Journal Issue

Republic of Madagascar: Request for an Arrangement Under the Extended Credit Facility; First Review Under the Staff Monitored Program—Informational Annex

International Monetary Fund. African Dept.
Published Date:
August 2016
  • ShareShare
Show Summary Details

Fund Relations

(As of June 30, 2016)

Membership Status: Joined: September 25, 1963;Article VIII
General Resources Account:SDR Million%Quota
Fund Holdings of currency122.1399.94
Reserve Tranche Position0.070.06
SDR Department:SDR Million%Allocation
Net cumulative allocation117.09100.00
Outstanding Purchases and Loans:SDR Million%Quota
RCF Loans61.1050.00
ECF Arrangements19.4415.91

Latest Financial Arrangements:

Date ofExpirationAmount ApprovedAmount Drawn
TypeArrangementDate(SDR Million)(SDR Million)
ECF1Jul 21, 2006Jul 20, 200973.3253.03
ECFMar 01, 2001Mar 01, 200591.6591.65
ECFNov 27, 1996Nov 30, 200081.3678.68

Formerly PRGF.

Formerly PRGF.

Projected Payments to Fund2(SDR Million; based on existing use of resources and present holdings of SDRs):

When a member has overdue financial obligation outstanding for more than three months, the amount of such arrears will be shown in this section.

When a member has overdue financial obligation outstanding for more than three months, the amount of such arrears will be shown in this section.

Implementation of HIPC Initiative:

I. Commitment of HIPC assistanceEnhanced Framework
Decision point dateDec 2000
Assistance committed
by all creditors (US$ Million)1835.75
Of which: IMF assistance (US$ million)19.17
(SDR equivalent in millions)14.73
Completion point dateOct 2004
II. Disbursement of IMF assistance (SDR Million)
Assistance disbursed to the member14.73
Interim assistance5.62
Completion point balance9.11
Additional disbursement of interest income21.69
Total disbursements16.42

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added.

Under the enhance framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added.

Under the enhance framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

Implementation of Multilateral Debt Relief Initiative (MDRI):

I. MDRI – eligible debt (SDR Million)1137.29
Financed by: MDRI Trust128.50
Remaining HIPC resources8.79
II. Debt Relief by Facility (SDR Million)
Eligible Debt
Delivery DateGRAPRGFTotal
January 2006N/A137.29137.29

The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as end-2004 that remains outstanding at the time the member qualifies for such debt relief.

The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as end-2004 that remains outstanding at the time the member qualifies for such debt relief.

Implementation of Catastrophe Containment and Relief (CCR): Not Applicable.

Safeguards Assessments:

A safeguards assessment for Banque Centrale de Madagascar (BCM) was completed in January 2015. Previous assessments were completed in March 2006 and September 2008. The update assessment found that the political crisis in Madagascar during 2009-14 has affected the governance and financial autonomy of the BCM. Capacity building and the development of internal controls have also been interrupted and little progress had been made in implementing the safeguards measures recommended by the 2006 and 2008 assessments. The 2015 assessment updated the recommendations in all areas of the safeguards framework. Most important, oversight of the BCM’s audit and operations needs to be established through an audit committee of the BCM Board. The central bank should resume regular publication of its audited financial statements, take steps to improve the external audit quality, and implement International Financial Reporting Standards (IFRS). Some key functions, including internal audit, should be modernized and the BCM legal framework updated to better safeguard its autonomy and strengthen governance.

Exchange Rate Arrangement:

The currency of the Republic of Madagascar is the Malagasy ariary. The de jure exchange rate arrangement is free floating. The exchange rate is determined in the official interbank market. The Central Bank of Madagascar (CBM) intervenes in the interbank market to smooth large exchange rate fluctuations and meet foreign reserve targets. Information on CBM daily interventions is not publicly available. The minimum, maximum, and weighted average daily rates as well as the number and amount of transactions are made available to the public through the CBM official site. The de facto exchange rate arrangement is classified as floating.

The exchange rate followed a pre-determined path until September 2015, and has been free-floating since. In 2015, the central bank undertook buyback operations in the foreign exchange market which artificially maintained the published exchange rate at a more appreciated level of than the market exchange rate. In March 2015, the central bank reduced the scope of the buyback operations and the official exchange rate depreciated by 10 percent against the US Dollar. In early September 2015, the central bank completely discontinued the buyback operations.

The Republic of Madagascar accepted the obligations of Article VIII of the IMF Articles of Agreement with effect from September 18, 1996. The Republic of Madagascar maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions.

Article IV Consultation:

The most recent Article IV consultation was concluded on January 16, 2015 (Country Report No. 15/24).

Financial Sector Assessment Program (FSAP), Reports on Observance of Standards and Codes (ROSCs), and Offshore Financial Center (OFC) Assessments:

FSAP conducted in October 2015. To be concluded in July 2016.

Technical Assistance:

Technical assistance provided to Madagascar following the normalization of relations in March, 2014 are listed below.

Fiscal Affairs Department (FAD)Year of delivery
Diagnostic Mission: Improving Tax and Customs Revenue Collection2014
PFM Reform Strategy2014
Medium-Term Fiscal Framework (MTFF)2014
Energy Subsidy Reform2014
Tax Policy Review2014
MTFF and Natural Resources Management2014
Tax Administration: Review of the legal framework for taxation of mining and petroleum operations2015
Revenue Mobilization: Transfer pricing2015
Budget Formulation: Strengthening medium-term macro fiscal and budget frameworks2015
Customs Administration: Risk management and post clearance audit2015
Revenue Administration: Action plan to improve tax and customs revenue collection2015
Public expenditure management: Control and audit on public expenditure2015
Management of Expenditure Arrears2015
Medium-Term Budgeting, Budget Classification, and Natural Resource Management2016
MTEF and Fiscal Strategy Paper2016
Public Investment Management Assessment2016

Monetary and Capital Markets Department (MCM)

Technical Assistance Needs Assessment Diagnostic2014
Introduction of IFRS in Central Bank Accounting2015
Strengthening Internal Audit and Controls2015
Transitioning to a Modern Monetary Policy Operational Framework2015
Set Objectives for Monetary Policy (AFS)2015
Coherent Approach to Monetary Policy Formulation (AFS)2015
Liquidity Management and Forecasting (AFS)2015
Functioning of the Interbank Foreign Exchange Market (AFS)2015
Strengthening Internal Audit2015
Inflation Analysis and Forecasting (AFS)2015
Central Bank Accounting and Auditing2016

Legal Department (LEG) and Monetary and Capital Markets Department (MCM)

Central Banking Law2014

Statistics Department (STA)

National Accounts (AFS)2015
Balance of Payments Statistics2015
Multisector Statistics2015
Monetary and Financial Statistics2015
National Accounts (AFS)2015
Price Statistics (AFS)2016
Open Data Initiative2016

Resident Representative:

Mr. Patrick Imam has been the Resident Representative since September 2014.

Relations With the World Bank Group

(As of May, 2016)

1. The Fund and the Bank teams working on Madagascar met to discuss reform priorities and the division of labor. The meeting was chaired by Mr. Mills (IMF) and Ms. Kubota (World Bank).

2. The teams agreed that Madagascar’s main economic challenge is to create the foundation for a sustained economic recovery and poverty reduction. To meet this challenge, Madagascar needs to: (i) broaden the tax base and implement tax and customs administration reforms; (ii) improve the allocation and use of public resources to raise the economy’s productivity, improve service delivery, and help meet acute social needs of vulnerable groups through reduced subsidies and transfers to public enterprises and civil service reforms, including pension reform; (iii) strengthen public financial management, including: reporting, monitoring and control systems; (iv) advance other policies that support economic growth and improve the business climate, including actions that strengthen governance and create a level playing field for the private sector; (v) proceed with reforms that improve central bank operations and strengthen financial sector stability; and (vi) promote financial access and financial inclusion.

3. Based on this assessment, the teams identified the following structural reform areas as macro-critical:

  • Tax and customs administration reform: Tax revenues are at historically low levels because of the large informal economy, corruption, and weak administration. Corruption is also widespread in customs with many discretionary and non-transparent customs duty exemptions.

  • Public financial management (PFM) reform: Actual budget allocations deviate significantly from the original budget. Key reforms include medium-term budgeting, budget execution and expenditure control (including control of SOEs and procurement), developing a risk-based audit strategy, and identifying and auditing existing domestic arrears and devising a strategy for their clearance as well as for avoiding the build-up of new arrears.

  • Economic governance and corruption: Governance weakened significantly after the unconstitutional change of government in 2009. Corruption undermines sound policy implementation and there is a need to resolve systemic weaknesses in the tax and customs administrations and public expenditure management and sanction people involved in corrupt behavior. Potential actions include: (i) reducing the room for administrative discretion; (ii) firmer sanctioning of non-performing public officials and prosecution of suspected offenders; (iii) strengthening asset declarations and asset recovery legislation; (iv) reducing delays in the trying of commercial cases; and (v) launching a randomized case assignment system.

  • Business environment reform: In addition to improved governance, reforms creating a level playing field and reducing excessive bureaucratic procedures would be critical to improve the business climate. In this context it is also essential to modernize the mining and petroleum codes to bring them in line with good international practice.

  • Public investment and debt management: While infrastructure investment is essential to support economic growth, implementation of the priority investment plan must be phased in such a way that debt is maintained at sustainable levels. As the legal and regulatory framework is being established for publicly guaranteed loans and PPP projects, the capacity for risk evaluation and surveillance should be reinforced.

  • Service delivery and social safety nets: Public spending on health and education is lagging other Sub-Saharan African countries and the gap is growing. Access and use of basic healthcare is not universal, decreasing, and increasingly rationed by money. It will be important to scale up and target fiscal spending in favor of the most vulnerable, through demand side interventions such as cash transfer to households conditional on children attending school, and supply side interventions such as rehabilitation of basic health centers, increased provision of basic vaccines, and repairing and building school buildings.

  • Public enterprise reform: Public enterprises were established with the objective of providing better services and products at less cost to the consumers. However, in some cases (including the public utility company JIRAMA and Air Madagascar) consumers are now offered poor services from inefficient companies that also need government subsidies to run their operations. The aim of public enterprise reform is to improve services, develop sectoral policies and appropriate regulatory frameworks, and restructure inefficient public enterprises.

  • Central bank operations: Important to improve the operational framework for monetary policy implementation, especially liquidity management. The interbank money market and the market for secondary T-Bill trading are inactive. While there is significant excess liquidity in the money market, the seasonal fluctuations are strong and the excess liquidity is unevenly distributed among banks.

  • Financial sector stability: Madagascar’s financial system has adapted to a difficult environment, but vulnerabilities are significant and could intensify rapidly. Supervision of banks and nonbanks needs to become more risk-based and assertive and a bank intervention and resolution mechanism must be put in place.

  • Financial access and inclusion: Micro-financial institutions (MFIs) are still small but growing rapidly. New measures, including stronger supervision, are needed to strengthen consumer protection and financial education.

  • Reform of the statistical system: Key statistics are provided by the National Institute of Statistics (NIS) and other government agencies, as the central bank and ministries, and NIS regularly undertakes standard economic and social surveys with donor financing. However, quality and timely reporting remains an issue of concern. The last population census was held in 1993 and the national accounts are currently based on the 1968 system of national accounts. The quality of sector statistics must be improved, including through better coordination. While data production has increased in recent years, data access remains challenging.

  • Public expenditure efficiency: The high share of non-discretionary spending induces significant rigidities in the budget. Going forward, it will be important to rebalance spending in favor of social priorities through revenue growth and reforms that reduce the need for transfers to public enterprises and the pension system.

4. The teams agreed on the following division of labor:

  • Tax and customs administration reform: Shared responsibility. The Fund will provide TA to improve tax and customs administration. In tax administration it is essential to refocus available resources on real challenges and compliance risks, remove regulatory obstacles and procedures in tax administration, streamline management resources to support change, and give priority to measures that are likely to generate additional tax revenues in 2016. In customs administration it is essential to continue upgrading the risk management system, review the procedures used to control imported and exported goods, and implement targeted actions against fraud. The Bank is preparing a new public sector support project to respond to the government’s request to help modernize customs and tax administrations with the aim of improving revenue mobilization.

  • PFM reform: Shared responsibility. Fund TA aims at developing medium-term fiscal objectives, improving budget execution and public investment management, and developing new procedures for internal control to avoid arrears. The Bank’s public sector project will support government’s effort in improving social sector PFM efficiency.

  • Economic governance and corruption: Shared responsibility. The World Bank will send a mission on anti-money laundering/combating the financing of terrorism (AML/CFT) that will review the existing financial regulation and banking supervision practices. Fund TA will focus on reducing administrative discretion in tax and customs administration and public expenditure management.

  • Business environment reform: The World Bank’s Second Integrated Growth Poles project (PIC2) is being implemented to improve commercial justice and increase economic opportunities and access to enabling services in selected regions. At the national level, the project will support a series of investment climate reforms and help strengthen the public-private interface to increase investor confidence and private investment. At the regional level, the project will support the implementation of targeted and integrated interventions to overcome barriers to private investment and job creation in poor regions with high growth potential. The World Bank and the Fund are assisting the authorities in the drafting of the mining and petroleum codes.

  • Public investment and debt management: Shared responsibility. The Bank conducted a Debt Management Performance Assessment (DeMPA) in 2013 and provided follow up assistance in developing a reform program in 2014. The Bank has also provided training on debt sustainability analysis and medium-term debt strategy in the past year, and stands ready to provide any further support that the public debt department may need to implement the reform program. The Bank and the Fund will conduct a joint Public Investment Management Assessment (PIMA) to diagnose the public investment management framework.

  • Service delivery and social safety nets: The Bank will take the lead. To support the identification of needs and priority actions, the bank published a comprehensive poverty analysis in March 2014. Through the Emergency Food Security and Social Protection Project the Bank is supporting a labor-intensive public works program as well as the design and implementation of a pilot Conditional Cash Transfer program. A Safety Nets Project under implementation will prepare the ground for a more systematic and programmatic approach to social safety nets as part of a larger social protection policy. The Bank has conducted an actuarial assessment of the public pension system.

  • Public enterprise reform: The Bank’s energy sector project provides technical assistance and financial support in developing a strategy to overhaul JIRAMA to improve the company’s finances and service delivery. The project will also support emergency repairs of JIRAMA’s assets, such as the purchase of parts needed to remobilize the generation capacity that has fallen into disrepair. The Bank is conducting a strategic review of Air Madagascar and is scouting for a strategic collaboration with a foreign airline.

  • Central bank operations: The IMF will take the lead. The Fund will assist the authorities in strengthening the central bank strategy and its core operations, including internal audit and accounting, and making monetary policy formulation and instruments more effective, including by (i) strengthening the interbank market and the market for short-term T-bills; (ii) improving liquidity management and forecasting; (iii) strengthening monetary policy operations; (iv) strengthening the foreign exchange market; and (iv) producing short- and medium-term inflation forecasts.

  • Financial sector stability: The Bank Group and the Fund will coordinate in providing support to banking supervision (CSBF) to improve efficiency, including by risk-based supervision and updating the regulatory framework. It is also a priority to develop an orderly framework for the resolution of banks and other financial institutions with problems. In this context, Fund TA will focus on commercial banks and Bank TA will focus on the microfinance sector.

  • Financial access and inclusion: The Bank will continue to strengthen its engagement in the area of SME finance.

  • Reform of the statistical system: Shared responsibility. The Fund will offer technical assistance in national accounts and price statistics. The Bank supports NIS in: (i) preparing the general population census; (ii) revising national accounts for 2007-12 using the 1993 system of national accounts and rebasing to 2007; (iii) capacity building; and (iv) updating the National Strategy for the Development of Statistics.

  • Public expenditure efficiency: The Bank has finalized a public expenditure review in health and education. The results will form the basis of the reform programs that will be supported by the Public Sector project under preparation.

5. The teams agreed to the following sharing of information:

  • Following WB missions, the Fund team will be kept informed of progress in the above macrocritical structural reform areas. Fund staff (including the resident representative) would be invited to debriefs of mission conclusions with the authorities and would receive on a timely basis aide-memoires and reports for information.

  • Following IMF missions, the Bank team will be kept informed of progress in the above cited areas where the Fund takes the lead as well as on areas of shared responsibility. The Fund will share outputs systematically. Bank staff would be invited to debriefs of mission conclusions with the authorities and would receive on a timely basis aide-memoires and reports for information.

6. The appendix lists the teams’ separate and joint work programs during 2016 and 2017.

Table 1.Madagascar: Bank and Fund Planned Activities in Macro-critical Structural Reform Areas, 2016-2017
TitleProductsProvisional Timing of MissionsExpected Delivery Date of Report
Bank Work ProgramProcurement reformQ2 2016During mission
Social protectionQ2 2016Q2 2018
Employment and poverty analysisTo be determinedQ2 2016
Extractive industryTo be determinedQ2 2016
EducationQ2 2016About one month after the mission
HealthQ2 2016About one month after the mission
Political economy of private sector (analytical work)To be determinedQ3 2016
Micro financeQ2 2016Q4 2016
Addressing malnutritionTo be determinedQ4 2016
AML/CFTQ3, 2016Q4, 2016
Energy resource mapping TATo be determinedQ4 2016
Public-private partnershipTo be determinedTo be determined
Customs modernization (public sector performance project)To be determinedTo be determined
Tax administration modernization (public sector performance project)To be determinedTo be determined
Statistical capacity buildingTo be determinedTo be determined
Fund Work ProgramAFS TA in revenue administration4 missionsAbout one month after each mission
MCT TA in internal auditQ2, 2016Q3, 2016
AFS TA in management of arrears and VAT refundsQ3, 2016Q3, 2016
Joint FAD/AFS TA in budget classification and natural resourcesQ3, 2016Q4, 2016
AFS TA in inflation analysis and forecastingQ3, 2016Q4, 2016
AFS TA in foreign exchange operationsQ3, 2016Q3, 2016
AFS TA financial market intelligence and monetary policy communicationQ4, 2016Q1, 2017
AFS TA bank liquidity management and forecastingQ4, 2016Q1, 2017
FAD TA in budget classification and natural resourcesQ1, 2017Q2, 2017
Fund Work ProgramFAD TA in medium-term fiscal frameworkTo be determinedTo be determined
AFS TA in payment system legislationTo be determinedTo be determined
MCT TA in central bank accountingTo be determinedTo be determined
MCT TA in internal auditTo be determinedTo be determined
Joint Work ProgramDebt sustainability analysisQ2, 2016Q3, 2016
Public Investment Management Assessment (inception mission)Q2, 2016Q2, 2016
Public Investment Management AssessmentQ3, 2016Q3, 2016

Relations With the African Development Bank Group

(As of May, 2016)

1. Madagascar (MDG) became a member of the African Development Bank Group (AfDB) in 1977. To date, the AfDB has financed 87 operations in the country, for a total net commitment of UA1.312 billion. This comprises of 77 projects, including institutional support, and 10 studies. The vast majority of these operations were financed through loans.

2. As of May 31, 2016, the AfDB’s ongoing portfolio comprised of 8 active projects for a total commitment of UA164.7 million. These are: the Project for Rehabilitation of Agriculture Infrastructure (PRIASO); the Project to Extend the Perimeter of Bas Mangoky (PEPBM); the project for Rural Youth Enterprises in the Mid-West of Madagascar (PROJERMO); the Road Maintenance Project (PAIR); the Project to Support Institutional Governance (PAGI); the Project to Promote Investment (PAPI); a grant to support the fight against the plague; and a grant to provide school meals and food aid to the drought afflicted southern regions (Table 1). The average age of the portfolio is slightly over 2 years, which has drastically declined over the past few years. Such improvement is mainly linked to new projects approved from 2013 onwards. The portfolio’s average disbursement rate stands at 13.85 percent. In terms of sector distribution, agriculture contributes a substantial proportion, representing 57 percent of the total value of the portfolio, followed by transport (35 percent), governance (7 percent), and health (1 percent). There are two ongoing private sector projects, the Ambatovy Nickel Project and the Sahanivotry Hydroelectric Power Plant Project.

Table 1.AfDB Ongoing Projects
SectorsProjectsApproval DateCommitment (Millions of UA)Disbursement Rate (Percent)
AgricultureProjet de Réhabilitation des infrastructures agricoles s.o. (PRIASO)June 19, 201328.8811.13
Projet d’Extension du Périmètre du Bas Mangoky (PEPBM)November 11, 201440.140.53
Projet Jeunes Enterprises Rurales dans le Moyen Ouest (PROJERMO)September 24, 201224.610.00
TransportationProjet d’Aménagement des infrastructures routières (PAIR)October 18, 201358.2028.91
GovernanceProjet d’Appui à la Governance Institutionnelle (PAGI)September 17, 20134.5026.41
Projet d’Appui à Promotion des Investissements (PAPI)July 9, 20157.000.00
HealthDon d’urgence pour la lute contre la pesteDecember 23, 20140.66100.00
Don d’urgence Assistance alimentaire aux cantines scolaires et supplementation nutritionnelle dans le Grand-SudAugust 24, 20150.71100.00
TotalUA164.7 million13.85

3. The AfDB’s current involvement in Madagascar is guided by the Interim Country Strategy Paper (I-CSP) 2014-16, approved in October 2014. The AfDB is currently preparing a new CSP, which will cover 2017-2021. The new CSP’s main objective is to improve the living conditions of the Malagasy people through a strong and inclusive economic growth. The proposed strategy in the new CSP focuses on Pillar I – Transport and Energy Infrastructure Development; and Pillar II – Improvement of the Business Environment. Both pillars are consistent with the authorities’ priorities laid out in the National Development Plan (NDP) as well as with the AfDB’s priorities outlined in the 2013-2022 strategy for the continent.

4. As part of its strategy and knowledge products, the AfDB also envisages to undertake the following economic and sector works: (i) a study on the poverty profile, food insecurity, and inequality; (ii) a study on Madagascar’s fragility and building resilience; (iii) a general profile of Madagascar; (iv) the development of a renewable energy investment plan; (v) a study to value Madagascar’s natural resources; and (vi) a study on the establishment of social safety nets, particularly for the vulnerable women and children of the country. Within the context of its projects, the AfDB will undertake the following studies; (i) a study on investment in renewable energies; (ii) a study on governance in the energy sector; and (iii) a study on growth in the Southern regions. Madagascar reached the Highly Indebted Poor Countries (HIPC) decision and completion points in 2000 and 2004, respectively. To this effect, the country became eligible for the MDRI. The AfDB’s total assistance under HICP and the MDRI amounted to US$299.6 million of debt relief in end-2010 present value terms. At the end of December 2010 in present value terms, the AfDB provided US$69.1 in debt relief under HIPC and US$230.5 million under the MDRI.

Other Resources Citing This Publication