Country Risk Rating

C
A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high. - Source: Coface

Business Climate Rating

C
The business environment is difficult. Corporate financial information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments rated C.

Strengths

  • Supported by donors and international organizations
  • Rich in minerals (iron, gold, copper) and fishery resources
  • Energy potential (gas, renewables)

Weaknesses

  • Poor governance, high corruption
  • Under-diversified economy is vulnerable to commodity price fluctuations
  • Growth not very inclusive, with high unemployment
  • Small formal economy
  • Very little arable land
  • Persistent community tensions

Current Trends

A slow recovery from the crisis

2020 was marked by the impact of COVID-19, which plunged the economy into recession, contrasting with the rapid growth in 2019. Borders were closed, a night curfew was introduced, schools and non-essential shops were shut down and inter-regional travel was banned. To mitigate the impact, the authorities adopted a response plan in May representing 8.5% of the current GDP until 2021. The plan includes an assistance fund, scrapping of taxes on necessities, and payments to vulnerable households, whose number is set to reach 100,000 – or 700,000 people – by the end of 2021. In addition to benefiting from exemptions of charges, SMEs will be able to receive subsidized state-backed loans starting in early 2021.

Although iron ore prices held up, exports (30% of total exports) decreased due to weaker demand. Seafood sales (40%) were affected by transport issues. Only sales of gold (25%) increased, owing to the surge in prices, as volumes fell. The improvement expected in 2021, with the rebound in fish shipments, is likely to be limited because of the potential saturation of Chinese iron ore needs and competition. Exports’ underperformance impacted investment, whose GDP share fell from 45% to around 40% in 2020, reflecting the halt in foreign investment, which accounts for one-third of the total, and in public infrastructure investment. In 2021, investment is expected to remain below its pre-crisis level, one effect of which will be that the start-up of the Grand Tortue Ahmeyin offshore gas field is pushed back to 2023. Consumption was affected by the measures to fight the pandemic, which were gradually lifted from May 2020 onwards. Households also had to contend with rising prices for imported food products, such as rice and wheat, fuelled by supply problems and ouguiya depreciation, despite central bank interventions. Transport and other services, which were hard hit by the lockdown, unlike the extractive industry and fishing, should perform better in 2021. Agriculture was hurt by drought in the Sahel but will benefit from the government’s focus to develop cereal crop growing in the south of Mauritania, which is the only non-arid area of the country.

FDI finances the massive current account deficit in normal times

The crisis was accompanied by the suspension of ongoing fiscal consolidation under the IMF's USD 193 million Extended Credit Facility (2017-2020). The adoption of an amending budget in May 2020 resulted in the target of a primary surplus (i.e. excluding interest) being dropped, a 7% reduction in revenue, and a 20% increase in expenditure. Despite savings representing 10% of GDP, foreign partners (the IMF, the ADB, the EU, and the World Bank) had to come to the rescue in order to finance requirements equivalent to 4.5% of GDP. Emergency aid from the IMF made it possible to cover one-third of this and served as a catalyst. Public debt increased mechanically and therefore still represents a high risk, even if it is almost entirely owed to international public creditors and is of a concessional nature. A full 18% is owed to Kuwait and is under negotiation. In 2021, the deficit should be considerably reduced and the debt burden should stabilize. Tax administration has been improved, and the taxpayer register has been cleaned up under the IMF program, which may be renewed.

Regarding the external accounts, the already massive current account deficit deepened further in 2020 as the trade deficit worsened from 8% to around 11% of GDP. More expensive food imports and lower exports outweighed the reduction in equipment purchases and the oil bill. In 2021, the current account deficit is not expected to change much, because while the trade deficit will decline due to the rebound in fish sales and the continued increase in gold sales, higher purchases of services related to extractive activities will cause the services deficit to widen (9% of GDP in 2020). An FDI downturn made the contribution from international public financing essential in 2020. A rebound in FDI in 2021 should once again prove sufficient to cover the deficit and maintain foreign exchange reserves at the equivalent of five months of non-extractive imports. The country also has a deposit from Saudi Arabia of USD 300 million.

The president is firmly established but is working with the opposition

Mohamed Ould Cheikh El Ghazouani has been president since easily winning the election in 2019, although the opposition challenged this result. His party, the Union for the Republic, has had a solid majority in the Assembly since 2018. The next legislative and presidential elections will be held in 2023 and 2024, respectively. Between now and then, the president intends to continue the fight against corruption, as illustrated by the charges brought against former President Aziz, whom he previously served as right-hand man. Furthermore, he has appealed to the opposition to work together to reduce poverty, unemployment, and inequality, and to develop the education and health systems.

Source:

Coface (02/2021)
Mauritania