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IMF Executive Board Completes Sixth Review Under the Extended Credit Facility (ECF) for the Republic of Madagascar and Concludes 2019 Article IV Consultation

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Via IMF (Den Internationale Valutafond)

IMF Executive Board Completes Sixth Review Under the Extended Credit Facility (ECF) for the Republic of Madagascar and Concludes 2019 Article IV Consultation







January 30, 2020















On January 29, 2020, the Executive Board of the
International Monetary Fund completed the sixth review under the ECF
arrangement for Madagascar and the 2019 Article IV consultation. The
completion of this review enables the disbursement of SDR 31.43 million
(about US$43.2 million), bringing total disbursements under the arrangement
to SDR 250.55 million (about US$344.5 million).

Madagascar’s 40 month-ECF arrangement to support the country’s efforts to
reinforce macroeconomic stability and boost sustained and inclusive growth,
was approved on July 27, 2016 (see Press Release No.16/370) for SDR 220
million (about US$305 million, or 90 percent of Madagascar’s quota).
Additional access of 12.5 percent of Madagascar’s quota was approved by the
Executive Board in June 28, 2017, bringing access to SDR250.55 million
(about US$347 million) at that time. The Executive Board approved, in
November 4, 2019, the authorities’ request for a three-month Extension of
the ECF arrangement to February 26, 2020, to allow time to conclude the
discussions to complete the 6th and last review.

Following the Executive Board discussion, Mr. Mitsuhiro Furusawa, Deputy
Managing Director and Acting Chair, made the following statement:

“Madagascar’s performance under its economic program supported by the
Extended Credit Facility (ECF) arrangement has been broadly satisfactory
with solid growth, moderate single-digit inflation, and a robust external
position. Going forward, a commitment to strong policies and an ambitious
agenda to complete outstanding structural reforms remains crucial to
mitigate internal and external risks, strengthen macroeconomic stability,
and achieve higher, sustainable, and inclusive growth.

“The authorities’ economic reform agenda summarized in the Plan Emergence
Madagascar aims to raise economic growth through increased public and
private investment, strengthening human capital, and improving governance.
Creating additional fiscal space by further improving revenue mobilization
through a medium-term tax revenue strategy, containing lower-priority
spending, and enhancing investment implementation capacity is essential for
scaling-up priority investment and social spending in education, health,
and housing.

“Resolute actions are needed to contain risks to macroeconomic stability
and debt sustainability, including reducing fiscal risks from the financial
situation of the public utility JIRAMA and containing liabilities to fuel
distributors. On the latter, the implementation of an automatic fuel
pricing mechanism to avoid budget costs must be accompanied by mitigating
measures to limit impact on the poorest, including by the on-going scaling
up of social safety net programs.

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“Effective and impartial enforcement of the new anti-corruption legal
framework, now closer to international standards, is needed to improve the
business climate and attract private investment. Continued progress to
further strengthen public financial management is necessary to improve the
governance of public resources. Measures to increase resilience to natural
disasters also need to be prioritized.

“The authorities’ ongoing reform agenda should continue to benefit from
continued IMF engagement, including technical assistance.”

The Executive Board also concluded the 2019 Article IV Consultation

[1]

with the Republic of Madagascar.

Madagascar is a low-income country facing important challenges to overcome
fragilities, strengthen inclusive growth, and address long-standing
development needs. Progress in macro-economic performance and structural
agenda during the recent years has been supported by the 2016 ECF
arrangement. After a smooth transition of power following the Presidential
elections, and the conclusion of the Parliamentary elections in end-May
economic developments have remained favorable with sustained growth,
contained inflation, and sustainable fiscal and external positions.

The medium-term economic outlook remains favorable, with growth expected to
gradually increase to about 5.5 percent, supported by public investment
scaling-up and good prospects for private investment. The outlook remains
subject to risks, however, associated with social fragility,
materialization of fiscal risks, and vulnerability to exogenous shocks
including to terms of trade and natural disasters.

In this context, renewed efforts and impetus for reforms, in line with the
government’s ambitious development strategy formalized in its Plan
Emergence Madagascar, are needed to create fiscal space to finance
investment and raise social spending; strengthen monetary and exchange rate
policy effectiveness; improve financial sector development and resilience;
and promote better governance and an improved business climate.


Executive Board Assessment

[2]

Executive Directors welcomed the broadly satisfactory implementation of the
economic reform program and peaceful political transition followed by solid
macroeconomic performance. However, they regretted the slowdown in progress
on structural reforms and continued underperformance on priority social
spending. In light of Madagascar’s long‑standing challenges of high
poverty, stagnant per capita income and vulnerability to natural disasters,
Directors emphasized the need for further efforts to bring Madagascar onto
a path of sustainable and inclusive growth. In this regard, they welcomed
the authorities’ ambitious development agenda summarized in the Plan
Emergence Madagascar and their commitment to strengthen macroeconomic
stability and debt sustainability and implement outstanding reforms.
Directors noted that enhanced capacity development will be essential to
support the authorities’ objectives and welcomed the intention to start
discussions on a successor arrangement.

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Directors emphasized that fiscal policy should remain focused on efforts to
create fiscal space to allow for scaling up of priority social and
investment spending, notably in education, health and housing. In this
context, they encouraged the authorities to continue their efforts to
improve revenue mobilization through credible medium‑term tax revenue
mobilization plans, containment of lower‑priority spending, and enhancement
of the investment implementation capacity. To contain risks to
macroeconomic stability and debt sustainability, Directors called for reducing transfers to the public
utility company JIRAMA and finalizing and implementing its medium‑term
recovery plan, improving the sustainability of the civil servant pension
fund, and containing liabilities to fuel distributors. They also
encouraged the authorities to adopt the planned fuel pricing mechanism
without further delays, while putting in place mitigating measures and
social safety nets to limit the impact on the poorest .

Directors welcomed continued progress in improving the monetary framework
and strengthening the financial sector. They called for continued efforts
to improve foreign exchange market operations and gradually phase out the
surrender requirement on export proceeds, as well as further steps to
strengthen the bank supervisory framework. They encouraged the authorities
to implement the new banking and financial stability laws, and to continue
their efforts to improve financial inclusion.

Directors welcomed progress on governance reforms and the anti‑corruption
legal framework, and they urged its effective and impartial enforcement in
order to strengthen the business climate and attract private investment.
Directors also called for continued efforts to strengthen public financial
management and for prioritizing measures to increase resilience to natural
disasters.


Table 1. Selected Economic Indicators, 2017–21

2017

2018

2019

2020

2021

Est.

Proj.


National account and prices (percent change, unless
otherwise indicated)

GDP at constant prices

3.9

4.6

4.8

5.2

5.4

GDP deflator

8.6

8.6

5.9

7.2

6.5

Consumer prices (end of period)

10.6

6.9

6.0

6.2

5.9

Money and credit

Broad money (M3)

17.8

11.2

12.3

16.2

14.9

(Growth in percent of beginning of period money stock (M3))

Net foreign assets

9.2

4.8

0.3

6.9

7.6

Net domestic assets

8.6

6.4

12.0

9.3

7.2

of which: Credit to the private sector

8.4

8.7

9.0

7.3

5.8

(percent of GDP)

Public finance

Total revenue (excluding grants)

10.3

10.5

10.6

11.2

11.7

of which: Tax revenue

10.0

10.2

10.4

10.9

11.3

Grants

2.5

2.5

2.4

2.5

1.4

of which: budget grants

0.7

0.9

0.8

0.7

0.0

Total expenditures

14.9

14.3

14.4

16.4

17.3

Current expenditure

10.2

9.3

9.3

8.9

8.9

Capital expenditure

4.7

5.0

5.0

7.6

8.3

Overall balance (commitment basis)

-2.1

-1.3

-1.4

-2.7

-4.2

Domestic primary balance1

-0.9

0.1

0.3

0.0

0.3

Total financing

2.0

2.0

1.7

2.7

3.8

Foreign borrowing (net)

1.2

1.5

1.2

2.2

3.3

Domestic financing

0.8

0.5

0.5

0.5

0.4

Financing gap

0.0

0.0

0.0

0.0

-0.5

Savings and investment

Investment

18.1

18.8

19.1

22.0

23.0

Gross national savings

15.4

20.3

19.0

20.5

21.5

External sector

Exports of goods, f.o.b.

21.3

21.9

19.5

19.0

20.1

Imports of goods, c.i.f.

27.4

27.6

26.6

27.0

27.3

Current account balance (exc. grants)

-2.9

-1.9

-2.6

-4.0

-2.9

Current account balance (inc. grants)

-0.4

0.7

-0.1

-1.5

-1.5

Public debt

40.0

39.9

40.1

39.8

40.8

External Public Debt

25.7

26.7

27.2

27.6

29.1

Domestic Public Debt

14.4

13.2

12.8

12.2

11.6

(Units as indicated)

Gross official reserves (millions of SDRs)

1086

1221

1238

1390

1552

Months of imports of goods and services

4.0

4.3

4.3

4.4

4.5

GDP per capita (U.S. dollars)

516

528

525

557

588

Sources:

1
Primary balance excl. foreign-financed investment and
grants. Commitment basis.


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[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


[2]

At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.imf.org/external/np/sec/misc/qualifiers.htm

.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Lucie Mboto Fouda

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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