Mauritania: Country outlook

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Economist Intelligence Unit
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Economy, Outlook, Forecast, Overview
Political Geography

Mauritania: Country outlook


POLITICAL STABILITY: Renewed social unrest will remain a risk throughout The Economist Intelligence Unit's forecast period, given political repression, high unemployment and low living standards, underlying dynamics that are being exacerbated by the economic and human impact of the coronavirus (Covid-19) pandemic. Historically, the fragmented nature of the opposition had allowed presidents to push through controversial measures--such as the abolition of the Senate (the upper chamber of the legislature)--and to centralise powers in the hands of the executive. An eight-party opposition alliance, the Front national pour la démocratie et l'unité (FNDU), was formed in 2018 and participated in the parliamentary election in 2018. It gained some traction, but the Union pour la République (UPR, the ruling party) won the poll. However, the formation of the FNDU was a positive step for Mauritania, as the political landscape traditionally lacked a united political opposition. However, repressive practices against the opposition, such as the arrest of its leaders, are common and will continue during 2021-22, making regime change outside of electoral proceedings unlikely.

ELECTION WATCH: Mauritania adheres strictly to five-year terms for all elected functions. The next presidential election will take place in June 2024, and the next legislative and municipal elections will be held in September 2023. The position of the president, Mohamed Ould Cheikh Ahmed Ghazouani, position is unlikely to be challenged during our forecast period, as the next electoral contest is more than three years away and the opposition are unlikely to seek to begin campaigning so early.

INTERNATIONAL RELATIONS: Mauritania's efforts to strengthen relations with other African nations will continue during the forecast period, albeit at a slow pace. The African Continental Free-Trade Area agreement--which was signed in 2018 and commenced on January 1st 2020--is indicative of efforts to strengthen economic ties in the region. However, protectionist sentiment in many countries, weak infrastructure, high levels of non-tariff barriers, and the long time horizon for elimination of tariffs will prohibit a ramp up in intra-continental trade volumes.

POLICY TRENDS: Economic policy will focus on macroeconomic stability and some reform, in order to maintain IMF support following the recent completion of Mauritania's extended credit facility (ECF) programme, which began in 2017. In March the IMF completed its sixth and final review under the ECF and approved the authorities' request for an additional US$23.8m, bringing total disbursements under the ECF to about US$216m. The government met all of the core reform benchmarks under the expired ECF, and has told the IMF that it would like to negotiate a successor programme. The Fund supports the government's decision to adopt an expansionary budget for 2021, with education, infrastructure and health prioritised alongside targeted support for vulnerable households. The IMF has been impressed by the government's transparent management of crisis-related spending; the government published the names and legal owners of the companies that were awarded emergency supply contracts and promised a proper audit. Emergency social fund expenditure was overseen by a committee that included civil society groups, which published four reports for May-December 2020. In policy terms, the government and Fund are broadly aligned. As such, we expect the Fund to agree to a new programme.

ECONOMIC GROWTH: Following an estimated real GDP contraction of 3% in 2020--as weaker external demand for iron ore caused export volumes to fall--we forecast real GDP growth of 3.5% in 2021 as external demand recovers, lifting export volumes, and on the assumption that the domestic economy continues to pick up in that year. We expect agriculture to recover in 2021-22 following a contraction in 2020. Growth in the services and industrial sectors will pick up in 2021, reflecting not only a cyclical recovery but also government efforts to develop fishing and livestock as part of economic diversification. Our central forecast is subject to several risks, not least the potential for a continued wave of coronavirus infections, which amplifies the risk of a longer than expected outbreak that would result in lower economic activity in 2021. The prospect of renewed political instability--which would undermine investor and donor confidence--and the economy's exposure to volatile weather patterns also pose considerable downside risks.

INFLATION: Consumer prices broadly track global price movements for commodities, particularly food and fuel, given that such items account for a large proportion of household spending and that reliance on imports of these commodities is high. Inflation remained relatively low in 2020, at 2.4%, owing to low domestic demand, a fairly stable exchange rate and a substantially lower oil price environment. Despite higher food and fuel prices globally, inflation is expected to remain contained in 2021-22, averaging 3.3% a year, given continued subdued demand, slow credit growth and comfortable international reserves. Our forecast is subject to risks: below-average rainfall could disrupt domestic food production, and political instability could hinder trade, pushing up prices.

EXCHANGE RATES: Despite the government's clear preference for exchange-rate stability with the US dollar, it has moved away from a managed float system, although it continues to make some interventions in the currency market. We expect the ouguiya to appreciate against the US dollar in 2021, from UM37.2:US$1 in 2020 to an average of UM36.1:US$1 in 2021-22. If global metals prices drop sharply, the ouguiya may decline more markedly, although this is not our baseline forecast.

EXTERNAL SECTOR: Kosmos Energy, a US upstream oil firm, announced in 2019 that it had made one of the world's largest gas finds in recent years off the Mauritanian coast. The finding will reinforce the Mauritanian government's confidence in the gas and oil sector as a future driver of growth and fiscal revenue. There is potential to extract 50trn cu ft of gas from the deposit discovered. Potentially holding gas equal to about 8.9bn barrels of oil equivalent, the find could bolster Mauritania's hydrocarbons income substantially. It will take time for the newly discovered deposit to be developed, and there will be no impact on Mauritania's revenue within our current forecast period. Nonetheless, the finding has given the government, and oil majors, greater optimism about the country's long-term revenue prospects. The find should also boost international energy companies' interest in bidding for exploration acreage in Mauritania's offshore zone.

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