Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed yesterday the fourth review of Madagascar's economic program under the Extended Credit Facility (ECF). The completion of the review enables the disbursement of SDR 24.44 million (about US$ 32.7 million) to cover external and fiscal financing needs, bringing total disbursements under the arrangement to SDR 171.08 million (about US$ 228.7million).
In completing the review, the Executive Board approved waivers of nonobservance for two performance criteria at end-December 2022: (i) the floor on the domestic primary balance was missed mostly due to the nonpayment in 2022 of oil customs taxes by oil distributors; and (ii) the floor on the central bank's net foreign assets (NFA) was missed by a small margin in a context of a rapid depreciation of the exchange rate which has since stopped. The waivers of nonobservance were approved based on remedial actions taken by the authorities and the minor nature of the NFA breach, respectively.
Madagascar's growth has decelerated, and inflation remains high. Growth is expected to stabilize at 4.0 percent and average annual inflation to exceed 10 percent in 2023. The growth slowdown and JIRAMA's losses are weighing on the fiscal balance. The slowdown in vanilla exports has affected FX inflows, putting pressure on the exchange rate.
Risks to the outlook are skewed to the downside ahead the November elections and amid heightened global uncertainty. Madagascar also remains very vulnerable to extreme climate events.
Following the Executive Board discussion, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair made the following statement:
Madagascar continues to face a challenging environment, with multiple climate shocks, slower growth, and strong inflationary pressures, burdening the most vulnerable segments of the population. The authorities made progress in advancing structural reforms, but further efforts are needed to improve budget execution and governance, better control inflation, and strengthen policies for climate resilience.
Mobilizing domestic revenue, including through the implementation of tax administration reforms and reduction of costly tax expenditures, along with spending containment measures, will be key to reach the program fiscal targets.
The authorities settled cross-liabilities with oil distributors and the resumption of the payment of oil customs taxes should help improve the fiscal balance in 2023. Going forward, the implementation of an automatic fuel pricing mechanism in early 2024 and reforming JIRAMA should help mitigate fiscal risks and create much needed space for social and developmental spending.
The authorities should accelerate public financial and debt management reforms. It is important to further streamline the budget execution process, respect budget annuality, and enhance cash management to prevent the accumulation of arrears. Reinforcing the effectiveness of the anti-corruption framework is crucial to improve accountability.
A data-driven monetary policy is needed amidst persistent inflationary pressures. The successful transition to an interest rate targeting framework requires improving the functioning and transparency of the public debt market, strengthening the communication of the central bank, and reaffirming its independence.
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The authorities should continue their strong reform momentum. Further efforts are needed in strengthening the AML/CFT and anti-corruption frameworks and implementing financial sector reforms in line with international standards.
A multi-prolonged approach is needed to improve resilience to climate shocks and address food insecurity, including through the operationalization of a system of food reserves and the rehabilitation of road infrastructure.
