Mauritania: Country outlook
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Mauritania: Country outlook
FROM THE ECONOMIST INTELLIGENCE UNIT
POLITICAL STABILITY: The risk of renewed social unrest will persist throughout The Economist Intelligence Unit's 2021-22 forecast period, owing to ongoing political repression, a high rate of unemployment and low standard of living, underlying dynamics that are being exacerbated by the economic and human impact of the coronavirus (Covid-19) pandemic.
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. Mr Ghazouani's position is unlikely to be challenged during our forecast period as the next electoral contest is over three years away, and it would be difficult for the opposition to mount an electoral challenge with elections being so far away.
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--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 under an extended credit facility (ECF) originally agreed at about US$160m, running from 2017 to 2020. Mauritania was set to receive a sixth disbursement in June, of US$23.1m. However, the impact of the coronavirus was so severe that in April the IMF approved a US$130m disbursement to Mauritania under its rapid credit facility, recognising the necessity of providing emergency assistance. In September the Fund completed its fifth review under the ECF and approved the authorities' request for an additional US$28.7m, bringing total disbursements under the ECF to about US$193m. In December the Fund approved an extension of the ECF until March 2021 following a delay to the Fund's final review, which was scheduled for December but delayed owing to the pandemic. The Fund continues to show leniency with regards to fiscal consolidation during the unprecedented coronavirus crisis, which is expected to continue into 2021. In policy terms, the government and Fund are broadly aligned, and the latter will be pleased with current efforts to tighten up financial management and transparency. As such, we expect that the Fund will agree to a new programme. Alternatively, given the economic uncertainties caused by the pandemic, the government and the Fund may decide to further postpone finalising the current programme until later in 2021.
ECONOMIC GROWTH: Following an estimated 3% contraction of real GDP in 2020, as weaker external demand for iron ore has caused export volumes to fall, we are forecasting real GDP growth of 2.2% in 2021, on the assumption that external demand will recover, lifting export volumes, and that the domestic economy will pick up. 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: Historically, consumer prices have broadly tracked 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. Although global oil prices are likely to remain subdued in the forecast period, averaging US$54.5/barrel in 2021-22, we expect global wheat prices to rise moderately, which will feed through to domestic inflation. There will be some mild supply-side pressures via imported inflation. However, with private consumption set to contract, demand-side inflationary pressures will be weak. We forecast average annual inflation of 4% in 2021 as economic growth recovers, which will increase demand-side price pressures. Average inflation will then fall to 3.5% in 2022 in line with global iron ore price movements. 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 an estimated UM37.4:US$1 in 2020 to UM36.9:US$1 in 2021 and UM36.8:US$1 in 2022. However, if global metals prices fall sharply, the ouguiya may decline more markedly, although this is not our baseline forecast.
EXTERNAL SECTOR: A US upstream oil firm, Kosmos Energy, 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. However, 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 Mauritanian 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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