September 21, 2017

• Economic growth is projected at 4.1 percent in 2017.
• Performance under the ECF-supported program remains strong.
• Prudent monetary policy has helped to contain inflation.

A team from the International Monetary Fund (IMF) led by Marshall Mills, Mission Chief for Madagascar, visited Antananarivo from September 7–21, 2017 to hold discussions on the second review of Madagascar’s economic reform program supported by the IMF’s three-year Extended Credit Facility (ECF). ^[1]  Good progress was made during the discussions and they will continue in the coming weeks. Following conclusion of ongoing discussions, the IMF Executive Board could consider the second ECF review in December 2017 as planned.

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

“Madagascar’s economic conditions continue to be positive in 2017, with sustained macroeconomic stability despite shocks. Economic growth is projected at 4.1 percent in 2017. While still among the highest rates in sub-Saharan Africa, this is lower than expected, partly due to the impact of the cyclone and drought on agriculture and hydropower. Growth is projected to accelerate to 5.1 percent in 2018, led by rising public investment and a rebound in agriculture. Inflation, which ticked up earlier this year due to weather-related shocks, is expected to fall to around 8 percent by end-year, and to decline gradually in 2018.

“Performance under the ECF-supported program remains strong. Based on current data, all quantitative performance targets for end-June were met. Revenue collection continues to exceed program targets. The Central Bank of Madagascar has appropriately managed pressures linked to the positive vanilla price shock, with the accumulation of additional foreign exchange reserves, while the exchange rate appreciated, consistent with its flexible exchange rate regime. Prudent monetary policy has helped to contain inflation. Most structural reforms planned in the program were completed, although some with delays.

“Concerning the remainder of 2017, the authorities are undertaking some additional budget measures to offset unexpected developments. Higher than expected outlays for the wage bill will be offset by over-performance on revenues and containing other spending. The authorities are also working to speed up the execution of foreign-financed investment projects. Work on Air Madagascar’s planned strategic partnership is advancing, and a final agreement will require a substantial transfer in the 2017 budget to cover its liabilities accumulated from past losses, as already envisaged under the IMF-supported program.

“Discussions on the 2018 budget focused on the program’s goals of increasing revenue collection and enhancing the quality of public spending. The authorities reiterated their commitment to these goals. They are elaborating additional tax policy and administration reforms to maintain strong revenue growth in 2018, despite the negative impact of the stronger Ariary on customs revenues. On the spending side, discussions focused on promoting spending to support inclusive growth, as envisioned under the program. Progress will require faster execution of public investment, containing wage bill growth, and reducing transfers, especially to the public utility JIRAMA. Reforms at JIRAMA are advancing, notably to improve management and lower costs, and continued progress is essential to cut transfers as planned.

“Discussions also addressed priority medium-term structural reforms in monetary policy, financial sector development, tax policy, and governance. The Central Bank is improving its operational framework for monetary policy implementation. Drawing on the recommendations of the Financial System Stability Assessment (FSSA), the authorities are also enhancing risk-based prudential supervision, tightening prudential regulations, and modernizing the banking legislation. On tax policy, discussions focused on ensuring that new tax incentives under consideration to promote private investment are cost-effective, attracting additional investment without jeopardizing future revenue performance. On governance, the government has submitted draft laws on international cooperation and asset-recovery to parliament. In addition, it has prepared a draft Anti-Money Laundering law, which it also intends to submit to parliament this year. Staff urged the authorities to follow through on the submission this year, as well as to progressively strengthen their asset disclosure regime.

“The mission met with President Hery Rajaonarimampianina, Prime Minister Olivier Mahafaly Solonandrasana, Minister of Finance and Budget Vonintsalama Andriambololona, Minister of Economy and Plan Herilanto Raveloharison, Central Bank of Madagascar Governor Alain Rasolofondraibe, Commissioner General Léon Rajaobelina, senior officials, as well as private sector representatives, and development partners.

“The mission thanks the Malagasy authorities for their strong cooperation and the constructive discussions.”