## _cr0911 - Section 1

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---

### I. INTRODUCTION
- JSAN provides feedback from World Bank and Fund staffs on the first and second progress reports on the Madagascar Action Plan (MAP), the poverty reduction and growth strategy for 2007-12.
- The first progress report (PR) covers 2007 and the second PR covers the first half of 2008.
- PRs report on key indicators and measures for achieving the MAP’s eight commitments: (i) responsible governance; (ii) connected infrastructure; (iii) educational transformation; (iv) rural development and a green revolution; (v) health, family planning and the fight against HIV/AIDS; (vi) high growth economy; (vii) environmental protection; and (viii) national solidarity.

### II. PROGRESS IN IMPLEMENTING THE POVERTY REDUCTION STRATEGY

#### A. Economic Performance and Macroeconomic Policies
- Findings and context:
  - PRs highlight policies taken to safeguard macroeconomic stability and strengthen growth; the 2008 PR provides a more complete and coherent description of the macroeconomic context and risks.
  - Strong growth benefited from the construction of two large mining projects.
  - Inflation increased since April 2008 due to acceleration of food and energy prices, but the increase was less pronounced than in many other low-income countries.
  - The current account deficit widened owing to imports for large mining projects under construction and to the sharp increase in fuel and food prices; this was financed by foreign direct investment and concessional public debt, allowing an increase in foreign exchange reserves.
- Fiscal and monetary stance:
  - Fiscal policy: improved tax revenue, increased spending in MAP priority sectors, and kept domestic financing at a very low level.
  - Monetary and exchange rate policy geared towards containing inflation and preventing excessive exchange rate volatility.
- Recommendations for future PRs and policy challenges:
  - Include forward-looking discussion of the evolving macroeconomic framework and the financing of the MAP, covering challenges such as:
    - sustained implementation of tax and customs administration reforms;
    - entrenching single digit inflation;
    - continuing prudent borrowing that would rely on concessional terms to maintain a low risk of debt distress.

#### B. Progress in Poverty Reduction
- Data and monitoring gaps:
  - MAP PRs do not provide a detailed update on poverty trends; authorities’ decision to conduct a new demographic census in 2009 is welcome.
  - Latest household survey (2005) indicated that about two thirds of the population was living below the national poverty line, with a higher proportion in rural areas.
  - Intermediate indicators (such as access to basic services) suggest improvement in living conditions for the majority of the population over the past few years.
  - The new demographic census will provide an updated basis for monitoring MAP implementation and its impact on the level and distribution of poverty.

#### C. Sectoral Policies

- Governance and public financial management:
  - Public financial management reforms are critical to improving budget execution and the quality of public expenditures.
  - The May 2008 Public Expenditure and Financial Accountability (PEFA) report highlighted progress in revenue administration but noted persistent weaknesses in monitoring and controlling budget execution.
  - Authorities need to continue reforms to streamline all phases of the expenditure chain, including:
    - advancing budget preparation;
    - improving budget monitoring;
    - streamlining financial controls;
    - strengthening procurement practices;
    - improving expenditure tracking.
  - The budget information system (SIGFP) is operational in all central ministries and institutions; priority should be deployment in regional and local administrations to monitor budget execution and tax collection.
  - Decentralization has been extremely slow, with less than 5 percent of the overall budget under the responsibility of local governments; capacity building of local administrations is necessary.
  - Staffs welcome authorities’ intention to align mining and oil legislative and administrative frameworks with the principles of the Extractive Industry Transparency Initiative (EITI).
  - Reported governance improvements: functioning of the national anti-corruption agency (BIANCO), establishment of a financial intelligence unit, and improved national security indicators.
  - Judicial system remains ineffective due to lack of financial and human resources; need to improve link between national anti-corruption agency and the Ministry of Justice to produce concrete results and sanctions communicated to the public.

- Private sector development and utilities:
  - Electricity sector reform progress has been slow; restructuring of the state utility company (JIRAMA) delayed after a change in private sector involvement strategy in September 2007.
  - JIRAMA’s management expected to be transferred to a private operator by the middle of next year under a 5-year management contract.
  - To alleviate fuel price shock, authorities postponed electricity tariff increases until October 2008; this delayed JIRAMA’s return to profitability and required budgetary transfers equivalent to 0.5 percent of GDP in 2008.
  - A tariff increase of 15 percent occurred in October 2008; authorities need to ensure regular adjustments of electricity prices to reflect input costs.
  - Recommendation: strengthen credibility and sustainability of electricity sector reforms so future generation investments can be based on least-cost development criteria within a transparent and predictable framework.
  - Financial sector: progress made on two of five recommendations from last JSAN:
    - Recapitalization of the Central Bank was successful and underpinned successful monetary policy sterilization operations.
    - A new payment system and new credit information system will be operational in 2009.
  - Good progress in reducing the deficit of the pay-as-you-go civil servants pension system.
  - Microfinance institutions have expanded services, but overall access remains very low.
  - Further reform needed in legal and judicial systems, land and pledge registry systems, and the insurance sector.
  - Staffs encourage consideration of independent management and private financing of the development bank (under study with assistance of Germany and South Africa).

- Connectivity and infrastructure:
  - Connectivity is a key MAP challenge; significant additional public and private resources required to upgrade transport and communication networks.
  - Progress welcomed on rehabilitation of the national road network, construction of some new rural roads; maintenance is essential to preserve road assets.
  - Implementation of optical fiber backbone will reduce communications costs.
  - Modernization of railway between Antananarivo and Toamasina (main port) offers an alternative transport mode.
  - Concerns remain over mixed progress in institutional frameworks for roads and communication and weak implementation of regulations (e.g., axle load controls).
  - Recommendation: develop national strategies to better align budgetary resources and encourage private sector participation through greater liberalization.

- Education:
  - Significant achievements in education, especially primary education; need to accelerate reforms in secondary, tertiary, vocational, and professional training.
  - Primary net enrollment rate increased by 1 percent between 2007 and the first semester of 2008.
  - Success attributed in part to national strategy (Education for All/Fast Track Initiative) with aligned local and external resources and coordination under the Ministry of Education.
  - Need to strengthen capacity at decentralized levels (Direction Régionale de l’Enseignement and Circonscription Scolaire).
  - Primary education challenges: improve quality through training, incentive mechanisms, adaptation of curriculum to local needs, and teacher redeployments with extended primary cycle.
  - Strategies to reform secondary education identified and should be implemented with a clear work plan.
  - Recommendation: extend private sector partnerships to promote vocational and professional training.
  - Staffs welcome government decision to focus on link between education and labor market reforms.

- Rural development and environment:
  - Rural development policies have begun to show results despite exogenous shocks (cyclones, high food prices).
  - Agricultural sector growth rate is expected to reach 4.5 percent at the end of 2008, exceeding population growth rate but still far below MAP goals.
  - Authorities adopted policies, with development partner support, that helped mitigate shocks for poorest consumers; support for a second annual rice harvest boosted output and reduced pressure on consumer prices.
  - Staffs advise continuing to:
    - promote a market-driven supply chain;
    - better link farmers to markets for inputs and credits;
    - introduce performing agricultural technology in irrigated areas;
    - secure land and property rights;
    - develop infrastructure including irrigation, storage, processing and transport.
  - Recommendation: provide further clarity on the role of foreign investors, including large companies, and their contribution to local development.
  - National strategy on environmental protection prepared jointly by government and key development partners needs finalization.
  - Budget allocation for environment increased (up by 10 percent in real terms between the Finance Laws for 2008 and 2009).
  - Government on target to augment surface of protected areas as well as reforested and restored areas to 6 millions hectares by 2012, beyond initial targets.
  - Recommendation: improve climate resilience by strengthening early warning alert systems and building wind and inundation resistant housing and infrastructure in cyclone-affected regions.
  - Government should reinforce controls (notably on forests and pollution) and further integrate regions and other key ministries in the dialogue.

- Health:
  - MAP set ambitious health targets that are unlikely to be met at current pace; risks most apparent in fight against malaria, leprosy, lymphatic filariasis, other epidemic diseases (e.g., bilharzias is still affecting over 2 million people in Madagascar), and maternal care.
  - Progress reported in children fully immunized: up from 53 percent in 2003/2004 to 71.5 percent in February 2008.
  - Progress in HIV/AIDS information and prevention campaigns and in fight against malnutrition.
  - On revised medium-term expenditure framework, staffs recommend government streamline sectoral strategy by identifying clear priorities, actions, and programs to better align interventions including from development partners and NGOs.
  - 2009 budget allocated growing resources to the Ministry of Health (up by about 20 percent in real terms); need to rationalize internal financial procedures and increase execution rates (execution rate of the investment budget allocated to this sector was below 15 percent in the first semester of 2008).
  - Staffs encourage central authorities to empower local governments and communities as part of decentralization for implementation and management of small community projects.

### III. MONITORING IMPLEMENTATION OF THE POVERTY REDUCTION STRATEGY
- Monitoring developments:
  - Monitoring improved through establishment of the National Integrated Monitoring and Evaluation System (SNISE).
  - SNISE is built on about sixty quantitative indicators capturing progress on MAP pillars at national and regional levels.
- Recommendations to strengthen monitoring:
  - Reduce number of indicators to account for limited institutional capacity.
  - Pursue SNISE development via capacity-building programs, improved coordination among agencies, and strengthening of the national Statistical Agency.
  - Improve ability to monitor MAP implementation by addressing:
    - (i) better assessing evolution of poverty levels and distribution among households by strengthening technical and statistical capacities;
    - (ii) better aligning budget preparation and execution with MAP priorities and monitoring by reinforcing communication, planning, and coordination between the Ministry of Finance and the MAP Secretariat, and streamlining reporting mechanisms at sub-national and sectoral levels.

### IV. CONCLUSION
- PRs provide a candid assessment of progress toward MAP objectives.
- Authorities have implemented sound fiscal and monetary policies contributing to good macroeconomic outcomes.
- PRs candidly describe progress in governance, private sector development policies, education and health policies, rural development, environment protection, and capacity building for monitoring MAP implementation.
- Recommendation for future PRs: include a forward-looking discussion of remaining challenges for sustained poverty reduction and growth.
- Strengthening macroeconomic achievements will require continued adherence to sound fiscal and monetary policies and prudent borrowing.

*Prepared by the Staffs of the International Development Association and the International Monetary Fund; Approved by Obiageli K. Ezekwesili (IDA) and Thomas Krueger and Alan MacArthur (IMF); December 12, 2008.*

### _cr0911 - Section 2

### Priority areas for strengthening the MAP and its implementation
- sustaining progress on domestic revenue mobilization and public financial management reforms;
- improving the investment climate, principally with regard to reforms of the electricity sector, land access and development, and the legal, regulatory, and judicial systems;
- enhancing resource allocation and execution within the health sector;
- pursuing the reforms on education to foster growth and employment;
- reinforcing efforts to mobilize resources, including from the private sector, to finance infrastructure projects in the transport and communication sectors; and
- developing the ability to monitor the evolution of poverty, with a view to better target actions and reforms and thus improve access of the poorest to public services and opportunities.

*Source: _cr0911 - Section 1 and Section 2.*

### Section 1

### _cr0911 - Section 1

### I. INTRODUCTION
- This JSAN provides feedback from World Bank and Fund staffs on the first and second progress reports on the Madagascar Action Plan (MAP), the poverty reduction and growth strategy for 2007-12.
- The first progress report (PR) covers 2007 and the second PR covers the first half of 2008.
- The PRs report on key indicators and measures for achieving the MAP’s eight commitments: (i) responsible governance; (ii) connected infrastructure; (iii) educational transformation; (iv) rural development and a green revolution; (v) health, family planning and the fight against HIV/AIDS; (vi) high growth economy; (vii) environmental protection; and (viii) national solidarity.

### II. PROGRESS IN IMPLEMENTING THE POVERTY REDUCTION STRATEGY

#### A. Economic Performance and Macroeconomic Policies
- PRs highlight policies taken to safeguard macroeconomic stability and strengthen growth; the 2008 PR provides a more complete and coherent description of the macroeconomic context and risks.
- Strong growth benefited from the construction of two large mining projects.
- Inflation increased since April 2008 due to acceleration of food and energy prices, but the increase was less pronounced than in many other low-income countries.
- The current account deficit widened owing to imports for large mining projects under construction and to the sharp increase in fuel and food prices; this was financed by foreign direct investment and concessional public debt, allowing an increase in foreign exchange reserves.
- Fiscal policy: improved tax revenue, increased spending in MAP priority sectors, and kept domestic financing at a very low level.
- Monetary and exchange rate policy geared towards containing inflation and preventing excessive exchange rate volatility.
- Recommendation for future PRs: include a forward-looking discussion of the evolving macroeconomic framework and the financing of the MAP, covering challenges such as:
  - sustained implementation of tax and customs administration reforms;
  - entrenching single digit inflation;
  - continuing prudent borrowing that would rely on concessional terms to maintain a low risk of debt distress.

#### B. Progress in Poverty Reduction
- The MAP PRs do not provide a detailed update on poverty trends; authorities’ decision to conduct a new demographic census in 2009 is welcome.
- Latest household survey (2005) indicated that about two thirds of the population was living below the national poverty line, with a higher proportion in rural areas.
- Intermediate indicators (such as access to basic services) suggest improvement in living conditions for the majority of the population over the past few years.
- The new demographic census will provide an updated basis for monitoring MAP implementation and its impact on the level and distribution of poverty.

#### C. Sectoral Policies

Policies for strengthening governance
- Public financial management reforms are critical to improving budget execution and the quality of public expenditures.
- The May 2008 Public Expenditure and Financial Accountability (PEFA) report highlighted progress in revenue administration but noted persistent weaknesses in monitoring and controlling budget execution.
- Authorities need to continue reforms to streamline all phases of the expenditure chain, including:
  - advancing budget preparation;
  - improving budget monitoring;
  - streamlining financial controls;
  - strengthening procurement practices;
  - improving expenditure tracking.
- The budget information system (SIGFP) is operational in all central ministries and institutions; priority should be deployment in regional and local administrations to monitor budget execution and tax collection.
- Decentralization has been extremely slow, with less than 5 percent of the overall budget under the responsibility of local governments; capacity building of local administrations is necessary.
- Staffs welcome the authorities’ intention to align mining and oil legislative and administrative frameworks with the principles of the Extractive Industry Transparency Initiative (EITI).
- Reported governance improvements: functioning of the national anti-corruption agency (BIANCO), establishment of a financial intelligence unit, and improved national security indicators.
- Judicial system remains ineffective due to lack of financial and human resources; need to improve link between national anti-corruption agency and the Ministry of Justice to produce concrete results and sanctions communicated to the public.

Policies for promoting private sector development
- Electricity sector reform progress has been slow; restructuring of the state utility company (JIRAMA) delayed after a change in private sector involvement strategy in September 2007.
- JIRAMA’s management expected to be transferred to a private operator by the middle of next year under a 5-year management contract.
- To alleviate fuel price shock, authorities postponed electricity tariff increases until October 2008; this delayed JIRAMA’s return to profitability and required budgetary transfers equivalent to 0.5 percent of GDP in 2008.
- A tariff increase of 15 percent occurred in October 2008; authorities need to ensure regular adjustments of electricity prices to reflect input costs.
- Recommendation: strengthen credibility and sustainability of electricity sector reforms so future generation investments can be based on least-cost development criteria within a transparent and predictable framework.
- Financial sector: progress made on two of five recommendations from last JSAN:
  - Recapitalization of the Central Bank was successful and underpinned successful monetary policy sterilization operations.
  - A new payment system and new credit information system will be operational in 2009.
- Good progress in reducing the deficit of the pay-as-you-go civil servants pension system.
- Microfinance institutions have expanded services, but overall access remains very low.
- Further reform needed in legal and judicial systems, land and pledge registry systems, and the insurance sector.
- Staffs encourage consideration of independent management and private financing of the development bank (under study with assistance of Germany and South Africa).

Connectivity and infrastructure
- Connectivity is a key MAP challenge; significant additional public and private resources required to upgrade transport and communication networks.
- Progress welcomed on rehabilitation of the national road network, construction of some new rural roads; maintenance is essential to preserve road assets.
- Implementation of optical fiber backbone will reduce communications costs.
- Modernization of railway between Antananarivo and Toamasina (main port) offers an alternative transport mode.
- Concerns remain over mixed progress in institutional frameworks for roads and communication and weak implementation of regulations (e.g., axle load controls).
- Recommendation: develop national strategies to better align budgetary resources and encourage private sector participation through greater liberalization.

Education policy
- Significant achievements in education, especially primary education; need to accelerate reforms in secondary, tertiary, vocational, and professional training.
- Primary net enrollment rate increased by 1 percent between 2007 and the first semester of 2008.
- Success attributed in part to national strategy (Education for All/Fast Track Initiative) with aligned local and external resources and coordination under the Ministry of Education.
- Need to strengthen capacity at decentralized levels (Direction Régionale de l’Enseignement and Circonscription Scolaire).
- Primary education challenges: improve quality through training, incentive mechanisms, adaptation of curriculum to local needs, and teacher redeployments with extended primary cycle.
- Strategies to reform secondary education identified and should be implemented with a clear work plan.
- Recommendation: extend private sector partnerships to promote vocational and professional training.
- Staffs welcome government decision to focus on link between education and labor market reforms.

Policies for promoting rural development and environment protection
- Rural development policies have begun to show results despite exogenous shocks (cyclones, high food prices).
- Agricultural sector growth rate is expected to reach 4.5 percent at the end of 2008, exceeding population growth rate but still far below MAP goals.
- Authorities adopted policies, with development partner support, that helped mitigate shocks for poorest consumers; support for a second annual rice harvest boosted output and reduced pressure on consumer prices.
- Staffs advise continuing to:
  - promote a market-driven supply chain;
  - better link farmers to markets for inputs and credits;
  - introduce performing agricultural technology in irrigated areas;
  - secure land and property rights;
  - develop infrastructure including irrigation, storage, processing and transport.
- Recommendation: provide further clarity on the role of foreign investors, including large companies, and their contribution to local development.

Environment protection
- National strategy on environmental protection prepared jointly by government and key development partners needs finalization.
- Budget allocation for environment increased (up by 10 percent in real terms between the Finance Laws for 2008 and 2009).
- Government on target to augment surface of protected areas as well as reforested and restored areas to 6 millions hectares by 2012, beyond initial targets.
- Recommendation: improve climate resilience by strengthening early warning alert systems and building wind and inundation resistant housing and infrastructure in cyclone-affected regions.
- Government should reinforce controls (notably on forests and pollution) and further integrate regions and other key ministries in the dialogue.

Health policy
- MAP set ambitious health targets that are unlikely to be met at current pace; risks most apparent in fight against malaria, leprosy, lymphatic filariasis, other epidemic diseases (e.g., bilharzias is still affecting over 2 million people in Madagascar), and maternal care.
- Progress reported in children fully immunized: up from 53 percent in 2003/2004 to 71.5 percent in February 2008.
- Progress in HIV/AIDS information and prevention campaigns and in fight against malnutrition.
- On revised medium-term expenditure framework, staffs recommend government streamline sectoral strategy by identifying clear priorities, actions, and programs to better align interventions including from development partners and NGOs.
- 2009 budget allocated growing resources to the Ministry of Health (up by about 20 percent in real terms); need to rationalize internal financial procedures and increase execution rates (execution rate of the investment budget allocated to this sector was below 15 percent in the first semester of 2008).
- Staffs encourage central authorities to empower local governments and communities as part of decentralization for implementation and management of small community projects.

### III. MONITORING IMPLEMENTATION OF THE POVERTY REDUCTION STRATEGY
- Monitoring improved through establishment of the National Integrated Monitoring and Evaluation System (SNISE).
- SNISE is built on about sixty quantitative indicators capturing progress on MAP pillars at national and regional levels.
- Recommendation: reduce number of indicators to account for limited institutional capacity; pursue SNISE development via capacity-building programs, improved coordination among agencies, and strengthening of the national Statistical Agency.
- Government needs to improve ability to monitor MAP implementation by addressing:
  - (i) better assessing evolution of poverty levels and distribution among households by strengthening technical and statistical capacities;
  - (ii) better aligning budget preparation and execution with MAP priorities and monitoring by reinforcing communication, planning, and coordination between the Ministry of Finance and the MAP Secretariat, and streamlining reporting mechanisms at sub-national and sectoral levels.

### IV. CONCLUSION
- PRs provide a candid assessment of progress toward MAP objectives.
- Authorities have implemented sound fiscal and monetary policies contributing to good macroeconomic outcomes.
- PRs candidly describe progress in governance, private sector development policies, education and health policies, rural development, environment protection, and capacity building for monitoring MAP implementation.
- Recommendation for future PRs: include a forward-looking discussion of remaining challenges for sustained poverty reduction and growth.
- Strengthening macroeconomic achievements will require continued adherence to sound fiscal and monetary policies and prudent borrowing.

*Prepared by the Staffs of the International Development Association and the International Monetary Fund; Approved by Obiageli K. Ezekwesili (IDA) and Thomas Krueger and Alan MacArthur (IMF); December 12, 2008.*

### Section 2

### _cr0911 - Section 2

### Priority areas for strengthening the MAP and its implementation

- sustaining progress on domestic revenue mobilization and public financial management reforms;
- improving the investment climate, principally with regard to reforms of the electricity sector, land access and development, and the legal, regulatory, and judicial systems;
- enhancing resource allocation and execution within the health sector;
- pursuing the reforms on education to foster growth and employment;
- reinforcing efforts to mobilize resources, including from the private sector, to finance infrastructure projects in the transport and communication sectors; and
- developing the ability to monitor the evolution of poverty, with a view to better target actions and reforms and thus improve access of the poorest to public services and opportunities.

*Source: _cr0911 - Section 2.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0911.pdf_