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Cablegate: Mali Approves a Contentious 2010 Budget

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RR RUEHMA RUEHPA
DE RUEHBP #0049/01 0311112
ZNR UUUUU ZZH
R 311112Z JAN 10
FM AMEMBASSY BAMAKO
TO RUEHC/SECSTATE WASHDC 1076
INFO RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
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UNCLAS SECTION 01 OF 02 BAMAKO 000049

SIPDIS

E.O.12958: N/A
TAGS: EFIN ECON EAID EINT PREL PGOV
SUBJECT: MALI APPROVES A CONTENTIOUS 2010 BUDGET

REF: 09 BAMAKO 771

1. Summary: Mali's National Assembly approved the 2010 budget, also
known as the finance law, on December 18. The law passed by a wide
margin in spite of concern in the preceding weeks from opposition
political parties about the irregular way the GOM was accounting for
revenue from privatized parastatal companies. The 2010 budget is
ten percent larger than the 2009 budget, reflecting, in part, a
projected increase in revenue from better tax collection. A
visiting mission from the International Monetary Fund signaled
approval of the budget with some caveats. End summary.

2. The Malian government projects revenues in 2010 will increase by
9.6 percent over 2009 to CFA 1,101.603 billion (USD 2.45 billion).
This is due largely to expected improvements in tax and customs
collection, including the creation and maintenance of computerized
tax and customs databases as well as the creation of a new office
for medium-sized enterprises. In addition to increased fiscal
revenue, the privatization of the parastatal telecommunications
company SOTELMA in 2009 and continued funding commitments from
international donors will provide a boost to the public coffers.
Commitments from donors giving direct budget support to the GOM are
expected to total CFA 354.73 billion (USD 771 million), comprising
33 percent of the budget.

3. According to the IMF Resident Representative in Mali, the
increase in revenue forecast by the GOM is reasonable when taking
into account that GDP growth in 2010 was forecast at 4.3 percent and
inflation at 2.5 percent. The representative noted, however, that
there are some risks to these projections. The increase in revenue
will depend, in part, on the GOM following through on some
politically contentious commitments. This includes a reduction in
government subsidies for petroleum products, which reached a peak in
2008 in an attempt to reduce the burden of rising food and fuel
costs for Malian consumers. The second commitment was a planned
reduction in the corporate income tax. Rather than reduce the tax
from 35 percent to 25 percent, as the GOM intended, the IMF
suggested the reduction initially be limited to 5 percent, making
the corporate tax rate 30 percent.

4. The GOM's funding allocations reflect the objectives of the
country's Poverty Reduction and Growth Strategy (PRGS), translated
by the GOM into the Social and Economic Development Program (known
by its French acronym, PDES). The PDES is comprised of six axes:
improving public services; increasing agricultural production and
food security; supporting the private sector; bringing unemployed
youth and women into the formal sector; social sector development;
and societal reform. Expenditures, which include budget support
from Mali's international donors and a portion of the revenue from
the sale of SOTELMA, are expected to increase by 5.6 percent from
last year to CFA 1,196.1 billion (USD 2.6 billion).

5. In what many Malian parliamentarians and international donors
consider an unorthodox move, in 2010, the GOM will use only CFA 25
billion (USD 55.6 million) of the CFA 180 billion (USD 400 million)
it received from the 2009 sale of SOTELMA (reftel). Although the
sale was completed in 2009, the GOM will account for the revenue in
piecemeal fashion. The funds not used in 2010 will be held in a
bank account at the Mali branch of the Central Bank of West Africa
(BCEAO) to be used in 2011 and 2012. In the 2010 budget, one-fourth
of the CFA 25 billion is earmarked for infrastructure, agriculture,
and the social sectors; one-fourth for counterpart funds to
co-finance public investment with donors; one-fourth for paying down
domestic debt; and the balance for housing construction,
decentralization, and support to small enterprises. In order to
ensure transparency, the Malian government plans to budget the
future use of the remaining SOTELMA revenue. What is worrisome to
both Malian opposition political parties as well as to some in the
international donor community, however, is that the GOM has reserved
the majority of the funds from Mali's largest privatization for use
in the run-up of the 2012 presidential election. In addition to
worries about the manipulation of the revenue for political ends,
the money is not being used to finance a one-off project to
stimulate economic development as called for by bilateral and
multilateral donors. Rather, it will be sprinkled over 15 different
program areas that are currently ongoing, rendering the results of
this investment difficult to measure.

6. Mali's 2010 budget falls short of some macroeconomic targets
agreed upon under the PRGF. The GOM's target basic deficit for 2010
is 1.5 percent. As currently accounted, however, this figure does
not reflect some of the GOM's policy commitments, such as subsidies
for agricultural inputs, costs of privatizing the parastatal cotton
company, CMDT, and a potential investment aimed at revitalizing the
cotton sector. On their own, these commitments may reach 1 percent
of GDP, bringing the 2010 basic deficit to 2.5 percent. Mali's IMF
country representative noted that this was significantly higher than
the 0.6 percent recommended by the IMF in its July Board meeting.
Because the additional policy commitments are not yet well-defined,

BAMAKO 00000049 002 OF 002


they will be addressed in a supplementary budget law later this
year. In its letter of intent for the third review under the PRGF,
the GOM committed to passing the supplementary budget before the
fourth review. At that point, the GOM may use more than the
projected CFA 25 billion from the SOTELMA sale in order to maintain
the basic deficit at the targeted level. Note: Absent external
grants (e.g. direct budget support), concessional loans, and the use
of SOTELMA privatization receipts, the overall budget deficit is
projected to be 39 percent in 2010. End note.

7. In the most recent debt sustainability analysis for Mali,
completed in 2008, the IMF determined Mali was at low risk of debt
distress. The interest on the public deficit is budgeted as a
current expenditure in the budget. The GOM will limit borrowing
from the domestic banking system and the regional financial market
to 1 percent of GDP in order to ensure debt sustainability in line
with the debt sustainability analysis undertaken by the IMF.

8. The generally optimistic macroeconomic forecast notwithstanding,
the health of Mali's economy remains tenuous. Debt sustainability
relies on optimistic assumptions about continued gold production
over the medium term. A favorable balance of payments depends on
continued high world gold prices as well as stable production. In
addition, Mali remains highly vulnerable to fluctuations in
commodities markets as evidenced in 2008 with the spike in food and
fuel prices. And because of the lack of diversification in the
economy, a fall in remittances and tourism receipts, comprising
approximately 3.6 and 2.4 percent of GDP respectively in 2009, would
have strong adverse effects.

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