IMF and Madagascar Reach Staff-Level Agreement on the First Review of the Extended Credit Facility

IMF News, October 26, 2021

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IMF team and the Malagasy authorities reached a staff-level agreement on the first review of Madagascar’s economic reform program under the Extended Credit Facility (ECF).
The agreement is subject to approval by the IMF Executive Board, which is expected to consider the review in December.
Completion of the review would allow the disbursement of SDR 48.88 million (about US$69 million) to Madagascar to cover external and fiscal financing needs.
The arrangement is a 40-month arrangement under the ECF.

“Following a 7.1 percent contraction of GDP in 2020, the Malagasy economy has been gradually recovering.”
Growth is expected to reach 3.5 percent in 2021, supported by the mining, textile, and service sectors.
The pandemic has increased poverty and the ongoing famine in the South is identified as a major source of concern, “requiring strong policy action to boost social spending.”
Tensions on food prices have re-emerged, “calling for prompt policy action to support the poor.”

The domestic primary deficit objective of 2.5 percent of GDP in 2021 is expected to be achieved.
Public debt will remain contained at around 50 percent of GDP.
Authorities are determined to raise more fiscal revenue to pay for higher social expenditures and public investment, while preserving macroeconomic stability.
Program performance over the first semester of 2021 was broadly satisfactory and most quantitative macroeconomic objectives were met, but the authorities must “redouble efforts to mobilize tax revenue and achieve their social spending targets for 2021.”

Authorities intend to increase fiscal revenue by:
- stepping up the fight against fraud,
- continuing reforms of the tax and customs administrations,
- reforming mining taxation in keeping with best practices,
- introducing tax reforms geared towards strengthening social equity.
Costly tax exemption regimes “will eventually need to be revisited.”
Authorities will seek to enhance the composition of expenditures by:
- limiting transfers to state-owned enterprises,
- containing the wage bill and pension costs,
- improving the execution of social and investment spending.

Structural reforms are considered key to reducing fiscal risks.
Planned measures include:
- restructuring of the public electricity and water utility JIRAMA to bolster its financial position and allow for better service,
- strict containment of public money injection into Air Madagascar until a viable business plan is finalized and approved,
- preparing a plan for implementation of an automatic fuel pricing mechanism along with enhanced social safety nets,
- accelerating implementation of the anti-corruption legal framework, notably by setting up the agency for illicit asset recovery and deploying anti-corruption courts across the territory.
The authorities are committed to increase fiscal transparency and strengthen governance.
IMF technical support will continue to help the Ministry of Economy and Finance strengthen public financial management and budget transparency.
The IMF looks forward to the results of the third-party audit of COVID-19 related expenditures later this year.

“The central bank will continue the transition to a new monetary policy framework of interest rate targeting and its efforts to lower the cost of credit and boost financial inclusion.”
Further reforms may help bolster the efficiency of the foreign exchange market.
“The project of including gold in foreign exchange reserves will be implemented according to international best practices.”

The 40-month ECF arrangement is supporting Madagascar’s recovery from the pandemic and providing financing to preserve priority spending.
Through capacity development and policy advice, the program aims to assist the authorities with their efforts to raise and sustain growth and reduce poverty.
The IMF will continue to support capacity development and policy advice, including public financial management and budget transparency work.

The IMF mission was led by Frederic Lambert and held virtual discussions during September 22 – October 25, 2021.
The mission met with Minister of Economy and Finance Rindra Hasimbelo Rabarinirinarison; Minister of Justice Herilaza Imbiki; Minister of Energy and Hydrocarbons Andry Ramaroson; Minister of Public Health Zely Arivelo Randriamanantany; Central Bank of Madagascar Governor Henri Rabarijohn; senior officials, development partners, and private sector representatives.
The mission issued a statement noting that views expressed are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

IMF press release — October 26, 2021.