Statement at the Conclusion of an IMF Mission to Madagascar

Press Release No. 07/59
March 21, 2007

An International Monetary Fund (IMF) mission visited Madagascar during March 7-21, 2007, to hold discussions for the Article IV consultation and the second review under the IMF's Poverty Reduction and Growth Facility (PRGF). Mr. Brian Ames, the mission chief for Madagascar, issued the following statement today in Antananarivo:

"Over the past two weeks, the IMF team held constructive discussions with Minister of Finance and Budget Benjamin Radavidson, Central Bank of Madagascar Governor Frederic Rasamoely, and other senior officials of the Government of the Republic of Madagascar. It also met with Prime Minister Charles Rabemananjara, President of the National Assembly Samuël Razakanirina, as well as representatives from the private sector, non-governmental organizations, and donor community.

"The mission exchanged views on recent economic developments and prospects for the Malagasy economy, including the impact of the recent floods and drought and the launching of the Madagascar Action Plan (MAP). It also reviewed performance under the authorities' economic program that is being supported by an arrangement under the PRGF and discussed the ongoing cooperation between the IMF and Madagascar.

"Economic growth was better than expected in 2006, helped by the start up of construction for a large mining project and good performance in the telecommunication, banking, and insurance sectors. Inflation continued on its downward path, aided in part by the appreciation of the nominal exchange rate as mining and other projects financed through large foreign direct investment flows increased the demand for the ariary. Going forward, growth is likely to pick up further as other large mining projects come on line.

"The mission took note of the progress made under the authorities' economic reform program, including in the areas of revenue collection and in bringing inflation under control. Against this background, the Article IV consultation discussions covered five key areas, and there was broad agreement with the authorities on the policy priorities. First, a prudent fiscal stance is essential for preserving macroeconomic stability and a tight monetary stance is necessary until single-digit inflation is firmly secured. Second, improving domestic revenue mobilization and strengthening public financial management will be needed to achieve the MAP's goals. Third, ensuring the financial independence of the Central Bank of Madagascar would strengthen its effectiveness in maintaining low inflation and keeping Madagascar competitive. Fourth, financial intermediation must be broadened and deepened in order to foster private sector development. Finally, the restructuring and rehabilitation of the public utility (JIRAMA) must be addressed with urgency in order to sustain economic growth.

"The mission regretted government spending overruns in 2006, and noted that these had revealed deficiencies in projecting government spending requirements, with important implications also for 2007. If left unchecked, these overruns would result in higher domestic government borrowing, leading to further pressure on already high domestic interest rates and crowding out credit to the private sector. Departures from established procedures for valuation and clearance of goods at customs continued to undermine revenue collection, and the authorities agreed that this needed to be addressed with urgency.

"The mission reached preliminary understandings on the authorities' fiscal and monetary stance for 2007. It also discussed the macroeconomic impact and challenges of recent and planned large mining sector projects for 2007 and over the medium term. In this regard, it welcomed the authorities' recent decision to join the Extractive Industries Transparency Initiative (EITI) and its commitment to ensure transparency in the management of the country's petroleum and mineral wealth.

"Discussions on the second review under the PRGF will continue in Washington during the Spring Meetings of the World Bank and IMF, in particular on fiscal policy targets for 2007 and steps to improve revenue performance. The IMF Executive Board is tentatively scheduled to discuss the 2007 Article IV consultations in mid June, together with a joint Bank/IMF staff assessment of the MAP."



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