95162 INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONEYTARY FUND ISLAMIC REPUBLIC OF MAURITANIA Joint-Bank Fund Debt Sustainability Analysis Prepared by the staffs of the International Development Association and the International Monetary Fund Approved by John Panzer (IDA) and Daniela Gressani and Dhaneshwar Ghura (IMF) January 14, 2015 Mauritania’s risk of debt distress is rated high due to a breach of the debt-to-GDP ratio threshold under the baseline scenario. This represents a downgrade from the moderate risk of debt distress at the time of the 2012 Debt Sustainability Analysis. The downgrade is mostly due to a combination of higher projected debt disbursements and a more stringent level of the policy-dependent debt thresholds as measured by the World Bank CPIA score. The expected resolution of bilateral debt relief with Kuwait and a hike in export-led growth are projected to lower Mauritania’s debt level and enhance the capacity of carrying debt over the next years; however, strengthening the quality of policies and institutions—and particularly debt management capacity—will prove critical to rapidly revert to a moderate risk of debt distress. Overall, external debt dynamics tend to follow public debt dynamics, while private sector debt represents a modest portion of external debt. 2 I. INTRODUCTION Risk of external debt distress: High Augmented by significant risks stemming No from domestic public and/or private external debt? II. BACKGROUND 1. Debt level remains elevated and mostly represented by public and publicly guaranteed (PPG) debt. Private sector’s access to finance remains limited. Public debt is mostly of an external nature, in the form of official lending with multilateral or bilateral institutions at concessional terms. Debt peaked during 2012 as the central government put in place large investment projects to address Mauritania’s infrastructure gap. The public and publicly guaranteed (PPG) debt includes the debt of the central government, central bank and few state-owned enterprises (SOEs); and it is mainly constituted of external debt as the domestic debt is small. The non-publicly guaranteed external debt includes the state-owned mining company SNIM (which does not need government guarantees) and commercial banks’ debt. In 2012, the PPG external debt rose 7 percentage GDP points to 73½ percent of GDP (2012) due to higher external debt disbursements for the central government financing of large infrastructure projects and it is projected to decline to about 52 percent of GDP over the medium term. The non- publicly guaranteed external debt, at 17 percent of GDP in 2013, has recently increased as SNIM has borrowed externally to finance its mining expansion plans. 2. Mauritania’s debt structure remains broadly sound. Despite its high level, Mauritania’s debt structure remains solid. Debt is contracted with bilateral and multilateral institutions, a stable creditor base, and mostly at concessional terms. Multilateral and bilateral creditors account for 42 and 46 percent of total debt, respectively. Mauritania’s exposure to regional Arab lenders, with about 60 percent of the total debt portfolio, could make it vulnerable to a change in their lending policies. Its debt structure includes very limited guaranteed borrowing by SOEs and debt is contracted on fixed terms, with long maturities. Sources of risks in the debt structure relate to foreign currency exposure due to the size of the external debt, as 95 percent of its debt stock is denominated in foreign currency (mainly US dollar, Kuwaiti Dinar, and SDR). Domestic debt remains small (about 5 percent of stock) and consists of treasury bills for budgetary and liquidity management purposes. It is, nevertheless, issued at short maturity (up to six months) with some limited rollover risks. The debt service profile remains stable and relatively benign, but a term-of trade shock could hamper Mauritania’s ability to servicing its external debt. 3 Chart 1: Creditor base, 2013 Text Chart 1. Creditor base, 2013 (in percent of total) 7 5 12 23 Domestic commercial banks Regional multilaterals Other multilaterals Regional bilaterals 34 19 Other bilaterals Others Source: National authorities and IMF staff calculation 3. The authorities are actively seeking debt relief from Kuwait. An agreement has not yet been reached on this longstanding issue between the Kuwait Investment Authority (KIA) and Mauritania. Both parties are seeking agreement about the valuation of the passive debt, including interest in arrears. In accordance with Paris Club’s debt relief, Mauritania is seeking comparability of treatment consistent with the HIPC Initiative. III. UNDERLYING ASSUMPTIONS 4. This debt sustainability analysis (DSA) updates the join IMF-World Bank DSA produced in June 2012 for the fourth review under the Extended Credit Facility (ECF). The previous DSA concluded that the risk of debt distress was moderate but borderline high. It also highlighted that the debt dynamics were subject to risks emanating from country vulnerability to fiscal, FDI, exchange rate fluctuations and growth shocks, underscoring the need to continue improving debt management to safeguard medium-term sustainability. Key changes to the DSA inputs since the last exercise are as follows:  Real GDP growth is expected to be higher mainly due to a large expansion in the extractive industry and in particular in iron mining. Existing and new producers are already undergoing a large expansion of mining capacity which will increase production capacity from 11,000 to 18,000 tons by 2016. Another planned expansion will bring the country’s extraction capacity to over 60,000 tons by 2025. The mining projects result in a pronounced hump-shaped investment plan that will boost growth dynamics over the medium and long term. In addition, scaled-up public investment in agriculture aims at doubling the arable land. 4  Current account balances in the long run have been revised to account for the more ambitious mining expansion plans that could triple iron ore exports over the next ten years against forecasts of a much smaller 40 percent hike in the last DSA. In particular, during 2016-20, substantial FDI-financed current account deficits are projected as the mining capacity is expanded; to be followed by a sharp improvement as investment-related imports abate and exports expand, before stabilizing at a long-run level marginally better than forecast in the 2012 DSA (between 4 and 5 percent of GDP).  Level of GDP has been revised upwards as the authorities improved the national account statistics with the help of technical assistance from the AFRITAC West. On average, GDP has increased by about 20 percent compared to previously reported GDP series used in the previous DSA. Average real GDP growth will average 7 percent over the medium term and expected to anchor around 6 percent afterwards.  Metal prices have considerably changed since the previous DSA. Mauritania benefitted until recently from high iron ore prices and positive terms of trade. Iron prices sharply decreased during 2014 both due to a rise in global mining capacity and lower global demand (mainly driven by the heightened uncertainty associated with China and Europe’s growth prospects). Medium-term projections suggest iron ore prices about 32 percent lower than forecasted at the time of the 2012 DSA (at US$72 per ton). Therefore, medium-run terms of trade are therefore expected to deteriorate relative to the expectations at the time of the last DSA.  Public financing needs have increased as the authorities have embarked on a program of public investments, with central government capital expenditure averaging over 12 percent of non-extractive GDP in the coming years (up from 9 percent in 2011). Projected new debt disbursements, percent of GDP Projected new debt disbursements 8 have been revised upwards starting 7 2014 DSA in 2015, when they will reach 6 2012 DSA around USD 360 million (7 percent 5 of GDP). They will gradually 4 decline afterwards to stabilize at 3 about 4 percent of GDP by 2018. It 2 is envisaged that most of the initial 1 new borrowing will be on 0 concessional terms, with the share 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 of non-concessional borrowing in Source: IMF staff. Note: Both series use updated GDP projections the total growing over the forecast horizon.  CPIA scores determine a country’s quality of policies and institutions which, in turn, affect debt thresholds against which the various debt ratios calculated in the DSA are compared. The CPIA score of Mauritania has reported significant gains in the institutional environment since 5 2011. However, the DSA Mauritania: Annual and 3-year moving average CPIA considers a three-year moving average of the CPIA score and 3.40 small fluctuations in the moving 3.35 average have to be maintained 3.30 for at least 2 years to have an 3.25 effect on the DSA.1 According 3.20 to this rule, Mauritania’s debt Annual CPIA 3.15 ratio thresholds have moved 3-year moving average CPIA down to the weak institutional 3.10 Threshold performers in this DSA due to 3.05 the lagged impact of the low 2005 2006 2007 2008 2009 2010 2011 2012 2013 CPIA score the country received Source: World Bank. in 2011. This includes a move from 40 to 30 percentage points for the ratio of the present value of PPG external debt to GDP. The latest three-year average CPIA score (at 3.24 for 2011-13) has now been below the threshold for weak performers of 3.25 for over two years (which had not been the case at the time of the 2012 DSA). This precipitated the reclassification.2  KIA debt relief is assumed to take place in 2015 and incorporated into the analysis since Mauritania had reached the HIPC completion point. The last DSA assumed the debt relief to take place in 2012. IV. EXTERNAL DEBT SUSTAINABILITY ASSESSMENT 5. PPG external debt ratios remain below indicative thresholds in the baseline scenario over the medium term except for the debt-to-GDP ratio (Figure 1 and Tables 1 and 2). The debt profile of the country has improved relative to the 2012 DSA despite the higher projected disbursements mainly due to the upward revision of the GDP3. Yet under the baseline scenario, the ratio of PV of PPG external debt to GDP breaches its threshold through 2025 because this threshold has been lowered to 30 percent from 40 percent due to the reclassification of the country’s institutional quality. The ratio will reach slightly over 39 percent in 2015-16 (after a decline due to the assumed KIA debt relief) and then decline slowly to stabilize at around 35 percent. The decrease over time is driven by the pick-up in exports which 1 The methodology is described in https://www.imf.org/external/np/pp/eng/2013/110513.pdf. The new methodology incorporates, among others, revised debt thresholds and benchmarks for public sector debt, and revised guidance for the incorporation of remittances in the DSA. The latter is, however, not relevant in Mauritania due to low private remittances. 2 The use of the 3-year moving average aims at avoiding frequent changes in the risk of external debt distress ratings as a result of small changes in the CPIA around the thresholds used to determine the institutional quality classification. If only the current CPIA rating (at 3.3) were used, Mauritania would have maintained the moderate risk of debt distress. 3 With the new national accounts, GDP numbers have been revised upwards by 20 percent on average, and the 2013 PPG external debt-to-GDP ratio has been revised from 84 percent to 69.2 percent. 6 will translate into both stronger growth and fiscal revenues. The breach of the relevant threshold by the ratio of PV of PPG external debt to GDP is, at over 9 percentage points in 2015, somewhat larger but much more sustained than the breach of the threshold for the same ratio in the 2012 DSA. 6. Standardized stress tests lead to breaches of three debt ratio thresholds and point to the vulnerability of projected debt reduction to both domestic and external factors. A currency devaluation and failure to secure the projected non-debt creating flows would be particularly damaging to the ratios, even though the latter would probably be partially offset by lower imports. 7. The historical scenario produces unrealistically large swings in the level of projected external debt. This result is driven by the large discrepancy between changes in external debt and identified net debt-creating flows in the baseline scenario. This scenario involves a substantial change in the current account balance from a large FDI-financed deficit while the mining capacity is being expanded in the short run to a much diminished one once mining exports have increased. A large portion of the projected current account deficits in the short run will be financed by SNIM and a substantial share of the improvement in current account balances in the medium run will accrue to SNIM. The former will not raise the PPG external debt and the latter will not be necessarily used to rapidly decrease the external indebtedness of the sovereign. The large residuals in the analysis arise from the fact that a large share of SNIM’s project financing as well as use of the resulting higher export proceeds is unlikely to fall under the identified net debt-creating flow categories, which include non-interest current account balance. 8. The outlook for overall external debt has worsened in absolute terms compared to the last DSA. This can be attributed to the public external borrowing disbursements planned for infrastructure projects as well as increased borrowing from SNIM—whose significant debt-financed expansion plans could further raise external debt vulnerabilities. In addition, the 2012 DSA assumed that the now-delayed KIA debt relief would have been completed by this point. V. PUBLIC DEBT SUSTAINABILITY ASSESSMENT 9. Indicators of overall public debt (external and domestic) and debt service mirrors the vulnerabilities associated with the external debt. The total public debt mildly breaches its indicative benchmark after the assumed KIA debt relief even though the breach steadily declines over the forecast horizon. The stress scenarios show that this projection is particularly vulnerable to currency depreciation and depends on the materialization of the expected export-led growth. 10. Overall public debt is largely comprised of PPG external debt. Almost 90 percent of total public debt in Mauritania is PPG external debt. Domestic public debt has hovered around 5 to 7 percent of GDP and is not a significant contributing factor to the overall public debt level. 7 VI. CONCLUSION 11. Mauritania’s risk of external debt distress has increased due to a combination of the reclassification of its institutional capacity and higher projected new debt disbursements. The new institutional capacity classification has resulted in lowering of Mauritania’s debt thresholds, including from 40 to 30 percentage points for the ratio of the present value of PPG external debt to GDP. As a result of a baseline breach due to a lower threshold, the risk of debt distress has increased from moderate to high. In addition, the projected disbursement path in the coming years will increase PPG external debt level. The projected KIA debt relief will not, in itself, resolve breaching the threshold for the ratio of PV of PPG external debt to GDP. In the medium term, increased exports and the resulting output growth should decrease the country’s debt burden. The outlook would worsen substantially should the projected increases in exports and the subsequent higher growth and improvements in current account balances not materialize, in particular due to delays to or cancellations of mining capacity expansion plans. 12. Given the challenges of reducing debt rapidly, Mauritania needs to continue improving its institutional environment to quickly return to a moderate risk of debt distress. An anticipated debt relief and a hike in export-led growth are projected to lower Mauritania’s debt level and enhance the capacity of carrying debt over the next years; but debt management capacity needs to be strengthened. Given that under the baseline a breach of a threshold occurs for the duration of the projection period, Mauritania could gain substantially from a stronger institutional environment to increase the debt tolerance level. Within the categories of institutions considered by the CPIA score, Mauritania has largest scope for improvement in debt policy, financial sector, social protection and transparency in the public sector. The country should therefore, among other measures, redouble its efforts to implement a social protection framework that would help the socially vulnerable. Elsewhere, following the recommendation of the recent FSAP exercise should aid Mauritania in improving its financial sector institutions. 13. Recent technical assistance from AFRITAC-West provides recommendations to improve debt management practices which both bear on the overall CPIA score and is directly linked to Mauritania’s debt management capacity. The technical assistance mission assessed that debt management in Mauritania is fragmented and the relevant operational responsibilities are shared and duplicated. The authorities should therefore reorganize the functions of the various departments of the Ministry of Economic Affairs and Development, Ministry of Finance and the Central Bank that participate in debt management to increase the efficiency and coordination in debt contraction and management. 14. The authorities do not agree with the reclassification of the country’s quality of policies and institutions into the weak category as a function of the past CPIA scores, which has a direct bearing on the change in the country’s risk of external debt distress from medium to high. In particular, they believe the methodology in the joint Bank-Fund Debt Sustainability Framework for low- income countries places too much weight in its assessment of institutional quality on the past and too little on the present. The country’s institutional quality is being downgraded at a point in time when the CPIA has both been increasing for 3 consecutive years and has risen above the 3.25 minimum level 8 required for medium quality of institutions. This means that the risk of the external debt distress is being increased while the actual institutional quality is improving and the macroeconomic environment remained stable. 9 Figure 1. Mauritania: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2014-2034 1/ a. Debt Accumulation b.PV of debt-to GDP ratio 6 40 120 4 40 2 100 0 39 -2 2014 2019 2024 2029 2034 80 -4 39 -6 38 60 -8 -10 38 40 -12 37 -14 20 -16 37 0 Rate of Debt Accumulation 2014 2019 2024 2029 2034 Grant-equivalent financing (% of GDP) Grant element of new borrowing (% right scale) c.PV of debt-to-exports ratio d.PV of debt-to-revenue ratio 300 450 400 250 350 200 300 250 150 200 100 150 100 50 50 0 0 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 e.Debt service-to-exports ratio f .Debt service-to-revenue ratio 16 20 14 18 16 12 14 10 12 8 10 8 6 6 4 4 2 2 0 0 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 Baseline Historical scenario Most extreme shock 1/ Threshold Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio on or before 2024. In figure b. it corresponds to a One-time depreciation shock; in c. to a Non-debt flow s shock; in d. to a One-time depreciation shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock 10 Figure 2. Mauritania: Indicators of Public Debt Under Alternative Scenarios, 2014-34 1/ Most extreme shock One-time depreciation Baseline Fix Primary Balance Most extreme shock 1/ Historical scenario Public debt benchmark 80 70 PV of Debt-to-GDP Ratio 60 50 40 30 20 10 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 300 PV of Debt-to-Revenue Ratio 2/ 250 200 150 100 50 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 25 Debt Service-to-Revenue Ratio 20 15 10 5 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio on or before 2024. 2/ Revenues are defined inclusive of grants. 11 Table 1. Mauritania: External Debt Sustainability Framework, Baseline Scenario, 2011-34 1/ (In percent of GDP, unless otherwise indicated) Actual Historical 6/ Standard 6/ Projections Average Deviation 2014-2019 2020-2034 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average 2024 2034 Average External debt (nominal) 1/ 75.5 88.9 86.5 90.1 76.2 76.9 78.0 85.6 88.6 72.8 56.1 of which: public and publicly guaranteed (PPG) 66.7 73.5 69.2 73.7 61.3 61.1 60.5 56.8 53.4 53.2 52.4 Change in external debt -5.4 13.5 -2.5 3.6 -13.9 0.7 1.1 7.6 3.0 -3.9 -0.4 Identified net debt-creating flows -18.9 2.2 -1.7 4.7 -4.2 2.2 6.0 15.0 6.3 -9.8 -23.4 Non-interest current account deficit 4.6 25.4 23.3 16.1 13.1 22.9 6.0 21.1 29.6 35.1 20.9 2.1 2.5 2.1 Deficit in balance of goods and services 5.0 28.8 23.7 22.4 9.5 22.2 30.7 36.3 22.0 0.3 2.2 Exports 58.1 57.9 55.7 47.9 42.0 42.7 40.5 43.7 47.3 46.8 41.9 Imports 63.1 86.7 79.5 70.3 51.6 64.9 71.2 80.0 69.4 47.1 44.1 Net current transfers (negative = inflow) -2.9 -6.6 -2.8 -4.5 1.7 -2.8 -6.4 -2.4 -2.2 -2.0 -1.9 -1.6 -1.4 -1.6 of which: official -2.3 -5.7 -1.6 -1.6 -5.3 -1.2 -1.1 -1.0 -0.9 -0.7 -0.4 Other current account flows (negative = net inflow) 2.6 3.3 2.4 3.3 2.9 1.3 1.1 0.8 0.7 3.4 1.7 Net FDI (negative = inflow) -11.5 -28.5 -22.1 -13.1 13.4 -14.3 -7.1 -15.7 -21.7 -16.2 -10.3 -9.5 -23.3 -13.3 Endogenous debt dynamics 2/ -12.0 5.3 -2.8 -3.8 -3.1 -3.2 -1.8 -3.9 -4.2 -2.4 -2.6 Contribution from nominal interest rate 0.5 0.7 1.5 1.7 1.8 1.7 1.7 1.8 2.3 1.9 0.7 Contribution from real GDP growth -3.0 -4.8 -4.8 -5.6 -4.9 -4.9 -3.6 -5.7 -6.5 -4.3 -3.2 Contribution from price and exchange rate changes -9.5 9.4 0.4 … … … … … … … … Residual (3-4) 3/ 13.5 11.3 -0.8 -1.1 -9.7 -1.5 -4.9 -7.4 -3.3 5.9 23.0 of which: exceptional financing -0.3 1.8 -0.2 0.0 17.0 0.0 0.0 0.0 0.0 0.0 0.0 PV of external debt 4/ ... ... 68.0 70.2 54.7 55.6 56.9 65.9 70.1 54.7 39.0 In percent of exports ... ... 122.0 146.8 130.3 130.2 140.8 150.9 148.1 117.0 93.0 PV of PPG external debt ... ... 50.7 53.8 39.8 39.8 39.4 37.1 34.9 35.1 35.3 In percent of exports ... ... 91.0 112.5 94.8 93.2 97.3 84.9 73.7 75.0 84.2 In percent of government revenues ... ... 187.5 205.9 145.5 153.1 149.0 145.8 138.2 134.7 137.1 Debt service-to-exports ratio (in percent) 1.4 2.2 6.3 10.6 12.0 11.8 13.7 13.2 15.6 15.5 7.2 PPG debt service-to-exports ratio (in percent) 0.0 0.0 3.9 5.4 6.1 6.7 7.7 7.0 6.2 6.0 7.2 PPG debt service-to-revenue ratio (in percent) 0.0 0.0 8.0 9.8 9.4 11.0 11.8 12.0 11.7 10.8 11.7 Total gross financing need (Billions of U.S. dollars) -0.2 0.0 0.4 0.9 0.4 0.8 1.0 1.8 1.5 0.3 -2.1 Non-interest current account deficit that stabilizes debt ratio 10.0 12.0 25.8 19.3 19.9 20.4 28.4 27.4 17.9 6.0 2.9 Key macroeconomic assumptions Real GDP growth (in percent) 4.4 6.0 5.7 5.7 5.4 6.4 5.5 6.8 5.0 8.0 8.4 6.7 5.8 6.0 5.9 GDP deflator in US dollar terms (change in percent) 13.3 -11.1 -0.5 7.0 10.3 -6.6 -4.3 0.3 2.2 2.4 2.3 -0.6 -1.6 -1.2 -1.3 Effective interest rate (percent) 5/ 0.7 0.8 1.8 0.5 0.6 2.0 2.0 2.3 2.4 2.5 2.9 2.4 2.6 1.2 2.2 Growth of exports of G&S (US dollar terms, in percent) 32.9 -6.2 1.3 27.0 35.5 -14.6 -11.4 9.0 1.6 19.4 20.2 4.0 0.7 3.1 3.9 Growth of imports of G&S (US dollar terms, in percent) 22.5 29.4 -3.6 22.2 29.7 -12.1 -25.9 34.9 17.7 24.3 -3.8 5.9 3.6 4.5 1.7 Grant element of new public sector borrowing (in percent) ... ... ... ... ... 38.7 39.5 39.0 38.8 37.6 37.8 38.6 37.6 37.8 37.6 Government revenues (excluding grants, in percent of GDP) 22.0 27.7 27.0 26.2 27.4 26.0 26.4 25.4 25.2 26.1 25.8 26.0 Aid flows (in Billions of US dollars) 7/ 0.0 0.2 0.3 0.3 0.4 0.3 0.3 0.3 0.3 0.4 0.6 of which: Grants 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 of which: Concessional loans 0.0 0.0 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.5 Grant-equivalent financing (in percent of GDP) 8/ ... ... ... 3.2 3.6 3.0 2.9 2.2 2.1 2.1 2.1 2.1 Grant-equivalent financing (in percent of external financing) 8/ ... ... ... 46.4 45.4 45.4 44.8 44.5 43.9 42.8 43.0 42.9 Memorandum items: Nominal GDP (Billions of US dollars) 5.1 4.8 5.1 5.1 5.1 5.5 5.9 6.5 7.2 9.1 14.0 Nominal dollar GDP growth 18.2 -5.8 5.2 -0.6 1.0 7.2 7.3 10.6 10.9 6.1 4.1 4.7 4.5 PV of PPG external debt (in Billions of US dollars) 2.6 2.7 2.0 2.2 2.3 2.4 2.5 3.2 5.0 (PVt-PVt-1)/GDPt-1 (in percent) 2.8 -13.6 2.8 2.4 1.6 1.6 -0.4 1.7 1.5 1.6 Gross workers' remittances (Billions of US dollars) 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 PV of PPG external debt (in percent of GDP + remittances) ... ... 50.2 53.2 39.3 39.3 38.9 36.7 34.5 34.8 35.0 PV of PPG external debt (in percent of exports + remittances) ... ... 89.2 109.8 92.2 90.7 94.7 82.9 72.1 73.5 82.4 Debt service of PPG external debt (in percent of exports + remittances) ... ... 3.8 5.2 6.0 6.5 7.5 6.8 6.1 5.9 7.0 Sources: Country authorities; and staff estimates and projections. 0 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Assumes that PV of private sector debt is equivalent to its face value. 12 Table 2. Mauritania: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2014-34 (In percent) Projections 2014 2015 2016 2017 2018 2019 2024 2034 PV of debt-to GDP ratio Baseline 54 40 40 39 37 35 35 35 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 54 37 34 29 18 13 28 101 A2. New public sector loans on less favorable terms in 2014-2034 2 54 42 43 44 43 41 47 59 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 54 42 45 44 41 39 39 40 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 54 39 43 42 40 37 37 36 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 54 39 41 40 38 36 36 36 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 54 47 58 57 53 50 48 40 B5. Combination of B1-B4 using one-half standard deviation shocks 54 34 33 33 31 29 30 33 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 54 58 58 57 54 51 51 51 PV of debt-to-exports ratio Baseline 112 95 93 97 85 74 75 84 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 112 89 80 73 42 28 60 240 A2. New public sector loans on less favorable terms in 2014-2034 2 112 99 101 109 98 88 101 140 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 112 95 93 97 85 74 75 84 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 112 90 116 121 105 91 92 99 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 112 95 93 97 85 74 75 84 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 112 112 135 140 122 106 102 94 B5. Combination of B1-B4 using one-half standard deviation shocks 112 68 64 67 59 51 54 66 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 112 95 93 97 85 74 75 84 PV of debt-to-revenue ratio Baseline 206 145 153 149 146 138 135 137 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 206 136 131 111 72 53 108 391 A2. New public sector loans on less favorable terms in 2014-2034 2 206 152 166 167 168 164 182 228 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 206 153 171 167 163 155 151 153 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 206 142 164 160 156 148 143 140 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 206 144 157 153 150 142 138 141 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 206 173 221 214 210 199 183 154 B5. Combination of B1-B4 using one-half standard deviation shocks 206 124 128 125 123 116 117 130 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 206 212 223 217 212 201 196 200 13 Table 2. Mauritania: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2014-34 (continued) (In percent) Debt service-to-exports ratio Baseline 5 6 7 8 7 6 6 7 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 5 5 6 6 5 4 3 9 A2. New public sector loans on less favorable terms in 2014-2034 2 5 6 6 7 7 6 7 12 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 5 6 7 8 7 6 6 7 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 5 6 8 9 8 7 7 9 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 5 6 7 8 7 6 6 7 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 5 6 7 9 8 7 9 9 B5. Combination of B1-B4 using one-half standard deviation shocks 5 5 5 6 5 5 4 5 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 5 6 7 8 7 6 6 7 Debt service-to-revenue ratio Baseline 10 9 11 12 12 12 11 12 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 10 8 9 9 9 8 6 15 A2. New public sector loans on less favorable terms in 2014-2034 2 10 9 11 11 12 12 13 19 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 10 10 12 13 13 13 12 13 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 10 9 11 12 12 12 12 12 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 10 9 11 12 12 12 11 12 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 10 9 12 13 14 13 16 15 B5. Combination of B1-B4 using one-half standard deviation shocks 10 9 10 11 11 11 9 10 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 10 14 16 17 17 17 16 17 Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline) 6/ 32 32 32 32 32 32 32 32 Sources: Country authorities; and staff estimates and projections. 1/ Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 2/ Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline. 3/ Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels). 4/ Includes official and private transfers and FDI. 5/ Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent. 6/ Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2. 14 Table 3. Mauritania: Public Sector Debt Sustainability Framework, Baseline Scenario, 2011-34 (In percent of GDP, unless otherwise indicated) Actual Estimate Projections 5/ 5/ Standard 2014-19 2020-34 Average 2011 2012 2013 Deviation 2014 2015 2016 2017 2018 2019 Average 2024 2034 Average Public sector debt 1/ 72.2 79.4 73.7 78.4 66.0 65.9 65.2 61.6 58.4 57.5 54.9 of which: foreign-currency denominated 66.7 73.5 69.2 73.7 61.3 61.1 60.5 56.8 53.4 53.2 52.4 Change in public sector debt -8.4 7.2 -5.7 4.7 -12.4 -0.2 -0.6 -3.6 -3.2 0.0 -0.4 Identified debt-creating flows -12.2 1.5 -4.2 3.4 -16.9 -3.8 -3.8 -5.6 -5.9 -2.7 -2.5 Primary deficit -0.4 -2.7 0.0 0.1 2.6 2.0 0.1 -0.3 -0.3 -0.3 -0.7 0.1 -1.2 -0.7 -1.1 Revenue and grants 22.5 32.4 27.8 27.0 28.1 26.7 27.0 26.0 25.7 26.5 26.2 of which: grants 0.5 4.7 0.7 0.8 0.8 0.7 0.6 0.5 0.5 0.4 0.4 Primary (noninterest) expenditure 22.1 29.7 27.8 29.0 28.2 26.3 26.7 25.7 25.0 25.2 25.4 Automatic debt dynamics -11.8 4.1 -4.2 1.4 0.1 -3.5 -3.5 -5.3 -5.2 -1.4 -1.7 Contribution from interest rate/growth differential -4.8 -4.5 -4.4 -4.2 -4.3 -4.4 -3.4 -5.1 -5.0 -2.3 -2.3 of which: contribution from average real interest rate -1.4 -0.4 -0.1 0.2 -0.3 -0.1 -0.3 -0.3 -0.2 0.9 0.8 of which: contribution from real GDP growth -3.4 -4.1 -4.3 -4.4 -4.1 -4.2 -3.1 -4.8 -4.8 -3.2 -3.1 Contribution from real exchange rate depreciation -7.0 8.6 0.2 5.6 4.4 0.9 -0.1 -0.2 -0.1 ... ... Other identified debt-creating flows 0.0 0.0 0.0 0.0 -17.0 0.0 0.0 0.0 0.0 0.0 0.0 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recognition of implicit or contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 -17.0 0.0 0.0 0.0 0.0 0.0 0.0 Other (specify, e.g. bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Residual, including asset changes 3.8 5.7 -1.5 1.3 4.5 3.7 3.2 2.0 2.7 2.6 2.1 Other Sustainability Indicators PV of public sector debt ... ... 55.2 58.5 44.6 44.5 44.1 41.9 39.9 39.4 37.9 of which: foreign-currency denominated ... ... 50.7 53.8 39.8 39.8 39.4 37.1 34.9 35.1 35.3 of which: external ... ... 50.7 53.8 39.8 39.8 39.4 37.1 34.9 35.1 35.3 PV of contingent liabilities (not included in public sector debt) ... ... ... ... ... ... ... ... ... ... ... Gross financing need 2/ 9.1 3.2 8.1 9.5 7.5 7.2 7.5 7.3 6.8 6.2 5.0 PV of public sector debt-to-revenue and grants ratio (in percent) … … 198.7 216.8 158.4 166.9 163.2 161.3 155.3 149.1 144.7 PV of public sector debt-to-revenue ratio (in percent) … … 204.2 223.9 162.9 171.3 167.1 164.8 158.2 151.4 147.0 of which: external 3/ … … 187.5 205.9 145.5 153.1 149.0 145.8 138.2 134.7 137.1 Debt service-to-revenue and grants ratio (in percent) 4/ 14.2 1.2 9.3 11.4 10.6 12.1 12.9 13.2 12.9 11.7 12.2 Debt service-to-revenue ratio (in percent) 4/ 14.5 1.4 9.5 11.7 10.9 12.5 13.2 13.4 13.1 11.9 12.4 Primary deficit that stabilizes the debt-to-GDP ratio 7.9 -9.8 5.7 -2.8 12.5 -0.2 0.3 3.3 2.4 -1.2 -0.4 Key macroeconomic and fiscal assumptions Real GDP growth (in percent) 4.4 6.0 5.7 5.7 5.4 6.4 5.5 6.8 5.0 8.0 8.4 6.7 5.8 6.0 5.9 Average nominal interest rate on forex debt (in percent) 0.0 0.0 1.0 0.1 0.3 1.1 1.1 1.4 1.5 1.5 1.5 1.3 1.4 1.3 1.4 Average real interest rate on domestic debt (in percent) -7.2 9.8 4.1 3.8 8.8 12.9 4.7 2.5 1.1 1.0 1.2 3.9 5.1 5.2 4.8 Real exchange rate depreciation (in percent, + indicates depreciation) -10.1 13.9 0.3 -4.0 7.9 8.7 ... ... ... ... ... ... ... ... ... Inflation rate (GDP deflator, in percent) 15.3 -5.8 0.1 8.2 8.3 -5.3 0.5 2.4 4.2 4.6 4.5 1.8 -0.5 -0.2 -0.1 Growth of real primary spending (deflated by GDP deflator, in percent) 5.3 42.8 -1.2 6.7 16.1 11.0 2.6 -0.2 6.6 3.7 5.5 4.9 5.9 6.0 6.0 Grant element of new external borrowing (in percent) ... ... ... … … 38.7 39.5 39.0 38.8 37.6 37.8 38.6 37.6 37.8 ... Sources: Country authorities; and staff estimates and projections. 1/ [Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.] 2/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period. 3/ Revenues excluding grants. 4/ Debt service is defined as the sum of interest and amortization of medium and long-term debt. 5/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 15 Table 4. Mauritania: Sensitivity Analysis for Key Indicators of Public Debt 2014-34 Projections 2014 2015 2016 2017 2018 2019 2024 2034 PV of Debt-to-GDP Ratio Baseline 59 45 45 44 42 40 39 38 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 59 45 45 45 44 43 48 54 A2. Primary balance is unchanged from 2014 59 46 47 48 47 47 57 72 A3. Permanently lower GDP growth 1/ 59 45 46 47 46 45 55 91 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-2016 59 48 53 54 54 53 63 78 B2. Primary balance is at historical average minus one standard deviations in 2015-2016 59 46 48 48 45 43 43 40 B3. Combination of B1-B2 using one half standard deviation shocks 59 47 49 50 48 47 52 59 B4. One-time 30 percent real depreciation in 2015 59 69 66 64 59 55 51 46 B5. 10 percent of GDP increase in other debt-creating flows in 2015 59 51 51 50 48 45 45 42 PV of Debt-to-Revenue Ratio 2/ Baseline 217 158 167 163 161 155 149 145 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 217 158 170 166 168 168 181 204 A2. Primary balance is unchanged from 2014 217 163 177 179 182 182 216 274 A3. Permanently lower GDP growth 1/ 217 161 173 173 176 175 208 347 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-2016 217 170 198 201 206 206 236 297 B2. Primary balance is at historical average minus one standard deviations in 2015-2016 217 165 181 177 174 168 161 154 B3. Combination of B1-B2 using one half standard deviation shocks 217 165 185 185 186 183 196 225 B4. One-time 30 percent real depreciation in 2015 217 244 248 236 228 215 193 176 B5. 10 percent of GDP increase in other debt-creating flows in 2015 217 182 191 186 184 177 169 160 Debt Service-to-Revenue Ratio 2/ Baseline 11 11 12 13 13 13 12 12 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 11 11 12 13 14 14 13 16 A2. Primary balance is unchanged from 2014 11 11 12 13 14 14 14 21 A3. Permanently lower GDP growth 1/ 11 11 12 13 14 14 14 24 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-2016 11 11 14 15 16 16 16 22 B2. Primary balance is at historical average minus one standard deviations in 2015-2016 11 11 12 14 14 13 13 13 B3. Combination of B1-B2 using one half standard deviation shocks 11 11 13 14 15 14 14 18 B4. One-time 30 percent real depreciation in 2015 11 12 17 18 19 19 18 21 B5. 10 percent of GDP increase in other debt-creating flows in 2015 11 11 13 15 14 14 13 14 Sources: Country authorities; and staff estimates and projections. 1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period. 2/ Revenues are defined inclusive of grants.