Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed today the second review of Madagascar's economic program under the Extended Credit Facility (ECF). The completion of this review enables the immediate disbursement of SDR 24.44 million (about US$31.9 million) to cover external and fiscal financing needs, bringing total disbursements under the arrangement to SDR 122.2 (about
US$159.7 million).
Madagascar's recovery from the pandemic has been hindered by a severe cyclone season and the spillovers from Russia's war in Ukraine. While 2021 growth was revised up to 4.3 percent, 2022 growth is projected to stall at 4.2 percent. Annual average inflation is projected to accelerate to 9.8 percent fueled by the surge in international oil and food prices. Lower growth and higher commodity prices will weigh on the budget, widening the fiscal deficit.
The outlook remains subject to significant uncertainty and risks. New COVID outbreaks in a context of slow vaccination uptake, a further slowdown in global growth and higher oil prices would adversely affect the near-term outlook. On the upside, implementation of the reform agenda envisaged in the Plan Emergence Madagascar along with an increase in investment could boost productivity and growth.
Following the Executive Board discussion, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, made the following statement:
"Madagascar's performance under the Fund-supported program has been broadly satisfactory despite delays in structural reforms and a challenging external environment. Continuation of prudent policies and a more proactive stance to support structural performance are needed to maintain macroeconomic stability, boost investment, and help achieve more sustainable and inclusive growth.
The 2022 revised budget envisages a larger domestic primary deficit than previously contemplated. Higher international oil prices imply an increase in budget transfers to oil distributors and public utility companies. Strengthening the fight against tax fraud and improving tax arrears collection will be key to offset any drop in domestic revenue collection. Further efforts will be needed in the 2023 budget to increase domestic revenue mobilization, reach fiscal balance, and create additional fiscal space for social spending and priority public investment.
Improving budget execution is crucial to increase the effectiveness of fiscal policy and achieve program objectives. In the current context of rising food and fuel prices, it is especially important to raise the execution of social spending and build stronger safety nets to protect the most vulnerable.
The recent increase in retail fuel prices is a step toward the implementation of an automatic fuel pricing mechanism which will remove costly and regressive subsidies. Improving the financial situation of public utility companies is also essential to reduce the need for fiscal transfers.
The authorities are encouraged to continue their efforts to improve budget transparency and strengthen accountability, including through more effective enforcement of the anti-corruption legal framework. To enhance ex-post controls of public finances, the Cour des Comptes is being given full access as controller to the Ministry of Finance's information systems. The Cour will also produce a follow-up report on the implementation of its recommendations in its audit reports on the response to the COVID-19 pandemic.
The central bank continues to enhance its monetary policy framework and should stand ready to further raise interest rates to contain inflationary pressures."
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