According to the International Monetary Fund (IMF), the country’s December inflation was under seven per cent.
(READ MORE: Madagascar showing recovery signs: IMF)
“The current account deficit is projected to have narrowed to about two per cent of GDP in 2014 driven by growing mineral exports, decreasing food import needs, and lower-than-anticipated international oil prices,” said IMF’s country report.
“Growing credit demand prompted domestic interest rates to increase and raised the cost of domestic budgetary financing, leading the government to increase statutory advances from the central bank.”
Madagascar, one of the poorest countries in the world is in a fragile environment, the uncertainty linked to political instability, weak institutions, and weak governance has been eroding the foundation for solid economic growth.
“Since the political crisis in 2009, economic growth has been slow and social services, including basic health care and primary education, have deteriorated,” added IMF.
According to the Fund, the government that assumed power in early 2014, following constitutional elections has shown a commitment to addressing Madagascar’s challenges.
“Given still weak tax revenue collections, spending on high-priority areas, such as education and health, continued to be constrained in 2014,” read part of the report.
“The need to finance fuel subsidies, public enterprises (such as the public utility JIRAMA), and the under-funded civil service pension fund added to budgetary pressures.”
(READ MORE: Madagascar’s economic growth forecast at 3% in 2014)
At the same time, the authorities started to clear domestic budgetary arrears, took steps to define a plan to shore up the finances of JIRAMA, and adopted a priority action plan to strengthen public financial management.
Though the group welcomed the first signs of economic recovery in 2014, it warned that the country was facing complex challenges stemming from weak institutions and governance, binding resource constraints, vulnerability to shocks, and the urgent need to reverse the deterioration of development indicators.
The IMF called for the need to strengthen monetary policy independence.
They also called for a prompt recapitalisation of the central bank and a strengthening of its oversight mechanisms, and recommended avoiding the use of statutory advances for budget financing.