Press Release No. 24/232

IMF Executive Board Approves US$337 million Under the Extended Credit Facility, and US$321 million Under the Resilience and Sustainability Facility for Madagascar

June 21, 2024

• The IMF Executive Board approved today an arrangement under the Extended Credit Facility (ECF) in the amount of US$337 million for Madagascar, in addition to a Resilience and Sustainability Facility (RSF) arrangement in the amount of US$321 million.
• The ECF and RSF-supported programs are aligned with the authorities’ objectives highlighted in the new General State Policy (PGE) adopted in early 2024 and aim to increase Madagascar’s economic resilience and foster long-term inclusive growth.
• The RSF arrangement will underpin reforms to strengthen adaptation to climate change and resilience against natural disasters, support climate change mitigation efforts, enhance the protection of ecosystems, and create conditions for green private sector investment.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) approved today a 36-month arrangement under the Extended Credit Facility (ECF) of SDR 256.62 million (about US$337 million) with Madagascar. The Executive Board also approved an arrangement Under the Resilience and Sustainability Facility (RSF) of SDR 244.4 million (about US$321 million). Furthermore, the Executive Board took note of Madagascar’s cancellation of the 40-month arrangement under the ECF which had been approved on March 29, 2021. The ECF-supported program will provide critical help to increase Madagascar’s economic resilience by anchoring fiscal sustainability, strengthening governance, buttressing monetary and financial stability, and advancing reform to support industrialization and human capital development. The RSF arrangement aims to address climate vulnerabilities through the implementation of appropriate climate policies.

This decision enables an immediate disbursement equivalent to SDR 36.66 million (about US$48 million) under the ECF.

Madagascar’s growth eased to 3.8 percent in 2023, while inflation pressures have waned. Weak revenue mobilization and JIRAMA’s losses have continued to weigh on the fiscal balance. The current account deficit narrowed, owing primarily to a decline in imports and reflecting the slowdown in economic activity.

The authorities are committed to stabilize debt below 60 percent of GDP and bring the primary deficit to around 3 percent of GDP during the program. They intend to undertake revenue measures and to reduce transfers to the energy sector, including by a progressive phasing-out of fuel subsidies. These efforts should help create fiscal space for investment in human and physical capital. The authorities are also committed to strengthening governance, transparency, and the fight against corruption, continuing the implementation of the interest rate targeting operational monetary policy framework, and building resilience, especially through stronger social safety nets.

Medium-term growth prospects appear favorable, bolstered by the reforms supported by the RSF and the ECF, including government programs aimed at boosting agricultural productivity, increasing access to electricity, and improving road infrastructure. Risks to the outlook are tilted to the downside, amid an uncertain global environment. Madagascar also remains vulnerable to climate shocks.

At the conclusion of the Executive Board discussion, Ms. Antoinette Sayeh, Deputy Managing Director, and Acting Chair, made the following statement:

Madagascar continues to face challenges, with economic growth easing in a context of weak fiscal performance and gradual reform progress. Going forward, climate change poses significant risks to Madagascar’s economy. The new arrangements under the Extended Credit Facility (ECF) and the Resilience and Sustainability Facility (RSF) will support the authorities’ program focused on strengthening human capital, accelerating economic development, and improving governance.

The authorities are implementing measures to create fiscal space for much needed social spending and investment. These include medium-term revenue mobilization efforts through tax policy and revenue administration measures. The implementation of an automatic fuel pricing mechanism and the preparation of a recovery plan for JIRAMA should enable to gradually reduce government transfers to the energy sector. These efforts should allow to stabilize public debt below 60 percent of GDP in the medium-term.

The authorities are preparing a new anti-corruption strategy, which, together with a Governance Diagnostic Assessment by the IMF, will support further efforts to fight corruption, promote transparency and improve governance Governance and Anti-Corruption (imf.org). They are also working on the implementation of a new monetary policy operational framework, focusing on strengthening liquidity management and the central bank’s communication.

Tackling climate change challenges will be critical for Madagascar’s medium-term macroeconomic resilience. The RSF-supported reforms should reinforce climate governance and mainstream climate into public financial and investment management processes, strengthen adaptation to climate change and resilience against natural disasters, curb the growth of greenhouse gas emissions, reinforce the protection of forest and biodiversity, and mobilize climate finance. The authorities should take full advantage of the support provided by the Fund and the World Bank through the Enhanced Cooperation Framework for Climate Action, and by other development partners to catalyze private climate financing.

Madagascar: Selected Economic Indicators