On January 16, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Madagascar.
Madagascar is one of the poorest countries in the world. In a fragile environment, the uncertainty linked to political instability, weak institutions, and weak governance has been eroding the foundation for solid economic growth. Since the political crisis in 2009, economic growth has been slow and social services, including basic health care and primary education, have deteriorated. The government that assumed power in early 2014, following constitutional elections, has shown a commitment to addressing Madagascar’s challenges.
There are early signs of an economic recovery in 2014, with growth estimated at 3 percent and December inflation under 7 percent. The current account deficit is projected to have narrowed to about 2 percent of GDP in 2014 driven by growing mineral exports, decreasing food import needs, and lower-than-anticipated international oil prices. Growing credit demand prompted domestic interest rates to increase and raised the cost of domestic budgetary financing, leading the government to increase statutory advances from the central bank.
Given still weak tax revenue collections, spending on high-priority areas, such as education and health, continued to be constrained in 2014. The need to finance fuel subsidies, public enterprises (such as the public utility JIRAMA), and the under-funded civil service pension fund added to budgetary pressures. At the same time, the authorities started to clear domestic budgetary arrears, took steps to define a plan to shore up the finances of JIRAMA, and adopted a priority action plan to strengthen public financial management.
Executive Board Assessment2
Executive Directors welcomed the first signs of economic recovery in 2014. Nevertheless, the country is facing complex challenges stemming from weak institutions and governance, binding resource constraints, vulnerability to shocks, and the urgent need to reverse the deterioration of development indicators. Directors called for an acceleration of economic and structural reforms to unleash Madagascar’s significant potential. The forthcoming National Development Plan should give priority to reforms that would raise the level and efficiency of pro-poor/pro-growth government spending, improve governance and strengthen institutions, increase high-return infrastructure investment, and improve the business climate. Steadfast implementation of these reforms will promote employment and private sector growth and reduce poverty.
Directors welcomed the authorities’ focus on increasing fiscal space for urgent social spending on health and education and infrastructure investment. Reforms in this area should involve well-designed plans, with Fund TA support, to mobilize tax revenue and make customs and tax administration more efficient. On the expenditure side, Directors supported the plans to phase out fuel subsidies, reduce budgetary transfers to loss-making public enterprises, address imbalances of the civil service pension funds, continue to strengthen public financial management, and clear domestic arrears.
Directors saw some room for cautious external borrowing over the medium term to address Madagascar’s pressing infrastructure needs. They encouraged the authorities to make every effort to ensure that such borrowing will be on concessional terms to the extent possible. Early finalization of the development plan and prioritization of investments, taking into account absorptive capacity, will be important to mobilize needed donor financing.
Directors stressed the need to strengthen monetary policy independence. They called for a prompt recapitalization of the central bank and a strengthening of its oversight mechanisms, and recommended avoiding the use of statutory advances for budget financing. Efforts to upgrade financial sector supervision and risk monitoring and develop the financial system should also continue.
Directors viewed Madagascar’s current floating exchange rate regime to be appropriate, noting that it has helped the economy adjust to external shocks. While the exchange rate does not appear out of line with fundamentals, Directors encouraged the authorities to take steps to improve competitiveness and increase international reserves over time.
It is expected that the next Article IV consultation with the Republic of Madagascar will be held on the standard 12-month cycle.
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| Republic of Madagascar: Selected Economic Indicators, 2012–15 |
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2012 |
2013 |
2014 |
2015 |
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Actual |
Est. |
Prel. Est. |
Proj. |
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Percent change; unless otherwise indicated |
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National account and prices |
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GDP at constant prices |
3.0 |
2.4 |
3.0 |
5.0 |
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GDP deflator |
5.5 |
5.0 |
6.3 |
7.6 |
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Consumer prices (end of period) |
5.8 |
6.3 |
7.1 |
7.9 |
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External sector |
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Exports of goods volume |
3.9 |
19.1 |
4.1 |
15.9 |
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Imports of goods volume |
14.0 |
11.1 |
1.3 |
11.7 |
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Terms of trade (deterioration = -) |
7.3 |
12.7 |
5.9 |
0.7 |
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Money and credit |
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Reserve money |
9.8 |
-6.1 |
8.9 |
15.2 |
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Broad money (M2) |
6.0 |
9.0 |
9.1 |
16.0 |
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Net foreign assets 1 |
-2.0 |
-15.9 |
4.4 |
8.0 |
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Net domestic assets 1 |
9.7 |
22.0 |
6.3 |
9.5 |
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Credit to the private sector 1 |
2.3 |
8.1 |
7.3 |
6.7 |
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(Percent of GDP) |
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Public finance |
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Total revenue (excluding grants) |
9.6 |
9.6 |
10.2 |
11.7 |
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Of which: tax revenue |
9.1 |
9.3 |
10.0 |
11.5 |
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Grants |
1.2 |
1.3 |
2.1 |
1.7 |
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Total expenditures |
13.4 |
14.9 |
14.4 |
15.6 |
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Current expenditure |
10.7 |
11.7 |
10.5 |
11.1 |
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Capital expenditure |
2.7 |
3.1 |
4.0 |
4.5 |
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Overall balance (cash basis) |
-1.4 |
-2.0 |
-3.2 |
-2.7 |
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Domestic financing |
0.9 |
1.0 |
0.9 |
1.1 |
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External sector |
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Exports of goods, f.o.b. |
15.5 |
18.4 |
20.0 |
22.4 |
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Imports of goods, c.i.f. |
31.2 |
30.7 |
30.8 |
33.0 |
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Current account balance (exc. grants) |
-7.9 |
-6.9 |
-4.4 |
-5.8 |
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Current account balance (inc. grants) |
-6.7 |
-5.6 |
-2.1 |
-3.9 |
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Public debt |
33.7 |
34.0 |
35.3 |
35.1 |
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External |
24.2 |
22.8 |
26.0 |
25.9 |
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Domestic |
9.5 |
11.1 |
9.3 |
9.2 |
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(Units as indicated) |
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Gross official reserves (millions of SDRs) |
682 |
502 |
500 |
573 |
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Months of imports of goods and services |
3.3 |
2.2 |
2.2 |
2.3 |
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GDP per capita (US dollars) |
445 |
463 |
450 |
451 |
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Nominal GDP at market prices (billions of ariary) |
21,774 |
23,423 |
25,629 |
28,960 |
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Sources: Malagasy authorities; and IMF staff estimates and projections. |
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1 Growth in percent of beginning of period money stock (M2). |
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| Republic of Madagascar: Selected Economic Indicators, 2012–15 |
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| |
| |
| |
2012 |
2013 |
2014 |
2015 |
|
|
Actual |
Est. |
Prel. Est. |
Proj. |
| |
| |
Percent change; unless otherwise indicated |
| |
|
National account and prices |
|
|
|
|
|
GDP at constant prices |
3.0 |
2.4 |
3.0 |
5.0 |
|
GDP deflator |
5.5 |
5.0 |
6.3 |
7.6 |
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Consumer prices (end of period) |
5.8 |
6.3 |
7.1 |
7.9 |
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External sector |
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Exports of goods volume |
3.9 |
19.1 |
4.1 |
15.9 |
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Imports of goods volume |
14.0 |
11.1 |
1.3 |
11.7 |
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Terms of trade (deterioration = -) |
7.3 |
12.7 |
5.9 |
0.7 |
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Money and credit |
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Reserve money |
9.8 |
-6.1 |
8.9 |
15.2 |
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Broad money (M2) |
6.0 |
9.0 |
9.1 |
16.0 |
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Net foreign assets 1 |
-2.0 |
-15.9 |
4.4 |
8.0 |
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Net domestic assets 1 |
9.7 |
22.0 |
6.3 |
9.5 |
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Credit to the private sector 1 |
2.3 |
8.1 |
7.3 |
6.7 |
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(Percent of GDP) |
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Public finance |
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Total revenue (excluding grants) |
9.6 |
9.6 |
10.2 |
11.7 |
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Of which: tax revenue |
9.1 |
9.3 |
10.0 |
11.5 |
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Grants |
1.2 |
1.3 |
2.1 |
1.7 |
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Total expenditures |
13.4 |
14.9 |
14.4 |
15.6 |
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Current expenditure |
10.7 |
11.7 |
10.5 |
11.1 |
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Capital expenditure |
2.7 |
3.1 |
4.0 |
4.5 |
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Overall balance (cash basis) |
-1.4 |
-2.0 |
-3.2 |
-2.7 |
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Domestic financing |
0.9 |
1.0 |
0.9 |
1.1 |
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External sector |
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Exports of goods, f.o.b. |
15.5 |
18.4 |
20.0 |
22.4 |
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Imports of goods, c.i.f. |
31.2 |
30.7 |
30.8 |
33.0 |
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Current account balance (exc. grants) |
-7.9 |
-6.9 |
-4.4 |
-5.8 |
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Current account balance (inc. grants) |
-6.7 |
-5.6 |
-2.1 |
-3.9 |
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Public debt |
33.7 |
34.0 |
35.3 |
35.1 |
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External |
24.2 |
22.8 |
26.0 |
25.9 |
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Domestic |
9.5 |
11.1 |
9.3 |
9.2 |
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(Units as indicated) |
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Gross official reserves (millions of SDRs) |
682 |
502 |
500 |
573 |
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Months of imports of goods and services |
3.3 |
2.2 |
2.2 |
2.3 |
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GDP per capita (US dollars) |
445 |
463 |
450 |
451 |
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Nominal GDP at market prices (billions of ariary) |
21,774 |
23,423 |
25,629 |
28,960 |
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Sources: Malagasy authorities; and IMF staff estimates and projections. |
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1 Growth in percent of beginning of period money stock (M2). |
1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
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