At independence, Mauritania became a member of the West African Monetary Union (Union Monétaire Ouest Africaine--UMOA) but withdrew in 1973 to demonstrate its independent economic identity. When it withdrew, the government also relinquished membership in the African Financial Community (Communauté Financière Africaine--CFA), whose currency--the CFA franc--was freely convertible to French francs. Mauritania then created its own currency, the ouguiya, and an independent central bank.
In the mid-1980s, Mauritania's monetary and banking structure consisted of the Central Bank of Mauritania (Banque Centrale de Mauritanie--BCM) and six commercial banks established with the participation of the government or of the BCM. Other major shareholders included various Arab interests, which included Saudi and Libyan participation.
By the early 1980s, Mauritania's banking sector was deteriorating, chiefly because of an accumulation of nonperforming loans that constituted some 50 percent of commercial bank assets. Between 1981 and 1983, government borrowing from the BCM and commercial banks rose to statutory limits. The private sector and public enterprises were thus forced to borrow increasingly from foreign banks to cover their severe liquidity problems.
As a result of this spiral of debt, in 1985 the government, with IMF and World Bank support, undertook measures to restructure the banking system. Measures taken under the 1985-88 Economic Recovery Program instituted a monetary and credit policy favoring the private sector and an austerity program for the public sector. Furthermore, in 1987 the government, in cooperation with the World Bank, adopted a reform program that focused on three areas: reforming credit policies and banking regulations, strengthening the BCM, and restructuring four of the six commercial banks, including the International Bank of Mauritania (Banque Internationale pour la Mauritanie--BIMA), of which the BCM held 91 percent.
In 1986, with IMF and World Bank support, the government prepared its first consolidated budget. Before this, budgetary procedures covered only expenditures financed through domestic resources. The new procedures covered all financing sources used by the government in a budget encompassing both internally and externally financed current and capital expenditures.
Between 1979 and 1984, expenditures on current operations averaged UM10.5 billion. Typically, domestic revenues covered about two-thirds of this amount; the balance was financed by direct external budgetary support. Between 1978 and 1983, the government wage bill (including military salaries) constituted the largest line item of current expenditures. The second largest expenditure was for equipment and supplies.
In addition to current expenditures, the central government budget allocated smaller amounts for capital expenditures, which amounted to the government's contribution to the public investment program. Capital expenditures accounted for only between 8 and 11 percent of the total budget in the period 1979- 83, far less than current expenditures.
Mauritania's domestic revenue base was very narrow and depended on the iron and fishing export industries and the service sector. Total government revenues were derived from taxes and nontax revenues. Between 1981 and 1986, nontax revenues accounted for from 11 to 20 percent of the total and consisted of fish royalties, penalties, and revenue transfers from public enterprises. Tax revenues were derived mainly from taxes on international trade and on income and profits. Between 1981 and 1986, taxes on international trade (of which import taxes were the most important) averaged 41 percent of all revenues, and taxes on income and profits represented 26 percent. Taxes on wages and salaries averaged more than 14 percent of all government revenues for this period.
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