INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND ISLAMIC REPUBLIC OF MAURITANIA JOINT BANK-FUND DEBT SUSTAINABILITY ANALYSIS – 2019 UPDATE1 Prepared jointly by the staff of the International Development Association (IDA) and the International Monetary Fund (IMF) Approved by Marcello Estevao (IDA) and Taline Koranchelian and Kevin Fletcher (IMF The risk of external debt distress remains high as the present value (PV) of public and publicly guaranteed (PPG) external debt-to-GDP and debt service-to-revenue ratios both breach their relevant thresholds over the next several years under the baseline projections. The overall risk of public debt distress also remains high because the two external debt indicators and the PV of public debt-to-GDP ratio exceed their thresholds and benchmark value, respectively, under the baseline projections. However, external and public debt are assessed to be on a sustainable path as the three above-mentioned indicators are projected to be on a steady downward trend and to fall (and remain) below their respective thresholds and benchmark value within 5– 7 years. The outlook has improved relative to the previous Debt Sustainability Analysis (DSA) in November 2018, with the PV of external debt-to-GDP ratio projected to fall below its relevant threshold one year earlier. This stems from a more favorable growth outlook related to the new offshore gas project despite associated debt disbursements under the project. Nevertheless, projected export and growth performance, as well as fiscal and debt trajectories, continue to be highly vulnerable to metal and oil prices, adverse weather, policy implementation risks, and regional security developments. The DSA highlights the need to follow sound economic policies, including a prudent borrowing strategy that avoids non-concessional borrowing and relies instead on grants and concessional financing taken up at a moderate pace consistent with absorptive capacity.2 1 This DSA has been prepared jointly by the IMF and World Bank, following the revised LIC-DSF Framework and Guidance Note (2017) in effect as of July 1, 2018. Samoa’s debt carrying capacity is classified as strong, based on its Composite Indicator (CI) valu e of 3.31, based on the October 2018 WEO and updates to the CPIA index through 2017.Thresholds for debt burden indicators are those established in the revised framework. 2 This DSA was prepared under the joint Fund-Bank Low-Income Country Debt Sustainability Framework and provides a streamlined update to the previous DSA prepared in November 2018 (IMF Country Report No. 18/365). Mauritania’s Composite Indicator (CI) score based on the April 2019 WEO and the CPIA is 2.90 and its debt-carrying capacity remains unchanged at medium. PUBLIC DEBT COVERAGE 1. The coverage of public debt includes the central government, the central bank (BCM), and state-owned enterprises’ (SOEs) debt guaranteed by the government. Public and publicly guaranteed (PPG) debt now includes borrowing by the state-owned oil company SMHPM to finance Mauritania’s share in the Grand Tortue/Ahmeyim (GTA) offshore gas project. 3 As in previous DSAs, it excludes non- guaranteed borrowing by the state-owned mining company SNIM, as the company is run on a commercial basis and has borrowed without government guarantee up to end-2016. SNIM’s non-guaranteed external debt is classified as private external debt.4 Other parts of the government and SOEs are unable to borrow from abroad or require a government guarantee.5 Public external debt also includes a passive debt in arrears owed to Kuwait.6 As noted in the previous DSA, the authorities have been in active discussions with Kuwait to resolve these longstanding arrears. Mauritania: Coverage of Public Sector Debt Subsectors of the public sector Subsectors covered 1 Central government X 2 State and local government 3 Other elements in the general government 4 o/w: Social security fund 5 o/w: Extra budgetary funds (EBFs) 6 Guarantees (to other entities in the public and private sector, X including to SOEs) 7 Central bank (borrowed on behalf of the government) X 8 Non-guaranteed SOE debt 3 This debt is not guaranteed by the government. 4 SNIM’s shareholders comprise the government (majority) and two other shareholders with significant holdings. The company has managerial independence including over pricing and employment policies. It operates on a commercial basis, is profitable and does not receive subsidies from, and pays dividends, to the government. It publishes annual reports and audited accounts. Nevertheless, SNIM debt represents a contingent liability for the central government as a majority shareholder and the DSA captures this through the contingent liability test 5 Externally-financed projects managed by SOEs and government agencies are funded through loans contracted by the government and are on-lent by the government to parastatals. This on-lending/investment is not recorded in the central government budget; however, debt service on these loans is paid by the central government and is included in the budget. The associated debt is included in the stock of central government external debt. 6 A passive pre-HIPC debt, estimated at 19 percent of GDP in 2018, is owed to the Kuwait Investment Authority (KIA) since the 1970s. Negotiations have been ongoing between the authorities and Kuwait to achieve debt relief on at least comparable terms to, or better than, the 2002 HIPC Initiative operation. In April 2019, a memorandum of understanding was signed on a framework to restructure these arrears; its terms will be incorporated in the DSA after final agreement and ratification by both countries. This DSA assumes full debt relief in 2020; in the previous DSA debt relief was assumed to be granted in 2019. 2 DEBT DEVELOPMENTS 2. External PPG debt in percent of GDP declined in 2018 as a result of a slowdown in project loan disbursements for public investment. Excluding the passive debt to Kuwait, external public debt declined from 72.5 percent of GDP at end-2017 External Debt by Debtor 2009–18 to 69.3 percent in 2018. 7 External PPG debt is largely contracted on concessional or semi- (In millions of USD) concessional terms from official creditors. Much of External Debt by Debtor 2009-18 the nominal increase in external debt in 2015 owed 6000 SOEs includes SONELEC & SAM BCM (excl SDR allocation) to a $300 million non-concessional deposit from 5000 SNIM Central government (excl SDR allocation) Saudi Arabia to the support the BCM’s foreign 4000 exchange reserves. Most of the rest of external debt contracted in 2015–17 was by the central 3000 government to finance public investment projects. 2000 Domestic public debt increased in 2018 as the government formally recognized a debt toward the 1000 BCM equal to about 8.3 percent of GDP. 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sources: Mauritanian authorities; and IMF staff estimates. Sources: Mauritanian authorities; and IMF staff estimates. 7 In Table 1 of the DSA, the figures for PPG external debt in percent of GDP are different from those reported in this paragraph and text table and in Tables 1 and 2 of the Staff Report for 3rd Review of the ECF Arrangement. The difference stems from different exchange rates (average or end-period) implicitly used to value foreign debt in local currency vs GDP in foreign currency; Table 1 of the DSA uses end-period exchange rates. 3 PPG External Debt by Creditor, 2009–18 PPG External Debt by Currency, 2018 (In millions of USD) (In percent of total) PPG 4000External Debt by Creditor, 2009-17 Kuwaiti dinar IMF excl SDR allocation IDA 4% 4% 3500 Other Multilateral Paris Club US dollar 4% Non Paris Club Commercial 3000 6% 28% SDR 2500 Chinese Yuan 7% 2000 Saudi Riyal 1500 Islamic Dinar 1000 16% Euro 500 0 Others 31% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sources: Mauritanian authorities; and IMF staff estimates. Sources: Mauritanian authorities; and IMF staff estimates. 4 Mauritania: External Debt, 2013–18 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 (In millions of USD) (In percent of GDP) External debt 4,562.9 4,566.1 4,950.7 5,107.5 5,307.8 5,260.2 79.7 84.7 102.5 109.0 107.8 100.4 Public and publicly guaranteed (PPG) external debt 3,675.0 3,766.7 4,202.5 4,348.0 4,567.4 4,625.7 64.2 69.9 87.0 92.8 92.7 88.3 Of which: Excluding passive debt to Kuwait 2,674.0 2,769.5 3,208.6 3,354.9 3,573.0 3,631.8 46.7 51.4 66.4 71.6 72.5 69.3 Bilateral creditors 1,977.4 1,986.3 2,250.9 2,274.8 2,318.7 2,363.9 34.5 36.8 46.6 48.5 47.1 45.1 Paris Club 136.3 123.1 119.4 115.9 119.7 105.0 2.4 2.3 2.5 2.5 2.4 2.0 Of which: France 95.5 87.0 81.4 81.6 85.1 76.3 1.7 1.6 1.7 1.7 1.7 1.5 Spain 35.8 31.7 34.3 31.1 30.9 25.9 0.6 0.6 0.7 0.7 0.6 0.5 Non Paris Club 1,841.1 1,863.3 2,131.6 2,158.9 2,199.0 2,258.9 32.2 34.6 44.1 46.1 44.6 43.1 Of which: China 333.4 367.3 340.4 339.3 347.1 325.3 5.8 6.8 7.0 7.2 7.0 6.2 Kuwait 1/ 1,140.9 1,140.1 1,141.8 1,156.2 1,170.7 1,170.1 19.9 21.1 23.6 24.7 23.8 22.3 Saudi Arabia 2/ 214.6 212.0 509.4 531.9 549.0 589.7 3.7 3.9 10.5 11.4 11.1 11.3 Multilateral creditors 1,697.6 1,780.4 1,951.5 2,073.1 2,248.7 2,261.8 29.7 33.0 40.4 44.2 45.7 43.2 Of which: Islamic Development Bank (IDB) 218.1 273.8 340.5 371.6 395.0 376.2 3.8 5.1 7.0 7.9 8.0 7.2 International Development Association (IDA) 396.6 379.5 385.6 365.6 388.5 382.6 6.9 7.0 8.0 7.8 7.9 7.3 International Monetary Fund (IMF) 3/ 131.2 120.2 115.7 96.7 111.4 136.7 2.3 2.2 2.4 2.1 2.3 2.6 Arab Monetary Fund (AMF) 18.7 47.4 62.4 159.8 149.1 100.6 0.3 0.9 1.3 3.4 3.0 1.9 Arab Fund for Economic and Social Development (AFESD) 702.5 749.0 819.2 856.4 950.8 1,009.6 12.3 13.9 17.0 18.3 19.3 19.3 Non-PPG debt (by debtor) 887.9 799.4 748.3 759.6 740.4 634.6 15.5 14.8 15.5 16.2 15.0 12.1 SNIM 4/ 693.9 618.2 546.8 482.5 415.1 348.7 12.1 11.5 11.3 10.3 8.4 6.7 Commercial banks 194.0 181.2 201.5 277.1 325.3 285.9 3.4 3.4 4.2 5.9 6.6 5.5 Memorandum items: Passive debt to Kuwait Investment Authority (KIA) 1,001.0 997.2 993.9 993.1 994.4 993.9 17.5 18.5 20.6 21.2 20.2 19.0 Saudi deposit at the central bank - - 300.0 300.0 300.0 300.0 - - 6.2 6.4 6.1 5.7 Domestic debt 233.1 324.7 262.2 221.6 197.8 628.3 4.1 6.0 5.4 4.7 4.0 12.0 Nominal GDP 5,724.2 5,391.5 4,830.5 4,685.6 4,925.1 5,237.1 - - - - - - Source: Mauritanian authorities. 1/ Including passive debt under negotiation. 2/ Including deposit at the central bank. 3/ Excluding SDR allocation. 4/ Creditors include AfDB, KFW, France, IDB, EIB. MACROECONOMIC PROJECTIONS 3. The projections in the baseline scenario are derived from the macroeconomic framework presented in the Staff Report for the third ECF program review. Compared to the previous DSA in November 2018, the macroeconomic framework incorporates the first phase of the GTA offshore gas project, as well as Mauritania’s borrowing to finance its share in the project ($304.5 million over 2019– 22).8 Key variables affected include project-related FDI inflows (mostly to finance corresponding imports), gas exports, and government revenues. As a result, while the debt profile is slightly higher, the medium- term outlook for growth, exports, and revenues has improved. In the framework, a preliminary assumption is made that half of the government revenues from the GTA project is saved in the existing hydrocarbon 8 The framework does not incorporate two potential additional GTA project development phases, which would have further implications for the economic and debt outlooks, as no investment decision has been made yet. 5 fund and half is used to increase public investment; at the same time the share of externally financed investment declines.9 Consequently, real GDP growth is projected to be higher on average than in the previous DSA during 2019–29, and marginally higher during 2029-39. For 2019, real GDP growth is projected at 6.7 percent of GDP, owing to sustained non-extractive sector growth supported by the authorities’ public investment program and planned structural reforms aimed at improving the business climate and diversifying the economy; gains are projected in agriculture, construction, telecom, and other services. During the GTA construction years, some local contracting of onshore project-related investments (such as a breakwater) are projected to raise growth somewhat. In the extractive sector, medium- and long- term growth is supported by past upgrades to iron ore and gold mines and the onset of GTA gas production in 2022. External borrowing is projected to be higher by about 1 percent of GDP per year than in the previous DSA in 2019–22 due to the financing of the GTA project. Inflation is projected to average 4 percent per year during 2019–29. Mauritania: LIC DSA Macroeconomic Assumptions, 2018–39 2018 2019 2020 2021 2022 2023 2024 2019-2029 2030-39 1/ Real GDP growth Current 3.6 6.7 5.8 6.0 9.7 6.6 5.7 6.1 5.0 Previous (Nov. 2018) 3.5 5.7 4.8 5.6 5.6 5.3 5.4 5.3 4.6 Nominal GDP (in millions of US$) Current 5,237 5,621 5,827 6,130 6,734 7,283 7,831 7,784.2 14252.9 Previous (Nov. 2018) 5,252 5,551 5,775 6,058 6,372 6,629 6,858 7,247.9 12661.5 Exports, goods & services (growth; in percent) Current 8.7 9.8 3.3 3.8 16.5 6.6 -1.1 4.7 2.1 Previous (Nov. 2018) 3.2 8.3 3.4 1.7 2.6 1.8 -1.0 2.9 1.2 Imports, goods & services (growth; in percent) Current 23.4 -2.1 11.9 -2.1 -3.5 2.5 5.1 2.4 2.7 Previous (Nov. 2018) 7.2 1.8 -5.3 -0.1 -1.9 2.6 1.4 0.9 1.5 Current account balance (in percent of GDP) Current -18.4 -15.7 -21.6 -17.0 -8.1 -6.1 -7.4 -10.0 -6.5 Previous (Nov. 2018) -15.9 -12.6 -8.9 -8.1 -5.6 -5.9 -7.0 -6.7 -4.4 Revenue and grants (in percent of GDP) Current 30.4 26.8 27.6 27.4 27.4 27.7 27.7 27.5 27.0 Previous (Nov. 2018) 28.8 28.7 28.6 28.8 29.0 29.0 27.9 28.4 28.0 Primary fiscal balance (in percent of GDP) Current 5.3 1.7 2.0 1.7 1.7 1.6 1.6 1.4 0.5 Previous (Nov. 2018) 1.5 1.5 1.7 1.6 1.6 1.6 1.6 1.4 0.9 Price of iron ore (US$/Ton) Current 70.1 83.9 75.5 75.5 75.5 75.5 75.5 76.2 75.5 Previous (Nov. 2018) 69.6 67.5 65.8 65.8 65.8 65.8 65.8 66.0 65.8 Sources: Mauritanian authorities; and Fund staff estimates and projections. 1/ For Previous (Nov. 2018): 2029-38. 9 At this time, the authorities have not decided on a plan for using the GTA revenues. 6 Figure 1. Mauritania: Macroeconomic Projections, 2018–38 Real Non-Extractive GDP Growth Real Extractive GDP Growth Real Non-Extractive GDP Growth Real Extractive GDP Growth (Percent change) (Percent change) (Percent change) (Percent change) 7 50 6 40 30 5 20 4 10 3 0 2 -10 Current -20 1 Previous (Nov. 2018) -30 0 2018 2022 2026 2030 2034 2038 2018 2022 2026 2030 2034 2038 Projected New Debt Disbursements Price of Iron Ore (In percent of GDP) Projected New Debt Disbursements (US$/Ton) Price of Iron Ore (In percent of GDP) (US$/Ton) 7 80.0 6 75.0 5 70.0 4 65.0 3 60.0 2 55.0 1 50.0 0 45.0 2018 2022 2026 2030 2034 2038 40.0 2018 2019 2020 2021 2022 2023 Terms of Trade PPG External Debt 1/ PPG External Debt 1/ Terms of Trade (Percent change) (Percent change) (In (In percent of percent of GDP) GDP) 16 85 14 12 75 10 65 8 6 55 4 2 45 0 -2 35 -4 2018 2022 2026 2030 2034 2038 25 2018 2022 2026 2030 2034 2038 7 The LIC-DSF realism tools suggest that projections underpinning this DSA are reasonable (Figures 4 and 5). The decomposition of the drivers of debt dynamics reveal a similar pattern to that in the November 2018 DSA. It highlights the adverse effects of the drop in commodity prices in 2014–16 which had a significant impact on the current account and growth owing to the undiversified structure of the economy. The large increase in borrowing in 2014–16 is not expected to recur in the context of the authorities’ ECF-supported program and their strong commitment to a prudent debt management policy consistent with debt sustainability and seeking to avoid non-concessional financing. Cross-country experience with fiscal adjustment under IMF programs for low-income countries suggests that the programmed three-year primary balance adjustment for Mauritania is well within the range of realistic outcomes. The projected baseline pickup in growth, which is larger than projected using fiscal multipliers, reflects the impact of a return to average weather conditions on agriculture and livestock following the drought and an increase in iron ore and gold production. The current DSA anticipates only a slight increase in the contribution of public investment to growth over the next five years (before the onset of large fiscal GTA-related revenues) compared with the last DSA. Instead, the higher projected growth is expected to be driven by higher productivity growth, structural reforms, and increased private investment, in part linked to the development of the GTA project. COUNTRY CLASSIFICATION AND STRESS TESTS 4. Mauritania’s debt-carrying capacity continues to be assessed as medium. Based on the IMF’s April 2019 World Economic Outlook (WEO) data and the 2017 CPIA (the latest available), the Composite Indicator (CI) score is 2.90, indicating a medium debt-carrying capacity. This is higher than the CI score of 2.69 (based on the October 2018 WEO data) in the November 2018 DSA, which indicated a weak debt-carrying capacity. The improved CI reflects a higher projected import coverage of reserves, driven by higher projected commodity prices, increased mining production, and the inclusion of projected GTA gas exports. Mauritania’s debt carrying capacity continues to be assessed as medium. A change in debt-capacity requires two consecutive changes from the previous classification and the October 2018 WEO-based signal was the only weak result. Mauritania: Calculation of the CI Index Components Coefficients (A) 10-year average CI Score components Contribution of values (B) (A*B) = (C) components CPIA 0.385 3.381 1.30 45% Real growth rate (in percent) 2.719 4.971 0.14 5% Import coverage of reserves (in percent) 4.052 36.212 1.47 51% Import coverage of reserves^2 (in percent) -3.990 13.113 -0.52 -18% Remittances (in percent) 2.022 1.736 0.04 1% World economic growth (in percent) 13.520 3.566 0.48 17% CI Score 2.90 100% CI rating Medium 8 5. Default values were used for the standardized stress tests and the two applicable stress tests— contingent liabilities and commodity price shocks. The use of the default values for the combined contingent liability stress test and public-private partnerships (PPP) is unchanged relative to the previous DSA.10 Mauritania: Combined Contingent Liability Shock 1 The country's coverage of public debt The central government, central bank, government-guaranteed debt Default Used for the Reasons for deviations from analysis the default settings 2 Other elements of the general government not captured in 1. 0 percent of GDP 0.0 3 SoE's debt (guaranteed and not guaranteed by the government) 1/ 2 percent of GDP 2.0 4 PPP 35 percent of PPP stock 0.0 5 Financial market (the default value of 5 percent of GDP is the minimum value) 5 percent of GDP 5.0 Total (2+3+4+5) (in percent of GDP) 7.0 1/ The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE's debt not guaranteed by the government is assessed to be DEBT SUSTAINABILITY ASSESSMENT A. External Debt Sustainability 6. Baseline projections for two of the four debt indicators—the PV of debt-to-GDP and the debt service-to-revenue ratios—persistently breach their respective thresholds (Table 1 and Figure 2). The PV of debt-to-GDP indicator, albeit on a declining trend, remains above its 40 percent threshold until 2026. The debt service-to-revenue indicator breaches its relevant 18 percent threshold until 2024. Compared to the November 2018 DSA, the first indicator falls below its relevant threshold one year earlier due to a more favorable growth outlook related to the GTA gas project despite somewhat higher related debt. The breach in the second indicator, which mainly reflects the onset of repayments in 2021 on the Saudi deposit at the BCM, is more persistent than before due to more conservative short-term extractive revenue projections. The standardized stress tests show breaches of the thresholds by all the debt indicators (Table 2). The most extreme shocks are the combination shock (PV of debt-to-GDP ratio and debt service-to-revenue ratio) and the export growth shock (PV debt-to-exports ratio and debt service-to-exports ratio). The tailored commodity price shock results in a persistent breach of the threshold for all four debt indicators, and the contingent liability shock shows breaches of the PV of debt-to-GDP and debt service-to-revenue ratios.11 10 While a PPP law was adopted in 2017, World Bank data indicate no PPP capital stock, and a reported project has yet to be launched; hence the zero default-value was retained. For SOEs, the default parameter of 2 percent of GDP is retained to capture a potential fiscal risk stemming from SNIM. SNIM’s external debt (not guaranteed by the government) was equivalent to 7 percent of GDP at end-2018. 11 Both the external and the public debt sustainability framework (Tables 1 and 3) show a sizeable residual in 2020, which reflects the assumed debt relief of the debt in arrears to Kuwait. Other residuals in the public debt sustainability framework are due to debt disbursements on loans on-lent by the government to SOEs that are not captured in the central government budget (but are in the external debt sustainability framework); debt service on these loans, however, is paid by the government and is included in the fiscal flows. 9 B. Public Debt Sustainability 7. Baseline projections suggest a sustained breach of the 55 percent of GDP benchmark for the PV of public debt until 2022, unchanged from the previous DSA (Table 3 and Figure 3). The public debt dynamics are mostly driven by external debt given low domestic debt of only 12 percent of GDP at end-2018. The breach is slightly shorter than in the external DSA. The PV of debt-to-revenue and debt- service-to revenue indicators also show a steady decline from an initial high point in 2018–21. The standardized stress tests suggest that the largest negative impact (most extreme shock) on the three debt indicators would stem from a shock to non-debt flows (PV of debt-to-GDP and PV of debt-to-revenues ratios) and a real GDP growth shock (debt service-to-revenue ratio) (Table 4). The PV of debt-to-GDP ratio breaches its benchmark value under all the standardized stress shocks. With respect to the tailored stress tests, both contingent liability and commodity price shocks result in breaches of the benchmark value for the PV of debt-to-GDP ratio. RISK RATING AND VULNERABILITIES 8. Despite a slowdown in external debt disbursements in 2018, the risk of external debt distress remains high. This is largely the legacy of the sharp increase in borrowing during 2014-16 to finance infrastructure, and the contraction in nominal GDP due to a large terms-of-trade shock and some exchange rate depreciation in 2016. The projected trajectory of the debt-to GDP and the PV of debt-to-GDP ratios is slightly lower than in the November 2018 DSA, reflecting stronger economic prospects across non- extractive and extractive sectors, including the GTA gas project. Moreover, under the current macroeconomic framework, these two debt burden indicators continue to show a clear downward trend. However, the DSA still projects an exit from a high risk of external debt distress only after 2025, and the trajectories of the two external debt service indicators remain above or close to their thresholds for several years, pointing to the need to monitor closely the consequences of any new borrowing on debt service. The stress tests illustrate the vulnerabilities of the debt indicators to negative shocks affecting exports, commodity prices, growth, and the fiscal stance. The DSA also suggests that the overall risk of debt distress is high because two external debt indictors breach their respective thresholds under the baseline and the PV of public debt-to-GDP breaches its benchmark value for a sustained period. 9. While the risk of external and overall debt distress is high, two longer-term mitigating factors could contribute to lowering risks and improving debt sustainability. First, the inclusion of dividends received by the SMHPM as part of consolidated public sector revenues would improve long-term debt service indicators. Second, the future assets potentially accumulated in the future by the hydrocarbons fund from its GTA-related revenues (assumed to represent half of annual GTA revenues, see paragraph 3) could be available to meet debt service payments or to retire external debt, which would help reduce long-term vulnerabilities. These options would depend on future macro-fiscal rules adopted on the use of GTA-related revenues and assets. 10. The DSA highlights the need to follow sound economic policies, including a prudent borrowing strategy that avoids non-concessional borrowing and relies instead on grants and concessional financing taken up at a moderate pace consistent with absorptive capacity. To avoid exacerbating short-term liquidity risks, new borrowing resulting in significant additional short-term debt 10 service should be avoided. The authorities should also continue their best efforts to resolve the external debt in arrears with Kuwait. Reducing risks of debt distress also hinge on sustaining structural reforms to promote inclusive growth and economic diversification through private sector development, improving public financial management to raise the efficiency and growth dividends of public spending, and strengthening debt management capacity. The authorities have reflected these objectives in their growth and development strategy and have made progress in implementing the policies needed to achieve them under their IMF- supported program. AUTHORITIES' VIEWS 11. The authorities acknowledge the need for prudent debt policies and stronger public investment management but question the rating of high risk of debt distress. They consider that the borrowing incurred for their investment in the GTA project is done on a commercial basis without a state guarantee, and therefore should not be counted as publicly guaranteed debt. Staff’s response is that this debt is incurred by a state-owned entity on behalf of the government. The authorities also considered the debt service burden to be manageable in the short-term, and subsequently more so with the onset of GTA fiscal and export revenues which in their view makes their largely concessional debt stock manageable. They also noted that the deferred repayment of the deposit made at the central bank by a development partner had helped reduce possible short-term liquidity risks regarding debt service payments. They look forward to the rebasing of their national accounts aimed at measuring economic activity more accurately, which they expect will raise GDP and therefore reduce debt ratios. 11 Table 1. Mauritania: External Debt Sustainability Framework, Baseline Scenario, 2016–39 (In percent of GDP, unless otherwise indicated) Actual Projections Average 8/ Historical Projections 2016 2017 2018 2019 2020 2021 2022 2023 2024 2029 2039 External debt (nominal) 1/ 110.3 107.0 102.2 97.3 79.9 76.6 69.2 64.0 59.4 49.4 38.2 91.2 64.5 Definition of external/domestic debt Residency-based of which: public and publicly guaranteed (PPG) 94.1 91.9 90.1 87.2 71.2 69.3 63.5 58.7 54.4 45.7 36.1 78.5 58.8 Is there a material difference between the Yes two criteria? Change in external debt 3.8 -3.4 -4.8 -4.9 -17.4 -3.3 -7.4 -5.2 -4.7 -1.3 -0.9 Identified net debt-creating flows 12.6 -2.9 -4.5 -2.4 -1.7 -3.1 -5.8 -2.8 -1.8 -0.6 -0.1 3.3 -2.3 Non-interest current account deficit 13.0 12.2 16.3 13.8 19.7 15.1 6.2 4.4 5.8 5.5 5.9 15.3 8.4 Deficit in balance of goods and services -89.1 -97.2 -103.3 -99.7 -105.8 -100.4 -93.6 -89.6 -84.9 -73.0 -50.5 -106.3 -87.7 Exports 35.7 39.6 40.9 40.0 39.8 39.3 41.3 40.6 37.5 32.2 21.6 Imports -53.5 -57.5 -62.4 -59.7 -66.0 -61.0 -52.3 -49.0 -47.3 -40.8 -28.9 Debt Accumulation 4.0 35 Net current transfers (negative = inflow) -5.2 -5.1 -3.7 -3.1 -3.2 -2.9 -2.7 -2.7 -2.6 -2.0 -0.9 -3.8 -2.6 of which: official -3.6 -3.2 -1.9 -1.1 -1.2 -1.0 -0.9 -0.8 -0.8 -0.6 -0.3 2.0 30 Other current account flows (negative = net inflow) 107.3 114.5 123.4 116.6 128.7 118.4 102.6 96.6 93.3 80.5 57.2 125.3 98.7 0.0 Net FDI (negative = inflow) -5.8 -11.9 -16.6 -11.7 -17.7 -15.6 -7.2 -4.7 -5.8 -5.0 -4.9 -11.4 -8.3 -2.0 25 Endogenous debt dynamics 2/ 5.4 -3.2 -4.3 -4.5 -3.6 -2.6 -4.9 -2.5 -1.8 -1.1 -1.1 Contribution from nominal interest rate 2.1 2.2 2.1 1.9 1.9 2.0 1.9 1.7 1.6 1.2 0.8 -4.0 20 Contribution from real GDP growth -2.0 -3.2 -3.6 -6.4 -5.5 -4.5 -6.8 -4.2 -3.4 -2.3 -1.9 -6.0 Contribution from price and exchange rate changes 5.3 -2.1 -2.8 … … … … … … … … 15 Residual 3/ -8.8 -0.5 -0.2 -2.5 -15.7 -0.1 -1.6 -2.4 -2.9 -0.6 -0.8 -0.6 -2.5 -8.0 of which: exceptional financing 0.0 -0.1 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -10.0 10 -12.0 Sustainability indicators 5 PV of PPG external debt-to-GDP ratio ... ... 72.9 70.2 54.5 53.7 49.6 45.9 42.6 35.5 29.2 -14.0 PV of PPG external debt-to-exports ratio ... ... 178.3 175.7 136.9 136.5 120.0 113.0 113.4 110.2 135.1 -16.0 0 PPG debt service-to-exports ratio 9.6 10.5 13.1 12.2 12.2 15.2 12.9 12.1 12.5 12.4 15.8 2019 2021 2023 2025 2027 2029 PPG debt service-to-revenue ratio 13.2 15.3 18.0 18.6 18.1 22.3 19.9 18.1 17.2 14.8 12.8 Gross external financing need (Billion of U.S. dollars) 0.8 0.6 0.7 0.8 0.8 0.7 0.7 0.7 0.7 0.8 1.1 Debt Accumulation Grant-equivalent financing (% of GDP) Key macroeconomic assumptions Grant element of new borrowing (% right scale) Real GDP growth (in percent) 1.8 3.1 3.6 6.7 5.8 6.0 9.7 6.6 5.7 4.8 5.1 3.5 6.1 GDP deflator in US dollar terms (change in percent) -4.8 2.0 2.7 0.6 -2.1 -0.7 0.2 1.4 1.7 0.2 1.4 -0.3 0.2 Effective interest rate (percent) 4/ 1.9 2.1 2.1 2.0 2.0 2.6 2.7 2.7 2.7 2.5 2.2 1.7 2.5 External debt (nominal) 1/ Growth of exports of G&S (US dollar terms, in percent) 2.2 16.9 9.7 4.9 3.4 3.8 15.4 6.4 -0.6 2.1 1.7 4.1 4.1 of which: Private Growth of imports of G&S (US dollar terms, in percent) -3.2 13.1 15.4 2.7 14.5 -2.7 -5.9 1.3 3.9 -0.6 2.7 4.6 2.4 120 Grant element of new public sector borrowing (in percent) ... ... ... 27.0 24.5 24.5 27.5 31.6 31.6 27.5 20.9 ... 28.6 Government revenues (excluding grants, in percent of GDP) 26.1 27.1 29.8 26.1 26.8 26.8 26.9 27.2 27.3 27.1 26.6 24.9 27.0 100 Aid flows (in Billion of US dollars) 5/ 0.1 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 Grant-equivalent financing (in percent of GDP) 6/ ... ... ... 2.4 2.8 2.2 1.9 1.7 1.5 1.5 1.0 ... 1.9 80 Grant-equivalent financing (in percent of external financing) 6/ ... ... ... 34.2 31.4 30.5 35.0 39.9 40.2 32.7 23.7 ... 35.4 Nominal GDP (Billion of US dollars) 5 5 5 6 6 6 7 7 8 10 18 Nominal dollar GDP growth -3.0 5.1 6.3 7.3 3.7 5.2 9.9 8.1 7.5 5.1 6.6 3.3 6.3 60 Memorandum items: 40 PV of external debt 7/ ... ... 85.0 80.3 63.2 60.9 55.3 51.2 47.5 39.2 31.3 In percent of exports ... ... 207.9 200.9 158.6 154.9 133.9 126.0 126.5 121.9 144.8 20 Total external debt service-to-exports ratio 28.7 30.8 33.6 29.5 28.8 31.0 26.2 24.4 23.5 22.0 23.0 PV of PPG external debt (in Billion of US dollars) 3.8 3.9 3.2 3.3 3.3 3.3 3.3 3.6 5.4 0 (PVt-PVt-1)/GDPt-1 (in percent) 2.5 -13.7 1.9 0.8 0.1 -0.1 1.0 1.4 2019 2021 2023 2025 2027 2029 Non-interest current account deficit that stabilizes debt ratio 9.2 15.6 21.1 18.7 37.0 18.4 13.6 9.6 10.5 6.8 6.7 Sources: Country authorities; and staff estimates and projections. 0 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share of local currency-denominated external debt in total external debt. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 12 Figure 2. Mauritania: Indicators of Public and Publicly Guaranteed External Debt Under Alternatives Scenarios, 2019–29 PV of debt-to GDP ratio PV of debt-to-exports ratio 120 350 100 300 250 80 200 60 150 40 100 20 50 Most extreme shock: Combination Most extreme shock: Exports 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Debt service-to-exports ratio Debt service-to-revenue ratio 35 30 30 25 25 20 20 15 15 10 10 5 5 Most extreme shock: Exports Most extreme shock: Combination 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Baseline Historical scenario Most extreme shock 1/ Threshold Borrowing assumptions on additional financing needs resulting from the stress Customization of Default Settings tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Stress Terms of marginal debt Combined CL No Avg. nominal interest rate on new borrowing in USD 2.4% 2.4% Natural disaster n.a. n.a. USD Discount rate 5.0% 5.0% Commodity price 2/ No No Avg. maturity (incl. grace period) 19 19 Market financing n.a. n.a. Avg. grace period 5 5 Note: "Yes" indicates any change to the size or * Note: All the additional financing needs generated by the shocks under the stress tests interactions of the default settings for the stress tests. are assumed to be covered by PPG external MLT debt in the external DSA. Default terms of "n.a." indicates that the stress test does not apply. marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department. 13 Table 2. Mauritania: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2019–29 (In percent) Projections 1/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PV of debt-to GDP ratio Baseline 70 55 54 50 46 43 40 39 38 36 35 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 70 56 60 63 65 66 69 71 73 76 77 B. Bound Tests B1. Real GDP growth 70 59 63 58 54 50 47 45 44 42 41 B2. Primary balance 70 57 60 57 54 52 50 50 48 47 47 B3. Exports 70 66 82 76 71 67 64 62 59 56 54 B4. Other flows 3/ 70 66 76 71 66 62 60 57 54 52 49 B5. Depreciation 70 69 87 81 76 71 68 66 63 60 58 B6. Combination of B1-B5 70 73 96 90 85 80 77 74 70 66 63 C. Tailored Tests C1. Combined contingent liabilities 70 59 60 56 54 51 50 49 48 47 47 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 70 60 63 60 58 56 55 54 54 53 53 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 40 40 40 40 40 40 40 40 40 40 40 PV of debt-to-exports ratio Baseline 176 137 136 120 113 113 111 110 110 110 110 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 176 141 152 152 160 177 189 202 215 229 241 B. Bound Tests B1. Real GDP growth 176 137 136 120 113 113 111 110 110 110 110 B2. Primary balance 176 143 152 138 133 138 138 140 142 143 146 B3. Exports 176 201 314 278 265 269 266 265 260 255 251 B4. Other flows 3/ 176 167 193 171 163 166 164 163 159 156 154 B5. Depreciation 176 137 174 154 146 149 146 147 145 142 141 B6. Combination of B1-B5 176 190 212 240 230 234 232 231 226 220 216 C. Tailored Tests C1. Combined contingent liabilities 176 147 151 136 132 136 136 138 140 142 145 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 176 177 185 162 154 157 155 159 162 165 169 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 180 180 180 180 180 180 180 180 180 180 180 Debt service-to-exports ratio Baseline 12 12 15 13 12 12 13 12 12 12 12 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 12 12 16 14 15 16 17 16 19 20 22 B. Bound Tests B1. Real GDP growth 12 12 15 13 12 12 13 12 12 12 12 B2. Primary balance 12 12 15 13 13 13 14 13 14 15 15 B3. Exports 12 16 27 24 23 23 24 24 29 29 29 B4. Other flows 3/ 12 12 16 14 14 14 15 15 18 18 18 B5. Depreciation 12 12 15 14 13 13 14 13 16 16 16 B6. Combination of B1-B5 12 14 21 19 18 19 19 20 25 25 25 C. Tailored Tests C1. Combined contingent liabilities 12 12 15 13 13 13 14 12 13 13 13 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 12 14 18 15 14 14 15 14 16 16 17 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 15 15 15 15 15 15 15 15 15 15 15 Debt service-to-revenue ratio Baseline 19 18 22 20 18 17 17 15 15 15 15 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 19 18 23 22 22 22 23 21 23 25 26 B. Bound Tests B1. Real GDP growth 19 20 26 23 21 20 20 18 18 18 17 B2. Primary balance 19 18 23 21 19 18 18 17 18 18 18 B3. Exports 19 19 26 25 22 21 21 21 24 23 23 B4. Other flows 3/ 19 18 24 22 20 19 19 20 22 22 21 B5. Depreciation 19 23 28 27 25 24 24 21 26 25 24 B6. Combination of B1-B5 19 20 27 27 24 23 23 24 28 28 27 C. Tailored Tests C1. Combined contingent liabilities 19 18 23 21 19 18 18 16 16 16 16 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 19 19 24 22 20 19 19 18 19 19 19 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 18 18 18 18 18 18 18 18 18 18 18 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 3/ Includes official and private transfers and FDI. 14 Table 3. Mauritania: Public Sector Debt Sustainability Framework, Baseline Scenario, 2016-2039 (In percent of GDP, unless otherwise indicated) Actual Projections Average 6/ 2016 2017 2018 2019 2020 2021 2022 2023 2024 2029 2039 Historical Projections Public sector debt 1/ 98.9 95.9 102.3 97.8 80.9 78.2 71.3 66.0 61.1 49.9 42.2 84.8 65.8 Definition of external/domestic Residency- of which: external debt 94.1 91.9 90.1 87.2 71.2 69.3 63.5 58.7 54.4 45.7 36.1 78.5 58.8 debt based of which: local-currency denominated Change in public sector debt 2.2 -3.0 6.4 -4.5 -17.0 -2.7 -6.9 -5.3 -4.8 -1.5 0.0 Is there a material difference Identified debt-creating flows 0.4 -6.7 -7.0 -6.8 -4.1 -4.7 -7.5 -5.4 -4.7 -2.3 -1.6 -1.8 -4.3 Yes between the two criteria? Primary deficit -0.5 -1.2 -5.0 -1.5 -1.8 -1.5 -1.5 -1.5 -1.4 -0.9 0.0 -0.3 -1.3 Revenue and grants 28.0 28.1 30.4 26.8 27.6 27.4 27.4 27.7 27.7 27.4 26.8 26.1 27.5 of which: grants 1.9 1.0 0.7 0.7 0.8 0.6 0.6 0.5 0.5 0.3 0.1 Public sector debt 1/ Primary (noninterest) expenditure 27.5 26.9 25.5 25.3 25.8 25.8 25.9 26.2 26.3 26.5 26.8 25.8 26.2 Automatic debt dynamics 1.0 -5.5 -1.8 -5.3 -2.3 -3.2 -6.0 -3.9 -3.2 -1.5 -1.6 of which: local-currency denominated Contribution from interest rate/growth differential -1.6 -3.4 -3.9 -6.8 -5.7 -4.7 -6.9 -4.4 -3.5 -2.2 -1.8 of which: foreign-currency denominated of which: contribution from average real interest rate 0.1 -0.5 -0.6 -0.4 -0.3 -0.1 0.0 0.0 0.0 0.1 0.3 of which: contribution from real GDP growth -1.7 -2.9 -3.3 -6.4 -5.4 -4.6 -6.9 -4.4 -3.6 -2.4 -2.1 120 Contribution from real exchange rate depreciation 2.6 -2.1 2.2 ... ... ... ... ... ... ... ... 100 Other identified debt-creating flows 0.0 0.0 -0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 80 Recognition of contingent liabilities (e.g., bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 60 Debt relief (HIPC and other) 0.0 0.0 -0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other debt creating or reducing flow (please specify) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 40 Residual 1.8 3.7 13.4 3.9 -9.4 3.6 1.5 0.6 0.2 1.6 1.8 4.3 0.6 20 Sustainability indicators 0 PV of public debt-to-GDP ratio 2/ ... ... 86.5 82.7 65.6 63.5 57.9 53.6 49.7 40.1 35.6 2019 2021 2023 2025 2027 2029 PV of public debt-to-revenue and grants ratio … … 284.6 308.0 237.5 231.9 211.2 193.4 179.2 146.3 132.8 Debt service-to-revenue and grants ratio 3/ 32.4 31.7 30.5 33.0 29.9 32.7 29.4 26.6 25.5 19.5 20.7 Gross financing need 4/ 8.5 7.7 4.0 7.1 6.1 6.0 5.1 4.6 4.3 3.9 5.5 of which: held by residents of which: held by non-residents Key macroeconomic and fiscal assumptions 120 Real GDP growth (in percent) 1.8 3.1 3.6 6.7 5.8 6.0 9.7 6.6 5.7 4.8 5.1 3.5 6.1 Average nominal interest rate on external debt (in percent) 1.2 1.3 1.4 1.4 1.5 2.1 2.2 2.3 2.2 2.1 2.4 1.0 2.0 100 Average real interest rate on domestic debt (in percent) 1.1 2.3 1.8 -0.7 1.0 0.5 1.2 0.8 0.7 2.3 2.6 3.2 1.4 80 Real exchange rate depreciation (in percent, + indicates depreciation) 2.9 -2.3 2.4 … ... ... ... ... ... ... ... 2.0 ... 60 Inflation rate (GDP deflator, in percent) 3.4 3.4 2.8 5.3 3.1 3.7 3.0 3.5 3.8 2.3 3.5 3.6 3.0 Growth of real primary spending (deflated by GDP deflator, in percent) -11.8 0.8 -1.9 6.2 7.7 6.2 10.0 8.0 5.9 4.8 5.6 4.9 6.5 40 Primary deficit that stabilizes the debt-to-GDP ratio 5/ -2.7 1.8 -11.4 2.9 15.1 1.1 5.4 3.8 3.4 0.7 0.0 -4.1 3.5 20 PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 2019 2021 2023 2025 2027 2029 Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central government, central bank, government-guaranteed debt . Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 15 Figure 3. Mauritania: Indicators of Public Debt Under Alternative Scenarios, 2019–29 PV of Debt-to-GDP Ratio 100 90 80 70 60 50 40 30 Most extreme shock: Non-debt flows 20 10 0 2019 2021 2023 2025 2027 2029 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 350 45 40 300 35 250 30 200 25 150 20 15 100 10 50 Most extreme shock: Non-debt flows Most extreme shock: Growth 5 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Baseline Most extreme shock 1/ TOTAL public debt benchmark Historical scenario Borrowing assumptions on additional financing needs resulting from the Default User defined stress tests* Shares of marginal debt External PPG medium and long-term 71% 71% Domestic medium and long-term 2% 2% Domestic short-term 27% 27% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 2.4% 2.4% Avg. maturity (incl. grace period) 19 19 Avg. grace period 5 5 Domestic MLT debt Avg. real interest rate on new borrowing 4.4% 4.4% Avg. maturity (incl. grace period) 3 3 Avg. grace period 2 2 Domestic short-term debt Avg. real interest rate 2.9% 2.9% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 16 Table 4. Mauritania: Sensitivity Analysis for Key Indicators of Public Debt, 2019-2029 Projections 1/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PV of Debt-to-GDP Ratio Baseline 83 66 63 58 54 50 47 45 43 41 40 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 83 68 68 66 64 62 60 59 57 56 55 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 83 72 79 75 73 72 72 73 74 75 77 B2. Primary balance 83 69 70 63 59 55 52 50 48 46 45 B3. Exports 83 73 83 76 71 67 64 61 58 55 53 B4. Other flows 3/ 83 78 86 79 74 70 67 64 60 57 54 B5. Depreciation 83 82 76 68 61 54 50 46 42 39 36 B6. Combination of B1-B5 83 68 67 58 53 49 45 43 41 39 38 C. Tailored Tests C1. Combined contingent liabilities 83 71 69 62 58 54 51 49 47 46 45 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 83 68 71 70 69 69 70 71 72 73 75 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. TOTAL public debt benchmark 55 55 55 55 55 55 55 55 55 55 55 PV of Debt-to-Revenue Ratio Baseline 308 238 232 211 193 179 170 163 156 151 146 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 308 246 248 241 231 223 215 211 207 205 202 0 33 31 35 33 31 30 30 26 23 23 23 B. Bound Tests B1. Real GDP growth 308 261 287 274 264 258 259 263 267 275 281 B2. Primary balance 308 250 255 231 212 197 187 180 174 170 165 B3. Exports 308 264 304 279 258 242 232 223 210 202 192 B4. Other flows 3/ 308 282 314 289 267 251 240 230 217 208 198 B5. Depreciation 308 297 279 247 219 197 180 166 153 143 133 B6. Combination of B1-B5 308 245 246 213 193 175 163 155 147 144 138 C. Tailored Tests C1. Combined contingent liabilities 308 258 251 228 209 194 184 178 171 167 163 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 308 257 269 264 257 253 253 256 260 267 274 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Debt Service-to-Revenue Ratio Baseline 33 30 33 29 27 25 26 22 20 20 20 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 33 30 34 33 31 30 31 27 25 26 27 0 33 31 35 33 31 30 30 26 23 23 23 B. Bound Tests B1. Real GDP growth 33 32 41 41 39 39 40 37 35 37 38 B2. Primary balance 33 30 37 36 31 29 29 26 24 24 25 B3. Exports 33 30 33 31 28 27 27 25 26 25 25 B4. Other flows 3/ 33 30 34 32 29 27 27 26 27 26 26 B5. Depreciation 33 31 37 34 31 30 30 26 24 23 23 B6. Combination of B1-B5 33 30 34 30 29 29 29 28 26 29 29 C. Tailored Tests C1. Combined contingent liabilities 33 30 40 33 30 29 29 25 22 22 22 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 33 31 35 36 37 37 38 35 34 35 37 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the benchmark. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 17 Figure 4. Mauritania: Drivers of Debt Dynamics—Baseline Scenario External Debt External Debt Gross Nominal PPG External Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Current DSA 80 120 Residual 70 Previous DSA proj . 60 60 DSA-2012 Interquartile 100 Price and range (25-75) 50 exchange 40 rate 40 80 Real GDP 20 30 growth Change in PPG 60 debt 3/ 0 20 Nominal 10 40 interest rate-20 0 Median 20 Current -40 -1 0 account + FDI Distribution across LICs 2/ -2 0 0 -60 Change in 5-year 5-year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 -3 0 PPG debt 3/ Contribution of historical projected -4 0 unexpected changes change change Public Debt Gross Nominal Public Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Residu al 100 Current DSA 60 Previous DSA proj. DSA-2012 Other debt Interquartile 120 creatin g flows range (25-75) 50 100 Real 50 Exchange 40 rate 80 depreciation Real GDP growth 30 Change in debt 60 0 Real interest 20 40 rate Primary deficit 10 20 -50 Median 0 0 Chan ge in debt 5-year 5-year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 historical projected Contribution of Distribution across LICs 2/ change change -10 unexpected changes 1/ Difference between anticipated and actual contributions on debt ratios. 2/ Distribution across LICs for which LIC DSAs were produced. 3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation. 18 Figure 5. Mauritania: Realism Tools 3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/ (Percentage points of GDP) 8 1 Distribution 1/ 14 7 Projected 3-yr 12 adjustment 0 3-year PB adjustment greater 6 In percentage points of GDP 10 than 2.5 percentage points of GDP in approx. top 5 -1 quartile In percent 8 4 6 -2 3 4 2 -3 2 1 0 0 -4 more 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 -4.5 -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 2013 2014 2015 2016 2017 2018 2019 2020 Baseline Multiplier = 0.2 Multiplier = 0.4 Multiplier = 0.6 Multiplier = 0.8 1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved since 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the possible real GDP growth paths under different fiscal multipliers (left-hand side scale). percent of sample is found on the vertical axis. Public and Private Investment Rates Contribution to Real GDP Growth (Percent of GDP) (Percent, 5-year average) 56 8 54 52 50 7 48 46 44 42 6 40 38 36 5 34 32 30 28 4 26 24 22 3 20 18 16 2 14 12 10 8 1 6 4 2 0 0 Historical Projected (Prev. DSA) Projected (Curr. DSA) 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Gov. Invest. - Prev. DSA Gov. Invest. - Curr. DSA Contribution of other factors Priv. Invest. - Prev. DSA Priv. Invest. - Curr. DSA Contribution of government capital 19