## 1mdgea2022002

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---

### Summary of mission outcomes and key findings
- Mission: IMF Statistics Department (STA) remote mission on government finance statistics (GFS) from November 29–December 10, 2021.
- Purpose: Support Malagasy authorities to adopt Government Finance Statistics Manual 2014 (GFSM 2014) standards for GFS.
- Progress since 2016 (within EDDI2):
  - Communication of statistics to STA through annual GFS questionnaire for the Budgetary Central Government (Administration Centrale Budgétaire (ACB)) has become common practice.
  - Other Net Treasury Operations (Autres Opérations Nettes du Trésor (AONT)) now recorded on a gross basis rather than a net basis, improving transparency; mission recommended presentation on a gross basis using the bridge table prepared during the 2019 mission and communicating AONT statistics to AFR on a gross basis.
  - Source data availability ensured; substantial improvements to scope of operations data entered into accounting trial balances.
  - Consolidated GFS for entire general government (Comprehensive Treasury Operations (Opérations Globales du Trésor (OGT)), Administrative Public Entities (Établissements Publics à Caractère Administratif (EPA)), Decentralized Local Governments (Collectivités Territoriales Décentralisées (CTD)), and National Social Security Fund (Caisse Nationale de Protections Sociale (CNaPS))) is envisaged.
- Two previously postponed objectives now in process:
  - Improvement of regulatory framework through adoption of a text governing GFS compilation and dissemination.
  - Adoption of GFSM 2014 analytical framework and classifications for national GFS (including OGT table).
- Assessment of capacity and timeline:
  - Implementation of GFSM 2014 baseline methodologies under way for several years; development of consolidated GFS for all general government sub-sectors towards the middle of 2022 is achievable.
  - Authorities have a clear road map and good technical skills.
- Short-term priorities (immediate term):
  - Adopt a text defining the regulatory framework for GFS to strengthen and facilitate DE coordination role.
  - Develop consolidated GFS for general government for 2021 as soon as accounting trial balances are available, with aim to communicate to STA towards end of third quarter of 2022.
- Coordination and support:
  - DE intends to propose adoption of GFSM 2014 as methodological framework for Malagasy GFS (including OGT); consultations with AFR and IMF Office in Antananarivo essential.
  - Upcoming arrival of a Resident Advisor on public finance from IMF Fiscal Affairs Department noted; FAD willing to support development of Malagasy GFS.

### Priority recommendations and target dates
- Second quarter June 2022: Review and complete mission work to develop a first draft compilation of the consolidated GFS relating to the entire Malagasy general government. — Responsible: DE
- Second quarter June 2022: Adopt a text defining the institutional and administrative framework for the compilation and dissemination of GFS. — Responsible: MEF, DE
- Third quarter September 2022: Compile GFS for 2021 with a view to communicating them to the IMF Statistics Department towards the end of the third quarter of 2022. — Responsible: DE

### Detailed technical assessment — prioritized actions and milestones

Regulatory framework (Outcome)
- High priority 1. Relaunch the adoption of the decree on GFS compilation and dissemination.
  - Verifiable indicator: The decree has been adopted.
  - Target Completion Date: June 30, 2022
  - Comment: Action part of Strategic Programme for the Modernization of Public Finance (Programme Stratégique de Modernisation des Finances Publiques (PSMFP)).
- High priority 2. Have the DE and INSTAT sign a memorandum of understanding.
  - Verifiable indicator: The memorandum of understanding has been signed.
  - Actual: Recommendation no longer relevant as INSTAT and DE are part of same parent ministry, the Ministry of the Economy and Finance.
- High priority 3. Prepare and have the DE and source data suppliers sign memoranda.
  - Risk/Assumption: Depends on adoption of the decree related to the GFS.
  - Verifiable indicator: The memoranda of understanding have been signed.
  - Actual: Communication of accounting data come from the DGT; preparation of such memoranda deemed neither relevant nor necessary.

Align source data classifications with GFSM 2014 (Outcome)
- High priority 4. Review and, insofar as possible, complete the bridge tables between various charts of accounts and GFSM 2014 classifications.
  - Verifiable indicator: The bridge tables have been verified and completed.
  - Status: Ongoing; progress made; remaining issues include treatment of Class 1 and of provisions requiring collaboration with accounting services.
- High priority 5. Verify consistency between the various bridge tables.
  - Verifiable indicator: Procedures established to ensure consistency between various bridge tables.
  - Status: Ongoing; risk of inconsistency due to existence of different bridge tables; recommended preparation of a unique bridge table for shared accounts.

Consolidation and completion of the GFS questionnaire (Outcome)
- High priority 6. Identify and quantify flows between different levels of general government.
  - Verifiable indicator: Intra- and intergovernmental flows are identified and recorded in a table.
  - Target Completion Date: June 30, 2022, for the 2021 data.
  - Comment: Use appendix of 2020 mission report for consolidation principles.
- High priority 7. Assemble, complete and communicate tables of revenue, expense and transactions on assets and liabilities for the 2021 financial year in the IMF GFS questionnaire.
  - Verifiable indicator: The GFS questionnaire for the entire consolidated general government has been completed and communicated to the IMF Statistics Department.
  - Target Completion Date: September 30, 2022.
  - Comment: Aim to make consolidation adjustments to obtain statistics for consolidated central government and consolidated three general government sub-sectors.
- Average priority 8. Create a financial balance sheet for the budgetary central government (State) for the 2021 financial year and complete Table 6 of the GFS questionnaire for 2021.
  - Verifiable indicator: A financial balance sheet is compiled and communicated to the IMF Statistics Department.
  - Target Completion Date: September 30, 2022.
- Average priority 9. Verify consistency between debt statistics and debt liabilities of the financial balance sheet.
  - Verifiable indicator: The liabilities that constitute debt are coherent with the debt statistics.
  - Status: Ongoing.
- High priority 10. Communication of the debt statistics in the GFS questionnaire of the IMF (Table 6, 6A and 6B).
  - Verifiable indicator: The debt statistics of the central government have been communicated to the IMF.
  - Target Completion Date: December 2022.
  - Comment: Could be focus of next mission.
- Average priority 11. Preparation of the Statement of Sources and Uses of Cash [Situation des flux de trésorerie (SFT)] for the budgetary central government in Statement II of the GFS questionnaire.
  - Verifiable indicator: The GFS of the State have been produced and communicated to the IMF.
  - Target Completion Date: December 2022.
  - Comment: Could be focus of next mission.

Identify and expand institutional coverage (Outcome)
- High priority 12. Provide an assessment of the importance of the EPA already captured in the statistics compared to all EPAs (based on personnel, for example).
  - Verifiable indicator: The weight of the entities captured compared to all entities has been assessed.
  - Target Completion Date: March 31, 2022.
  - Comment: Assess representativeness; weak representativeness increases need to expand coverage.
- Average priority 13. Expand statistical coverage to other EPA and nonmarket EPIC according to relevance.
  - Verifiable indicator: Triage between market and nonmarket EPIC undertaken; GFS for nonmarket EPIC prepared.
  - Target Completion: 2023 and ongoing.
  - Comment: Expansion is an action of PSMFP; inclusion relevance depends on weight relative to entire central government.

Organization of work and other aspects (Outcome)
- High priority 14. Establish mechanisms and schedules for spontaneous communication of source data (context of memoranda Action 3).
  - Verifiable indicator: Mechanisms and schedules for communication of data have been put in place.
  - Actual: Activity no longer considered relevant as accounting source data are regularly produced and provided by the DGT.
- High priority 15. Establish, for database suppliers, questionnaires on presentation of source data and additional information.
  - Verifiable indicator: Specific questionnaires and forms prepared and proposed to accountants of certain source data supplier services.
  - Target Completion Date: June 30, 2022.
  - Comment: Questionnaires useful to obtain additional breakdowns, notably intra- and inter-governmental transfer details.
- Average priority 16. Adopt the GFSM 2014 for the OGT.
  - Verifiable indicator: The OGT has adopted presentation of the Statement of Government Operations [Situation des Opérations des Administrations Publiques (SOAP)] and the GFSM 2014 classifications.
  - Timing: Planned for the short term.
  - Comment: Adoption requires consultation with IMF African Department.
- Average priority 17. Draft a document with concepts, sources and methods.
  - Verifiable indicator: The document in question has been drafted and updated over time.
  - Comment: Document should serve as methodological and procedural manual; action part of PSMFP; high importance though drafting not achievable in short term.

Additional technical notes from mission
- Mission work focused on: review of bridge tables between accounting classifications of EPA, CTD and GFSM 2014; establishment of sectoral GFS (EPA, CTD, CNaPS) for 2020 based on accounting trial balances; procedures for consolidation to develop consolidated GFS for general government; compilation of financial balance sheet for budgetary central government; evaluation and updating of action plan aiming to prepare and communicate consolidated statistics towards middle of 2022.
- Pace of production for EPA and CTD statistics hindered by modifications to accounting trial balances from one financial year to next; increased number of accounts requires significant modifications to statistical treatment procedures.
- Adjustment of accounting trial balances for statistical purposes must be completed to satisfy statistical identity (consistency between net lending/net borrowing and financing).
- All accounts reflecting economic flows must be attributed a classification code (including accounts for depreciation of tangible and intangible assets).
- Accounts that do not reflect economic flows in line with GFSM 2014 (e.g., provisions) or certain equity accounts (items 10 to 15) can be excluded from statistics provided each constitutes a balanced whole.

### B. Extrabudgetary Central Government and Decentralized Local Governments
- Mission revised the bridge table between the consolidated trial balances of the EPA and the CTD for 2020 and the statistical classifications due to a significant increase in the number of accounts effectively used in 2020 compared to 2019.
- Preparation of the GFS for these sub-sectors for 2020 was undertaken to derive a statement of operations and tables of revenue, expense and transactions on assets and liabilities.
- Source data for the EPA and CTD sub-sectors provided through consolidated accounting trial balances that do not follow the hierarchical structure of their respective charts of accounts by class, item, entry and account.
- Disadvantages of trial balances that present only elementary accounts:
  - The item or entry associated with an account does not appear clearly and must be deduced in relation to the standard chart of accounts.
  - Classification must be done at a detailed level (accounts of four or five digits, or even more), requiring each new account introduced during a new financial year to be identified and classified individually.
- Recommendation:
  - Modify the presentation of the accounting trial balances so their structure reproduces that of the standard chart of accounts by showing the classes, items, entries and account as well as the sub-accounts wherever necessary.

### C. Social Security Administration (CNaPS)
- Mission prepared statistics of CNaPS based on its consolidated trial balance for 2020; this trial balance had not undergone significant changes compared to EPA and CTD.
- Adjustment of equity accounts (10 to 12), depreciation and provisions should be finalized once outstanding questions are resolved.
- Recommendations (apply to CNaPS as well):
  - Identify and, where possible, quantify all the counterpart entries of the records made for accounts 68 and 78 while distinguishing between depreciation and provisions.
  - Identify and, if possible, quantify the consistency between the operating balance and the transactions in accounts 10 to 12 during the 2020 financial year.

### D. Depreciation and Provisions
- Key treatment points:
  - Depreciation of assets is the accounting equivalent of the consumption of fixed capital (CFC) in macroeconomic statistics and is considered a transaction of the same kind as CFC; depreciations constitute expenditure (item 68) corresponding to the CFC expense (code 23 of the GFSM 2014); accounting depreciation recorded in balance sheet accounts (item 28) reduces the value of depreciable assets corresponding to the CFC with the reduction of fixed assets in statistics (code 31 of the GFSM 2014, or possibly code 31X).
  - These transactions must be included in the GFS once adjustments have been made to take into account valuation differences, among other factors.
  - An alternative is not recording the CFC in the statistics and ignoring accounting records related to depreciation (cash-basis–like approach).
  - Provisions must not be considered economic flows (GFSM 2014 and SCN 2008); provision expense (item 68 and item 78 for possible returns in products) and their counterparts in asset and liability accounts must be excluded from the GFS (both SGO and Statement of other economic flows).
  - Excluding provisions can create a statistical imbalance; additional accounting information is required to identify all counterpart entries to provision expense and provision releases that could have been made outside standard provision balance-sheet accounts (such as accounts 15, 29, 39, 48, 49 and 59).
- Practical notes:
  - Account 68 does not distinguish between depreciations and provisions in trial balances; breakdown can often be found in Statements of Additional Information (tables of assets, depreciations and provisions) if available.
  - In absence of additional information, distribution can be estimated by attributing: (a) the amount recorded in the credit of account 28 to depreciations; and (b) the residual item (difference between account 68 and credit recorded for account 28) to provisions.
  - Records related to provisions should be ignored in the GFS; if exclusion leads to a statistical imbalance (non-zero gap between net lending/net borrowing and financing), this gap will be reflected as a statistical discrepancy.
- Footnote context:
  - In the immediate term, depreciations are only relevant for EPA and CNaPS, as neither CTD nor the State currently include them in their records. Provisions are currently only relevant for CNaPS.
  - The General Chart of Accounts (original 2006 version) earmarks accounts 15, 29, 39, 48, 49 and 59 according to the type of provisions.

### E. Equity Accounts (accounts 10 to 13)
- Records for accounts 10 to 13 are purely accounting entries that do not correspond to economic flows; their purpose is to record income and its distribution into reserves or other equity accounts.
- Corresponding records must be excluded from statistics on transactions, as must closing entries of management accounts (credits for classification 6 and debits for classification 7) that identify income to be recorded in account 12.
- Exclusion effects:
  - Except when whole entries present zero balance, exclusion introduces a gap between net lending/net borrowing and financing.
  - To close the gap, additional accounting information is necessary to identify all counterpart entries for movements during the period in accounts 10 to 12 so they can also be excluded from the statistics.
- Typical case:
  - If entries are only made under account 12 to record income for the financial year and accounts 11 and 10 reflect internal transfers, exclusion of entry 12 is neutralized by exclusion of entries balancing classifications 6 (credit) and 7 (debit); exclusion then does not affect gap between net lending/net borrowing and financing.
  - If counterpart records involve accounts other than expense and revenue accounts, these must be identified to balance all accounts to be excluded.
- Observed practice issue:
  - Mission understands the DE accounting trial balances are closing balances (subsequent to inventory operations).
  - However, in those trial balances accounts for classifications 6 and 7 are not balanced; income cannot be identified and transferred to account 12.
- Recommendation:
  - Clarify the status of the accounting balance sheets assessed by the mission and the relationship between the entries in 2020 of accounts 10 to 12 compared to the rest of the trial balance: specifically, provide (or at least explain) the generating entries of the accounts in question.

### F. Consolidation
- Consolidation principles: eliminate transfers between the State and the EPA (intragovernmental transfers) and transfers between the three general government sub-sectors (central government, CTD and CNaPS), except transfers of social contributions to CNaPS which should not be eliminated.
- For 2020 the DE identified budgetary transfers in the general balance sheet of the Treasury (in millions of Malagasy ariary):
  - Transfers to the CTD: 78,145.6 (Accounts 651, 652, 653)
  - Transfers to the EPA: 122,116.6 (Account 6551)
- Identified counterparties (consolidated balance sheets):
  - Budgetary transfers received by the CTD: 94,714.0 (Accounts 1311, 7511, 7512, 7513, 7514 and 1518 of the consolidated balance sheets of the CTD)
  - Budgetary transfers received by the EPA: 115,217.9 (Accounts 1311, 7510, 7511 of the consolidated balance sheet of the EPA)
- Observations:
  - Comparison of amounts transferred by the budget with amounts recorded as received reveals gaps.
  - Possible causes: differences between recording databases used by the budget and by CTD/EPA; differences in institutional coverage (transfers made cover all beneficiaries while transfers received cover only beneficiaries included in source data).
  - In statistics, transfers received must equal transfers made; prioritization of the most reliable source data is necessary but not always straightforward.
  - Replacing initial amounts by other amounts can introduce a gap between net lending/net borrowing and financing of the affected sub-sector; an amount corresponding to this gap must be included in a somewhat arbitrary category of revenue or expenditure to re-establish statistical balance.
- Mission practice for 2020:
  - Used accounting trial balance of the Treasury as source for transfers to prioritize (transfers received by the CTD and the EPA as well as transfers made by the budget).
  - Developed a consolidated presentation of the GFS for the three sub-sectors in the GFS questionnaire with consolidation eliminations appearing in the designated columns and integrating the identified gap to maintain statistical balance.
- Recommendation:
  - Explain the differences noted between the transfers and subsidies paid or to be paid using the budget and the amounts noted as received or to be received by the beneficiaries on the basis of the respective balances or additional information.

### G. List of Officials Met During the Mission
- Andry Nirina Rajaofetra — Director General of the Treasury, DGT; Ministry of the Economy and Finance, General Directorate of the Treasury
- Hanitra Randrianirina — Director of the DE; Ministry of the Economy and Finance, General Directorate of the Treasury
- Odile Randriamarolfy — Head of Department at the DE, Treasury Inspector; Ministry of the Economy and Finance, General Directorate of the Treasury
- Mireille Harivola Ravelojaona — Research Official; Ministry of the Economy and Finance, General Directorate of the Treasury
- Harilalaina Tahina Rakotobe (Mr.) — Research Official, Treasury Inspector; Ministry of the Economy and Finance, General Directorate of the Treasury
- Oely Hasina Andrianantenainarinoro (Mr.) — Research Official, (Treasury Inspector); Ministry of the Economy and Finance, General Directorate of the Treasury
- Hoby Miarantsoa Andrianasolo (Mr.) — Research Official; Ministry of the Economy and Finance, General Directorate of the Treasury
- Bruno Imbert — Advisor on Public Finance Management, Department of Fiscal Affairs (Département des finances publiques), IMF

*Republic of Madagascar: 1. Priority Recommendations (IMF STA mission report excerpt).*

### 1.    Priority Recommendations _______________________________________________________________________ 6

### 1.    Priority Recommendations

### Summary of mission outcomes and key findings
- Mission: IMF Statistics Department (STA) remote mission on government finance statistics (GFS) from November 29–December 10, 2021.
- Purpose: Support Malagasy authorities to adopt Government Finance Statistics Manual 2014 (GFSM 2014) standards for GFS.
- Progress since 2016 (within EDDI2):
  - Communication of statistics to STA through annual GFS questionnaire for the Budgetary Central Government (Administration Centrale Budgétaire (ACB)) has become common practice.
  - Other Net Treasury Operations (Autres Opérations Nettes du Trésor (AONT)) now recorded on a gross basis rather than a net basis, improving transparency; mission recommended presentation on a gross basis using the bridge table prepared during the 2019 mission and communicating AONT statistics to AFR on a gross basis.
  - Source data availability ensured; substantial improvements to scope of operations data entered into accounting trial balances.
  - Consolidated GFS for entire general government (Comprehensive Treasury Operations (Opérations Globales du Trésor (OGT)), Administrative Public Entities (Établissements Publics à Caractère Administratif (EPA)), Decentralized Local Governments (Collectivités Territoriales Décentralisées (CTD)), and National Social Security Fund (Caisse Nationale de Protections Sociale (CNaPS))) is envisaged.
- Two previously postponed objectives now in process:
  - Improvement of regulatory framework through adoption of a text governing GFS compilation and dissemination.
  - Adoption of GFSM 2014 analytical framework and classifications for national GFS (including OGT table).
- Assessment of capacity and timeline:
  - Implementation of GFSM 2014 baseline methodologies under way for several years; development of consolidated GFS for all general government sub-sectors towards the middle of 2022 is achievable.
  - Authorities have a clear road map and good technical skills.
- Short-term priorities (immediate term):
  - Adopt a text defining the regulatory framework for GFS to strengthen and facilitate DE coordination role.
  - Develop consolidated GFS for general government for 2021 as soon as accounting trial balances are available, with aim to communicate to STA towards end of third quarter of 2022.
- Coordination and support:
  - DE intends to propose adoption of GFSM 2014 as methodological framework for Malagasy GFS (including OGT); consultations with AFR and IMF Office in Antananarivo essential.
  - Upcoming arrival of a Resident Advisor on public finance from IMF Fiscal Affairs Department noted; FAD willing to support development of Malagasy GFS.

### Priority recommendations and target dates (Table summary)
- Second quarter June 2022: Review and complete mission work to develop a first draft compilation of the consolidated GFS relating to the entire Malagasy general government. — Responsible: DE
- Second quarter June 2022: Adopt a text defining the institutional and administrative framework for the compilation and dissemination of GFS. — Responsible: MEF, DE
- Third quarter September 2022: Compile GFS for 2021 with a view to communicating them to the IMF Statistics Department towards the end of the third quarter of 2022. — Responsible: DE

### Detailed technical assessment — prioritized actions and milestones
- Regulatory framework (Outcome)
  - High priority 1. Relaunch the adoption of the decree on GFS compilation and dissemination.
    - Verifiable indicator: The decree has been adopted.
    - Target Completion Date: June 30, 2022
    - Comment: Action part of Strategic Programme for the Modernization of Public Finance (Programme Stratégique de Modernisation des Finances Publiques (PSMFP)).
  - High priority 2. Have the DE and INSTAT sign a memorandum of understanding.
    - Verifiable indicator: The memorandum of understanding has been signed.
    - Actual: Recommendation no longer relevant as INSTAT and DE are part of same parent ministry, the Ministry of the Economy and Finance.
  - High priority 3. Prepare and have the DE and source data suppliers sign memoranda.
    - Risk/Assumption: Depends on adoption of the decree related to the GFS.
    - Verifiable indicator: The memoranda of understanding have been signed.
    - Actual: Communication of accounting data come from the DGT; preparation of such memoranda deemed neither relevant nor necessary.
- Align source data classifications with GFSM 2014 (Outcome)
  - High priority 4. Review and, insofar as possible, complete the bridge tables between various charts of accounts and GFSM 2014 classifications.
    - Verifiable indicator: The bridge tables have been verified and completed.
    - Status: Ongoing; progress made; remaining issues include treatment of Class 1 and of provisions requiring collaboration with accounting services.
  - High priority 5. Verify consistency between the various bridge tables.
    - Verifiable indicator: Procedures established to ensure consistency between various bridge tables.
    - Status: Ongoing; risk of inconsistency due to existence of different bridge tables; recommended preparation of a unique bridge table for shared accounts.
- Consolidation and completion of the GFS questionnaire (Outcome)
  - High priority 6. Identify and quantify flows between different levels of general government.
    - Verifiable indicator: Intra- and intergovernmental flows are identified and recorded in a table.
    - Target Completion Date: June 30, 2022, for the 2021 data.
    - Comment: Use appendix of 2020 mission report for consolidation principles.
  - High priority 7. Assemble, complete and communicate tables of revenue, expense and transactions on assets and liabilities for the 2021 financial year in the IMF GFS questionnaire.
    - Verifiable indicator: The GFS questionnaire for the entire consolidated general government has been completed and communicated to the IMF Statistics Department.
    - Target Completion Date: September 30, 2022.
    - Comment: Aim to make consolidation adjustments to obtain statistics for consolidated central government and consolidated three general government sub-sectors.
  - Average priority 8. Create a financial balance sheet for the budgetary central government (State) for the 2021 financial year and complete Table 6 of the GFS questionnaire for 2021.
    - Verifiable indicator: A financial balance sheet is compiled and communicated to the IMF Statistics Department.
    - Target Completion Date: September 30, 2022.
  - Average priority 9. Verify consistency between debt statistics and debt liabilities of the financial balance sheet.
    - Verifiable indicator: The liabilities that constitute debt are coherent with the debt statistics.
    - Status: Ongoing.
  - High priority 10. Communication of the debt statistics in the GFS questionnaire of the IMF (Table 6, 6A and 6B).
    - Verifiable indicator: The debt statistics of the central government have been communicated to the IMF.
    - Target Completion Date: December 2022.
    - Comment: Could be focus of next mission.
  - Average priority 11. Preparation of the Statement of Sources and Uses of Cash [Situation des flux de trésorerie (SFT)] for the budgetary central government in Statement II of the GFS questionnaire.
    - Verifiable indicator: The GFS of the State have been produced and communicated to the IMF.
    - Target Completion Date: December 2022.
    - Comment: Could be focus of next mission.
- Identify and expand institutional coverage (Outcome)
  - High priority 12. Provide an assessment of the importance of the EPA already captured in the statistics compared to all EPAs (based on personnel, for example).
    - Verifiable indicator: The weight of the entities captured compared to all entities has been assessed.
    - Target Completion Date: March 31, 2022.
    - Comment: Assess representativeness; weak representativeness increases need to expand coverage.
  - Average priority 13. Expand statistical coverage to other EPA and nonmarket EPIC according to relevance.
    - Verifiable indicator: Triage between market and nonmarket EPIC undertaken; GFS for nonmarket EPIC prepared.
    - Target Completion: 2023 and ongoing.
    - Comment: Expansion is an action of PSMFP; inclusion relevance depends on weight relative to entire central government.
- Organization of work and other aspects (Outcome)
  - High priority 14. Establish mechanisms and schedules for spontaneous communication of source data (context of memoranda Action 3).
    - Verifiable indicator: Mechanisms and schedules for communication of data have been put in place.
    - Actual: Activity no longer considered relevant as accounting source data are regularly produced and provided by the DGT.
  - High priority 15. Establish, for database suppliers, questionnaires on presentation of source data and additional information.
    - Verifiable indicator: Specific questionnaires and forms prepared and proposed to accountants of certain source data supplier services.
    - Target Completion Date: June 30, 2022.
    - Comment: Questionnaires useful to obtain additional breakdowns, notably intra- and inter-governmental transfer details.
  - Average priority 16. Adopt the GFSM 2014 for the OGT.
    - Verifiable indicator: The OGT has adopted presentation of the Statement of Government Operations [Situation des Opérations des Administrations Publiques (SOAP)] and the GFSM 2014 classifications.
    - Timing: Planned for the short term.
    - Comment: Adoption requires consultation with IMF African Department.
  - Average priority 17. Draft a document with concepts, sources and methods.
    - Verifiable indicator: The document in question has been drafted and updated over time.
    - Comment: Document should serve as methodological and procedural manual; action part of PSMFP; high importance though drafting not achievable in short term.
- Additional technical notes from mission
  - Mission work focused on: review of bridge tables between accounting classifications of EPA, CTD and GFSM 2014; establishment of sectoral GFS (EPA, CTD, CNaPS) for 2020 based on accounting trial balances; procedures for consolidation to develop consolidated GFS for general government; compilation of financial balance sheet for budgetary central government; evaluation and updating of action plan aiming to prepare and communicate consolidated statistics towards middle of 2022.
  - Pace of production for EPA and CTD statistics hindered by modifications to accounting trial balances from one financial year to next; increased number of accounts requires significant modifications to statistical treatment procedures.
  - Adjustment of accounting trial balances for statistical purposes must be completed to satisfy statistical identity (consistency between net lending/net borrowing and financing).
  - All accounts reflecting economic flows must be attributed a classification code (including accounts for depreciation of tangible and intangible assets).
  - Accounts that do not reflect economic flows in line with GFSM 2014 (e.g., provisions) or certain equity accounts (items 10 to 15) can be excluded from statistics provided each constitutes a balanced whole.

*Republic of Madagascar: 1. Priority Recommendations (IMF STA mission report excerpt).*

### 13.      The abovementioned aspects are developed below: specifically (a) the need, in the

### 1mdgea2022002 - 13.      The abovementioned aspects are developed below: specifically (a) the need, in the

### B. Extrabudgetary Central Government and Decentralized Local Governments
- Mission revised the bridge table between the consolidated trial balances of the EPA and the CTD for 2020 and the statistical classifications due to a significant increase in the number of accounts effectively used in 2020 compared to 2019.
- Preparation of the GFS for these sub-sectors for 2020 was undertaken to derive a statement of operations and tables of revenue, expense and transactions on assets and liabilities.
- Source data for the EPA and CTD sub-sectors provided through consolidated accounting trial balances that do not follow the hierarchical structure of their respective charts of accounts by class, item, entry and account.
- Disadvantages of trial balances that present only elementary accounts:
  - The item or entry associated with an account does not appear clearly and must be deduced in relation to the standard chart of accounts.
  - Classification must be done at a detailed level (accounts of four or five digits, or even more), requiring each new account introduced during a new financial year to be identified and classified individually.
- Recommendation:
  - Modify the presentation of the accounting trial balances so their structure reproduces that of the standard chart of accounts by showing the classes, items, entries and account as well as the sub-accounts wherever necessary.

### C. Social Security Administration (CNaPS)
- Mission prepared statistics of CNaPS based on its consolidated trial balance for 2020; this trial balance had not undergone significant changes compared to EPA and CTD.
- Adjustment of equity accounts (10 to 12), depreciation and provisions should be finalized once outstanding questions are resolved.
- Recommendations (apply to CNaPS as well):
  - Identify and, where possible, quantify all the counterpart entries of the records made for accounts 68 and 78 while distinguishing between depreciation and provisions.
  - Identify and, if possible, quantify the consistency between the operating balance and the transactions in accounts 10 to 12 during the 2020 financial year.

### D. Depreciation and Provisions
- Key treatment points:
  - Depreciation of assets is the accounting equivalent of the consumption of fixed capital (CFC) in macroeconomic statistics and is considered a transaction of the same kind as CFC; depreciations constitute expenditure (item 68) corresponding to the CFC expense (code 23 of the GFSM 2014); accounting depreciation recorded in balance sheet accounts (item 28) reduces the value of depreciable assets corresponding to the CFC with the reduction of fixed assets in statistics (code 31 of the GFSM 2014, or possibly code 31X).
  - These transactions must be included in the GFS once adjustments have been made to take into account valuation differences, among other factors.
  - An alternative is not recording the CFC in the statistics and ignoring accounting records related to depreciation (cash-basis–like approach).
  - Provisions must not be considered economic flows (GFSM 2014 and SCN 2008); provision expense (item 68 and item 78 for possible returns in products) and their counterparts in asset and liability accounts must be excluded from the GFS (both SGO and Statement of other economic flows).
  - Excluding provisions can create a statistical imbalance; additional accounting information is required to identify all counterpart entries to provision expense and provision releases that could have been made outside standard provision balance-sheet accounts (such as accounts 15, 29, 39, 48, 49 and 59).
- Practical notes:
  - Account 68 does not distinguish between depreciations and provisions in trial balances; breakdown can often be found in Statements of Additional Information (tables of assets, depreciations and provisions) if available.
  - In absence of additional information, distribution can be estimated by attributing: (a) the amount recorded in the credit of account 28 to depreciations; and (b) the residual item (difference between account 68 and credit recorded for account 28) to provisions.
  - Records related to provisions should be ignored in the GFS; if exclusion leads to a statistical imbalance (non-zero gap between net lending/net borrowing and financing), this gap will be reflected as a statistical discrepancy.
- Footnote context:
  - In the immediate term, depreciations are only relevant for EPA and CNaPS, as neither CTD nor the State currently include them in their records. Provisions are currently only relevant for CNaPS.
  - The General Chart of Accounts (original 2006 version) earmarks accounts 15, 29, 39, 48, 49 and 59 according to the type of provisions.

### E. Equity Accounts (accounts 10 to 13)
- Records for accounts 10 to 13 are purely accounting entries that do not correspond to economic flows; their purpose is to record income and its distribution into reserves or other equity accounts.
- Corresponding records must be excluded from statistics on transactions, as must closing entries of management accounts (credits for classification 6 and debits for classification 7) that identify income to be recorded in account 12.
- Exclusion effects:
  - Except when whole entries present zero balance, exclusion introduces a gap between net lending/net borrowing and financing.
  - To close the gap, additional accounting information is necessary to identify all counterpart entries for movements during the period in accounts 10 to 12 so they can also be excluded from the statistics.
- Typical case:
  - If entries are only made under account 12 to record income for the financial year and accounts 11 and 10 reflect internal transfers, exclusion of entry 12 is neutralized by exclusion of entries balancing classifications 6 (credit) and 7 (debit); exclusion then does not affect gap between net lending/net borrowing and financing.
  - If counterpart records involve accounts other than expense and revenue accounts, these must be identified to balance all accounts to be excluded.
- Observed practice issue:
  - Mission understands the DE accounting trial balances are closing balances (subsequent to inventory operations).
  - However, in those trial balances accounts for classifications 6 and 7 are not balanced; income cannot be identified and transferred to account 12.
- Recommendation:
  - Clarify the status of the accounting balance sheets assessed by the mission and the relationship between the entries in 2020 of accounts 10 to 12 compared to the rest of the trial balance: specifically, provide (or at least explain) the generating entries of the accounts in question.

### F. Consolidation
- Consolidation principles: eliminate transfers between the State and the EPA (intragovernmental transfers) and transfers between the three general government sub-sectors (central government, CTD and CNaPS), except transfers of social contributions to CNaPS which should not be eliminated.
- For 2020 the DE identified budgetary transfers in the general balance sheet of the Treasury (in millions of Malagasy ariary):
  - Transfers to the CTD: 78,145.6 (Accounts 651, 652, 653)
  - Transfers to the EPA: 122,116.6 (Account 6551)
- Identified counterparties (consolidated balance sheets):
  - Budgetary transfers received by the CTD: 94,714.0 (Accounts 1311, 7511, 7512, 7513, 7514 and 1518 of the consolidated balance sheets of the CTD)
  - Budgetary transfers received by the EPA: 115,217.9 (Accounts 1311, 7510, 7511 of the consolidated balance sheet of the EPA)
- Observations:
  - Comparison of amounts transferred by the budget with amounts recorded as received reveals gaps.
  - Possible causes: differences between recording databases used by the budget and by CTD/EPA; differences in institutional coverage (transfers made cover all beneficiaries while transfers received cover only beneficiaries included in source data).
  - In statistics, transfers received must equal transfers made; prioritization of the most reliable source data is necessary but not always straightforward.
  - Replacing initial amounts by other amounts can introduce a gap between net lending/net borrowing and financing of the affected sub-sector; an amount corresponding to this gap must be included in a somewhat arbitrary category of revenue or expenditure to re-establish statistical balance.
- Mission practice for 2020:
  - Used accounting trial balance of the Treasury as source for transfers to prioritize (transfers received by the CTD and the EPA as well as transfers made by the budget).
  - Developed a consolidated presentation of the GFS for the three sub-sectors in the GFS questionnaire with consolidation eliminations appearing in the designated columns and integrating the identified gap to maintain statistical balance.
- Recommendation:
  - Explain the differences noted between the transfers and subsidies paid or to be paid using the budget and the amounts noted as received or to be received by the beneficiaries on the basis of the respective balances or additional information.

### G. List of Officials Met During the Mission
- Andry Nirina Rajaofetra — Director General of the Treasury, DGT; Ministry of the Economy and Finance, General Directorate of the Treasury
- Hanitra Randrianirina — Director of the DE; Ministry of the Economy and Finance, General Directorate of the Treasury
- Odile Randriamarolfy — Head of Department at the DE, Treasury Inspector; Ministry of the Economy and Finance, General Directorate of the Treasury
- Mireille Harivola Ravelojaona — Research Official; Ministry of the Economy and Finance, General Directorate of the Treasury
- Harilalaina Tahina Rakotobe (Mr.) — Research Official, Treasury Inspector; Ministry of the Economy and Finance, General Directorate of the Treasury
- Oely Hasina Andrianantenainarinoro (Mr.) — Research Official, (Treasury Inspector); Ministry of the Economy and Finance, General Directorate of the Treasury
- Hoby Miarantsoa Andrianasolo (Mr.) — Research Official; Ministry of the Economy and Finance, General Directorate of the Treasury
- Bruno Imbert — Advisor on Public Finance Management, Department of Fiscal Affairs (Département des finances publiques), IMF

*Source: IMF mission report content (section 13).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1mdgea2022002.pdf_