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IMF Country Report No. 16/273

REPUBLIC OF MADAGASCAR

REQUEST FOR AN ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY; FIRST REVIEW UNDER THE STAFF MONITORED PROGRAM—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR REPUBLIC OF MADAGASCAR

August 2016

In the context of the Request for an Arrangement Under the Extended Credit Facility: First Review Under the Staff Monitored Program, the following documents have been released and are included in this package:

  • A Press Release including a statement by the Chair of the Executive Board.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on July 27, following discussions that ended on June 8, with the officials of Republic of Madagascar on economic developments and policies underpinning the IMF arrangement under the Extended Credit Facility. Based on information available at the time of these discussions, the staff report was completed on July 12.

  • An Informational Annex prepared by the IMF staff.

  • A Debt Sustainability Analysis prepared by the staffs of the IMF and the International Development Association.

  • A Staff Statement updating information on recent developments.

  • A Statement by the Executive Director for Republic of Madagascar.

The documents listed below 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*

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

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© 2016 International Monetary Fund

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REPUBLIC OF MADAGASCAR

REQUEST FOR AN ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY; FIRST REVIEW UNDER THE STAFF MONITORED PROGRAM

July 12, 2016

Executive Summary

Context. Madagascar is a fragile country striving to recover from an extended political crisis and international isolation from 2009 to 2013, during which key social and developmental indicators deteriorated. Low revenue collection, substantial low-priority public spending, and governance problems are holding back recovery. Nevertheless, broadly satisfactory performance under the six-month staff monitored program that ended in March 2016 is a sign of improving implementation capacity.

Extended Credit Facility Arrangement (ECF). The Malagasy authorities have requested an arrangement under the ECF in an amount of SDR 220 million (180 percent of quota) in support of their medium-term economic reform program.

Program Framework. The authorities’ ECF-supported program, anchored on their National Development Plan (NDP), aims at reinforcing macroeconomic stability and promoting sustainable and inclusive growth. It focuses on:

  • Promoting robust and inclusive growth, combining improved access to education, health care, and social protection with infrastructure and private sector development.

  • Expanding the fiscal space for investment and social spending through superior revenue generation and spending prioritization.

  • Improving governance by strengthening public financial management and intensifying anti-corruption measures.

  • Building the capacity to support macroeconomic policy implementation and financial sector development by strengthening the central bank and financial supervision.

Risks. Risks to the program include political uncertainty, lack of progress against corruption, increased need for low-priority public spending (e.g., loss-making SOEs), and weak growth in advanced and emerging economies reducing FDI, tourism, and commodity prices.

Staff supports the authorities’ request for an ECF. Forceful and sustained program implementation will be essential to make the planned reforms effective.

Approved By

David Robinson and Rupa Duttagupta

Discussions on the authorities’ economic and financial program took place in Washington DC during April 13-15, 2016 and in Antananarivo during May 25-June 8, 2016. The IMF staff team included Messrs. Mills (head), Engstrom, and Matz (all AFR), Ms. Baum (FAD), and Mr. Eugster (SPR). The mission was assisted by Mr. Imam (Resident Representative), and Ms. Rasoamanana (local economist). Mr. Hardy (MCM) joined during June 2-8, 2016 to present the FSAP conclusions. Mr. Ismael (OED) participated in the discussions. The IMF team met with President Rajaonarimampianina, Prime Minister Solonandrasana, Minister of Finance and Budget Rakotoarimanana, Minister of Economy and Planning Raveloharison, Minister of Energy and Hydrocarbons Ramanantsoa, Central Bank of Madagascar Governor Rasolofondraibe, the Economic Advisor to the President, Mr. Rajaobelina, and other senior officials, as well as private sector representatives and development partners.

Contents

  • CONTEXT, RECENT DEVELOPMENTS, AND PROGRAM PERFORMANCE

  • A. Context

  • B. Recent Developments

  • C. Performance Under the Staff-Monitored Program

  • POLICIES UNDER THE ECF ARRANGEMENT

  • A. Program Objectives and Macroeconomic Framework

  • B. Promoting Inclusive Growth

  • C. Creating Fiscal Space

  • D. Enhancing Economic Governance

  • E. Strengthening Macroeconomic Stability and Financial Sector Development

  • CAPACITY BUILDING AND PROGRAM RISKS

  • PROGRAM MODALITIES AND FINANCING ASSURANCES

  • STAFF APPRAISAL

  • BOXES

  • 1. Medium-Term Objectives Under the ECF-Supported Program (2016-2019)

  • 2. Summary of FSAP Action Plan

  • 3. Risk Assessment Matrix

  • FIGURES

  • 1. Poverty and Social Indicators

  • 2. Real Sector Developments, 2006-16

  • 3. Fiscal Developments, 2006-16

  • 4. External Sector Developments, 2006-16

  • 5. Monetary Developments, 2014-16

  • 6. Medium-Term Macroeconomic Prospects, 2008-21

  • 7. Financial Sector Overview

  • TABLES

  • 1. Selected Economic and Financial Indicators, 2013–21

  • 2. National Accounts, 2013-21

  • 3. Fiscal Operations of the Central Government, 2013-21

  • 4. Fiscal Operations of the Central Government, 2013-21 (Percent of GDP)

  • 5. Balance of Payments, 2013-21

  • 6. Monetary Accounts, 2013-21

  • 7. Balance Sheet of the Central Bank, 2013-17

  • 8. External Financing Requirements and Sources, 2015-19

  • 9. Projected External Borrowing, 2016q1-17q2

  • 10. Financial Soundness Indicators, 2009-16

  • 11. Indicative Targets, End-December 2015 and End-March 2016

  • 12. Structural Benchmarks for SMP

  • 13. Proposed Schedule of Disbursements and Timing of ECF Arrangement Reviews

  • 14. Indicators of Capacity to Repay the Fund, 2016-30

  • ANNEX

  • I. Estimate of Optimal Reserves

  • APPENDIX

  • I. Letter of Intent

    • Attachment I. Memorandum of Economic and Financial Policies, 2016-19

    • Attachment II. Technical Memorandum of Understanding

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REPUBLIC OF MADAGASCAR

REQUEST FOR AN ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY; FIRST REVIEW UNDER THE STAFF MONITORED PROGRAM—INFORMATIONAL ANNEX

July 12, 2016

Prepared By

African Department

In collaboration with other departments, the World Bank, and the African Development Bank.

Contents

  • FUND RELATIONS

  • RELATIONS WITH THE WORLD BANK GROUP

  • RELATIONS WITH THE AFRICAN DEVELOPMENT BANK GROUP

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REPUBLIC OF MADAGASCAR

REQUEST FOR AN ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY; FIRST REVIEW UNDER THE STAFF MONITORED PROGRAM—DEBT SUSTAINABILITY ANALYSIS 1

July 13, 2016

Approved By

David Owen and Rupa Duttagupta (IMF) and John Panzer (IDA)

Prepared by the Staffs of the International Monetary Fund and the International Development Association

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Madagascar’s risk of external debt distress is assessed to be ‘moderate,’ unchanged from the last DSA of November last year. Debt dynamics remain comparable in the baseline scenario, although a faster scaling up of foreign financed investments, a gradual depreciation, and the projected deterioration of the terms of trade lead to a slightly faster debt accumulation over the medium term. The public DSA suggests that the dynamics of Madagascar’s total public and publically-guaranteed (PPG) debt are sustainable, although weak fiscal revenue generation, possible exchange rate shocks, and contingent liabilities related to state-owned enterprises (SOEs) remain sources of vulnerability.

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Press Release No. 16/370

FOR IMMEDIATE RELEASE

July 28, 2016

International Monetary Fund

Washington, D.C. 20431 USA