An International Monetary Fund (IMF) mission, led by Mr. Marshall Mills, visited Antananarivo during May 25–June 8, 2016, to review the results of the Staff Monitored Program (SMP)1 and hold discussions on a three-year economic and financial program for Madagascar, to be supported by the Extended Credit Facility (ECF)2 arrangement. At the conclusion of the mission, Mr. Mills issued the following statement:

“The IMF mission and the Malagasy authorities reached staff-level agreement on an economic program through 2019 that lays out a path to sustained and inclusive growth. The program could be supported under an ECF arrangement in the amount of SDR 220 million (about US$ 310 million), subject to approval by IMF Management and the Executive Board. Contingent upon the timely completion of prior actions by the Malagasy authorities and obtaining the necessary financing assurances, the Board could consider Madagascar’s request for ECF support by end-July 2016.

“Under the Staff Monitored Program (SMP) in place from September 2015 to March 2016, the country has built a satisfactory track record, with progress in most areas, demonstrating a capability to sustain reforms. All quantitative targets have been met, except the one on net credit to the government, which resulted largely from a shortfall in external financing. The measures envisaged in the structural benchmarks were all implemented, although some with minor delays. Economic conditions have improved progressively during the SMP. Growth is expected to rise to over 4 percent this year, while positive external developments have enabled the central bank to boost reserves significantly.

“Building on the National Development Plan, the agreed economic program supported by the ECF arrangement represents an intensification of reform efforts. The program aims to reverse the deterioration in development indicators by strengthening macroeconomic stability, building more efficient public institutions, and scaling up public spending on essential infrastructure and social priorities. The program is also expected to help stimulate private sector investment and catalyze significant support from development partners. In this context, official support in the form of grants and concessional lending will bolster debt sustainability. With steady and determined efforts, the authorities’ program will reinforce macroeconomic stability and promote sustained and inclusive growth.

“Increasing revenue collection and enhancing the quality of public spending is central to the program. Revenue measures aim to expand the tax base by integrating the large informal sector through more effective inspections and audits, stricter control of tax credits and exemptions, and increased cooperation between the tax and customs administrations. Enhancing the quality of spending depends on a shift towards areas that boost inclusive growth, especially infrastructure and social services. This shift requires improving public financial management, cleaning up the government’s payrolls, enhancing the financial viability of the public pension funds, maintaining full cost recovery prices for fuel, and reducing the need for transfers to loss-making state-owned enterprises (SOEs). Avoiding new arrears and clearing old ones also remain priorities.

“Reform of the electricity and water company (JIRAMA) plays a key role in the government’s program. To transform JIRAMA into an efficient, financially healthy enterprise, the authorities have taken upfront measures, including raising electricity tariffs, which limit the need for government transfers. They are also launching efforts to address deep-rooted operational and governance problems, with the World Bank’s assistance. In addition, the restructuring of state-owned Air Madagascar is already advancing rapidly, with the goal of becoming a commercially competitive airline supportive of developing the tourism sector.

“Macroeconomic stability will be supported by the proposed new Central Bank law, which enhances its governance and independence. The Central Bank is improving the operational framework for monetary policy implementation, especially liquidity management. Following the recent Financial Sector Assessment Program (FSAP), the authorities are strengthening their reform efforts for financial sector stability and development, focusing on enhancing the prudential supervision of banks and nonbanks, the mobilization of savings, and the bank recovery and resolution mechanisms.

“The government is also intensifying its efforts to strengthen economic governance and fight corruption. Procurement by the government and especially SOEs is being subjected to enhanced review. In particular, JIRAMA will restrict its single source procurement. The government’s anti-corruption strategy, launched in 2015, is being fortified by developing stronger anti-corruption legislation; enhancing independence and resources of BIANCO (public anti-corruption agency); establishing anti-corruption units at all ministries; and buttressing the integrity of the judicial system. The business climate will benefit from strengthening economic governance, including reforms of the legal system.

“The mission met with President Hery Rajaonarimampianina, Prime Minister Olivier Solonandrasana, Minister of Finance and Budget Gervais Rakotoarimanana, Minister of Economy and Planning Herilanto Raveloharison, Minister of Energy and Hydrocarbons Rodolphe Ramanantsoa, Central Bank of Madagascar Governor Alain Rasolofondraibe, the Economic Advisor to the President Léon Rajaobelina, and other senior officials, as well as private sector representatives and development partners.

“The mission takes this opportunity to thank the Malagasy authorities for their strong cooperation and the constructive discussions that took place.”

1 An SMP is an informal agreement between country authorities and Fund staff to monitor the implementation of the authorities’ economic program. SMPs do not entail financial assistance or endorsement by the IMF Executive Board.

2 The ECF is a lending arrangement that provides sustained program engagement over the medium-term in case of protracted balance of payments problems.