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© 2008 International Monetary Fund
July 2008
IMF Country Report No. 08/232
Republic of Madagascar: Fourth Review Under the Three–Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria, Modification of Performance Criteria, and Augmentation of Access—Staff Report; Staff Supplement and Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Republic of Madagascar
In the context of the fourth review under the three–year arrangement under the Poverty Reduction and Growth Facility and request for waiver of performance criteria, modification of performance criteria, and augmentation of access, the following documents have been released and are included in this package:
The staff report for the Fourth Review Under the Three–Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria, Modification of Performance Criteria, and Augmentation of Access, prepared by a staff team of the IMF, following discussions that ended on April 12, 2008, 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 June 17, 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 supplement on the joint IMF/WB debt sustainability analysis.
A staff statement of July 1, 2008 updating information on recent developments.
A Press Release summarizing the views of the Executive Board as expressed during its July 2, 2008 discussion of the staff report that completed the review.
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
The policy of publication of staff reports and other documents allows for the deletion of market–sensitive information.
Copies of this report are available to the public from
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INTERNATIONAL MONETARY FUND
REPUBLIC OF MADAGASCAR
Fourth Review Under the Three–Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria, Modification of Performance Criteria, and Augmentation of Access
Prepared by the African Department
(In consultation with other departments)
Approved by Thomas Krueger and Mark Plant
June 17, 2008
Discussions for the fourth review of the three–year arrangement for Madagascar under the Poverty Reduction and Growth Facility (PRGF) were held in Antananarivo during March 26–April 6, 2008 and in Washington during April 11–12, 2008. The missions consisted of Messrs. Tsibouris (Head), Ellyne, Eyraud, Josz (all AFR) and Hallaert (PDR) and were assisted by Mr. van den Boogaerde, the Fund’s Resident Representative. Mr. Nyambal (OED) participated in the discussions.
The Letter of Intent (LOI), Memorandum of Economic and Financial Policies (MEFP), and Technical Memorandum of Understanding (TMU) are provided in Appendix I.
An updated Debt Sustainability Analysis (DSA) is contained in a separate Supplement.
Relations with the Fund, Relations with the World Bank Group, and Statistical Issues are presented in an Informational Annex.
Contents
Executive Summary
I. Introduction
II. Recent Economic Developments
III. Program Performance Through end–May 2008
IV. Economic and Financial Policies
A. Macroeconomic Outlook
B. Fiscal Policy and Reforms
C. Monetary, Exchange Rate, and Financial Sector Policies
D. External Sector
E. Structural Policies
V. Program Monitoring and Targets
VI. Risks
VII. Staff Appraisal
Tables
1. Selected Economic and Financial Indicators, 2006–10
2. National Accounts and Savings–Investment Balance, 2006–10
3a. Government Financial Operations, 2006–10 (Billions of ariary)
3b. Government Financial Operations, 2006–10 (Percent of GDP)
4. Quarterly Government Financial Operations, 2008
5. Balance of Payments, 2006–12
6. Monetary Survey, 2006–10
7. Balance Sheet of the Central Bank, 2006–10
8. Bank Soundness Indicators, 2002–07
9. Fund Position and Indicators of Fund Credit, 2007–16
10. Tentative Work Program Under the Three–Year PRGF Arrangement, 2008–09
11. Millennium Development Goals
Boxes
1. Rice Developments in Madagascar
2. Measures to Mitigate the Fuel and Food Price Shocks for the Population
Appendix
I. Letter of Intent
Attachment I. Memorandum on Economic and Financial Policies for 2008
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 (PRGF)
Executive Summary
Program performance has been generally good. The authorities have continued to implement sound fiscal and monetary policies that have resulted in good macroeconomic outcomes. They met all of the quantitative performance criteria (PCs) for end–January 2008, but missed two structural PCs (the measure relating to port exit procedures was implemented with a slight delay, and the action related to the introduction of an export promotion law awaits the conclusion of an extensive consultative process).
Misreporting. Central bank sales of foreign exchange at a small discount to importers of essential foodstuff resulted in a multiple currency practice and a related exchange restriction in contravention of continuous PCs in the arrangement in connection with the second and third reviews. This practice was halted when brought to the authorities’ attention. They have requested waivers for the nonobservance of the relevant PCs.
Economic challenges. The economy is adjusting to the overlapping shocks stemming from the rise in world energy and food prices, the recent cyclones, and the global slowdown. The international reserves cover is expected to deteriorate markedly, prompting the authorities to ask for an augmentation of 15 percent of quota, a request that staff supports. The program focuses on the following areas:
The 2008 fiscal program has been revised to accommodate additional fiscal measures to alleviate the impact of the food and energy shocks on the poor.
Tax collection is improving, but the authorities need to strengthen implementation of the tax and customs administration measures.
Public expenditure management remains a major weakness, and the authorities need to undertake a fundamental reform, including in terms of financial control.
Monetary policy should continue to aim at maintaining single digit inflation while avoiding excessive volatility of the exchange rate.
There is a pressing need to develop a long–term strategy for the electricity sector that makes JIRAMA financially viable and allows further development of the sector through public–private partnerships.
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INTERNATIONAL MONETARY FUND
REPUBLIC OF MADAGASCAR
Fourth Review Under the Three–Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria, Modification of Performance Criteria, and Augmentation of Access
Informational Annex
Prepared by the African Department
(In collaboration with other departments)
June 17, 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 May 31, 2008, outstanding PRGF loans amounted to SDR 42.77 million (35 percent of quota).
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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INTERNATIONAL MONETARY FUND AND INTERNATIONAL DEVELOPMENT ASSOCIATION
REPUBLIC OF MADAGASCAR
Joint World Bank/IMF Debt Sustainability Analysis
Prepared by the staffs of the International Monetary Fund and the International Development Association
Approved by Robert Sharer and Mark Plant (IMF) and Carlos Braga and Sudhir Shetty (IDA)
June 17, 2008
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July 2, 2008
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Press Release No. 08/158
FOR IMMEDIATE RELEASE
July 2, 2008
International Monetary Fund
Washington, D.C. 20431 USA
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July 2, 2008
