IMF Completes First Credit Review with Madagascar

The IMF has completed its first reviews under the ECF and RSF arrangements for Madagascar, facilitating a US$101 million disbursement. The country has demonstrated mixed performance, necessitating faster reforms and the implementation of an automatic fuel pricing mechanism to enhance fiscal capability for social investments. Key priorities include improving domestic revenue, reforming JIRAMA, and managing inflation while fostering climate resilience.

The International Monetary Fund (IMF) Executive Board has finalized the first reviews under the Extended Credit Facility (ECF) and the Resilience and Sustainability Facility (RSF) for Madagascar. This completion enables the disbursement of approximately US$101 million, providing necessary financial support for the nation amidst ongoing development challenges.

While Madagascar’s performance in implementing the ECF and RSF programs has been generally adequate, it has exhibited inconsistencies. Critical reforms include the establishment of an automatic fuel price adjustment mechanism, which aims to enhance fiscal space for necessary social investments. Additionally, significant efforts are needed to reform JIRAMA, the country’s utility company, which remains a priority.

At a recent board meeting, Mr. Nigel Clarke, Deputy Managing Director and Acting Chair, highlighted Madagascar’s substantial development requirements due to high poverty levels and susceptibility to climate change. He emphasized the urgency of expediting reforms to stimulate economic growth, which is currently lagging behind potential.

Madagascar’s program performance was described as mixed, underscoring the importance of strong political support to advance program goals. Implementing the automatic fuel pricing mechanism is critical, as it will help mitigate fiscal risks and create room for public investment and social expenditure.

Further enhancements in domestic revenue collection and the financial recovery of JIRAMA are vital. Improving public financial management processes will be essential for effective budget execution, limiting the accumulation of fiscal arrears. Continued governance improvements, aligned with the ongoing Governance Diagnostic Assessment, will bolster anti-corruption initiatives and enhance transparency.

The central bank (BFM) must be prepared to increase policy rates to control inflation effectively. Moreover, improving communication regarding monetary policy will further establish BFM’s credibility. Building resilience against climate shocks and mobilizing climate finance should remain a top priority, particularly as new environmental impact assessment regulations are enacted for imminent project evaluations, including infrastructure developments.

The IMF’s first reviews under the ECF and RSF arrangements signify a critical support mechanism for Madagascar in addressing its development needs. By ensuring disciplined fiscal reforms and bolstering investment, the nation is poised to tackle ongoing challenges while fostering growth. Continued political backing and a commitment to governance improvements will play pivotal roles in Madagascar’s journey toward sustainable development amid climate vulnerabilities.

Original Source: www.miragenews.com