The International Monetary Fund (IMF) and the Malagasy authorities have reached a staff-level agreement on the fourth review of Madagascar’s economic reform program under the Extended Credit Facility (ECF). The agreement, subject to IMF management approval and consideration by the IMF Executive Board, paves the way for the disbursement of SDR 24.44 million (about US$32 million) to Madagascar to address its external and fiscal financing needs.
Following discussions held in Antananarivo from May 3 to May 12, IMF team leader Frederic Lambert issued a statement highlighting the key outcomes of the mission and the staff-level agreement:
“The IMF team and Malagasy authorities have reached a staff-level agreement on the fourth review of Madagascar’s economic program under the Extended Credit Facility. The agreement is subject to approval by the IMF Management and Executive Board, with Board consideration expected in June. The review’s completion would enable the disbursement of funds to support Madagascar’s recovery from the pandemic and preserve priority spending.”
The IMF-supported 40-month ECF arrangement aims to assist Madagascar in achieving economic stability and reducing poverty. While the country experienced a 5.7 percent rebound in 2021, growth is expected to stabilize around 4.0 percent in 2022 and 2023 due to weather-related disruptions, challenges in the vanilla sector, and uncertainties in the global economic outlook. Inflationary pressures persist, and the depreciation of the ariary relative to the U.S. dollar has accelerated despite interventions by the central bank.
Lambert acknowledged that Madagascar’s program performance during the second half of 2022 was mixed, with three out of five quantitative macroeconomic objectives being met. Efforts to improve revenue collection, reduce fiscal risks, enhance public financial management, and strengthen social safety nets are essential for the country’s economic stability and inclusive growth.
The structural reform agenda of the Malagasy authorities has made progress, with the finalization and publication of the public investment manual and the release of the follow-up report by the Cour des Comptes on COVID spending audits. Additionally, amendments to the public procurement legal framework to allow for the collection and publication of beneficial ownership information have been adopted. Furthermore, a new draft of the revised mining code, aligned with World Bank and IMF recommendations, has been submitted to Parliament.
To promote economic stability and sustainable growth, Madagascar aims to reduce fiscal risks, improve fiscal transparency and governance, strengthen social safety nets, and enhance the monetary policy framework. The authorities plan to return to budget discipline, reconsider distortionary tax measures, improve spending execution, and control fiscal risks associated with state-owned enterprises.
Addressing the challenges faced by the public electricity and water utility JIRAMA remains a priority to reduce its burden on the budget and enhance service provision. The authorities are committed to strengthening monitoring and transparency of JIRAMA’s financial situation. They also aim to implement an automatic fuel price adjustment mechanism in 2024, accompanied by enhanced social safety nets.
In the context of high inflation, monetary policy will focus on price stability as the central bank continues its transition to a new monetary policy framework of interest rate targeting. The success of this transition requires effective communication by the central bank to anchor economic agents’ expectations and reaffirm its independence.
The IMF mission held discussions with President Rajoelina, Prime Minister Ntsay, Minister of Economy and Finance Rindra Hasimbelo Rabarinirinarison, Minister of Energy and Hydrocarbons Soloniaina Rasamoelina Andriamanampisoa, Central Bank of Madagascar Governor Aivo Andrianarivelo, senior officials, development partners, and private sector representatives. The IMF team expressed gratitude to the Mal