# **<u><mark>Overview</mark></u>**

- **Mauritania continues to enjoy macroeconomic stability and growth, sustained by its sizeable natural resources** . Economic performance has been strong over recent years, with real GDP growing at roughly 5 percent in the last decade and accelerating to 7 percent in 2012-13. Inflation was 4.5 percent in 2013, a relatively low level for historical standards. Investment projects are opening new opportunities for economic and social development. Despite this remarkable macroeconomic performance, Mauritania remains exposed to external shocks and heavily dependent on mining exports. Improved fiscal policies have accompanied economic growth, strengthening revenues and supporting public investment.

- **This paper utilizes a stochastic Debt Sustainability Analysis (DSA) to assess Mauritania’s public debt prospects and vulnerabilities over the next ten years, consistently with a macroeconomic outlook and a number of alternative fiscal and debt policies** . This framework is neither substitutive nor antithetical to the Debt Sustainability Framework for Low-Income Countries (LIC DSF) jointly developed by the World Bank and the IMF; on the contrary, it is offered as a complementary and distinct analytical perspective to policy makers. The methodology involves stochastic simulations suitable to address macroeconomic uncertainties and fiscal risks, thus improving upon the traditional scenarioanalysis approach of the LIC DSF. New insights are then obtained to inform the formulation of fiscal and debt policies.

- **Under this framework, Mauritania’s public debt appears to be sustainable in the long term and poses limited fiscal vulnerability provided that robust growth and rigorous fiscal policy are achieved.** Fiscal policies targeting a balanced budget will largely compress the net borrowing needs and thus slow down the accumulation of financial liabilities. A fastgrowing nominal GDP, in addition, will boost fiscal revenues and strengthen the capacity to repay the government debt. Mauritania’s public debt is then expected to decline from 74 percent of GDP in 2013 to 30 percent by 2023, whereas its gross financing needs fall from 12 percent of GDP to 4 percent. A virtuous combination of strong economic performance and fiscal prudence is required for Mauritania to mitigate solvency risk, reduce the probability of experiencing debt distress, and ensure public debt sustainability.

- **Fiscal risks stemming from unforeseen macroeconomic shocks are relevant to assess the sustainability of the public debt.** Thus, the stochastic DSA aims at providing quantitative estimates of the range of possible debt outcomes resulting in the wake of macroeconomic shocks, as well as their associated probabilities of occurrence. This type of analysis is meant to support policy makers in strengthening fiscal and debt policies on sustainability grounds.

- **Our results clearly indicate that the sound fiscal and debt policies assumed in the baseline scenario have a direct and positive effect on debt sustainability, even in the presence of macroeconomic shocks** . In 2023, there is a 50 percent probability that the debtto-GDP ratio could be as low as 27 percent and as high as 33 percent, i.e., deviations of +/-3 percentage points around the baseline path. Similarly, there is a 90 percent probability that the debt-to-GDP ratio could lie in the range 24-40 percent, i.e., with wider deviations relative to the baseline path. Thus, the sound policies seeking balanced budgets—which Mauritania is assumed to follow in the baseline scenario—do deliver a large reduction of public debt in 2013-23, even in the presence of macroeconomic shocks. Arguably, even the public debt of 40 percent of GDP by 2023 that would result from very unfavorable shocks represents, for practical purposes, a notable improvement against the current ratio of 74 percent. In other words, fiscal prudence always proves to be effective to strengthen debt sustainability in Mauritania.

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