Tanzania: IMF helps Madagascar meet urgent balance of payments needs

Dar es Salaam, Tanzania (PANA) - In a move to assist Madagascar to meet its urgent balance of payments needs, the Executive Board of the International Monetary Fund (IMF) has approved a US$42.1 million disbursement in financial assistance for the Indian Ocean island under the Rapid Credit Facility (RCF), the Fund disclosed on Thursday.

In a press statement made available to PANA in Dar es Salaam, the IMF said the Malagasy authorities' request for assistance followed a first RCF disbursement of about US$42.1 million —approved by the Executive Board on 18 June 2014.

According to the statement, the economic environment in Madagascar remains challenging. The recovery that began in 2014 has failed to gain further momentum due to falling commodity prices, weather-related shocks, and deep-rooted structural weaknesses.

"Against this background, private investment has also remained weak. Growth is expected to reach 3.2 percent in 2015, with end-year inflation contained at 7.9 percent," the Board noted.

Following the Board's discussion, IMF Deputy Managing Director and Acting Chair Mitsuhiro Furusawa stated: "Against this background, financing and balance of payments needs have grown. Nonetheless, the authorities’ policies over the past six months have succeeded in broadly preserving macroeconomic stability and debt sustainability. The disbursement under the Fund’s Rapid Credit Facility should help catalyze donor support."

Despite the challenges facing Madagascar, macroeconomic policies have generally succeeded in maintaining economic stability and sustainability in 2015.

Going forward, the authorities have begun implementing significant measures aiming to further strengthen macroeconomic stability, particularly to improve revenue generation, enhance the quality of fiscal spending, strengthen central bank operations, and improve the functioning of the foreign exchange market.

According to IMF, the ultimate policy objective is to scale up spending on essential infrastructure and social development to secure strong, sustainable, pro-poor growth that reverses the deterioration in development indicators. The government has also adopted a new strategy to fight corruption and improve governance.

Affirming that the government of Madagascar aims to raise growth and reduce poverty on a sustained basis, Mr. Furusawa said: "This will require higher public investment in physical, human, and institutional capital."

With efforts to create the necessary fiscal space focused on raising the currently low level of revenue collection, combined with better spending prioritization, he suggested that stronger economic governance, including a strategy against corruption, is needed to enhance the efficiency of the public sector and improve the business climate, thereby promoting private sector-led growth.

"The draft 2016 budget includes welcome policy initiatives in these directions. Sustained reform efforts will be necessary to support medium-term development and mobilize additional external financing.

“The Malagasy authorities have taken steps to enhance the functioning of the foreign exchange market, maintain a flexible exchange rate, and strengthen the central bank’s capacity and independence. Additional measures, including more active liquidity management, should aim to deepen the financial sector and strengthen price and financial sector stability,” Mr. Furusawa added.

Madagascar's new measures to improve tax administration focus on increasing compliance, deterring fraud, eliminating some exemptions, and tackling the large informal sector.

To enhance the quality of expenditures, the authorities will eliminate inefficient fuel subsidies and reduce the need for transfers to loss-making state-owned enterprises, including the energy company JIRAMA and Air Madagascar.

The authorities will also take actions to avoid the build-up of new domestic arrears and settle the existing stock expeditiously, while the ongoing recapitalization of the central bank, revision of its legal framework, and more active bank liquidity management will reinforce the capacity to safeguard price and financial sector stability.
-0- PANA AR/MA 19Nov2015

19 november 2015 06:58:30

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