Press Release No. 14/287

Press Release: IMF Executive Board Approves US$47.1 Million Disbursement Under the Rapid Credit Facility for Madagascar

June 18, 2014

The Executive Board of the International Monetary Fund (IMF) today approved emergency financial assistance under the Rapid Credit Facility (RCF) in the equivalent of SDR 30.55 million (about US$47.1 million) for Madagascar to enable the authorities meet their urgent balance of payment needs.

The IMF financial assistance is in support of a set of economic and structural policies and measures the authorities plan to implement in order to restore macroeconomic stability, provide a favorable environment in support of inclusive growth and poverty reduction, and to strengthen the capacity of the Malagasy government. The Executive Board’s approval of the RCF disbursement will also enable the authorities to engage in discussions with development partners’ regarding further assistance. The Board’s approval enables the immediate disbursement of the full amount, which is equivalent to 25 percent of Madagascar’s quota in the IMF.

After several years of reasonably strong economic growth, output contracted in 2009 and remained weak over several years, given a high level of political and economic uncertainty that impacted investment decisions. Over this period, Madagascar also experienced dwindling financial support from development partners and enduring fiscal deficits that became progressively more difficult to finance. Supported by large mining projects that are reaching commercial production, recovering rice production, and a less uncertain political environment, growth is projected to increase to 3 percent in 2014.

The RCF provides immediate financial assistance with limited conditionality to low-income countries with an urgent balance of payments need. In this context, the economic policies of a member receiving RCF financing are expected to address the underlying balance of payments difficulties and support policy objectives including macroeconomic stability and poverty reduction. Financing under the RCF carries zero interest (until end 2014), has a grace period of 5.5 years, and a final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities every two years.

Following the Executive Board discussion on Madagascar, Mr. Min Zhu, Deputy Managing Director and Acting Chair, said:

“Madagascar’s re-engagement with the Fund marks the end of a difficult period of economic disruption in which economic activity slowed, investment stagnated and social and governance indicators weakened. Last year’s elections, and subsequent widespread recognition of the new government by the international community, are helping to set the stage for a revival of the economy, but large balance of payments and fiscal gaps need to be filled in order not to jeopardize the economic recovery and to begin to address social needs.

“With support under the Fund’s Rapid Credit Facility, the government intends to implement macroeconomic policies and structural reforms to correct macroeconomic imbalances, shore up growth and begin tackling high rates of poverty. Key challenges for fiscal policy in 2014 include easing disorderly spending compression, increasing outlays on infrastructure and essential government services, and developing a multi-year strategy to clear domestic budgetary arrears. Steps to boost fiscal revenues through improved tax and customs revenue administration and a broadened tax base, phased elimination of general fuel subsidies, and elimination of low-priority expenditures are key to creating room for more productive infrastructure and better targeted social spending. Exchange rate flexibility will be an important element in safeguarding and facilitating a steady rebuilding of foreign exchange reserves.

“Revitalizing structural reforms is a priority for fostering sustained growth and lasting reductions in poverty, with key areas being: public financial management, domestic revenue mobilization, and enhancing financial inclusion and deepening. Governance improvements will require building stronger institutions, enabling a level playing field for the private sector, creating incentives that reinforce proper conduct, and providing adequate resources for the control and audit of public entities.

“The Fund will continue to play a key role in facilitating international efforts in the provision of financial and technical assistance to support the government’s reform strategy.”