## Status of Triggers for the Floating Completion Point under the Enhanced HIPC Initiative (_cr04406) ## Source details **Canonical URL:** [Status of Triggers for the Floating Completion Point under the Enhanced HIPC Initiative (_cr04406)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04406.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04406.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04406.pdf.json) --- ### Summary and Conclusions - IMF and IDA staffs consider Madagascar has met the conditions for reaching the completion point under the enhanced HIPC Initiative as specified in the decision point document. - Macroeconomic program: on track; broadly satisfactory performance under the PRGF arrangement. - PRSP: fully participatory PRSP prepared July 2003; First Annual Progress Report (July 2003–June 2004) judged to show important progress. - Interim relief: enabled increased social spending; budgetary savings used in accordance with decision point criteria with emphasis on social sectors, governance, and infrastructure. - Creditor assurances: obtained from creditors representing about 90 percent of total debt relief in NPV terms. - DSA key points: - End-1999 stock of debt in NPV terms revised upward by US$22 million following completion point reconciliation. - Full delivery of HIPC assistance plus additional bilateral assistance reduces the NPV of debt-to-exports ratio at completion point to 137 percent. - Outcome 137 percent implies Madagascar does not qualify for topping-up. - With sound macroeconomic policies and no exogenous shocks, the NPV debt-to-exports ratio trends down over the analysis period. - Sensitivity analysis: vulnerability to exogenous shocks (terms of trade decline, shocks lowering GDP growth). - Recommendation: IMF and IDA staffs recommend Executive Directors determine Madagascar has reached the completion point. ### Introduction and Assistance Envelope - Total assistance under enhanced HIPC Initiative: US$836 million in NPV terms (US$22 million higher than decision point estimate US$814 million). - This represents a reduction of 40.2 percent of the revised NPV of debt at end-1999 after assuming full use of traditional debt relief mechanisms. - IDA and IMF responsibilities under new common reduction factor: - IDA: US$256 million (NPV). - IMF: US$19 million (NPV). - Interim assistance through December 2003: approximately US$256 million (IDA US$47 million; IMF US$7 million). ### Assessment of Requirements for Reaching the Completion Point - Completion point conditions required: - (i) preparation of a full PRSP and satisfactory implementation for at least one year; - (ii) maintenance of macroeconomic stability through satisfactory implementation of the IMF-supported program; - (iii) use of budgetary savings from HIPC interim relief in accordance with decision point criteria; - (iv) satisfactory implementation of policy reforms for improving governance and service delivery to the poor. - Staffs judge Madagascar satisfied almost all completion point conditions. A. PRSP - Fully participatory PRSP prepared July 2003; JSA and PRSP presented to IDA and IMF Boards in November 2003. - First Annual Progress Report covers July 2003–June 2004; JSA considers important progress made. B. Macroeconomic Performance (2001−04) - Political crisis in 2002 caused uneven PRGF progress; overall performance broadly satisfactory. - Real GDP growth: - 2001: 6 percent - 2002: declined by about 13 percent - 2003: 9.8 percent - Inflation (year-on-year): - 2002: 13.9 percent - 2003: -0.8 percent - External current account deficit (including official grants): - 2000: 5.6 percent of GDP - 2001: 1.3 percent of GDP - 2002: 6 percent of GDP - 2004 developments: about 50 percent depreciation of Malagasy franc against the Euro in first half of 2004; two cyclones in early 2004; exchange rate stabilized in Q3 2004 after adjustment measures. - Fiscal performance and revenue: - 2001: overall deficit on a commitment basis excluding grants 8.1 percent of GDP (revised program target 9.9 percent). - 2002: tax revenue 7.7 percent of GDP; overall deficit 7.7 percent of GDP (compared with 9.7 percent envisaged). - 2003: deficit on a commitment basis excluding grants 9.3 percent of GDP (program expected 7.6 percent). - 2004 tax revenue-to-GDP ratio target: 11.2 percent; measures include removal of certain 2003 exemptions in July 2004 and customs/tax administration reforms. - Structural reforms: progress (albeit slow) in budgetary management, tax administration, privatization, and trade liberalization/simplification. - PRGF performance through end-June 2004: broadly satisfactory despite missed performance criteria and indicative targets; deviations generally small and related to two major cyclones. C. Use of HIPC Interim Relief and Tracking of Poverty-Reducing Spending - Budgetary savings used broadly in line with decision point criteria. - HIPC savings mainly allocated to primary education, health, rural infrastructure (roads and water). - Combined share allocated to education and health increased from 41 percent in 2001 to 63.5 percent in 2004. - Cumulative allocation to rural roads, infrastructure for drinking water and safety nets: 28.4 percent of savings from debt relief over interim period. - Reporting and accountability: INSTAT documents, regional civil society workshops, twice-yearly donor-supervision mission reviews. Key aggregate allocations from Table 1 (percentages reproduced exactly): - TOTAL: 100.0 percent each year (2001–2004). - Current expenditures share: 60.0 percent (2001), 57.0 percent (2002), 51.9 percent (2003), 68.4 percent (2004); Average 61.9 percent. - Investment expenditures share: 40.0 percent (2001), 43.0 percent (2002), 48.1 percent (2003), 31.6 percent (2004); Average 38.1 percent. - Education (within current expenditures): 25.0 percent (2001), 21.0 percent (2002), 23.6 percent (2003), 41.4 percent (2004); Average 29.8 percent. - Health (within current expenditures): 20.0 percent (2001), 20.3 percent (2002), 21.9 percent (2003), 23.9 percent (2004); Average 24.1 percent. - Roads maintenance fund (within investment expenditures): 20.0 percent (2001), 23.0 percent (2002), 21.2 percent (2003), 19.4 percent (2004); Average 16.5 percent. - Safety net support to communities: 10.0 percent (2001), 4.4 percent (2002), 10.9 percent (2003), 4.9 percent (2004); Average 9.2 percent. ### Debt Sustainability Analysis and Creditor Participation - Creditor participation: financing assurances from creditors representing about 90 percent of total HIPC relief in NPV terms. - End-1999 NPV debt stock: revised upward by US$22 million after reconciliation. - Completion point NPV outcome: - NPV of debt-to-exports ratio at completion point: 137 percent after full delivery of HIPC assistance and additional bilateral assistance. - Madagascar does not qualify for topping-up. - DSA indicates downward trend in NPV debt-to-exports ratio under sound policies and absence of shocks; sensitivity analysis highlights vulnerability to adverse shocks. Selected reconciliations and end-2003 updates: - Revised end-1999 NPV of debt after traditional relief: US$2,080 million (decision point estimate US$2,058 million). - Associated HIPC assistance (NPV): revised from US$814 million to US$836 million (increase US$22 million). - New common reduction factor: 40.2 percent (previous estimate 39.5 percent). - Madagascar nominal stock of disbursed and outstanding external debt at end-2003: US$4,843 million (end-1999: US$3,950 million). - Debt composition at end-2003: 54 percent multilateral; 45 percent bilateral; 0.3 percent commercial. - IDA: largest official creditor at end-2003, accounting for 41 percent of total debt. - NPV of external debt at end-2003 after traditional relief mechanisms: US$3,053 million, equivalent to 284 percent of exports of goods and non-factor services. - After full delivery of revised HIPC debt relief: NPV of external debt reduced to US$2,079 million, equivalent to 194 percent of exports. - After additional bilateral debt relief: NPV of external debt reduced to US$1,467 million, equivalent to 137 percent of exports. ### Projections, Scenarios, and Sensitivity Analysis Baseline assumptions (2004–23 and Box 3): - Real GDP growth: 6 percent average. - Export volumes: a little over 6 percent (6.2 percent on average). - Import growth: 5.8 percent on average. - Expenditures contained to about 20 percent of GDP. - Overall deficit (excluding grants): declines gradually from average about 9 percent in 2000 to 2006 to less than 4 percent by end of projection period. - Revenue-to-GDP ratio: assumed to increase to about 16 percent by end of projection period. - External assistance: currently about 13 percent of GDP; unwound to average about 6 percent of GDP. - Budget support: currently about 5.0 percent of GDP; lowered to average about 1.5 percent in latter half. - New borrowing: assumed highly concessional (IDA comparable). - Grants increase from 50 percent of external assistance in 2004 to about 60 percent by end of projection period. - Foreign direct investment: about 1.5 percent of GDP. - Gross domestic investment: increases rapidly initially to a little over 20 percent, decelerates to about 9 percent towards the end. Projected outcomes (baseline): - End-2004 NPV of debt-to-exports after full HIPC: 214 percent. - After additional bilateral assistance, end-2004 ratio: 154 percent. - Non-HIPC low income countries benchmark: 143 percent. - Developing countries benchmark: 120 percent. - From 2005 onwards: NPV of external debt-to-exports ratio declines steadily to reach 63 percent by end-2023 after HIPC assistance and additional bilateral relief. - 2004 debt service after full HIPC and additional bilateral relief: about 5 percent of exports (compared to 13 percent after traditional relief). Sensitivity scenarios (impacts reproduced exactly): - Scenario 1: Lower growth - Assumption: GDP growth 4 percent in medium-term (vs baseline 6 percent). - Exports and imports grow ~4 percent. - Impacts: - NPV of debt-to-GDP and to-exports higher on average by about 10 and 15 percentage points, respectively, relative to baseline by end of projection period. - Debt service-to-export ratio would start to increase towards end of projection period. - Current account would deteriorate sharply; central bank reserves would be depleted if external financing does not increase. - Borrowing to maintain three months of imports would almost double debt burden measured as NPV of debt as share of exports and GDP; debt service ratios significantly higher and continue to increase even by end-2023. - Scenario 2: Terms-of-trade shock (lower commodity prices) - Assumptions: - Vanilla and shellfish prices fall sharply in 2005 (vanilla by about 50 percent), stay at these levels for about two years, reverse gradually thereafter. - Financing shortfalls ~US$85 million a year met by temporary additional concessional borrowing to maintain reserves/imports ratio. - Impacts: - Debt service ratio increases only marginally (due to concessional nature of new borrowing). - Debt-to-export ratio remains higher than baseline and above HIPC thresholds until after 2010. - Vanilla and shellfish: a little over 20 per cent of nominal exports over 2002–2003. - Scenario 3: Lower grants and higher loans (change in financing composition) - Assumption: External financing ~6 percent of GDP on average; share of grants reduced by 1 percentage point of GDP in favor of loans. - Impacts: - Debt service ratios start to rise towards the end of the period. - NPV of stock-of-debt-to-exports ~20 percentage points higher relative to baseline towards end of projection period. - If borrowing non-concessional, impact larger by a further 10 percentage points on NPV of debt-to-exports and debt service-to-export ratio rises faster. - Note: 1 percentage point grant reduction in line with variations over last five years. Decomposition of the 60 percentage-point increase in NPV debt-to-exports (end-2003 vs decision point): - Decision Point projection: 133.1 - Change in ratio: 60.5 (100 percent of the increase) - 1. Due to changes in parameters: 33.4 (55%) - o/w due to changes in the discount rates: 26.3 (44%) - o/w due to changes in the exchange rates: 7.1 (12%) - 2. Due to unanticipated new borrowing: -1.3 (-2%) - o/w due to higher than expected disbursements: -0.4 (-1%) - o/w due to lower concessionality of the loans: -0.9 (-1%) - 3. Due to changes in exports: 8.4 (14%) - 4. Arrears accumulated during the interim period: 6.7 (11%) - 5. Other factors 2/: 13.3 (22%) - Actual NPV of debt-to-exports ratio: 193.6 - Reduction due to additional bilateral relief: 56.9 - After bilateral debt relief beyond HIPC: 136.7 ### Policy Recommendations, Conditions for Sustainability, and Staff Recommendation - Staff recommendation: Executive Directors approve the completion point for Madagascar and the proposed revision to enhanced HIPC debt relief agreed at decision point. - Policy implications and conditions for sustainability: - Delivery of additional bilateral assistance plus appropriate macroeconomic policies and structural reforms provides basis to exit HIPC and attain debt sustainability. - Critical to maintain sound macroeconomic policies and implement structural reforms. - Important measures: - Diversification of the economy to reduce vulnerability to commodity price declines (e.g., vanilla, shellfish). - Prudent debt management; continue borrowing only on concessional terms. - After enhanced HIPC delivery, debt levels remain relatively high initially but decline after additional bilateral assistance. - NPV of debt-to-exports ratio after additional bilateral debt relief remains below 150 percent during analysis period; Madagascar does not qualify for topping-up. Questions for Executive Directors (as posed in source): - Do Directors agree Madagascar satisfied completion point conditions despite delays in budgetary execution laws and small deviation on hiring of teachers? - Do Directors agree with the staffs' recommendation to revise debt relief given data reconciliation? - Do Directors agree sufficient assurances have been given by Madagascar’s other creditors to commit enhanced HIPC assistance irrevocably? - Do Directors agree debt relief under HIPC and bilateral initiatives will provide a sound basis for debt sustainability? - Do Directors agree Madagascar’s PRSP and expenditure-tracking mechanism provide assurance that enhanced HIPC assistance and other resources will further poverty reduction? ### Monitoring Indicators and Selected Social Sector Outcomes Selected social spending and HIPC-financed spending (numbers reproduced exactly as in source tables and text; formatting irregularities preserved where in source): - Social spending: - Increased from 3.5 percent of GDP in 1999 to 5.3 percent of GDP in 2004. - Incremental resources from HIPC interim relief for social sectors: - 2001: 0.4 percent of GDP - 2002: 0.5 percent of GDP - 2003: 0.7 percent of GDP - 2004: 0.4 percent of GDP - Share of primary and secondary education in GDP: 2.1 percent (1999) to 3.4 percent (2004). - Health spending in real terms: FMG 345.5 billion (1999) to FMG 354 billion (2004). HIPC-financed spending (selected table excerpts, numbers reproduced exactly): - Total HIPC-financed spending: 325.0; 318.1; 363.1; 285.1 - Health (HIPC-financed): 66.0; 70; 87; 90.1 - Education (HIPC-financed): 68.2; 75; 1509?1.4 - Of which: primary and secondary education (HIPC-financed): 68.2; 73.4; 1509?1.4 - Institutional development and PRSP monitoring: 48.7; 65.7; 33.9; 59.6 - Rural roads: 74.9; 67; 71?0.0 - Water supply, environment and other: 67.2; 39.7; 22?44.0 - Total HIPC-financed spending (percent of GDP): 1.1; 1.0; 1.1; 0.7 - Health (percent of GDP): 0.2; 0.2; 0.3; 0.2 - Education (percent of GDP): 0.2; 0.3; 0.4; 0.2 - Social spending including HIPC-financed expenditures (billions of FMG): 1,492.5; 1,743.9; 1,581.2; 2,089.2 - Health (including HIPC-financed): 545.1; 606.9; 506.4; 531.2 - Education (including HIPC-financed): 947.4; 1,137.0; 1,074.8; 1,558.0 - Of which: primary and secondary education (including HIPC-financed): 781.9; 943.5; 902.0; 1,344.8 - Social spending including HIPC-financed expenditures (percent of GDP): 5.0; 5.8; 4.7; 5.3 - Health (percent of GDP): 1.8; 2.0; 1.5; 1.3 - Education (percent of GDP): 3.2; 3.8; 3.2; 4.0 - Of which: primary and secondary education (percent of GDP): 2.6; 3.1; 2.7; 3.4 - Nominal GDP (table entries): 20,343; 23,379; 26,242; 29,843; 30,042; 33,893; 39,446 Education outcomes and indicators (selected): - Teachers recruited since 2001 for public primary schools: 3,427. - Share of newly recruited teachers deployed in rural areas (zones 2 and 3): 89 percent. - Communities compensated for salaries of FRAM-paid teachers: 8,000 teachers. - Net enrollment rate in primary education: 67 percent (2000/01) to 84 percent (2003/04). - Survival rate between grades 1 and 5: 21 percent to 30 percent (2000/01 to 2003/04). - School stationery provided: 509,000 students (2002) and 1,227,000 (2003). - Construction of 109 new health facilities (2000–2003). - Non-salary budget allocation to districts: 27.7 percent (2000) to 37.8 percent (2003). - Human resources redeployed since 1999: 887 doctors and 395 nurses and midwives. - Proportion of deliveries attended by skilled medical staff: 20.2 percent (2000) to 24.2 percent (2003). (Note: DHS 2003 actual data measured at 54 percent.) - Immunization rate: 70.9 percent (1999) to 85.1 percent (2003). - Curative medical consultation rate: 42 percent (1999) to 60 percent (2003). Road maintenance and rural transport: - 100 percent of current road maintenance needs covered through FER. - Allocation to rural roads after 2002: at least 10 percent (compared to 2.3 percent in 2000 and 3.2 percent in 2001). - HIPC resources used for current road maintenance: 6,000 km and 7,200 temporary jobs; rehabilitation of rural roads: 1,670 km and 5,500 jobs; periodic maintenance/rehabilitation of paved roads: 180 km and 540 jobs. Monitoring, tracking, and governance reforms (selected completed triggers) - A1: Improve financial monitoring and control — items (i)–(d) Completed (revised legislative texts approved between December 2003 and July 2004; monitoring systems operational; Consolidation and Audit Unit formed; 1999–2003 treasury balances established). - A2: Biannual reports on education and health sector activities: Completed (quarterly reports compiled; first physical outcome reports completed and discussed with donors). - A3: Public and transparent information system on granting licenses in mining, forestry, fishing: Completed (fishing published December 2003; forestry February 2004; mining April 2004). - Institutional actions: - New internal control cadre: General Inspectorate for Finances (IGF) introduced 2003 and operational June 2004. - Final accounts submitted: 1999 and 2000 laws prepared/submitted with delays; final accounts for 2001 and 2002 submitted December 2003 and June 2004; 2003 final accounts to be submitted by end-2004. - Monitoring system tracking budgetary execution implemented in six ministries: health, basic education, public works, rural development, justice, forestry and water. Debt management institutional arrangements and capacity needs - Institutional responsibilities: - “Direction des Services Etrangers et de la Dette Exterieure” (Central Bank): database management and projections. - “Direction de la Dette Publique” (Ministry of Finance): administration of multilateral loans (except IMF), direct payments, and debt strategy policy. - DMFAS adoption: acquired 2001; migration slowed by lack of training; migration (including testing) planned completion in 2005. - Capacity needs: more training on debt management and debt sustainability analysis; no current budget for training. - Coordination: two debt-management units in different buildings; improved informal communication; suggestion to institutionalize a coordination committee. *Source: IMF/IDA staff report excerpts in document _cr04406 (Madagascar).* ### 1. Status of Triggers for the Floating Completion Point under the Enhanced ### 1. Status of Triggers for the Floating Completion Point under the Enhanced HIPC Initiative ### Summary and Conclusions - The staffs of the IMF and IDA consider that Madagascar has met the conditions for reaching the completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative as specified in the decision point document. - Madagascar’s macroeconomic program is on track, evidenced by broadly satisfactory performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. - The Government prepared a fully participatory PRSP and the Joint Staff Assessment (JSA) of the first annual PRSP progress report considers that important progress has been made in PRSP implementation. - Interim relief under the enhanced HIPC Initiative has enabled increased social spending; budgetary savings were used in accordance with decision point criteria with emphasis on social sectors, governance, and infrastructure. - Financing assurances have been obtained from creditors representing about 90 percent of total debt relief in net present value (NPV) terms. Some non-Paris Club creditors provided partial relief. - Debt Sustainability Analysis (DSA) findings: - The end-1999 stock of debt in NPV terms was revised upward by US$22 million following the completion point reconciliation. - Full delivery of HIPC assistance together with additional bilateral assistance will reduce the NPV of debt-to-exports ratio at completion point to 137 percent. - This 137 percent outcome implies Madagascar does not qualify for topping-up. - The DSA suggests that with sound macroeconomic policies, supporting structural reforms and in the absence of exogenous shocks, the NPV debt-to-exports ratio will trend down over the analysis period. - Sensitivity analysis shows Madagascar is particularly vulnerable to exogenous shocks such as a decline in the terms of trade and other shocks that could lower GDP growth. - Recommendation: IMF and IDA staffs recommend that their respective Executive Directors determine that Madagascar has reached the completion point under the enhanced HIPC Initiative. ### Introduction and Assistance Envelope - Total assistance to Madagascar under the enhanced HIPC Initiative amounts to US$836 million in NPV terms, US$22 million higher than the decision point estimate (US$814 million). - This represents a reduction of 40.2 percent of the revised NPV of debt at end-1999 after assuming full use of traditional debt relief mechanisms. - IDA and IMF responsibilities under the new common reduction factor: IDA will provide debt relief in the amount of US$256 million (NPV) and the IMF will provide US$19 million (NPV). - Interim assistance by creditors through December 2003 amounted to approximately US$256 million, of which US$47 million was provided by IDA and US$7 million by the IMF. ### Assessment of Requirements for Reaching the Completion Point - Completion point conditions (as agreed at decision point) required: - (i) preparation of a full PRSP and satisfactory implementation for at least one year; - (ii) maintenance of macroeconomic stability through satisfactory implementation of the IMF-supported program; - (iii) use of budgetary savings from HIPC interim relief in accordance with the decision point criteria; and - (iv) satisfactory implementation of policy reforms for improving governance and service delivery to the poor. - The staffs of IDA and the IMF judge that Madagascar satisfied almost all completion point conditions. #### A. PRSP - Madagascar prepared a fully participatory PRSP in July 2003; the JSA and PRSP were presented to the Boards of IDA and the IMF in November 2003. - The Government released the First Annual Progress Report covering July 2003–June 2004; the JSA considers that important progress has been made in PRSP implementation. #### B. Macroeconomic Performance (2001−04) - Political crisis in 2002 caused uneven progress under the PRGF, but overall performance is described as broadly satisfactory. - Economic growth and price developments: - Real GDP growth: 6 percent in 2001; declined by about 13 percent in 2002; real GDP grew by 9.8 percent in 2003. - Inflation (year-on-year): 13.9 percent in 2002; -0.8 percent in 2003. - External current account deficit (including official grants): 5.6 percent of GDP in 2000; 1.3 percent of GDP in 2001; increased to 6 percent of GDP in 2002. - Recent 2004 developments: about 50 percent depreciation of the Malagasy franc against the Euro in the first half of 2004; two cyclones in early 2004 damaged key export sectors; exchange rate stabilized in third quarter 2004 after adjustment measures. - Fiscal performance and revenue: - In 2001, overall deficit on a commitment basis excluding grants was 8.1 percent of GDP (revised program target 9.9 percent). - Tax revenue fell to 7.7 percent of GDP in 2002; the overall deficit was 7.7 percent of GDP (compared with 9.7 percent envisaged under the original program). - Fiscal slippages in the second half of 2003 led to a deficit on a commitment basis excluding grants of 9.3 percent of GDP in 2003 (program expected 7.6 percent). - For 2004, the tax revenue-to-GDP ratio target is set at 11.2 percent, supported by tax policy and administration measures implemented in 2004 (including removal of certain 2003 exemptions in July 2004 and a suite of customs and tax administration reforms). - Structural reforms: progress (albeit slow) in budgetary management, tax administration, privatization, and liberalization/simplification of external trade regime. - PRGF performance through end-June 2004: broadly satisfactory despite missed performance criteria and indicative targets (deviations generally small and related mainly to two major cyclones). #### C. Use of HIPC Interim Relief and Tracking of Poverty-Reducing Spending - Budgetary savings from interim debt service relief were used broadly in line with decision point criteria. - HIPC savings were mainly allocated to primary education, health, and rural infrastructure (roads and water). - The combined share allocated to education and health increased from 41 percent in 2001 to 63.5 percent in 2004. - Cumulative allocation to rural roads, infrastructure for drinking water and safety nets represented 28.4 percent of savings from debt relief over the interim period. - Allocation to safety nets varied by year (high during 2002 and 2004, lower otherwise). - Reporting and accountability: use of interim relief reported in documents from the National Statistical Institute (INSTAT), discussed with civil society in regional workshops, and reviewed twice a year during supervision missions with donors. - Table 1 (Use of HIPC Funds Against the Criteria Set at the Decision Point) shows detailed percentage allocations across years (2001–2004) and categories including current expenditures (education, health, institutional reinforcement), investment expenditures (roads maintenance fund, infrastructure for drinking water, safety net support), and monitoring system. Key aggregate points from Table 1: - TOTAL: 100.0 percent each year (2001–2004). - Current expenditures share: 60.0 percent (2001), 57.0 percent (2002), 51.9 percent (2003), 68.4 percent (2004); Average 61.9 percent. - Investment expenditures share: 40.0 percent (2001), 43.0 percent (2002), 48.1 percent (2003), 31.6 percent (2004); Average 38.1 percent. - Education (within current expenditures): 25.0 percent (2001), 21.0 percent (2002), 23.6 percent (2003), 41.4 percent (2004); Average 29.8 percent. - Health (within current expenditures): 20.0 percent (2001), 20.3 percent (2002), 21.9 percent (2003), 23.9 percent (2004); Average 24.1 percent. - Roads maintenance fund (within investment expenditures): 20.0 percent (2001), 23.0 percent (2002), 21.2 percent (2003), 19.4 percent (2004); Average 16.5 percent. - Safety net support to communities: 10.0 percent (2001), 4.4 percent (2002), 10.9 percent (2003), 4.9 percent (2004); Average 9.2 percent. ### Debt Sustainability Analysis and Creditor Participation - Creditor participation: financing assurances obtained from creditors representing about 90 percent of total debt relief in NPV terms. - End-1999 NPV debt stock revised upward by US$22 million after reconciliation. - Completion point NPV outcome: NPV of debt-to-exports ratio at completion point equals 137 percent after full delivery of HIPC assistance and additional bilateral assistance. - Because the ratio is 137 percent, Madagascar does not qualify for topping-up under the Initiative. - With sound policies and no major exogenous shocks, the DSA indicates the NPV debt-to-exports ratio will trend downward over the analysis period; however, sensitivity analysis highlights vulnerability to adverse shocks. ### Conclusions for Board Consideration - The staffs of the IMF and IDA recommend that their respective Executive Directors determine that Madagascar has reached the completion point under the enhanced HIPC Initiative. *Source: IMF/IDA staff report excerpt titled "Status of Triggers for the Floating Completion Point under the Enhanced HIPC Initiative" (Madagascar).* ### 15. The overall resource envelope for the social sectors has increased over the ### _cr04406 - 15. The overall resource envelope for the social sectors has increased over the ### Social spending trends and allocations - Social spending increased from 3.5 percent of GDP in 1999 to 5.3 percent of GDP in 2004. - Incremental resources from HIPC interim relief for the social sectors: - 0.4 percent of GDP in 2001 - 0.5 percent of GDP in 2002 - 0.7 percent of GDP in 2003 - 0.4 percent of GDP in 2004 - The share of primary and secondary education in GDP rose from 2.1 percent in 1999 to 3.4 percent in 2004. - Health spending in real terms increased from FMG 345.5 billion in 1999 to FMG 354 billion in 2004. - Declines in the ratio of social spending to GDP in 2003 for both education and health are attributed largely to the need to re-launch the economy and restore infrastructure after the crisis in 2002. ### HIPC-financed spending (Table 2 summary points) - Total HIPC-financed spending (selected years shown in table): - 325.0 (year unspecified in excerpt) - 318.1 (year unspecified) - 363.1 (year unspecified) - 285.1 (year unspecified) - Health (HIPC-financed): 66.0; 70; 87; 90.1 (as shown in table) - Education (HIPC-financed): 68.2; 75; 1509?1.4 (table formatting fragmented; preserve numbers as shown) - Of which: primary and secondary education (HIPC-financed): 68.2; 73.4; 1509?1.4 (table formatting fragmented; preserve numbers as shown) - Institutional development and PRSP monitoring (HIPC-financed): 48.7; 65.7; 33.9; 59.6 - Rural roads (HIPC-financed): 74.9; 67; 71?0.0 (table formatting fragmented; preserve numbers as shown) - Water supply, environment and other (HIPC-financed): 67.2; 39.7; 22?44.0 (table formatting fragmented; preserve numbers as shown) - Total HIPC-financed spending (in percent of GDP): 1.1; 1.0; 1.1; 0.7 - Health (HIPC-financed, percent of GDP): 0.2; 0.2; 0.3; 0.2 - Education (HIPC-financed, percent of GDP): 0.2; 0.3; 0.4; 0.2 - Of which: primary and secondary education (percent of GDP): 0.2; 0.2; 0.4; 0.2 - Institutional development and PRSP monitoring (percent of GDP): 0.2; 0.2; 0.1; 0.2 - Rural roads (percent of GDP): 0.3; 0.2; 0.2; 0.0 - Water supply, environment and other (percent of GDP): 0.2; 0.1; 0.1; 0.1 - Social spending including HIPC-financed expenditures (selected table values): - 1,492.5; 1,743.9; 1,581.2; 2,089.2 (in billions of FMG as per table) - Health (including HIPC-financed): 545.1; 606.9; 506.4; 531.2 - Education (including HIPC-financed): 947.4; 1,137.0; 1,074.8; 1,558.0 - Of which: primary and secondary education (including HIPC-financed): 781.9; 943.5; 902.0; 1,344.8 - Social spending including HIPC-financed expenditures (in percent of GDP): 5.0; 5.8; 4.7; 5.3 - Health (percent of GDP): 1.8; 2.0; 1.5; 1.3 - Education (percent of GDP): 3.2; 3.8; 3.2; 4.0 - Of which: primary and secondary education (percent of GDP): 2.6; 3.1; 2.7; 3.4 - Nominal GDP (table entries): 20,343; 23,379; 26,242; 29,843; 30,042; 33,893; 39,446 (Note: table in source contains formatting irregularities; numbers above are reproduced exactly as they appear in the source table excerpt.) ### Tracking, monitoring systems, and poverty monitoring - Government actions to improve use of public resources and tracking: - Activities and programs financed with debt relief savings identified in the budget by a special code. - Three HIPC expenditure tracking assessments undertaken in 2001, 2003 and 2004. - HIPC expenditure tracking assessment outcomes: - Four out of 16 benchmarks were met (2003 AAP). - Three other benchmarks showed improvements in 2004 (draft). - With PRSC-supported reforms, benchmarks met expected to increase from 4 in 2004 to 6 in 2005, and to at least 10 in 2006. - Poverty monitoring developments: - A Poverty Monitoring System established to follow PRSP implementation. - Indicator system (Tableau de Bord Social) produced regularly from 2001. - Multi-topic household survey (Enquête Prioritaire auprès des Ménages, EPM) conducted in 2001; follow-up 2004 EPM survey to commence shortly (per source). - A poverty map based on 1993 data was constructed in 2002. - Donors provide technical assistance to strengthen monitoring, evaluation, and budget monitoring systems. ### Outcomes on indicators, education and health service delivery - Updated indicators show most targets were achieved (see Table 4 in source decision point document). - Education: - Share of the Ministry of Education budget allocated to primary schools exceeded targets. - Enrollment rates increased. - Repetition rates and primary school completion rates improved but remained below targets. - Health: - Share of the Ministry of Health budget allocated to district health centers and hospitals exceeded targets. - Immunization rates improved. - Percentage of births attended by professionals and medical consultation rates were below target until 2002 but met or exceeded targets in 2003. - Drug procurement agency’s revenues showed a steady increase. ### Governance and institutional reforms (objectives and measures) - Key challenge: reform public finance system to improve budget formulation, execution, control, monitoring, and auditing to increase transparency and efficiency. - Reforms based on diagnostic studies including CFAA and CPAR. - A Priority Action Plan for 2004 was developed and approved by Government in 2003. - PRSC process supports reform program to improve budget execution, reporting, and monitoring of results. - Specific institutional actions and outcomes: - Adoption of revised legislative texts governing control mechanisms (approved by Parliament and Senate between December 2003 and July 2004). - Introduction of a new internal control cadre in the Ministry of Finance: General Inspectorate for Finances (IGF); introduced in 2003 and operational in June 2004. - Staffing improvements for National Audit Court (Chambre des Comptes), Directorate for Expenditure Commitment Control (CDE), State Inspectorate General (IGE); adequate staff selected for IGF. - Modernization of offices to enhance operational efficiency. - Monitoring system to track budgetary execution implemented in six ministries: health, basic education, public works, rural development, justice, and forestry and water; periodic reports covering execution rates at each stage of budgetary cycle produced. - For education and health, budgetary cycle reports for 2001-03 complemented by assessments of corresponding physical outcomes. - Treasury accounting system modernized; Consolidation and Audit Unit established in Ministry of Finance; 1999 and 2000 budgetary execution laws prepared and submitted to National Audit Court (with delays due to 2002 crisis); final accounts for 2001 and 2002 submitted in December 2003 and June 2004, respectively; final accounts for 2003 to be submitted by end of 2004. - Public and transparent information system on granting of licenses in mining, forestry, and fishing sectors implemented; full system established by 2004 with action plan and calendar of publication provided by Government. ### Status of triggers for Floating Completion Point (selected items from Box 1) - A1. Improve financial monitoring and control: - (i) adoption of appropriate legal and constitutional framework: Completed (Revised legislative texts approved between December 2003 and July 2004). - (ii) adoption of procedures and internal control systems conforming to international technical standards: Completed. - (iii) increase in staffing and resources of IGE and CDE: Completed. - (b) Monitoring system for the budgetary cycle in at least six ministries: Completed (operational for Health, Basic Education, Public Works, Rural Development, Forestry and Water, and Justice). - (c) Centralization procedures and consolidation of principal treasury office balances by ACCT through formation of Consolidation and Audit Unit: Completed (all 22 principal treasury offices computerized in 2001; balances for 1999 to 2003 established). - (d) Preparation of 1999 and 2000 budgetary execution laws: Completed, but not in time (1999 and 2000 laws submitted in December 2002 and July/September 2003, respectively; 2001 and 2002 laws submitted in December 2003 and June 2004; 2003 law to be submitted by end-2004). - A2. Biannual reports on education and health sector activities (budgetary allocation/expenditure execution and physical achievements): Completed (quarterly reports compiled; first physical outcome reports completed and discussed with donors). - A3. Public and transparent information system on granting licenses in mining, forestry, fishing: Completed (information published in newspapers for fishing in December 2003, forestry in February 2004, mining in April 2004). ### Improved service delivery (selected achievements) - Education: - Teacher availability in rural areas: - Financial incentives for teachers to serve in rural public primary schools formalized and implemented: Completed. - Recruitment target of at least 3,500 new teachers from 2000 for public primary schools: Numerical target not met, but satisfactory progress achieved — 3,427 teachers were recruited; 89 percent deployed to remote areas; salaries of 8,000 teachers hired by parent-school associations were partially paid for. - Health: - Generic essential drug supply system operational; central purchasing pharmacy (SALAMA) annual gross revenues reached FMG 49,1 billion in 2003. - Road maintenance (FER): All current road maintenance needs covered; 10 percent allocated to rural roads in 2002 and 10.9 percent in 2003. _Italic: Source — _cr04406 - 15. The overall resource envelope for the social sectors has increased over the (excerpt provided)_. ### 23. As noted in Box 1, the Government has broadly met the trigger for better ### _cr04406 - 23. As noted in Box 1, the Government has broadly met the trigger for better ### Education: teacher availability and deployment - New financial incentives: increase in hardship allowances for teachers in remote areas. - Teachers recruited since 2001 for public primary schools: 3,427. - Share of newly recruited teachers deployed in rural areas (zones 2 and 3): 89 percent. - Government compensation for salaries of FRAM-paid teachers: communities compensated for 8,000 teachers paid by parents—school associations (FRAM). - Formal recruitment reported as "Less than 3,500 teachers were formally recruited". - Despite a slight downward trend in the ratio of pupils to teachers, ratios remain high in remote areas due to net increases in enrollments. - Table 3 (selected figures preserved): - Total 2002-03: Number of students: 2,274,443; Publicly paid teachers: 38,509; Parent-school association paid teachers: 7,107; Ratio of pupils to teachers: 59.0 - Total 2003-04: Number of students: 2,568,711; Publicly paid teachers: 45,879; Parent-school association paid teachers: 12,185; Ratio of pupils to teachers: 56.0 - Zone 0 (urban): 2002-03 — Number of students: 140,760; Publicly paid teachers: 3,360; Parent-school association paid teachers: 164; Ratio of pupils to teachers: 42.0; 2003-04 — Number of students: 128,909; Publicly paid teachers: 2,612; Parent-school association paid teachers: 137; Ratio of pupils to teachers: 49.0 - Zone 1: 2002-03 — Number of students: 628,737; Publicly paid teachers: 11,013; Parent-school association paid teachers: 1,838; Ratio of pupils to teachers: 57.0; 2003-04 — Number of students: 588,455; Publicly paid teachers: 11,291; Parent-school association paid teachers: 2,519; Ratio of pupils to teachers: 52.0 - Zone 2: 2002-03 — Number of students: 228,287; Publicly paid teachers: 9,570; Parent-school association paid teachers: 2,015; Ratio of pupils to teachers: 66.0; 2003-04 — Number of students: 125,000; Publicly paid teachers: 3,338; Parent-school association paid teachers: 57,000?; Ratio of pupils to teachers: 57.0 (table formatting in source ambiguous) - Zone 3: 2002-03 — Number of students: 876,559; Publicly paid teachers: 14,567; Parent-school association paid teachers: 3,090; Ratio of pupils to teachers: 60.0; 2003-04 — Number of students: 1,143,778; Publicly paid teachers: 19,476; Parent-school association paid teachers: 6,191; Ratio of pupils to teachers: 59.0 *For zone 0 (urban area), no hardship allowances are established.* ### Use of HIPC savings and Education For All (EFA) Plan implementation - HIPC savings supported EFA Plan actions including: - (a) Provision of grants to all primary schools following Government’s declaration for free and compulsory primary education in 2002. - (b) Contribution to the salary of FRAM-paid teachers: About 8,000 teachers were paid every year through HIPC released budget funds. - (c) Provision of furniture for disadvantaged public primary schools in 2003 in remote rural areas. - (d) School stationery for students from the poorest families: 509,000 students in 2002 and 1,227,000 in 2003. - (e) Refurbishing of 26 teacher training institutions to train about 2,000-3,000 new teachers per year according to the EFA Plan. - Additional action: For the first year (2004) of the EFA plan implementation, a contract to construct 110 houses for teachers in remote areas is underway. ### Education sector outcomes and challenges - Net enrollment rate in primary education: increased from 67 percent in 2000/01 to 84 percent in 2003/04. - Survival rate between grades 1 and 5: increased from 21 percent to 30 percent (2000/01 to 2003/04); repetition rates remain high. - Policy measures enacted in 2003: automatic promotion between grades 1 and 2 and between grades 3 and 4; regulations for school management to increase student learning time and improve outcomes. - 2004 action: government issued guidelines for districts and schools to reduce repetition and dropout rates at primary and secondary levels. - Outstanding needs: human resource rationalization plan; review of teacher recruitment policies (including recruitment of FRAM teachers); incentive arrangements for remote postings; pre- and in-service teacher training and deployment; criteria for construction of new classrooms. ### Health sector progress and initiatives - Main challenge: improve access to basic health facilities for rural population; actions include redeployment of medical staff, construction of new health facilities, and increasing availability of generic drugs; multi-sectoral national strategy to stabilize HIV/AIDS prevalence. - Generic essential drug supply system of district pharmacies set up; drug distributor SALAMA operational (including startup of generic drug availability for hospital outpatients); annual gross revenues increased steadily over last three years (see Table 4 in source). - Health facility expansion and resource allocation (2000–2003): - Construction of 109 new health facilities. - Increase in non-salary budget allocation to the districts: from 27.7 percent in 2000 to 37.8 percent in 2003. - Human resources redeployed since 1999: 887 doctors and 395 nurses and midwives. - Public health indicator changes (selected): - Proportion of deliveries attended by skilled medical staff: increased from 20.2 percent in 2000 to 24.2 percent in 2003. (Note: DHS 2003 actual data measured at 54 percent.) - Immunization rate: increased from 70.9 percent in 1999 to 85.1 percent in 2003. - Curative medical consultation rate at public and private primary health care centers: improved from 42 percent in 1999 to 60 percent in 2003. - Consolidation needs: improve performance of existing hospitals prior to further expansion; ensure adequate funding for generic drug supplies in district pharmacies; reformulate national health strategy. ### Rural roads and transport policy - Government met condition: 100 percent of current road maintenance needs covered through Road Maintenance Fund (FER). - Allocation to rural roads after 2002: at least 10 percent (compared to 2.3 percent in 2000 and 3.2 percent in 2001). - HIPC resources used for: - Current road maintenance: 6,000 km and 7,200 temporary jobs created. - Rehabilitation of rural roads: 1,670 km and 5,500 jobs. - Periodic maintenance/rehabilitation of paved roads: 180 km and 540 jobs. - Emphasis: implementation of new rural transport policy emphasizing maintenance through FER and sustainable financing. ### Debt sustainability — data reconciliation and revisions (end-1999 base) - Revisions to decision point end-1999 NPV debt arising from creditor consultations: - NPV of debt to the EU: revised upward from US$24 million to US$30 million. - NPV of debt owed to the IMF: revised downward from US$55 million to US$48 million (decision point estimate had included SDR charges). - NPV of debt owed to Russia: revised upward from US$120 million to US$128 million. - NPV of debt with Iraq: revised upward from US$59 million to US$72 million. - After traditional relief mechanisms, revised end-1999 NPV of debt: US$2,080 million (decision point estimate was US$2,058 million). - Associated HIPC assistance (NPV): revised from US$814 million to US$836 million (increase of US$22 million). - New common reduction factor with respect to revised end-1999 debt stock: 40.2 percent (previous estimate: 39.5 percent). ### Creditor participation and HIPC assistance (interim period) - Madagascar received assurances of participation from creditors accounting for about 90 percent of the NPV of HIPC assistance (as approved at decision point). - Multilateral creditors: - Total multilateral HIPC relief: US$357 million in NPV terms (44 percent of total HIPC relief to Madagascar). - IDA, IMF, AfDB, the EU, and the OPEC Fund provided interim assistance; IFAD and BADEA committed to provide assistance at completion point. - IDA assistance: - IDA HIPC assistance approved at decision point: US$252 million in NPV terms. - Mechanism: reduction of 50 percent of debt service falling due to IDA on disbursed and outstanding credits as of end-December 1999, applied over January 2001–February 2020. - Cumulative nominal assistance projected: US$437 million. - Interim assistance delivered January 2001–December 2003: US$47 million. - Upward revision of HIPC assistance increases IDA assistance to US$256 million in NPV terms, equivalent to approximately US$444 million in nominal terms. - IMF assistance: - Enhanced HIPC assistance from IMF: US$22 million in NPV terms (SDR 16.6 million); revised to US$19 million due to downward adjustments to end-1999 debt stock. - IMF assistance being delivered through grants from the PRGF/HIPC Trust (SDR 14.73 million) to Madagascar’s Umbrella Account. - These resources cover approximately 26 percent of Madagascar’s principal repayment falling due to the IMF during 2001-08. - Interim assistance through September 2004: SDR 5.6 million. - AfDB Group assistance: - Enhanced HIPC assistance: US$59 million in NPV terms. - Assistance provided during interim period: US$32 million in nominal terms. - Mechanism: reduction of 80 percent in debt service payments to AfDB Group over January 2001 to September 2011. - Paris Club and bilateral creditors: - Paris Club agreed in principle to provide US$383 million in NPV terms (HIPC share); interim assistance through flow rescheduling under Cologne terms. - Bilateral agreements signed with all Paris Club creditors except Japan (technical delays). - Many creditors indicated willingness to provide assistance beyond HIPC relief, estimated at about US$612 million in end-2003 NPV terms. - Non-Paris Club official creditors account for about 9 percent of decision point committed debt relief; China, Kuwait, and Saudi Arabia provided some relief via cancellations or rescheduling. - One commercial creditor provided HIPC share via rescheduling in 2001; some commercial debt paid down due to confiscation of Madagascar’s deposits abroad. ### Updated debt situation at end-2003 (selected figures) - Madagascar nominal stock of disbursed and outstanding external debt at end-2003: US$4,843 million (end-1999: US$3,950 million). - Debt composition at end-2003: 54 percent multilateral creditors; 45 percent bilateral creditors; 0.3 percent commercial creditors. - Largest official creditor at end-2003: IDA, accounting for 41 percent of total debt. - NPV of external debt at end-2003 after full application of traditional relief mechanisms: US$3,053 million, equivalent to 284 percent of exports of goods and non-factor services. - After assuming full delivery of the revised HIPC debt relief: NPV of external debt reduced to US$2,079 million, equivalent to 194 percent of exports (increase of 60 percentage points in NPV-of-debt-to-exports ratio compared to decision point projection). - After additional bilateral debt relief: NPV of external debt reduced to US$1,467 million, equivalent to 137 percent of exports. *Source: Ministry of Education and Research; Ministry of Health; IMF/IDA reconciliation and HIPC documentation as presented in the source PDF.* ### 45. Box 2 presents a decomposition of the factors underlying the 60 percentage ### _cr04406 - 45. Box 2 presents a decomposition of the factors underlying the 60 percentage ### Decomposition of the 60 percentage-point increase in NPV of external debt-to-exports (end-2003 vs decision point) - NPV of debt-to-exports ratio (as projected at Decision Point): 133.1 - Changes in the Ratio: 60.5 (100 percent of the increase) - 1. Due to changes in the parameters: 33.4 (55%) - o/w due to changes in the discount rates: 26.3 (44%) - o/w due to changes in the exchange rates: 7.1 (12%) - 2. Due to unanticipated new borrowing: -1.3 (-2%) - o/w due to higher than expected disbursements: -0.4 (-1%) - o/w due to lower concessionality of the loans: -0.9 (-1%) - 3. Due to changes in exports: 8.4 (14%) - 4. Arrears accumulated during the interim period: 6.7 (11%) - 5. Other factors 2/: 13.3 (22%) - NPV of debt-to-exports ratio (actual): 193.6 - Reduction in the ratio due to additional bilateral relief: 56.9 - NPV of debt-to-exports ratio after bilateral debt relief beyond HIPC assistance: 136.7 - Notes: - 1/ NPV of debt-to-exports ratio after enhanced HIPC assistance. - 2/ Due to revisions in the end-99 database and changes in the delivery of assistance compared to the assumptions in the decision point projections. - Additional context: - The debt data are based on parameters prevailing at the end of each year. - The DSA uses end-2003 exchange rates and the six-month average of the CIRR (July-December 2003) as discount rates. - Observed changes in exchange and discount rates between the decision point and the completion point resulted in an increase of 33 percentage points in the NPV of debt-to-exports ratios, with discount rates having a large effect. - SDR and U.S. dollar discount rates declined from 5.6 percent to 4.2 percent and from 7.0 percent to 4.5 percent, respectively. The euro discount rate also decreased from 5.5 percent to 4.6 percent (Table 9). ### Export performance, arrears, and other contributors - Between decision point and completion point: - Export performance weaker than projected on average due to a decline in exports in 2002 linked to political strife. - Decline in exports accounts for 14 percent of the total increase in the ratio (equivalent to 8.4 percentage points). - New external borrowing: - New borrowing was lower than anticipated and contributes to reducing the debt ratio by 1 percentage point. - Arrears: - Approximately 7 percentage points of the deterioration in the ratio attributable to arrears accumulated during the interim period. - These arrears have been to non-Paris Club creditors; some non-Paris Club creditors have not yet responded to requests regarding HIPC debt relief. ### External debt outlook, 2004–23 (baseline assumptions and projections) - Macroeconomic framework revisions: - Over 2004-23, GDP growth averages 6 percent (slightly lower than the 6.3 percent average projected at the decision point). - Average growth in the volume of exports: slightly over 6 percent (Box 3 specifies 6.2 percent on average). - Import growth: 5.8 percent on average. - Fiscal and public finance projections: - Expenditures contained to about 20 percent of GDP. - Overall deficit (excluding grants) declining gradually from an average of about 9 percent in 2000 to 2006 to less than 4 percent by the end of the projection period. - Revenue-to-GDP ratio assumed to increase to about 16 percent by the end of the projection period. - External assistance and borrowing: - External assistance currently about 13 percent of GDP; gradually unwound to average about 6 percent of GDP in the projection period. - Budget support (loans and grants) currently about 5.0 percent of GDP; gradually lowered but maintained at an average of about 1.5 percent in the latter half of the projection period. - All new borrowing assumed to be at highly concessional (IDA comparable) terms. - Composition shift: grants increase from 50 percent of external assistance in 2004 to about 60 percent by end of projection period. - External assistance as a share of GDP averaged about 6 percent over the last previous years. - Box 3: Key assumptions used in the Debt Sustainability Analysis - Real GDP growth: 6 percent average. - Export volumes: a little over 6 percent (6.2 percent on average). - Import volumes: grow slightly below GDP growth on average. - Terms of trade: decline sharply in 2004, rebound modestly in first few years, remain stable in outer years. - Foreign direct investment: about 1.5 percent of GDP. - Gross domestic investment: increases rapidly initially to a little over 20 percent, decelerates slowly to about 9 percent towards the end. - External current account deficit (excluding grants): declines from over 13 percent in 2004 to a little above 5 percent in middle years; remains slightly below 5 percent subsequently. - External financing unwound to average 6 percent of GDP; budget support maintained at about 1.5 percent for later years. - New borrowing highly concessional; grants increase to about 60 percent of total external assistance. ### Projected debt and debt-service outcomes under baseline - End-2004 NPV of debt-to-exports after full delivery of HIPC assistance: 214 percent. - After additional bilateral assistance, end-2004 ratio projected at 154 percent. - Comparison benchmarks: - Non-HIPC low income countries: 143 percent. - Developing countries as a whole: 120 percent. - From 2005 onwards: - NPV of external debt-to-exports ratio declines steadily to reach 63 percent by end-2023 after HIPC assistance and additional bilateral debt relief. - Debt service: - In 2004, after full delivery of HIPC assistance and additional bilateral debt relief, debt service ratio would fall to about 5 percent of exports (compared to 13 percent after full delivery of traditional debt relief mechanisms). - For the period as a whole, external debt service-to-exports ratio projected to be relatively stable at about 5 percent on average. ### Sensitivity analysis — scenarios and impacts - Overall conclusion: - Madagascar's exit from the enhanced HIPC Initiative improves chances of attaining debt sustainability if additional bilateral assistance is delivered, but vulnerabilities remain. - Scenario 1: Lower growth - Assumption: GDP growth of 4 percent in the medium-term (vs baseline 6 percent). - Exports and imports grow at approximately 4 percent. - External assistance ratio and concessional borrowing unchanged. - Impacts: - Ratios of NPV of debt-to-GDP and to-exports higher on average by about 10 and 15 percentage points, respectively, relative to baseline by end of projection period. - Debt service-to-export ratio would start to increase towards the end of the projection period. - Current account would deteriorate sharply; central bank reserves would be depleted if external financing does not increase. - Note: Borrowing (even highly concessional) to maintain three months of imports would almost double the debt burden measured as NPV of debt as share of exports and GDP; debt service ratios would be significantly higher and continue to increase even by end-2023. - Scenario 2: Lower prices of commodities (terms-of-trade shock) - Assumptions: - Price of vanilla and shellfish fall sharply in 2005 (vanilla by about 50 percent), stay at these levels for about two years, reverse gradually thereafter. - Financing shortfalls of about US$85 million a year met by temporary additional concessional borrowing to maintain international reserves to import ratio. - Impacts: - Debt service ratio increases only marginally (due to concessional nature of new borrowing). - Debt-to-export ratio remains higher than baseline and above HIPC thresholds until after 2010. - Highlights need for macroeconomic and export policy responses to shocks. - Note: Vanilla and shellfish represented a little over 20 per cent of nominal exports over 2002 to 2003. - Scenario 3: Lower grants and higher loans (change in financing composition) - Assumption: External financing about 6 percent of GDP on average; share of grants reduced by 1 percentage point of GDP in favor of loans relative to baseline. - Impacts: - Debt service ratios start to rise towards the end of the period. - NPV of stock-of-debt-to-exports about 20 percentage points higher relative to baseline towards the end of projection period. - If borrowing is non-concessional, impact would be larger by a further 10 percentage points on NPV of debt-to-exports and debt service-to-export ratio would rise faster. - Note: The 1 percentage point grant reduction is generally in line with variations in grant-to-GDP ratio over the last five years. ### Conclusions and policy implications - Key outcomes: - Completion point triggers broadly met, with a delay in one trigger and a small deviation in another related to budget execution laws and teacher hiring (communities partially compensated salaries for 8,000 teachers without payroll hiring). - Macroeconomic performance broadly satisfactory despite political strife and exogenous shocks; structural reforms have proceeded somewhat slowly. - End-1999 NPV of Madagascar’s debt revised upward by US$22 million. - Required HIPC assistance revised from US$814 million to US$836 million (NPV terms). - New common reduction factor for revised end-1999 debt stock: 40.2 percent (instead of 39.5 percent). - Madagascar has obtained adequate financing and assurances (conservatively estimated at 90 percent of total HIPC assistance as estimated at decision point) for irrevocable HIPC assistance delivery. - Policy recommendations and conditions for sustainability: - Delivery of additional bilateral assistance, combined with appropriate macroeconomic policies and structural reforms, provides the basis to exit HIPC and attain debt sustainability. - Critical to maintain sound macroeconomic policies and implement structural reforms. - Important measures: - Diversification of the economy to maintain long-term growth and reduce vulnerability to commodity price declines (e.g., vanilla, shellfish). - Prudent debt management and continued borrowing only on concessional terms. - After delivery of enhanced HIPC assistance, debt levels remain relatively high initially but decline after additional bilateral assistance. - The NPV of debt-to-exports ratio, after additional bilateral debt relief, would remain below 150 percent during the complete period of analysis; therefore Madagascar does not qualify for a topping-up of HIPC assistance under the topping-up framework. *Sources: Bank-Fund staff estimates; content as presented in the supplied IMF document excerpt.* ### 64. In light of all of these factors, the staffs recommend that the Executive ### _cr04406 - 64. In light of all of these factors, the staffs recommend that the Executive ### Staff recommendation - The staffs recommend that the Executive Directors approve the completion point for Madagascar as well as the proposed revision to the enhanced HIPC Initiative debt relief agreed at the decision point. ### Issues for discussion (questions for Executive Directors) - Do Directors agree that Madagascar has satisfied the conditions for reaching the completion point under the enhanced HIPC Initiative, as established at the time of the decision point, albeit with delay in the completion of the trigger on budgetary execution laws and a small deviation in the trigger on hiring of teachers? - Do Directors agree with the staffs recommendation to revise the debt relief to Madagascar under the enhanced HIPC Initiative given the findings of the data reconciliation exercise? - Do Directors agree that sufficient assurances have been given by Madagascar’s other creditors to commit enhanced HIPC Initiative assistance to Madagascar as approved at the decision point and amended in the data reconciliation exercise, on an irrevocable basis? - Do Directors agree that the debt relief under the HIPC Initiative and bilateral initiatives beyond HIPC will provide Madagascar with a sound basis for debt sustainability? - Do Directors agree that Madagascar’s PRSP and expenditure-tracking mechanism provide assurance that enhanced HIPC Initiative assistance and other resources will further poverty reduction effort? ### Monitoring indicators and targets (selected education and health indicators) - 1. Budget allocation of the Ministry of Primary and Secondary Education assigned to primary schools, percent of non-salary current expenditures: - HIPC funds not included43.249.444.0 - HIPC funds included43.354.354.363.153.663.167.963.165.8 - 2. Budget allocation of the Ministry of Health assigned to district health administrations and district hospitals, percent of total non-salary current expenditures: - HIPC funds not included31.229.737.8 - HIPC funds included20.030.027.732.551.235.041.937.561.1 - 3. Ratio of public sector procurement prices and equivalent private sector procurement prices, Ministries of Education and Health172.0nand135.0144.0125.0125.0 - 4. Curative medical consultation rate of public and private primary health care centers, number per person/year 0.460.520.500.580.480.640.520.600.73 - 5. Professionally attended births in all health care institutions, percent of total 24.2 expected births20.933.420.235.418.336.420.037.0(54.2 DHS) - 6. Caesarien births in all health care institutions, as percentageof total expected births0.410.460.470.510.450.560.480.610.62 - 7. Immunization rate of DPT3 for infants under 85.1 age 1, percent 3/70.972.083.074.078.376.061.580.0(61.4 DHS) - 8. Realization rate of medical prescriptions in primary health centers, percent86.487.487.488.488.089.484.389.487.1 - 9. Gross revenue of the central drug procurement agency, billion of FMG22.920.324.432.544.835.645.946.849.1 - 10. Total enrollments in public and private primary schools 4/ - Number of pupils in grades 1-52,018,7002,208,3002,208,3212,329,5002,307,3142,456,9002,405,4962,488,0002,510,091 - Number of non-repeaters in grades 1-51,348,8001,573,7601,597,8321,610,4921,610,4921,901,0001,673,9091,737,000 - 11. Number of new first grades in public primary schools375,000409,200409,264466,000422,752498,100456,561597,700473,283 - 12. Repetition rate, public primary schools 5/, percent33.032.031.225-3033.825-3034.220-2530.0 - 13. Pseudo Cohort Survival Rate at the end of primary cycle, public primary schools, percent 6/28.0na28.630-3521.730-3521.035-4030.0 *Source: _cr04406 - 64. In light of all of these factors, the staffs recommend that the Executive (PDF).* ### 14. Percentage of Road Maintenance Fund ### 14. Percentage of Road Maintenance Fund ### Indicator - Percentage of Road Maintenance Fund spent on rural roads: na1.02.32.03.210.010.310.010.9 ### Notes and related annotations from source - 1/ See I-PRSP, Annexes II, III, and IV. - The surrounding document contains extensive macroeconomic tables (Tables 4–12) with indicators on National income and prices, External sector, Public finance, Savings and investment, External sector and debt, Balance of Payments, Nominal and NPV of external debt, HIPC assistance estimates, discount and exchange rate assumptions, and debt projections for Madagascar for various years (2000–2023). These tables are present in the source but are not reproduced here beyond the single indicator above. *Source: _cr04406 - 14. Percentage of Road Maintenance Fund* ### 1. NPV of total debt (2+6) 3,429.23,157.7 3,267.63,354.5 3,443.93,505.2 3,557.4 3,605.2 3,830.6 3,836.9 3 ### 1. NPV of total debt (2+6) ### Baseline (Section I) - NPV of total debt (2+6): 3,429.23,157.7 3,267.63,354.5 3,443.93,505.2 3,557.4 3,605.2 3,830.6 3,836.9 3,805.13,793.43,494.93,828.4 - NPV of total debt after full delivery 3/: 3/3,052.83,157.7 3,267.63,354.5 3,443.93,505.2 3,557.4 3,605.2 3,830.6 3,836.9 3,805.13,793.43,460.83,828.4 Multilateral (baseline, component of NPV): - Multilateral: 1,613.41,611.7 1,605.81,582.6 1,552.31,517.1 1,472.4 1,425.9 1,239.9 1,010.7894.6833.61,493.31,074.4 Bilateral (baseline, component of NPV): - Bilateral: 1,439.31,408.2 1,378.91,348.6 1,333.21,316.8 1,300.5 1,285.7 1,246.6 1,110.4 1,023.1970.31,331.21,144.0 Other baseline aggregates: - 2. NPV of outstanding debt (3+4): 3,429.23,019.9 2,984.72,931.2 2,885.52,833.9 2,772.9 2,711.6 2,486.5 2,121.1 1,917.71,803.92,858.62,218.5 - 3. Official bilateral and commercial: 1,815.71,408.2 1,378.91,348.6 1,333.21,316.8 1,300.5 1,285.7 1,246.6 1,110.4 1,023.1970.31,365.31,144.0 - Paris Club: 1,249.21,151.8 1,122.31,092.0 1,076.71,060.8 1,045.2 1,030.9996.3877.3808.3767.21,081.8908.8 - Other official bilateral and commercial: 566.5256.4256.6256.6256.5255.9255.4254.8250.3233.1214.8203.1283.5235.3 - 4. Multilateral: 1,613.41,611.7 1,605.81,582.6 1,552.31,517.1 1,472.4 1,425.9 1,239.9 1,010.7894.6833.61,493.31,074.4 - IDA: 1,165.81,173.5 1,179.11,181.1 1,178.51,170.7 1,158.8 1,142.5 1,016.2829.4731.6680.01,149.1880.7 - IMF: 143.7140.8133.9113.891.969.943.720.60.00.00.00.070.10.0 - African Development Bank: 203.5201.4201.1200.7199.8198.5195.9192.8173.2146.8133.6126.8195.6154.3 - Others: 100.496.091.787.082.178.074.070.050.534.529.326.878.539.5 - 5. Nominal stock of total debt: 4,841.64,448.1 4,621.44,763.6 4,905.25,025.2 5,089.3 5,149.0 5,375.3 5,335.2 5,301.35,293.54,967.05,347.9 ### After enhanced HIPC assistance (Section II) - NPV of total debt (2+6): 3,370.72,248.1 2,388.12,513.2 2,625.22,708.3 2,785.6 2,861.6 3,179.1 3,333.5 3,328.43,332.22,771.83,273.4 - NPV of total debt after full delivery 3/: 2,078.62,248.1 2,388.12,513.2 2,625.22,708.3 2,785.6 2,861.6 3,179.1 3,333.5 3,328.43,332.22,654.33,273.4 Multilateral (after enhanced HIPC): - Multilateral: 1,231.31,381.5 1,539.61,682.3 1,811.61,911.7 2,004.6 2,093.7 2,471.2 2,719.1 2,776.42,818.41,855.72,637.3 Bilateral (after enhanced HIPC): - Bilateral: 847.3866.6848.4831.0813.7796.7781.0767.9707.9614.4552.0513.7798.6636.1 Other aggregates (after enhanced HIPC): - 2. NPV of outstanding debt (3+4): 3,370.72,110.2 2,105.22,089.9 2,066.92,037.0 2,001.1 1,967.9 1,834.9 1,617.6 1,441.01,342.72,135.61,663.5 - 3. Official bilateral and commercial: 1,796.3866.6848.4831.0813.7796.7781.0767.9707.9614.4552.0513.7884.9636.1 - Paris Club: 1,226.3670.5652.4635.2618.3601.6586.3573.6517.0436.4387.6358.0656.0456.5 - Other official bilateral and commercial: 569.9196.1196.1195.7195.4195.1194.7194.3190.9178.0164.4155.7228.9179.7 - 4. Multilateral: 1,574.41,243.6 1,256.71,259.0 1,253.21,240.3 1,220.1 1,200.1 1,127.0 1,003.2889.0829.01,250.71,027.4 - IDA: 1,152.1901.6914.6925.8934.7940.5943.6943.5915.8829.4731.6680.0951.0842.6 - IMF: 142.1125.6121.3109.491.969.943.720.60.00.00.00.067.00.0 - African Development Bank: 196.9163.1166.8170.7174.6178.6182.0185.7173.2146.8133.6126.8179.6154.3 - Others: 83.253.354.053.152.151.450.850.238.127.123.822.253.130.5 - 5. Nominal stock of total debt: 4,437.63,088.4 3,315.53,518.3 3,704.13,867.2 3,977.4 4,086.0 4,505.9 4,702.6 4,729.34,753.13,892.54,637.0 ### After bilateral debt relief beyond HIPC assistance (Section III) - NPV of total debt (2+6): 3,344.71,618.2 1,776.31,918.5 2,047.42,147.1 2,239.5 2,328.2 2,699.8 2,926.8 2,964.72,994.52,261.42,848.5 - NPV of total debt after full delivery 3/: 1,466.91,618.2 1,776.31,918.5 2,047.42,147.1 2,239.5 2,328.2 2,699.8 2,926.8 2,964.72,994.52,090.72,848.5 Multilateral (after additional bilateral relief): - Multilateral: 1,231.31,381.5 1,539.61,682.3 1,811.61,911.7 2,004.6 2,093.7 2,471.2 2,719.1 2,776.42,818.41,855.72,637.3 Bilateral (after additional bilateral relief): - Bilateral: 235.6236.8236.7236.3235.8235.4234.9234.5228.7207.7188.3176.1235.0211.2 Other aggregates (after additional bilateral relief): - 2. NPV of outstanding debt (3+4): 3,344.71,480.4 1,493.41,495.3 1,489.11,475.7 1,455.1 1,434.5 1,355.7 1,210.9 1,077.31,005.11,625.21,238.6 - 3. Official bilateral and commercial: 1,770.3236.8236.7236.3235.8235.4234.9234.5228.7207.7188.3176.1374.5211.2 - Paris Club: 1,203.841.541.441.441.441.441.441.439.030.624.721.0146.932.5 - Other official bilateral and commercial: 566.5195.3195.3194.9194.4194.0193.6193.1189.7177.1163.6155.1227.6178.7 - 4. Multilateral: 1,574.41,243.6 1,256.71,259.0 1,253.21,240.3 1,220.1 1,200.1 1,127.0 1,003.2889.0829.01,250.71,027.4 - 5. Nominal stock of total debt: 4,403.42,449.0 2,693.52,913.3 3,116.23,296.1 3,421.8 3,543.3 4,019.5 4,290.6 4,361.14,411.33,372.84,206.2 *Source: _cr04406 (figures and table entries as provided in the source content)* ### 6. NPV of new borrowing...137.8282.9423.3558.3671.3784.4893.6 1,344.1 1,715.9 1,887.41,989.5699.81,609.9 ### _cr04406 - 6. NPV of new borrowing...137.8282.9423.3558.3671.3784.4893.6 1,344.1 1,715.9 1,887.41,989.5699.81,609.9 ### NPV of new borrowing and creditor composition - Multilateral new borrowing (NPV of new borrowing line): 137.8 282.9 423.3 558.3 671.3 784.4 893.6 1,344.1 1,715.9 1,887.4 1,989.5 699.8 1,609.9 - Official bilateral new borrowing: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Note: Discounted on the basis of the 6-month average commercial interest reference rate for the respective currency, ending in December 2003. ### External Debt Service After Full Implementation of Debt-Relief Mechanisms (2004-24) - Total debt service (selected years): 2004: 167.4; 2005: 160.3; 2006: 180.7; 2007: 173.9; 2008: 180.4; 2009: 189.8; 2010: 193.2; 2015: 215.4; 2020: 282.4; 2022: 300.1; 2023: 307.2; 2004-13 average: 181.2; 2014-23 average: 259.5 - After traditional debt-relief mechanisms (total debt service): 164.5 154.2 171.4 161.6 165.7 172.8 170.6 150.4 176.1 182.0 187.7 160.4 167.4 - Multilateral debt service (after traditional mechanisms, selected years): 69.0 73.0 90.2 96.2 99.9 107.9 107.8 89.8 97.1 98.6 98.3 93.2 94.5 - Total debt service after enhanced HIPC assistance (selected years): 59.6 92.4 105.9 116.3 124.8 132.1 133.6 164.4 247.5 268.7 273.4 119.8 213.5 - After enhanced HIPC assistance (total debt service): 56.7 86.3 96.6 104.0 110.1 115.0 111.0 99.4 141.3 150.6 153.8 98.9 121.4 - After bilateral debt relief beyond HIPC (total debt service): 50.3 54.8 69.9 81.0 90.3 99.4 104.0 137.7 217.0 234.4 236.8 90.0 183.6 - After bilateral debt relief beyond HIPC (further reduced): 47.4 48.8 60.6 68.7 75.6 82.4 81.4 72.7 110.7 116.3 117.2 69.2 91.6 - Memorandum item — Debt service of new debt (selected years): 2.9 6.1 9.3 12.3 14.7 17.0 22.6 65.0 106.3 118.1 119.6 20.8 92.0 - Nominal HIPC relief under the enhanced HIPC initiative (selected years): 107.8 67.9 74.8 57.5 55.6 57.7 59.6 51.0 34.8 31.4 33.8 61.5 45.1 ### External Debt Indicators, 2003-23 (selected indicators and memorandum items) - After traditional debt relief mechanisms: - NPV of debt-to-GDP ratio (selected years): 62.7 71.1 71.7 67.7 64.4 60.8 57.4 54.1 40.2 28.3 24.3 22.6 60.9 33.2 - NPV of debt-to-exports ratio 3/ (selected years): 284.3 299.9 249.3 228.1 208.8 195.6 184.2 173.6 133.2 97.0 85.2 80.1 214.4 112.0 - NPV of debt-to-revenue ratio 4/ (selected years): 598.2 627.3 631.2 583.4 536.5 493.4 453.9 420.0 283.5 190.6 164.1 152.4 509.3 230.5 - After enhanced HIPC assistance: - NPV of debt-to-GDP ratio (selected years): 61.7 50.6 52.4 50.7 49.1 46.9 44.9 43.0 33.4 24.6 21.3 19.8 47.9 28.1 - NPV of debt-to-exports ratio 3/ (selected years): 314.0 213.5 182.2 170.9 159.1 151.1 144.2 137.8 110.5 84.3 74.5 70.3 173.1 94.9 - NPV of debt-to-exports ratio (existing debt only): 314.0 200.4 160.6 142.1 125.3 113.7 103.6 94.8 63.8 40.9 32.3 28.3 142.2 50.3 - NPV of debt-to-revenue ratio 4/ (selected years): 588.2 446.6 461.3 437.1 409.0 381.2 355.4 333.4 235.2 165.6 143.5 133.9 401.5 195.0 - Debt service-to-exports ratio (selected years): ... 4.7 6.2 6.4 6.5 6.5 6.4 6.0 5.4 5.9 5.7 5.4 6.0 5.5 - Debt service-to-revenue ratio (selected years): ... 11.8 17.9 18.4 18.1 17.6 16.8 15.6 12.2 12.3 11.6 11.0 16.1 11.9 - After bilateral debt relief beyond HIPC assistance: - NPV of debt-to-GDP ratio (selected years): 61.2 36.4 39.0 38.7 38.3 37.2 36.1 35.0 28.3 21.6 19.0 17.8 38.8 24.3 - NPV of debt-to-exports ratio 3/ (selected years): 311.5 153.7 135.5 130.4 124.1 119.8 115.9 112.1 93.9 74.0 66.4 63.2 141.6 82.0 - NPV of debt-to-revenue ratio 4/ (selected years): 583.7 321.5 343.1 333.7 319.0 302.2 285.7 271.2 199.8 145.4 127.8 120.3 325.8 168.2 - Debt service-to-exports ratio (selected years): ... 4.8 4.2 4.7 4.9 5.0 5.1 5.0 4.8 5.5 5.2 5.0 4.8 5.0 - Debt service-to-revenue ratio (selected years): ... 10.0 10.6 12.1 12.6 12.7 12.7 12.1 10.2 10.8 10.1 9.5 11.7 10.2 - Memorandum items (selected): - NPV of debt after enhanced HIPC assistance (millions of U.S. dollars, selected): 3,370.7 2,248.1 2,388.1 2,513.2 2,625.2 2,708.3 2,785.6 2,861.6 3,179.1 3,333.5 3,328.4 3,332.2 2,742.8 3,254.2 - Of which: existing debt only (millions): 3,370.7 2,110.2 2,105.2 2,089.9 2,066.9 2,037.0 2,001.1 1,967.9 1,834.9 1,617.6 1,441.0 1,342.7 2,160.5 1,683.8 - Debt service after enhanced HIPC assistance (selected): ... 59.6 92.4 105.9 116.3 124.8 132.1 133.6 164.4 247.5 268.7 273.4 116.2 207.8 - GDP (millions): 5,466.0 4,443.2 4,559.1 4,957.6 5,350.8 5,769.1 6,199.6 6,660.9 9,527.4 13,576.1 15,642.1 16,790.2 5,825.2 12,080.0 - Exports of goods and services (millions): 1,174.8 1,254.6 1,502.5 1,655.2 1,791.4 1,930.1 2,073.6 2,227.0 3,064.3 4,203.9 4,730.0 5,019.8 1,850.8 3,769.1 - Government Revenue (millions): 573.1 503.4 517.7 575.0 641.9 710.4 783.8 858.4 1,351.4 2,012.7 2,318.9 2,489.1 713.3 1,762.9 ### Sensitivity Analysis, 2003-22 (baseline and alternative scenarios) - Baseline scenario (selected indicators): - NPV of debt-to-exports ratio 2/: 193.6 213.5 182.2 170.9 159.1 151.1 144.2 137.8 110.5 84.3 74.5 70.3 157.4 92.3 - NPV of debt-to-GDP ratio: ... 50.6 52.4 50.7 49.1 46.9 44.9 43.0 33.4 24.6 21.3 19.8 45.5 27.3 - Debt service-to-exports ratio: ... 4.7 6.2 6.4 6.5 6.5 6.4 6.0 5.4 5.9 5.7 5.4 6.0 5.5 - Memorandum — NPV of debt (millions): 2,078.6 2,248.1 2,388.1 2,513.2 2,625.2 2,708.3 2,785.6 2,861.6 3,179.1 3,333.5 3,328.4 3,332.2 2,654.3 2,273.4 - Of which: new debt (millions): ... 137.8 282.9 423.3 558.3 671.3 784.4 893.6 1,344.1 1,715.9 1,887.4 1,989.5 699.8 1,609.9 - Debt service (selected): ... 59.6 92.4 105.9 116.3 124.8 132.1 133.6 164.4 247.5 268.7 273.4 119.8 213.5 - Of which: new debt (debt service, selected): ... 2.9 6.1 9.3 12.3 14.7 17.0 22.6 65.0 106.3 118.1 119.6 20.8 92.0 - Alternative scenario I 4/ (selected memorandum items): - NPV of debt (millions): ... 2,248.0 2,380.6 2,489.9 2,585.6 2,654.9 2,716.4 2,775.2 2,999.8 2,998.5 2,902.4 2,852.5 2,648.1 2,978.6 - Of which: new debt (millions): ... 137.8 275.4 400.0 518.7 617.9 715.3 807.3 1,164.9 1,380.9 1,461.5 1,509.7 636.1 1,315.1 - Debt service (selected): ... 59.5 92.2 105.3 115.4 123.6 130.5 131.7 157.9 232.1 248.7 251.1 118.1 200.5 - Of which: new debt (debt service): ... 2.9 5.9 8.7 11.4 13.4 15.4 20.6 58.5 90.9 98.0 98.1 97.2 79.0 - Alternative scenario II 5/ (selected memorandum items): - NPV of debt (millions): ... 2,248.1 2,449.5 2,643.0 2,773.9 2,860.1 2,940.7 3,020.2 3,332.7 3,453.6 3,433.3 3,432.4 2,841.0 3,403.5 - Of which: new debt (millions): ... 137.8 344.3 553.1 707.0 823.2 939.6 1,052.3 1,497.8 1,836.0 1,992.3 2,089.7 828.9 1,740.0 - Debt service (selected): ... 59.6 93.9 109.0 119.8 128.3 135.5 137.1 174.8 260.7 281.4 282.8 123.6 225.6 - Of which: new debt (debt service): ... 2.9 7.5 12.4 15.7 18.2 20.5 26.1 75.4 119.4 130.8 129.0 24.6 104.1 - Alternative scenario III 6/ (selected memorandum items): - NPV of debt (millions): ... 2,248.1 2,423.2 2,584.3 2,733.1 2,853.7 2,969.4 3,084.7 3,639.9 4,090.3 4,195.5 4,252.9 2,884.0 3,939.8 - Of which: new debt (millions): ... 137.8 318.0 494.3 666.2 816.7 968.3 1,116.8 1,805.0 2,472.7 2,754.5 2,910.2 872.0 2,276.3 - Debt service (selected): ... 59.6 93.3 107.6 118.9 128.2 136.3 138.7 181.6 285.3 315.1 322.9 124.2 245.1 - Of which: new debt (debt service): ... 2.9 6.9 11.0 14.8 18.1 21.2 27.7 82.2 144.1 164.6 169.0 25.3 123.6 - Scenario definitions: - Scenario I assumes an average 4 per cent GDP growth rate over the medium term. - Scenario II assumes a 50 percent reduction in the price of Madagascar's two main export commodities. - Scenario III assumes a change in the composition of external financing, with a reduction in grants equivalent to 1 percentage point of GDP. ### Creditor Participation and Delivery under Enhanced HIPC Initiative (status and nominal assistance) - Multilateral creditors (selected commitments and nominal assistance percentages): - IDA: Debt Relief (US$ mil.) 252.2; Percentage: 31.0; Revised assistance: 256.2; Notes: IDA assistance over 19 years (2001-2020); cumulative nominal assistance of US$444.4 million in nominal terms. - IMF: 22.0; 2.7; Revised assistance: 19.2; Notes: IMF assistance delivered through grants from the PRGF/HIPC Trust; total nominal debt service savings expected SDR18.2 million in NPV, of which SDR5.7 million interim assistance through September 2004. - AfDB: 59.1; 7.3; Revised assistance: 60.1; Notes: reduction of 80 percent of debt service payments until full relief; interim relief US$32.0 million as of October 2004. - IFAD: 8.1; 1.0; Revised assistance: 8.9; Notes: relief up to 100 percent on eligible debt; preliminary estimates show delivery over 7 years. - OPEC Fund: 3.3; 0.4; Revised assistance: 3.5 - BADEA: 2.5; 0.3; Revised assistance: 1.5; Status: agreed in principle, modalities pending. - EU: 9.5; 1.2; Revised assistance: 12.1; Notes: interim debt-service relief on selected EU loans; as of end-October 2004 about US$2.3 million interim assistance provided. - Total Multilateral: 356.7; 43.8; Revised: 361.5; 43.3 - Paris Club Creditors: 382.9; 47.1; Revised: 391.9; 46.9; Notes: interim assistance through Cologne flow rescheduling; additional delivery at completion point. - Non-Paris Club bilateral and commercial creditors (selected): - Total Bilateral and Commercial: 457.2; 56.2; Revised: 474.2; 56.7 - Examples: Algeria 12.5; 1.5; Revised 15.3; 1.8 (No); China 6.2; 0.8; Revised 5.7; 0.7 (Partial) - TOTAL (all creditors): 813.8; 100.0; Revised: 835.7; 100.0 ### Delivery of IDA and IMF Assistance (selected delivery metrics) - IDA delivery modality: assistance provided over 19 years (2001-2020); interim assistance equivalent to a 50% reduction on Madagascar's debt service to IDA on debt disbursed and outstanding as of end-December 1999; after Completion Point percentage adjusted to 51 percent to achieve revised total assistance. - IDA cumulative nominal assistance stated: US$444.4 million (nominal terms). - IMF delivery schedule and coverage (Table 18 highlights, selected): - Total IMF assistance under HIPC Initiative: SDR 17.25 million (adjusted from SDR 16.6 million). - Final disbursement assumed: SDR 11.631 million (plus accrued interest) deposited into Madagascar's account at the completion point in October 2004. - Delivery schedule of IMF assistance (in percent of total assistance) (selected entries): 0.0 4.6 9.8 19.6 4.1 3.7 8.0 31.5 18.7 0.0 0.0 - Debt service due on current IMF obligations (selected, millions of U.S. dollars): 3.1 5.0 8.9 ... 8.9 12.9 25.8 26.6 25.9 29.1 - IMF assistance — deposits into Madagascar's account: Interim assistance 0.7 1.4 2.9 0.6; Completion point assistance 9.1 - Share of debt service due on current IMF obligations covered by IMF assistance (in percent) (selected): 0.0 27.5 38.8 45.8 13.5 76.9 24.1 35.2 21.7 0.0 0.0 - Debt service due on current IMF obligations after IMF assistance (millions of U.S. dollars, selected): 2.3 3.0 4.8 ... 0.4 7.0 10.9 11.0 11.3 11.2 - IDA delivery table (selected cumulative flows and savings): - Debt service to IDA before HIPC Assistance (selected cumulative values): 27.6 30.0 31.1 32.9 34.8 36.8 39.9 43.7 46.7 48.4 49.6 52.5 53.6 39.4 52.9 22.6 - Debt Service after HIPC Assistance (selected): 27.6 14.9 15.5 16.4 17.3 18.4 19.9 21.8 23.3 24.1 24.7 26.1 52.7 19.6 29.0 48.5.9 - Savings on debt service to IDA after revision (cumulative selected): 0.0 15.0 15.0 15.6 16.5 17.4 18.5 20.0 21.9 23.4 24.3 24.9 26.3 0.8 19.8 23.9 43.6 7. (table shows progressive annual savings and cumulative totals) - Note: Table 17 subject to Board approval for some revised disbursements. *Sources: Malagasy authorities; and Bank-Fund staff estimates and projections.* ### 14.73 million owing to data revisions. to the 1999 year-end stock of debt. ### _cr04406 - 14.73 million owing to data revisions. to the 1999 year-end stock of debt. ### HIPC Initiative: Status of Country Cases (end-Sep 2004) — key figures and outcomes - Total assistance provided/committed: 32,325 (In millions of U.S. dollars) - Breakdown (in millions of U.S. dollars): 15,686 (Total bilateral), 16,503 (Multilateral), 2,557 (IMF), 5/7,669 (Bank) — table lists these components and country-level NPV and nominal debt amounts. - Selected country entries (as presented): - Benin: Completion point Jul. 00 / Mar. 03 — Target NPV reduction: 1,502; Total nominal debt: 460 - Bolivia: original framework Sep. 98 entry and enhanced framework Feb. 00 / Jun. 01 — entries include NPV and nominal debt up to 2,060 and 1,300 respectively - Ethiopia: original framework Nov. 01 / Apr. 04 — NPV 1,982; topping-up Apr. 04 — NPV 1,507; nominal debts 3,275 and 1,334 - Ghana: Decision/Completion Feb. 02 / Jun. 04 — Target 6,925; Total nominal debt 3,486 - Madagascar: Decision point Dec. 00 / Floating150 — Target NPV 814; NPV bilateral 457; multilateral 357; IMF 22; Bank 252; nominal debt 1,500 - Mozambique: original framework Apr. 98 / Jun. 99 — NPV 1,717; enhanced framework Apr. 00 / Sep. 01 — NPV 306; Total nominal debt entries include 3,700 and 600; consolidated figure line shows 2,023 (Total bilateral?), 1,270, 753, 143, 443, total 4,300 - Nicaragua: Dec. 00 / Jan-04 — NPV 3,308; bilateral 2,175; multilateral 1,134; IMF 82; Bank 191; nominal debt 4,500 - Zambia: Dec. 00 / Floating150 — NPV 2,499; bilateral 1,168; multilateral 1,331; IMF 602; Bank 493; nominal debt 3,850 - Decision-point and completion-point annotations noted in table footnotes: - 1/ Assistance levels are at countries' respective decision or completion points, as applicable. - 2/ Ratio definitions: In percent of the net present value of debt at the decision or completion point (as applicable), after the full use of traditional debt-relief mechanisms. - 3/ Côte d'Ivoire reached its decision point under the original framework in March 1998. - 4/ Nonreschedulable debt to non-Paris Club official bilateral creditors and the London Club is excluded from the NPV of debt at the completion point in the calculation of this ratio. - 5/ Equivalent to SDR 1,721 million at an SDR/USD exchange rate of 0.6730, as of December 1, 2003. 1,721 0.6730 - 6/ Suggestion that enhanced HIPC relief for Côte d'Ivoire overtake commitments under original framework; US$345 million in NPV terms referenced. ### Paris Club Creditors' Delivery of Debt Relief Under Bilateral Initiatives (Madagascar-specific and creditor practices) - Madagascar entry (Table 20): At Decision point / Completion point, Paris Club creditor coverage shows Madagascar under "HIPCs" with entries indicating delivery of relief across ODA and non-ODA, pre-cutoff and post-cutoff debts; table shows Madagascar alongside other HIPCs with 100 percent entries for many creditors. - Creditor practices (selected exact statements and notes): - Australia: post-cutoff date non-ODA relief to apply to debts incurred before a date to be finalized; timing details for both flow and stock relief are to be finalized. 2/2/2/ - Canada: including Bangladesh. Canada has granted a moratorium of debt service as of January 2001 on all debt disbursed before end-March 1999 for 13 out of 17 HIPCs with debt service due to Canada. Eligible countries list includes Madagascar. 100% cancellation will be granted at completion point. As of July 2004, Canada has provided completion point stock of debt cancellation for Benin, Bolivia, Guyana, Senegal and Tanzania. - Denmark provides 100 percent cancellation of ODA loans and non-ODA credits contracted and disbursed before September 27, 1999. - France: cancellation of 100 percent of debt service on pre-cutoff date commercial claims on the government as they fall due starting at the decision point. Once countries have reached their completion point, debt relief on ODA claims on the government will go to a special account and will be used for specific development projects. - Netherlands: 100 percent ODA (pre- and post-cutoff date debt will be cancelled at decision point); non-ODA: in particular cases write off 100 percent on the flow at decision point; others receive interim relief up to 90 percent reduction; at completion point, all HIPCs receive 100 per cent cancellation of remaining stock of pre-cutoff date debt. - Norway has cancelled all ODA claims. Due to WB/IMF methodology for recalculating debt reduction needs at HIPC completion point, Norway has postponed decisions on whether to grant 100% debt reduction until after the completion point. - United Kingdom: "beyond 100 percent" full write-off of all debts of HIPCs as of their decision points, and reimbursement at the decision point of any debt service paid before the decision point. - United States: 100 percent post-cutoff date non-ODA treated on debt assumed prior to June 20, 1999 (the Cologne Summit). - Source for Paris Club delivery table: Paris Club Secretariat. - Table footnote 1/ explains columns (1) to (7) describe additional debt relief provided following a specific methodology under bilateral initiatives and must be read as a whole for each creditor. "HIPCs" stands for eligible countries effectively qualifying for the HIPC process. A "100 percent" mention indicates the debt relief provided under the enhanced HIPC Initiative framework will be topped up to 100 percent through a bilateral initiative. ### Institutional framework for Malagasy debt management - Institutional responsibilities: - “Direction des Services Etrangers et de la Dette Exterieure” of the Central Bank: in charge of the database management, updating all public and publicly-guaranteed external debt database, and debt and debt service projections. - “Direction de la Dette Publique” of the Ministry of Finance: responsible for administration of all multilateral loans with exception of IMF loans, direct payment of certain loans, and policy aspects of the debt strategy (contracting new loans and negotiating debt relief). - Debt management system adoption and status: - In 2001, authorities acquired UNCTAD’s DMFAS (Data Management and Financial Analysis System). - Central Bank has been migrating debt data into DMFAS; migration slowed by lack of adequate training and few employees involved. - Migration (including testing) is planned to be completed in 2005. - Installing DMFAS as a network across the two units could improve sharing but may require substantial additional investment. No timeline defined for this network project. ### Capacity needs, coordination issues, and operational observations - Capacity and training: - Country's debt management capacity would benefit from more training on debt management and debt sustainability analysis. - Advised by UNCTAD and DRI to provide tools and training to staff for more proactive debt management. - Currently no budget to provide training for employees in charge of debt management. - Graduating from HIPC increases urgency to set up a prudent debt strategy fully coordinated with macroeconomic policies. - Operational coordination and data flows: - Two debt-management units are located in different buildings; while communication is good, efficiency could be increased by establishing a network for sharing the database; costs constrain this move. - Disbursement and repayment units do not report systematically to the two debt units, which may impede an accurate debt picture. - Authorities are aware and plan to rectify weaknesses, but no timelines have been set. - Informal communication has improved; institutionalizing a coordination committee is suggested as useful. *Source: IMF and World Bank Board decisions, completion point documents, decision point documents, preliminary HIPC documents, and staff calculations, as presented in the provided content.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04406.pdf_