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© 2008 International Monetary Fund
February 2008
IMF Country Report No. 08/66
Republic of Madagascar: Second and Third Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver and Modification of Performance Criteria—Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Republic of Madagascar
In the context of the second and third review under the three-year arrangement under the Poverty Reduction and Growth Facility and request for a waiver and modification of performance criteria, the following documents have been released and are included in this package:
The staff report for the Second and Third Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver and Modification of Performance Criteria, prepared by a staff team of the IMF, following discussions that ended on October 3, 2007, with the officials of Republic of Madagascar on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on January 10, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A staff statement of January 30, 2008 updating information on recent developments.
A Press Release summarizing the views of the Executive Board as expressed during its January 30, 2008 discussion of the staff report that completed the review and request.
A statement by the Executive Director for Republic of Madagascar.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Republic of Madagascar*
Memorandum of Economic and Financial Policies by the authorities of Republic of Madagascar*
Technical Memorandum of Understanding*
*Also included in Staff Report
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INTERNATIONAL MONETARY FUND
REPUBLIC OF MADAGASCAR
Second and Third Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver and Modification of Performance Criteria
Prepared by the African Department
(In consultation with other departments)
Approved by Thomas Krueger and Mark Plant
January 10, 2008
Discussions for the second and third reviews of the three-year arrangement with Madagascar under the Poverty Reduction and Growth Facility (PRGF) were held in Antananarivo during March 8–21 and September 20–October 3, 2007, and in Washington during April 11–14 and October 18–19, 2007. The missions consisted of Messrs. Tsibouris or Ames (Head), Ellyne, Josz (all AFR) and Hallaert (PDR) and were assisted by Mr. van den Boogaerde, the Fund’s Resident Representative.
President Ravalomanana was re-elected in December 2006. The President’s political party won a clear majority in legislative elections in September 2007, leading to some changes among the key economic ministers.
The Letter of Intent (LOI), Memorandum of Economic and Financial Policies (MEFP), and Technical Memorandum of Understanding (TMU) are in the appendix. Relations with the Fund, relations with the World Bank Group, and statistical issues are presented in an informational annex to this report.
Contents
I. Introduction
II. Recent Economic Developments
III. Economic and Financial Policies for 2007–08
A. Revised Program for 2007
B. Economic and Financial Policies for 2008
IV. Program Monitoring and Targets
V. Risks
VI. Staff Appraisal
Tables
1. Tentative Work Program Under the Three-Year PRGF Arrangement, 2006–08
2. Selected Economic and Financial Indicators, 2005–09
3. National Accounts and Savings-Investments Balance, 2005–09
4a. Government Financial Operations, 2005–09
4b. Government Financial Operations, 2005–09
5. Quarterly Government Financial Operations, 2007
6. Balance of Payments, 2005–11
7. Monetary Survey, 2006–09
8. Balance Sheet of the Central Bank, 2006–09
9. Selected Economic and Financial Indicators, 2005–11
10. Fund Position and Indicators of Fund Credit, 2006–11
11. Millennium Development Goals
Appendix
Appendix I. Letter of Intent
Attachment I. Memorandum on Economic and Financial Policies for 2007–08
Attachment II. Technical Memorandum of Understanding on Monitoring the Performance Criteria and Targets for the Program Supported by the Arrangement Under the Poverty Reduction and Growth Facility (PRGF)
Executive Summary
Program performance has been mixed. Macroeconomic outcomes have been good, helped by able macroeconomic stewardship of the fiscal and monetary authorities. However, some structural reforms were delayed, notably in the electricity sector. Agreement has been reached on strong remedial measures to prevent a recurrence of misreporting regarding a continuous structural performance criteria (PC) on no waiver of established procedures for valuation and clearance of goods at customs.
The 2008 program aims to strengthen tax revenue, improve the quality of public expenditure, further reduce inflation, and implement key structural reforms for growth:
The 2008 budget is closely aligned with the priorities of the Madagascar Action Plan (MAP), the authorities’ poverty reducing strategy paper (PRSP) for 2007–11 and the program’s macroeconomic objectives. It includes a comprehensive tax policy reform that, together with the ongoing tax and customs administration reforms, will play a key role in raising revenue and improving the business environment.
Public financial management (PFM) reforms are heading in the right direction, but more remains to be done for improving budget preparation, execution, and monitoring.
Monetary and exchange rate policy needs to remain geared towards reducing inflation and avoiding an overshooting of the exchange rate. The large foreign direct investments in mining provide the opportunity to build up foreign exchange reserves, but their monetary impact needs to be carefully managed to reduce inflation.
There is an urgency to accelerate structural reforms, notably in the electricity sector, to increase economic growth and to strengthen the competitiveness of the economy.
In light of the sound macroeconomic policy performance in 2006–07, the ambitious program for 2008, and the effective remedial actions implemented in response to the missed PCs, staff recommends completion of the second and third reviews, supports granting of waivers for the nonobservance of two quantitative and three structural PCs (of which one waiver is requested in the report on noncomplying disbursement), and proposes modifying three existing continuous PCs.
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INTERNATIONAL MONETARY FUND
REPUBLIC OF MADAGASCAR
Second and Third Reviews Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver and Modification of Performance Criteria
Informational Annex
Prepared by the African Department
(In collaboration with other departments)
Approved by Thomas Krueger and Mark Plant
January 10, 2008
Relations with the Fund. Describes financial and technical assistance by the IMF and provides information on the safeguards assessment and exchange system. As of November 30th, 2007, outstanding PRGF loans amounted to SDR 27.1 million.
Relations with the World Bank. Describes the World Bank Group’s strategy and portfolio and identifies Bank and Fund areas of responsibility.
Statistical Issues. Assesses the quality and timeliness of statistical data and identifies areas of weakness that are hampering analysis of economic developments.
Contents
I. Madagascar: Relations with the Fund
II. Madagascar: Relations with the World Bank
III. Madagascar: Statistical Issues
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January 30, 2008
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Press Release No. 08/12
FOR IMMEDIATE RELEASE
January 31, 2008
International Monetary Fund
Washington, D.C. 20431 USA
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January 30, 2008