Madagascar Secures $101 Million IMF Loan to Support Economic Reforms

Madagascar has secured a $101 million loan from the IMF, following consultations. This includes immediate disbursements under two arrangements. The country’s growth is stabilizing despite inflationary pressures, but it faces a widening current account deficit and risks from climate shocks. Significant reforms are needed to ensure fiscal sustainability and promote development.

Madagascar has secured a $101 million loan from the International Monetary Fund (IMF) following the conclusion of the Article IV consultation. The IMF stated that its Executive Board has completed the First Reviews under both the 36-month Extended Credit Facility (ECF) and the Resilience and Sustainability Facility (RSF). These arrangements were approved in June 2024, paving the way for calculations leading to immediate funds disbursement.

The completion of the reviews allows for the immediate release of SDR 36.7 million, approximately $48 million under the ECF, and SDR 40.7 million, around $53 million under the RSF. The IMF’s statement suggests that Madagascar’s economic growth has stabilized in 2024, even though inflationary pressures continue to exist. Improvements in the fiscal balance have occurred due to tax arrears settlements with fuel distributors.

However, the current account deficit has widened, mainly due to a drop in exports. Despite challenges, Madagascar’s medium-term growth outlook looks promising, supported by reforms bolstered by the RSF and ECF, focusing on enhancing agricultural productivity, increasing electricity access, and improving road infrastructure.

Risks to economic stability appear skewed to the downside, as Madagascar remains highly susceptible to climate shocks amid uncertain domestic and global conditions. The discussions during the 2024 Article IV consultation aimed at ensuring fiscal sustainability, with emphasis placed on increasing domestic revenues and minimizing fiscal risks.

Strengthening fiscal institutions, enhancing public financial management, and tackling corruption remain priorities to foster more inclusive growth and resilience against climate change. Mr. Nigel Clarke, Deputy Managing Director at IMF, underscored that Madagascar requires accelerated reforms to enhance growth potential significantly.

“A faster pace of reform is needed to spur growth, which remains well below its medium-term potential.” – Nigel Clarke, Deputy Managing Director at IMF. Continued implementation of the automatic fuel pricing mechanism is essential to mitigate fiscal risks, increase public investment, and elevate social spending.

Moreover, efforts to improve domestic revenue mobilization and ensure the financial recovery of JIRAMA must persist. Enhancing public investment management and cash flow projections will potentially streamline budget execution and reduce arrears accumulation.

Furthermore, ongoing improvements in governance and transparency will fortify anti-corruption strategies for 2025-30. The central bank is encouraged to be ready to adjust policy rates to manage inflation effectively.

“The continued implementation of the automatic fuel pricing mechanism will help contain fiscal risks and create space for more public investment and social spending.” – Nigel Clarke, Deputy Managing Director at IMF. As Madagascar navigates climate resiliency, mobilizing climate finance remains critical, while new environmental and social impact assessments should guide future investment decisions.

In conclusion, Madagascar has unlocked a significant $101 million loan from the IMF, reflecting ongoing economic reviews and the need for reforms. While the country’s growth outlook has stabilized, it faces inflationary pressures and vulnerabilities to climate shocks. The IMF stresses the importance of enhancing domestic revenue and fiscal management to foster resilience and spur sustainable growth.

Original Source: dmarketforces.com