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IMF and Madagascar reach staff-level agreement on first review of Extended Credit Facility

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IMF and Madagascar reach staff-level agreement on first review of Extended Credit Facility

After a contraction of 7.1% of GDP in 2020, the Malagasy economy is gradually recovering

WASHINGTON DC, United States of America, October 26, 2021 / APO Group / –

The IMF team and the Malagasy authorities reached an agreement at the staff level on the first review of Madagascar‘s economic reform program under the Extended Credit Facility; Growth is gradually resuming, but the pandemic has exacerbated poverty and the ongoing famine in the South is a source of major concern, requiring strong political action to stimulate social spending; The authorities are committed to increasing fiscal revenues to finance increased social spending and public investment, while maintaining macroeconomic stability. They pledged to increase tax transparency and strengthen governance.

A team from the International Monetary Fund (IMF) led by Frédéric Lambert held virtual discussions from September 22 to October 25, 2021 on the first review of the 40-month agreement with Madagascar supported by the Extended Credit Facility (ECF).

At the end of the mission, Mr. Lambert made the following statement:

“The IMF team and the Malagasy authorities have reached an agreement at the staff level on the first review of Madagascar’s economic program under the Extended Credit Facility. The deal is subject to approval by the IMF’s Executive Board, which is expected to consider the review in December. Completion of the review would allow the disbursement of SDR 48.88 million (approximately US $ 69 million) to Madagascar to cover external financing and budgetary needs.

“After a contraction of 7.1% of GDP in 2020, the Malagasy economy is gradually recovering. Growth is expected to reach 3.5% in 2021, supported by the mining, textile and service sectors. Pressure on food prices reappeared, calling for swift political action to support the poor. The target of a domestic primary deficit of 2.5% of GDP in 2021 should be reached. Public debt will remain contained at around 50% of GDP.

“The 40-month ECF agreement supports Madagascar’s recovery from the pandemic and provides funding to preserve priority spending. Through capacity development and policy advice, it aims to support the authorities in their efforts to increase and sustain growth and reduce poverty.

“The performance of the program during the first semester of 2021 has been satisfactory overall and most of the quantitative macroeconomic objectives have been achieved. But the authorities need to redouble their efforts to mobilize tax revenues and meet their social spending targets for 2021. Structural reforms are progressing gradually, and more work remains to be done to improve transparency and reporting of fiscal information.

“To support economic recovery and generate stronger, sustainable and inclusive growth, the authorities aim to increase fiscal space to finance more growth-friendly spending. To this end, the authorities intend to increase tax revenues by stepping up the fight against fraud, pursuing reforms of tax and customs administrations, reforming mining taxation in accordance with best practices and introducing tax reforms aimed at strengthening equity. social. With this in mind, costly tax exemption regimes will eventually have to be reviewed. The authorities will also seek to improve the composition of spending by limiting transfers to public enterprises and controlling the wage bill and the cost of pensions, while improving the execution of social and investment spending.

“Structural reforms are essential to reduce fiscal risks. The restructuring of the public electricity and water company JIRAMA will help strengthen its financial situation and provide better service. The injection of public money into Air Madagascar will be strictly contained until a viable business plan is finalized and approved. The authorities are committed to avoiding the accumulation of debts to fuel distributors and are preparing a plan for the implementation of an automatic fuel pricing mechanism as well as strengthened social safety nets.

“The central bank will continue the transition to a new monetary policy framework of targeting interest rates and its efforts to reduce the cost of credit and stimulate financial inclusion. Further reforms could help strengthen the efficiency of the foreign exchange market. The project to include gold in foreign exchange reserves will be implemented according to international best practices.

“Reforms aimed at improving governance and fiscal transparency are essential to ongoing efforts to mobilize development partners and attract private foreign investment. The IMF will continue to support the Ministry of Economy and Finance to strengthen public financial management and budget transparency, and looks forward to the results of the third-party audit of COVID-19 spending later this year . The authorities will speed up the implementation of the anti-corruption legal framework, in particular by setting up the agency for the recovery of illicit assets and by deploying anti-corruption courts throughout the country.

“The mission met Minister of Economy and Finance Rindra Hasimbelo Rabarinirinarison, Minister of Justice Herilaza Imbiki, Minister of Energy and Hydrocarbons Andry Ramaroson, Minister of Public Health Zely Arivelo Randriamanantany, Governor of the Central Bank of Madagascar Henri Rabarijohn, senior officials, development partners and representatives of the private sector. The IMF team would like to thank the Malagasy authorities for their time, flexibility and constructive discussions.

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