IMF Staff Completes 2019 Article IV and Program Review Mission to Madagascar
IMF News, November 25, 2019
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- IMF Staff Completes 2019 Article IV and Program Review Mission to Madagascar
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Bibliographic details
- Published: November 25, 2019
Mission overview
- Press Release No. 19/430; mission visited Antananarivo from November 11 to 25.
- Mission led by Charalambos Tsangarides, mission chief for Madagascar.
- Purpose: conduct discussions for the 2019 Article IV consultation and the sixth and final review of Madagascar’s economic reform program supported by the Extended Credit Facility (ECF) arrangement.
- Staff-level agreement reached for the sixth program review, subject to approval by IMF management and the Executive Board.
- Consideration by the IMF’s Executive Board is expected in January 2020.
- The views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
Macroeconomic outlook and recent performance
- Economic growth expectations:
- Quote: “Economic growth is expected to remain close to 5 percent this year, reflecting catching- up of private sector activity and public spending.”
- For 2019, growth is expected to improve to 4.8 percent.
- For 2020, real growth is expected to reach 5.2 percent.
- Inflation and external sector:
- Inflation is expected to be contained to 6 percent by end-year.
- Current account is expected to record a small deficit in 2019 in a context of decreasing vanilla prices.
- Growth drivers cited: dynamic credit conditions, positive developments in mining, transportation, and services; for 2020, increased public spending on infrastructure, health and education, and increasing private sector activity especially in tourism, other services, and light manufacturing.
Program implementation and performance under the ECF
- The implementation of the authorities’ program supported by the ECF arrangement has remained satisfactory.
- Timeline: the ECF-supported program expires in early 2020.
- Performance targets:
- Authorities met all the June 2019 performance criteria.
- Authorities met the indicative target on tax revenue collection.
- The indicative target on domestically financed priority social spending was missed by a significant margin; the year-end objective will not be met despite recent improvements in execution.
- Central bank actions: continued reduction of exchange rate volatility, support for gradual accumulation of reserves, and liquidity management through timely interventions contributing to macroeconomic stability.
- Structural reforms: progress made but at a slower pace than envisaged.
- Fuel pricing and liabilities: despite renegotiation of distribution margins on fuel prices, a remaining gap between reference and pump prices led to continued accumulation of small liabilities to distributors.
Key policy recommendations and staff advice
- Public investment and social spending:
- Authorities’ plan to increase public investment and social spending requires continued efforts to raise revenue and contain transfers to the fuel and electricity sectors.
- Supporting economic activity will require the strict prioritization and timely implementation of growth-enhancing investment projects.
- Reducing poverty will necessitate strong public spending execution in the health and education sectors, as well as containing lower priority public spending such as subsidies to fuel and electricity operators.
- Revenue mobilization and tax policy:
- Meeting ambitious tax revenue targets will critically depend on stepping up collection efforts, cross-checking information between customs and domestic tax administrations, and revising tax expenditures and exemption regimes.
- Fuel and electricity sector reforms:
- Staff underscored the need to adopt a pricing mechanism that aligns pump prices with world price developments and to settle existing liabilities with distributors to avoid budget costs.
- Such a mechanism should be implemented along with targeted social measures to protect the poor from the impact of potential future price adjustments.
- JIRAMA (public utility) reforms:
- To improve the operational and financial situation of JIRAMA and ensure it does not weigh on the budget, an encompassing strategy to raise revenues and improve governance is needed.
- Staff support ongoing cost-cutting measures, including the renegotiation of contracts with electricity and fuel suppliers, and the audit of the company’s arrears.
- Governance and anti-corruption:
- Staff encouraged continued improvements in governance, including stepping up the fight against corruption to strengthen the business climate and attract private investment.
- Staff commended the authorities for adopting an ordinance on illicit asset recovery and urged its operationalization through the speedy adoption of the implementation decree.
- Financial sector legislation:
- To consolidate and deepen significant structural reforms undertaken at the central bank, staff welcomed the authorities’ plans to submit the new banking law and the financial stability law to Parliament.
Meetings and acknowledgements
- The mission met with: President Andry Rajoelina; Prime Minister Christian Ntsay; Minister of Economy and Finance Richard Randriamandrato; Interim Minister of Energy, Water, and Hydrocarbons Christian Ramarolahy; outgoing Central Bank of Madagascar Governor Alain Rasolofondraibe and new Governor Henri Rabarijohn; senior officials, development partners, and representatives of the private sector and civil society.
- The mission thanked the Malagasy authorities for their strong cooperation and constructive discussions.
IMF staff press release, November 25, 2019.