Mali’s credit profile (Caa1 stable) reflects low income levels and weak economic diversification, which limits its ability to absorb economic shocks, Moody’s said in a report dated April 19, 2021. In addition, an increase the share of short-term domestic debt has increased liquidity risks over the past five years. The political risk remains high, due to the difficult security situation and the fight against violent extremism, which is a long-term constraint on the sovereign’s credit profile. In addition, the country’s institutional and governance indicators are very weak.
Economic growth is expected to accelerate in 2021 despite a triple shock in 2020
Mali has about 20 million inhabitants, with a GDP of 17.6 billion dollars in 2020 which the World Bank (IBRD, stable AAA) classifies as a low-income country. GDP per capita on a purchasing power parity (PPP) basis was $ 2,401 in 2020, slightly below the Sub-Saharan Africa (SSA) Median of $ 2,772. Although less dynamic than some other economies in sub-Saharan Africa, per capita GDP growth remains strong in Mali. The economy is relatively concentrated, with agriculture accounting for almost 40% of GDP. In addition, 70% of goods exports are gold, the main source of foreign exchange income. Mali also has a large informal sector.
With just under 50% of GDP in April 2021, Mali’s debt is moderate compared to its peers, and affordable because it is largely made up of concessional loans. The stable outlook illustrates the balance of credit constraints and credit supports. The rating could benefit over time if Mali’s transition to civilian rule appears secure and inclusive, supported by the international community, which would increase the prospects for improved governance and greater political and social stability. “We would be likely to downgrade Mali’s rating if the current political situation worsens, the transitional government collapses or even the name payment of the public debt,” Moody’s said. More generally, the report continues, “a downgrade would also be likely if the current political and security situation deteriorates to a level that will slow growth and weaken fiscal soundness”.
Mali’s economy is expected to recover in 2021 after the triple shock in 2020 caused by the pandemic, the coup and a sharp drop in cotton production, leading to a 2% contraction of GDP. Which is a far cry from Moody’s forecast of 5.3% growth before the pandemic. In particular, cotton production, at 147,000 tonnes, was lower than the 750,000 tonnes forecast, due to the inability of the government to implement sector reform. The failure to implement the reform led cotton producers to believe that there would be no support mechanism in the event of falling international prices, so they did not sow as much as expected.
Still, there is optimism among analysts at the rating agency. “We expect better budget execution, especially capital spending, to support the economy in 2021 as some infrastructure projects have been delayed in 2020 due to the pandemic,” continues Moody’s focusing on a resilient mining sector focused by high gold prices and the rebound in cotton production, Mali’s second export. Whatever the scenario, Mali will continue to receive significant support from the international community, supported by France (stable Aa2). As risks such as the evolving pandemic and the difficult security situation persist, Moody’s expects real GDP growth of 4.5% in 2021 and 6% in 2022.