The International Monetary Fund (IMF), senior Malagasy officials, including Prime Minister Christian Ntsay, and non-governmental representatives, on Friday, completed a Staff Level Agreement on an Extended Credit Facility Arrangement, after nearly a month of talks.
Charalambos Tsangarides, the IMF Mission Chief to Madagascar said the agreement “could be supported by IMF resources of about $320 million under the Extended Credit Facility”.
The Extended Credit Facility (ECF) is the IMF’s “main tool for providing medium-term support for LICs [low-income countries]”. Established in 2018 under President Andry Rajoelina, the Plan Emergence Madagascar (PEM) is Madagascar’s plan for medium-term economic reform and development. Last month, L’Express de Madagascar reported, “the documents for the Plan Emergence are ready,” highlighting plans for road repairs and construction.
In summary, the PEM aims to support the recovery from the Covid-19 pandemic, increase tax revenues and shift expenditures, and strengthen monetary policy and financial governance.
The Covid-19 pandemic has battered the Malagasy economy: “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”.
A lack of economic activity has also contributed to a decline in tax revenues: According to the IMF, Madagascar’s current account deficit has risen to 6% of GDP, it’s highest since 2019. By increasing tax revenues, the government hopes to “free public resources” for more social spending, particularly on health and education.
“The composition of expenditures will be improved through limiting transfers, notably to state-owned enterprises, and better budgeting the wage bill and pensions”. This includes transfers to JIRAMA, a “public electricity and water company”. Price controls for fuel will also be maintained.
As stated, monetary policy and governance reforms – specifically in anti-corruption and fiscal transparency – will not only “increase financial sector stability and development,” but also will “improve the business climate and attract private investment”.
Though the IMF Executive Board must approve the agreement, “the [IMF] mission will not result in a board discussion”.
In April and July 2020, Madagascar received $165 million and $171 million, respectively, through the IMF’s Rapid Credit Facility (RCF). Apart from the economic hardship brought on by the pandemic, the southern region of Madagascar has also experienced recurrent drought; the World Food Programme (WFP) estimates 1.6 million people in this region have been food insecure since 2016.