Journal Issue

IMF Executive Board Completes Sixth and Final Review Under Madagascar’s PRGF Arrangement and Approves US$17.2 Million Disbursement

International Monetary Fund
Published Date:
May 2005
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The Executive Board of the International Monetary Fund (IMF) today completed the sixth and final review of Madagascar’s performance under an SDR 91.7 million (about US$ 138.9 million) Poverty Reduction and Growth Facility (PRGF) arrangement. This opens the way for a release of a further SDR 11.3 million (about US$17.2 million).

Madagascar’s three-year arrangement was approved on March 1, 2001 for an initial amount of SDR 79.43 million (about US$ 120.4 million) (see Press Release No. 01/7) and was extended on December 23, 2002 (see News Brief No. 02/133) until November 30, 2004. On March 17, 2004 the Board further extended the PRGF arrangement until March 1, 2005. and augmented it by SDR 12.22 million (about US$ 18.5 million) (see Press Release No. 04/53).

Following the Executive Board’s discussion of Madagascar, Ms. Anne O. Krueger, First Deputy Managing Director and Acting Chair, stated:

“Madagascar’s performance under the PRGF-supported program in 2004 has been broadly successful. Notwithstanding the difficult economic environment in the first half of the year, growth has remained robust, the exchange rate has been stabilized, and fiscal discipline has been broadly maintained. Key objectives for the priod ahead include maintaining strong economic growth while significantly reducing inflation and diversifying the export base. This will require tighter monetary and fiscal policies, and accelerated implementation of structural reforms.

“A further strengthening of fiscal policy in 2005 will need to be based on additional steps to raise domestic revenue. Expenditure increases will be mainly directed toward priority sectors for poverty reduction and attainment of the Millennium Development Goals. At the same time, ongoing reforms of the public expenditure management system will need to be accelerated in order to improve the quality and efficiency of public spending.

“Monetary policy will be geared toward achieving the inflation objective. The further steps planned to strengthen monetary policy implementation and develop monetary policy instruments are welcome.

“Preserving overall competitiveness and diversifying the export base will be key for helping to secure broad-based and sustainable growth, particularly in light of the challenges that the economy may face with the expiry of the Multifibre Agreement and the third-party apparel provision of the African Growth Opportunity Act (AGOA III). Accelerated structural reforms should aim at lowering the costs of production, further improving the business climate, and raising the productivity of the export sector.

“Limited capacity continues to jeopardize program implementation. The time-bound action plan for capacity building in the areas of public debt and fiscal and monetary management should therefore be finalized quickly, with well-coordinated donor support.

“Attainment of the completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in October 2004 has substantially reduced Madagascar’s external debt. Preserving debt sustainability in the face of Madagascar’s vulnerability to shocks will require continued pursuit of a prudent borrowing policy.

“The authorities’ indication of interest in pursuing their relationship with the Fund beyond the current PRGF arrangement is welcome,” Ms. Krueger said.

The PRGF is the IMF’s concessional facility for low income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year period on principal payments.

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