US: 'Promote growth, invest in infrastructure, human capital' - IMF tells Madagascar

Washington D.C., US (PANA) - Completion of the first review of Madagascar’s economic performance under a programme supported by an Extended Credit Facility (ECF) arrangement with the International Monetary Fund (IMF) has enabled the immediate disbursement of US$86 million to the country striving to recover from political instability.

The IMF Executive Board announced on Thursday it has also approved the Malagasy authorities' request for waiver of the nonobservance of the continuous criterion on accumulation of new external payment arrears and the modification of the end-June 2017 performance criterion on the primary domestic balance.

After the Board meeting, the Fund's First Deputy Managing Director and Acting Chair, Mr. David Lipton, said: "Madagascar’s performance under its economic programme supported by the ECF has been strong. The programme’s success hinges on building investment management capacity while safeguarding macroeconomic stability and debt sustainability."

The ECF arrangement for Madagascar was approved on 27 July 2016, and Mr. Lipton noted that the authorities’ strategy to promote more inclusive and sustained economic growth by scaling up investment in infrastructure and human capital, raising social spending, and advancing structural reforms—as outlined in the National Development Plan—is appropriate.

“Recent developments—particularly a drought, a severe cyclone, and financial weaknesses in state-owned enterprises—have created challenges," he said. "Additional resources are needed for relief and reconstruction work, as well as to support the public utility company JIRAMA, whose performance suffered from the drought. While Air Madagascar’s recent strategic partnership is expected to strengthen its operations, it will also require a costly recapitalization to offset past losses."

The Board has also approved the Madagascar authorities’ request to augment access under the programme for US$42.39 million or 12.5 percent of the country’s quota. The augmentation of access under the ECF and additional donor support will help offset the balance-of-payments impact of the natural disasters.

Further, Mr. Lipton stated: “The authorities’ efforts to strengthen governance and fight corruption are critical to their strategy. In addition to reinforcing the legal framework, it is vital to implement it effectively and to enhance judicial independence. Ongoing improvements in public financial management, particularly to improve transparency, also play a key role.

“Reforms underway to promote the development and soundness of the financial sector, based on the 2016 Financial Sector Assessment Programme, will contribute to a more inclusive and robust financial system that is responsive to Madagascar’s development needs.”

Madagascar is a fragile low-income country and has a long history of weak economic growth—barely keeping up with rapid population growth—and social welfare indicators have deteriorated.

Recurrent political crises and natural disasters have aggravated these challenges. As a result, Madagascar has become one of the poorest countries in the world, and some of its education, health, and nutrition indicators rank among the lowest in the world.

Currently, the government aims to break a cycle of low growth and investment by accelerating public investment and structural reforms under its 2014 National Development Plan.

Driven by public investment, increasing textile exports, and accelerating activity in agroindustry, economic growth reached 4.2 percent in 2016—the highest level since 2008.

Reforms continued in revenue administration, and fiscal revenue exceeded targets. Inflation was contained at 7.0 percent at end-2016. The external position strengthened significantly, benefiting from a positive shock to vanilla export prices and strong growth in manufacturing exports.

To maintain progress toward Madagascar’s development objectives, the IMF Directors concurred that additional fiscal space is temporarily needed in 2017 in light of the costs posed by the impact of recent shocks and the financial weaknesses of state owned enterprises.

In this regard, they welcomed the measures undertaken to mitigate the impact of these shocks, including higher revenue targets for 2017 and reductions in lower priority spending, and stressed the need to tackle the deep rooted problems of the public utility company and Air Madagascar.
-0- PANA AR/MA 29June2017

29 june 2017 08:43:41

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