A team from the International Monetary Fund (IMF) led by Marshall Mills,
Mission Chief for Madagascar, visited Antananarivo from March 9–22, 2017 to
conduct the 2017 Article IV Consultation and hold discussions on the first
review of Madagascar’s economic reform program supported by the IMF’s
three-year Extended Credit Facility (ECF).
[1]
Following conclusion of ongoing discussions, the IMF Executive Board could
consider the first ECF review and the 2017 Article IV Consultation in June
2017.
At the end of the mission, Mr. Marshall Mills issued the following
statement:
“Madagascar’s recent economic performance has been encouraging, with GDP
growth reaching 4.2 percent in 2016. The macroeconomic outlook in the near
term is generally positive, aided by growth in public investment, continued
strength in export processing zones, and a recovery in mining. This outlook
is diminished by a drought in the central plateau and the cyclone that hit
the northeast. The full impact is not yet clear, and the Fund is continuing
discussions with the authorities and development partners to help identify
the scale of the damage and financing to address urgent needs. Growth is
currently projected to reach 4.3 percent in 2017, while inflation is
expected to remain contained at 7.7 percent. Positive external developments
prior to the cyclone enabled the central bank to boost reserves
significantly, reaching USD 1.12 billion at end-February 2017.
“The authorities have achieved significant progress under the ECF-supported
program, although challenges remain. All quantitative performance criteria
for end-December 2016 were met, supported by prudent monetary policy and
improving revenue collection that surpassed targets. The government also
implemented the measures envisioned in most of the program’s structural
benchmarks, although some with a delay.
“Difficulties at state-owned enterprises, especially JIRAMA and Air
Madagascar, continue to weigh on the budget and the economy. The
difficulties of the public utility JIRAMA, aggravated by drought, will
require additional transfers of around 0.5 percent of GDP. However, new
management is developing a business plan to restructure operations, which
will reduce costs, improve revenue, and contain transfer needs. Air
Madagascar is negotiating a strategic partnership, which is expected to
involve a substantial, one-off transfer from the government to offset past
losses. Staff and the authorities are continuing discussions on
recapitalizing Air Madagascar, including obtaining financial assurances,
and on restructuring JIRAMA.
“In the medium-term, the authorities aim to break Madagascar’s pattern of
low growth by scaling up priority spending and accelerating structural
reform. Drawing on substantial pledges of grants and concessional loans at
the donor conference of December 2016, the authorities intend to boost
investment and social spending steadily from 2017 to 2019, while
maintaining a moderate risk of debt distress. To ensure the success of the
scaling up and to minimize risks, the authorities are enhancing their
investment management and monitoring capacity. Revised frameworks to
encourage private investment are also under consideration for mining,
petroleum, and special economic zones. Staff stressed the need to
incentivize private investment efficiently, without undermining the
government’s key objectives of enhancing revenue and containing fiscal
risks.
“The authorities continue to make progress in strengthening the legal and
institutional framework for enhancing governance and fighting corruption.
The government is committed to submitting draft laws on asset recovery,
international cooperation, and combating anti-money laundering to the next
parliamentary session. It remains important to follow through with
implementation.
“The central bank has successfully maintained stable inflation while
pursuing reforms to improve monetary policy effectiveness and financial
stability. Enhancing the effectiveness of policy instruments, which
requires an efficient interbank and repo markets, is a priority. Reforms
are being put in place to deepen financial intermediation and inclusion,
such as the new law on electronic money. Revisions under preparation to
banking and microfinance laws will reinforce stability, as will the ongoing
audit of two government-owned non-bank financial institutions.
“The mission met with President Hery Rajaonarimampianina, Speaker of the
National Assembly Jean Max Rakotomamonjy, Prime Minister Olivier
Solonandrasana, Minister of Finance and Budget Gervais Rakotoarimanana,
Minister of Economy and Planning and interim Minister of Energy and
Hydrocarbons Herilanto Raveloharison, Central Bank of Madagascar Governor
Alain Rasolofondraibe, Commissioner General Léon Rajaobelina, and other
members of parliament, senior officials, as well as private sector
representatives, civil society and development partners.
“The mission takes this opportunity to thank the Malagasy authorities for
their strong cooperation and the constructive discussions that took place.”
[1]
The ECF is a lending arrangement that provides sustained program
engagement over the medium to long term in case of protracted
balance of payments problems. The arrangement for Madagascar in the
amount of SDR 220 million (about US$304.7 million or 180 percent of
quota) was approved by the IMF Executive Board on July 28, 2016
(see
Press Release No. 16/
370).
