Madagascar: IMF Board approves US$304.7m credit for Madagascar

Antananarivo, Madagascar (PANA) - The Executive Board of the International Monetary Fund (IMF) has approved a US$304.7 million 40-month Extended Credit Facility (ECF) arrangement for Madagascar to help reinforce macroeconomic stability and boost sustainable and inclusive growth in the Indian Ocean Island.

In its announcement, made available to PANA on Friday, the IMF said that following the Board’s decision, US$43.5 million is available for immediate disbursement and the remaining amount would be available in phases over the duration of the programme, subject to semi-annual reviews.

According to the announcement, Madagascar built a satisfactory track record of sustained reforms, with progress in most areas, under the 2015-2016 Staff-Monitored SMP.

Following the Board discussion, IMF Deputy Managing Director and Acting Chair, Mr. Mitsuhiro Furusawa, remarked that weak revenue collection, substantial low-priority spending, and the need for strengthened economic governance all posed challenges to medium-term economic development in the island.

“Against this background, rigorous and sustained reform implementation will be crucial,” he said. “Rapid growth and sustained poverty reduction will require more investment in infrastructure and broader access to education and health care, in addition to structural reforms.”

Mr. Furusawa said it will be essential for authorities in Madagascar to increase tax revenue and to contain and then reduce lower-priority spending, including transfers to state-owned enterprises, such as the utility company JIRAMA.

While substantial external borrowing is appropriate to finance development, he suggested that debt sustainability must be preserved and the authorities should rely as much as possible on external grants and concessional financing.

Mr. Furusawa went on: “Reforms to strengthen governance are central to the success of the economic programme. Key actions include strengthening public financial management and procurement practices, increasing budget transparency, carefully managing the fiscal implications of Public Private Partnerships, and reinforcing the institutions and legal framework for combating corruption.

“Creating a solid foundation for further financial deepening will be crucial for reinforcing economic growth and stability. This will require more frequent and deeper supervision of banks and non-banks, establishment of a legal and operational framework for institutions in difficulty, and promotion of modern payment methods.

“The central bank has been strengthened by increased legal independence and growing international reserves. The authorities should remain vigilant about maintaining price stability, and continue to improve the operational framework for monetary policy implementation, including by establishing a well-functioning money market.”

Hampered by fragile institutions, Madagascar is striving to recover from an extended political crisis and international isolation from 2009 to 2013. During this period, key social and developmental indicators deteriorated.

The recovery that began in 2014 has so far failed to gain much momentum due to key commodity prices falling, weather-related shocks, and deep-rooted structural weaknesses.

According to the IMF, the island’s GDP growth is now estimated at 3.1 percent in 2015, which is slightly lower than in 2014 and barely higher than population growth. Inflation fell back to 6.3 percent at end-May 2016 from 7.6 percent at end-December 2015, led by lower food and fuel prices.

Budget execution was challenging in 2015. Priority spending was squeezed by under-performing revenue collections, financing difficulties, and unexpected needs for transfers to state-owned enterprises and pensions.

As a result, the fiscal deficit increased to 3.3 percent of GDP. The IMF said despite international headwinds, economic conditions are expected to improve in 2016 supported by country specific factors.

The government programme, supported by the ECF, aims at reinforcing macroeconomic stability and promoting sustainable and inclusive growth, with focus on:
• boosting prospects for inclusive growth through improved access to education, health care, and social protection combined with enhanced infrastructure and private sector development;
• creating fiscal space through improved revenue generation and spending prioritization
• reinforcing economic governance by strengthening public financial management and intensifying anti-corruption measures; and
• strengthening macroeconomic stability by bolstering central bank operations and financial supervision. Reform implementation will benefit from a targeted programme of capacity building and technical assistance.
-0- PANA AR/MA 29July2016

29 july 2016 11:40:08

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