# **B. Macro-Fiscal Framework for 2014-2023 and Debt Sustainability Analysis**

**A Debt Sustainability Analysis (DSA) assesses Mauritania’s public debt prospects and vulnerabilities in the next 10 years, consistently with a macroeconomic outlook and alternative fiscal and debt policies** . The analysis focuses on the gross public debt of the Central Government, including foreign and domestic liabilities.<sup>1</sup> Debt projections are built upon the macroeconomic and fiscal framework prepared by the World Bank that covers the period 2014-23 (Table B1). Information on public debt instruments and financing terms is drawn from the latest Medium-Term Debt Strategy Report (2012) as well as from some updates for 2012-13. Annex I describes the DSA model used in this section.

**The baseline outlook envisages the continuation of the strong growth performance observed in recent years** . The World Bank macro-fiscal framework is the foundation of the DSA baseline scenario. Real GDP growth rates around 7 percent are expected to be maintained during the period 2014-23, whereas the inflation rates measured by the GDP deflator would converge towards 5 percent per annum. The foreign exchange receipts generated by mining exports would permit to stabilize the nominal exchange rate, and so the local currency is expected to appreciate in real terms.

**The baseline outlook is predicated on the preservation of sound policies that seek to achieve balanced budgets and take full advantage of concessional borrowing opportunities** . Fiscal bonanza has brought budget deficits down to nearly 1 percent of GDP in recent years, and so now Mauritania is not far from achieving a balanced budget. The baseline scenario assumes that further efforts would be undertaken to consolidate public finances and target a zero-deficit budget in the next few years. Admittedly, these efforts are feasible in the short-term because of the favorable initial conditions whereby deficits are already small. Challenges may arise in the medium- and long-term, though. Mauritania’s steps up the income ladder and the inevitable exhaustibility of its non-renewable natural resources are likely to affect some relevant components of government revenue—most notably oil income and mineral royalty and tax receipts—which would decline relative to the size of the economy. If fiscal policies seek to preserve balanced budgets, the Government would have to adjust expenditures downwards _pari passu_ and make choices on what spending programs are to be rationalized or expanded at slow motion. If the pattern of policy priorities observed in 2013 persists, a sensible conjecture is that the government would prefer to maintain robust levels of public investment, and instead cut on subsidies and transfers. Against this backdrop, the baseline outlook projects revenues and expenditures to gradually decrease from the current levels of 35-36 percent of GDP to 33 percent of GDP by 2018. As far as debt policies are concerned, the government is expected to pursue a debt management strategy similar to that observed recently, whereby maturing liabilities are re-financed under similar terms. Thus, the composition of the public debt portfolio

> 1 In this work, the debt owed to the Kuwaiti Investment Authority is excluded.

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