## IMF Staff Reviews Progress of Madagascar's Economic Program

_IMF News, February 15, 2019_

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## Bibliographic details
- Published: February 15, 2019

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### Mission and context
- Mission led by Marshall Mills, Mission Chief for Madagascar, visited Antananarivo on February 11-15, 2019.
- Visit covered the fourth review of Madagascar’s economic reform program supported by the IMF’s Extended Credit Facility (ECF).[1]
- End-of-mission statement: discussions “made good progress and are continuing, with a view to bringing the review to the Executive Board of the IMF for consideration in the coming weeks, as anticipated.”

### Recent economic developments and outlook
- Economic growth is expected to exceed 5 percent in 2018 and 2019, reflecting in particular higher private sector activity.
- Growth drivers in 2018:
  - Rebound in agricultural production.
  - Private sector activity notably in construction, telecommunication and transport services.
- External sector:
  - Strengthened external position thanks to strong vanilla and mining exports despite higher oil prices.
- Inflation:
  - After peaking in late 2017, inflation fell steadily to around 6 percent at end-December.
- Prospects for 2019:
  - Growth again expected to exceed 5 percent.
  - Continued stability bolstered by improving political stability and the authorities’ commitment to economic reforms.
- Policy emphasis: “Sustained and inclusive growth remains critical to raising living standards for the population.”

### Program implementation and fiscal developments
- Overall assessment: The implementation of the ECF-supported program remained generally satisfactory through end-year, except for some weakness in revenue collection later in the year.
- Performance and reforms:
  - The Malagasy authorities met all of the program’s performance criteria for the first half of the year.
  - Progress on key structural reforms, such as opening the first anti-corruption court in Antananarivo.
- Second-half developments:
  - Budget execution complicated by a shortfall in domestic revenue related to the electoral period.
  - The small revenue shortfall came after previous impressive progress on revenue under the program.
  - As a result, the overall primary balance deteriorated slightly despite spending discipline.
- Central bank: Successfully accumulated foreign exchange reserves over the year, reaching record levels.
- Structural reform pace: Progress continued but at slower pace than anticipated.
- Energy sector fiscal risks:
  - Delays in adjusting fuel pump prices led to significant, unfunded liabilities to distributors in a context of social pressures and high world oil prices.

### Policy recommendations and priorities
- Revenue mobilization:
  - Plans to boost social and investment spending depend critically on continuing to raise tax revenue under the program.
  - Key tax administration reforms recommended: stronger revenue accounting procedures and safeguarding revenue from losses due to tax expenditures and exemption regimes.
- Spending and debt management:
  - Strict prioritization of investment projects and maintaining robust debt sustainability are essential.
  - Gradually reduce lower priority public spending—particularly subsidies in the fuel and electricity sectors—to boost pro-growth spending.
- Fuel pricing and liabilities:
  - Staff urged the authorities to adopt a fuel pricing mechanism that keeps prices in line with costs.
  - Adopt a plan to eliminate the large existing liabilities to fuel distributors.
  - Develop targeted social measures to protect the poor from the impact of future price adjustments.
- Public utility JIRAMA:
  - Continue bolstering the financial situation of JIRAMA by raising revenue, reducing costs, and improving governance.
- Governance and anti-corruption:
  - Continue strengthening governance and stepping up the fight against corruption.
  - Adoption of the draft law on illicit asset recovery has become a priority to complete the legal framework to fight corruption.

### Meetings and acknowledgements
- Mission met with President Andry Rajoelina; Minister of Economy and Finance Richard Randriamandrato; Ministry of Energy, Water and Hydrocarbons Vonjy Andriamanga; Central Bank of Madagascar Governor Alain Rasolofondraibe; senior officials; and development partners.
- “The mission would like to thank 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.

*Press Release No. 19/46 — IMF Staff Reviews Progress of Madagascar's Economic Program (February 15, 2019).*

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## References

- [Republic of Madagascar and the IMF](http://www.imf.org/external/country/MDG/index.htm)
- [The IMF and Good Governance -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/the-imf-and-good-governance)
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_Source: https://www.imf.org/en/news/articles/2019/02/15/pr1946-madagascar-imf-staff-reviews-progress-of-economic-program_