Despite important downside risks, Mauritania’s outlook is mostly positive

• High commodity export revenues and capital inflows supported the external and fiscal balances in times of crisis.
• Liquidity and solvency indicators took a positive turn with strong projections ahead. 
• Mauritania’s medium- to long-term and short-term political risk classifications were upgraded in May 2021.
• Exposure to more Covid-19 waves, sociopolitical tensions, security threats and climate shocks are the main risks confronting the desert nation.

Covid-19 in numbers for Mauritania 

Since the global Covid-19 outbreak in March 2020, the number of confirmed Covid-19 cases in Mauritania stands at 21,765 and 495 deaths (as of 13 July 2021), which can be considered average compared to other African countries. At the onset of the pandemic, strict containment measures were introduced like the suspension of commercial flights, the closure of country borders, and the closure of schools and non-essential businesses. Between May and September 2020 restrictions were gradually removed. However, an increase in cases by the end of the year led to the re-imposition of measures. This helped to keep the number of fatalities limited at the time. In March 2021, Mauritania’s vaccination campaign was launched, aiming to vaccinate about 60% of its population (2.7 million people). However, due to the limited availability of Covid-19 vaccines, only 176,337 doses (mainly coming from Covax, China and the UAE) have been administered so far, enough for fully vaccinating merely 1.9% of the population. A recent increase in confirmed cases raises the fear for a third wave, making the acceleration of vaccination roll-outs all the more urgent. 

The Covid-19 pandemic created significant financing needs for covering social and health spending. Sizable international donor support and debt service suspension were provided rather swiftly after the global impact of the pandemic became apparent. Under the Debt Service Suspension Initiative (DSSI) in 2020, funds of around USD 95 million were released to Mauritania and more relief will be secured under the extensions of the DSSI in 2021. In May 2020, the government approved a support programme of about 3.9% of GDP (USD 260 million) to help deal with the crisis, providing additional health and medical supplies, social protection, SME support, food stocks, and helping with security-related expenditures. To help finance these programmes, the IMF granted emergency financing to Mauritania of about USD 130 million under the Rapid Credit Facility (RCF). In September 2020 and March 2021, funds of USD 52 million and USD 23.5 million respectively were made available under the 2017-2020 IMF Extended Credit Facility programme (ECF). 

The economic impact of Covid-19 and Mauritania’s resource-driven recovery

After growing at a fast pace of 5.6% in 2019, Covid-19 led to a 2.2% economic contraction in 2020. In 2021 and 2022, GDP growth is expected to gradually recover and reach 3.1% and 5.6% respectively, driven by a revival in global demand and the ongoing investments in the country’s extractive capacity. Iron ore and gold prices are expected to remain elevated in 2021, but the price for iron ore would temper again as of 2022 due to the potential slowdown in Chinese demand and rising competition. In 2023, GDP growth is expected to jump to 7.5% thanks to new offshore gas fields coming on stream. Mauritania’s economic recovery is very resource-driven, posing an important vulnerability due to the volatile nature of international commodity markets. Nevertheless, both liquidity and solvency indicators seem to have taken a positive turn.

High metal export revenues and capital inflows helped build up foreign exchange reserves 

With metal exports accounting for almost 64% of total current account revenues in 2020, the strong gold and iron ore prices since mid-2020 led to a jump in revenues in 2020 and 2021. Fish exports – accounting for 19% of the current account revenues – took a hit in 2020 due to transportation problems. Consisting for 80% of desert land, Mauritania is dependent on imports for three quarters of its food requirements. Moreover, the country is a net fuel importer, leaving it with a structural current account deficit that reached around 11.5% of GDP in 2020 (more than one-third of total current account receipts). However, following previous delays, the Grand Tortue Ahmeyim offshore gas field should start up in 2023 and would structurally bring down the current account deficit-to-GDP ratio to single digits.

Mauritania has a history of foreign exchange controls and reserves shortages, while the national currency (ouguiya) is not free-floating but it is supported by central bank interventions. Over the past five years, gross foreign exchange reserves gradually grew to healthy levels. Despite the temporary halt in FDI in 2020 (mainly mining, gas and public infrastructure investments), total capital inflows remained strong thanks to significant international financial support. As a result of the small surplus of the balance of payments, foreign exchange reserves managed to rise up to a record high of USD 1.5 billion (4.5 months of import cover) by December 2020. The FDI are set to recover in 2021 and foreign exchange reserves are expected to increase somewhat over the coming years. Mauritania also has a national hydrocarbon fund worth 0.75% of GDP (2020) projected to rise beyond 1.5% of GDP as of 2025. The prospects of a stronger reserves buffer should offer protection against commodity price volatility, although financing gaps could still emerge in the coming years in case of falling donor support (aid covers about 11% of import costs) or further delays to the new gas project. Inflation fluctuates around 2-3%, but rising food prices might push it towards 4% next year. The banking sector was affected by the economic slowdown in 2020 as NPLs (non-performing loans) rose to 26% of total loans, coming from 22% in 2019.

Public finances remain within sustainable territories 

Higher commodity export revenues and significant donor support to help deal with the Covid-19 crisis, unexpectedly resulted in a fiscal surplus of 3% of GDP in 2020. Consequently, the public debt-to-GDP ratio is expected to moderate to about 56% in 2021. After a fiscal deficit of 2% of GDP projected for 2021, the primary balance is set to remain in a tight surplus and the overall fiscal balance would stabilise around the equilibrium for the coming years. As a result, the public debt-to-GDP ratio is set to peak at around 61% in 2022 before moving on a gradual downward trajectory. The public revenues-to-GDP ratio reached around 21% in 2020 (above the Sub-Saharan African average of 16%) while less than 5% of government revenues are going to interest payments. Consequently, Mauritania’s public finances are in an acceptable state. In fact, the government was enacting strong fiscal consolidation and structural reforms (like improved tax administration) under the December 2017-March 2021 IMF ECF programme and has requested a successor arrangement. 

The total external debt stock (including private and public external debt) peaked in 2015 at 95.7% of GDP and watered down to about 73% of GDP in 2020 thanks to strong GDP growth and moderate debt accretion. Moreover, the debt stock includes passive debt owed to Kuwait worth about 12% of GDP in 2020, which has been under negotiation for debt relief since 2011. Debt services moderated to around 10% of current account revenues in 2020 partly thanks to the DSSI, and ratios should remain manageable in the years to come. Nevertheless, due to the high present value of public external debt-to-GDP and debt service ratios, the IMF classifies Mauritania at high risk of external and overall debt distress, although debt is deemed sustainable.

Controversial sociopolitical conditions, security threats and climate shocks pose major risks

Corruption, social division, poverty and tribal tensions are deeply entrenched in society and often lead to unrest. About two-thirds of the population are Arab Moors and one-third are ethnic black Africans. The Moors are divided into the so-called white Moor elite (the Beydans) which is the dominant group, and the black Moors (the Haratin), historically descending from slaves of the Beydans. In fact, despite the official prohibition of slavery, many are still believed to be affected by it in practice. Persistent discrimination against Haratines and tensions between communities form a simmering risk for civil unrest and often bring about international condemnation. 

In the near term, lacking access to Covid-19 vaccinations continues to be the foremost hazard, exposing the country to additional waves of the pandemic. Security threats in the Sahel also pose an important risk. As a key security ally of the US and the EU, Mauritania participates in the G5 Sahel group of countries to counter terrorist attacks in the region. Another major risk stems from droughts and climate shocks affecting the agricultural sector. Moreover, coup risks remain relatively high as the desert nation has a history of frequent coups and coup attempts. The latest coup was in 2008 and brought previous president Mohamed Ould Abdel Aziz to power. Following peaceful elections in June 2019, General Mohamed Ould Ghazouani’s victory marked the end of the political dominance of Aziz after 10 years (two terms) in power. President Ghazouani is popular and his connections with the opposition and traditionally oppressed ethnic groups mark a shift from previous low tolerance for opposition activity. Although initially they were allies, rivalry between the former and current president could pose a threat to stability should Aziz run for re-election in 2024 or attempt to divide the military to incite a coup. Nevertheless, any coup attempt is likely to be unsuccessful given President Ghazouani's strong support base in the security forces.

Political risk ratings upgraded last May

In 2016, Mauritania’s MLT political risk classification was downgraded from category 6/7 to 7/7, as it was impacted by the end of a commodity boom cycle. At the time, external debt ratios and political tensions were very high. Since 2019, the economic and financial indicators started improving but risks related to social divisions, insecurity in the Sahel, military in politics and climate shocks remain significant. Despite Covid-19, Mauritania’s external position strengthened in 2020 on the back of favourable terms of trade, sizable donor support and improved budgetary performance. The recovered foreign exchange reserves buffers should help fend off future terms-of-trade shocks. Moreover, the outlook is supported by prospects of gas exports narrowing the structurally large current account deficit and putting public and external debt ratios on a downward track. Therefore, both Mauritania’s medium- to long-term and short-term political risk classifications were upgraded in May 2021. The MLT political risk classification went from the highest-risk category 7/7 to 6/7 and the short-term political risk classification went from 5/7 to 4/7. 

Analyst: Louise Van Cauwenbergh – l.vancauwenbergh@credendo.com