IMF Executive Board Completes First Review under the ECF Arrangement, Increases Access, Approves US$86 Million Disbursement, and Concludes 2017 Article IV Consultation with Madagascar
IMF News, June 28, 2017
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- Published: June 28, 2017
Key decisions and program actions
- On June 28, 2017, the Executive Board completed the first review of Madagascar’s economic performance under an Extended Credit Facility (ECF) arrangement.
- The Board approved augmentation of access under the program for SDR 30.55 million (about US$42.39 million), equal to 12.5 percent of the country’s quota.
- Completion of the review enabled the immediate disbursement (including the augmentation) of SDR 61.978 million (about US$86 million).
- Total disbursements under the current arrangement now total SDR 93.41 million (about US$129.61 million).
- The Board approved the authorities’ request for waiver of the nonobservance of the continuous criterion on accumulation of new external payment arrears and modification of the end-June 2017 performance criterion on the primary domestic balance.
- The ECF arrangement for Madagascar was approved on July 27, 2016 (Press Release No. 16/370).
- The Executive Board also completed the 2017 Article IV Consultation with Madagascar.
Recent economic developments (2016–early 2017)
- Economic growth reached 4.2 percent in 2016—the highest level since 2008—driven by public investment, increasing textile exports, and accelerating activity in agroindustry.
- Inflation was contained at 7.0 percent at end-2016.
- Fiscal revenue exceeded targets in 2016 and the execution of the 2016 budget was in line with government objectives, though JIRAMA’s financial performance weakened toward year-end.
- The external position strengthened significantly, aided by a positive shock to vanilla export prices and strong growth in manufacturing exports.
Shocks, fiscal impact, and 2017 developments
- Madagascar suffered a serious drought and a major cyclone (the worst in 13 years) in late 2016 and early 2017.
- The cyclone imposed total economic costs (damage plus lost production) estimated at about $400 million (4 percent of GDP).
- The drought reduced the supply of cheap hydropower, increasing JIRAMA’s needs for government transfers.
- Launching a planned strategic partnership for Air Madagascar will require a costly one-off recapitalization to offset past losses, though the partnership is expected to strengthen operations over the medium term.
- Budget execution encountered challenges in 2017; authorities undertook measures including higher revenue targets for 2017 and reductions in lower-priority spending.
Medium‑term outlook and projections
- Growth is projected to accelerate, driven by investment scaling up, tourism, garments and other light manufacturing, mining, and productivity gains in agriculture.
- Average inflation is forecast to rise temporarily to about 8.5 percent in 2017, and then to fall back gradually to around 5 percent over the medium-term.
- Imports should increase with the scaling up of public investment and reconstruction efforts.
- Rising current account deficits are expected to be financed in a sustainable manner thanks to concessional official sector loans and foreign direct investment.
Executive Directors’ assessment and policy recommendations
- Directors welcomed Madagascar’s strong performance under the Fund‑supported program despite recent weather‑related shocks, while noting downside risks to the favorable medium‑term outlook.
- Directors endorsed the authorities’ strategy to promote more inclusive and sustained growth by scaling up investment in infrastructure and human capital, raising social spending, and advancing structural reforms; they stressed the strategy’s success hinges on building investment management capacity and responding promptly to signs of overheating to safeguard macroeconomic stability and debt sustainability.
- Directors concurred that additional fiscal space is temporarily needed in 2017 given the costs of recent shocks and financial weaknesses of state‑owned enterprises; they welcomed mitigation measures and stressed the need to address deep‑rooted problems at JIRAMA and Air Madagascar.
- On governance, Directors welcomed strong emphasis on improving governance and fighting corruption, recommended strengthening implementation and enforcement of the legal framework (including with a new anti‑money laundering law), and called for enhancing judicial independence.
- Directors urged further improvements in public financial management, particularly measures to enhance transparency.
- Directors considered that the central bank’s conduct of monetary policy has been appropriate and supported continued upgrading of the monetary policy operational framework.
- Directors commended efforts to develop the financial sector and reinforce its stability, encouraging implementation of the 2016 Financial Sector Assessment Program recommendations, including enhancing the legal framework and supervisory function, and improving financial inclusion.
Press Release No. 17/254 (June 28, 2017).