IMF Completes Second Review Under Extended Credit Facility Arrangement for Republic of Madagascar

  • Program implementation has been mixed amid natural disasters and the fallout of the war in Ukraine.
  • More efforts are needed to enhance the effectiveness of fiscal policy, improve governance, and support higher private investment.
  • The Executive Board decision allows the authorities to draw SDR 24.44 million (US$31.9 million).
  • Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed today the second review of Madagascar’s economic program under the Extended Credit Facility (ECF). The completion of this review enables the immediate disbursement of SDR 24.44 million (about US$31.9 million) to cover external and fiscal financing needs, bringing total disbursements under the arrangement to SDR 122.2 (about

    US$159.7 million).

    Madagascar’s recovery from the pandemic has been hindered by a severe cyclone season and the spillovers from Russia’s war in Ukraine. While 2021 growth was revised up to 4.3 percent, 2022 growth is projected to stall at 4.2 percent. Annual average inflation is projected to accelerate to 9.8 percent fueled by the surge in international oil and food prices. Lower growth and higher commodity prices will weigh on the budget, widening the fiscal deficit.

    The outlook remains subject to significant uncertainty and risks. New COVID outbreaks in a context of slow vaccination uptake, a further slowdown in global growth and higher oil prices would adversely affect the near-term outlook. On the upside, implementation of the reform agenda envisaged in the Plan Emergence Madagascar along with an increase in investment could boost productivity and growth.

    Following the Executive Board discussion, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, made the following statement:

    “Madagascar’s performance under the Fund-supported program has been broadly satisfactory despite delays in structural reforms and a challenging external environment. Continuation of prudent policies and a more proactive stance to support structural performance are needed to maintain macroeconomic stability, boost investment, and help achieve more sustainable and inclusive growth.

    The 2022 revised budget envisages a larger domestic primary deficit than previously contemplated. Higher international oil prices imply an increase in budget transfers to oil distributors and public utility companies. Strengthening the fight against tax fraud and improving tax arrears collection will be key to offset any drop in domestic revenue collection. Further efforts will be needed in the 2023 budget to increase domestic revenue mobilization, reach fiscal balance, and create additional fiscal space for social spending and priority public investment.

    Improving budget execution is crucial to increase the effectiveness of fiscal policy and achieve program objectives. In the current context of rising food and fuel prices, it is especially important to raise the execution of social spending and build stronger safety nets to protect the most vulnerable.

    The recent increase in retail fuel prices is a step toward the implementation of an automatic fuel pricing mechanism which will remove costly and regressive subsidies. Improving the financial situation of public utility companies is also essential to reduce the need for fiscal transfers.

    The authorities are encouraged to continue their efforts to improve budget transparency and strengthen accountability, including through more effective enforcement of the anti-corruption legal framework. To enhance ex-post controls of public finances, the Cour des Comptes is being given full access as controller to the Ministry of Finance’s information systems. The Cour will also produce a follow-up report on the implementation of its recommendations in its audit reports on the response to the COVID-19 pandemic.

    The central bank continues to enhance its monetary policy framework and should stand ready to further raise interest rates to contain inflationary pressures.”

    Table 1. Selected Economic Indicator, 2019-24

    2019

    2020

    2021

    2022

    2023

    2024

    Est.

    Proj.

    (Percent change; unless otherwise indicated)

    National account and prices

    GDP at constant prices

    4.4

    -7.1

    4.3

    4.2

    5.2

    5.2

    GDP deflator

    6.5

    4.4

    6.1

    9.1

    8.3

    6.8

    Consumer prices (end of period)

    4.0

    4.6

    6.2

    12.0

    9.7

    8.7

    Money and credit

    Broad money (M3)

    7.3

    12.1

    12.2

    32.5

    12.9

    13.2

    (Growth in percent of beginning-of-period money stock (M3))

    Net foreign assets

    -2.6

    2.1

    1.0

    4.4

    0.4

    3.0

    Net domestic assets

    9.9

    10.0

    11.2

    28.1

    12.5

    10.2

    of which: Credit to the private sector

    10.3

    5.6

    11.1

    9.0

    7.6

    7.9

    (Percent of GDP)

    Public finance

    Total revenue (excluding grants)

    10.8

    9.9

    10.7

    11.6

    12.2

    12.8

    of which: Tax revenue

    10.6

    9.5

    10.4

    11.3

    11.9

    12.6

    Grants

    3.1

    2.5

    0.6

    2.5

    2.0

    2.0

    of which: budget grants

    0.7

    0.9

    0.0

    0.0

    0.1

    0.3

    Total expenditures

    15.4

    16.3

    14.1

    20.5

    19.0

    19.5

    Current expenditure

    9.5

    9.6

    8.9

    11.2

    10.0

    10.0

    Capital expenditure

    5.8

    6.8

    5.2

    9.3

    9.0

    9.5

    Overall balance (commitment basis)

    -1.4

    -4.0

    -2.9

    -6.5

    -4.8

    -4.7

    Domestic primary balance1

    0.3

    -1.9

    -0.3

    -1.4

    0.0

    0.3

    Total financing

    1.3

    3.5

    3.1

    6.5

    5.1

    5.0

    Foreign borrowing (net)

    1.3

    1.8

    2.2

    3.7

    3.4

    3.9

    Domestic financing

    0.0

    1.7

    0.9

    2.8

    1.7

    1.0

    Financing gap2

    0.0

    0.0

    0.0

    0.0

    0.0

    0.0

    Savings and investment

    Investment

    18.3

    15.0

    14.9

    19.4

    20.4

    22.2

    Gross national savings

    17.5

    8.2

    9.9

    14.0

    15.3

    17.1

    External sector

    Exports of goods, f.o.b.

    18.5

    15.0

    19.0

    21.3

    21.5

    20.9

    Imports of goods, c.i.f.

    26.9

    24.3

    29.2

    30.2

    28.5

    28.6

    Current account balance (exc. grants)

    -5.4

    -7.9

    -5.5

    -7.9

    -7.1

    -7.0

    Current account balance (inc. grants)

    -2.3

    -5.4

    -4.9

    -5.4

    -5.1

    -5.1

    Public debt

    40.6

    50.8

    53.1

    53.8

    53.1

    53.6

    External Public Debt (inc. BFM liabilities)

    27.0

    36.7

    39.2

    41.5

    42.3

    43.4

    Domestic Public Debt

    13.6

    14.1

    13.9

    12.3

    10.8

    10.2

    (Units as indicated)

    Gross official reserves (millions of SDRs)

    1196

    1338

    1630

    1677

    1641

    1696

    Months of imports of goods and services

    4.2

    6.0

    5.8

    5.1

    4.8

    4.7

    GDP per capita (U.S. dollars)

    532

    478

    507

    522

    540

    562

    Sources: Malagasy authorities; and IMF staff estimates and projections.

    1Primary balance excl. foreign-financed investment and grants. Commitment basis.

    2A negative value indicates a financing gap to be filled by budget support or other financing still to be committed or identified.

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