Mali Economic Update : Resilience in Uncertain Times - Renewing the Social Contract


The economic update is a annual report produced in the context of Mali’s macroeconomic monitoring. The report aims to inform the public opinion and development partners on recent economic trends, as analyzed by the World Bank, while providing policy options to improve socioeconomic development. Every year, the report also focuses on a special topic, selected to reflect the most pressing challenges. The special topic for the 2022 edition is motivated by the deterioration of the security environment since 2012, which is increasingly affecting Mali’s economy particularly agricultural output.

After an economic recession in 2020, Mali’s economic recovery in 2021 was weaker than initially projected and poverty continued to increase. Real GDP contracted by 1.2 percent in 2020 due to the COVID-19 pandemic, the August 2020 institutional change, and a mediocre agricultural campaign. The expected recovery in 2021 was cut short by another institutional change in May 2021, the expansion of violence to the Center, and the continued knock-on effects of the 2020 agricultural campaign2. Real GDP grew by 3.1 percent in 2021 which was just above the population growth rate estimated at 3 percent. As a result, per capita GDP stagnated in 2021 and the national poverty rate remained at 44.4 percent with an additional 50,000 people in extreme poverty.

Growth in 2021 was mainly supported by a rebound in consumption and an expansion of services in a context of growing inflationary pressures and intensifying food insecurity. Public consumption remained buoyant in 2021, driven by the rising wage bill and the extension into 2021 of several supportive fiscal measures in the COVID-19 response policy package. Private consumption benefited from the same fiscal measures and private investment also showed signs of resilience, particularly in residential construction. The recovery in cotton exports in 2021 was offset by a decrease in gold exports. At the same time, imports recovered in 2021 alongside domestic demand. On the supply side, the recovery was led by services consistent with the relaxation of containment measures. Manufacturing experienced a modest rebound. Food agriculture continued to decline in 2021 adding to inflation pressures and contributing to the current food insecurity crisis. In 2021, 1.3 million people, experienced an increased level of acute food insecurity representing the highest level recorded since 2015. Inflation rose to 4 percent in 2021, pushed by foodstuffs (5.2 percent) particularly cereal (8.9 percent).

The fiscal deficit decreased but remained high in 2021 and public debt continued to increase. The fiscal deficit declined to 4.7 percent of GDP in 2021 and was contained by the limited access to external concessional financing as a result of the two institutional changes as well as the authorities’ commitments under the IMF’s ECF program.
Revenue and expenditure expanded by about 1.2 percent and 0.8 percent of GDP respectively in 2021. Fiscal revenues were boosted by higher indirect tax collections, including on international trade with the recovery of imports, and the phasing-out of several COVID-19 related tax relief measures introduced in 2020. Expenditure also increases mainly on account of wage bill hikes to dampen social tensions, continued COVID-19 related spending, and higher tax expenditures to contain food prices. The deficit was financed predominantly through new bond issuances on the regional market, as external sources of finance dried up with the retrenchment of donor support. Mali’s stock of total public debt increased by 4.6 percentage points of GDP to reach 52 percent of GDP at end-2021. More than 80 percent of the new debt was contracted domestically on the regional market. The country remains at a moderate risk of debt distress (WBG-IMF Joint DSA, February 2021).

The banking sector remained sound and credit to the economy continued to expand in 2021. As of September 2021, the share of non-performing loans (NPLs) in total loans was unchanged at 10.4 percent as compared to 2020. The banking sector had among the strongest capital buffers in the WAEMU region and overall adequate liquidity cushions when the pandemic hit, but pockets of vulnerability have been intensified by the pandemic. Credit to the economy maintained a growth rate of 4.3 percent (4.4 percent in 2020) and concentrated in sectors particularly affected by the pandemic (as of June 2021, 45.3 percent of the bank loans went to retail and wholesale trade, restaurants, and hotels).

With heavy ECOWAS and WAEMU sanctions in place since January 2022, Mali’s economic prospects for 2022 have been lowered and are subject to significant downside risks. The postponement of the elections scheduled for February 2022 in the transitional charter for a period of up to 5 years led the ECOWAS and WAEMU to reintroduce new regional sanctions on January 9, 2022, including the suspension of commercial transactions with the exceptions of essential goods (food, pharmaceuticals, petroleum products and electricity), the suspension of financial transactions, including access to the regional money and capital market, the freeze of public assets in the Central Bank and commercial banks, and the suspension of regional financial assistance, mainly from the ECOWAS Bank for Investment and Development (EBID) and West African Development Bank (WADB). No agreement had been reached by the end of March 2022 between the transitional government and ECOWAS on the election timetable. If the sanctions are lifted early in the second quarter of 2022, economic growth could still stay in positive territory in 2022 with real GDP growth around 3 percent - 2 percentage points lower than what it was projected to be without sanctions. However, if the sanctions were to last two quarters or longer, the Malian economy is likely to fall back into recession in 2022 and the medium-term outlook would also be compromised.

Mali is dealing with a situation of increased fragility, conflict, and violence (FCV) that is inflicting a growing toll on the economy. Since 2012, both the frequency and lethality of violent events have surged. Fatalities have increased close to four-fold and the number of violent events surged nearly six-fold. Violence has also spread out from the northern to the agricultural central regions, particularly Mopti and Ségou, and, more recently, to the southern region’s main economic centers. It is estimated that the crisis costed the equivalent of 23 percent of GDP between 2012 and 2018, mainly due to depressed confidence and forgone private investments, estimated at US$5.3 billion, including US$3.2 billion of FDI. On the supply side, services (particularly telecommunications, trade, and public services) as well as agriculture have been the most significantly affected the conflict.

Growing fragility, conflict, and violence is adversely affecting local government finances and severely impacting basic service delivery and infrastructure, hampering the decentralization process. Armed attacks have had the effects of reducing local public revenues, at times on a prolonged basis. As a result, local service delivery has been severely disrupted. Attacks by various armed groups have also resulted in damage to infrastructure, further obstructing access to public services. In the Kidal region, the immunization rate has fallen to less than 1 percent. Deterioration in education and other basis services led to a ten-percentage point reduction in Mali’s multidimensional poverty.

Development policies, as laid out in the Strategic Framework for Economic Recovery and Sustainable Development (CREDD 2019-2023) need to focus on addressing the root causes of fragility, conflict, and violence. These include: (i) shortcomings in service delivery and governance that have eroded confidence towards institutions over years; (ii) poorly regulated competition over natural resources that are increasingly scarce and under demographic pressure; (iii) significant weaknesses in the security and justice sectors; and (iv) a succession of unresolved subnational conflicts that perpetuate cycles of violence. Addressing these drivers of conflict requires supporting a more inclusive management of natural resources, prioritizing prevention of conflict expansion through the strengthening of a positive state presence in fragile areas, accelerating the deployment of institutions outside capital cities and strengthening local capacity, and reducing corruption and building trust and confidence in the state-citizen relationship.