“There are early signs of an economic recovery, with growth at three per cent and inflation at under seven per cent in 2014,” said the IMF.
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“Given still weak tax revenue collections, spending on high-priority areas, such as education and health, continues to be constrained. Budgetary pressures are intensified by the need to finance fuel subsidies, public enterprises (such as JIRAMA), and the under-funded civil service pension fund.”
The Fund added that growing credit demand has prompted domestic interest rates to increase and has raised the cost of domestic budgetary financing, leading the government to increase statutory advances from the central bank.
The country’s current account deficit is projected to narrow to about two per cent of GDP in 2014 (from 5½ percent of GDP in 2013) driven by growing mineral exports, and decreasing food and energy imports.
“The Ariary has depreciated by about 15 percent against the US dollar so far in 2014, while foreign exchange reserves of the central bank have dwindled somewhat.”
The Fund warned that key challenge for Madagascar is to secure strong, sustainable, pro-poor growth to help reverse the deterioration in development indicators.
“The government has an important role to play in this process, through the scaling up of essential infrastructure, reforms to improve the business climate including governance, and enhanced social development policies.”
IMF said to meet Madagascar’s development needs and to preserve macroeconomic stability requires broadening the tax base, improving the quality and composition of public spending, and reinforcing anti-corruption institutions.
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The mission welcomes the authorities’ recent moves toward clearing domestic budgetary arrears and encourages them to proceed with the planned phased further reduction in fuel subsidies and to ensure the financial viability of public enterprises.
The group said monetary and financial sector reforms should include strengthening the capital base of the central bank and enhancing its oversight and independence.
IMF said it will be important to ensure that the foreign exchange market is sufficiently liquid and reflects market conditions. In that context, the central bank should rebuild its international reserves.”
“The government’s reform program, laid out in the National Development Plan (NDP), will set a framework for robust growth and poverty reduction over the medium term. It is important to translate this framework into specific priorities and actions to enable the achievement of the government’s medium-term objectives.”