Press Release No. 17/467

On December 6, 2017, the Executive Board of the International Monetary Fund (IMF) completed the second review of Madagascar’s program supported by the Extended Credit Facility (ECF). The decision was taken without a Board meeting [1] and enables the disbursement of SDR 31.428 million (about US$44.5 million), bringing total disbursements under the ECF arrangement that was approved in July 27, 2016 to SDR 124.834 million (approximately US$174.1 million).

Madagascar’s implementation of its economic program supported by the Extended Credit Facility has remained strong. All quantitative performance criteria and indicative targets were met at end-June 2017, and the program’s structural agenda is also advancing.

The gradual economic recovery has continued, with solid growth and continued macroeconomic stability despite the drought and cyclone that affected Madagascar in early 2017. Fiscal performance has been roughly as planned, with strong revenue performance offsetting some unexpected spending pressures in 2017. Monetary and exchange rate policy has successfully managed the challenges from external developments, and inflation was stable despite the weather-related shocks. The current account weakened in 2017 relative to 2016, driven by the trade deficit. However, the overall external account remained strong, as transfers and financial inflows largely offset the current account deficit. As a result, the Malagasy Ariary has appreciated slightly in real effective terms, and the Central Bank of Madagascar has boosted international reserves significantly, well beyond program targets.

The 2018 budget supports the program’s core objective of strong and inclusive growth. A higher than expected wage bill and the strong Ariary created some financing pressures. To respond to this pressure while enhancing the composition of spending, the authorities have developed measures to contain lower priority spending and to boost revenue, including increases in fuel taxes. Both domestically and externally-financed investment spending is expected to grow significantly, although less than targeted earlier due to capacity constraints.

Key fiscal policy objectives over the medium term focus on steadily raising revenue mobilization, gradually reducing transfers to the public utility company JIRAMA, and scaling up public investment (while containing risks to macroeconomic stability and debt sustainability). The authorities should ensure that planned tax incentives envisaged by the government are cost-effective and do not jeopardize the program’s core goals for revenue and public investment.

In addition, it is vitally important that the authorities continue their efforts to enhance governance and the fight against corruption. The priorities are the completion of the new legal framework (in line with international standards), the strengthening of enforcement, and the continued improvement in public financial management.

Lastly, the work underway to develop the financial sector is important and well-prioritized. The authorities’ strategy aims to enhance the sector’s contribution to economic development, especially financial inclusion. Mobile money services are growing rapidly and will be further supported by a new, modernized legal and regulatory framework. At the same time, to keep financial risks under control, initiatives are underway to strengthen supervision as well as the broader legal framework for the financial sector.