On December 6, 2017, the Executive Board of the
International Monetary Fund (IMF) completed the second review of Madagascar’s program
supported by the Extended Credit Facility (ECF). The decision was taken
without a Board meeting
[1]
and enables the disbursement of SDR 31.428 million (about US$44.5
million), bringing total disbursements under the ECF arrangement that
was approved in July 27, 2016 to SDR 124.834 million (approximately
US$174.1 million).
Madagascar’s implementation of its economic program supported by the
Extended Credit Facility has remained strong. All quantitative
performance criteria and indicative targets were met at end-June 2017,
and the program’s structural agenda is also advancing.
The gradual economic recovery has continued, with solid growth and
continued macroeconomic stability despite the drought and cyclone that
affected Madagascar in early 2017. Fiscal performance has been roughly
as planned, with strong revenue performance offsetting some unexpected
spending pressures in 2017. Monetary and exchange rate policy has
successfully managed the challenges from external developments, and
inflation was stable despite the weather-related shocks. The current
account weakened in 2017 relative to 2016, driven by the trade deficit.
However, the overall external account remained strong, as transfers and
financial inflows largely offset the current account deficit. As a
result, the Malagasy Ariary has appreciated slightly in real effective
terms, and the Central Bank of Madagascar has boosted international
reserves significantly, well beyond program targets.
The 2018 budget supports the program’s core objective of strong and
inclusive growth. A higher than expected wage bill and the strong
Ariary created some financing pressures. To respond to this pressure
while enhancing the composition of spending, the authorities have
developed measures to contain lower priority spending and to boost
revenue, including increases in fuel taxes. Both domestically and
externally-financed investment spending is expected to grow
significantly, although less than targeted earlier due to capacity
constraints.
Key fiscal policy objectives over the medium term focus on steadily
raising revenue mobilization, gradually reducing transfers to the
public utility company JIRAMA, and scaling up public investment (while
containing risks to macroeconomic stability and debt sustainability).
The authorities should ensure that planned tax incentives envisaged by
the government are cost-effective and do not jeopardize the program’s
core goals for revenue and public investment.
In addition, it is vitally important that the authorities continue
their efforts to enhance governance and the fight against corruption.
The priorities are the completion of the new legal framework (in line
with international standards), the strengthening of enforcement, and
the continued improvement in public financial management.
Lastly, the work underway to develop the financial sector is important
and well-prioritized. The authorities’ strategy aims to enhance the
sector’s contribution to economic development, especially financial
inclusion. Mobile money services are growing rapidly and will be
further supported by a new, modernized legal and regulatory framework.
At the same time, to keep financial risks under control, initiatives
are underway to strengthen supervision as well as the broader legal
framework for the financial sector.
