IMF Mission Reaches Staff Level Agreement with Madagascar on an Extended Credit Facility Arrangement

IMF News, February 12, 2021

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Canonical URL: IMF Mission Reaches Staff Level Agreement with Madagascar on an Extended Credit Facility Arrangement

Press Release No. 21/39; February 12, 2021.
IMF mission led by Charalambos Tsangarides held virtual meetings during January 18–February 12 to discuss IMF financial support to Madagascar’s economic reform program.
IMF staff completed policy discussions on a new medium-term program that could be supported by IMF resources of about $320 million under the Extended Credit Facility (ECF).
This agreement is subject to the approval of the IMF Executive Board and confirmation of needed financing assurances.
The mission will not result in a Board discussion; views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

GDP is estimated to have contracted by more than 4 percent in 2020 due to:
- Interruption of tourism.
- Reduced exports, notably in the mining and textile sectors.
- Lower domestic demand.
Fiscal and external impacts in 2020:
- Domestic primary balance turned from a small surplus in 2019 to a deficit of about 3 percent of GDP in 2020.
- Current account deficit widened to 6 percent of GDP.
Two disbursements under the Rapid Credit Facility (RCF) in April and July 2020 (see IMF Press Release No. 20/133 and IMF Press Release No. 20/275) and additional support from other development partners helped close financing needs and support mitigation measures, but substantial fiscal and external financing needs remain over the medium-term.

Program aims:
- Support recovery from the pandemic.
- Preserve macroeconomic stability.
- Advance reform momentum to raise and sustain inclusive growth and reduce poverty.
Key policy action areas supported by the IMF:
- Rebuilding fiscal space to allow for much-needed investment and social spending.
- Resuming and advancing the structural reform and governance agendas.
- Strengthening the monetary policy framework.
IMF financial support is expected to:
- Help stimulate private sector investment.
- Catalyze financial support from development partners.

Fiscal strategy:
- Geared towards increasing domestic revenues.
- Ambitious medium-term revenue mobilization plans to be supported by a comprehensive revenue administration and revenue collection strategy.
Intended fiscal outcomes:
- Free public resources to augment the spending envelope for social sectors, notably health and education.
- Scale up public investment while preserving debt sustainability.
Expenditure composition adjustments:
- Limit transfers, notably to state-owned enterprises.
- Better budgeting of the wage bill and pensions.

Structural reform priorities:
- Resume structural reform agenda.
- Reduce fiscal risks, including exposure to natural disasters exacerbated by climate change (e.g., the severe drought affecting southern Madagascar).
Public enterprise reform:
- Implement operational and financial recovery plan for JIRAMA (public electricity and water company) to make it operationally and financially viable and reduce the need for government transfers.
Price and subsidy policy:
- Maintain cost recovery prices for fuel to avoid accumulation of new liabilities towards fuel distributors.
Governance and anti-corruption:
- Improve governance with effective enforcement of the anti-corruption legal framework.
- Ensure appropriate human and financial resources for institutions in charge of the fight against corruption.
- Strengthen public financial management, including fiscal transparency.
- Further progress needed in disclosing information on the use of funds to mitigate the impact of the Covid-19 pandemic, in line with government commitments.

Monetary and financial sector reforms:
- Strengthen the monetary policy framework to transition to interest targeting.
- Increase the efficiency of the foreign exchange market.
- Strengthen financial sector stability and development.
- Favor financial inclusion.

Mission engagements:
- Met with Prime Minister Christian Ntsay; Minister of Economy and Finance Richard Randriamandrato; Central Bank of Madagascar Governor Henri Rabarijohn; other senior officials; development partners; the private sector; and civil society organizations representatives.
Next steps:
- Agreement subject to IMF Executive Board approval and confirmation of needed financing assurances.

Press Release No. 21/39 — February 12, 2021.