Press Release No. 21/39

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

February 12, 2021

• The program aims at supporting recovery from the pandemic, preserving macroeconomic stability, and advancing the reform momentum to raise and sustain inclusive growth.
• Key policy actions under the program supported by the IMF will focus on rebuilding fiscal space to allow for much-needed investment and social spending, resuming and advancing the structural reform and governance agendas, and strengthening the monetary policy framework.
• This agreement is subject to the approval of the IMF Executive Board and confirmation of needed of financing assurances.

Washington, DC: In response to a request from the Malagasy authorities, an International Monetary Fund (IMF) mission led by Charalambos Tsangarides, Mission Chief for Madagascar, held virtual meetings during January 18–February 12 to discuss IMF financial support to the authorities’ economic reform program.

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

“IMF staff completed policy discussions with the authorities on a new medium-term program that could be supported by IMF resources of about $320 million under the Extended Credit Facility (ECF).

“The economy of Madagascar has been severely impacted by the Covid-19 pandemic. GDP is estimated to have contracted by more than 4 percent in 2020 due to the interruption of tourism and reduced exports, notably in the mining and textile sectors, and lower domestic demand. The fiscal situation has been affected through a large reduction of tax revenue, turning the domestic primary balance from a small surplus in 2019 to a deficit of about 3 percent of GDP in 2020, while the current account deficit widened to 6 percent of GDP. The 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.

“The authorities’ medium-term program is centered on supporting the post-Covid-19 recovery and advance the reform momentum to raise and sustain inclusive growth and reduce poverty, drawing from the government’s priorities detailed in the Plan Emergence Madagascar (PEM). In this context, further to continuing to address the social and economic consequences of the pandemic, the new program aims at rebuilding fiscal space for much needed social spending and investment; advancing the structural reform agenda, including enhancing the monetary framework and financial supervision; and improving governance. IMF financial support is also expected to help stimulate private sector investment and catalyze financial support from development partners.

“The program’s fiscal policy is expected to be geared towards increasing domestic revenues. Ambitious medium-term revenue mobilization plans need to be supported by a comprehensive revenue administration and revenue collection strategy. This will allow to free public resources to augment the spending envelope for social sectors, notably health and education, as well as to scale up public investment, while preserving debt sustainability. The composition of expenditures will be improved through limiting transfers, notably to state-owned enterprises, and better budgeting the wage bill and pensions.

“The program will resume the structural reform agenda, reduce fiscal risks, including from exposure to natural disasters that can be exacerbated by climate change, as shown by the severe drought affecting southern Madagascar. The operational and financial recovery plan of the public electricity and water company JIRAMA will be implemented to make the company operationally and financially viable, reducing the need for government transfers. The authorities will also maintain cost recovery prices for fuel to avoid the accumulation of new liabilities towards fuel distributors.

“The authorities aim to pursue the important reforms to strengthen the monetary policy framework to transition to interest targeting, increase the efficiency of the foreign exchange market, strengthen financial sector stability and development, and favor financial inclusion.

“Improving governance, with an effective enforcement of the anti-corruption legal framework, ensuring that appropriate human and financial resources are allocated for the institutions in charge of the fight against corruption, will be key to improve the business climate and attract private investment. Strengthening public financial management, including fiscal transparency, is also crucial. Further progress is needed in disclosing information on the use of funds to mitigate the impact of the Covid-19 pandemic, in line with the government’s commitments.

“The mission 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. The mission would like to thank the Malagasy authorities for their cooperation and constructive discussions.”