News Brief No. 00/100

News Brief: IMF Completes Second Review of Madagascar Program and Approves US$9 Million Credit

November 8, 2000

The Executive Board of the International Monetary Fund (IMF) today completed the second review of the second arrangement for Madagascar under a program supported by a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF)¹. The completion of this review enables the release of a further loan in an amount equivalent to SDR 6.8 million (about US$9 million) from the IMF, which brings total disbursements under the PRGF-supported program to an amount equivalent to SDR 86.6 million (about US$112 million).

After the Executive Board's discussion, Stanley Fischer, Deputy Managing Director and Acting Chairman, made the following statement:

"The authorities of Madagascar achieved a satisfactory economic and financial performance in the first part of 2000, despite the heavy damages caused by three cyclones. Real GDP growth in 2000 is expected to be close to 5 percent, inflation has declined sharply, and most of the budgetary targets have been met. In addition, the authorities mobilized the envisaged external assistance to finance a part of the reconstruction costs and to cover the additional financing gap. Progress was made in structural reforms, although there were delays in the complex privatization process of the state petroleum company and of the state airline.

"In the fiscal area, while the revenue performance has been on target, there have been delays in committing budgetary allocations for the social sectors, and the processing of tax refunds to the exporting sector has shown shortcomings. Technical assistance from the Fund in the coming months is expected to play an important role in improving the procedures for expenditure commitment and monitoring.

"The decentralization process is gaining momentum, with the recent adoption of the key framework laws, and the financial responsibilities and resources will be devolved to the new decentralized entities in a phased manner. Progress is also being made in civil service reform, a plan for which is to be adopted by Parliament in the coming weeks.

"Despite the improvement in economic conditions in recent years, the incidence of poverty remains very high and social indicators are low, even in a regional context. To address these issues in a comprehensive manner, the authorities have embarked on the preparation of an interim PRSP, in a framework of wide consultation with civil society and the donor community. The Interim PRSP, which is close to being finalized, will be submitted to the Fund and World Bank Boards in the coming weeks, in connection with the consideration by the two institutions of the Decision point for Madagascar under the HIPC Initiative. A full PRSP is expected to be completed by mid-2001. A key objective of the PRSP will be to improve social indicators and strengthen the income generating activities of the more vulnerable groups. Negotiations for a new three-year PRGF arrangement are scheduled to take place in December 2000.

"Directors also discussed the preliminary assessment of Madagascar's eligibility under the enhanced HIPC Initiative. They concurred that the country is eligible under the Initiative, and look forward to considering the decision point document in December 2000," Mr. Fischer said.

1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It was intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. In the case of Madagascar, the preparation of an interim PRSP is well advanced and a full PRSP is expected to be finalized by mid-2001. PRGF loans carry an annual interest rate of 0.5%, and are repayable over 10 years with a 5½ year grace period on principal payments.