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Fitch Affirms Mali's 'B-' Rating

March 27, 2006 | Cbonds

Fitch Ratings has today affirmed the Republic of Mali's ratings at foreign currency Issuer Default 'B-' (B minus) and Short-term 'B'. The local currency Issuer Default rating is also affirmed at 'B-' (B minus) with Stable Outlook.
The ratings reflect Mali's weak economic potential and lack of diversification, notwithstanding efforts to improve governance, management of public finances and to introduce structural reforms. These efforts have been key in attracting substantial funds from the donor community under various official development assistance programmes. Mali received significant debt relief under the Highly Indebted Poor Countries ("HIPC") programme in 2003 and became eligible for the G8 Multilateral Debt Relief Initiative ("MDRI") to be implemented in 2006. Under this initiative, debt owed to the IMF was cancelled as of 1 January 2006 and debt owed to the World Bank and to the African Development Fund will be fully cancelled in July 2006, which will lead to a substantial reduction in external and public debt.

The ratings also derive support from Mali's membership of the West African Economic and Monetary Union ("WAEMU"), under which Mali's monetary policy is placed under the authority of the regional central bank. Its access to foreign currency is guaranteed, under certain conditions, by France; hence, the risk of a default on the external debt is more closely related to the budgetary situation than the external position.

Mali remains one of the poorest countries in the world, and, due to the lack of diversification of its economy, is still highly exposed to external shocks - climatic as well as terms of trade. Owing to the country's landlocked position, insufficient infrastructure and unskilled labour force, the economy centres on the production of commodities, in particular cotton and gold. The economy is gradually recovering from the difficulties experienced in 2004 - the impact of locust invasion on agriculture and the drop in cotton prices - which resulted in lower-than-expected economic growth, and pressure on budget and external accounts. In 2005, the rise in oil prices and the continuing slump in cotton prices aggravated the structural current account deficit. Despite cost-cutting efforts by the government, the budget deficit also widened, mainly as a result of losses incurred by the state-owned cotton manufacturer.

In 2006, the current account deficit should continue to widen as the impact of the drop in cotton prices will not be offset by an expected increase in gold exports. Nevertheless, due to large debt alleviations under the MDRI, Fitch expects a further decline in the country's debt. The debt cancellations granted since 2003 significantly reduce financial constraints and give Mali an extraordinary opportunity to implement economic reforms and diversify its economy. However, Fitch is concerned by the delays experienced in the implementation of structural reforms this year. The privatisation of the cotton industry has been postponed to 2008 and the state has taken a majority stake in the country's electricity and water distribution company, following the withdrawal of a strategic partner in 2005. Fitch will closely monitor the country's commitment towards structural reforms, which will be key in improving governance and modernising the economy.




Company: Mali

Full company nameThe Republic of Mali
Country of riskMali

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