## 1mdgea2019002 ## Source details **Canonical URL:** [1mdgea2019002](https://www.imf.org/-/media/files/publications/cr/2019/1mdgea2019002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1mdgea2019002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1mdgea2019002.pdf.json) --- ### Mission overview and context - A technical assistance (TA) mission visited Antananarivo, Madagascar, from July 2–13, 2018, to provide assistance in the external sector statistics (ESS), including the balance of payments and international investment position (IIP). - The mission was conducted in the context of an initiative financed by the Financial Sector Stability Fund (FSSF) – Balance Sheet Approach (BSA) submodule. - The mission focused on setting up a robust compilation system for the IIP and assessing balance of payments data that directly affect IIP compilation. ### Key achievements and progress noted - Revision of the legal mandate of the Banky Foiben’i Madagasikara (BFM) to give it responsibility for compilation of the balance of payments and IIP. - Revision of the international settlements statistical statement (ESRI) to align with the newest methodological standards. - Signing of a memorandum of understanding with public institutions (main data suppliers). - Initiation of work on a compilation framework for the IIP. - The BFM began compilation of a preliminary IIP; an updated quarterly IIP covering the period 2006–2018 was submitted to the IMF in November 2018 and published on the IMF website for the first time. - SIGOC (système intégrée de gestion des opérations de change) implemented by SCC starting July 2017, linked to Customs, can generate time series reports needed for balance of payments and IIP compilation. ### Main shortcomings and urgent needs - Timeliness and quality of data submission require a more sustained collection effort. - The main source for the financial part of the balance of payments and IIP is the direct business investment survey (FDIS) conducted by INSTAT; results have been published with a considerable lag (INSTAT preparing to publish 2015 data at mission time). - Preliminary IIP compilation revealed major gaps: - Construction of initial positions for trade credit and advances, currency and deposits of other sectors, and other accounts receivable/payable relied on accumulation of transactions, producing unreliable results due to gaps in balance of payments transaction estimates. - Inconsistency between IIP position data and balance of payments transactions. - Undercoverage of some public institutions and private sector elements. - Instances of deviation from BPM6 requirements and scarce techniques for estimating starting position data. - Resource constraints in SBP: only two employees out of three are assigned full-time to ESS compilation; additional part-time support exists. Urgent recruitment required. ### Priority recommendations and action plan (selected) - Immediate and completed actions: - Assess results of the FDIS of businesses conducted by INSTAT for 2015 and use results to estimate balance of payments components for 2015–2017. — BFM in collaboration with INSTAT — February 2019 — Completed - Launch the annual ESS survey to collect the data for 2016 and 2017. — BFM in collaboration with INSTAT — Completed - Compile the preliminary version of the IIP for all institutional sectors for end-2016 and 2017, based on BPM6 and using broader data sources. — BFM — March 2019 — Completed - Publish the IIP statistics on the BFM and IMF websites. — Completed - Establish methods and improve estimates for counterparties, trade credit and advances, and exclusion of exchange rate and price variation effects — Completed - High-priority actions with target dates: - Correct the deficiencies in the balance of payments data identified by the mission. — BFM — Target: June 2019 - Finalize the questionnaires for the collection of ESS data, bearing in mind the mission’s recommendations. — Target: February 2019 - Launch the collection of data from the National Social Security Fund (Caisse Nationale de Prévoyance Sociale—CNPS) on pension fund foreign investments and on current transactions with diplomatic missions and international organizations in Madagascar. — Target: August 2019 - Follow-up with the Ministry of Finance and Budget (MFB) on sharing data from businesses’ financial statements. — Target: August 2019 - Compile data on assistance and investment projects based on information from the Primature to improve classification of current and capital transfers. — Completed - Increase human resources assigned to the SBP by at least two qualified officials to carry out supplementary activities and compile the IIP and external debt using BPM6 methodology. — Target: September 2019 (High) - Medium-priority actions: - Train SBP officials in ESS; nominate officials to attend IMF training sessions. — Ongoing - Assess possibility of launching a survey of international points of departure (ports and airports) to estimate tourist spending and refine travel service export estimates. — Target: Mai 2019 - In cooperation with the Public Debt Directorate (DDP) establish a preliminary version of the external debt statistics (EDS) for all institutional sectors consistent with the IIP. — Target: September 2019 - Submit the EDS for all institutional sectors to the World Bank for inclusion in the database of quarterly external debt statistics. — Target: December 2019 ### Data collection, surveys, and source use - Revise the data collection and compilation strategy for the ESS: - Quarterly ESS compilation requires more compilers and a change in source-data approach. - Quarterly data should be compiled from the ESRI and supplemented by a simple quarterly survey of major public and private enterprises; annual surveys (broader coverage) should be used to revise quarterly data. - Improve and expand enterprise surveys: - BFM designed a considerably improved survey form that: - includes questions on both current and financial transactions; - provides for collection of data for financial part in an integrated format (positions, transactions, other flows); - includes annexes for enterprises in specific activities (construction, manufacturing, transport, travel, other); - targets all entities with significant cross-border transactions, with and without foreign equity investment. - The new-format survey covering 2016 and 2017 is ambitious, requiring identifying relevant survey population, sensitizing respondents, and ensuring adequate response rates and data quality. - The BFM launched a tender to select the institution that will conduct the new-format survey. - Use administrative and new data sources to improve IIP coverage: - CNPS reserve funds: 15 percent of those funds are invested abroad; CNPS assets abroad are currently omitted from the balance of payments and IIP. BFM agreed to adjust CNPS quarterly report form to collect CNPS investment abroad. - SCC/SIGOC data can be used to calculate positions and flows of trade credit and advances, including identifying changes due to exchange rate fluctuations and repatriation of export proceeds by currency and period. - Compare FDIS results with ESRI data to increase sample size and eliminate double counting (on a regular basis). - Compile data on assistance and investment projects using Primature information to improve classification of current and capital transfers. ### Staffing, capacity building, and sustainability - Staffing shortfall: only two full-time ESS compilers (out of three positions) in SBP at mission time; one additional staff member provides part-time assistance while assigned to International Relations Unit. - Recommendation to recruit new staff as soon as possible and increase number of staff assigned to ESS to: - Sustainably implement mission recommendations. - Handle increased workload from new ESS datasets (IIP, external debt statistics) and increased periodicity (quarterly compilation). - Address multiplicity and complexity of transactions from globalization. - Capacity building actions: - Train SBP officials in ESS compilation and BPM6 methodology; nominate officials for IMF training (ongoing). ### Compilation methodology and technical recommendations - Avoid estimating positions solely as accumulations of transactions without accounting for exchange rate and price changes; establish methods to exclude effects of exchange rate and price variations for components concerned (currency and deposits, loans, reserve assets) using SCC breakdowns by invoice currency. — Completed - Establish method of estimating trade credit and advances: - For assets, use SCC information on repatriation of export proceeds. — Completed - For liabilities, compare DGD import data with ESRI payments for imports. — Completed - Enhance consistency checks between position data and transaction flows; adopt broader data-source overview for IIP compilation rather than availability-only principle. - Discontinue estimating other accounts receivable/payable as a residual that hides omissions or imbalances; assess and address root causes of errors and omissions. ### Causes of differences between export statistics and repatriation of proceeds (SCC observations) - De-facto non-repatriation of export proceeds. - Exports of goods compensated by imports of goods. - Proceeds repatriated but information not provided by banks to SCC. - Payments executed by affiliated parts in a consolidated manner and cannot be linked to specific export invoices. - Large companies are allowed do not repatriate up to 40 percent of their proceeds. - Mining companies are obliged to repatriate only the proceeds for funding three months of their domestic expenses. - The repatriation period for proceed from export of services is one month while for goods is three months up to 190 days. - If compilers start estimating trade credit and advances based on data from SCC, the estimates should be adjusted taking into consideration the above-listed causes. ### Use of enterprise financial statements and specific company cases - Financial statements of enterprises are an important source for IIP and can be used to assess positions for different financial components and cross-check enterprise survey reporting. Financial statements are available at the MFB; the BFM should initiate discussions with the MFB for obtaining access. - Air Madagascar (state owned): privatized in 2017 when Air Austral (France) acquired 32 percent of its share capital (USD 10 million). Air Austral provided working capital and committed to invest additional USD 7 million in company’s development. - Air Madagascar purchased two aircraft in 2012 financed by high-interest loans; arrears accumulated from 2013 and were rescheduled in 2016. - In 2015 Air Madagascar acquired under financial lease four additional aircrafts. - All these cross-border transactions should be covered in balance of payments and IIP. BFM will submit a report form to Air Madagascar for quarterly reporting of identified cross-border activities. - Footnote: Air Austral has the option of increasing its share up to 49 percent for additional USD 4 million. - Meetings with four private resident companies in special zones (Materauto, Holcim, OSO Farma, JIRAMA): - Materauto, Holcim, OSO Farma: have foreign investment, sell mainly abroad, and have loan liabilities to nonresidents. - JIRAMA: resident-owned, operates domestically, benefited from a grant from World Bank. - Agreement: regular reports will be submitted to the BFM for ESS purpose using BFM survey forms. - ARO (insurance company): public company with about 70 percent of share capital held by the government; provides life and non-life insurance; more than 50 percent of risks are reinsured abroad; invests abroad part of its assets and holds accounts with foreign banks. - ARO’s cross-border reinsurance activity and investment abroad are currently not captured in balance of payments and IIP statistics. BFM will require regular reporting by ARO based on a survey form. ### Balance of payments data as input to IIP — main findings and recommendations - Recent improvements: enhancing the ESRI and aligning it to the BPM6 framework; refining statistical techniques for selected components; expanding data sources. - Remaining issues: misclassifications, underestimations/overstatements, omissions, and derivation of several financial-account transactions (reserve assets, currency and deposits, portfolio investments, etc.) as differences in stocks without exclusion of exchange rate effect. - Goods data: - Compiled based on Customs data with adjustments (c.i.f. to f.o.b., exclusion of personal effects, time adjustments for customs warehouses), causing differences from IMTS compiled by INSTAT. - Mission recommendation: accompany published balance of payments data with an explanatory table disclosing adjustments made to Customs data. - For analysis by country and commodity, use IMTS data since BFM adjustments are in aggregated format and not breakable by country/commodity. - Issue: goods imported for/exported after processing are included in goods; under BPM6 only the processing fee should be included in services. - Services account: - Compiled based on ESRI supplemented with freight and insurance services estimated within c.i.f.-f.o.b. re-evaluation. - Recommended enhancements: - Update coefficients for c.i.f.-f.o.b. reevaluation based on customs declarations data. - Consider launching a separate survey of manufacturing enterprises to collect manufacturing fees using model survey form 7 – Manufacturing Services in Appendix 8 of the BPM6 Compilation Guide. - Supplement services data with estimates of services imported within technical assistance projects. - Primary income: - Compiled using ESRI, FDIS results for dividends and reinvested earnings, and MFB data on interest on public external debt. - Recommendations: supplement with income on investment abroad by CNPS and insurance companies; launch a survey of telecommunication companies on cross-border mobile money remittances using the mission’s recommended form for estimating compensation of employees through mobile money. - Secondary income and capital accounts: - Include ESRI data on personal transfers, international cooperation projects, and other current transfers. - Possible misclassification between secondary income and capital account. Primature database covers all technical assistance and investment projects; recommended to review classification based on project purpose and ensure counter entries are registered in relevant balance of payments components. - Direct investment: - Estimated based on FDIS results; significant delay in FDIS release (results for 2015 were release at the end of 2018). - Total direct investment for 2016–2018 estimated from sectoral ministries’ expected investment adjusted by compilers; split between equity capital and debt instruments applied as 10:90. Ratio should be revised when 2015 FDIS results become available. - BFM does not participate in IMF’s CDIS; mirror CDIS data lead to conclusions: (i) the IIP data could be overstated and (ii) CDIS data do not support the ratio applied by the BFM for equity/debt distribution. - Portfolio investment: - Currently covers only investment of deposit-taking corporations from MFS. - CNPS and ARO invest abroad a significant part of their assets; BFM should establish regular data collection from these institutions on investment abroad and income earnings. - Currency and deposits; loans; reserve assets: - Transactions are often calculated as differences in stocks, thereby including exchange rate effects. - For currency and deposits: when calculated as differences of stocks, transactions include exchange rate fluctuation. To exclude exchange rate changes, stock data should be converted to the original currency; transactions calculated as differences in original currency and then converted using average exchange rate for month/quarter. - For converting stocks to original currency, currency composition of exports and imports from CNPS could be used as a proxy. - DDP agreed to provide balance of payments information broken down by currency of denomination of debt liability for loans to calculate “pure” transactions and exchange rate changes. - Reserve assets: full information is available at BFM; compilers should separate “pure” transactions from exchange rate and price changes, registering the latter under other changes in financial assets and liabilities in IIP. - Trade credit and advances: - Currently estimated as difference between Customs import/export data and ESRI payment data; this method is imperfect due to inconsistencies and needs discrete contract-level comparison for reliability. - CNPS maintains a detailed database on repatriation of proceeds from export of goods; compilers should use this database to estimate accumulation and repayment of trade credit by comparing nonrepatriated proceeds stocks reported across periods (e.g., t-3, t-2, t-1, t compared with same periods reported in t+1). The difference equals repayment of trade credit (late repatriation). - Other accounts receivable/payable: - Currently estimated as residual to smooth errors and omissions. Mission strongly recommended discontinuing this practice as it hides omissions or imbalances. - Possible causes of errors and omissions include absence of counter entries, errors in estimating components (e.g., overstatement of direct investment), and inclusion of exchange rate changes in transactions. - Compilers should conduct detailed assessment of causes and address them instead of hiding imbalances under other accounts receivable/payable. - Compilers’ ad hoc adjustments: - Some adjustments made to reflect Madagascar economic reality are subjective and not based on documented trends (e.g., assumption mining companies do not repatriate proceeds). - CNPS provided information for two mining companies showing an opposite trend. When FDIS results and additional data sources become available, such adjustments should be reassessed and discontinued if unjustifiable. ### ESS data collection and quarterly compilation strategy - At present, aside from the monthly ESRI, data are collected through annual surveys not suitable for quarterly balance of payments and IIP compilation. - Quarterly ESS compilation requires: - a greater number of compilers; - a change in approach to baseline data collection. - Quarterly data are compiled based on ESRI and should be supplemented by quarterly data collection based on simple surveys of large private and public enterprises. - Annual surveys, which have broader coverage and details, will serve to revise quarterly data. ### IIP implementation and external debt statistics (EDS) - With the implementation of IIP compilation, the BFM needs to develop a strategy for the compilation and dissemination of gross external debt statistics (EDS). - The starting point in the EDS compilation could be deriving debt liabilities from the IIP, when the latter achieves an adequate coverage and quality. - The data available in IIP would be sufficient for compiling the main tables required for reporting data to the World Bank’s Quarterly External Debt Statistics database. - The compilation of EDS could be started with the assistance of a follow-up TA mission. ### Explicit implementation recommendations (selected) - Increase the human resources assigned to the SBP by at least two qualified officials to carry out supplementary activities and compile the IIP and external debt using the BPM6 methodology. - In cooperation with the DDP, establish a preliminary version of the EDS for all institutional sectors consistent with the IIP. - Submit the EDS for all institutional sectors to the World Bank for inclusion in the database of quarterly external debt statistics. ### Implementation progress and institutional actions (selected items) - Agreement signed between BFM and MFB. Sharing of administrative information, including requests for authorization for loans, repatriated proceeds, and corporate financial statements. Completion Date: December 2017. - Send out the questionnaire intended for all companies operating in the field of cross-border transport for recovery on a quarterly basis. Completion Date: September 2017. Implementation Status: To be carried out with the annual balance of payments survey that will be launched this year. - Work jointly with INSTAT to ensure good quality data on trade in goods by including the informal trade estimate. Completion Date: Continuous. Implementation Status: Ongoing. - Add the new percentage obtained from the Customs Directorate for conversion from c.i.f. to f.o.b. (from 15 to 10 percent). Completion Date: June 2017 for the first quarter of 2017. Implementation Status: Completed as of January 2017. - Strengthen coordination with the BFM Banking Supervision Directorate to obtain external assets and liabilities of banks broken down by financial instruments to meet IIP and balance of payments needs. Completion Date: June 2017. Implementation Status: Completed. - Compile balance of payments data using an expanded and enriched format for current account (services and income) and financial account to provide the distinction between the various instruments and institutional sectors. Completion Date: June 2017. Implementation Status: Carried out internally and for dissemination to the IMF. - Finalize the changes proposed in the foreign investment survey questionnaire to add financial flows (debt and equity). Completion Date: July 2017. Implementation Status: Complete overhaul of the questionnaire to incorporate it into the annual balance of payments survey. - Improve the current survey’s coverage by broadening the scope to include entities with investments abroad; add items on foreign investments and reinvested earnings to the questionnaire. Completion Date: June 2017. Implementation Status: To be carried out with the annual balance of payments survey. - Include and analyze trade credit, flow, and stock estimates. Completion Date: Continuous. Implementation Status: Completed, but methodology constantly reviewed following remarks from the IMF review mission and from BFM authorities. - Use the proposed survey to gather statistics on grants received from abroad (current and capital grants). Completion Date: December 2017. Implementation Status: To be carried forward to 2019. - Work with INSTAT to conduct a survey of large goods and services exporting companies. Completion Date: September 2018. Implementation Status: To be incorporated into the annual survey soon. - Expand public external debt coverage by approaching the National Accounts Directorate with regard to public enterprises and institutions. Completion Date: June 2017. Implementation Status: Ongoing. - Propose a new unit responsible for data collection on external debt of the central government to facilitate the breakdown by drawdown and repayment of principal. Completion Date: June 2017. Implementation Status: Completed. - Try to coordinate with the DDP regarding corporate and public institution debt. Completion Date: December 2017. Implementation Status: Completed. - Adhere to the advance release calendar. Completion Date: Ongoing. Observable indicator: High-frequency data are disseminated on a timely and regular basis. - Transmission of quarterly balance of payments data to the IMF Statistics Department (BPM6). Completion Date: February 2017. Implementation Status: Completed. - Transmission of annual IIP data to the IMF Statistics Department (BPM6) for 2014, 2015, 2016 IIP data. Completion Date: September 2017. Implementation Status: Completed. - Participation in CDIS, an IMF initiative. Completion Date: September 2017. Implementation Status: To be carried forward to 2019. *Source: 1. Priority Recommendations (excerpt) — 1mdgea2019002* ### 1. Priority Recommendations _____________________________________________________________________ 6 ### 1. Priority Recommendations ### Mission overview and context - A technical assistance (TA) mission visited Antananarivo, Madagascar, from July 2–13, 2018, to provide assistance in the external sector statistics (ESS), including the balance of payments and international investment position (IIP). - The mission was conducted in the context of an initiative financed by the Financial Sector Stability Fund (FSSF) – Balance Sheet Approach (BSA) submodule. - The mission focused on setting up a robust compilation system for the IIP and assessing balance of payments data that directly affect IIP compilation. ### Key achievements and progress noted - Revision of the legal mandate of the Banky Foiben’i Madagasikara (BFM) to give it responsibility for compilation of the balance of payments and IIP. - Revision of the international settlements statistical statement (ESRI) to align with the newest methodological standards. - Signing of a memorandum of understanding with public institutions (main data suppliers). - Initiation of work on a compilation framework for the IIP. - The BFM began compilation of a preliminary IIP; an updated quarterly IIP covering the period 2006–2018 was submitted to the IMF in November 2018 and published on the IMF website for the first time. - SIGOC (système intégrée de gestion des opérations de change) implemented by SCC starting July 2017, linked to Customs, can generate time series reports needed for balance of payments and IIP compilation. ### Main shortcomings and urgent needs - Timeliness and quality of data submission require a more sustained collection effort. - The main source for the financial part of the balance of payments and IIP is the direct business investment survey (FDIS) conducted by INSTAT; results have been published with a considerable lag (INSTAT preparing to publish 2015 data at mission time). - Preliminary IIP compilation revealed major gaps: - Construction of initial positions for trade credit and advances, currency and deposits of other sectors, and other accounts receivable/payable relied on accumulation of transactions, producing unreliable results due to gaps in balance of payments transaction estimates. - Inconsistency between IIP position data and balance of payments transactions. - Undercoverage of some public institutions and private sector elements. - Instances of deviation from BPM6 requirements and scarce techniques for estimating starting position data. - Resource constraints in SBP: only two employees out of three are assigned full-time to ESS compilation; additional part-time support exists. Urgent recruitment required. ### Priority recommendations (summary of Table 1 and action plan) - Immediate and completed actions: - Assess results of the FDIS of businesses conducted by INSTAT for 2015 and use results to estimate balance of payments components for 2015–2017. — BFM in collaboration with INSTAT — February 2019 — Completed - Launch the annual ESS survey to collect the data for 2016 and 2017. — BFM in collaboration with INSTAT — Completed - Compile the preliminary version of the IIP for all institutional sectors for end-2016 and 2017, based on BPM6 and using broader data sources. — BFM — March 2019 — Completed - Publish the IIP statistics on the BFM and IMF websites. — Completed - Establish methods and improve estimates for counterparties, trade credit and advances, and exclusion of exchange rate and price variation effects — Completed (various methodological actions marked Completed) - High-priority actions with target dates: - Correct the deficiencies in the balance of payments data identified by the mission. — BFM — Target: June 2019 - Finalize the questionnaires for the collection of ESS data, bearing in mind the mission’s recommendations. — Target: February 2019 - Launch the collection of data from the National Social Security Fund (Caisse Nationale de Prévoyance Sociale—CNPS) on pension fund foreign investments and on current transactions with diplomatic missions and international organizations in Madagascar. — Target: August 2019 - Follow-up with the Ministry of Finance and Budget (MFB) on sharing data from businesses’ financial statements. — Target: August 2019 - Compile data on assistance and investment projects based on information from the Primature to improve classification of current and capital transfers. — Completed - Increase human resources assigned to the SBP by at least two qualified officials to carry out supplementary activities and compile the IIP and external debt using BPM6 methodology. — Target: September 2019 (High) - Medium-priority actions: - Train SBP officials in ESS; nominate officials to attend IMF training sessions. — Ongoing - Assess possibility of launching a survey of international points of departure (ports and airports) to estimate tourist spending and refine travel service export estimates. — Target: Mai 2019 - In cooperation with the Public Debt Directorate (DDP) establish a preliminary version of the external debt statistics (EDS) for all institutional sectors consistent with the IIP. — Target: September 2019 - Submit the EDS for all institutional sectors to the World Bank for inclusion in the database of quarterly external debt statistics. — Target: December 2019 ### Recommendations on data collection, surveys, and source use - Revise the data collection and compilation strategy for the ESS: - Quarterly ESS compilation requires more compilers and a change in source-data approach. - Quarterly data should be compiled from the ESRI and supplemented by a simple quarterly survey of major public and private enterprises; annual surveys (broader coverage) should be used to revise quarterly data. - Improve and expand enterprise surveys: - BFM designed a considerably improved survey form that: (i) includes questions on both current and financial transactions; (ii) provides for collection of data for financial part in an integrated format (positions, transactions, other flows); (iii) includes annexes for enterprises in specific activities (construction, manufacturing, transport, travel, other); and (iv) targets all entities with significant cross-border transactions, with and without foreign equity investment. - The new-format survey covering 2016 and 2017 is ambitious, requiring identifying relevant survey population, sensitizing respondents, and ensuring adequate response rates and data quality. - The BFM launched a tender to select the institution that will conduct the new-format survey. - Use administrative and new data sources to improve IIP coverage: - CNPS reserve funds: 15 percent of those funds are invested abroad; CNPS assets abroad are currently omitted from the balance of payments and IIP. BFM agreed to adjust CNPS quarterly report form to collect CNPS investment abroad. - SCC/SIGOC data can be used to calculate positions and flows of trade credit and advances, including identifying changes due to exchange rate fluctuations and repatriation of export proceeds by currency and period. - Compare FDIS results with ESRI data to increase sample size and eliminate double counting (on a regular basis). - Compile data on assistance and investment projects using Primature information to improve classification of current and capital transfers. ### Staffing, capacity building, and sustainability - Staffing shortfall: only two full-time ESS compilers (out of three positions) in SBP at mission time; one additional staff member provides part-time assistance while assigned to International Relations Unit. - Recommendation to recruit new staff as soon as possible and increase number of staff assigned to ESS to: - Sustainably implement mission recommendations. - Handle increased workload from new ESS datasets (IIP, external debt statistics) and increased periodicity (quarterly compilation). - Address multiplicity and complexity of transactions from globalization. - Capacity building actions: - Train SBP officials in ESS compilation and BPM6 methodology; nominate officials for IMF training (ongoing). ### Compilation methodology and technical recommendations - Avoid estimating positions solely as accumulations of transactions without accounting for exchange rate and price changes; establish methods to exclude effects of exchange rate and price variations for components concerned (currency and deposits, loans, reserve assets) using SCC breakdowns by invoice currency. — Completed - Establish method of estimating trade credit and advances: - For assets, use SCC information on repatriation of export proceeds. - For liabilities, compare DGD import data with ESRI payments for imports. — Completed - Enhance consistency checks between position data and transaction flows; adopt broader data-source overview for IIP compilation rather than availability-only principle. *Source: 1. Priority Recommendations (excerpt) — 1mdgea2019002* ### 18. The SCC indicated certain causes of differences between data on export of goods ### 1mdgea2019002 - 18. The SCC indicated certain causes of differences between data on export of goods and services and those on repatriation of export proceeds ### Causes of differences between export statistics and repatriation of proceeds - De-facto non-repatriation of export proceeds. - Exports of goods compensated by imports of goods. - Proceeds repatriated but information not provided by banks to SCC. - Payments executed by affiliated parts in a consolidated manner and cannot be linked to specific export invoices. - Large companies are allowed do not repatriate up to 40 percent of their proceeds. - Mining companies are obliged to repatriate only the proceeds for funding three months of their domestic expenses. - If compilers start estimating trade credit and advances based on data from SCC, the estimates should be adjusted taking into consideration the above-listed caused. - The repatriation period for proceed from export of services is one month while for goods is three months up to 190 days. ### Use of enterprise financial statements and specific company cases - Financial statements of enterprises are an important source for IIP and can be used to assess positions for different financial components and cross-check enterprise survey reporting. Financial statements are available at the MFB; the BFM should initiate discussions with the MFB for obtaining access. - Air Madagascar (state owned): privatized in 2017 when Air Austral (France) acquired 32 percent of its share capital (USD 10 million). Air Austral provided working capital and committed to invest additional USD 7 million in company’s development. - Air Madagascar purchased two aircraft in 2012 financed by high-interest loans; arrears accumulated from 2013 and were rescheduled in 2016. - In 2015 Air Madagascar acquired under financial lease four additional aircrafts. - All these cross-border transactions should be covered in balance of payments and IIP. BFM will submit a report form to Air Madagascar for quarterly reporting of identified cross-border activities. - Footnote: Air Austral has the option of increasing its share up to 49 percent for additional USD 4 million. - Meetings with four private resident companies in special zones (Materauto, Holcim, OSO Farma, JIRAMA): - Materauto, Holcim, OSO Farma: have foreign investment, sell mainly abroad, and have loan liabilities to nonresidents. - JIRAMA: resident-owned, operates domestically, benefited from a grant from World Bank. - Agreement: regular reports will be submitted to the BFM for ESS purpose using BFM survey forms. - ARO (insurance company): public company with about 70 percent of share capital held by the government; provides life and non-life insurance; more than 50 percent of risks are reinsured abroad; invests abroad part of its assets and holds accounts with foreign banks. - ARO’s cross-border reinsurance activity and investment abroad are currently not captured in balance of payments and IIP statistics. BFM will require regular reporting by ARO based on a survey form. ### Recommendations (enterprise reporting and data collection) - Assess the results of the foreign direct investment survey (FDIS) of businesses conducted by INSTAT for the year 2015 and use the results to estimate some balance of payments components for 2015–2017. - Finalize questionnaires for ESS data collection bearing in mind the mission’s recommendations. - Launch the annual ESS survey to collect the data for 2016 and 2017. - Compare the FDIS results with the data from the statistical statement of international settlements (ESRI) to increase the size of the sample and eliminate double counting. - Launch the collection of data from the CNPS on the pension fund’s foreign investments and on current transactions with diplomatic missions and international organizations in Madagascar. - Collect data from the SCC on the repatriation of export revenue in the format agreed during the mission, with separate identification for repatriation from mining companies. - Collect data from Air Madagascar on current and financial account transactions, financial stocks, with particular focus on debt commitments, including financial leases. - Follow-up with the MFB on the sharing of data from businesses’ financial statements. - Compile the preliminary version of the IIP for all institutional sectors for end-2016 and 2017, based on BPM6 and using broader data sources. - Publish the IIP statistics on the BFM and IMF websites. ### Balance of payments data as input to IIP — main findings - Recent improvements: enhancing the ESRI and aligning it to the BPM6 framework; refining statistical techniques for selected components; expanding data sources. - Remaining issues: misclassifications, underestimations/overstatements, omissions, and derivation of several financial-account transactions (reserve assets, currency and deposits, portfolio investments, etc.) as differences in stocks without exclusion of exchange rate effect. - Goods data: - Compiled based on Customs data with adjustments (c.i.f. to f.o.b., exclusion of personal effects, time adjustments for customs warehouses). - These adjustments cause differences between balance of payments goods data and IMTS compiled by INSTAT from the same customs declarations. - Mission recommendation: accompany published balance of payments data with an explanatory table disclosing adjustments made to Customs data. - For analysis by country and commodity, use IMTS data since BFM adjustments are in aggregated format and not breakable by country/commodity. - Issue: goods imported for/exported after processing are included in goods; under BPM6 only the processing fee should be included in services. - DGD customs data include imports by foreign embassies; DGD will introduce a special customs procedure code to identify and permit their exclusion. - Services account: - Compiled based on ESRI supplemented with freight and insurance services estimated within c.i.f.-f.o.b. re-evaluation. - Recommended enhancements: - Update coefficients for c.i.f.-f.o.b. reevaluation based on customs declarations data. - Consider launching a separate survey of manufacturing enterprises to collect manufacturing fees using model survey form 7 – Manufacturing Services in Appendix 8 of the BPM6 Compilation Guide. - Supplement services data with estimates of services imported within technical assistance projects. - Primary income: - Compiled using ESRI, FDIS results for dividends and reinvested earnings, and MFB data on interest on public external debt. - Recommendations: supplement with income on investment abroad by CNPS and insurance companies; launch a survey of telecommunication companies on cross-border mobile money remittances using the mission’s recommended form for estimating compensation of employees through mobile money. - Secondary income and capital accounts: - Include ESRI data on personal transfers, international cooperation projects, and other current transfers. - Possible misclassification between secondary income and capital account. Primature database covers all technical assistance and investment projects; recommended to review classification based on project purpose and ensure counter entries are registered in relevant balance of payments components. - Direct investment: - Estimated based on FDIS results; significant delay in FDIS release (results for 2015 were release at the end of 2018). - Total direct investment for 2016–2018 estimated from sectoral ministries’ expected investment adjusted by compilers; split between equity capital and debt instruments applied as 10:90. Ratio should be revised when 2015 FDIS results become available. - Cross-check FDIS with information from meetings with the four private companies if included in the survey population. - BFM does not participate in IMF’s CDIS; mirror CDIS data lead to conclusions: (i) the IIP data could be overstated and (ii) CDIS data do not support the ratio applied by the BFM for equity/debt distribution. - Portfolio investment: - Currently covers only investment of deposit-taking corporations from MFS. - CNPS and ARO invest abroad a significant part of their assets; BFM should establish regular data collection from these institutions on investment abroad and income earnings. - Currency and deposits; loans; reserve assets: - Transactions are often calculated as differences in stocks, thereby including exchange rate effects. - For currency and deposits: when calculated as differences of stocks, transactions include exchange rate fluctuation. To exclude exchange rate changes, stock data should be converted to the original currency; transactions calculated as differences in original currency and then converted using average exchange rate for month/quarter. - For converting stocks to original currency, currency composition of exports and imports from CNPS could be used as a proxy. - DDP agreed to provide balance of payments information broken down by currency of denomination of debt liability for loans to calculate “pure” transactions and exchange rate changes. - Reserve assets: full information is available at BFM; compilers should separate “pure” transactions from exchange rate and price changes, registering the latter under other changes in financial assets and liabilities in IIP. - Trade credit and advances: - Currently estimated as difference between Customs import/export data and ESRI payment data; this method is imperfect due to inconsistencies and needs discrete contract-level comparison for reliability. - CNPS maintains a detailed database on repatriation of proceeds from export of goods; compilers should use this database to estimate accumulation and repayment of trade credit by comparing nonrepatriated proceeds stocks reported across periods (e.g., t-3, t-2, t-1, t compared with same periods reported in t+1). The difference equals repayment of trade credit (late repatriation). - Other accounts receivable/payable: - Currently estimated as residual to smooth errors and omissions. Mission strongly recommended discontinuing this practice as it hides omissions or imbalances. - Possible causes of errors and omissions include absence of counter entries, errors in estimating components (e.g., overstatement of direct investment), and inclusion of exchange rate changes in transactions. - Compilers should conduct detailed assessment of causes and address them instead of hiding imbalances under other accounts receivable/payable. - Compilers’ ad hoc adjustments: - Some adjustments made to reflect Madagascar economic reality are subjective and not based on documented trends (e.g., assumption mining companies do not repatriate proceeds). - CNPS provided information for two mining companies showing an opposite trend. When FDIS results and additional data sources become available, such adjustments should be reassessed and discontinued if unjustifiable. ### Recommendations (balance of payments and IIP compilation) - Organize regular tripartite meetings of the BFM, INSTAT, and DGD to correct inadequacies and inconsistencies in foreign trade statistics. - Assess the possibility of launching a survey of international points of departure (ports and airports) to estimate tourist spending in Madagascar and refine travel service export estimates. - Correct the deficiencies in the balance of payments data identified by the mission. - Compile data on assistance and investment projects based on information from the Primature, taking into account project destination to improve classification of current and capital transfers. - Improve the method of estimating counterparties for assistance and investment projects based on the mission’s recommendations. - Establish a method of estimating balance of payments transactions by excluding the effect of exchange rate and price variations for components concerned (currency and deposits, loans, reserve assets), using SCC information on breakdown of imports and exports by invoice currency. - Establish a method of estimating trade credit and advances: - For assets: based on SCC information on changes in repatriation of proceeds from exports of goods. - For liabilities: by comparing DGD data on imports of goods with ESRI information on payments for imports. ### Other issues (resources and staffing) - Optimization of resources allocated to ESS compilation is necessary for sustainable implementation of recommendations. - Current SBP staffing is critical: only two out of three employees are dedicated full time to external statistics compilation; a third was seconded elsewhere during the mission. Another staff member assists part-time while officially assigned to the International Relations Unit. - It is imperative to begin recruiting new staff to fill vacant positions as soon as possible and increase the number of staff dedicated to ESS compilation, in line with growing workload from new ESS data (including IIP and external debt statistics) and increased periodicity (start of quarterly compilation). *Source: 1mdgea2019002 - 18. The SCC indicated certain causes of differences between data on export of goods and services and those on repatriation of export proceeds (PDF chapter).* ### 40. The ESS data collection and compilation strategy should be revised. At present, aside ### 1mdgea2019002 - 40. The ESS data collection and compilation strategy should be revised. At present, aside ### ESS data collection and quarterly compilation - At present, aside from the monthly ESRI, data are collected through annual surveys not suitable for quarterly balance of payments and IIP compilation. - Quarterly ESS compilation, one of the key ESS objectives, requires: - a greater number of compilers; - a change in approach to baseline data collection. - Quarterly data are compiled based on ESRI and should be supplemented by quarterly data collection based on simple surveys of large private and public enterprises. - The annual surveys, which have broader coverage and details, will serve to revise quarterly data. ### IIP implementation and external debt statistics (EDS) - With the implementation of IIP compilation, the BFM needs to develop a strategy for the compilation and dissemination of gross external debt statistics (EDS). - The starting point in the EDS compilation could be deriving debt liabilities from the IIP, when the latter achieves an adequate coverage and quality. - The data available in IIP would be sufficient for compiling the main tables required for reporting data to the World Bank’s Quarterly External Debt Statistics database. - The compilation of EDS could be started with the assistance of a follow-up TA mission. ### Recommendations (explicit) - Increase the human resources assigned to the SBP by at least two qualified officials to carry out a number of supplementary activities in the work program resulting from new developments in the economy and to compile the IIP and external debt using the BPM6 methodology; - In cooperation with the DDP, establish a preliminary version of the EDS for all institutional sectors consistent with the IIP; - Submit the EDS for all institutional sectors to the World Bank for inclusion in the database of quarterly external debt statistics. ### Implementation progress and institutional actions (selected items from Annex IV) - Institutional cooperation - Agreement signed between BFM and MFB. Sharing of administrative information, including requests for authorization for loans, repatriated proceeds, and corporate financial statements. Foreign exchange control information is obtained upon request, but financial statements have delayed implementation. - Completion Date: December 2017 (Agreement signed between BFM and MFB). - Data sources and quality improvements (selected) - Send out the questionnaire intended for all companies operating in the field of cross-border transport for recovery on a quarterly basis. - Observable indicator: Data on cross-border transport services. - Completion Date: September 2017. - Implementation Status: To be carried out with the annual balance of payments survey that will be launched this year. - Work jointly with INSTAT to ensure good quality data on trade in goods by including the informal trade estimate. - Observable indicator: Goods exports should be adjusted. - Completion Date: Continuous. - Implementation Status: Ongoing. - Add the new percentage obtained from the Customs Directorate for conversion from c.i.f. to f.o.b. (from 15 to 10 percent). - Observable indicator: A new series starting from the first quarter of 2017. - Completion Date: June 2017 for the first quarter of 2017. - Implementation Status: Completed as of January 2017. - Strengthen coordination with the BFM Banking Supervision Directorate to obtain external assets and liabilities of banks broken down by financial instruments to meet IIP and balance of payments needs. - Completion Date: June 2017. - Implementation Status: Completed. - From now on, compile balance of payments data using an expanded and enriched format for current account (services and income) and financial account to provide the distinction between the various instruments and institutional sectors. - Completion Date: June 2017. - Implementation Status: Carried out internally and for dissemination to the IMF. - Finalize the changes proposed in the foreign investment survey questionnaire to add financial flows (debt and equity). - Completion Date: July 2017. - Implementation Status: Complete overhaul of the questionnaire to incorporate it into the annual balance of payments survey. - Improve the current survey’s coverage by broadening the scope to include entities with investments abroad; add items on foreign investments and reinvested earnings to the questionnaire. - Completion Date: June 2017. - Implementation Status: To be carried out with the annual balance of payments survey. - Include and analyze trade credit, flow, and stock estimates. - Completion Date: Continuous. - Implementation Status: Completed, but methodology constantly reviewed following remarks from the IMF review mission and from BFM authorities. - Use the proposed survey to gather statistics on grants received from abroad (current and capital grants). - Completion Date: December 2017. - Implementation Status: To be carried forward to 2019. - Work with INSTAT to conduct a survey of large goods and services exporting companies. - Observable indicator: Survey data would be used instead of estimated trade credits. - Completion Date: September 2018. - Implementation Status: To be incorporated into the annual survey soon. - External debt and public sector coverage - Expand public external debt coverage by approaching the National Accounts Directorate with regard to public enterprises and institutions. - Completion Date: June 2017. - Implementation Status: Ongoing. - Propose a new unit responsible for data collection on external debt of the central government to facilitate the breakdown by drawdown and repayment of principal. - Observable indicator: Availability of quarterly balance of payments flows. Retrieve information on arrear amounts. - Completion Date: June 2017. - Implementation Status: Completed. - Try to coordinate with the DDP regarding corporate and public institution debt. - Observable indicator: Availability of flows and stocks as well as government-guaranteed debt. - Completion Date: December 2017. - Implementation Status: Completed. - Timeliness and dissemination - Adhere to the advance release calendar. - Observable indicator: High-frequency data are disseminated on a timely and regular basis. - Completion Date: Ongoing. - Transmission of quarterly balance of payments data to the IMF Statistics Department (BPM6). - Completion Date: February 2017. - Implementation Status: Completed. - Transmission of annual IIP data to the IMF Statistics Department (BPM6) for 2014, 2015, 2016 IIP data. - Completion Date: September 2017. - Implementation Status: Completed. - Participation in CDIS, an IMF initiative. - Completion Date: September 2017. - Implementation Status: To be carried forward to 2019. *Source: 1mdgea2019002 - 40. The ESS data collection and compilation strategy should be revised. At present, aside (IMF).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1mdgea2019002.pdf_