IMF Executive Board Completes Sixth Review Under the Extended Credit Facility (ECF) for the Republic of Madagascar and Concludes 2019 Article IV Consultation
January 30, 2020
On January 29, 2020, the Executive Board of the International Monetary Fund completed the sixth review under the ECF arrangement for Madagascar and the 2019 Article IV consultation. The completion of this review enables the disbursement of SDR 31.43 million (about US$43.2 million), bringing total disbursements under the arrangement to SDR 250.55 million (about US$344.5 million).
Madagascar’s 40 month-ECF arrangement to support the country’s efforts to reinforce macroeconomic stability and boost sustained and inclusive growth, was approved on July 27, 2016 (see Press Release No.16/370) for SDR 220 million (about US$305 million, or 90 percent of Madagascar’s quota). Additional access of 12.5 percent of Madagascar’s quota was approved by the Executive Board in June 28, 2017, bringing access to SDR250.55 million (about US$347 million) at that time. The Executive Board approved, in November 4, 2019, the authorities’ request for a three-month Extension of the ECF arrangement to February 26, 2020, to allow time to conclude the discussions to complete the 6th and last review.
Following the Executive Board discussion, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the following statement:
“Madagascar’s performance under its economic program supported by the Extended Credit Facility (ECF) arrangement has been broadly satisfactory with solid growth, moderate single-digit inflation, and a robust external position. Going forward, a commitment to strong policies and an ambitious agenda to complete outstanding structural reforms remains crucial to mitigate internal and external risks, strengthen macroeconomic stability, and achieve higher, sustainable, and inclusive growth.
“The authorities’ economic reform agenda summarized in the Plan Emergence Madagascar aims to raise economic growth through increased public and private investment, strengthening human capital, and improving governance. Creating additional fiscal space by further improving revenue mobilization through a medium-term tax revenue strategy, containing lower-priority spending, and enhancing investment implementation capacity is essential for scaling-up priority investment and social spending in education, health, and housing.
“Resolute actions are needed to contain risks to macroeconomic stability and debt sustainability, including reducing fiscal risks from the financial situation of the public utility JIRAMA and containing liabilities to fuel distributors. On the latter, the implementation of an automatic fuel pricing mechanism to avoid budget costs must be accompanied by mitigating measures to limit impact on the poorest, including by the on-going scaling up of social safety net programs.
“Effective and impartial enforcement of the new anti-corruption legal framework, now closer to international standards, is needed to improve the business climate and attract private investment. Continued progress to further strengthen public financial management is necessary to improve the governance of public resources. Measures to increase resilience to natural disasters also need to be prioritized.
“The authorities’ ongoing reform agenda should continue to benefit from continued IMF engagement, including technical assistance.”
The Executive Board also concluded the 2019 Article IV Consultation [1] with the Republic of Madagascar.
Madagascar is a low-income country facing important challenges to overcome fragilities, strengthen inclusive growth, and address long-standing development needs. Progress in macro-economic performance and structural agenda during the recent years has been supported by the 2016 ECF arrangement. After a smooth transition of power following the Presidential elections, and the conclusion of the Parliamentary elections in end-May economic developments have remained favorable with sustained growth, contained inflation, and sustainable fiscal and external positions.
The medium-term economic outlook remains favorable, with growth expected to gradually increase to about 5.5 percent, supported by public investment scaling-up and good prospects for private investment. The outlook remains subject to risks, however, associated with social fragility, materialization of fiscal risks, and vulnerability to exogenous shocks including to terms of trade and natural disasters.
In this context, renewed efforts and impetus for reforms, in line with the government’s ambitious development strategy formalized in its Plan Emergence Madagascar, are needed to create fiscal space to finance investment and raise social spending; strengthen monetary and exchange rate policy effectiveness; improve financial sector development and resilience; and promote better governance and an improved business climate.
Executive Board Assessment [2]
Executive Directors welcomed the broadly satisfactory implementation of the economic reform program and peaceful political transition followed by solid macroeconomic performance. However, they regretted the slowdown in progress on structural reforms and continued underperformance on priority social spending. In light of Madagascar’s long‑standing challenges of high poverty, stagnant per capita income and vulnerability to natural disasters, Directors emphasized the need for further efforts to bring Madagascar onto a path of sustainable and inclusive growth. In this regard, they welcomed the authorities’ ambitious development agenda summarized in the Plan Emergence Madagascar and their commitment to strengthen macroeconomic stability and debt sustainability and implement outstanding reforms. Directors noted that enhanced capacity development will be essential to support the authorities’ objectives and welcomed the intention to start discussions on a successor arrangement.
Directors emphasized that fiscal policy should remain focused on efforts to create fiscal space to allow for scaling up of priority social and investment spending, notably in education, health and housing. In this context, they encouraged the authorities to continue their efforts to improve revenue mobilization through credible medium‑term tax revenue mobilization plans, containment of lower‑priority spending, and enhancement of the investment implementation capacity. To contain risks to macroeconomic stability and debt sustainability, Directors called for reducing transfers to the public utility company JIRAMA and finalizing and implementing its medium‑term recovery plan, improving the sustainability of the civil servant pension fund, and containing liabilities to fuel distributors. They also encouraged the authorities to adopt the planned fuel pricing mechanism without further delays, while putting in place mitigating measures and social safety nets to limit the impact on the poorest .
Directors welcomed continued progress in improving the monetary framework and strengthening the financial sector. They called for continued efforts to improve foreign exchange market operations and gradually phase out the surrender requirement on export proceeds, as well as further steps to strengthen the bank supervisory framework. They encouraged the authorities to implement the new banking and financial stability laws, and to continue their efforts to improve financial inclusion.
Directors welcomed progress on governance reforms and the anti‑corruption legal framework, and they urged its effective and impartial enforcement in order to strengthen the business climate and attract private investment. Directors also called for continued efforts to strengthen public financial management and for prioritizing measures to increase resilience to natural disasters.
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Table 1. Selected Economic Indicators, 2017–21 |
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|
2017 |
2018 |
2019 |
2020 |
2021 |
|
|
Est. |
Proj. |
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|
National account and prices (percent change, unless otherwise indicated) |
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|
GDP at constant prices |
3.9 |
4.6 |
4.8 |
5.2 |
5.4 |
|
GDP deflator |
8.6 |
8.6 |
5.9 |
7.2 |
6.5 |
|
Consumer prices (end of period) |
10.6 |
6.9 |
6.0 |
6.2 |
5.9 |
|
Money and credit |
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|
Broad money (M3) |
17.8 |
11.2 |
12.3 |
16.2 |
14.9 |
|
(Growth in percent of beginning of period money stock (M3)) |
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|
Net foreign assets |
9.2 |
4.8 |
0.3 |
6.9 |
7.6 |
|
Net domestic assets |
8.6 |
6.4 |
12.0 |
9.3 |
7.2 |
|
of which: Credit to the private sector |
8.4 |
8.7 |
9.0 |
7.3 |
5.8 |
|
(percent of GDP) |
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|
Public finance |
|
|
|
|
|
|
Total revenue (excluding grants) |
10.3 |
10.5 |
10.6 |
11.2 |
11.7 |
|
of which: Tax revenue |
10.0 |
10.2 |
10.4 |
10.9 |
11.3 |
|
Grants |
2.5 |
2.5 |
2.4 |
2.5 |
1.4 |
|
of which: budget grants |
0.7 |
0.9 |
0.8 |
0.7 |
0.0 |
|
Total expenditures |
14.9 |
14.3 |
14.4 |
16.4 |
17.3 |
|
Current expenditure |
10.2 |
9.3 |
9.3 |
8.9 |
8.9 |
|
Capital expenditure |
4.7 |
5.0 |
5.0 |
7.6 |
8.3 |
|
Overall balance (commitment basis) |
-2.1 |
-1.3 |
-1.4 |
-2.7 |
-4.2 |
|
Domestic primary balance1 |
-0.9 |
0.1 |
0.3 |
0.0 |
0.3 |
|
Total financing |
2.0 |
2.0 |
1.7 |
2.7 |
3.8 |
|
Foreign borrowing (net) |
1.2 |
1.5 |
1.2 |
2.2 |
3.3 |
|
Domestic financing |
0.8 |
0.5 |
0.5 |
0.5 |
0.4 |
|
Financing gap |
0.0 |
0.0 |
0.0 |
0.0 |
-0.5 |
|
Savings and investment |
|
|
|
|
|
|
Investment |
18.1 |
18.8 |
19.1 |
22.0 |
23.0 |
|
Gross national savings |
15.4 |
20.3 |
19.0 |
20.5 |
21.5 |
|
External sector |
|
|
|
|
|
|
Exports of goods, f.o.b. |
21.3 |
21.9 |
19.5 |
19.0 |
20.1 |
|
Imports of goods, c.i.f. |
27.4 |
27.6 |
26.6 |
27.0 |
27.3 |
|
Current account balance (exc. grants) |
-2.9 |
-1.9 |
-2.6 |
-4.0 |
-2.9 |
|
Current account balance (inc. grants) |
-0.4 |
0.7 |
-0.1 |
-1.5 |
-1.5 |
|
Public debt |
40.0 |
39.9 |
40.1 |
39.8 |
40.8 |
|
External Public Debt |
25.7 |
26.7 |
27.2 |
27.6 |
29.1 |
|
Domestic Public Debt |
14.4 |
13.2 |
12.8 |
12.2 |
11.6 |
|
(Units as indicated) |
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|
Gross official reserves (millions of SDRs) |
1086 |
1221 |
1238 |
1390 |
1552 |
|
Months of imports of goods and services |
4.0 |
4.3 |
4.3 |
4.4 |
4.5 |
|
GDP per capita (U.S. dollars) |
516 |
528 |
525 |
557 |
588 |
|
Sources: |
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1 Primary balance excl. foreign-financed investment and grants. Commitment basis. |
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[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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