Frequently Asked Questions on the Republic of Madagascar
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Overview of IMF arrangements and recent engagement
- 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.
- Last Updated: December 12, 2024.
Resilience and Sustainability Facility (RSF): objectives and measures
- Primary aims:
- Bolster climate governance and mainstream Madagascar's climate agenda into public financial and investment management processes.
- Enhance adaptation to climate change and resilience against natural disasters.
- Curb the increase of greenhouse gas emissions.
- Reinforce the protection of forests and biodiversity.
- Mobilize climate finance.
- Operational focus and actions:
- Empower the Inter-Ministerial Committee for the Environment (CIME).
- Make public financial management more climate sensitive, including adopting a new decree on environmental impact assessments to better address climate adaptation and mitigation in public investment projects.
- Implement adaptation measures notably in water management and agriculture.
- Advance disaster risk management capabilities.
- Facilitate production of renewable energy and promote access to affordable electricity for all.
- Combat deforestation to support resilience.
- Financing and catalyzation:
- RSF financing provides general budget support for climate policy reforms.
- Expected to catalyze more financing from other international partners and the private sector through adoption of a national climate finance strategy and creation of an enabling environment for green financial products.
- The RSF is not a project-financing facility.
Domestic revenue mobilization (DRM) and fiscal objectives
- Context:
- Madagascar has a very low tax revenue-to-GDP ratio compared to other Sub-Saharan African countries.
- Increasing domestic revenue mobilization is a key objective of Madagascar’s program with the IMF to create fiscal space for public investment, social spending, and to increase debt-carrying capacity.
- IMF role and recommendations:
- 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 supporting the Treasury to expedite VAT credit refunds.
- Specific commitments:
- 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.
- The goal is to raise the tax revenue-to-GDP ratio by 2.4 percentage point over three years.
Automatic fuel price adjustment mechanism
- Design and intent:
- The mechanism specifies how pump prices are adjusted every month in response to changes in market prices.
- Provides for predictable and small monthly adjustments rather than large, unexpected changes.
- Does not call for immediate removal of the price subsidy or implementation of market prices; aims for monthly adjustments to pump prices in line with changes in the reference (or market) prices.
- Parameters:
- Maximum monthly change set by the authorities in May 2024 at +/-200 ariary per liter.
- Rationale and history:
- Implementation of an automatic fuel price adjustment mechanism has been a commitment by the Malagasy authorities since the 2016 ECF arrangement.
- Considered 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.
- Identified as a key component of the current program and a necessary first step to strengthen fiscal sustainability.
Public utilities, social protection, and food security measures
- JIRAMA (electricity and water utility):
- 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 is intended to increase electricity access and reduce vulnerability to kerosene price hikes.
- Social protection and food security:
- IMF and World Bank support 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.
- The IMF is providing technical assistance to improve budget execution and achieve social spending targets.
Governance and public financial management reforms
- Three main initiatives supported by the program:
- National Anti-Corruption Strategy:
- Support for preparation and adoption of a new anti-corruption strategy.
- The IMF is conducting a Governance Diagnostic Assessment, expected to be finalized in 2025; the authorities have committed to publishing the report.
- Fiscal Transparency:
- Efforts include increasing transparency in public procurement contracts, including publishing information on the beneficial owners of these contracts.
- Public Financial Management Reforms:
- Aim to improve budget execution procedures.
- With IMF technical support, authorities are preparing annual spending commitment plans for all ministries.
- A new cash flow management law is being prepared for adoption by May 2025 to facilitate supplier payments and reduce government arrears, including those related to VAT refunds.
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