report on the progress of the SCAPP and adjust the strategy if needed. A key SCAPP reforms area, which this DPF series is anchored too, is boosting private sector-led growth through improving the business environment, fostering competition and building skills. This includes: 29. Private-Sector Development. Diversifying the economy to rely less on the extractive industries, 18 National Strategy for Accelerated Growth and Shared Prosperity (Stratégie de Croissance Accélérée et de Prospérité Partagée).


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enhancing private sector participation in the economy, and improving investment climate will require a robust and vibrant private sector. To enhance the business environment, the authorities are taking steps to improve the business regulatory environment and providing the building blocks for a more modern and transparent economy that leverages private investment for growth and job-creation. During the last few years, the Government has implemented important reforms to promote public-private dialogue, develop a formal PPP framework, expand credit to the private sector, re-examine the dominant position of public enterprises, facilitate business creation and trade across borders, strengthen its legal and regulatory framework for property rights, encourage economic liberalization especially in sectors like ICT, and strengthen tax policy and administration. 30. Human capital and skills. Mauritania is ranked 150th out of 157 countries on the Human Capital Index with a score of 0.35. Despite significant gains in access in recent years, education trends remain particularly worrisome: the average Mauritania child can only expect to achieve 6.3 years of schooling (versus 8.1 in SSA and 11 in MENA)19 and to score 342 points on harmonized test scores (versus 374 in SSA and 408 in MENA). The Government is now focusing on deepening the reform agenda to further improve access gains while also enhancing the overall quality of human capital. Delivering quality education is key to boosting labor productivity and the growth potential in Mauritania. As such, the SCAPP dedicates two operational pillars focusing on promoting quality alongside good governance of education over the entire learning cycle (basic, secondary, and tertiary), and on improving the quality and financing for vocational training to better match skills with the labor market demand. In addition to growth, these reforms are expected to improve living conditions, reduce inequality and provide economic opportunities for the most vulnerable groups.

4. PROPOSED OPERATION

4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION

31. The years of the extractives boom (2009-2015) and bust (2015-2017) have revealed the limitations of Mauritania’s development model. This includes: i) the dependency on extractives revenues and FDI to finance public investments and domestic consumption and ii) the substantial role of the public sector in economic activity. To tackle these issues, Mauritania is attempting to recalibrate its development model through a diversification program focusing on improving the enabling environment for the private sector to operate, create jobs and drive growth in the medium and long run. To achieve this, the country will need to overcome interlinked structural constraints. The private sector is dominated by SMEs and informality; the business environment does not enable competition and lacks access to credit. These constraints are also undermined by the dominant presence of the public sector in commercial activities and the small pool of available skills to draw upon from the labor force given the overall low levels of human capital in the country. The proposed operation has been designed to help tackle these challenges. 32. The DPF series is fully aligned with the SCAPP’s objective of boosting private sector-led growth through improving the business environment, fostering competition and building skills. The operation is designed to support reforms in the areas of private sector development (Pillar 1 of the SCAPP) and building human capital and skills (Pillar 2). Moreover, strengthening governance and institutions (Pillar 3) is a cross— 19 MENA refers to the Middle East and North Africa.


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cutting theme in the DPF and is therefore considered in the design of all suggested reforms. As such, the proposed operation can be viewed as part and parcel of the overall national development plan and responds to the government policy priorities. 33. More specifically, the DPF supports a program of three pillars to improve the regulatory environment and skills for boosting competition and inclusiveness of the Mauritanian private sector:

Pillar 1 supports reforms in SMEs’ business environment. This pillar focuses on strengthening access of

economic agents to an efficient and transparent commercial justice system and to reliable information on companies and collateralized assets. These reforms will strengthen the Government’s objectives to modernize the economy, level the playing field among economic agents, reduce time and costs to enforce contracts for SMEs, improve commercial dispute resolution between economic actors, strengthen insolvency regimes, and improve access to credit. Ultimately, this will increase the attractiveness of the country for both national and international investors.

Pillar 2 supports reforms of the broadband digital infrastructure. This pillar focuses on removing

barriers to investment and competition in the internet broadband market and facilitating equitable access to information, communication and technology (ICT) services. It does so through regulatory reforms that i) open the internet retail and wholesale market up for competition and new entrants; ii) promote access to dominant operators’ essential infrastructure and reduces the costs for deploying digital infrastructure; iii) and boosts sustainable financing and more projects in underserved areas, especially rural ones. Boosting competition enables the provision of low-cost, high quality access to the population for these services. Such reforms are key to unleash the growth potentials stemming from ICT. It constitutes an opportunity to boost the overall productivity of the economy, enhance new business opportunities for private sector development, and utilize technology in service delivery.

Pillar 3 supports reforms in basic education and vocational training. This pillar focuses on improving

the quality and relevance of skills provided by both general education and training systems. On one hand, the pillar tackles reforms to improve teachers’ training and competence, recruitment systems, and effective deployment. On the other hand, it supports measures to overhaul the Technical and Vocational Education Training (TVET) governance systems especially for financing, training and curriculum. It also crowds-in the private sector in the education sector decision making to boost the relevance of the training offered and align it with labor market demands. These reforms are essential to improve the quality and relevance of skills provided by the national education system and as a result boost the competitiveness of the private sector and long-term productivity.

34. The design of the DPF series reflects the government’s administrative capacity constraints and complex policy challenges. The proposed prior actions are selective to avoid overwhelming the government’s limited administrative resources. The prior actions are thoroughly grounded in recent analytical work (Annex 5), and the operation employs a three-year programmatic structure to ensure that the supported reforms are fully implemented. Each pillar of the program is anchored in strong existing sectoral dialogue with the authorities through multiple complementary World Bank projects. 35. The operation builds on important lessons learned from the implementation of the previous DPF series “Fiscal Consolidation and Private Sector Reforms” in 2016 (P160592) and 2017 (P163057). The


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previous DPF series revealed gaps in terms of government capacity to implement reforms, coordination between public sector stakeholders, and ensuring early buy-in for reforms from the private sector. To remedy this, the current series incorporates these lessons learned. First, World Bank projects support policy implementation. Second, to avoid coordination gaps, the operation builds on a comprehensive framework for inter-departmental coordination. A central DPF implementation committee has been created to this effect20. The committee is chaired by the MEF but draws on focal points in all relevant line ministries to ensure appropriate monitoring. It also includes focal points in the central bank to ensure a close monitoring of the macro framework. Third, the operation widens the scope of the consultation by engaging multiple private sectors stakeholders early in the reforms process to facilitate implementation. This includes organized professional federations, representatives from small and medium enterprises, and large companies like telecom operators. As such the operation offers a public-private dialogue platform over the economic issues covered by the three pillars as early as the design phase.

4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS Pillar 1 –SMEs Business Environment Reforms

36. Enabling a competitive ecosystem for SMEs is key for Mauritania’s growth and job creation agenda. Although the country ranking improved by 28 positions in the last four years (2015-2019) in the Doing Business (DB) Report, the business environment remains challenging and below its potential considering the country’s income level (Figure 2). Mauritania currently ranks 148 out of 190 economies, according to the 2019 DB report. SMEs are at the heart of economic activity. They constitute the largest share of the private sector with an estimate representation over 80 percent of formal enterprises and are a key source of job creation. However, their business environment suffers from important bottlenecks that prevent competition, productivity, and growth. These include strong state presence in the economy, unfair competitive conditions, limited access to finance, a local workforce with limited skills, the prevalence of corruption, limited business services and inefficient bureaucracy are major constraints for private sector development in Mauritania. Private sector, especially SMEs, face these important challenges which limit their ability to enter grow or enter new markets.

20 The committee is presided by the Directorate of Studies, Reforms, and Monitoring and Evaluation (Direction Générale des Etudes, des Réformes, du Suivi et d'Evaluation, DGERSE).


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Figure 2: Mauritania Position in Doing Business Relative to its Income

Source: Doing Business and World Bank Staff Calculation. 37. Commercial justice services prevent businesses in Mauritania to develop as they are costly, inefficient, unreliable, and not accessible to all. Large parts of the commercial justice system are found to be insufficiently effective, creating as such important legal and judicial uncertainties for businesses especially SMEs. These include low-quality decisions, lengthy processing times notably during appeals, lack of homogeneity in the follow-up of procedures, lack of traceability, weak transparency and security of judicial procedures. According to the latest World Bank Enterprise Survey in 2014, more than 40 percent of Mauritanian companies surveyed consider that the judicial system is a major constraint to the development of their activity. This is double the percentage found for sub-Saharan Africa. Moreover, the Global Competitiveness Index (GCI) 2017-2018 shows critical deficiencies to private sector development regarding the judicial system such as lack of efficiency of the legal framework in settling disputes (ranked 130/137 in GCI), lack of efficiency of the legal framework in challenging regulations (ranked 134/137) and to some extent lack of judicial independence (ranked 116/137). In addition, recent analytical work (Annex 5) and consultations with SMEs have confirmed that access to an effective and reliable judicial system and access to finance are among the key constraints to private sector development in Mauritania. SMEs are particularly affected by these deficiencies as they often do not have the financial capacity or strength to weather lengthy or unreliable procedures. Furthermore, commercial justice services are currently not complemented by Alternative Dispute Resolution (ADR) mechanisms, whose practice is currently inexistent. 38. Another major constraint for private sector development is a fragmented and ineffective business and collateral registry. The commercial and collateral registry is a tool that allows collection and dissemination of information on businesses’ ownership, operations, finances, and collateralized assets. Currently, the registry partially fulfills its duty to register companies, but it is hardly used to register secured transactions. In 2017 and 2018 respectively, only four and seven transactions were registered to start their businesses, and only three filed financial statements. Moreover, this registry is not centralized and remains manual. As such, it does not constitute a source of reliable and transparent information on companies and collateralized assets, thus significantly hampering confidence of businesses and access to finance. While the Mauritanian business registries play their role correctly regarding the creation of


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companies, all subsequent transactions (search for information, filing of financial statements, registration of securities, changes of statutes, etc.) are only very rarely and hardly done. This is due to a lack of computerization and absence of controls and sanctions. Indeed, the availability of a reliable commercial registry is the backbone for the creation of a collaterals market that can be used by businesses and commercial banks to expand credit to firms as well as an essential tool to fight tax evasion, money laundering and overall enhance market transparency. 39. Supported by the DPF series, the Government has embarked on a medium-term reform program to tackle these constraints. Previous DPF series (2016 and 2017) have targeted critical business environment constraints such as access to public procurement contracts and State role intervention in the economy through the enacting of relevant laws and regulations. An effective and modern commercial justice system will be the focus of this DPF by supporting streamlined commercial procedures, strengthened skills and independence of magistrates, and digitization of the commercial justice chain. Planned reforms will enhance the quality, transparency and governance of the judicial system and will favor the practice of insolvency proceedings, which is currently quasi inexistent. The development of ADR mechanisms will also offer a cheaper and faster alternative to Courts, thus alleviating their caseload. Efficient and reliable creditor/debtor regimes and insolvency systems are critical for the reallocation of productive resources in the corporate sector, for investor confidence, for forward-looking corporate restructuring, and for access to finance. Furthermore, a reliable, fast and transparent commercial justice and business registry is a prerequisite for private sector investment and growth. All these reforms, as well as all future Investment Climate reforms, will be anchored, prepared, and evaluated by a technical Inter-Ministerial Public-Private Investment Climate Committee. This committee will have active representation from businesses and replaces the current informal committee that does not involve the private sector in decision making. This will institutionalize public-private policy dialogue. 40. Direct beneficiaries of this pillar will be Mauritanian SMEs, even though larger operators, local and international, will also benefit from it. The main implementing actors of the reforms proposed under this pillar will be the Ministry of Justice and the commercial courts. The program will also involve the General Directorate of Private Sector Promotion (DGPSP) of the MEF, the General Directorate of Information and Communication Technologies (DGTIC), as well as the Directorate of Industrial Development at the Ministry of Commerce, Industry and Tourism. Additional implementing actors will include the International Mediation and Arbitration Center of Mauritania (CIMAM), the bar association, as well as other private sector organizations, such as business associations. 41. The World Bank Group (WBG) will be accompanying these reforms through ongoing TA and lending projects. Planned reforms will be further supported by International Finance Corporation (IFC) Investment Climate and Entrepreneurship Advisory program (#601022) and Nouadhibou Eco-Seafood Cluster project (P151058). The IFC TA program will play a major role in mobilizing the private sector and supporting authorities in the consultation process to deepen the public-private dialogue in reform preparation. This IFC project will offer additional TA and capacity building required for the formulation and implementation of all planned reforms under Pillar 1. The World Bank Nouadhibou Eco-Sea Food Cluster (NESC) project will be supporting the modernization of the business and collateral registry by financing core investments related to the upgrade of the commercial justice facilities and computerization of the business and collateral registry. NESC will also provide the required skills training and TA required for the successful functioning of the Inter-Ministerial Public-Private Investment Climate Committee.


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Finally, these projects also complement IMF-TA on revenue administration and access to finance notably linked with insolvency law and the banking sector, as well as several initiatives on justice supported by the EU and the French Development Agency. 42. In line with government priorities, the first year of the DPF program (DPF1) will focus on commercial justice reforms and support inclusive SME growth. DPF1 will target alternative dispute resolution mechanisms, public-private dialogue in the preparation of investment climate reforms, and greater market transparency of use of the business and collateral registries. Specifically, DPF1 will: (i) review the Arbitration Law to bring it into line with international standards in aspects such as the appointment and status of arbitrators and judicial remedies enabling parties to reach faster and simpler settlements of disputes and complementing the commercial justice system; (ii) set up a formal institutional framework to strengthen the mechanism dialogue, coordination, preparation, implementation, and evaluation of investment climate reforms including reforms of the insolvency law and modernization of the business and collateral registry; and (iii) making it a condition for companies requesting financial commitment from a commercial bank to show a receipt proving that it has filed its financial statements at the business registry. This reform will be a first step to increase the use of the business registry, enhance market transparency, and progressively gather information to boost formality in the credit market, reduce financial risks to the banks, and create opportunities for access to finance through the development of a collaterals markets. It is expected that this measure will provide the needed incentives for firms to start using the business registry, targeting 10 percent of SMEs in country. Prior Action # 1: The Recipient’s Council of Ministers has submitted to Parliament a draft revised Arbitration Law.

Prior Action #2: The Recipient has issued Ministerial Decree No. 2019-032 and Ministerial Order No. 0000138 establishing and regulating the High Council for Improving Business Environment (vested with executive power) and its technical body, the Business Reforms Monitoring Committee. Prior Action #3: The Recipient’s Central Bank has issued a circular No. 01/GR/2019 to increase transparency and reliability of information making it a condition for a company to request a commitment from a commercial bank to show a receipt proving that it filed its financial statements at the business registry. Subsequent operations 43. DPF2 and DPF3 are expected to deepen and operationalize the reforms. Following on institutional and operational reforms through DPF1, the second and third DPFs are expected to focus on putting in place new legislations and on operationalizing these decisions. Indicative triggers regarding quality, transparency and governance of the judicial system will support the passing of legislation for a new law with the creation of Commercial Appeal Courts, will reduce delays at all levels of the commercial chain. It will also support a revision of the Statute of the Judiciary to reinforce the independence, immutability, and discipline of judges, thus improving the quality of judicial decisions. Indicative triggers on transparent creditor/debtor regimes and insolvency include revising the existing insolvency law, and ensuring the coherence in regulations between insolvency, secured transactions, real property and credit information. The aim is to improve creditor and debtor regimes and include clear rules of ownership and


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priority governing the hierarchy of competing claims or rights in the same assets. Finally, indicative triggers will also focus on operationalizing the business and collateral registries. This will be done through a set of triggers linked to the restructuring the organization of Local and Central business and collateral registries while guaranteeing the availability of online registration of companies and secured transactions and access to information. Results 44. At the end of the DPF series, it is expected that the systems for ADR mechanisms, insolvency and business registry will all be institutionalized and operational. As such, it is expected that both the number of cases solved through ADR mechanisms and the number of insolvency cases settled by courts will rise from 0 currently to exceed 5. Similarly, the number of information requests processed at the business and collateral registry is expected to exceed 1,000 requests. Relevant data to monitor these indicators will be provided by the CIMAM, Doing Business reports, and the Ministries of Justice, Commerce, and Economy and Finance.

Pillar 2: Reforms of the Broadband Digital Infrastructure 45. The proposed program aims at supporting the development of inclusive and competitive broadband infrastructure services and accelerate digital economy development. The expansion of digital technologies offers a unique chance to accelerate economic development by opening new channels for rapid, innovative and Job-creating economic growth (World Bank 2016; DE4A, 2018). Mauritania has a lot to gain in the adoption of digital. As part of the "moonshot" approach for the digital economy in Africa (DE4A), the WBG is aiming at supporting African governments to double access of the population to Broadband services by 2021. According to the International Telecommunications Union, around 70 percent of the Mauritanian population did not have access to mobile internet in 2016. Supporting the development of an inclusive and competitive broadband infrastructure would contribute to bridge existing digital divides by connecting the unconnected in both urban and rural areas. Today, and despite recent progress, Mauritania does not have a competitive broadband market and its current digital infrastructure is insufficient to allow for the development of a job-creating digital economy. 46. The development of the broadband sector is mainly hampered by insufficient regulation that promote competition especially in terms of mutualization of infrastructure. Despite some competition between three telecom operators, the broadband market is highly concentrated with the incumbent operator, Mauritel. This dominance is mainly due to inefficient sector regulation that does not promote infrastructure sharing between the incumbent and the alternative operators.21 Mauritel owns most of the strategic infrastructure and access by competitors is not sufficiently regulated. Regulation doesn’t apply to all telecom infrastructure markets affected by dominancy, and obligations imposed on dominant players are not only limited but are also insufficiently enforced. Competitors are persistently facing technical and price-related issues that prevent their access. This affects competition negatively and as a result many geographical areas remain solely served by Mauritel. Another challenge is the absence of regulation on access of telecom operators to the fiber optic networks owned by public utilities. This includes the mining company (SNIM) and the electricity utility (Société Mauritanienne d’Électricité, SOMELEC). While there is excess capacity available on those strategic digital assets, open access to these 21 As in many countries, the regulatory authority is protecting the incumbent operator.


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networks constitute a challenge. The utilities are not regulated and offer only limited access to their infrastructure at very high prices. Regulating those networks would contribute to create an open access wholesale market for fiber optic infrastructure. This would significantly boost competition by offering alternative options to non-dominant players who are struggling to access Mauritel’s fiber network. 47. With a view to facilitate private investment in infrastructure, especially in semi-urban and rural areas, the operation intends to address another regulation challenge pertaining to the cost of public domain occupation and the “dig once” policy. In absence of a specific regulation, rules for authorizing telecom operators to use the public domain are not transparent and costs charged by central and local governments on telecom operators are excessive. In addition, and while Mauritania has a lot of ongoing/upcoming public infrastructure projects, there are no obligations imposed on constructors to (i) consult with telecom operators before starting civil work;, and (ii) and to deploy underground ducts for future telecom cables. Most of the cost of linear infrastructure projects is composed of civil works (i.e. digging). Mutualizing this cost is proved to significantly reduce the total cost of deploying new infrastructure. 48. The broadband sector is also constrained by lack of financing especially for projects in rural and underserved areas. Mauritania has devised a Universal Access Fund (UAF) in 2001 to expand access to digital, electricity and water services in remote areas. The fund is a public financing instrument utilizing the revenues from a 3 percent tax levied on telecom operators. The tax yields around US$6 million annually. However, the UAF is severely mismanaged and under-used. While the fund is supposed to finance the deployment of broadband infrastructures and services in underserved - and hence unprofitable areas - it was never used as intended. Most of the resources have been used for the electricity and water sectors, with limited and untargeted interventions in ICT that do not respond to the needs in rural areas. Moreover, the government agency in charge of carrying out these projects has been constrained by its governance weaknesses, including lack of strategy and capacity, and was consequently recently dissolved. For years, absence of a universal strategy and action plan prevented the universal access public policy to be efficiently implemented. 49. The proposed DPF program supports the development of broadband infrastructure services by increasing competition, strengthening regulation, and activating the universal service fund program. Increased competition in the broadband market is expected to lead to a reduction in the price of services, increased quality, improved use, and higher investments in communication infrastructure and service provision. In line with government priorities, the proposed DPF series will support critical policy actions under three policy areas: (i) Opening the market to competition and investment across all segments of the broadband infrastructure - access, backbone, and international connectivity - by removing specific legal and regulatory obstacles to entry; (ii) Promoting private investment in digital infrastructure through regulation on infrastructure sharing, and regulatory measures aim at reducing the cost of infrastructure deployment by telecom operators; and (iii) Facilitating equitable access to ICT services by implementing effectively the universal access policy. 50. For each policy area, the proposed DPF will support a three-years reforms program focusing on: − Boosting the regulatory framework to allow for new private entrants into the broadband sector:

the program will support a more flexible regulatory regime which facilitates market entry of new


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broadband service providers. It does so through modernizing the current licensing regime to open the digital sector for competition and allowing for new private entrants into the broadband market (DPF1 – Prior Action (PA)#4), adopting standard guidelines to facilitate technical, administrative and operational requirements for firms wishing to enter the sector (DPF2 – Trigger #4, and creating a wholesale market for leasing excess fiber capacity and passive infrastructure owned by public utilities to expand opportunities for new entrants to use the digital infrastructure and compete with existing operators (DPF3- Trigger #4).

− Revise the regulatory framework to promote private investment in digital infrastructure: the program will support legal dispositions on infrastructure sharing between telecom operators allowing as such for those firms to expand their networks while maintaining profits (DPF1 – PA#5); the reinforcement of sector regulation and obligations to be imposed on dominant players in the broadband market to limit monopolistic behaviors (DPF2 – Trigger #5); and the revision of the public domain occupation fees along with obligations to utilize public infrastructure projects in deployment of digital infrastructure to reduce the costs for investments (DPF3 – Trigger #5).

− Facilitating equitable access to ICT services and bridging the urban-rural digital gap: the program

will support the adoption of a national digital strategy, including an investment plan22, to frame and operationalize the universal access policy in favor of rural and underserved areas (DPF1 – PA#6); the creation of an umbrella public-private governance body for the ICT sector - the “Haut Conseil National du Numérique” - mandated to advise government on strategic sector issues and monitor the implementation of the national digital strategy (DPF2 – Trigger #6); adopt a new governance and operational framework of the UAF to leverage more private sector participation in broadband infrastructure and services development in underserved areas. (DPF3 – Trigger #6).

Prior Action #4: Pursuant to its Telecom Law, the Recipient’s National Regulatory Council has adopted a regulatory decree (decision No. 026/19/ANE/CNR/DTP), subjecting internet service providers to a general authorization regime. Prior Action #5: Pursuant to its 2013 Telecom Law, the Recipient’s National Regulatory Council has adopted a regulatory decree (decision No. 225/18/ARE/CNR/DTP) to operationalize telecom infrastructure-sharing between operators. Prior Action #6: The Recipient’s Council of Ministers has adopted a national strategy and action plan for universal access to broadband, and the Committee on Public Investment has formally integrated it into the Public Investment Program.

51. The proposed program is accompanied by the West Africa Regional Communications Infrastructure Project APL 2 (WARCIP – P123093) and related TA. World Bank analytical products (DTIS,23 SCD, CPF, and WARCIP technical notes) have produced a comprehensive assessment of the broadband market, including the identification of key sector challenges and opportunities, and the provision of policy

22 The DPF does not endorse specific projects but supports a formal integration of the investment plan into the public investment portfolio where projects will be vetted for financial, fiscal, economic and environmental considerations and safeguards. This public investment management process has been supported by the World Bank DPF series in 2016 and 2017. 23 DTIS refers to Diagnostic Trade Integration Study.


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recommendations. The DPF draws on these analytical underpinnings to design a comprehensive medium-term program. The WARCIP, which has started since 2013, will support the program through TA and will continue to help authorities, namely the ministry of Telecom and the Regulatory Authority (ARE), to build capacity and implement the policy actions. Moreover, the WARCIP has already engaged in both direct financing and leveraging private finance to invest in backbone networks. The completion of such infrastructure, which is expected during the DPF program implementation, will boost the supply capacity of the country. Coupled with the proposed policy actions, this is will transform the landscape of the sector in Mauritania. Results 52. At the end of the DPF series, it is expected that private investment in broadband will increase coupled with improved internet services at lower prices including in underserved areas. These are reflected by an expected rise in the number of private internet providers, outside of the current operators, from zero to three; a drop in the average monthly retail price of one-megabit internet subscription from 35 to 25 MRO; and the increase in the share of rural household access to internet from 18 to 28 percent. The ARE is the preferred source for the monitoring these indicators. In the case where ARE cannot provide data on internet cost and internet penetration in rural areas, those indicators would be populated based on information provided by the Gallup survey and speedtest.net.

Pillar 3: Basic Education and Vocational Training Reforms 53. The general education system is not providing foundational skills for most children, with problems in low enrollment, weak retention and poor learning outcomes especially at the basic level. Despite sustained and relatively high level of investment in primary education, the Net Enrolment Rate of age-group (6-11 years) is barely 75 percent, well below the averages of SSA and Arab countries. Also, more than 24 percent of children aged 6-15 were out of school, most of them among the younger cohort (6-9 years old) 24. Moreover, retention remains problematic at the primary education level. While the rate improved from 51 to 69 percent between 2000 and 2017, one third of primary school students drop-out before the end of the cycle25. These figures come with important regional disparities with worse outcomes outside of the main cities. Learning outcomes are also extremely poor. In 2017, only a quarter of grade 6 students scored above 50 percent on the end-of-primary-school national exam, while only 1.7 percent of grade 4 students in public schools could read a simple 8-word sentence in French and about 37 percent could not add two single-digit numbers (Service Delivery Indicators – SDI 2018)2627. 54. One key factor behind poor learning outcomes is the extremely weak competence level among teachers. The 2018 SDI assessed teachers in French, Arabic, mathematics, and pedagogy. According to the SDI, no teacher had the required levels to teach in both French and Arabic. Only 4.8 percent scored 80 percent or more in mathematics and less 0.5 percent were considered to have the minimum pedagogical

24 UNICEF 2016 – Multiple Indicators Cluster Survey – Mauritania 2015. 25 Ministry of Education Administrative data. 26 Service Delivery Indicators: Mauritania survey 2018 – to be published 27 Another example is the results of the student assessments undertaken by the Cellule National d’Evaluation (CNE) between 2003 and 2014 for Grade 5 students. The assessment show that in the key subjects, students average scores were around 16 percent in French, 9 percent in math, and below 40 percent in Arabic.


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knowledge content. This means that the Mauritanian teachers lack the necessary teaching competencies28. These conclusions echo the findings of large-scale assessment conducted by the authorities in 2007. More than 14,000 primary and secondary school teachers were tested on a grade 5 level test for Mathematics, Arabic, and French29. Results showed that only 9.5 percent of teachers scored 70 percent or more and 0.4 percent of teachers scored 85 percent. These low competencies are not restricted to current teachers but also extend to graduates of teacher training institutes (Ecoles Normales des Instituteurs or Teacher Training Schools - ENIs)30. These are worrisome trends as it reflects on the quality of training of the new recruits who become permanently hired teachers upon graduation. 55. Another factor for poor outcome is weak governance at both the school operational level and teacher management. The sector shows major deficiencies at school operational level. This includes a highly centralized decision making, weak monitoring capacity notably given the size of the country, lack of local community involvement at the school level, and inefficient allocation and use of resources. To illustrate, only one in eight students in public primary schools had a textbook despite the numbers officially distributed copies by the Ministry of National Education and Vocational and Technical Training (MNEVTT), which should have covered all students. On the other hand, the sector also suffers from poor teacher management. This is particularly damaging given its associated costs and the importance of teachers for student learning. For example, 83 percent of rural schools are understaffed with an average of 0.71 teacher per classroom, compared to overstaffed urban schools with an average of 1.38 teacher per classroom (SDI 2018). Moreover, the classroom absence rate is estimated at 29 percent or almost one third of teaching time lost. Such high absenteeism rate is not only a management problem but also exposes the weak accountability at the school level. 56. Lack of employable skills and poor relevance of education and training to the labor market are a binding constraint to growth in Mauritania. The SCD 2017 has revealed that the shortage of skilled workers is a key constraint for long-term inclusive growth in the country. Indeed, inadequate qualification of the workforce is the third most important constraint to firms’ expansion according to the World Economic Forum (2012). This occurs due to two constraints. First, many workers have limited or no education, and very few firms provide formal training for their employees. Second, despite trebling in the number of graduates from between 2009 and 2017, the supply of training programs in technical and vocational schools remains limited representing less than 10 percent of overall post-basic education enrolment. As a result, the skills gaps remain steep, creating severe problems of unemployment. Indeed, it is estimated that there are about 350,000 unemployed out-of-school youth (15-25 years of age) without any employable skills. 57. Given these constraints, the proposed DPF will support policies to improve the quality of basic education. Reforms will focus on strengthening the autonomy, responsibility, and efficiency of public schools and on improving the presence of teachers in classrooms by sanctioning unmotivated absences and setting a 30-hour teaching load for primary public school teachers. Furthermore, to ensure that all teachers meet minimum standards of competence, primary school teachers who repeatedly

28 In SDI, teachers are deemed to possess the minimum level to teach if they score 80 percent or more on the grade 4-level test they are assessed on. 29 See Mauritania 2008 « Recensement et test national : analyse et plan de formation » 30 According to the CNE assessment of the 2018 cohort, about 94 percent, 62 percent, and 21 percent do not have basic competencies to teach mathematics, French, and Arabic, respectively.


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underperform will be redeployed out of the classroom. These areas constitute a part of a broader government reform plan for the education sector. 58. The DPO design is fully aligned with existing World Bank investment project financing (IPF) operations. The Education Sector Support Project (ESSP, P163143) will accompany the DPF series reforms program. The two instruments are mutually reinforcing in support of reforming the overall governance, efficiency, and quality of the education system through teachers’ recruitment, training, and management as well as school-based management and finance. While the DPF will spur reforms to improve efficiency by tackling rampant absenteeism, the dearth of finances, and the ENIs recruitment process, the ESSP will focus on TA and investments to improve quality especially the quality of the stock of teachers. The ESSP will also leverage technology to (i) enhance transparency and increased accountability at all levels and (ii) support the weaker teachers with scripted lessons to improve pedagogical interactions in the classroom on a day-to-day basis. Furthermore, the DPF series, by introducing reforms on the ENIs, will directly support reforms to improve the quality of the flow of teachers that go into the teaching profession (Table 5).

Table 5: Links between the DPF and the Education IPF DPF series supports a new regulatory framework for: Project supports its implementation - School Management Committees (COGES) and

school grants (new decrees defining the mission and organization of school management committees and instituting school grants) to improve accountability at school level

- Provision of capacity-building to school management committees and of school grants in five selected regions

- The reduction of teacher absenteeism, including the obligation for teachers to be assigned in classrooms for the required 30 hours a week.

- Education Management Information System (EMIS) deployment in all 56 school districts to provide real-time data for monitoring.

- Regular comprehensive assessment of teachers for formative purposes and to increase the percentage of in-service teachers who meet minimum competency standards 31

- Provision of TA to conduct teacher evaluation. - Scripted lessons deployed through low-cost

technologies to improve the pedagogical performance of weaker teachers.

- Performance-based contracting with the ENIs to improve the competencies of new teachers

- Provision of capacity-building to design and implement performance-based contracts with ENIs

59. For vocational training, the Government is focused on increasing the number of trainees and short-term training programs, and on improving the quality and relevance of TVET programs. Reforms, anchored by the sector triannual action plan for 2019-2021, will focus on expanding the enrollment in existing TVET centers as well as the creation of new ones, especially in underserved regions. It will also ensure sustainable financing to the Fonds Autonome de Formation Professionnelle et Technique (2FTP) through collecting the payment of the apprenticeship tax in a dedicated account for 2FTP. In addition, reforms supported by this DPF series will create a revamped institution - the INAP-FTP - to manage the fund, promote and ensure private sector alignment in TVET. In recent years, development partners, have been the sole financiers for this fund. However, the fund has a mixed track record because of weak governance framework and insufficient self-financing mechanisms. Furthermore, to improve quality of training, the Government intends to sustain and expand the successful Performance-Based Contracting 31 The minimum standard is equivalent to a score of 70 percent in SDI’s teacher assessment.


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scheme piloted in twelve TVET centers. It will also focus on the relevance of TVET programs to the labor market through fostering stronger involvement of the private sector and workers’ unions in the design, delivery and financing of such training programs. This will be done through the development of apprenticeship, dual training, and short-term training programs. The proposed DPF will support these institutional reforms. 60. The proposed reforms span across several ministries. First, the MNEVTT oversees general education and TVET policies design and implementation. It also manages public schools and TVET centers through its networks of decentralized offices and ensures supervision of private schools. Second, the Ministry of Civil Service (MFP) for reforms pertaining to the recruitment of new teachers and the deployment, monitoring and evaluation of existing teachers. Third, the MEF for reforms related to the financing of the TVET sector as well as the financing of school grants.

Prior Action #7. The Recipient’s MNEVTT has adopted Decrees No. 2019-038 and No. 2019-039 to (i) create and define the mandate of School Management Committees (COGES); and (ii) regulate absenteeism in primary and secondary public school teachers. Prior Action #8. The Recipient’s MNEVTT has adopted Decree No. 2019-040 instituting a strategic skills review for primary school teachers and requiring that all teachers meet minimum standards of competence in order to continue teaching. Prior Action #9. The Recipient’s MEF has adopted Ministerial Decree No. 2019-036 creating and defining the functioning of a new Technical and Vocational Support Fund (2FTP). Prior Action # 10. The Recipient’s MNEVTT has adopted Joint Ministerial Decree No. 2019-037 to require monitoring of INA-FTP’s use of funds from 2FTP through an annual audit.

Subsequent operations 61. DPF2 supports policies aimed at improving school-based management and involving the private sector in TVET programs. DPF2 will support (i) the establishment of a national school grant and the empowerment of school directors; (ii) the operationalization of the new teacher strategic staffing; and (iii) school leadership and employer’s involvement in the delivery of vocational training programs. To improve school-based management, the Government will institute a national school grant. Grants will be transferred directly to schools and published as an annex to the national budget. School directors will be empowered to rein on teachers’ absenteeism. The Human Resource function at the EMIS will be strengthened to support the new teacher strategic staffing. This plan will be operationalized through the first large-scale teacher assessment and the enactment of a new regulation allowing re-assignment of poor teacher to non-teaching positions. Finally, the DPF2 will support stronger employer’s involvement in the delivery of TVET. It will do through regulations to introduce apprenticeship and dual training in vocational training degrees curricula as well as setting up MoUs with professional organizations for the provision of in-service training and labor-market oriented short-term training. 62. DPF3 supports policies aiming at improving quality and relevance of education and training for both public and private providers. To improve quality of teaching, the DPF3 will ensure that the COGES


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are fully operational and poorly achieving teachers are assigned outside of classrooms. Public school autonomy and accountability will be strengthened through mechanisms ensuring the proper functioning of the school grant system that will be piloted under the ESSP. To improve the relevance of TVET programs, the DPF3 will support (i) the establishment of a quality assurance mechanism for TVET institutions; and (ii) a stronger involvement of private sector training providers through multiannual training contracts to be signed with the MNEVTT.

63. Triggers designed to strengthen vocational training would also help bridge the severe gender gap in the labor market. Even though Mauritanian women represent more than half of the working age population (57.5 percent), only 28.2 percent of them participated in the labor force against 59.6 percent of men in 2017. Labor force participation is especially low for young women, as only 21 percent of women aged 20-24 years-old participate in the workforce (SCD, 2017). The creation of a consultation mechanism between the private sector and the vocational training government services (DPF2), and the establishment of training partnerships with private sector companies (DPF3) will be tailored to ensure that the employment constraints that female youth face are taken into account. This will be supported by the Mauritania Youth Employment project currently being prepared in parallel. Results 64. At the end of the DPF series, access to good quality skills will become more prevalent as teacher management and labor market-oriented vocational training improve. As such, it is expected that the primary school teachers’ absence rate in public schools would drop from 28 to 10 percent and the share of teachers who are apt to teach increase from 4 to 35 percent by 2021. In parallel, the TVET sector is expected to expand with a rise in the TVET graduates from 2,343 currently to 4,000 coupled with an increase in the number of youths benefitting from short-term labor market-oriented training from 8,390 to 15,000. The MNEVTT will be the entity responsible to monitor these indicators.

4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY

65. The DPF is aligned with the objectives and proposed outcomes of the FY18-FY23 CPF for Mauritania.32 The WBG strategy in Mauritania builds on the findings of the Systemic Country Diagnostic of 201733, which identified weak participation of the private sector and low human capital including weak labor skills as a common theme across the eight binding constraints for growth and shared prosperity. These constraints are: weak management of extractives, failure to harness the livestock and fisheries sectors potential, rapid and outpaced urbanization, low and inequitable access to social services, inequitable distribution of land, and distorted food prices. The proposed operation seeks to address these constraints and reinforce the country’s regulatory environment and skills for improved competition, growth and inclusiveness. The operation is anchored around the second focus area of the CPF “building human capital and inclusive growth” by improving the quality and governance of basic education and vocational training; and the third focus area “strengthening economic governance and private sector-led growth” by improving access of local private firms to commercial justice services and to private credit, and by boosting competition and investments within the ICT sector.

32 Mauritania Country Partnership Framework, World Bank, Report No. 125012-MR. 33 Mauritania Systemic Country Diagnostic 2017, World Bank, Report No. P116630-MR.


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66. The reform agenda supported by the DPF builds upon the achievements of several World Bank investment and TA projects underpinned by the FY18-FY23 CPF. These include the Public-Sector Governance Project (P146804), the Nouadhibou Eco- Seafood Cluster Project (P151058), IFC Investment Climate and Entrepreneurship Advisory program (#601022) for Pillar 1, the West Africa Regional Communications Infrastructure Project (WARCIP) on ICT (P123093) for Pillar 2, and the project for the Support of Basic Education (PASEB, P126902) closed in 2018, and the project for vocational training closed in 2017.

4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS

67. The design of the proposed operation is informed by the Government’s development strategy and several levels of consultation. The design of the program supported by the DPF series is the product of an extensive consultative process involving government officials and representatives from the private sector and civil society. This consultation was conducted on several levels. First, technical workshops were held at the level of the public sector with officials from line ministries, the MEF, and regulatory agencies to align various stakeholders on the reform program. Second, round tables with representatives of the private sector were organized including professional federations, telecom companies, and representatives of small and medium sized firms. Third, the DPF team and the MEF sought consensus at the political level by involving related ministers and the legal justice system early in the process including through official communication at the Council of Ministers of the proposed reforms. Feedback from these three levels of consultation have been incorporated during the DPF preparation phase. 68. The World Bank team has collaborated closely with other development partners to define the reform program supported by the proposed operation. In addition to holding regular bilateral discussions, Mauritania has well-established multi-donor coordination mechanisms. Multi-donor coordinating committees have been involved in elaborating the SCAPP agenda, designing public financial management (PFM) reforms, and developing programs targeting human capital formation. Regular discussions are held with both technical experts and donor representatives. The IMF, the EU, the AfDB, UN agencies and other development partners are also implementing TA projects in key DPF-supported reform areas, especially areas of private sector business regulation, education and vocational training. The AfDB has also agreed to anchor its upcoming budget support operations for FY20 and FY21 on the reform’s matrix of the World Bank DPF. As such many joint meetings were held between the two institutions and government officials.

5. OTHER DESIGN AND APPRAISAL ISSUES

5.1. POVERTY AND SOCIAL IMPACT

69. The DPF program supports reforms that affect the poor and the bottom 40 percent of the welfare distribution through access to commercial justice services for small enterprises (Pillar 1), access to ICT services (Pillar 2) and access to education and vocational training (Pillar 3). The ex-ante assessment of these impacts suggests that reforms under Pillar 1 will enhance access to commercial justice services for small enterprises and lift the growth potential of the economy. Reforms under Pillar 2 are expected to boost access for households and firms to ICT services, which has the potential to increase internet


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penetration among all segments of the population, and enhance affordability of internet through lower consumer prices. Reforms under Pillar 3 will allow Mauritanian youth access to better quality education and vocational training, and through better human capital accumulation lays the foundation for higher earnings from labor market activities. 70. Access to commercial justice services (PA #1) enables private sector parties to reach faster and simpler settlements of a dispute through newly introduced mediation services. These alternative modes of settling commercial disputes are typically cheaper and faster than conventional judicial process. While large corporations have the means to pursue a classical judicial process without affecting their daily operations, smaller companies will benefit from having a lower cost option to settle their commercial disputes. It will also be a tool to encourage them to formalize their dealings, which is expected to support higher economic activity and job creation. 71. Reforms under Pillar 2 are designed to support economic activity and household welfare by removing barriers to competition in the ICT sector. PAs #4 and #5 create a market environment where additional internet service providers are expected to provide internet alongside existing operators, thus contributing to higher internet penetration, which is expected to boost economic growth through higher productivity.34 In other countries, similar reforms have shown that higher competition reduces prices for ICT services and allows for larger investments in research and development,35 and for Senegal, Katz and Koutroumpis (2012) find that every 1 percent increase in mobile penetration (resp. mobile broadband penetration) was associated with a 0.061 (resp. 0.022) percent growth of GDP.36 Higher internet penetration is also expected to have a positive impact on household welfare effect through better access to internet services, and lower consumer prices. Cheaper services will make internet services more affordable across all groups of the population, while better quality services enable the development of complementary services like internet banking and e-learning, and might even improve public service delivery.37 Better access and higher affordability of ICT can empower poorer households and vulnerable groups, like women and youth, offering access to new services and markets. 72. Reforms are expected to bring access to ICT services at cheaper rate for poor households. Under the current market structure for ICT services in Mauritania, the main effect of the sector’s policy on household welfare are expected to come through (i) decreasing barriers to entry (consumption) for poorer households; (ii) expanding the coverage to additional households; (iii) and welfare gains arising from a reduction in consumer prices.38 Official statistics for the year 2016 report that 18 percent of the

34 Katz, R. (2012). “Impact of broadband on the economy: Research to Date and Policy Issues.” April 2012, ITU; and Minges, M. (2015). “Exploring the relationship between broadband and economic growth.” 35 Jerbachian, Vahagn and Kochanova, Ana (2017). “The Impact of telecommunication Technologies on Competition in Services and Goods Markets: Empirical Evidence”. The Scandinavian Journal of Economics. 36 Katz, R and P. Koutroumpis (2012). “The economic impact of telecommunications in Senegal.” 37 West, D. M. (2004). “E-government and the transformation of service delivery and citizen attitudes.” Public Administration Review, 64(1), 15-27; Bennett, G. G., & Glasgow, R. E. (2009). “The delivery of public health interventions via the Internet: actualizing their potential.” Annual Review of Public Health, 30, 273-292; and Buckley, J. (2003). “E-service quality and the public sector.” Managing Service Quality: An International Journal, 13(6), 453-462. 38 The most recent household survey for Mauritania is from 2014. Country reports on telecommunication suggest that between 2014 and 2018 the share of household accessing ITC services and total expenditure increased substantially, and data from 2014 are not credible to simulate the welfare impact of these policy reforms. Using a micro simulation tool to estimate the welfare impact of higher competition based on the 2014 data (main channel: lower prices due to higher competition), results seem to underestimate the true effect and more up to date survey is needed to prepare a meaningful assessment.


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population use Internet.39 Data from the 2014 Household Survey in Mauritania provide a much lower estimate for the year 2014 - share of households consuming internet services is 1.8 percent - but it is expected that the regional divide and disparities between relatively poorer and richer households remain. 40 In 2014, coverage for IT services was lower for rural areas, with 0.5 percent of household consuming internet services in rural zones, and 3 percent in urban areas. Internet usage is also lower among relatively poorer households, with 0.5 percent of poor households compared to 2.4 percent for households above the poverty line. Conditional on being an internet user, expenditure on internet services account for 2.6 percent of total household expenditure. Poorer households spend disproportionately more on Internet, as do those in rural areas: expenditure shares of internet on total expenditure are 6.3 percent for households in rural areas (against 2.0 percent for urban), and account for 5.2 percent of household expenditure for poor households (against 2.3 percent for non-poor). This pattern is consistent with neighboring countries, such as Senegal,41 and highlights that better access and higher affordability will benefit all households, with a particular focus on poor and rural households. Yet, greater access alone does not guarantee an effect on growth and income, as returns are conditional on the population being equipped with the relevant digital skills. 73. Reforms under Pillar 3 aim at enhancing access to better quality education and technical training (TVET). Henceforth it is expected to strengthen human capital formation, which is required for higher productivity and earnings in labor markets. PAs #7 to 10 push towards improving the competence of teachers and enforcing their presence in classrooms, a widespread issue across African schools.42 In 2018, 23.5 percent of teachers in public school were absent from class, whereby rural areas show relatively higher rates of absenteeism of 27.1 percent.43 74. Data from the 2014 household survey suggests that access to better services in education will affect many students and could reduce the education gap experienced by poor households in rural areas. School enrollment and levels of educational attainment differ across locations, as individuals in rural areas are twice more likely to be illiterate (do not know how to read and write) than those in urban areas.44 This also reflects that in rural areas around 80 percent of children between seven and 19 years old were enrolled in school, whereas the corresponding share for urban areas is 87 percent. For individuals between 20 and 25 (included) disparities between rural and urban areas increase further, and school enrollment drops to 19 percent in rural areas and 37 percent in urban areas. While disparities between rural and urban areas are large, enrollment rates seem to differ less between relatively poorer and richer households: for children between seven and 19 years, chances of being enrolled increase from 82 percent for the poorest quintile to 85 percent for the richest quintile, but the gap increases for the older cohorts.45 39 International Telecommunication Union (2018): World Telecommunication/ICT Development Report. 40 Data from the Mauritania Household Survey EPCV (2014) includes information on (a) Frais de connexion à Internet sans fil à internet (Clé internet) ; (b) Frais de connexion à Internet sans fil à internet (boite de connexion wifi) ; (c) Frais de connexion à Internet par ligne fixe ; and (d) Frais de connexion dans un Cybercafé, which all relate to consumption of internet services. As this excludes access to internet through mobile phones, this number possibly describes a lower bound estimate of the true expenditure on internet services. 41 Findings based on the 2011 official household survey (ESPS 2011). 42 Studying seven Sub-Saharan African countries, Bold et al. (2017) estimate that due to a teacher absenteeism rate of 44 percent, students receive around half of the teaching scheduled per day. 43 See World Bank (2018): “Mauritania Service Delivery Indicators of Education”, Mimeo. 44 Illiteracy rates are of 33 percent in rural areas (resp. 16 percent in urban areas) for children between 7 and 19, and 38 percent in rural areas (resp. 20 percent in urban areas) for individuals between 20 and 25. 45 26 percent of the bottom quintile was enrolled, against 37 percent of the top quintile


Page 34

The majority of students (around 79 percent for both age cohort) was enrolled in public schooling, especially in rural areas where this figure goes up to 84.7 percent. Low schooling outcomes in Mauritania being predominant for poor households in rural areas, the DPF reforms are expected to contribute to higher quality educational and thereby contributes to a reduction of poverty, especially for vulnerable which are currently reporting low levels of education. 75. Previous research suggests that access to better quality education has a positive gender effect. This comes by closing existing gaps in school enrollment rates between boys and girls – higher in rural areas and for secondary education – and contributes to better access to labor markets for men and women, which allows women to take more control over their fertility decisions.46 Around 85 percent of boys between seven and 19 years old were enrolled in school in 2013/2014, whereas the corresponding share for girls was 82 percent. This gender gap is fully driven by disparities across location, as boys and girls of urban areas have similar chances of being in school (resp. 87 percent and 86 percent), while only 77 percent of girls in rural areas are enrolled (against 83 percent of boys). Disparities are also visible for individuals between 20 and 25, with a percentage of school enrollment of 43 percent for men and 38 percent for women. The gender gap is more striking for rural areas with enrollment rates of 40 percent of men and 14 percent of women. The household survey data hence suggest not only that girls in rural areas have lower chances to be enrolled in school when young, but that the gap widens for the cohort in their early twenties. 76. One concern could be that preventing teachers from practicing simultaneously in public and private institutions would reduce their incomes and drive them below poverty levels. Based on statistics from the household survey, 3.6 percent of workers participated in the education sector in 2014, whereby the large majority was non-poor. Indeed, among those employed in the education sector, 80.5 percent are above the poverty line, and 75 percent in the top three quintiles.47 While it is possible that income from labor markets will drop for teachers who are no longer allowed to double-dip by receiving incomes from multiple employers, it is unlikely that these teachers will fall below the poverty line. 77. Improving the quality of TVET and aligning the curriculum more with labor market requirements will enable the youth to build better skills and improve their access to high productivity jobs. Hence, raising their expected income from labor markets. The 2014 Household survey data in Mauritania shows a very low take up rate of TVET education, suggesting that the DPF reforms would mainly affect household welfare through better the access to technical education. The National Statistical Office (2014) records an unemployment rate of 23.1 percent when the head of household has received a TVET education (“enseignement technique ou professional”), suggesting that TVET training yield good employment returns. They were more likely to be employed in the sector of services (40.8 percent), health (16.5 percent), construction (12.9 percent) and transport (6.4 percent), which is also associated with higher earnings. It is expected that an expansion of TVET will increase worker’s productivity, and contribute to higher income from labor markets. 46 The World Development Report on Education (2018) suggests that higher education reduces poverty through various channels, both monetary (probability of employment, productivity and higher earnings) and non-monetary (social norms, health outcomes at the individual and household levels). The literature also suggests that higher education is associated with lower teen pregnancy rates, and increases the control that women have over the size of their families. 47 Statistics from the national household survey suggests that households whose head member is employed in the educational sector have on average a lower probability of poverty, along with workers in health, mining, administration, and some type of manufacturing.


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78. As the DPF program is being implemented, the monitoring of progress towards expected outcomes requires access to high quality data. For the baseline, lack of data (or outdated information) complicates an assessment of the current situation, especially when it comes to heterogeneity beyond national averages. The Office Nationale de la Statistique (ONS) in Mauritania is working closely with the World Bank to strengthen technical capacity and collect more and better data, which will be necessary to close existing gaps. For the year 2019, the ONS is planning to revise the methodology for the national household survey EPCV and then collect new data which provides a more accurate view of the current situation and future changes.

5.2. ENVIRONMENTAL ASPECTS

79. The reforms and policy actions supported by the proposed operation are not likely to have significant impact on environment, forests, and natural resources. Over the last 14 years, the Government has made significant strides in developing a framework for environmental management and mainstreaming environmental sustainability in projects, starting first with the environmental protection decree no. 94.2004 of November 4, 2004 concerning Environmental Impact Assessment (EIA). The Mauritanian EIA regulatory framework allows for public consultations and disclosures. The decree no. 2007-105 of April 13, 2007 (modifying the decree No.2004-094) specifies the content and the procedures of preparing a limited EIA and a comprehensive/detailed EIA, as well as how to monitor their implementation. The Ministry of Environment is institutionally saddled with reviewing and clearing EIA documents. 80. As per World Bank Operational Policy (OP) 8.60, the World Bank assessed whether specific country policies supported by the DPF are likely to cause significant effects on the country’s environment, forests, and other natural resources. The assessment concluded that the policies supported by the proposed DPF are not likely to have negative impacts on the country ‘s natural assets. All the actions supported throughout the operation are policy-oriented; they do not support direct investment in environmentally impactful investments or involve policy actions with significant environmental consequences. The assessment of potential impacts related to actions supported by the DPF will rely on the existing national legal and regulatory framework, and will be monitored and addressed through the national procedures in place in Mauritania. 81. The reforms included in this operation will not cause significant direct environmental effects as they are primarily aimed at i) removing barriers for companies to access more efficient commercial justice services and building the foundations for a reliable and transparent information on companies and collateralized assets through commercial registry; ii) removing barriers to investment and competition in the internet broadband market, and facilitating equitable access to ICT services; and iii) improving quality and relevance of skills provided by the national education and training systems.

5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS

82. The Government is pursuing the PFM reform agenda set forth in the PFM Master Plan, which was most recently updated in 2017. PFM reforms have brought some results in recent years. Notably, budget execution has been improved; tax reforms led to significant increased revenues; a new procurement law and institutions have increased controls; undocumented salary payments were


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eliminated; and most public financial information systems are now in place. However, many of the reforms will need to be fully implemented in order to bring about the desired impact. Budget execution needs to be accompanied by greater budget credibility and the reduction of discretionary expenditure; second stage tax reforms should focus on broadening the tax base. The existing PFM information systems that are the basis for the production of fiscal information are incomplete and fragmented. Thus, the Government’s aggregate fiscal position lacks comprehensiveness, as well as reliability, and internal controls over public spending are undermined. Some progress has however been noticed in the production of budget execution reports and submission of execution reports of the finance laws. The backlog of execution reports has been clean up and the 2016 and 2017 execution reports of the finance laws have been approved by the National Assembly. 83. With the advent of the 2018 Organic Finance Law, existing processes for medium-term-programming (medium term-expenditure frameworks [MTEF]) and budgeting need to be reinforced. The new law, which was approved by the Parliament in April 2018, sets the stage for the introduction of program-based budgeting which will require administrative capacity to produce global budgetary envelopes based on reliable macro-economic estimates and to ensure that resource allocations across and within sectors are programmed over the short and medium term to align with the country’s development priorities. The World Bank Public Sector Governance Project (P146804) through its additional financing is supporting the Government to address critical bottlenecks to effective and transparent fiscal management by (a) expanding the tax base and strengthening revenue mobilization capacity; (b) reinforcing the alignment between evidence-based policies, medium term programming and annual budgeting of resource allocations; (c) reinforcing government PFM information systems and consolidating the public procurement system; and (d) facilitating improved public access to fiscal information to enhance the transparent management of public resources. Regarding budget transparency, most of the information related to annual budgets, quarterly budget execution reports, mid-year budget reviews, and annual settlement laws is available online at the MEF and Treasury websites, though the timeliness of their publication could be improved. 84. Foreign exchange control environment: The IMF’s 2017 Article IV Consultation Report noted the Government has taken determined steps to adapt their economic policies to take account of the difficult conditions of the past two years following the fall in metal prices. Progresses have been made in implementing the recommendations of the 2010 safeguards assessment. The IMF reports indicate that the authorities are committed to adopt more proactive monetary and liquidity management policies to (i) improve the functioning of the foreign exchange market to offer greater flexibility; and (ii) strengthen banking supervision and adapt the regulatory framework to protect the stability of the financial system, and increase private sector credit. The BCM is regularly audited by an international auditing firm. BCM has published on its website its annual audited financial statements. The 2017 audit was conducted in accordance with International Standards on Auditing as promulgated by the International Federation of Accountants (IFAC) and the auditors issued an unqualified opinion (clear certification) on the financial statements. According to the auditors, the financial statements present fairly the financial position of the Central Bank as at 31st December 2017. The auditor assessed also the internal control environment and the governance structure and the risk management framework and did not revealed any major weakness. 85. The proposed grant will be disbursed following standard IDA procedures for DPFs. A grant in the amount of SDR 36.1 million (US$50.0 million equivalent) will be made available upon effectiveness and,


Page 37

provided that IDA is satisfied with the implementation of the development policy program and the appropriateness of the Recipient's macroeconomic policy framework, it will be disbursed as a single tranche following the submission of an acceptable withdrawal application by the Government. Since fiduciary risks are assessed as substantial, IDA will deposit the proceeds into a dedicated US dollar-denominated account designated by the Recipient at the BCM, where they will form part of the country’s foreign-exchange reserves. The Recipient shall ensure that upon the deposit of the grant proceeds into said account, an equivalent amount is credited in the Recipient’s budget-management system within five business days. The World Bank will obtain confirmation from the Government within 30 days of the grant’s disbursement that (a) the grant proceeds were deposited into a government account at the BCM that forms part of the country’s foreign-exchange reserves, including the date of deposit and the bank account number; and (b) an equivalent amount has been transferred in the country’s budget-management system, including the relevant fiscal-accounting information, the date of the transfer and the exchange rate used. 86. If the proceeds of the grants are used for ineligible purposes as defined in the Financing Agreement, IDA will require that the Recipient refund to IDA promptly upon notice an amount equal to the amount of the ineligible payment. Amounts refunded to the World Bank upon such a request shall be cancelled. The World Bank reserves the right to seek an audit of the dedicated account by independent auditors acceptable to the World Bank.

5.4. MONITORING, EVALUATION AND ACCOUNTABILITY

87. The MEF will be responsible for managing the proposed operation. Day-to-day coordination, program monitoring and evaluation, and the measurement of specific outcome indicators will be the responsibility of the MEF, which will also verify the completion of all DPF prior actions through the central DPL implementation committee. The Government will review the status of the overall reform program, and IDA will undertake regular missions to ensure that the macroeconomic policy framework remains adequate. The MEF will continue to participate in World Bank TA projects designed to improve the quality of its statistics. The authorities have agreed that the MEF is responsible for collecting unpublished statistics and providing them to the World Bank for the purposes of monitoring and evaluation. The MEF will do so through a DPF reforms committee that will coordinate with relevant line ministries to secure the needed information, and to follow-up on prior action execution. 88. Grievance Redress. Communities and individuals who believe that they are adversely affected by specific country policies supported as prior actions or tranche release conditions under a World Bank Development Policy Operation may submit complaints to the responsible country authorities, appropriate local/national grievance redress mechanisms, or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address pertinent concerns. Affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org.

http://www.worldbank.org/GRS

http://www.inspectionpanel.org/


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6. SUMMARY OF RISKS AND MITIGATION

89. The overall risk rating for the DPF is substantial. This reflects a range of political and governance, macroeconomic, implementation capacity, and fiduciary risks, all of which could compromise the success of the proposed operation. The most salient risks are described in greater detail below.

Table 6: Summary Risk Ratings

Risk Categories Rating

1. Political and Governance Substantial

2. Macroeconomic Substantial

3. Sector Strategies and Policies Moderate

4. Technical Design of Project or Program Moderate

5. Institutional Capacity for Implementation and Sustainability Substantial

6. Fiduciary Substantial

7. Environment and Social Moderate

8. Stakeholders Substantial

9. Other

Overall Substantial

90. Political and governance risks are substantial. The political economy is complex, and previous reform efforts have been delayed or derailed by powerful interest groups. While the Government has signaled a credible commitment to the DPF-supported reform agenda based on a broad political consensus, the effectiveness of this commitment and the government’s ability to manage political and institutional pressures are not assured. In effect, reforms like those on boosting competition in the ICT sector or reforming the vocational training sector eliminate strong vested interested of many political groups. This would create political pressure to reverse the reforms or hinder their implementation, which can affect the results targets set. To mitigate these risks, the measures supported by the DPF have been carefully selected to focus on areas where the Government has already initiated reforms, or which are the subject of ongoing TA projects by the World Bank and other development partners. Moreover, the DPF will benefit from the success of the previous DPF series 2015-2017, the national consensus around the SCAPP, and the consolidation of the MEF, which has built a strong multi-stakeholder coalition to support the reform agenda. The DPF series reform implementation will build on a strengthened democratic environment as evident by the first democratic transition of power between two elected


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presidents in Mauritania in June 2019 and the completion of a successful parliamentary and regional elections in the second half of 2018. 91. Macroeconomic risks are substantial. This is due to large public debt stock, the potential for unidentified fiscal risks emerging from the broader public sector, and monetary policy constraints in managing liquidity and minimizing financial sector risks. Exogenous shocks affecting any of these variables could prevent the Government from meeting its fiscal objectives or maintaining adequate foreign exchange reserves. This will derail the structural reforms agenda, erode fiscal space, and weakens the appetite for private sector investment, which jeopardizes the expected results from the DPF program. The successful implementation of the IMF program is expected to be an important mitigation measure over the next three years. The program not only indicates the government’s commitment to limit/avoid non-concessional borrowing but would support sound monetary and exchange-rate policies for macroeconomic stability. 92. Institutional capacity for implementation and sustainability risks are substantial. Despite recent progress in institutional capacity-building, the effectiveness of public agencies remains variable, which constrains the government’s ability to implement complex reforms. The reforms supported by the proposed operation span multiple ministries and departments, and the challenges involved in inter-agency coordination compound existing capacity risks. This could affect achieving the targets set under all three pillars of the program, which requires deep collaboration across line ministries and build-up of technical expertise. However, the MEF’s expanded authority and the newly established technical coordination and follow-up mechanisms, including the enhanced role of the government DPF follow-up committee, will enable the authorities to more effectively and comprehensively implement its reforms. While not all identified risks can be mitigated directly, the TA and capacity-building support provided through ongoing World Bank projects in the areas of doing business, ICT, education and vocational training will continue to facilitate the sustainable implementation of the DPF-supported reform agenda. 93. Mauritania’s fiduciary risks are substantial, and IDA reserves the right to request an audit of the dedicated foreign currency account. The substantial fiduciary risk rating is based on the status of the PFM system and the central bank’s safeguard framework, accounting systems and auditing arrangements. However, the dedicated US-dollar account at the BCM for the operation and the continuing efforts to reinforce the public financial and budgetary management through the World Bank Public Sector Governance Project are important risk mitigation measures. Moreover, the proposed grant in the amount of SDR 36.1 million (US$50.0 million equivalent) will follow the World Bank’s standard disbursement procedures for development policy operations. Within five working days of the credit’s being deposited into the US-dollar account at the BCM, the Government will ensure that an equivalent amount is credited to its budget management system in a manner acceptable to the World Bank. It will report to the World Bank on all amounts deposited in the foreign currency account and credited to the budget management system. Disbursement will not be linked to specific purchases. When funds are disbursed from the dedicated account to finance budgeted government expenditures, the official exchange rate for that day will be used. If the proceeds of the grant are used for ineligible purposes as defined in the Financing Agreement, IDA will require that the Government refund an amount equal to the amount of the ineligible payment to IDA promptly upon notice from IDA. Amounts refunded to the World Bank upon such a request will be canceled. The World Bank reserves the right to seek an audit of the dedicated account by independent auditors acceptable to the World Bank


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94. Stakeholders risks are substantial. Efforts to move low-performing teachers out of the classroom to administration jobs within the public sector may create tensions. This risk is partially mitigated by the ongoing complementary education project, and throughout the implementation of reforms. The World Bank will continue conducting informed discussions on these issues, carrying out adequate consultations. .


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ANNEX 1: POLICY AND RESULTS MATRIX

Prior actions and Triggers Results

Prior Actions under DPF1 Indicative Triggers for DPF2 Indicative Triggers for DPF3 Indicator Name Baseline Target

Pillar 1--- SME Business Environment Reforms

Prior Action # 1: The Recipient’s Council of Ministers has submitted to Parliament a draft revised Arbitration Law.

Trigger # 1. The Council of Ministers has submitted to Parliament modifications to the Civil, Commercial and Administrative Proceedings law

Trigger # 1. The Council of Ministers has issued regulation on the revised Statute of the Judiciary.

Results Indicator #1: Number of cases solved through alternative dispute resolution mechanisms

0

(2018)

5

(2021)

Prior Action #2: The Recipient has issued Ministerial Decree No. 2019-032 and Ministerial Order No. 0000138 establishing and regulating the High Council for Improving Business Environment (vested with executive power) and its technical body, the Business Reforms Monitoring Committee.

Trigger # 2. The Council of Ministers has submitted to Parliament modifications to the Insolvency Law.

Trigger # 2. The Council of Ministers has adopted executive regulations ensuring coherence between the insolvency, secured transactions, real property and credit information laws, including clear rules of ownership and priority governing the hierarchy of competing claims or rights in the same assets.

Results Indicator #2. Number of insolvency cases settled by the courts (as measured by the World Bank Doing Business Indicator)

0

(2018)

>5

(2021)

Prior Action #3: The Recipient’s Central Bank has issued a circular No. 01/GR/2019 to increase transparency and reliability of information by making it a condition for a company to request a commitment from a commercial bank to show a receipt proving that it filed its financial statements at the business registry.

Trigger # 3. The Council of Ministers has revised regulations providing for the organization of the business and collateral registry.

Trigger # 3. The Council of Ministers has adopted a decree allowing online registration and declaration of companies and secured transactions at the business and collateral registry.

Results Indicator #3:

Number of information requests processed at the business and collateral registry

0

(2018) 1000

(2021)

Pillar 2--- Reforms of the Broadband Digital Infrastructure

Prior Action #4: Pursuant to its Telecom Law, the Recipient’s National Regulatory Council has adopted a regulatory decree (decision No. 026/19/ANE/CNR/DTP),

Trigger #4. The telecom regulator (ARE) has facilitated the implementation of competitive general “authorization”

Trigger # 4. The Government has adopted a decree to regulate access of telecom operators to public digital infrastructure owned by public

Results Indicator #4: Number of Internet providers authorizations granted

0

(2018)

>4

(2021)


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Prior actions and Triggers Results

subjecting internet service providers to a general authorization regime.

regime for new internet providers48 by publishing on its website a standard model and guidelines to be used requesting such authorizations.

network utilities like SNIM and SOMELEC.

Prior Action #5: Pursuant to its 2013 Telecom Law, the Recipient’s National Regulatory Council has adopted a regulatory decree (decision No. 225/18/ARE/CNR/DTP) to operationalize telecom infrastructure-sharing between operators.

Trigger # 5. To increase competition in ICT service delivery, the regulator ARE has published three decrees, related to access to dominant operator’s essential infrastructure, including the list of relevant markets, the list of dominant players on the relevant markets, and the approbation of the dominant players’ wholesale catalogs.

Trigger # 5. The Government has adopted a decree revising the public domain occupation fees and establishing rules for mutualizing civil works between linear infrastructure public projects.

Results Indicator #5: Average monthly retail price of a one megabit internet subscription

US$35 (2017)

US$25

(2021)

Prior Action #6: The Recipient’s Council of Ministers has adopted a national strategy and an action plan for universal access to broadband, and the Committee on Public Investment has formally integrated it into the Public Investment Program.

Trigger #6. The Government has adopted a decree creating the High Digital Council (Haut Conseil du Numérique), in charge of providing recommendations to government on competition and regulation issues as well as monitoring the implementation of the national digital and universal access strategy.

Trigger #6. The Government has implemented, in consultation with the private sector, the universal access strategy’s investment plan.

Results Indicator #6: Percentage of rural households with access to the Internet

18%

(2017)

28%

(2021)

48 There are three types of internet providers: (i) Local loop radio internet providers offering fixed and mobile services; (ii) internet services providers with no radio frequencies; (iii) infrastructure wholesale operators with no radio frequencies.


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Pillar 3---Basic Education and Vocational Training Reforms

Basic Education

Prior Action #7: The Recipient’s MNEVTT has adopted Decrees No. 2019-038 and No. 2019-039 to (i) create and define the mandate of School Management Committees (COGES); and (ii) regulate absenteeism in primary and secondary public school teachers.

(Indicative) Trigger # 7. To strengthen the autonomy, accountability and effectiveness of schools and to improve the quality of education, the Council of Ministers (i) promulgates a decree establishing a program for school grants; and (ii) the MNEVTT issued regulations giving the school principal, in coordination with the COGES, the power to sanction absent teachers and report to the IDEN.

(Indicative) Trigger # 7. The MNEVTT establishes a mechanism that monitors the operational performance of the COGES.


Public primary school teachers’ absence rate

29%

(2017)

10%

(2021)

Prior Action #8: The Recipient’s MNEVTT has adopted Decree No. 2019-040 instituting a strategic skills review for primary school teachers and requiring that all teachers meet minimum standards of competence in order to continue teaching.

(Indicative) Trigger # 8. The MNEVTT has i) implemented a fully operational HR function integrated to the Education Management Information System; (ii) signed performance contracts with each preservice teacher training institutes (Ecoles Normales de Instituteurs, ENI) after carrying out the first national evaluation of primary-school teachers.

(Indicative) Trigger # 8. The MNEVTT has implemented a program to ensure that all existing and new teachers meet minimum standards of competence.


Share of in-service teachers who score above the bar on a competence test and are therefore apt to teach

4%

(SDI 2017) 35% (2021)

Vocational Training

Prior Action #9. The Recipient’s MEF has adopted Ministerial Decree No. 2019-036 creating and defining the functioning of a new Technical and Vocational Support Fund (2FTP).

(Indicative) Trigger # 9. To improve quality of TVET services, the MNEVTT signs performance contracts with each public technical and vocational training institution, with targets on the number of trainees and on the quality of training programs.

(Indicative) Trigger # 9. To improve governance of the TVET system, the government issues a regulation introducing apprenticeship training and dual training at the BTS, BT and CAP levels, and entrusts the training of trainers to CSET (Centre Supérieur


Number of TVET graduates

2,343

(2017)

4,000

(2021)


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d’Enseignement Technique).

Prior Action # 10. The Recipient’s MNEVTT has adopted Joint Ministerial Decree No. 2019-037 to require monitoring of INA-FTP’s use of funds from 2FTP through an annual audit.

(Indicative) Trigger #10. To align services with labor market demand, the MNEVTT has established a formal consultation mechanism between the private sector and the employment and vocational training government services.

(Indicative) Trigger # 10. To increase relevance of the TVET training, the MNEVTT has established training partnerships.


Number of youth benefiting from short-term labor market-oriented training


Percentage of female youth benefitting from short-term labor market-oriented training

8,390

(2017)

25%

(2017)

>15,000

(2021)

35%

(2021)


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ANNEX 2: IMF RELATIONS ANNEX

IMF Executive Board Completes Third Review of the Arrangement Under the Extended Credit Facility with the Islamic Republic of Mauritania

Press release May 20, 2019

https://www.imf.org/en/News/Articles/2019/05/20/pr19177-mauritania-imf-exec-board-completes-third-review-arrangement-under-extended-credit-facility

• Mauritania’s performance continued to be strong and growth is projected to accelerate to 6.7 percent in 2019.

• The program aims at entrenching macroeconomic stability, supporting inclusive and job-creating growth, and building international reserve buffers.

• The authorities plan to use the prospective fiscal space prudently for priority social spending—education, health, and social protection—and public infrastructure.

On May 20, 2019, the Executive Board of the International Monetary Fund (IMF) completed the third review of the three-year arrangement with Mauritania under the Extended Credit Facility. The arrangement, with total access of SDR 115.92 million (about US$159.8 million at current exchange rates), or 90 percent of Mauritania’s quota, was approved on December 6, 2017 (see Press Release No. 17/468). The completion of the review allows the authorities to draw SDR 16.56 million (about US$22.8 million), bringing total disbursements to SDR 66.24 million (about US$91.3 million).

Following the Executive Board discussion, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the following statement:

“Mauritania’s performance under the Extended Credit Facility Arrangement continues to be strong. Macroeconomic stability has been maintained, external debt-to-GDP declined, official reserves increased, and some fiscal space has been created. Structural reform implementation progressed as planned.

“Economic growth picked up to an estimated 3.6 percent in 2018 and is projected to accelerate to 6.7 percent this year, supported by continued broad-based non-extractive growth reflecting strong domestic demand and nascent diversification. The outlook has improved, buoyed by more favorable terms of trade and the upcoming development of a large offshore gas field. Nevertheless, downside risks related to global economic developments, commodity price volatility, adverse weather, and regional security concerns remain elevated.

“In the context of an uncertain global environment, the program aims at entrenching macroeconomic stability, supporting inclusive and job-creating growth, and building international reserve buffers. The authorities plan to use the prospective fiscal space prudently


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for priority social spending—education, health, and social protection—and public infrastructure, and to seek financing on concessional terms to improve debt sustainability.

“To support these objectives, the authorities’ program envisages continued policy discipline accompanied by broad-based structural reforms. Priorities include strengthening tax policy and administration to ensure broad-based tax compliance and reforming budget processes to improve the effectiveness of public spending. Modernizing the foreign exchange policy framework and increasing exchange rate flexibility will help to address external shocks and preserve official reserves, while activating the new monetary policy instruments will improve liquidity management. Upgrading bank regulatory standards and supervision will strengthen banking sector soundness and financial inclusion. The authorities are also committed to establishing a robust macro-fiscal framework to efficiently manage future windfall gas revenues.

“Going forward, it will be important to step up efforts to improve the business environment, strengthen economic governance, and fight corruption.”

Mauritania: Selected Economic Indicators, 2015–20

2015 2016 2017 2018 2019 2020

Est. Proj. Proj. Proj.

National accounts and prices (Annual change in percent; unless otherwise indicated)

Real GDP 0.4 1.8 3.1 3.6 6.7 5.8 Real extractive GDP -5.6 0.7 -7.1 -18.7 20.6 6.3 Real non-extractive GDP 1.4 2.0 4.5 6.3 5.4 5.8 GDP deflator -4.2 3.4 3.4 2.8 5.3 3.1

Consumer prices (period average) 0.5 1.5 2.3 3.1 3.6 4.0 (In percent of nonextractive GDP; unless otherwise indicated)

Central government operations

Revenues and grants 32.6 31.7 31.8 33.6 30.5 31.2

Non-extractive 26.8 27.9 27.9 28.2 27.5 27.7

Taxes 16.9 18.7 19.7 20.8 20.4 20.7

Extractive 3.8 1.7 2.8 4.7 2.2 2.6

Grants 2.0 2.2 1.1 0.7 0.8 0.9

Expenditure and net lending 37.2 32.3 31.9 30.0 30.6 30.7

Current 20.6 19.0 19.6 19.1 18.1 18.0

Capital 15.8 13.3 12.3 10.8 12.4 12.8

Primary balance (excl. grants) -4.5 -1.5 0.3 4.8 0.9 1.1

Overall balance (in percent of GDP) -3.4 -0.5 0.0 3.3 0.0 0.5 Public sector debt (in percent of GDP) 1/ 2/ 75.2 77.4 75.9 83.0 78.5 80.9

(Annual change in percent; unless otherwise indicated)

Money and Credit


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Broad money 0.4 7.1 13.7 13.8 11.5 11.6 Credit to the private sector 9.7 8.1 7.5 19.2 13.5 13.7 Balance of Payments

Current account balance (in percent of GDP) -19.8 -15.1 -14.4 -18.4 -15.7 -21.6 Excl. FDI-financed imports of extractive capital -9.6 -9.6 -7.4 -11.4 -10.2 -12.9 Gross official reserves (in millions of US$, eop) 3/ 822.8 824.4 849.0 919.1 1,010.6 1,133.8 In months of prospective non-extractive imports 5.6 5.5 4.6 5.0 5.2 5.7 External public debt (in millions of US$) 2/ 3,208.6 3,354.9 3,573.0 3,631.8 3,784.0 4,046.4 In percent of GDP 66.4 71.6 72.5 69.3 67.3 69.4 Real effective exchange rate 7.8 -5.8 -2.1 … … …

Memorandum items:

Nominal GDP (in millions of US$) 4,830.5 4,685.6 4,925.1 5,237.1 5,621.3 5,826.9

Price of iron ore (US$/Ton) 56.1 58.6 71.1 70.1 76.5 70.2 Sources: Mauritanian authorities; and IMF staff estimates and projections. 1/ Including government debt to the central bank recognized in 2018. 2/ Excluding passive debt to Kuwait under negotiation. 3/ Excluding the hydrocarbon revenue fund.


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ANNEX 3: LETTER OF DEVELOPMENT POLICY


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Letter of Development Policy – Unofficial translation in English Islamic Republic of Mauritania Honor-Fraternity-Justice Ministry of Economy and Finance

To Mr. David Malpass President of the World Bank Group

- Washington D.C. –

Object: Letter of Development Policy Mr. President, It is my privilege to send you this Letter of Development Policy. It discusses recent economic trends in Mauritania, progress made in the implementation of reforms supported by the first budget support operation, and outlook for the future. It also describes progress made in the implementation of the country’s long-term development strategy, the 2016-2030 Strategy for Accelerated Growth and Shared Prosperity (SCAPP). I. Recent economic and social trends Over the last three years, the economy has steadily recovered despite an international context that has not been favorable to the growth and development of the extractive sector. Still, with support from the International Monetary Fund (IMF) through the three-year agreement on an Extended Credit Facility adopted by the IMF Executive Board on December 6, 2017, our economic and social program has achieved concrete results in terms of maintaining overall macroeconomic stability and fostering economic growth. The economic situation in Mauritania is as follows:

1.1. The economy grew steadily from 1.8% in 2016 to 3.1% in 2017. Economic growth reached 3.6% in 2018. This growth is due in part to well-placed public and private investments, which fostered growth in the non-extractive sector. In 2018, non-extractive economic activity increased by 6.3% and was spurred by the agriculture, fishing, construction and public works, and the private services sectors. This economic recovery also had positive impacts on tax revenue mobilization. The total budget balance has reached a level equivalent to 3.3% of non-extractive GDP, which is the strongest figure in several years. Year-on-year inflation as measured by the National Consumer Price Index (INPC) remained low at 3.2% thanks to the relative stability of the Ouguiya exchange rate. 1.2. Overall economic growth has been supported by the non-extractive sector. Economic growth has been spurred primarily by rural sectors (agriculture and livestock), fisheries, construction and public works, as well as the private services sector.


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Total cropland developed and sown during the 2018-2019 growing season was estimated at 61,337 hectares (winter season and off season), with rice paddy production totaling 361,000 tons, which represents a 15.3% increase from the previous growing season. Efforts to improve hydro-agricultural areas account for this significant increase. Regarding the livestock sector, our country has a sizeable livestock population, totaling 16 million sheep and goats, 1.6 million heads of cattle, and 1.4 million camels. The agropastoral sector accounted for 29.4% of GDP in 2018. Fisheries accounted for 3% of GDP in 2018 versus around 2% over the last three years with real growth at 12.7% in 2018. This growth was spurred by the enhancement of the national fishing fleet, which is used primarily for bottom fishing. Fishery exports were estimated at $ 750 million in 2018 versus $ 625 million in 2017. The Construction and Public Works (Bâtiment et Travaux Publics, BTP) sector has expanded significantly over the last three years, particularly through the development of growth-supporting infrastructure projects. Various construction projects (highway, buildings, Bir Oumgrein Airport, N’diago Port, Tanit Port, and others) propelled this sector, which achieved a yearly real growth rate of 7.5% over the last three years and accounted for around 8% of GDP. In terms of energy and energy supply, new projects included the construction of a wind power plant in Nouakchott with a 30 MW capacity in 2015, a dual-fuel power plant in Nouakchott Nord with a 180 MW capacity in 2016, and a solar plant in Nouakchott with a 50 MW capacity in 2017.

2. Progress in the implementation of reforms supported by the first budget support operations and outlooks

2.1 Progress accomplished in the implementation of reform

During the last two years of the Budget Support Program (2016 and 2017), the Government focused on implementing structural reforms that aim to: (i) promote budget consolidation, (ii) improve the monetary and exchange rate policy framework, and (iii) promote private sector involvement in non-extractive economic activities. Efforts targeting budget consolidation and public expenditure management have been sustained. The wage bill was centralized in order to improve completeness and transparency in public finance management. To this end, the reporting of payroll expenditures of Public Administrative Institutions, offices and equivalents in the “salaries and wages” item of the national budget and their integration into the automated expenditure payment system (RACHAD, Réseau Automatisé de la Chaîne des Dépenses Publiques) and automated system of salaries and wages paid on pay slips (RATEB, Réseau Automatisé des Traitements et Salaires des Employés Payés sur Bulletin) has been achieved without sacrificing the autonomy and governance of public entities. Budget planning has been improved by i) the establishment of a new institutional framework for managing public investment (CAPIP, Public Investment Analysis and Programming Committee) and ii) the integration of investment expenditures financed by external resources into the national budget. To expedite the implementation of public investment, the procurement reform undertaken in tandem with the harmonization of implementing provisions of the legal framework dictating the organization of the sector has been completed and the systems foreseen therein have been set up and are now operational.


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With a view to remove obstacles to private sector growth, the Government has accelerated the pace of reform implementation while adopting the code of real rights, the law on PPP (Public-Private Partnerships) and its implementing provisions, establishing new modalities for resolving small litigation claims, eliminating registration fees for small and medium-sized enterprises, adopting a new customs code, and adopting the banking law. In this framework, the Government will continue the implementation of the industrial strategy by drawing up a country framework program with UNIDO and setting up a steering mechanism based on the already operational PPP system. 2.2. Short-term outlook

To shore up achievements of the 2014-2017 public finance reform masterplan and to take into account the Government’s new priorities outlined in the 2016-2030 SCAPP, a new masterplan for public finance reforms is currently being drawn up. This new masterplan will be based heavily on the new organic law related to the financing laws (LOLF) adopted in 2018, which repeals and replaces the 1978 version and its implementation roadmap. It will emphasize transparency, economic, financial and budgetary governance, as well as alignment with international and community standards. It will cover every aspect of public finance (taxation, public revenue management, public expenditure management, financial information systems, procurement, public accounting, cash flow management, internal and internal controls and audits, local finances, etc.). Budget policy will continue to be shaped by a commitment to achieve sustainable consolidation of public finances, to ensure debt sustainability in the medium term, and to implement external adjustments. In practical terms, this will require strengthening budgetary revenue in a sustainable manner, improving the efficiency of public expenditures, and mitigating budget risks. The 2019 Finance Bill supports such a policy, particularly by requiring primary surplus (excluding interest and grants) to be maintained at 0.5% of GDP through the ongoing improvement of public revenue performance, which will create new budget space. With regard to external debt, the use of grants and concessional loans will be continued in order to ensure investment financing keeps pace with debt viability. In addition to maximizing tax yields, simplifying and modernizing the tax system remains one of the Government’s main objectives. To this effect, it adopted a new code for fiscal procedures, which took effect in 2018. During this year and in the framework of efforts to simplify and modernize the tax system, the new single business tax was adopted by the Council of Ministers, expansion of the taxable base and regular updating of the central file of Tax Identification Numbers have been achieved, and tax expenditures have been attached to finance bills since 2018. Tax base protection measures include: (i) expanding the taxable base and regular updating of Tax Identification Numbers in order to eliminate inactive numbers and improve the management of the risk of non-compliance with tax obligations; (ii) eliminating tax loopholes as well as exemptions deemed to be inefficient due to their fiscal cost, and (iii) strengthening oversight mechanisms of the customs administration by enhancing the capacities of the Customs Valuation Agency (Bureau National de la Valeur) and making it more efficient. Intensive monitoring of tax payers has been introduced, particularly large and medium enterprises subject


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to VAT and corporate income tax with the aim of ensuring that taxes are filed and paid on time. One way of facilitating this task has been the online tax filing system, which became operational in March 2019. Since the objective is to achieve a timely reporting rate of 85-90% for large enterprises and 65-75% of medium enterprises by the end of 2019 and a timely payment rate of at least 50% by December 2019. The number of on-site inspections of tax payers will be increased to at least 15 general inspections and 40 spot checks targeting large and medium enterprises in 2019. The number of such inspections will be doubled in 2020. In December 2018, Mauritania decided to join Senegal and their private partners in the GTA offshore gas project, which should improve the economic and financial outlooks of both countries. The budget policy framework will be strengthened to take into account the expected increase in revenue from the extractive sector, particularly the gas sub-sector. This framework will facilitate the optimal allocation of revenues and establish budget rules that take into account the volatility and the perishable nature of these resources in a framework of good governance and transparency. 3. Main achievements in the implementation of the country’s development policy (SCAPP)

The Strategy for Accelerated Growth and Shared Prosperity (SCAPP) is based on a vision of development geared toward sustainable, accelerated, diversified, inclusive and inequality-reducing economic growth includes three strategic pillars: (i) the promotion of strong, sustainable and inclusive growth; (ii) the development of human capital and access to basic social services; and (iii) the strengthening of all aspects of governance. The strategy will guide all government actions and all progress achieved in economic and social area will fall under one of the three strategic focal points mentioned above. 3.1 Promotion of strong, sustainable and inclusive growth

In order to promote the diversified growth of sectors vital to the national economy, several important actions have been undertaken in the area of agriculture (increasing usable agricultural land, optimizing the use of water resources, capacity building of stakeholders, and the development of a financing mechanism for agriculture), livestock (construction of new infrastructures, enhanced oversight of livestock inputs, the monitoring of animal health, and improved livestock breeds), and fisheries (significant increase of fishery exports, which reached MRU 26.1 billion in the first ten months of 2017 versus MRU 20.6 billion over the same period in 2016, which amounts to a 26% increase). The business climate has been improved through the implementation of a roadmap that aims to create ideal conditions for business. Thanks to this proactive policy, Mauritania rose 10 spots in the 2017 Doing Business rankings. Likewise, por-growth infrastructure has also been improved. This is particularly the case of energy infrastructures (increased renewable energy production capacity and the construction of new wind and solar plants), transportation infrastructure (improved domestic and international access), hydraulic infrastructures (access to drinking water and construction of new hydraulic infrastructures), ICT development, and the promotion skilled crafts professions. 3.2. Development of human capital and access to basic social services


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The Government has launched a reform program designed to improve the access, quality, governance, and management of human and financial resources in the education sector in order to strengthen human capital development, which is a major concern of the Government and a national priority. The access and quality of education and professional training have improved significantly over the last two years. Primary and secondary education have been improved and expanded through the construction of 75 new schools and 54 secondary school establishments and the rehabilitation of 40 others. The conditions at schools have improved through the creation of 100 new school cafeterias and the distribution of some 20,000 school supply kits. The net enrolment rate increased to 80.4% in 2017 from 75% in 2016 and the primary completion rate rose to 92% in 2017 from 80% in 2016, already surpassing the 2020 target of 85%. The gender parity index is also good, with the ratio of boys to girls being equal for several years now. Access to health services has also been improved, particularly with regard to governance (results-based financing strategy) and services, through the creation of new health districts (Circonscriptions Sanitaires d’Arrondissements et d’Aires de Santé) and the enhancement of human resources thanks to the recruitment of 1,818 health workers. Progress has also been made in the area of employment. The unemployment rate has fallen from 12.9% in 2014 to 11.8% in 2017. Employment opportunities have increased thanks to the creation of 601 small and medium enterprises in 2016 and 2017. To enhance the resilience of the most vulnerable segments of the population, the Government has taken action to improve access to drinking water, accelerate the construction of basic infrastructures and housing (low-cost housing and social housing in addition to developing and preparing land for the construction of new homes), and enhance social protection. 3.3 Strengthening all aspects of governance

Political governance, social cohesion, peace, and security have been strengthened through substantial improvements to the work conditions and resources of administrative authorities, which has included the recruitment of additional human resources. Similarly, the resources of defense and security forces have been augmented (new recruits, modern equipment, training, and appropriate infrastructure). The National Population Biometric Register (Registre National Biométrique des Populations) has improved migration management. The Government has implemented several measures to strengthen the justice sector, including the adoption of more diverse legal tools that improve access to the justice system and its public image, combat slavery and torture, and strengthen the rule of law throughout the country. Mauritania would benefit greatly from additional technical support and council in the area of governance and institutions. This would supplement and strengthen ongoing projects and reforms. Our teams are engaged in discussions with your institution in order to implement the necessary measures by pooling expertise on governance and institutions under the coordination of the World Bank. This expertise will cover government action at the local level by increasing the state’s presence, resource deployment at the local level, public finance management, the use of new technologies, citizen participation and the rule of law. In the short term, efforts will focus on public financial services, education and health.


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In conclusion, we are certain that continuing reforms in the areas of public finances, governance, and the business climate will, with support from your institution, allow us to achieve two of our most important common objectives: poverty reduction and sustainable development. Sincerely,

El Moctar OULD DJAY Minister of Economy and Finance


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ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE

Prior Actions Significant positive or negative environment effects

Significant poverty, social or distributional effects positive or

negative

Pillar 1--- SME Business Environment Reforms

Prior Action # 1: The Recipient’s Council of Ministers has submitted to Parliament a draft revised Arbitration Law.

No Yes / Positive


No No


No No

Pillar 2--- Reforms of the Broadband Digital Infrastructure Prior Action #4. Pursuant to its 2013 Telecom Law, the Recipient’s National Regulatory Council has adopted a regulatory decree (decision No. 026/19/ANE/CNR/DTP).

No Yes / Positive

Prior Action #5. Pursuant to its Telecom Law, the Recipient’s National Regulatory Council has adopted a regulatory decree (decision No. 225/18/ARE/CNR/DTP), subjecting internet service providers to a general authorization regime.

No Yes / Positive

Prior Action #6. The Recipient’s Council of Ministers has adopted a national strategy and an action plan for universal access to broadband, and the Committee on Public Investment has formally integrated it into the

No No


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Public Investment Program.

Pillar 3---Basic Education and Vocational Training Reforms. Prior Action #7. The Recipient’s MNEVTT has adopted Decrees No. 2019-038 and No. 2019-039 to (i) create and define the mandate of School Management Committees (COGES); and (ii) regulate absenteeism in primary and secondary public school teachers.

No Yes / Positive

Prior Action #8. The Recipient’s MNEVTT has adopted Decree No. 2019-040 instituting a strategic skills review for primary school teachers and requiring that all teachers meet minimum standards of competence in order to continue teaching.

No Yes / Positive

Prior Action #9. The Recipient’s MEF has adopted Ministerial Decree No. 2019-036 creating and defining the functioning of a new Technical and Vocational Support Fund (2FTP).

No Yes / Positive

Prior Action # 10. The Recipient’s MNEVTT has adopted Joint Ministerial Decree No. 2019-037 to require monitoring of INA-FTP’s use of funds from 2FTP through an annual audit.

No Yes / Positive


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ANNEX 5: DPF PRIOR ACTIONS AND ANALYTICAL UNDERPINNINGS

Prior Actions Analytical Underpinnings

Pillar 1: Reforms of the SME Business Environment

Prior Action # 1: The Recipient’s Council of Ministers has adopted and submitted to Parliament a revised Arbitration Law

• Dollmann, C. (2018). Improving Commercial Justice, Developing Alternative Dispute Resolution Mechanisms, and Modernizing the Commercial Registry in Mauritania.

• Ouattara, M. (2018). ICT Capacity Assessment for the Computerization of Mauritania's Business Registry.

• Chouari, A. (2018). Diagnostic and Recommendations for the Modernization of the Business and Collateral Registry (draft).

• Boli/Djibo, B. (2018). General Report – Support to Mauritania’s International Arbitration and Mediation Center.

Key findings: commercial justice is a major constraint for businesses operating in Mauritania as it is costly, inefficient, unreliable, and not accessible to all. It is not complemented by ADR mechanisms, whose practice is currently inexistent in Mauritania. The business and collateral registry is fragmented, ineffective, and paper-based. It does not constitute a source of reliable and transparent information on companies and collateralized assets, thus significantly hampering confidence of businesses and access to finance.



Pillar 2: Reforms of the Broadband Digital Infrastructure

Prior Action #4: Pursuant to its 2013 Telecom Law, the Recipient’s National Regulatory Council has adopted a regulatory decree (decision No. 026/19/ANE/CNR/DTP).

• WARCIP TA (completed in October 2018) to support identification and implementation of key legal and regulatory telecom reforms.

Key findings: Decrees covering terms and conditions for the granting of authorizations do not cover the case of mobile internet retail providers. As such, no authorizations have been granted. Necessity for the Regulatory Authority to assume a more dynamic regulatory role in order to encourage the development of broadband. Moreover, Infrastructure sharing dispositions are provided by the law on electronic communications but not reflected in the operators’ cahier des charges. Hence, the adoption of a regulation decision is needed to implement the legal framework. In absence of such decision, operators are facing operational difficulties in implementing infrastructure sharing: quasi-systematic refusals, extremely long delays of response or execution, and absence of formal complaint by operators to the Regulatory Authority. Finally, the implementation of the universal access Fund requires new terms and condition for financing and new operating procedures. These will not only help mitigate the governance issues but also facilitate the bidding process for the infrastructure projects with significant impact on access and quality of broadband services in underserved areas.

Prior Action #5: Pursuant to its 2013 Telecom Law, the Recipient’s National Regulatory Council has adopted a regulatory decree (decision No. 225/18/ARE/CNR/DTP) to operationalize telecom infrastructure-sharing between operators.

Prior action #6: The Recipient’s Council of Ministers has adopted a national strategy and action plan for universal access to broadband, and the Committee on Public Investment has fully funded the strategy’s action plan.


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Pillar 3: Basic Education and Vocational Training Reforms

Prior Action #7: The Recipient’s MNEVTT has adopted Decrees No. 2019-038 and No. 2019-039 to (i) create and define the mandate of School Management Committees (COGES); and (ii) regulate absenteeism in primary and secondary public school teachers.

• World Bank. 2018. “World Development Report 2018: Learning to Realize Education’s Promise.”

• World Bank 2016. Islamic Republic of Mauritania Public Expenditure Review (PER): Surfing the wave: public spending during the commodity super-cycle and beyond.

• The World Bank 2018 (to be published): Mauritania Service Delivery Indicators in Education.

• The World Bank 2016: SABER Country Report-Engaging the Private Sector in Education.

• République Islamique de Mauritanie 2015 : Rapport d’état sur le système éducatif national (RESEN).

• République Islamique de Mauritanie 2018 : Rapport du groupe de travail sur l’accès équitable à une éducation de qualité.

• République Islamique de Mauritanie 2018 : Rapport du groupe de travail sur la formation et la professionnalisation des enseignants.

• Consulting Ingénierie Développement 2017 : Identification d’un mécanisme de financement de la formation technique et professionnelle (FTP).

Key findings: Despite some improvements in access, education outcomes for Mauritania has been below peers when compared to various criteria of quality. This problem is also reverberated in vocational training, which suffers from governance weaknesses and lack of alignment with labor market demand. These have important implication on the productivity of the economy and future potential growth. Major constraints to strengthen the skills agenda in Mauritania include absence of teachers, management of teacher performance, lack of decision making at the school level, inefficient spending, and weak linkages between education and the skills needed for the labor market.

Prior Action #8: The Recipient’s MNEVTT has adopted Decree No. 2019-040 instituting a strategic staffing plan for primary school teachers and requiring that all teachers meet minimum standards of competence in order to continue teaching.

Prior Action #9: The Recipient’s MEF has adopted Ministerial Decree No. 2019-036 creating and defining the functioning of a new Technical and Vocational Support Fund (2FTP).

Prior Action #10: The Recipient’s MNEVTT has adopted Joint Ministerial Decree No. 2019-037 to require monitoring of INA-FTP’s use of funds from 2FTP through an annual audit.

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