Mali - Second Railway Project

CIRCULATING COPY la BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use D w Report No. P-1177-a-MLI REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF MALI FOR A SECOND RAILWAY PROJECT April 3, 1973 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  Currency Unit: Mali Franc (MIF) us$ 1.00 = XF 460 MF 1 = us$ 0.002 ..IF 1,0(00- Uoj 2.17 MF 1,000,000 = US$. 2,.174 Fiscal !epxr Jaauary 1 through December 31.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF MALI FOR A SECOND RAILWAY PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Mali for the equivalent of US$6.7 million on standard IDA terms to help finance a railway project. The proceeds of the credit would be re-lent to the Regie du Chemin de Fer du Mali (RCFM) for 25 years, including 4 years of grace, with interest at 7-1/4 percent per annum. PART I: THE ECONOMY Background 2. A report on "Recent Developments in the Economy of Mali" (AW-30a) was distributed to the Executive Directors on November 10, 1971. A Country Data Sheet is attached in Annex I. An updating economic mission visited Mali in early 1973, and a new report is being prepared. 3. With a per capita CDP of around $70, Mali is one of the poorest countries in Africa and one of the 25 "least developed" countries identified by the United Nations General Assembly. Agricultture, livestock and fisheries are the mainstay of the economy and the principal source of foreign exchange. Manufacturing output accounts for onlv about 4 percent of GDP. The recorded real growth of total GDP during the 1960's was about 2.8 percent a year or marginally higher than the population growth rate of 2.5 percent. A series of drought years has created new problems for Mali and neighbouring countries, causing marked flucttlations in food grain production and heavy losses of live- stock. Total agricultural and livestock production in Mali is estimated to have fallen bv 5 percent in 1969, and after a good recovery in the following year, which was matched in other sectors, agriculture has barely kept pace with the annual increase in population. Consequently, CDP growth has been even more sluggish since 1970, and in 1973 there is likely to be an actual decline because of exceptionally low rainfall last summer. 4. Reports on previous credits to Mali have drawn attention to the legacy of difficult economic problems inherited from the regime of Modibo Keita which was overthrown by the militarv in November 1968. Many of these problems persist in spite of the efforts made by the present government at the beginning of its administration to correct the most serious distortions in the economy by raising agricultural prices, removing some of the restric- tions on trade, stimulating the inflow of private capital and increasing tax revenues. Food prices continue to be held down for the benefit of urban consumers, with consequent disincentives to production and an incentive to  - 2 - smuggle grain to neighboring countries where prices are higher, thus reducing domestic availabilities and increasing import needs. The established govern- ment policy of hiring all graduates of the nation's "ecoles superieures1' un- able to find employment in the private sector has been a factor exerting con- stant upward pressure on public expenditure. Most state enterprises appear to be still operating at a loss. Action to deal with these problems will at best be taken only very gradually, and with the additional difficulties created by the drought, the economy remains weak and its foreign exchange reserves neg- ative - a situation made tenable only by the French guarantee of convertibil- ity for the Malian franc and French financial assistance. 5. There are nevertheless a number of encouraging developments. Pro- duction of cotton and groundnuts, the two principal expor; crops, appears to have been fairly well maintained in spite of the drought.- However, cotton and groundnut production remain about 10 percent below plan target. Substantial amounts are being invested in various programs for expand-ing the output of cotton and rice, including the Mopti rice project, which is being financed by IDA, and further projects for groundnuts and livestock are under preparation. River fisherfes, for which the European Development Fund has provided assist- ance, have also been making good progress, and exports to neighbouring coun- tries are on the increase. 6. Tne balance of payments improved considerably during 1968-71. The overall deficit -fell from MF 9.6 billion in 1963 to WV 1.2 billion in 1970.