Washington, DC: A team from the
International Monetary Fund (IMF) led by Frederic Lambert held discussions
in Antananarivo during May 3 – 12, 2023 on the fourth review of the
arrangement with Madagascar supported by the
Extended Credit Facility
(ECF) approved in March 2021.
At the end of the mission, Mr. Lambert issued the following statement:
“The IMF team and Malagasy authorities have reached a staff-level agreement
on the fourth review of Madagascar’s economic program under the Extended
Credit Facility. The agreement is subject to approval by the IMF Management
and Executive Board, with Board consideration expected in June. The
review’s completion would allow the disbursement of SDR 24.44 million
(about US$32 million) to Madagascar to cover external and fiscal financing
needs.
“The 40-month arrangement under the ECF is supporting Madagascar’s recovery
from the pandemic and providing financing to preserve priority spending.
Through capacity development and policy advice, the arrangement aims to
assist the authorities with their efforts to strengthen economic stability
and reduce poverty.
“Following a 5.7 percent rebound in 2021, the growth momentum is expected
to slow to 4.0 percent in 2022 and 2023, in part due to weather-related
disruptions, difficulties in the vanilla sector, and an uncertain world
economic outlook. Inflation pressures continue to build up and the
depreciation of the ariary relative to the U.S. dollar accelerated in 2022,
despite interventions by the central bank (BFM). The domestic primary
deficit reached 2.8 percent of GDP in 2022 (compared to 1.4 percent in the
revised 2022 budget), mostly due to the non-payment of oil customs duties
and taxes by oil distributors and lower domestic tax collection.
“Program performance over the second semester of 2022 has remained mixed
and three out of five quantitative macroeconomic objectives were met. The
floor on the central bank’s net foreign assets was missed by a small
margin. The QPC on the domestic primary balance was breached by a wider
margin at end-December because of low oil customs tax collection and
despite the authorities’ efforts to contain spending. The balance should
improve in 2023 following the conclusion of an agreement with oil
distributors in late December 2022 on the settlement of cross liabilities
with the government.
“Progress has continued on the authorities’ structural reform agenda. With
IMF technical assistance, the authorities have finalized and published the
public investment manual. The follow-up report by the Cour des Comptes on
the implementation of recommendations following the audits on COVID
spending was released on April 3rd, and the necessary changes to the public
procurement legal framework to allow for the collection and publication of
UBO information have been adopted. The authorities also finalized and
submitted to Parliament a new draft of the revised mining code, in line
with World Bank and IMF recommendations.
“To anchor economic stability and foster stronger, sustainable, and
inclusive growth, the authorities aim to reduce fiscal risks, improve
fiscal transparency and governance, strengthen social safety nets, and
enhance the monetary policy framework. To that end, the authorities are
committed to return to budget discipline to increase the necessary fiscal
space to finance more growth-enhancing spending. They agreed to reconsider
in the next budget law some distortionary tax measures introduced in the
2023 budget, such as the exit tax on exports of non-renewable minerals, and
to reduce deadlines for settling tax disputes. The authorities will also
seek to further improve the execution of social and investment spending,
and respect budget annuality by systematically canceling unused credits at
the end of each fiscal year, while better controlling state-owned
enterprises’ management to reduce related fiscal risks.
“The turnaround of the public electricity and water utility JIRAMA remains
a priority to reduce its cost for the budget and improve service provision.
The authorities committed to strengthen monitoring and transparency of
JIRAMA’s financial situation. They reiterated their determination to
implement an automatic fuel price adjustment mechanism from the first
quarter of 2024 along with enhanced social safety nets. The authorities
continue the implementation of the anti-corruption strategy and will
strengthen the legal framework to allow for adequate public oversight of
public policies.
“In the context of high inflation, monetary policy must focus on price
stability. The central bank continues its transition to a new monetary
policy framework of interest rate targeting. The success of this transition
requires a strengthening of BFM's communication in order to better anchor
economic agents’ expectations, and a reaffirmation of its independence.
“
The mission was also an opportunity to discuss Madagascar’s request for
access under the IMF’s new Resilience and Sustainability Facility and
lay out the steps ahead.
Background work to assess the impact of climate-related vulnerabilities
started with the Climate Macroeconomic Assessment Program whose report was
published in November 2022 and will continue in the coming months.
“The mission met with President Rajoelina, Prime Minister Ntsay, Minister
of Economy and Finance Rindra Hasimbelo Rabarinirinarison, Minister of
Energy and Hydrocarbons Soloniaina Rasamoelina Andriamanampisoa, Central
Bank of Madagascar Governor Aivo Andrianarivelo, senior officials,
development partners, and private sector representatives. The IMF team
would like to thank the Malagasy authorities for their time, flexibility,
and very constructive discussions.”
