Introduction

1. This joint DSA has been prepared by IMF and World Bank staff. It is based on the framework for LICs approved by the respective Executive Boards. The framework takes into account indicative thresholds for debt burden indicators determined by the quality of the country’s policies and institutions.² The assessment comprises a baseline scenario and a set of alternative scenarios.

2. This DSA includes public debt and guarantees of the general government. The DSA does not include the debt of local government or state owned enterprises (other than through direct guarantees). The measure of debt is on a gross rather than net basis. And the residency criterion is used to determine the split between external and domestic debt.

Recent Developments and Current Debt Situation

3. Over 2008-14, domestic debt was the main driver of total PPG debt in Madagascar (Figure 1). A significant reduction in loans from development partners during the 2008-13 crisis period resulted in a greater reliance on domestic sources to finance budget deficits. In 2008, domestic debt was 7.3 percent of GDP, but increased to 11.4 percent by end-2014. This debt includes domestic budgetary arrears, which increased sharply in 2013. In contrast, external PPG debt was maintained at around 24 percent of GDP over 2008-14. The authorities also refrained from borrowing externally on non-concessional terms, which helped to maintain debt sustainability. Overall, total public debt rose from around US $2.5 billion (33 percent of GDP) in 2007 to US$3.5 billion (35 percent of GDP) in 2014. This modest increase in debt remains substantially below the pre-HIPC peak of 95 percent of GDP. The debt service to revenue ratio, however, has increased due to a greater reliance on domestic financing and declining fiscal revenues.

Debt Level and Service Ratios

Citation: IMF Staff Country Reports 2015, 325; 10.5089/9781513591162.002.A003

Sources: Malagasy authorities; and IMF staff estimates and projections.

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Debt Level and Service Ratios

Citation: IMF Staff Country Reports 2015, 325; 10.5089/9781513591162.002.A003

Sources: Malagasy authorities; and IMF staff estimates and projections.

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Debt Level and Service Ratios

Citation: IMF Staff Country Reports 2015, 325; 10.5089/9781513591162.002.A003

Sources: Malagasy authorities; and IMF staff estimates and projections.

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4. A significant nominal exchange rate depreciation in 2015 increased the burden of external debt. In 2015, a projected depreciation of 8 percent in the period average nominal effective exchange rate (22 percent depreciation against the dollar) is expected to increase external debt by 6 percentage points of GDP. And exchange rate base effects will lead to a further deterioration in the debt-to-GDP ratio in 2016. Nominal debt increased by a relatively modest 3 percentage points of GDP, and this was largely offset by real GDP growth. The larger than expected exchange rate depreciation, therefore, is the primary driver of the deterioration in debt dynamics in 2015, relative to the forecast in the 2014 DSA.

5. The majority of external debt is owed to multilateral creditors on highly concessional terms. Table 1 summarizes PPG debt by creditor type. Around one-third of total debt is held by domestic creditors mainly in the form of bonds and loans to the private sector. Debt to the central bank and arrears were also relatively high at around 2.5 percent of GDP respectively in 2014. The vast majority of external debt is held by multilateral creditors, in particular the World Bank and African Development Bank. This debt is highly concessional.

Table 1:

Break-down of Total PPG Debt (end-2014)

Sources: Malagasy authorities; and IMF staff estimates and projections.

Table 1:

Break-down of Total PPG Debt (end-2014)

Creditor	Amount (US$m)	Percent of GDP	Percent of total
Domestic debt, of which:	1,217	11.4	34.1
Treasury bills	425	4.0	11.9
Debt to the Central Bank	276	2.6	7.7
Arrears	282	2.6	7.9
Other inc. loans	234	2.2	6.5
External debt, of which:	2,357	23.7	65.9
Multilateral	1,854	18.7	51.9
Paris Club	107	1.1	3.0
Non-Paris Club	380	3.8	10.6
Commercial	17	0.2	0.5
Total PPG debt	3,574	35.1	100.0

Sources: Malagasy authorities; and IMF staff estimates and projections.

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Table 1:

Break-down of Total PPG Debt (end-2014)

Creditor	Amount (US$m)	Percent of GDP	Percent of total
Domestic debt, of which:	1,217	11.4	34.1
Treasury bills	425	4.0	11.9
Debt to the Central Bank	276	2.6	7.7
Arrears	282	2.6	7.9
Other inc. loans	234	2.2	6.5
External debt, of which:	2,357	23.7	65.9
Multilateral	1,854	18.7	51.9
Paris Club	107	1.1	3.0
Non-Paris Club	380	3.8	10.6
Commercial	17	0.2	0.5
Total PPG debt	3,574	35.1	100.0

Sources: Malagasy authorities; and IMF staff estimates and projections.

6. Private external debt is mainly issued by local subsidiaries of multinational companies. According to the authorities, external debt owed by domestically owned companies and households is negligible. There are, however, a number of multinational companies—for instance in the mining, banking, telecommunication sector—which wholly own local subsidies with external debt. The authorities do not have comprehensive data on these obligations. But by far the largest of these debtors is the Nickel/Cobalt mine and processing facility, which has external debt of around US$2bn (21 percent of GDP). This obligation has caused total external debt to increase from 24 percent of GDP in 2007 to 44 percent at end-2014. It is projected that this commercial loan will be fully repaid by around 2030.

Underlying Assumptions

7. The key variables driving debt dynamics are forecast to improve over coming years (Box 1). The DSA projections are consistent with the authority’s plan to scale-up much needed infrastructure and social spending. Much of this investment will be financed through concessional external borrowing and grants, although some non-concessional borrowing is envisaged throughout the forecast horizon. This will increase during the forecast horizon, and as such, the average grant element of new borrowing is projected to decline from 40 percent today to around 30 percent in 2035. The current assumptions are somewhat more conservative than the 2014 DSA.

8. The main risks to these assumptions relate to revenue generation and donor grant support, although these are symmetrical in nature. Continued weak revenue performance and a low donor grant support (perhaps as a result of the failure to reform on revenue) pose significant risks to debt sustainability. However, there is also significant upside potential to generate revenues, especially from such a low base. This has the potential to boost the ability to service higher debt levels and stimulate greater donor support. In this sense, risks are both to the upside and downside.

Box 1.

Baseline Macroeconomic Assumptions

Real GDP growth. Growth is expected to be lower in the near term than projected in the 2014 DSA, largely as a result of natural disasters and continued political uncertainty, which held back reforms and private investment. Growth is expected to steadily increase over the next 5 years, stabilizing at 5 percent for the medium term. This is driven by improved confidence, further re-engagement of development partners, and increased mining exports.

Current account. The decline in global oil and rice prices led to an improvement in the current account, which was only partially offset by lower than expected mining revenues. In coming years, a bounce back in imports is projected, as domestic consumption and investment recover. Over the medium term, the noninterest current account deficit is expected to stabilize at 3.0-3.5 percent of GDP, similar to the 2014 DSA.

Grants. Donor grant support has been significantly lower in 2014 and 2015 than anticipated in the 2014 DSA. This has led to a downward revision to medium term projections of grant support to around 2.5 percent of GDP per annum. Over the long-run, grants are assumed to decline to 0.6 percent of GDP by 2035.

Revenues. This is an area of vulnerability for debt sustainability. Tax revenues have fallen from (a relatively modest) 12.1 percent of GDP in 2008, to 9.9 in 2014. This is lower than anticipated in the 2014 DSA, and so the path of revenue going forward is projected to rise at a more modest pace.

Expenditure. Expenditure will be somewhat constrained by the lower than expected revenue projection, and so is somewhat below the 2014 DSA. However, the primary deficit is expected to be higher in the near term in order to accommodate a modest scaling up of capital investment and social spending.

Table 2:

Madagascar; Baseline Macroeconomic Assumptions

Source: IMF staff projections.

Table 2:

Madagascar; Baseline Macroeconomic Assumptions

		2015	2016	2017	2018	2019
Real GDP growth (percent)	2015 DSA	3.2	4.3	4.4	4.5	4.7
	2014 DSA	4.0	4.5	4.5	4.5	4.5
Non-interest current account deficit (percent GDP)	2015 DSA	1.5	1.5	1.8	3.1	3.3
	2014 DSA	5.4	5.2	5.0	4.3	3.9
Primary deficit (percent of GDP)	2015 DSA	3.5	1.9	3.6	2.9	2.7
	2014 DSA	1.4	0.7	1.4	1.3	1.3
Total revenues (percent of GDP)	2015 DSA	12.4	13.5	13.8	14.2	14.4
	2014 DSA	15.0	16.0	15.7	15.9	16.3
Grants (percent of GDP)	2015 DSA	2.1	3.0	2.6	2.7	2.4
	2014 DSA	3.7	3.7	3.7	3.7	3.7
Non-Interest Expenditure (percent of GDP)	2015 DSA	15.9	15.4	17.4	17.1	17.1
	2014 DSA	16.4	16.7	17.1	17.2	17.5

Source: IMF staff projections.

View Table

Table 2:

Madagascar; Baseline Macroeconomic Assumptions

		2015	2016	2017	2018	2019
Real GDP growth (percent)	2015 DSA	3.2	4.3	4.4	4.5	4.7
	2014 DSA	4.0	4.5	4.5	4.5	4.5
Non-interest current account deficit (percent GDP)	2015 DSA	1.5	1.5	1.8	3.1	3.3
	2014 DSA	5.4	5.2	5.0	4.3	3.9
Primary deficit (percent of GDP)	2015 DSA	3.5	1.9	3.6	2.9	2.7
	2014 DSA	1.4	0.7	1.4	1.3	1.3
Total revenues (percent of GDP)	2015 DSA	12.4	13.5	13.8	14.2	14.4
	2014 DSA	15.0	16.0	15.7	15.9	16.3
Grants (percent of GDP)	2015 DSA	2.1	3.0	2.6	2.7	2.4
	2014 DSA	3.7	3.7	3.7	3.7	3.7
Non-Interest Expenditure (percent of GDP)	2015 DSA	15.9	15.4	17.4	17.1	17.1
	2014 DSA	16.4	16.7	17.1	17.2	17.5

Source: IMF staff projections.

External DSA

Baseline scenario

9. The level of PPG external debt in 2014 is a little over US$2.5 billion, and is projected to grow gradually throughout the forecast horizon. PPG external debt is forecast to increase from 24 percent of GDP in 2014 to peak at 34 percent of GDP in 2020 (Table 3). This is driven by a step-up in foreign financed investment, consistent with the authority’s National Development Plan. As domestic debt markets deepen (see below), PPG external debt will decline as a proportion of GDP to around 30 percent of GDP. A persistent trade deficit and outflows from the mining sector³ are balanced with increasing grant inflows (over the next decade) and relatively strong growth. FDI inflows are assumed to be lower than that experienced over the last few years, during which major mining projects were being constructed.

Table 3.

Madagascar: External Debt Sustainability Framework, Baseline Scenario, 2012-35¹

(In percent of GDP; unless otherwise indicated)

Sources: Country authorities; and staff estimates and projections.

^1/Includes both public and private sector external debt.

^2/Derived as [r - g - ρ(1+g)]/(1+g + ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

^3/Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

^4/Assumes that PV of private sector debt is equivalent to its face value.

^5/Current-year interest payments divided by previous period debt stock.

^6/Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

^7/Defined as grants, concessional loans, and debt relief.

^8/Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Table 3.

Madagascar: External Debt Sustainability Framework, Baseline Scenario, 2012-35¹

(In percent of GDP; unless otherwise indicated)

					Actual			Historical 6/ Average	Standard 6/ Deviation	Projections
					2012	2013	2014			2015	2016	2017	2018	2019	2020	2015-2020 Average	2025	2035	2021-2035 Average
External debt (nominal) 1/					44.9	43.9	44.3	38.0	14.5	51.3	52.0	49.6	47.7	45.9	44.8	48.6	37.5	35.3	36.2
		of which: public and publicly guaranteed (PPG)			24.2	22.8	23.7	24.2	16.3	31.2	32.6	32.7	33.0	33.3	33.8	32.8	32.9	28.4	31.3
Change in external debt					2.6	−1.0	0.5	2.1	16.2	7.0	0.7	−2.5	−1.9	−1.7	−1.2	0.1	−1.6	0.6	−0.6
Identified net debt-creating flows					−1.2	−2.5	−3.0			−2.8	−3.8	−3.6	−2.5	−2.4	−2.7		−2.7	−3.2
		Non-interest current account deficit			6.5	5.3	−0.1	8.9	7.0	1.5	1.5	1.8	3.0	3.2	3.2	2.4	3.5	2.6	3.1
			Deficit in balance of goods and services		9.5	8.4	4.3	13.8	6.3	3.3	3.3	3.7	5.0	5.5	5.4	4.4	5.8	5.1	5.5
				Exports	29.2	30.3	32.8			34.3	37.4	37.8	37.1	37.1	37.5		38.1	43.3	39.7
				Imports	38.7	38.7	37.1			37.6	40.7	41.5	42.2	42.6	42.9		43.9	48.5	45.2
			Net current transfers (negative = inflow)		−6.0	−6.0	−6.9	−6.4	2.6	−5.1	−5.5	−5.5	−5.4	−5.4	−5.4	−5.4	−5.4	−5.4	−5.4
				of which: official	−1.2	−1.3	−2.0	−2.1	1.7	−2.0	−2.1	−2.4	−2.2	−2.0	−1.9	−2.1	−1.4	−0.8	−1.2
			Other current account flows (negative = net inflow)		3.0	2.9	2.5	1.5	1.0	3.3	3.7	3.6	3.4	3.1	3.2	3.4	3.1	2.8	3.0
		Net FDI (negative = inflow)			−7.8	−5.2	−2.9	−5.3	2.3	−3.1	−3.3	−3.5	−3.7	−3.9	−4.1	−3.6	−4.1	−4.1	−4.1
		Endogenous debt dynamics 2/			0.2	−2.6	0.0	−3.2	4.1	−1.2	−2.0	−1.9	−1.8	−1.7	−1.7	−1.7	−2.1	−1.6	−1.9
			Contribution from nominal interest rate		0.3	0.3	0.3	0.3	0.1	0.4	0.3	0.3	0.3	0.4	0.4	0.3	0.4	0.6	0.5
			Contribution from real GDP growth		−1.3	−1.0	−1.4	−1.3	1.5	−1.6	−2.3	−2.1	−2.1	−2.1	−2.2	−2.1	−1.8	−1 6	−1 7
			Contribution from price and exchange rate changes		1.2	−1.9	1.2			…	…	…	…	…	…		…	…
Residual (3-4) 3/					3.8	1.4	3.4	−4.2	14.1	9.8	4.5	1.1	0.5	0.6	1.5	3.0	1.1	3.9	2.2
	of which: exceptional financing				0.0	0.0	0.0			0.0	0.0	0.0	0.0	0.0	0.0		0.0	0.0
PV of external debt 4/					…	…	33.8			37.7	38.2	36.0	34.4	32.9	31.9		26.5	27 1
	In percent of exports				…	…	103.2			109.8	102.2	95.3	92.6	88.7	85.0		69.5	62.4
PV of PPG external debt					…	…	13.2			17.5	18.7	19.1	19.7	20.3	20.9		21.9	20.2
	In percent of exports				…	…	40.3			51.1	50.1	50.6	53.1	54.6	55.8		57.5	46.6
	In percent of government revenues				…	…	130			169	172	169	168	166	164		157	127
Debt service-to-exports ratio (in percent)					2.0	1.7	2.9			2.7	3.0	2.9	2.7	2.7	2.7		3.3	3.9
PPG debt service-to-exports ratio (in percent)					2.0	1.7	2.9			2.7	3.0	2.9	2.7	2.7	2.7		3.3	3.9
PPG debt service-to-revenue ratio (in percent)					6.2	5.5	9.5			9.0	10.1	9.8	8.6	8.2	7.9		9.0	10.2
Total gross financing need (Millions of U.S. dollars)					−77.4	71.0	−221.2			−64.7	−63.8	−58.1	35.8	34.9	4.9		108.6	29.1
Non-interest current account deficit that stabilizes debt ratio					3.8	6.4	−0.6			−5.5	0.8	4.2	4.9	5.0	4.4		5.1	1 9
Key macroeconomic assumptions
Real GDP growth (in percent)					3.0	2.3	3.3	2.9	3.5	3.2	4.3	4.4	4.5	4.7	5.0	4.3	5.0	5.0	5.0
GDP deflator in US dollar terms (change in percent)					−2.7	4.5	−2.6	6.7	9.9	−11.9	−8.8	2.1	2.2	2.4	1.7	−2.1	1.8	1 9	1 9
Effective interest rate (percent) 5/					0.7	0.6	0.8	0.8	0.3	0.7	0.6	0.6	0.7	0.9	1.0	0.7	1.2	1.9	1.6
Growth of exports of G&S (US dollar terms, in percent)					9.4	11.0	8.9	10.6	16.3	−4.8	3.6	7.7	5.0	7.1	8.0	4.4	7.7	8 6	8 0
Growth of imports of G&S (US dollar terms, in percent)					2.1	6.9	−3.6	8.4	21.5	−7.8	2.8	8.7	8.5	8.2	7.7	4.7	7.6	8.5	7.8
Grant element of new public sector borrowing (in percent)					…	…	…	…	…	42.8	37.4	40.4	37.3	36.7	36.5	38.5	34.0	28 2	31 5
Government revenues (excluding grants, in percent of GDP)					9.6	9.6	10.1	10.7	1.0	10.3	10.9	11.3	11.8	12.2	12.8	11.6	14.0	14.7	14.5
Aid flows (in Millions of US dollars) 7/					120	134	246			404	441	401	438	426	417		382	279
	of which: Grants				120	134	246			200	239	253	264	248	249		245	206
	of which: Concessional loans				0.0	0.0	0.0			204.0	202.1	148.5	173.5	178.2	167.6		136.6	72.8
Grant-equivalent financing (in percent of GDP) 8/					…	…	…			3.5	4.1	3.8	3.7	3.4	3.1	3.6	2.3	1 3	2 0
Grant-equivalent financing (in percent of external financing) 8/					…	…	…			64.2	61.9	67.2	65.2	62.8	63.1	64.1	59 4	42.6	52.6
Memorandum items:
Nominal GDP (Millions of US dollars)					9920	10602	10674			9700	9223	9824	10494	11249	12011		16781	32896
Nominal dollar GDP growth					0.3	6.9	0.7			−9.1	−4.9	6.5	6.8	7.2	6.8	2.2	6.9	7.0	6 9
PV of PPG external debt (in Millions of US dollars)							1311.6			1480.3	1685.5	1845.3	2038.0	2251.1	2462.9		3616 8	6538 7
(PVt-PVt-1)/GDPt-1 (in percent)										1.6	2.1	1.7	2.0	2.0	1.9	1.9	1.4	1.1	1.4
Gross workers’ remittances (Millions of US dollars)					…	…	…			…	…	…	…	…	…		…	…
PV of PPG external debt (in percent of GDP + remittances)					…	…	13.2			17.5	18.7	19.1	19.7	20.3	20.9		21 9	20 2
PV of PPG external debt (in percent of exports + remittances)					…	…	40.3			51.1	50.1	50.6	53.1	54.6	55.8		57.5	46.6
Debt service of PPG external debt (in percent of exports + remittances)					…	…	2.9			2.7	3.0	2.9	2.7	2.7	2.7		3 3	3 9

Sources: Country authorities; and staff estimates and projections.

^1/Includes both public and private sector external debt.

^2/Derived as [r - g - ρ(1+g)]/(1+g + ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

^3/Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

^4/Assumes that PV of private sector debt is equivalent to its face value.

^5/Current-year interest payments divided by previous period debt stock.

^6/Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

^7/Defined as grants, concessional loans, and debt relief.

^8/Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

View Table

Table 3.

Madagascar: External Debt Sustainability Framework, Baseline Scenario, 2012-35¹

(In percent of GDP; unless otherwise indicated)

					Actual			Historical 6/ Average	Standard 6/ Deviation	Projections
					2012	2013	2014			2015	2016	2017	2018	2019	2020	2015-2020 Average	2025	2035	2021-2035 Average
External debt (nominal) 1/					44.9	43.9	44.3	38.0	14.5	51.3	52.0	49.6	47.7	45.9	44.8	48.6	37.5	35.3	36.2
		of which: public and publicly guaranteed (PPG)			24.2	22.8	23.7	24.2	16.3	31.2	32.6	32.7	33.0	33.3	33.8	32.8	32.9	28.4	31.3
Change in external debt					2.6	−1.0	0.5	2.1	16.2	7.0	0.7	−2.5	−1.9	−1.7	−1.2	0.1	−1.6	0.6	−0.6
Identified net debt-creating flows					−1.2	−2.5	−3.0			−2.8	−3.8	−3.6	−2.5	−2.4	−2.7		−2.7	−3.2
		Non-interest current account deficit			6.5	5.3	−0.1	8.9	7.0	1.5	1.5	1.8	3.0	3.2	3.2	2.4	3.5	2.6	3.1
			Deficit in balance of goods and services		9.5	8.4	4.3	13.8	6.3	3.3	3.3	3.7	5.0	5.5	5.4	4.4	5.8	5.1	5.5
				Exports	29.2	30.3	32.8			34.3	37.4	37.8	37.1	37.1	37.5		38.1	43.3	39.7
				Imports	38.7	38.7	37.1			37.6	40.7	41.5	42.2	42.6	42.9		43.9	48.5	45.2
			Net current transfers (negative = inflow)		−6.0	−6.0	−6.9	−6.4	2.6	−5.1	−5.5	−5.5	−5.4	−5.4	−5.4	−5.4	−5.4	−5.4	−5.4
				of which: official	−1.2	−1.3	−2.0	−2.1	1.7	−2.0	−2.1	−2.4	−2.2	−2.0	−1.9	−2.1	−1.4	−0.8	−1.2
			Other current account flows (negative = net inflow)		3.0	2.9	2.5	1.5	1.0	3.3	3.7	3.6	3.4	3.1	3.2	3.4	3.1	2.8	3.0
		Net FDI (negative = inflow)			−7.8	−5.2	−2.9	−5.3	2.3	−3.1	−3.3	−3.5	−3.7	−3.9	−4.1	−3.6	−4.1	−4.1	−4.1
		Endogenous debt dynamics 2/			0.2	−2.6	0.0	−3.2	4.1	−1.2	−2.0	−1.9	−1.8	−1.7	−1.7	−1.7	−2.1	−1.6	−1.9
			Contribution from nominal interest rate		0.3	0.3	0.3	0.3	0.1	0.4	0.3	0.3	0.3	0.4	0.4	0.3	0.4	0.6	0.5
			Contribution from real GDP growth		−1.3	−1.0	−1.4	−1.3	1.5	−1.6	−2.3	−2.1	−2.1	−2.1	−2.2	−2.1	−1.8	−1 6	−1 7
			Contribution from price and exchange rate changes		1.2	−1.9	1.2			…	…	…	…	…	…		…	…
Residual (3-4) 3/					3.8	1.4	3.4	−4.2	14.1	9.8	4.5	1.1	0.5	0.6	1.5	3.0	1.1	3.9	2.2
	of which: exceptional financing				0.0	0.0	0.0			0.0	0.0	0.0	0.0	0.0	0.0		0.0	0.0
PV of external debt 4/					…	…	33.8			37.7	38.2	36.0	34.4	32.9	31.9		26.5	27 1
	In percent of exports				…	…	103.2			109.8	102.2	95.3	92.6	88.7	85.0		69.5	62.4
PV of PPG external debt					…	…	13.2			17.5	18.7	19.1	19.7	20.3	20.9		21.9	20.2
	In percent of exports				…	…	40.3			51.1	50.1	50.6	53.1	54.6	55.8		57.5	46.6
	In percent of government revenues				…	…	130			169	172	169	168	166	164		157	127
Debt service-to-exports ratio (in percent)					2.0	1.7	2.9			2.7	3.0	2.9	2.7	2.7	2.7		3.3	3.9
PPG debt service-to-exports ratio (in percent)					2.0	1.7	2.9			2.7	3.0	2.9	2.7	2.7	2.7		3.3	3.9
PPG debt service-to-revenue ratio (in percent)					6.2	5.5	9.5			9.0	10.1	9.8	8.6	8.2	7.9		9.0	10.2
Total gross financing need (Millions of U.S. dollars)					−77.4	71.0	−221.2			−64.7	−63.8	−58.1	35.8	34.9	4.9		108.6	29.1
Non-interest current account deficit that stabilizes debt ratio					3.8	6.4	−0.6			−5.5	0.8	4.2	4.9	5.0	4.4		5.1	1 9
Key macroeconomic assumptions
Real GDP growth (in percent)					3.0	2.3	3.3	2.9	3.5	3.2	4.3	4.4	4.5	4.7	5.0	4.3	5.0	5.0	5.0
GDP deflator in US dollar terms (change in percent)					−2.7	4.5	−2.6	6.7	9.9	−11.9	−8.8	2.1	2.2	2.4	1.7	−2.1	1.8	1 9	1 9
Effective interest rate (percent) 5/					0.7	0.6	0.8	0.8	0.3	0.7	0.6	0.6	0.7	0.9	1.0	0.7	1.2	1.9	1.6
Growth of exports of G&S (US dollar terms, in percent)					9.4	11.0	8.9	10.6	16.3	−4.8	3.6	7.7	5.0	7.1	8.0	4.4	7.7	8 6	8 0
Growth of imports of G&S (US dollar terms, in percent)					2.1	6.9	−3.6	8.4	21.5	−7.8	2.8	8.7	8.5	8.2	7.7	4.7	7.6	8.5	7.8
Grant element of new public sector borrowing (in percent)					…	…	…	…	…	42.8	37.4	40.4	37.3	36.7	36.5	38.5	34.0	28 2	31 5
Government revenues (excluding grants, in percent of GDP)					9.6	9.6	10.1	10.7	1.0	10.3	10.9	11.3	11.8	12.2	12.8	11.6	14.0	14.7	14.5
Aid flows (in Millions of US dollars) 7/					120	134	246			404	441	401	438	426	417		382	279
	of which: Grants				120	134	246			200	239	253	264	248	249		245	206
	of which: Concessional loans				0.0	0.0	0.0			204.0	202.1	148.5	173.5	178.2	167.6		136.6	72.8
Grant-equivalent financing (in percent of GDP) 8/					…	…	…			3.5	4.1	3.8	3.7	3.4	3.1	3.6	2.3	1 3	2 0
Grant-equivalent financing (in percent of external financing) 8/					…	…	…			64.2	61.9	67.2	65.2	62.8	63.1	64.1	59 4	42.6	52.6
Memorandum items:
Nominal GDP (Millions of US dollars)					9920	10602	10674			9700	9223	9824	10494	11249	12011		16781	32896
Nominal dollar GDP growth					0.3	6.9	0.7			−9.1	−4.9	6.5	6.8	7.2	6.8	2.2	6.9	7.0	6 9
PV of PPG external debt (in Millions of US dollars)							1311.6			1480.3	1685.5	1845.3	2038.0	2251.1	2462.9		3616 8	6538 7
(PVt-PVt-1)/GDPt-1 (in percent)										1.6	2.1	1.7	2.0	2.0	1.9	1.9	1.4	1.1	1.4
Gross workers’ remittances (Millions of US dollars)					…	…	…			…	…	…	…	…	…		…	…
PV of PPG external debt (in percent of GDP + remittances)					…	…	13.2			17.5	18.7	19.1	19.7	20.3	20.9		21 9	20 2
PV of PPG external debt (in percent of exports + remittances)					…	…	40.3			51.1	50.1	50.6	53.1	54.6	55.8		57.5	46.6
Debt service of PPG external debt (in percent of exports + remittances)					…	…	2.9			2.7	3.0	2.9	2.7	2.7	2.7		3 3	3 9

Sources: Country authorities; and staff estimates and projections.

^1/Includes both public and private sector external debt.

^2/Derived as [r - g - ρ(1+g)]/(1+g + ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

^3/Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

^4/Assumes that PV of private sector debt is equivalent to its face value.

^5/Current-year interest payments divided by previous period debt stock.

^6/Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

^7/Defined as grants, concessional loans, and debt relief.

^8/Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

10. Under the baseline projection, all PPG external debt indicators remain below the policy-dependent debt burden thresholds (Figure 2). The present value (PV) of the 2014 level of external debt, 13 percent of GDP, is projected to increase to 20 percent by 2035. This projection is broadly consistent with the medium term forecast from the last DSA conducted in 2014.

Madagascar: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2015-35 ^1/

Citation: IMF Staff Country Reports 2015, 325; 10.5089/9781513591162.002.A003

Sources: Country authorities; and staff estimates and projections.^1/ The most extreme stress test is the test that yields the highest ratio on or before 2025. In figure b. it corresponds to a One-time depreciation shock; in c. to a Exports shock; in d. to a One-time depreciation shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock

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Madagascar: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2015-35 ^1/

Citation: IMF Staff Country Reports 2015, 325; 10.5089/9781513591162.002.A003

Sources: Country authorities; and staff estimates and projections.^1/ The most extreme stress test is the test that yields the highest ratio on or before 2025. In figure b. it corresponds to a One-time depreciation shock; in c. to a Exports shock; in d. to a One-time depreciation shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock

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Madagascar: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2015-35 ^1/

Citation: IMF Staff Country Reports 2015, 325; 10.5089/9781513591162.002.A003

Sources: Country authorities; and staff estimates and projections.^1/ The most extreme stress test is the test that yields the highest ratio on or before 2025. In figure b. it corresponds to a One-time depreciation shock; in c. to a Exports shock; in d. to a One-time depreciation shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock

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11. Private external debt is projected to decline slowly, as the mining project loans are repaid. Given the exceptional nature of this project, the DSA does not forecast substantial new external borrowing from the private sector. Furthermore, this debt is not assessed to pose a significant threat to external sustainability, as the ultimate liability of these loans is to the multinational shareholders, rather than resident entities (such as domestic banks or the government).

Alternative scenarios

12. The two standard DSA stress test scenarios are applied to the baseline external PPG debt projection. First, the standard bounds test applies pre-defined shocks to the key macroeconomic variables that drive external debt (summarized in Footnote 1 of Figure 2). Second, a historical scenario where macroeconomic variables are assumed to equal their average over 2004-13 is imposed on the baseline projection. These shocks are detailed in Table 4.

Table 4.

Madagascar: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2015-35

(In percent)

Sources: Country authorities; and staff estimates and projections.

^1/Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

^2/Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

^3/Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

^4/Includes official and private transfers and FDI.

^5/Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

^6/Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Table 4.

Madagascar: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2015-35

(In percent)

	Projections
	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032	2033	2034	2035
	PV of debt-to GDP ratio
Baseline	17	18	18	18	19	20	20	20	21	21	21	20	20	20	20	20	20	19	19	19	19
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/	17	19	22	25	27	30	32	34	36	37	38	39	40	40	41	42	43	44	45	46	47
A2. New public sector loans on less favorable terms in 2015-2035 2	17	18	19	20	22	23	24	25	25	26	26	26	26	26	27	27	27	27	28	28	28
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-2017	17	18	20	20	21	21	22	22	23	23	23	22	22	22	22	21	21	21	21	21	20
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/	17	20	25	25	26	26	26	27	26	26	25	25	24	23	23	22	22	22	21	20	20
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017	17	17	18	18	19	19	20	20	20	20	20	20	20	19	19	19	19	19	19	18	18
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/	17	19	21	21	21	22	22	23	23	22	22	22	21	21	21	20	20	20	20	19	19
B5. Combination of B1-B4 using one-half standard deviation shocks	17	16	18	18	19	19	19	20	20	20	20	20	19	19	19	19	19	18	18	18	18
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/	17	26	26	27	28	29	29	30	30	30	30	30	29	29	29	29	29	28	28	28	27
	PV of debt-to-exports ratio
Baseline	50	48	48	50	51	52	53	54	55	55	54	53	52	51	50	49	48	47	46	44	43
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/	50	51	59	67	74	81	86	92	96	99	101	101	102	103	104	105	106	107	107	107	108
A2. New public sector loans on less favorable terms in 2015-2035 2	50	49	51	55	58	60	63	66	68	69	69	68	68	67	67	67	67	66	66	65	64
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-2017	50	47	47	49	51	51	52	54	54	54	53	52	51	50	49	48	47	46	45	43	42
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/	50	58	84	86	88	87	88	89	88	86	83	80	77	75	72	70	68	65	63	60	58
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017	50	47	47	49	51	51	52	54	54	54	53	52	51	50	49	48	47	46	45	43	42
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/	50	51	55	56	58	58	59	60	60	59	58	57	55	53	52	51	50	48	47	45	44
B5. Combination of B1-B4 using one-half standard deviation shocks	50	46	52	54	55	56	57	58	59	59	58	56	55	54	53	52	51	50	48	47	45
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/	50	47	47	49	51	51	52	54	54	54	53	52	51	50	49	48	47	46	45	43	42
	PV of debt-to-revenue ratio
Baseline	166	165	160	157	156	154	152	153	152	151	148	144	140	136	134	131	128	124	121	117	117
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/	166	175	196	210	224	237	246	258	266	271	274	275	276	277	279	282	283	283	284	284	319
A2. New public sector loans on less favorable terms in 2015-2035 2	166	168	171	173	177	178	180	185	187	188	188	185	183	182	181	180	178	176	174	171	188
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-2017	166	169	174	172	171	168	166	167	167	165	162	157	153	149	146	143	140	136	132	128	139
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/	166	182	223	216	212	205	201	199	194	188	181	174	167	160	155	150	144	138	133	127	137
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017	166	151	156	153	153	150	148	149	149	147	144	140	136	133	131	128	125	121	118	114	124
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/	166	173	182	178	176	171	169	169	167	163	159	153	148	144	140	137	132	128	124	119	129
B5. Combination of B1-B4 using one-half standard deviation shocks	166	144	156	153	152	149	147	148	148	145	143	138	134	131	128	125	122	119	115	111	121
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/	166	239	234	230	229	225	223	224	224	221	217	211	205	200	196	192	187	182	177	171	186
	Debt service-to-exports ratio
Baseline	3	3	3	3	3	3	3	3	3	3	3	3	3	3	4	4	4	4	4	4	4
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/	3	3	3	3	3	3	3	4	4	5	5	5	5	6	6	6	6	6	6	6	6
A2. New public sector loans on less favorable terms in 2015-2035 2	3	3	3	3	3	3	3	4	4	4	4	4	5	5	5	5	5	5	5	5	5
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-2017	3	3	3	3	3	3	3	3	3	3	3	3	3	3	4	4	4	4	4	4	4
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/	3	3	4	4	4	4	4	5	6	6	5	5	6	6	6	6	5	5	5	5	5
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017	3	3	3	3	3	3	3	3	3	3	3	3	3	3	4	4	4	4	4	4	4
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/	3	3	3	3	3	3	3	3	4	4	4	4	4	4	4	4	4	4	4	4	4
B5. Combination of B1-B4 using one-half standard deviation shocks	3	3	3	3	3	3	3	3	3	4	3	4	4	4	4	4	4	4	4	4	4
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/	3	3	3	3	3	3	3	3	3	3	3	3	3	3	4	4	4	4	4	4	4
	Debt service-to-revenue ratio
Baseline	9	10	10	8	8	8	7	8	8	9	8	9	9	9	9	10	10	10	10	9	9
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/	9	9	9	8	8	8	8	10	12	13	13	14	15	15	16	16	16	16	17	17	19
A2. New public sector loans on less favorable terms in 2015-2035 2	9	10	9	8	8	8	9	10	10	11	11	12	12	13	13	13	13	13	14	14	16
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-2017	9	11	11	9	9	9	8	9	9	10	9	10	10	10	11	11	11	11	11	11	12
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/	9	10	10	10	10	9	9	10	12	12	12	12	12	12	12	12	12	11	11	11	12
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017	9	9	10	8	8	8	7	8	8	9	8	9	9	9	9	10	10	9	9	9	11
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/	9	10	10	9	9	8	8	9	10	10	10	10	10	10	10	10	10	10	10	10	11
B5. Combination of B1-B4 using one-half standard deviation shocks	9	9	9	8	8	7	7	8	8	9	8	9	9	9	9	9	9	9	9	9	10
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/	9	15	14	12	12	11	11	12	13	13	12	13	14	14	14	14	14	14	14	14	16
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31

Sources: Country authorities; and staff estimates and projections.

^1/Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

^2/Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

^3/Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

^4/Includes official and private transfers and FDI.

^5/Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

^6/Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

View Table

Table 4.

Madagascar: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2015-35

(In percent)

	Projections
	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032	2033	2034	2035
	PV of debt-to GDP ratio
Baseline	17	18	18	18	19	20	20	20	21	21	21	20	20	20	20	20	20	19	19	19	19
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/	17	19	22	25	27	30	32	34	36	37	38	39	40	40	41	42	43	44	45	46	47
A2. New public sector loans on less favorable terms in 2015-2035 2	17	18	19	20	22	23	24	25	25	26	26	26	26	26	27	27	27	27	28	28	28
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-2017	17	18	20	20	21	21	22	22	23	23	23	22	22	22	22	21	21	21	21	21	20
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/	17	20	25	25	26	26	26	27	26	26	25	25	24	23	23	22	22	22	21	20	20
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017	17	17	18	18	19	19	20	20	20	20	20	20	20	19	19	19	19	19	19	18	18
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/	17	19	21	21	21	22	22	23	23	22	22	22	21	21	21	20	20	20	20	19	19
B5. Combination of B1-B4 using one-half standard deviation shocks	17	16	18	18	19	19	19	20	20	20	20	20	19	19	19	19	19	18	18	18	18
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/	17	26	26	27	28	29	29	30	30	30	30	30	29	29	29	29	29	28	28	28	27
	PV of debt-to-exports ratio
Baseline	50	48	48	50	51	52	53	54	55	55	54	53	52	51	50	49	48	47	46	44	43
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/	50	51	59	67	74	81	86	92	96	99	101	101	102	103	104	105	106	107	107	107	108
A2. New public sector loans on less favorable terms in 2015-2035 2	50	49	51	55	58	60	63	66	68	69	69	68	68	67	67	67	67	66	66	65	64
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-2017	50	47	47	49	51	51	52	54	54	54	53	52	51	50	49	48	47	46	45	43	42
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/	50	58	84	86	88	87	88	89	88	86	83	80	77	75	72	70	68	65	63	60	58
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017	50	47	47	49	51	51	52	54	54	54	53	52	51	50	49	48	47	46	45	43	42
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/	50	51	55	56	58	58	59	60	60	59	58	57	55	53	52	51	50	48	47	45	44
B5. Combination of B1-B4 using one-half standard deviation shocks	50	46	52	54	55	56	57	58	59	59	58	56	55	54	53	52	51	50	48	47	45
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/	50	47	47	49	51	51	52	54	54	54	53	52	51	50	49	48	47	46	45	43	42
	PV of debt-to-revenue ratio
Baseline	166	165	160	157	156	154	152	153	152	151	148	144	140	136	134	131	128	124	121	117	117
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/	166	175	196	210	224	237	246	258	266	271	274	275	276	277	279	282	283	283	284	284	319
A2. New public sector loans on less favorable terms in 2015-2035 2	166	168	171	173	177	178	180	185	187	188	188	185	183	182	181	180	178	176	174	171	188
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-2017	166	169	174	172	171	168	166	167	167	165	162	157	153	149	146	143	140	136	132	128	139
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/	166	182	223	216	212	205	201	199	194	188	181	174	167	160	155	150	144	138	133	127	137
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017	166	151	156	153	153	150	148	149	149	147	144	140	136	133	131	128	125	121	118	114	124
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/	166	173	182	178	176	171	169	169	167	163	159	153	148	144	140	137	132	128	124	119	129
B5. Combination of B1-B4 using one-half standard deviation shocks	166	144	156	153	152	149	147	148	148	145	143	138	134	131	128	125	122	119	115	111	121
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/	166	239	234	230	229	225	223	224	224	221	217	211	205	200	196	192	187	182	177	171	186
	Debt service-to-exports ratio
Baseline	3	3	3	3	3	3	3	3	3	3	3	3	3	3	4	4	4	4	4	4	4
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/	3	3	3	3	3	3	3	4	4	5	5	5	5	6	6	6	6	6	6	6	6
A2. New public sector loans on less favorable terms in 2015-2035 2	3	3	3	3	3	3	3	4	4	4	4	4	5	5	5	5	5	5	5	5	5
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-2017	3	3	3	3	3	3	3	3	3	3	3	3	3	3	4	4	4	4	4	4	4
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/	3	3	4	4	4	4	4	5	6	6	5	5	6	6	6	6	5	5	5	5	5
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017	3	3	3	3	3	3	3	3	3	3	3	3	3	3	4	4	4	4	4	4	4
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/	3	3	3	3	3	3	3	3	4	4	4	4	4	4	4	4	4	4	4	4	4
B5. Combination of B1-B4 using one-half standard deviation shocks	3	3	3	3	3	3	3	3	3	4	3	4	4	4	4	4	4	4	4	4	4
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/	3	3	3	3	3	3	3	3	3	3	3	3	3	3	4	4	4	4	4	4	4
	Debt service-to-revenue ratio
Baseline	9	10	10	8	8	8	7	8	8	9	8	9	9	9	9	10	10	10	10	9	9
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/	9	9	9	8	8	8	8	10	12	13	13	14	15	15	16	16	16	16	17	17	19
A2. New public sector loans on less favorable terms in 2015-2035 2	9	10	9	8	8	8	9	10	10	11	11	12	12	13	13	13	13	13	14	14	16
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-2017	9	11	11	9	9	9	8	9	9	10	9	10	10	10	11	11	11	11	11	11	12
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/	9	10	10	10	10	9	9	10	12	12	12	12	12	12	12	12	12	11	11	11	12
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017	9	9	10	8	8	8	7	8	8	9	8	9	9	9	9	10	10	9	9	9	11
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/	9	10	10	9	9	8	8	9	10	10	10	10	10	10	10	10	10	10	10	10	11
B5. Combination of B1-B4 using one-half standard deviation shocks	9	9	9	8	8	7	7	8	8	9	8	9	9	9	9	9	9	9	9	9	10
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/	9	15	14	12	12	11	11	12	13	13	12	13	14	14	14	14	14	14	14	14	16
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31	31

Sources: Country authorities; and staff estimates and projections.

^1/Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

^2/Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

^3/Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

^4/Includes official and private transfers and FDI.

^5/Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

^6/Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

13. For the standard bounds tests, two scenarios cause a breach of the thresholds for PPG external. A one-time 30 percent depreciation shock would cause the PV of debt-to-GDP to peak at 32 percent, slightly above the 30 percent threshold implied by Madagascar’s CPIA rating. The breach for the PV of debt-to-revenue is larger, peaking at just below 249 percent compared to a threshold of 200 percent. For this metric, the standard shock to exports⁴ also causes a breach of the threshold.

14. The historical scenario⁵ projects a rapid increase in all debt metrics and causes a breach for three of the five external debt thresholds. These scenarios cause a substantial breach in the thresholds, especially for the PV of debt-to-GDP and the PV of debt-to-revenue. But there is reason to place less weight on this scenario—the very large current account deficit in 2008 and 2009 (over 20% of GDP in both years) was mainly driven by substantial imports associated with large mining investments, which were partly financed through non-debt creating FDI. These did not lead to a build-up of PPG external debt, and this period is not representative of the normal economic environment in Madagascar.