Press Release No. 06/297

Press Release: IMF Executive Board Completes First Review Under Madagascar's Three-Year PRGF Arrangement and Approves US$11.8 Million Disbursement

December 21, 2006

The Executive Board of the International Monetary Fund (IMF) has completed the first review of Madagascar's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement. This enables Madagascar to draw an amount equivalent to SDR 7.9 million (about US$11.8 million), bringing the total disbursement under the PRGF to SDR 15.7 million (about US$23.6 million).

The Executive Board approved the three-year arrangement on July 21, 2006 (see Press Release No. 06/163), for a total amount of SDR 55.0 million (about US$80.8 million) to support the government's economic program for 2006-2008.

Following the Executive Board's discussion of Madagascar's IMF-supported economic program, Mr. John Lipsky, First Deputy Managing Director and Acting Chair, said:

"The Malagasy authorities are to be commended for the progress achieved in implementing their economic program in 2006. Despite higher world energy prices, real GDP growth remains solid and inflation, while still high, is declining. The balance of payments and international reserves positions have improved, with strong export growth despite the expiration of protected market access for certain textile exports.

"As continued shortfalls in tax revenue would limit the scope for additional priority spending, there is a need to increase tax revenues through the strengthening of tax policy and the modernization of tax collection. Comprehensive tax policy reform in 2007, aimed at simplifying and increasing the efficiency of the tax and customs codes, is, therefore, welcome. Ongoing tax and custom administration reforms also need to be intensified.

"The resources freed up by the Multilateral Debt Relief Initiative provide room for additional priority spending, in support of the Millennium Development Goals. The increased allocation of resources to priority sectors should be accompanied by steps to further strengthen public financial management.

"The Central Bank of Madagascar should maintain a tight monetary policy in order to achieve the inflation objective. In line with this, measures taken by the Malagasy authorities to strengthen the financial position of the central bank are welcome.

"Given the importance of the national public utility company (JIRAMA) for economic performance, the financial and technical problems of the utility should be addressed promptly. The authorities, together with their development partners, should play a lead role in financing the parastatal's long overdue rehabilitation in order to attract a private concessionaire," Mr. Lipsky said.

The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.