News Brief: IMF Completes Second Review Under Madagascar's PRGF Arrangement and Approves US$15 Million Disbursement
December 23, 2002
The Executive Board of the International Monetary Fund (IMF) today completed the second review of Madagascar's performance under an economic program supported by the Poverty Reduction and Growth Facility (PRGF) arrangement. As a result, Madagascar will be able to draw up to SDR 11.347 million (about US$15 million).
The Executive Board extended the arrangement until end-November 2004, given the interruption in the implementation of the PRGF-supported program during the political crisis of early 2002, and waived Madagascar's non-observance of the structural performance criteria on the non-accumulation of external payments arrears in early 2002 and those for end-2001 concerning tax revenue, government domestic financing, and the net domestic assets of the central bank, and the net domestic financing of the government, and on fiscal revenue.
The Executive Board also approved an SDR 2.887 million (about US$4 million) disbursement as additional interim assistance under the enhanced HIPC Initiative for Madagascar for the period January 1, 2003-December 31, 2003.
Madagascar's three-year program was approved on March 1, 2001 (see Press Release No. 01/7), for SDR 79.4 million (about US$106 million). So far, Madagascar has drawn SDR 22.69 (about US$30 million) under the arrangement.
The PRGF is the IMF's concessional facility for low income countries. It is intended that PRGF-supported programs are 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 PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year period on principal payments.
After the Executive Board's discussion on Madagascar, Anne Krueger, First Deputy Managing Director and Acting Chair, stated:
Following a strong economic performance in 2001, the political crisis of the first half of 2002 had severe adverse effects on economic activity, real income, and poverty. The new authorities are to be commended for the decisive actions they have taken since the middle of 2002 to spur economic activity through a careful prioritization of public expenditures, faster implementation of externally funded projects, and adoption of measures to boost confidence and encourage the return of private investors. Inflation has abated in recent months, and economic activity and revenue collection have picked up. External budgetary support has enabled the government to repay a large part of domestic payments arrears built up during the crisis, while external payments arrears were promptly repaid in mid-year.
"The reform package for the rest of 2002 and for 2003 centers on fostering the recovery through continued rapid project implementation, comprehensive reforms in tax and customs administration with a view to widening the revenue base, and a lowering of certain tariffs. A determined effort will also be made to fight corruption and to increase transparency at all levels of government. In 2003, real GDP is expected to grow, after declining significantly in 2002, and inflation will be contained. Fiscal reform will focus on improving expenditure prioritization and strengthening budgetary reporting and treasury accounting. Financial reform will focus on removing impediments to bank lending. The privatization program will contribute to faster growth of key sectors, by attracting additional investment.
"The poverty reduction strategy paper, which will be finalized in the coming months, will be a key instrument in guiding the government's poverty alleviation effort. It will prioritize and estimate costs of action plans for rural development and the social sectors. It will also establish monitoring indicators and should strengthen pro-poor budget planning and expenditure tracking, with a view to enhancing the impact of growth on poverty reduction," Ms. Krueger said.