## Frequently Asked Questions on the Republic of Madagascar

## Source details

**Canonical URL:** [Frequently Asked Questions on the Republic of Madagascar](https://www.imf.org/en/countries/mdg/madagascar-qandas)

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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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## References

- [Madagascar and the IMF](https://www.imf.org/en/Countries/MDG)
- [Press release).](https://www.imf.org/en/News/Articles/2024/10/18/pr-24380-madagascar-imf-staff-completes-2024-article-iv-mission)

_Source: https://www.imf.org/en/countries/mdg/madagascar-qandas_