News Brief No. 00/48

News Brief: IMF Completes Midterm Review of PRGF-Supported Program for Madagascar, Approves US$41 Million Disbursement

June 23, 2000

The International Monetary Fund's (IMF) Executive Board completed today its midterm review of Madagascar's economic performance under a program supported by a three-year SDR 105.80 million (about US$141 million) Poverty Reduction and Growth Facility (PRGF)¹ credit (see Press Release No. 99/33), and approved the authorities' request to augment the credit arrangement by SDR 24.4 million (about US$32 million) to cover the additional financing gap caused by recent natural disasters.

The Executive Board also approved the authorities' request to extend the PRGF arrangement commitment period by three months to November 30, 2000.

The completion of this review under the PRGF enables the release of a further SDR 31.22 million (about US$41 million) disbursement, which brings total disbursements under the augmented program to SDR 71.90 million (about US$95 million).

After the Executive Board's discussion of Madagascar's economic and structural reform program, Shigemitsu Sugisaki, Deputy Managing Director and acting Board Chairman, summarized the discussion:

"Directors expressed sympathy for the loss of human life, and the destruction of economic and social infrastructure following the recent natural disasters in Madagascar. They commended the Malagasy authorities for their timely action to alleviate their impact on the population, and external donors for their support.

"Recent economic performance has been broadly favorable. Economic growth has been sustained, export performance has improved, the external current account deficit has narrowed, and international reserves have increased. In addition, most fiscal targets under the program were met, and the privatization of the banking sector has been completed.

"Regarding macroeconomic policies, a cautious monetary policy continues to be essential to contain inflation and reinforce international reserves. The principal challenge for fiscal policy is to ensure that resources are available to finance growth in high priority social spending without endangering macroeconomic stability. Ongoing efforts to raise the revenue-to-GDP ratio should continue. Improved expenditure control, especially of wages, is also critical, and will be facilitated by the envisaged civil service reform. Another important step in the ongoing process of improving governance and public administration will be to modernize and strengthen the legal system.

"Notwithstanding progress in recent years, poverty remains widespread in Madagascar. A lasting reduction in poverty hinges upon the achievement of sustained rapid growth, which, in turn, will require determined implementation of structural reforms. Completion of ongoing privatizations, notably in the air transport and telecommunications sectors, and improvement in the regulatory framework, are priority items for the near term. An effective attack on poverty will also require targeted initiatives by the authorities. The preparation of a well focussed PRSP, with appropriate prioritization of action plans in the key social sectors and in rural development, in close consultation with the civil society and the donor community, will be an essential instrument in this regard. It would also be helpful in defining the priorities for the efficient use of the resources that Madagascar could receive under the enhanced HIPC Initiative. Its eligibility for HIPC relief will be assessed as soon as possible in light of performance under the PRGF and progress in evolving an effective strategy to reduce poverty," Mr. Sugisaki said.

1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility, was renamed the Poverty Reduction and Growth Facility, and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper. This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5%, and are repayable over 10 years with a 5 ½-year grace period on principal payments. The total loan amount for Madagascar reflects the SDR 24.4 million augmentation of the original SDR 81.36 million credit.