Madagascar has secured a $101 million loan from the IMF, following the completion of essential reviews under the ECF and RSF. While economic growth has stabilized, inflation persists, and the current account deficit has widened. Key reforms are necessary for fiscal sustainability and improving public financial management to tackle the country’s developmental challenges.
Madagascar has secured a $101 million loan from the International Monetary Fund (IMF) following the completion of the Article IV consultation. This agreement was reaffirmed by the IMF Executive Board, which also conducted the first reviews under the 36-month Extended Credit Facility (ECF) and Resilience and Sustainability Facility (RSF) arrangements approved in June 2024. This completion paves the way for an immediate disbursement of approximately $48 million from the ECF and $53 million from the RSF.
The IMF has noted that while Madagascar’s economic growth stabilized in 2024, inflation remains a concern. The fiscal balance improved due to a settlement of tax arrears among fuel distributors, despite ongoing high transfers to the state-owned electricity company JIRAMA. However, the current account deficit has increased due to a decline in exports, yet medium-term growth prospects are supported by essential reforms from the RSF and ECF, which aim to enhance agricultural productivity, electricity access, and road infrastructure.
Risks to Madagascar’s economic outlook remain largely unfavorable, largely due to climate vulnerabilities and the unpredictable global environment. Discussions during the Article IV consultation for 2024 addressed the need for enhanced fiscal sustainability through increased domestic revenue, reduced fiscal risks, and the creation of buffers to withstand external shocks. Strengthening fiscal institutions, public financial management, governance, and anti-corruption measures were emphasized as vital for sustained development.
Mr. Nigel Clarke, Deputy Managing Director and Acting Chair of the IMF executive board, stated, “Madagascar continues to face important development needs amid its high poverty rate and vulnerability to climate shocks. A faster pace of reform is needed to spur growth, which remains well below its medium-term potential.” He underscored the significance of political commitment to the ongoing programs and investments for future development.
Mr. Clarke emphasized the necessity of the automatic fuel pricing mechanism to mitigate fiscal risks while creating room for increased public investment. He also underscored the importance of improving revenue mobilization and ensuring the financial recovery of JIRAMA. Enhancing public financial management, transparency, and governance is fundamental to effective budgeting and project execution, especially in the context of climate resilience strategies.
The central bank’s readiness to adjust policy rates to manage inflation was highlighted, alongside the need for better communication regarding monetary policy. Finally, the new decree on environmental and social impact assessments is anticipated to streamline project evaluations and selection processes, ensuring that future investments align with sustainable development goals.
In summary, Madagascar’s receipt of a $101 million loan from the IMF marks a significant step in bolstering the country’s economic stability. While fiscal improvements have been noted, ongoing challenges related to inflation and climate vulnerability necessitate urgent reforms. Enhanced governance, efficient public financial management, and strategic investments in infrastructure are critical for achieving sustainable growth and addressing poverty in Madagascar.
Original Source: dmarketforces.com
