Press Release No. 21/310

IMF and Madagascar Reach Staff-Level Agreement on the First Review of the Extended Credit Facility

October 26, 2021

• IMF team and the Malagasy authorities reached a staff-level agreement on the first review of Madagascar’s economic reform program under the Extended Credit Facility.
• Growth is gradually recovering, but the pandemic has increased poverty and the ongoing famine in the South is a major source of concern, requiring strong policy action to boost social spending.
• The authorities are determined to raise more fiscal revenue to pay for higher social expenditures and public investment, while preserving macroeconomic stability. They are committed to increasing fiscal transparency and strengthening governance.

Washington, DC: A team from the International Monetary Fund (IMF) led by Frederic Lambert held virtual discussions during September 22 – October 25, 2021 on the first review of the 40-month arrangement with Madagascar supported by the Extended Credit Facility (ECF).

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 first review of Madagascar’s economic program under the Extended Credit Facility. The agreement is subject to approval by the IMF Executive Board, which is expected to consider the review in December. The review’s completion would allow the disbursement of SDR 48.88 million (about US$69 million) to Madagascar to cover external and fiscal financing needs.

“Following a 7.1 percent contraction of GDP in 2020, the Malagasy economy has been gradually recovering. Growth is expected to reach 3.5 percent in 2021, supported by the mining, textile, and service sectors. Tensions on food prices have re-emerged, calling for prompt policy action to support the poor. The domestic primary deficit objective of 2.5 percent of GDP in 2021 is expected to be achieved. Public debt will remain contained at around 50 percent of GDP.

“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, it aims to assist the authorities with their efforts to raise and sustain growth and reduce poverty.

“Program performance over the first semester of 2021 was broadly satisfactory and most quantitative macroeconomic objectives were met. But the authorities must redouble efforts to mobilize tax revenue and achieve their social spending targets for 2021. Structural reforms are gradually advancing, with work still needed to improve budget transparency and reporting.

“To support the economic recovery and generate stronger sustainable and inclusive growth, the authorities aim to increase fiscal space to finance more growth-enhancing spending. To this end, the authorities intend to increase fiscal revenue by stepping up the fight against fraud, continuing their reforms of the tax and customs administrations, reforming mining taxation in keeping with best practices, and introducing tax reforms geared towards strengthening social equity. In line with this, costly tax exemption regimes will eventually need to be revisited. The authorities will also seek to enhance the composition of expenditures by limiting transfers to state-owned enterprises and containing the wage bill and pension costs, while improving the execution of social and investment spending.

“Structural reforms are key to reducing fiscal risks. The restructuring of the public electricity and water utility JIRAMA will help bolster its financial position and allow for better service. Public money injection into Air Madagascar will be strictly contained until a viable business plan is finalized and approved. The authorities are committed to avoid the accumulation of liabilities towards the fuel distributors and are preparing a plan for the implementation of an automatic fuel pricing mechanism along with enhanced social safety nets.

“The central bank will continue the transition to a new monetary policy framework of interest rate targeting and its efforts to lower the cost of credit and boost financial inclusion. Further reforms may help bolster the efficiency of the foreign exchange market. The project of including gold in foreign exchange reserves will be implemented according to international best practices.

“Reforms to improve governance and fiscal transparency are critical to the ongoing efforts to mobilize development partners and attract private foreign investment. The IMF will continue to support the Ministry of Economy and Finance to strengthen public financial management and budget transparency and looks forward to the results of the third-party audit of COVID-19 related expenditures later this year. The authorities will accelerate the implementation of the anti-corruption legal framework, notably by setting up the agency for illicit asset recovery and deploying anti-corruption courts across the territory.

“The mission met with Minister of Economy and Finance Rindra Hasimbelo Rabarinirinarison, Minister of Justice Herilaza Imbiki Minister of Energy and Hydrocarbons Andry Ramaroson, Minister of Public Health Zely Arivelo Randriamanantany, Central Bank of Madagascar Governor Henri Rabarijohn, senior officials, development partners, and private sector representatives. The IMF team would like to thank the Malagasy authorities for their time, flexibility, and constructive discussions.”