IMF Staff Reviews Progress of Madagascar’s Economic Program

IMF News, March 28, 2018

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IMF team led by Marshall Mills, Mission Chief for Madagascar, visited Antananarivo from March14–28, 2018 to hold discussions on the third review of Madagascar’s economic reform program supported by the IMF’s three-year Extended Credit Facility (ECF).
Good progress was made during the discussions; they will continue in the coming weeks.
Following conclusion of ongoing discussions, the IMF Executive Board could consider the third ECF review in June 2018.
End-of-Mission press releases convey preliminary findings; the views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

Positive contributors in 2017:
- Growing export revenues from vanilla—boosted by high prices.
- Growth in light manufactured goods.
- Strong currency and substantial accumulation of foreign exchange reserves.
Expected 2018 drivers:
- Rising public investment.
- Continued growth in manufacturing.
- A rebound in agriculture.
- A recovery in the mining sector.
Central bank action:
- The central bank has appropriately managed an associated increase in bank liquidity.

Performance under the ECF-supported program remains broadly satisfactory.
Based on current data, all quantitative performance targets for end-December were met and for most with a large margin.
Reserve accumulation and the fiscal balance continued to exceed program targets.
Implementation of structural reforms generally advanced as planned, except:
- Fuel pricing adjustments experienced delays.
- A minor delay occurred in the new statistics law.

Staff urged authorities to maintain program momentum.
Core program objective: shift from less productive public spending to investment and social spending.
Fuel pricing and liabilities:
- Delays in adjusting pump prices to rising world prices led to the authorities accumulating liabilities to fuel distributors.
- Staff recommended that the authorities adjust pump prices gradually to align them with world market prices and to eliminate the liabilities by year end.
Public wage bill and pensions:
- Higher than expected needs for the government’s wage bill and pensions will require increased public resources.

Financial difficulties at JIRAMA continue to weigh heavily on public finances despite launch of an ambitious restructuring plan.
Large losses last year—exacerbated by the drought—exceeded budgeted transfers, putting additional pressure on public resources.
Under current plans, JIRAMA’s transfer needs are expected to exceed budgeted transfers this year due to:
- Higher world fuel prices.
- Service on the debt accumulated in recent years.
- Offset of favorable rainfall on hydropower production.
Staff urged authorities to implement measures to limit JIRAMA’s operational losses and need for government transfers.

Monetary policy and central bank:
- The BFM continues to develop its operational framework for monetary operations, focusing on managing excess bank liquidity and strengthening the legislative framework.
Foreign exchange market:
- The central bank and the ministry of finance and budget plan to update the legal and regulatory framework for the operation of the foreign exchange market.
Financial sector supervision and legislation:
- Building on the Financial System Stability Assessment (FSSA), the authorities will update the legal and regulatory supervisory framework, move towards risk-based prudential supervision, and submit a revised banking law by year end.
Public investment:
- Authorities are working to speed up execution of investment spending central to the program’s growth strategy.
- The recently adopted investment management strategy should improve implementation monitoring and ensure consistency of new investment projects with the national development strategy.
Governance and anti-corruption:
- Staff stressed the vital importance of enacting the asset recovery and Anti-Money Laundering laws submitted to parliament to fight corruption and maintain good banking relationships internationally.
- Important to follow through with implementation of the strengthened anti-corruption legislation, asset declaration framework, and improvements to public financial management.

The mission met with:
- President Hery Rajaonarimampianina.
- Minister of Finance and Budget Vonintsalama Andriambololona.
- Minister of Economy and Plan Herilanto Raveloharison.
- Central Bank of Madagascar Governor Alain Rasolofondraibe.
- Senior officials, private sector representatives, and development partners.
The mission thanked the Malagasy authorities for their strong cooperation and the constructive discussions.
Background on the ECF arrangement for Madagascar:
- The arrangement for Madagascar in the amount of SDR 220 million (about US$304.7 million or 180 percent of quota) was approved by the IMF Executive Board on July 28, 2016.
- Augmentation of access was granted under the program for SDR 30.55 million (about US$42.39 million or 12.5 percent of the country’s quota) following the IMF Executive Board meeting on June 28, 2017.

IMF Staff statement, March 28, 2018.