Press Release No. 15/431

Press Release: Madagascar and IMF Mission Reach Staff-Level Agreement on Financial Assistance Under the Rapid Credit Facility and a Staff-Monitored Program

September 22, 2015

An International Monetary Fund (IMF) team, headed by Marshall Mills, visited Antananarivo, Madagascar, from September 9–23, 2015 and reached staff-level agreement with the Malagasy authorities on a reform program that could be supported by the IMF’s Rapid Credit Facility (RCF)¹, coupled with a 6-month Staff-Monitored Program². Subject to IMF management approval, the staff-level agreement on the RCF disbursement is expected to be submitted to the IMF Executive Board for its consideration in November 2015. Under the RCF arrangement, Madagascar would be able to access up to SDR 30.55 million (about US$47.4 million).

The team met with President Hery Rajaonarimampianina, Prime Minister Jean Ravelonarivo, Minister of Finance and Budget Gervais Rakotoarimanana, Minister of Economy and Planning Herilanto Raveloharison, Central Bank of Madagascar Governor Alain Rasolofondraibe, the Economic Advisor to the President Léon Rajaobelina, and other senior government officials as well as private sector representatives and development partners.

At the end of the mission, Mr. Mills issued the following statement:

“The Malagasy authorities and the IMF mission have reached staff-level agreement on a set of economic and structural policies to reinforce the progress made since the previous RCF, which was approved by the IMF Executive Board in June 2014. These policies aim to maintain macroeconomic stability, enhance fiscal and external sustainability, and strengthen the capacity of the government. Over the medium term, the key challenge remains to secure strong, sustainable, pro-poor growth to help reverse the deterioration in development indicators. This requires scaling up essential infrastructure, reforms to improve governance and the business climate, and enhanced social development policies, as reflected in the National Development Program, the National Social Protection Strategy, and the National Anti-Corruption Strategy.

“The economic environment remains challenging. The economic recovery that began in 2014 has failed to gain further momentum due to a series of shocks and deep-rooted structural weaknesses; growth is expected to reach 3.2 percent in 2015, with end-year inflation remaining contained at 7.9 percent. Sharply falling commodity prices are holding back mining revenues, while private investment remains weak in the context of the poor business climate. Tourism has been hampered by difficulties at Air Madagascar, while recurring power cuts at JIRAMA, the public utility, continue to constrain economic activity.

“To support a medium-term development program, two key objectives of the authorities’ program are to increase domestic revenue collection and enhance spending quality. These objectives are reflected in the broad outlines of the 2016 budget discussed with the authorities. New measures to improve tax administration focus on increasing compliance, deterring fraud, eliminating some exemptions, and tackling the large informal sector. To enhance the quality of expenditures, the authorities intend to, inter alia, eliminate fuel subsidies and continue to clean up the government’s payroll. To control transfers to state-owned enterprises, the authorities, with the support of the World Bank, will continue to tackle the problems encountered by JIRAMA and Air Madagascar. With IMF technical assistance, the authorities are also developing a framework to monitor and continue repaying arrears.

“The Central Bank of Madagascar has recently taken measures to ensure the smooth and transparent functioning of the foreign exchange market. In particular, it has discontinued buy-back operations, eliminating the wedge between the official interbank market exchange rate and the private sector market rate used for most transactions (which was 8 percent at the beginning of September). The private sector market rate has remained roughly stable. The forthcoming new draft Central Bank law will enhance the governance and independence of the central bank.

“In addition, based on these macroeconomic and structural policies, the Malagasy authorities and IMF staff agreed on a SMP covering the period up to the end of March 2016. Successful implementation of this program will strengthen economic stability and sustainability, provide a framework that boosts confidence and assists in catalyzing external assistance, and help lay the groundwork for a future request for an ECF arrangement.

“The mission takes this opportunity to thank the Malagasy authorities for their strong cooperation and the constructive discussions that took place.”

¹ The RCF (http://www.imf.org/external/np/exr/facts/rcf.htm) is a lending arrangement that provides rapid financial support in a single, up-front payout for low-income countries facing urgent financing needs.

² An SMP is an informal agreement between country authorities and Fund staff to monitor the implementation of the authorities’ economic program. SMPs do not entail financial assistance or endorsement by the IMF Executive Board.