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Madagascar
The following statement was released in Antananarivo on July
6, 2004 by an International Monetary Fund (IMF) staff mission:
"The IMF supports Madagascar's economic policies and reforms
under the Poverty Reduction and Growth Facility (PRGF)
arrangement approved in March 2001 for an amount of SDR 79
million (about FMG 1.2 trillion). The fourth review under the
PRGF arrangement was completed by the IMF Executive Board on
March 17, 2004. An IMF mission visited Madagascar from June 21
to July 6, 2004, to initiate discussions with the Malagasy
authorities on the fifth review under the program and to assess
economic performance and the strategies to be implemented to
cope with the recent sharp swings in the foreign exchange
markets. The mission also met with private sector representative,
trade unions, and donors.
"The first half of 2004 was dominated by the sharp depreciation
of the Malagasy franc. As a result, combined with the impact of
Cyclones Elita and Gafilo and rising world oil prices,
inflationary pressures have increased substantially since the
beginning of 2004, and inflation reached 9.3 percent (year-on-year)
in May 2004. Despite the impact of these two cyclones, real GDP
growth is expected to remain buoyant in 2004, at a rate close to
the program rate (5.3 percent, compared to 6 percent), thanks
mainly to the good performance of the export processing zone (EPZs),
construction, and a rebound in the agricultural sector.
"However, the pursuit of economic growth and the maintenance of
the recently observed competitiveness gain, as well as any
increase in Madagascar's growth potential, would be jeopardized
if inflation is not rapidly brought under control. Controlling
inflation is also vital to the success of the poverty reduction
strategy put in place under the PRSP, because the poorest people
are also those most vulnerable to inflation.
"In the months ahead, it is thus essential that inflation be
contained, with a view to bringing it down to 5 percent in 2005,
consistent with the poverty reduction strategy paper (PRSP). It
is also important to reduce the considerable volatility in the
foreign exchange market, in order to make economic activity more
stable. To this end, the authorities have already begun to
implement a set of policy measures, including the imposition of
VAT on non-capital goods, reducing the current expenditure of
the government, raising the reserve requirement ratio and the
central bank's base rate, as well as structural measures to
improve the money and foreign exchange markets. "These measures
have started to produce results, as evidenced by the recent
stabilization of the foreign exchange market. In addition, some
structural reforms aimed at encouraging the opening of the
economy and stronger competition, especially the liberalization
of the transportation sector, are helping to hold price
increases down.
"The mission welcomes the authorities' commitment to pursue its
ambitious economic reform program, with a view to producing
strong and noninflationary growth. This commitment represents a
significant step toward completion of the fifth review of the
PRGF program. An IMF follow-up mission will travel to
Antananarivo next month to assess the most recent fiscal,
monetary, and structural performances and, depending on the
outcome, the fifth review will be submitted to the IMF Executive
Board.
"The mission also reviewed the key measures and reforms adopted
by the authorities in order to reach the completion point under
the Initiative for Heavily Indebted Poor Countries (HIPC).
Further progress in securing debt relief under the HIPC, in
particular submission of the first annual report on poverty
reduction strategy paper (PRSP) implementation in July 2004, and
a good performance under the PRGF program, will make it possible
to present the completion point to the IMF and World Bank Boards."
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