IMF Staff Visit Completes Review of the Staff-Monitored Program with Madagascar

By International Monetary Fund (IMF)

An International Monetary Fund (IMF) team, headed by Marshall Mills, visited Antananarivo, Madagascar, from March 2—11 to assess progress under the Staff-Monitored Program (SMP)[1] with Madagascar.

At the end of the mission, Mr. Mills issued the following statement:

“The Malagasy authorities and IMF staff see the staff-monitored program (SMP) as a crucial tool in guiding policy and building a strong track record. Successful implementation of this program will strengthen economic stability and sustainability, provide a framework that boosts confidence and assists in catalyzing external assistance, and help lay the groundwork for a future request for an Extended Credit Facility (ECF) arrangement.

“Economic and financial conditions are improving. Growth is expected to accelerate from last year to more than 4 percent this year. Economic activity will be driven by a recovery in tourism, which was affected by Air Madagascar's operational problems in 2015; strengthening construction activity led by public investment; and restored AGOA (African Growth and Opportunity Act) eligibility benefiting manufacturing. With better rainfall for most of the country so far this year, agricultural production is also expected to recover slowly in 2016 after contracting in 2015. Inflation remains contained below at 8 percent.The external environment is challenging, in light of low commodity prices and slow growth in some export markets. Risks to the outlook stem mainly from fiscal challenges, weak global commodity prices, adverse weather conditions, and policy implementation in a difficult political environment.

“Implementation of the SMP was broadly satisfactory at end-December 2015, with generally good performance on indicative targets and structural reforms moving ahead. Revenue mobilization was above target, reflecting a gradual upward trend in tax and customs collections. The quality of expenditure has improved, with the elimination of fuel subsidies, introduction of an automatic pricing mechanism for fuel, agreement on plans to repay some arrears, and an ongoing clean up of government payrolls. That said, losses in state-owned enterprises, particularly the Electricity and Water Company of Madagascar (JIRAMA), remain a major concern and pose significant risks to the budget. The Central Bank of Madagascar has taken advantage of favorable conditions to accumulate more international reserves and work on the draft Central Bank Act enhancing its independence continues to advance.

“Important challenges remain. Additional reforms, such as strengthening the financial system, will be critical to strengthen the economy and fortify growth. Continuing with a prudent fiscal stance, including through better management of JIRAMA, avoidance of arrears, and ensuring manageable public debt remain important. Crucially, sustained progress will also depend on improvements in governance, including the fight against corruption, to ensure that reforms are implemented and bear fruits.

“The Malagasy authorities have demonstrated commitment to the program so far and are taking important steps to advance their macroeconomic and structural reforms. Further advancing the ongoing reforms should lift the economic outlook. The next staff visit is expected to take place in May/June to assess end-March performance under the SMP. This assessment will help build a track record that could support moving toward an ECF.”

“The team met with President Hery Rajaonarimampianina, Prime Minister Jean Ravelonarivo, Minister of Finance and Budget Gervais Rakotoarimanana, Minister of Economy and Planning Herilanto Raveloharison, Central Bank of Madagascar Governor Alain Rasolofondraibe, the Economic Advisor to the President Léon Rajaobelina, and other senior government officials.

“The mission takes this opportunity to thank the Malagasy authorities for their strong cooperation and the constructive discussions that took place.”

[1] An SMP is an informal agreement between country authorities and Fund staff to monitor the implementation of the authorities' economic program. SMPs do not entail financial assistance or endorsement by the IMF Executive Board.