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 SOEs (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. Re-engagement with the international community has broadened access to external financing sources, reducing the need for domestic borrowing. Development partners reduced their lending to Madagascar during the 2008-13 crisis and the government relied more on domestic sources to finance budget deficits. Domestic debt, including domestic budgetary arrears, increased from 7.3 percent of GDP in 2008 to 12.6 percent in 2015. With the government re-engaging with the international donor community, external financing has become more readily available. As a result, external PPG debt, on average about 24 percent of GDP over 2008-14, is projected to increase to over 30 percent of GDP by end-2016, while domestic debt is projected to decrease slightly to 11 percent of GDP by end-2016 (Figure 1 and Table 3). The authorities have largely refrained from borrowing externally on non-concessional terms, which helps support debt sustainability. Overall, total public debt rose from around US$2.5 billion (33 percent of GDP) in 2007 to US$3.7 billion (41 percent of GDP) in 2015 (Table 6). Debt still remains substantially below the pre-HIPC peak of 95 percent of GDP. The debt service to revenue ratio is continuing to increase because of the higher indebtedness, the still high reliance on domestic financing, and poor revenue mobilization.

Debt Level and Service Ratios

Citation: IMF Staff Country Reports 2016, 273; 10.5089/9781475525014.002.A003

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Debt Level and Service Ratios

Citation: IMF Staff Country Reports 2016, 273; 10.5089/9781475525014.002.A003

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Debt Level and Service Ratios

Citation: IMF Staff Country Reports 2016, 273; 10.5089/9781475525014.002.A003

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4. The exchange rate depreciation in 2015 amplified the burden of external debt. The depreciation of the Ariary, by more than 20 percent relative to the dollar, was the main driver behind a 3.5 percentage point increase in external PPG debt in 2015 (Figure 1 and Table 3). New external loans amounted to about 2½ percent of GDP, which was partially offset by a nominal GDP growth of 10 percent. The current exchange rate remains more depreciated than last year’s average; another, though probably more moderate, valuation effect will add to external debt this year.

5. Most external debt is owed to multilateral creditors on highly concessional terms (Table 1). Slightly below one-third of total debt is held by domestic creditors, mainly in the form of Treasury bills and debt to the central bank³. Domestic arrears remained relatively high, estimated at around 3½ percent of GDP in 2015. The vast majority of external debt is held by multilateral creditors, in particular the World Bank and African Development Bank.

Table 1:

Break-down of Total PPG Debt (end-2015)

Table 1:

Break-down of Total PPG Debt (end-2015)

Creditor	Amount (US$m)	Percent of GDP	Percent of total
Domestic debt, of which:	1,127	12.6	30.8
Treasury bills	370	4.1	10.1
Debt to the Central Bank	386	4.3	10.5
Arrears	319	3.6	8.7
Other inc. loans	51	0.6	1.4
External debt, of which:	2,535	28.4	69.2
Multilateral	2,008	22.5	54.8
Paris Club	136	1.5	3.7
Non-Paris Club	366	4.1	10.0
Commercial	17	0.2	0.5
Total PPG debt	3,662	41.0	100.0

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Table 1:

Break-down of Total PPG Debt (end-2015)

Creditor	Amount (US$m)	Percent of GDP	Percent of total
Domestic debt, of which:	1,127	12.6	30.8
Treasury bills	370	4.1	10.1
Debt to the Central Bank	386	4.3	10.5
Arrears	319	3.6	8.7
Other inc. loans	51	0.6	1.4
External debt, of which:	2,535	28.4	69.2
Multilateral	2,008	22.5	54.8
Paris Club	136	1.5	3.7
Non-Paris Club	366	4.1	10.0
Commercial	17	0.2	0.5
Total PPG debt	3,662	41.0	100.0

6. Private external debt is mainly issued by local subsidiaries of multinational companies. A number of multinational companies—in mining, banking, and telecommunication—have wholly-owned local subsidiaries with external debt. While the authorities do not have comprehensive data on private-sector obligations, by far the largest of these debtors is the nickel/cobalt mining company Ambatovy.⁴ This company has external debt just under US$2 billion (20 percent of GDP), which has caused total external debt to increase from 24 percent of GDP in 2007 to 49 percent in 2015 (see Table 3). It is projected that this commercial loan will be fully repaid by around 2030. External debt owed by domestically owned companies and households is negligible.

7. The government could face some contingent liabilities with respect to SOEs, including the nonbank financial sector, while the banking sector is less likely to generate direct fiscal costs. The electricity utility, JIRAMA, had long-term debt corresponding to ½ percent of GDP and short-term debt (suppliers’ credits, overdrafts etc.) corresponding to 5 percent of GDP at end-2014⁵. Air Madagascar is aiming to restructure its balance sheet in 2016 and is seeking a publicly guaranteed domestic loan of US$25 million (0.3 percent of GDP) as well as a MGA 90 billion (0.3 percent of GDP) public capital injection (through the transformation of outstanding tax liabilities). The postal savings scheme and possibly also the Madagascar Savings Fund (CEM) could need a future recapitalization (likely less than 1 percent of GDP combined). While the government has stakes in several major commercial banks, these banks also mostly have foreign parents. Moreover, bank resources are largely composed of deposits, which exceed loans significantly. Dollarization of deposits (let alone credit) is not pronounced and banks generally maintain foreign assets that are larger than their foreign liabilities.

Underlying Assumptions

8. Apart from the increasing current account deficit, most key variables driving debt dynamics are forecasted to improve over the coming years (Box 1 and Table 2). The DSA projections are consistent with the authorities’ plan to scale-up much needed infrastructure investment and social spending. A large part of this investment will be financed through concessional external borrowing and grants, although some semi-concessional and very limited non-concessional borrowing is incorporated in projections throughout the forecast horizon. Consistent with the ceiling in the program, non-concessional borrowing (with an average negative grant element of minus 12 percent⁶) is foreseen at US$100 million over the 2016-19 period. Additionally, the share of the remaining financing gap that is financed by semi-concessional loans (with a grant element in the range of 20 and 35 percent) is set such that disbursements over the 2016-19 period are equivalent to what could be expected if the authorities signed the maximum amounts allowed under the quantitative performance criteria⁷. Over the medium term, the importance of non-concessional borrowing would increase, reducing the average grant element of new borrowing from an average above 40 percent over the next three years to 30 percent in 2036. Apart from the additional amount of short-term non-concessional borrowing, these assumptions are roughly unchanged from the previous DSA.

Box 1.

Baseline Macroeconomic Assumptions

Real GDP growth. Growth is projected to accelerate gradually to about 5.0 percent a year over the forecast horizon. Differences to the 2015 DSA are small; the acceleration is slightly slower this year (mainly due to a more challenging international environment), but more dynamic in the years 2017 to 2019 (due to increased investment expanding production capacity and export potential). Medium-term growth remains 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 the coming years, imports are projected to increase, as investment and domestic consumption recover. Over the medium term, the noninterest current account deficit is expected to decline gradually after a peak at 3.7 percent of GDP in 2018. The differences relative to the 2015 DSA are due to a slightly faster scaling up of investment related imports and a more persistent deterioration of terms of trade⁸.

Grants. Donor grant support has been revised down since the 2015 DSA, based on the currently uncertain outcome of negotiations between the authorities and donors. Grants may increase faster in the medium-term, if the IMF-supported program catalyzes other resources, but will likely decrease in the long-run as the country matures and gains access to alternative sources of financing.

Revenues. Revenues (excluding grants) are projected to evolve similarly as in the previous DSA, increasing by roughly ½ percent of GDP per year over the forecast horizon. Revenue collection is a leading source of vulnerability for the debt sustainability and laying the foundation for the projected increase is a key priority in the authorities’ reform program.

Expenditures. Expenditures in 2016 and the medium term are comparable to the 2015 DSA. However, the primary deficit is expected to increase in the near term in order to accommodate the scaling up of capital investment and social spending.

Table 2:

Madagascar; Baseline Macroeconomic Assumptions

Source: IMF staff projections.

Table 2:

Madagascar; Baseline Macroeconomic Assumptions

		2016	2017	2018	2019	2020	2021
Real GDP growth (percent)	2016DSA	4.1	4.5	4.8	5.0	5.0	5.0
	2015DSA	4.3	4.4	4.5	4.7	5.0
Non-interest CA deficit (percent GDP)	2016DSA	2.0	3.3	3.7	3.7	3.6	3.5
	2015DSA	1.5	1.8	3.1	3.2	3.1
Primary deficit (percent of GDP)	2016DSA	2.3	3.4	3.3	3.1	2.9	2.7
	2015DSA	1.7	3.6	2.8	2.6	2.5
Total revenues, excl grants (percent of GDP)	2016DSA	11.0	11.2	11.7	12.2	12.7	13.2
	2015DSA	10.9	11.3	11.8	12.2	12.7
Grants (percent of GDP)	2016DSA	2.0	2.8	1.7	2.0	2.1	1.8
	2015DSA	3.1	2.7	2.8	2.5	2.6
Non-Interest Expenditure (percent of GDP)	2016DSA	15.3	17.3	16.6	17.0	17.2	17.3
	2015DSA	15.3	17.5	17.1	17.1	17.3

Source: IMF staff projections.

View Table

Table 2:

Madagascar; Baseline Macroeconomic Assumptions

		2016	2017	2018	2019	2020	2021
Real GDP growth (percent)	2016DSA	4.1	4.5	4.8	5.0	5.0	5.0
	2015DSA	4.3	4.4	4.5	4.7	5.0
Non-interest CA deficit (percent GDP)	2016DSA	2.0	3.3	3.7	3.7	3.6	3.5
	2015DSA	1.5	1.8	3.1	3.2	3.1
Primary deficit (percent of GDP)	2016DSA	2.3	3.4	3.3	3.1	2.9	2.7
	2015DSA	1.7	3.6	2.8	2.6	2.5
Total revenues, excl grants (percent of GDP)	2016DSA	11.0	11.2	11.7	12.2	12.7	13.2
	2015DSA	10.9	11.3	11.8	12.2	12.7
Grants (percent of GDP)	2016DSA	2.0	2.8	1.7	2.0	2.1	1.8
	2015DSA	3.1	2.7	2.8	2.5	2.6
Non-Interest Expenditure (percent of GDP)	2016DSA	15.3	17.3	16.6	17.0	17.2	17.3
	2015DSA	15.3	17.5	17.1	17.1	17.3

Source: IMF staff projections.

9. The main risks to the baseline scenario relate to revenue generation, limited donor grant support, possible exchange rate shocks, and contingent liabilities related to SOEs. Continued weak revenue performance and limited donor grant support could accelerate the accumulation of new debt, while faster-than-expected depreciation of the Ariary would increase the real value of the existing stock. However, these risks are largely symmetric. The exchange rate may also surprise on the upside (by depreciating more slowly than expected), the potential for higher revenues is significant (given the low starting base), and structural fiscal reforms could stimulate greater donor support. This would increase fiscal space and facilitate a more rapid attainment of development objectives. The risks from SOEs are more asymmetric, however, with little upside. Forceful action to improve their management and control is essential to reduce the need for future transfers.

External DSA

Baseline scenario

10. The level of PPG external debt was just over US$2.5 billion at end-2015 and is projected to grow gradually throughout the forecast horizon. PPG external debt is forecast to increase from 28½ percent of GDP in 2015 to a peak of 37½ percent of GDP in 2021 (Table 3). A temporarily rising trade deficit and outflows from the mining sector (profit repatriation)⁹ are balanced by increasing transfer inflows, relatively strong growth, and a moderate increase in net FDI inflows¹⁰, consistent with the authorities’ National Development Plan. As domestic debt markets deepen (see below), PPG external debt is projected to decline as a proportion of GDP to 27 percent of GDP in 2036.

Table 3.

Madagascar: External Debt Sustainability Framework, Baseline Scenario, 2013-36¹

(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, 2013-36¹

(In percent of GDP; unless otherwise indicated)

					Actual			Historical 6/	Standard 6/	Projections
								Average	Deviation							2016-2021			2022-2036
					2013	2014	2015			2016	2017	2018	2019	2020	2021	Average	2026	2036	Average
External debt (nominal) 1/					43.8	45.0	48.6	41.0	8.4	48.8	48.6	48.4	47.7	47.1	46.1	47.8	40.0	35.4	38.1
		of which: public and publicly guaranteed (PPG)			22.8	24.4	28.4	24.7	1.8	30.4	32.6	34.5	35.8	36.9	37.4	34.6	36.8	27.4	33.6
Change in external debt					−0.5	1.2	3.7	3.1	16.3	0.2	−0.2	−0.2	−0.7	−0.7	−1.0	−0.4	−1.5	0.4	−0.7
Identified net debt-creating flows					−2.2	−2.9	1.7			−4.7	−3.4	−3.3	−3.2	−3.2	−3.3		−4.9	−6.0
		Non-interest current account deficit			5.6	0.1	1.6	8.7	7.2	2.0	3.3	3.7	3.7	3.6	3.5	3.3	2.3	0.9	1.9
			Deficit in balance of goods and services		8.7	4.4	3.5	12.7	7.1	3.9	5.5	5.9	5.9	5.8	5.9	5.5	4.8	3.6	4.5
				Exports	30.0	32.8	32.1			33.0	32.2	32.0	32.0	32.1	31.8		31.8	31.3	31.6
				Imports	38.7	37.2	35.5			36.9	37.7	37.9	37.9	38.0	37.8		36.6	35.0	36.1
			Net current transfers (negative = inflow)		−6.0	−6.9	−5.4	−5.7	1.8	−5.6	−5.8	−5.8	−5.8	−5.8	−5.9	−5.8	−5.9	−5.9	−5.9
				of which: official	0.0	−0.8	−1.5	−1.7	1.9	−2.0	−2.7	−1.5	−1.3	−1.2	−1.1	−1.6	−1.0	−0.8	−1.0
			Other current account flows (negative = net inflow)		2.9	2.5	3.6	1.7	1.2	3.7	3.7	3.6	3.6	3.5	3.5	3.6	3.5	3.2	3.3
		Net FDI (negative = inflow)			−5.2	−2.9	−4.5	−5.6	1.9	−5.0	−5.1	−5.2	−5.1	−5.1	−5.1	−5.1	−5.1	−5.1	−5.1
		Endogenous debt dynamics 2/			−2.6	0.0	4.6	−1.7	3.8	−1.7	−1.7	−1.7	−1.7	−1.7	−1.6	−1.7	−2.2	−1.8	−2.0
			Contribution from nominal interest rate		0.3	0.3	0.3	0.3	0.1	0.3	0.4	0.5	0.5	0.5	0.6	0.5	0.6	0.5	0.5
			Contribution from real GDP growth		−0.9	−1.4	−1.5	−1.1	1.3	−2.0	−2.1	−2.2	−2.3	−2.2	−2.2	−2.2	−1.9	−1.6	−1.8
			Contribution from price and exchange rate changes		−1.9	1.1	5.8			…	…	…	…	…	…		…	…
Residual (3-4) 3/					1.7	4.1	1.9	−4.1	14.1	4.8	3.2	3.1	2.5	2.5	2.3	3.1	3.5	6.3	4.5
	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/					…	…	35.3			35.3	34.4	33.8	33.1	32.5	31.6		27.1	26.4
	In percent of exports				…	…	110.2			107.0	106.9	105.5	103.3	101.1	99.2		85.1	84.4
PV of PPG external debt					…	…	15.1			16.9	18.4	19.9	21.2	22.3	22.9		23.9	18.4
	In percent of exports				…	…	47.0			51.1	57.1	62.2	66.3	69.3	72.0		75.2	58.7
	In percent of government revenues				…	…	146			153	164	171	174	176	174		158	123
Debt service-to-exports ratio (in percent)					1.8	2.3	2.1			3.1	3.4	3.6	3.9	4.0	4.3		5.2	5.7
PPG debt service-to-exports ratio (in percent)					1.8	2.3	2.1			3.1	3.4	3.6	3.9	4.0	4.3		5.2	5.7
PPG debt service-to-revenue ratio (in percent)					5.5	7.4	6.5			9.3	9.7	9.9	10.2	10.2	10.5		10.9	11.7
Total gross financing need (Millions of U.S. dollars)					98.7	−227.5	−211.0			−189.8	−68.7	−38.5	−25.0	−31.8	−34.1		−212.3	−891.3
Non-interest current account deficit that stabilizes debt ratio					6.1	−1.1	−2.0			1.8	3.6	3.9	4.3	4.2	4.5		3.8	0.6
Key macroeconomic assumptions
Real GDP growth (in percent)					2.3	3.3	3.1	2.8	3.4	4.1	4.5	4.8	5.0	5.0	5.0	4.7	5.0	5.0	5.0
GDP deflator in US dollar terms (change in percent)					4.5	−2.6	−11.5	4.5	11.3	−4.0	1.9	1.4	2.1	2.1	2.3	1.0	1.9	1.9	1.9
Effective interest rate (percent) 5/					0.6	0.6	0.6	0.9	0.4	0.6	0.8	1.0	1.1	1.2	1.3	1.0	1.5	1.6	1.5
Growth of exports of G&S (US dollar terms, in percent)					10.7	9.8	−10.7	10.0	17.0	2.9	3.9	5.6	7.4	7.5	6.4	5.6	6.9	7.5	6.9
Growth of imports of G&S (US dollar terms, in percent)					6.9	−3.4	−12.7	7.2	22.4	3.8	8.8	6.8	7.2	7.4	6.8	6.8	6.4	6.6	6.5
Grant element of new public sector borrowing (in percent)					…	…	…	…	…	32.6	39.6	37.5	31.6	33.8	34.9	35.0	33.6	31.3	32.7
Government revenues (excluding grants, in percent of GDP)					9.6	10.1	10.4	10.6	1.0	11.0	11.2	11.7	12.2	12.7	13.2	12.0	15.2	14.0	15.0
Aid flows (in Millions of US dollars) 7/					134	246	144			351	522	439	363	484	466		434	480
	of which: Grants				134	246	144			195	281	177	200	214	198		216	292
	of which: Concessional loans				0.0	0.0	0.0			156.0	241.5	262.1	162.9	269.3	267.9		218.1	188.0
Grant-equivalent financing (in percent of GDP) 8/					…	…	…			3.4	4.5	3.4	3.1	3.1	2.8	3.4	2.1	1.5	1.9
Grant-equivalent financing (in percent of external financing) 8/					…	…	…			54.2	61.9	53.3	50.5	52.9	52.6	54.2	52.3	49.1	51.3
Memorandum items:
Nominal GDP (Millions of US dollars)					10602	10674	9744			9740	10372	11021	11817	12668	13601		19095	37634
Nominal dollar GDP growth					6.9	0.7	−8.7			0.0	6.5	6.3	7.2	7.2	7.4	5.7	7.0	7.0	7.0
PV of PPG external debt (in Millions of US dollars)							1347.4			1599.2	1857.2	2149.4	2467.9	2778.0	3073.8		4502.1	6819.9
(PVt-PVt-1)/GDPt-1 (in percent)										2.6	2.6	2.8	2.9	2.6	2.3	2.6	1.5	0.6	1.2
Gross workers’ remittances (Millions of US dollars)					…	…	…			…	…	…	…	…	…		…	…
PV of PPG external debt (in percent of GDP + remittances)					…	…	15.1			16.9	18.4	19.9	21.2	22.3	22.9		23.9	18.4
PV of PPG external debt (in percent of exports + remittances)					…	…	47.0			51.1	57.1	62.2	66.3	69.3	72.0		75.2	58.7
Debt service of PPG external debt (in percent of exports + remittances)					…	…	2.1			3.1	3.4	3.6	3.9	4.0	4.3		5.2	5.7

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, 2013-36¹

(In percent of GDP; unless otherwise indicated)

					Actual			Historical 6/	Standard 6/	Projections
								Average	Deviation							2016-2021			2022-2036
					2013	2014	2015			2016	2017	2018	2019	2020	2021	Average	2026	2036	Average
External debt (nominal) 1/					43.8	45.0	48.6	41.0	8.4	48.8	48.6	48.4	47.7	47.1	46.1	47.8	40.0	35.4	38.1
		of which: public and publicly guaranteed (PPG)			22.8	24.4	28.4	24.7	1.8	30.4	32.6	34.5	35.8	36.9	37.4	34.6	36.8	27.4	33.6
Change in external debt					−0.5	1.2	3.7	3.1	16.3	0.2	−0.2	−0.2	−0.7	−0.7	−1.0	−0.4	−1.5	0.4	−0.7
Identified net debt-creating flows					−2.2	−2.9	1.7			−4.7	−3.4	−3.3	−3.2	−3.2	−3.3		−4.9	−6.0
		Non-interest current account deficit			5.6	0.1	1.6	8.7	7.2	2.0	3.3	3.7	3.7	3.6	3.5	3.3	2.3	0.9	1.9
			Deficit in balance of goods and services		8.7	4.4	3.5	12.7	7.1	3.9	5.5	5.9	5.9	5.8	5.9	5.5	4.8	3.6	4.5
				Exports	30.0	32.8	32.1			33.0	32.2	32.0	32.0	32.1	31.8		31.8	31.3	31.6
				Imports	38.7	37.2	35.5			36.9	37.7	37.9	37.9	38.0	37.8		36.6	35.0	36.1
			Net current transfers (negative = inflow)		−6.0	−6.9	−5.4	−5.7	1.8	−5.6	−5.8	−5.8	−5.8	−5.8	−5.9	−5.8	−5.9	−5.9	−5.9
				of which: official	0.0	−0.8	−1.5	−1.7	1.9	−2.0	−2.7	−1.5	−1.3	−1.2	−1.1	−1.6	−1.0	−0.8	−1.0
			Other current account flows (negative = net inflow)		2.9	2.5	3.6	1.7	1.2	3.7	3.7	3.6	3.6	3.5	3.5	3.6	3.5	3.2	3.3
		Net FDI (negative = inflow)			−5.2	−2.9	−4.5	−5.6	1.9	−5.0	−5.1	−5.2	−5.1	−5.1	−5.1	−5.1	−5.1	−5.1	−5.1
		Endogenous debt dynamics 2/			−2.6	0.0	4.6	−1.7	3.8	−1.7	−1.7	−1.7	−1.7	−1.7	−1.6	−1.7	−2.2	−1.8	−2.0
			Contribution from nominal interest rate		0.3	0.3	0.3	0.3	0.1	0.3	0.4	0.5	0.5	0.5	0.6	0.5	0.6	0.5	0.5
			Contribution from real GDP growth		−0.9	−1.4	−1.5	−1.1	1.3	−2.0	−2.1	−2.2	−2.3	−2.2	−2.2	−2.2	−1.9	−1.6	−1.8
			Contribution from price and exchange rate changes		−1.9	1.1	5.8			…	…	…	…	…	…		…	…
Residual (3-4) 3/					1.7	4.1	1.9	−4.1	14.1	4.8	3.2	3.1	2.5	2.5	2.3	3.1	3.5	6.3	4.5
	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/					…	…	35.3			35.3	34.4	33.8	33.1	32.5	31.6		27.1	26.4
	In percent of exports				…	…	110.2			107.0	106.9	105.5	103.3	101.1	99.2		85.1	84.4
PV of PPG external debt					…	…	15.1			16.9	18.4	19.9	21.2	22.3	22.9		23.9	18.4
	In percent of exports				…	…	47.0			51.1	57.1	62.2	66.3	69.3	72.0		75.2	58.7
	In percent of government revenues				…	…	146			153	164	171	174	176	174		158	123
Debt service-to-exports ratio (in percent)					1.8	2.3	2.1			3.1	3.4	3.6	3.9	4.0	4.3		5.2	5.7
PPG debt service-to-exports ratio (in percent)					1.8	2.3	2.1			3.1	3.4	3.6	3.9	4.0	4.3		5.2	5.7
PPG debt service-to-revenue ratio (in percent)					5.5	7.4	6.5			9.3	9.7	9.9	10.2	10.2	10.5		10.9	11.7
Total gross financing need (Millions of U.S. dollars)					98.7	−227.5	−211.0			−189.8	−68.7	−38.5	−25.0	−31.8	−34.1		−212.3	−891.3
Non-interest current account deficit that stabilizes debt ratio					6.1	−1.1	−2.0			1.8	3.6	3.9	4.3	4.2	4.5		3.8	0.6
Key macroeconomic assumptions
Real GDP growth (in percent)					2.3	3.3	3.1	2.8	3.4	4.1	4.5	4.8	5.0	5.0	5.0	4.7	5.0	5.0	5.0
GDP deflator in US dollar terms (change in percent)					4.5	−2.6	−11.5	4.5	11.3	−4.0	1.9	1.4	2.1	2.1	2.3	1.0	1.9	1.9	1.9
Effective interest rate (percent) 5/					0.6	0.6	0.6	0.9	0.4	0.6	0.8	1.0	1.1	1.2	1.3	1.0	1.5	1.6	1.5
Growth of exports of G&S (US dollar terms, in percent)					10.7	9.8	−10.7	10.0	17.0	2.9	3.9	5.6	7.4	7.5	6.4	5.6	6.9	7.5	6.9
Growth of imports of G&S (US dollar terms, in percent)					6.9	−3.4	−12.7	7.2	22.4	3.8	8.8	6.8	7.2	7.4	6.8	6.8	6.4	6.6	6.5
Grant element of new public sector borrowing (in percent)					…	…	…	…	…	32.6	39.6	37.5	31.6	33.8	34.9	35.0	33.6	31.3	32.7
Government revenues (excluding grants, in percent of GDP)					9.6	10.1	10.4	10.6	1.0	11.0	11.2	11.7	12.2	12.7	13.2	12.0	15.2	14.0	15.0
Aid flows (in Millions of US dollars) 7/					134	246	144			351	522	439	363	484	466		434	480
	of which: Grants				134	246	144			195	281	177	200	214	198		216	292
	of which: Concessional loans				0.0	0.0	0.0			156.0	241.5	262.1	162.9	269.3	267.9		218.1	188.0
Grant-equivalent financing (in percent of GDP) 8/					…	…	…			3.4	4.5	3.4	3.1	3.1	2.8	3.4	2.1	1.5	1.9
Grant-equivalent financing (in percent of external financing) 8/					…	…	…			54.2	61.9	53.3	50.5	52.9	52.6	54.2	52.3	49.1	51.3
Memorandum items:
Nominal GDP (Millions of US dollars)					10602	10674	9744			9740	10372	11021	11817	12668	13601		19095	37634
Nominal dollar GDP growth					6.9	0.7	−8.7			0.0	6.5	6.3	7.2	7.2	7.4	5.7	7.0	7.0	7.0
PV of PPG external debt (in Millions of US dollars)							1347.4			1599.2	1857.2	2149.4	2467.9	2778.0	3073.8		4502.1	6819.9
(PVt-PVt-1)/GDPt-1 (in percent)										2.6	2.6	2.8	2.9	2.6	2.3	2.6	1.5	0.6	1.2
Gross workers’ remittances (Millions of US dollars)					…	…	…			…	…	…	…	…	…		…	…
PV of PPG external debt (in percent of GDP + remittances)					…	…	15.1			16.9	18.4	19.9	21.2	22.3	22.9		23.9	18.4
PV of PPG external debt (in percent of exports + remittances)					…	…	47.0			51.1	57.1	62.2	66.3	69.3	72.0		75.2	58.7
Debt service of PPG external debt (in percent of exports + remittances)					…	…	2.1			3.1	3.4	3.6	3.9	4.0	4.3		5.2	5.7

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).

11. 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 2015 level of external debt, 15 percent of GDP, is projected to increase to 23 percent by 2021, but then declines again to just below 20 percent in 2036.¹¹ This projection is broadly consistent with the medium term forecast from the last DSA conducted in 2015.

Madagascar: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2016-2036 ^1/

Citation: IMF Staff Country Reports 2016, 273; 10.5089/9781475525014.002.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 2026. 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, 2016-2036 ^1/

Citation: IMF Staff Country Reports 2016, 273; 10.5089/9781475525014.002.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 2026. 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, 2016-2036 ^1/

Citation: IMF Staff Country Reports 2016, 273; 10.5089/9781475525014.002.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 2026. 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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12. Private external debt is projected to decline slowly, as the loans related to a major mining project 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 held by the multinational shareholders, rather than resident entities (such as domestic banks or the government).

Alternative scenarios

13. 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 2006-15, 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, 2016-36

(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, 2016-36

(In percent)

	Projections
	2016	2017	2018	2019	2020	2021	2022	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032	2033	2034	2035	2036
	PV of debt-to GDP ratio
Baseline	17	18	20	21	22	23	23	24	24	24	24	24	23	23	22	21	21	20	20	19	18
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/	17	22	26	30	34	38	41	44	48	50	53	55	57	59	61	63	64	66	67	68	69
A2. New public sector loans on less favorable terms in 2016-2036 2	17	20	22	25	27	28	29	30	31	32	32	32	32	32	32	31	31	31	30	30	30
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-2018	17	19	22	23	25	25	26	26	27	27	27	26	26	25	24	24	23	22	22	21	20
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/	17	20	26	28	29	29	29	29	29	29	28	27	26	26	25	24	23	22	21	20	20
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-2018	17	20	23	25	26	27	27	28	28	28	28	28	27	26	26	25	24	24	23	22	21
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/	17	20	24	25	26	27	27	27	27	27	27	26	25	24	24	23	22	21	21	20	19
B5. Combination of B1-B4 using one-half standard deviation shocks	17	21	28	30	31	31	32	32	32	31	31	30	29	28	27	26	26	25	24	23	22
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/	17	25	28	30	31	32	33	33	33	34	33	33	32	31	31	30	29	28	27	26	26
	PV of debt-to-exports ratio
Baseline	51	57	62	66	69	72	74	74	75	76	75	74	73	71	70	68	67	65	63	61	59
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/	51	67	82	95	107	119	130	139	149	158	166	173	180	186	193	199	205	210	214	219	222
A2. New public sector loans on less favorable terms in 2016-2036 2	51	61	70	77	83	89	93	95	98	100	101	101	101	100	100	100	99	98	97	96	95
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-2018	51	56	61	65	68	71	73	73	74	74	74	73	71	70	69	67	65	64	62	60	58
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/	51	70	105	110	113	115	117	116	116	114	112	109	106	102	99	96	93	90	86	83	79
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-2018	51	56	61	65	68	71	73	73	74	74	74	73	71	70	69	67	65	64	62	60	58
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/	51	63	75	79	82	84	86	85	85	85	83	81	79	77	75	73	71	68	66	64	61
B5. Combination of B1-B4 using one-half standard deviation shocks	51	63	82	86	89	91	93	92	92	91	90	88	85	83	81	78	76	73	71	68	65
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/	51	56	61	65	68	71	73	73	74	74	74	73	71	70	69	67	65	64	62	60	58
	PV of debt-to-revenue ratio
Baseline	153	164	171	174	176	174	173	170	167	163	158	152	149	146	143	139	135	131	127	123	123
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/	153	194	224	249	270	288	303	318	331	341	349	356	370	382	395	406	416	425	434	442	495
A2. New public sector loans on less favorable terms in 2016-2036 2	153	176	192	202	211	215	217	218	218	216	212	208	207	206	205	203	201	199	197	194	211
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-2018	153	169	188	192	194	193	191	188	185	181	175	169	165	161	158	154	150	145	141	136	145
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/	153	181	227	226	225	220	216	210	203	195	185	177	171	166	160	155	149	143	138	132	139
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-2018	153	175	199	203	205	204	202	199	196	191	185	178	174	170	167	162	158	153	149	144	153
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/	153	181	207	208	207	204	200	195	190	183	175	167	163	158	153	148	143	138	133	128	136
B5. Combination of B1-B4 using one-half standard deviation shocks	153	190	241	242	241	237	232	227	220	212	203	194	188	182	177	171	165	159	153	147	156
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/	153	227	237	242	245	243	241	237	233	228	220	212	208	203	199	194	188	183	177	171	183
	Debt service-to-exports ratio
Baseline	3	3	4	4	4	4	5	5	5	5	5	5	6	6	6	6	6	6	6	6	6
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/	3	3	4	4	5	5	6	7	7	8	9	10	10	11	12	12	13	14	14	15	15
A2. New public sector loans on less favorable terms in 2016-2036 2	3	3	4	4	4	4	5	6	6	7	7	7	8	8	8	8	8	8	9	9	9
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-2018	3	3	4	4	4	4	5	5	5	5	5	5	6	6	6	6	6	6	6	6	6
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/	3	4	5	6	6	6	7	7	8	8	8	8	9	9	9	9	9	8	8	8	8
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-2018	3	3	4	4	4	4	5	5	5	5	5	5	6	6	6	6	6	6	6	6	6
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/	3	3	4	4	4	5	5	5	6	6	6	6	6	6	6	6	6	6	6	6	6
B5. Combination of B1-B4 using one-half standard deviation shocks	3	3	4	5	5	5	5	6	6	6	7	7	7	7	7	7	7	7	7	7	7
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/	3	3	4	4	4	4	5	5	5	5	5	5	6	6	6	6	6	6	6	6	6
	Debt service-to-revenue ratio
Baseline	9	10	10	10	10	10	11	11	11	11	11	11	11	12	12	12	12	12	12	12	12
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/	9	10	10	11	12	13	13	15	16	18	19	20	21	23	24	25	26	28	29	30	34
A2. New public sector loans on less favorable terms in 2016-2036 2	9	10	10	9	10	10	12	13	14	15	15	15	16	16	16	17	17	17	17	17	19
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-2018	9	10	11	11	11	12	12	12	12	12	12	13	13	13	13	13	13	13	13	13	14
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/	9	10	10	12	12	12	12	13	14	14	14	14	14	14	14	14	14	14	13	13	14
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-2018	9	11	12	12	12	12	13	13	13	13	13	13	14	14	14	14	14	14	14	14	15
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/	9	10	10	11	11	11	12	12	13	13	13	13	13	13	13	13	13	13	13	13	14
B5. Combination of B1-B4 using one-half standard deviation shocks	9	10	12	13	13	13	13	14	15	15	15	15	15	15	15	15	15	15	15	15	16
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/	9	14	14	14	14	15	15	15	15	15	15	16	16	16	16	17	17	17	17	17	18
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, 2016-36

(In percent)

	Projections
	2016	2017	2018	2019	2020	2021	2022	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032	2033	2034	2035	2036
	PV of debt-to GDP ratio
Baseline	17	18	20	21	22	23	23	24	24	24	24	24	23	23	22	21	21	20	20	19	18
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/	17	22	26	30	34	38	41	44	48	50	53	55	57	59	61	63	64	66	67	68	69
A2. New public sector loans on less favorable terms in 2016-2036 2	17	20	22	25	27	28	29	30	31	32	32	32	32	32	32	31	31	31	30	30	30
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-2018	17	19	22	23	25	25	26	26	27	27	27	26	26	25	24	24	23	22	22	21	20
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/	17	20	26	28	29	29	29	29	29	29	28	27	26	26	25	24	23	22	21	20	20
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-2018	17	20	23	25	26	27	27	28	28	28	28	28	27	26	26	25	24	24	23	22	21
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/	17	20	24	25	26	27	27	27	27	27	27	26	25	24	24	23	22	21	21	20	19
B5. Combination of B1-B4 using one-half standard deviation shocks	17	21	28	30	31	31	32	32	32	31	31	30	29	28	27	26	26	25	24	23	22
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/	17	25	28	30	31	32	33	33	33	34	33	33	32	31	31	30	29	28	27	26	26
	PV of debt-to-exports ratio
Baseline	51	57	62	66	69	72	74	74	75	76	75	74	73	71	70	68	67	65	63	61	59
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/	51	67	82	95	107	119	130	139	149	158	166	173	180	186	193	199	205	210	214	219	222
A2. New public sector loans on less favorable terms in 2016-2036 2	51	61	70	77	83	89	93	95	98	100	101	101	101	100	100	100	99	98	97	96	95
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-2018	51	56	61	65	68	71	73	73	74	74	74	73	71	70	69	67	65	64	62	60	58
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/	51	70	105	110	113	115	117	116	116	114	112	109	106	102	99	96	93	90	86	83	79
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-2018	51	56	61	65	68	71	73	73	74	74	74	73	71	70	69	67	65	64	62	60	58
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/	51	63	75	79	82	84	86	85	85	85	83	81	79	77	75	73	71	68	66	64	61
B5. Combination of B1-B4 using one-half standard deviation shocks	51	63	82	86	89	91	93	92	92	91	90	88	85	83	81	78	76	73	71	68	65
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/	51	56	61	65	68	71	73	73	74	74	74	73	71	70	69	67	65	64	62	60	58
	PV of debt-to-revenue ratio
Baseline	153	164	171	174	176	174	173	170	167	163	158	152	149	146	143	139	135	131	127	123	123
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/	153	194	224	249	270	288	303	318	331	341	349	356	370	382	395	406	416	425	434	442	495
A2. New public sector loans on less favorable terms in 2016-2036 2	153	176	192	202	211	215	217	218	218	216	212	208	207	206	205	203	201	199	197	194	211
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-2018	153	169	188	192	194	193	191	188	185	181	175	169	165	161	158	154	150	145	141	136	145
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/	153	181	227	226	225	220	216	210	203	195	185	177	171	166	160	155	149	143	138	132	139
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-2018	153	175	199	203	205	204	202	199	196	191	185	178	174	170	167	162	158	153	149	144	153
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/	153	181	207	208	207	204	200	195	190	183	175	167	163	158	153	148	143	138	133	128	136
B5. Combination of B1-B4 using one-half standard deviation shocks	153	190	241	242	241	237	232	227	220	212	203	194	188	182	177	171	165	159	153	147	156
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/	153	227	237	242	245	243	241	237	233	228	220	212	208	203	199	194	188	183	177	171	183
	Debt service-to-exports ratio
Baseline	3	3	4	4	4	4	5	5	5	5	5	5	6	6	6	6	6	6	6	6	6
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/	3	3	4	4	5	5	6	7	7	8	9	10	10	11	12	12	13	14	14	15	15
A2. New public sector loans on less favorable terms in 2016-2036 2	3	3	4	4	4	4	5	6	6	7	7	7	8	8	8	8	8	8	9	9	9
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-2018	3	3	4	4	4	4	5	5	5	5	5	5	6	6	6	6	6	6	6	6	6
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/	3	4	5	6	6	6	7	7	8	8	8	8	9	9	9	9	9	8	8	8	8
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-2018	3	3	4	4	4	4	5	5	5	5	5	5	6	6	6	6	6	6	6	6	6
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/	3	3	4	4	4	5	5	5	6	6	6	6	6	6	6	6	6	6	6	6	6
B5. Combination of B1-B4 using one-half standard deviation shocks	3	3	4	5	5	5	5	6	6	6	7	7	7	7	7	7	7	7	7	7	7
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/	3	3	4	4	4	4	5	5	5	5	5	5	6	6	6	6	6	6	6	6	6
	Debt service-to-revenue ratio
Baseline	9	10	10	10	10	10	11	11	11	11	11	11	11	12	12	12	12	12	12	12	12
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/	9	10	10	11	12	13	13	15	16	18	19	20	21	23	24	25	26	28	29	30	34
A2. New public sector loans on less favorable terms in 2016-2036 2	9	10	10	9	10	10	12	13	14	15	15	15	16	16	16	17	17	17	17	17	19
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-2018	9	10	11	11	11	12	12	12	12	12	12	13	13	13	13	13	13	13	13	13	14
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/	9	10	10	12	12	12	12	13	14	14	14	14	14	14	14	14	14	14	13	13	14
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-2018	9	11	12	12	12	12	13	13	13	13	13	13	14	14	14	14	14	14	14	14	15
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/	9	10	10	11	11	11	12	12	13	13	13	13	13	13	13	13	13	13	13	13	14
B5. Combination of B1-B4 using one-half standard deviation shocks	9	10	12	13	13	13	13	14	15	15	15	15	15	15	15	15	15	15	15	15	16
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/	9	14	14	14	14	15	15	15	15	15	15	16	16	16	16	17	17	17	17	17	18
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.

14. For the standard bounds tests, two scenarios cause a breach of the thresholds for one or more indicators. A one-time 30 percent depreciation shock would cause the PV of debt-to-GDP to peak at 34 percent, slightly above the 30 percent threshold implied by Madagascar’s CPIA rating. Additionally, the PV of debt-to-revenue would peak at 245 percent, compared to a threshold of 200 percent. For this metric, a combination of smaller shocks also causes a significant breach of the threshold (see Table 4). The second scenario that would cause a breach of the thresholds is fixing export growth for 2017-2018 to two standard deviation below the historical average. It would increase the PV of debt-to-export to 117 percent by 2021, above the threshold of 100. However, this scenario should be interpreted with caution, as the coming on stream of large nickel and cobalt plants in 2012 serves to exaggerate the volatility of exports.

15. The historical scenario¹² projects a rapid increase in all debt metrics and causes a breach for four 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 financed through non-debt creating FDI. These deficits did not lead to a build-up of PPG external debt, and this period is not representative of the normal economic environment in Madagascar.