MG Supplemental PRSC V Grant

closed

The supplemental financing grant to Republic of Madagascar for the Fifth Poverty Reduction Support Credit (PRSC V), which will contribute to the sustainability of the overall reform program of the government, meets Bank requirements for supplemental financing under OP 8.60 as follows: 1) the program is being implemented in compliance with provisions of the Grant Agreement. 2) The Government is unable to obtain sufficient funds from other lenders on reasonable terms or in a reasonable time. 3) The time available is too short to process a freestanding World Bank credit. 4) The borrower is committed to the program and has demonstrated competence in carrying it out. The country has been hit by frequent cyclones, generating huge material and human losses. The most recent cyclone, which occurred in February 2008, produced damages estimated at over US$360 million, affecting mainly the regions of Analanjirofo and Atsinanana. The country has not been isolated from recent increases in international oil prices due to the absence of local production, leading to an increase in the cost of oil imports from US$285 million in 2005 to almost US$390 million in 2007. Madagascar was recently classified by the International Monetary Fund (IMF) as one of the Sub-Saharan countries most affected by the fuel and food price shocks.' The Government's strategic response relies on a combination of actions, ranging from fiscal measures designed to alleviate the fiscal burden on rice imports and domestic production in the short term, to investments designed to boost domestic rice production in the medium to longer term. The adopted actions can be classified into three broad categories: 1) alleviating the fiscal burden, for example by temporarily suspending the Value Added Tax (VAT) on rice from July 1, 2008 to mitigate the impact of higher international prices on the poorest citizens during the counter season; 2) strengthening targeted programs to protect the most vulnerable groups, especially vulnerable groups such as children and women, including existing cash-for-work and school nutrition programs being implemented in poor areas; and 3) boosting domestic food production, for example by supporting measures designed to encourage countercyclical rice production (i.e., distribution of improved seed, fertilizer, and equipment to cultivate up to 70,000 ha.) and by improving productivity through public investments in infrastructure, with the goal towards becoming a net exporter over the medium term.