Madagascar Secures $101 Million Loan from IMF Amid Economic Challenges
Madagascar has secured a $101 million loan from the IMF after completing Article IV consultations. The loan comes from the Extended Credit Facility and Resilience and Sustainability Facility arrangements. While growth prospects appear favorable, ongoing inflation and vulnerabilities to climate shocks pose significant risks. Strengthening fiscal sustainability and enhancing governance remain crucial for Madagascar’s development.
Madagascar has successfully secured a loan of $101 million from the International Monetary Fund (IMF) following the conclusion of the Article IV consultation. The IMF announced that its Executive Board has finalized the First Reviews under both the 36-month Extended Credit Facility (ECF) and the Resilience and Sustainability Facility (RSF) arrangements, which were approved in June 2024.
The completion of these reviews facilitates an immediate disbursement of approximately $48 million under the ECF and about $53 million under the RSF. According to the IMF, Madagascar’s growth is expected to stabilize in 2024, even as inflationary pressures continue to be a concern. The nation’s fiscal balance has seen improvement, attributed to a resolution regarding tax arrears from fuel distributors, despite ongoing high transfers to JIRAMA.
The current account deficit in Madagascar has widened, primarily due to a drop in exports. Nevertheless, the medium-term growth outlook is positive, driven by reforms under the RSF and ECF aimed at enhancing agricultural productivity, expanding electricity access, and upgrading road infrastructure. The IMF noted, however, that uncertainties in both domestic and global contexts pose risks to this outlook, particularly with Madagascar’s vulnerability to climate shocks.
Discussions during the 2024 Article IV consultation emphasized the importance of ensuring fiscal sustainability through increased domestic revenue, minimized fiscal risks, and the establishment of buffers to enhance resilience. The goal is to strengthen fiscal institutions, improve public financial management, promote governance, combat corruption, and support inclusive growth while addressing climate change challenges.
Mr. Nigel Clarke, the Deputy Managing Director and Acting Chair of the IMF Executive Board, stated that, “Madagascar continues to face important development needs amid its high poverty rate and vulnerability to climate shocks.” He underscored the necessity for accelerated reform to stimulate growth, which remains inadequate compared to its potential. The program’s performance as of June 2024 has been deemed mixed, necessitating continued strong political support for implementation.
He recommended that ongoing implementation of the automatic fuel pricing mechanism will help mitigate fiscal risks, allowing for increased public investment and social expenditure. Further efforts are essential to mobilize domestic revenue effectively and secure JIRAMA’s financial recovery. Enhanced public financial management will be pivotal for effective budget execution and preventing arrears accumulation.
Mr. Clarke advised that further improvements in governance, anchored in the ongoing Governance Diagnostic Assessment and the new Anti-Corruption Strategy for 2025-30, are crucial. Additionally, the central bank (BFM) should be prepared to adjust its policy rates to ensure that inflation remains on a declining trajectory. Improved liquidity management and clearer communication of monetary policy decisions will also strengthen the BFM’s credibility.
Strategically focused on building resilience to climate shocks and attracting climate finance continues to be essential. The introduction of a new decree on environmental and social impact assessments will provide a structured approach to evaluate and prioritize investment projects, including those in transportation.
In summary, Madagascar’s successful access to a $101 million loan from the IMF represents a significant step toward addressing the nation’s development challenges. With improved fiscal balance and a focus on sustainable growth supported by reforms, the outlook remains cautiously optimistic. However, ongoing efforts to manage economic risks and bolster resilience against climate shocks will be critical for the country’s future stability.
Original Source: dmarketforces.com
