The Executive Board of the International Monetary Fund (IMF) on Wednesday approved emergency financial assistance under the Rapid Credit Facility (RCF) in the equivalent of Special Drawing Right (SDR) 30.55 million (about US$47.1 million) for Madagascar to enable the authorities meet their urgent balance of payment needs.
An IMF statement sent to PANA in New York, said the financial assistance was in support of a
set of economic and structural policies and measures the authorities planned to implement in order to restore macroeconomic stability, provide a favourable environment in support of inclusive growth and poverty reduction, and to strengthen the capacity of the Malagasy government.
It said that the Board’s approval of the RCF disbursement would also enable the authorities to engage in discussions with development partners regarding further assistance.
The approval enables the immediate disbursement of the full amount, which is equivalent to 25 per cent of Madagascar’s quota in the IMF.
The IMF noted that after several years of reasonably strong economic growth, output contracted in 2009 and remained weak over several years, given a high level of political and economic uncertainty that impacted investment decisions.
Over this period, Madagascar also experienced dwindling financial support from development partners and enduring fiscal deficits that became progressively more difficult to finance.
“Supported by large mining projects that are reaching commercial production, recovering rice production, and a less uncertain political environment, growth is projected to increase to 3 per cent in 2014,” the statement stressed.
It said that the RCF provided immediate financial assistance with limited conditionality to low-income countries with an urgent balance of payments need.
“In this context, the economic policies of a member receiving RCF financing are expected to address the underlying balance of payments difficulties and support policy objectives including macroeconomic stability and poverty reduction,” it added
Financing under the RCF carries zero interest (until end 2014), and has a grace period of 5.5 years, and a final maturity of 10 years.
The Fund reviews the level of interest rates for all concessional facilities every two years.
Mr. Min Zhu, IMF Deputy Managing Director and Acting Board’s Chair, said Madagascar’s re-engagement with the Fund marked the end of a difficult period of economic disruption in which economic activity slowed, investment stagnated and social and governance indicators weakened.
Mr. Zhu stated that last year’s elections, and subsequent widespread recognition of the new government by the international community, were helping to set the stage for a revival of the economy.
He, however, said that large balance of payments and fiscal gaps needed to be filled in order not to jeopardize the economic recovery and to begin to address social needs.