A team from the International Monetary Fund (IMF) led by Marshall Mills,
Mission Chief for Madagascar, visited Antananarivo from March14–28, 2018 to
hold discussions on the third review of Madagascar’s economic reform
program supported by the IMF’s three-year Extended Credit Facility (ECF).
[1] Good progress was made during the discussions, and they will continue in
the coming weeks. Following conclusion of ongoing discussions, the IMF
Executive Board could consider the third ECF review in June 2018.
At the end of the mission, Mr. Mills issued the following statement:
“Madagascar’s economic conditions remain favorable, with sustained growth
and macroeconomic stability in spite of some shocks. Economic growth was
estimated at 4.2 percent in 2017, despite the effects of a major cyclone
and drought on agriculture and hydropower, as well as an outbreak of the
plague on tourism. Growing export revenues from vanilla—boosted by high
prices—and light manufactured goods led to a strong currency and created
room for a substantial accumulation of foreign exchange reserves, which
exceeded 4 months of imports at end-2017. The central bank has
appropriately managed an associated increase in bank liquidity. Growth is
projected to accelerate to 5.0 percent in 2018, led by rising public
investment, continued growth in manufacturing, a rebound in agriculture and
a recovery in the mining sector. Inflation is expected to decline gradually
to below 8 percent by end-2018, after it rose slightly to 9 percent in 2017
due to weather-related shocks.
“Performance under the ECF-supported program remains broadly satisfactory.
Based on current data, all quantitative performance targets for
end-December were met and for most with a large margin. In particular,
reserve accumulation and the fiscal balance continued to exceed program
targets. Implementation of structural reforms in the program generally
advanced as planned, except for fuel pricing and a minor delay in the new
statistics law.
“Staff urged the authorities to maintain the momentum of the program to
date. In particular, shifting from less productive public spending to
investment and social spending is a core program objective. In the context
of discussions between the authorities and the fuel distributors on a new
price structure, there were delays in adjusting pump prices to rising world
prices, which led to the authorities accumulating liabilities to fuel
distributors. Staff recommended that the authorities adjust pump prices
gradually to align them with world market prices and to eliminate the
liabilities by year end.
“Financial difficulties at the state-owned public utility JIRAMA continue
to weigh heavily on public finances despite the launch of an ambitious plan
to restructure the company. Large losses last year exacerbated by the
drought exceeded budgeted transfers, putting additional pressure on public
resources. Under the authorities’ current plans, JIRAMA’s transfer needs
are also expected to exceed budgeted transfers this year, as higher world
fuel prices and service on the debt accumulated in recent years offset the
impact of favorable rainfall on hydropower production. Staff urged the
authorities to implement measures to limit these operational losses and
JIRAMA’s need for government transfers. In addition, higher than expected
needs for the government’s wage bill and pensions will also require
increased public resources.
“Discussions also addressed priority medium-term structural reforms in
monetary policy, financial sector development, and public investment. The
BFM continues to develop its operational framework for monetary operations,
through a better focus on managing excess bank liquidity and strengthening
the legislative framework. The central bank and the ministry of finance and
budget also plan to update the legal and regulatory framework for the
operation of the foreign exchange market. Building on the Financial System
Stability Assessment (FSSA), the authorities will update the legal and
regulatory supervisory framework, move towards risk-based prudential
supervision, and submit a revised banking law by year end. They are also
working to speed up the execution of investment spending that is central to
the program’s growth strategy. The recently adopted investment management
strategy should improve implementation monitoring and ensure the
consistency of new investment projects with the national development
strategy.
On governance, staff stressed the vital importance of enacting the asset
recovery and Anti-Money Laundering laws submitted to parliament, to fight
corruption and maintain good banking relationships internationally. It also
remains important to follow through with implementation of the strengthened
anti-corruption legislation, asset declaration framework, and improvements
to public financial management.
“The mission met with President Hery Rajaonarimampianina, Minister of
Finance and Budget Vonintsalama Andriambololona, Minister of Economy and
Plan Herilanto Raveloharison, Central Bank of Madagascar Governor Alain
Rasolofondraibe, senior officials, as well as private sector
representatives, and development partners.
“The mission thanks the Malagasy authorities for their strong cooperation
and the constructive discussions.”
[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
). Augmentation of access was granted under the program for SDR
30.55 million (about US$42.39 million or 12.5 percent of the
country’s quota) following the IMF Executive Board meeting on June
28, 2017 (see
Country Report No. 17/223
).
