IMF Staff Completes Mission to Madagascar for 2017 Article IV and First ECF Review

• Madagascar’s recent economic performance has been encouraging, with GDP growth reaching 4.2 percent in 2016
• In the medium-term, the authorities aim to break Madagascar’s pattern of low growth by scaling up priority spending and accelerating structural reform.
• The authorities continue to make progress in strengthening the legal and institutional framework for enhancing governance and fighting corruption

A team from the International Monetary Fund (IMF) led by Marshall Mills, Mission Chief for Madagascar, visited Antananarivo from March 9–22, 2017 to conduct the 2017 Article IV Consultation and hold discussions on the first review of Madagascar’s economic reform program supported by the IMF’s three-year Extended Credit Facility (ECF). [1] Following conclusion of ongoing discussions, the IMF Executive Board could consider the first ECF review and the 2017 Article IV Consultation in June 2017.

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

“Madagascar’s recent economic performance has been encouraging, with GDP growth reaching 4.2 percent in 2016. The macroeconomic outlook in the near term is generally positive, aided by growth in public investment, continued strength in export processing zones, and a recovery in mining. This outlook is diminished by a drought in the central plateau and the cyclone that hit the northeast. The full impact is not yet clear, and the Fund is continuing discussions with the authorities and development partners to help identify the scale of the damage and financing to address urgent needs. Growth is currently projected to reach 4.3 percent in 2017, while inflation is expected to remain contained at 7.7 percent. Positive external developments prior to the cyclone enabled the central bank to boost reserves significantly, reaching USD 1.12 billion at end-February 2017.

“The authorities have achieved significant progress under the ECF-supported program, although challenges remain. All quantitative performance criteria for end-December 2016 were met, supported by prudent monetary policy and improving revenue collection that surpassed targets. The government also implemented the measures envisioned in most of the program’s structural benchmarks, although some with a delay.

“Difficulties at state-owned enterprises, especially JIRAMA and Air Madagascar, continue to weigh on the budget and the economy. The difficulties of the public utility JIRAMA, aggravated by drought, will require additional transfers of around 0.5 percent of GDP. However, new management is developing a business plan to restructure operations, which will reduce costs, improve revenue, and contain transfer needs. Air Madagascar is negotiating a strategic partnership, which is expected to involve a substantial, one-off transfer from the government to offset past losses. Staff and the authorities are continuing discussions on recapitalizing Air Madagascar, including obtaining financial assurances, and on restructuring JIRAMA.

“In the medium-term, the authorities aim to break Madagascar’s pattern of low growth by scaling up priority spending and accelerating structural reform. Drawing on substantial pledges of grants and concessional loans at the donor conference of December 2016, the authorities intend to boost investment and social spending steadily from 2017 to 2019, while maintaining a moderate risk of debt distress. To ensure the success of the scaling up and to minimize risks, the authorities are enhancing their investment management and monitoring capacity. Revised frameworks to encourage private investment are also under consideration for mining, petroleum, and special economic zones. Staff stressed the need to incentivize private investment efficiently, without undermining the government’s key objectives of enhancing revenue and containing fiscal risks.

“The authorities continue to make progress in strengthening the legal and institutional framework for enhancing governance and fighting corruption. The government is committed to submitting draft laws on asset recovery, international cooperation, and combating anti-money laundering to the next parliamentary session. It remains important to follow through with implementation.

“The central bank has successfully maintained stable inflation while pursuing reforms to improve monetary policy effectiveness and financial stability. Enhancing the effectiveness of policy instruments, which requires an efficient interbank and repo markets, is a priority. Reforms are being put in place to deepen financial intermediation and inclusion, such as the new law on electronic money. Revisions under preparation to banking and microfinance laws will reinforce stability, as will the ongoing audit of two government-owned non-bank financial institutions.

“The mission met with President Hery Rajaonarimampianina, Speaker of the National Assembly Jean Max Rakotomamonjy, Prime Minister Olivier Solonandrasana, Minister of Finance and Budget Gervais Rakotoarimanana, Minister of Economy and Planning and interim Minister of Energy and Hydrocarbons Herilanto Raveloharison, Central Bank of Madagascar Governor Alain Rasolofondraibe, Commissioner General Léon Rajaobelina, and other members of parliament, senior officials,  as well as private sector representatives, civil society and development partners.

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

[1] The ECF is a lending arrangement that provides sustained program engagement over the medium to long term in case of protracted balance of payments problems. The arrangement for Madagascar in the amount of SDR 220 million (about US$304.7 million or 180 percent of quota) was approved by the IMF Executive Board on July 28, 2016 (see Press Release No. 16/370). 

Distributed by APO on behalf of International Monetary Fund (IMF).