IMF, WBG said said that Madagascar will be the first country benefitting from the Framework in the context of the Resilience and Sustainability Facility (RSF) arrangement approved by the two multilateral institutions’ active engagement on climate change in the country. According to IMF “The Executive Board of the International Monetary Fund (IMF) approved a 36-month arrangement under the Extended Credit Facility of SDR 256.62 million (about US$337 million) with Madagascar. The Executive Board also approved an arrangement Under the Resilience and Sustainability Facility (RSF) of SDR 244.4 million (about US$321 million). Furthermore, the Executive Board took note of Madagascar’s cancellation of the 40-month arrangement under the ECF which had been approved on March 29, 2021. The ECF-supported program will provide critical help to increase Madagascar’s economic resilience by anchoring fiscal sustainability, strengthening governance, buttressing monetary and financial stability, and advancing reform to support industrialisation and human capital development. The RSF arrangement aims to address climate vulnerabilities through the implementation of appropriate climate policies.
“This decision enables an immediate disbursement equivalent to SDR 36.66 million (about $48 million) under the ECF. Madagascar’s growth eased to 3.8 percent in 2023, while inflation pressures have waned. Weak revenue mobilisation and JIRAMA’s losses have continued to weigh on the fiscal balance. The current account deficit narrowed, owing primarily to a decline in imports and reflecting the slowdown in economic activity. The authorities are committed to stabilise debt below 60 percent of GDP and bring the primary deficit to around 3 percent of GDP during the program. They intend to undertake revenue measures and to reduce transfers to the energy sector, including by a progressive phasing-out of fuel subsidies. These efforts should help create fiscal space for investment in human and physical capital. The authorities are also committed to strengthening governance, transparency, and the fight against corruption, continuing the implementation of the interest rate targeting operational monetary policy framework, and building resilience, especially through stronger social safety nets.
“Medium-term growth prospects appear favourable, bolstered by the reforms supported by the RSF and the ECF, including government programs aimed at boosting agricultural productivity, increasing access to electricity, and improving road infrastructure. Risks to the outlook are tilted to the downside, amid an uncertain global environment. Madagascar also remains vulnerable to climate shocks. At the conclusion of the Executive Board discussion, Ms. Antoinette Sayeh, Deputy Managing Director, and Acting Chair, made the following statement: Madagascar continues to face challenges, with economic growth easing in a context of weak fiscal performance and gradual reform progress. Going forward, climate change poses significant risks to Madagascar’s economy. The new arrangements under the Extended Credit Facility (ECF) and the Resilience and Sustainability Facility (RSF) will support the authorities’ program focused on strengthening human capital, accelerating economic development, and improving governance.
“The authorities are implementing measures to create fiscal space for much needed social spending and investment. These include medium-term revenue mobilisation efforts through tax policy and revenue administration measures. The implementation of an automatic fuel pricing mechanism and the preparation of a recovery plan for JIRAMA should enable to gradually reduce government transfers to the energy sector. These efforts should allow to stabilise public debt below 60 percent of GDP in the medium-term. The authorities are preparing a new anti-corruption strategy, which, together with a Governance Diagnostic Assessment by the IMF, will support further efforts to fight corruption, promote transparency and improve governance Government and Anti-Corruption. They are also working on the implementation of a new monetary policy operational framework, focusing on strengthening liquidity management and the central bank’s communication. Tackling climate change challenges will be critical for Madagascar’s medium-term macroeconomic resilience. The RSF-supported reforms should reinforce climate governance and mainstream climate into public financial and investment management processes, strengthen adaptation to climate change and resilience against natural disasters, curb the growth of greenhouse gas emissions, reinforce the protection of forest and biodiversity, and mobilise climate finance. The authorities should take full advantage of the support provided by the Fund and the World Bank through the Enhanced Cooperation Framework for Climate Action, and by other development partners to catalyse private climate financing”.
The Framework they said aims to support efforts by country authorities to bring together development partners, the private sector and civil society to address the effects of climate change. Building on IMF-WBG analytical expertise and financing instruments, the institutions will jointly provide critical support to the design and implementation of country authorities’ climate actions. This will be done through an integrated, country-led approach to policy reforms and climate investments, including where applicable through complementary and well-sequenced reform measures. Madagascar is the first country to benefit from this Framework, building on analysis such as the WBG’s Country Climate and Development Report (CCDR) and the IMF’s Climate Policy Diagnostics and Climate Macroeconomic Assessment Program (CMAP). Examples of areas where policy synergies and capacity development are being coordinated among the country authorities, the IMF and the WBG include the promotion of green and resilient investments and adaptation interventions that will deliver immediate development benefits.
This includes IMF support to improve public investment management while the WBG focuses on the implementation of a new mining code to address social and environmental impacts. It also covers support for the expansion of renewable energy to help close the gap in electricity access in the country. The WBG will support the reduction of electricity costs and the development of renewable energy production, while the RSF will help to operationalise a dedicated financing vehicle to promote clean energy projects including in rural areas. Madagascar will also adopt a national climate finance mobilisation strategy to strengthen its position as an attractive destination for climate-related investments. The IMF and WBG stand ready to support a country-led platform to mobilise additional programmatic and project climate financing that could be implemented in 2025.
