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Key Questions on the Republic of Madagascar
Last Updated: December 12, 2024
Read the key questions regarding the IMF arrangements with Madagascar.
Last Updated: December 12, 2024
Read the key questions regarding the IMF arrangements with Madagascar.
In June 2024, the IMF Executive Board approved two new arrangements with Madagascar supported by the Extended Credit Facility (ECF) and the Resilience and Sustainability Facility (RSF). An IMF mission conducted discussions for the first reviews of both arrangements along with the 2024 Article IV consultation during September 30-October 11 in Antananarivo (Press release).
The Malagasy authorities aim to pass a 2025 budget in line with the program’s objectives and to implement the automatic fuel price adjustment mechanism adopted in May 2024 ahead of a Board discussion of the review tentatively in early 2025.
With RSF support, the Malagasy authorities are enhancing Madagascar's climate governance by empowering the Inter-Ministerial Committee for the Environment (CIME) and making public financial management more climate sensitive. This includes adopting a new decree on environmental impact assessments to better address climate adaptation and mitigation in public investment projects.
The implementation of adaptation measures notably in the areas of water management and agriculture and progress in Madagascar’s disaster risk management capabilities will contribute to improve the country’s resilience to climate change.
The RSF arrangement also includes measures aimed at facilitating the production of renewable energy and promoting access to affordable electricity for all and combatting deforestation. Those efforts to protect forest and ecosystems are crucial to support better resilience.
RSF financing provides general budget support for climate policy reforms. It is expected to catalyze more financing from other international partners and the private sector thanks to the adoption of a national climate finance strategy and the creation of an enabling environment for the development of green financial products. The RSF is not a project-financing facility.
Increasing domestic revenue mobilization is a key objective of Madagascar’s program with the IMF. Compared to other Sub-Saharan African countries, Madagascar has indeed a very low tax revenue-to-GDP ratio. More tax revenue is needed to create fiscal space for more public investment in infrastructure and more social spending, and to increase the country’s debt-carrying capacity.
Madagascar's approach to domestic revenue mobilization is a sovereign decision. The IMF and other partners provide technical assistance on tax policy and administration. Recommendations include broadening the tax base by limiting exemptions, increasing tax progressivity, and improving compliance and transparency. The IMF is also supporting the Treasury to expedite VAT credit refunds.
At the approval of the ECF arrangement in June 2024, the Malagasy authorities committed to reducing tax expenditures by MGA 280 billion annually from 2025 to 2027, with the goal to raise the tax revenue-to-GDP ratio by 2.4 percentage point over three years.
An automatic fuel price adjustment mechanism specifies how pump prices are adjusted every month in response to changes in market prices. It provides for predictable and small monthly adjustments, which are preferable to large, unexpected price changes that can catch the population by surprise. The mechanism does not call for an immediate removal of the price subsidy or the implementation of market prices but aims for monthly adjustments to pump prices in line with the changes in the reference (or market) prices, with a maximum monthly change set by the authorities in May 2024 at +/-200 ariary per liter.
The implementation of an automatic fuel price adjustment mechanism has been a commitment by the Malagasy authorities since the 2016 ECF arrangement. Such a mechanism is crucial to: (i) reduce risks to the budget by capping the fuel price subsidy paid by the government; and (ii) make space in the budget for more investment in physical and human capital as envisaged by the General State Policy. It is a key component of the current program and a necessary first step to strengthen fiscal sustainability.
JIRAMA's financial difficulties have led to electricity outages and water shortages. With support from the IMF and the World Bank, JIRAMA's recovery aims to reduce fiscal risks and improve service delivery. Distributing solar kits to poor households will increase electricity access and reduce vulnerability to kerosene price hikes.
The IMF and the World Bank are also supporting the extension of the single social registry to better target social transfers. With the World Food Program's help, the authorities are setting up 10 food reserves to combat food insecurity in the South. The program includes a social spending floor to protect social spending, and the IMF is providing technical assistance to improve budget execution and achieve social spending targets.
The program supports governance reforms through three main initiatives:
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How does the program protect the most vulnerable while also helping to reduce power outages and water shortages?
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