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HomeNewsTanzania: IMF advises Madagascar to beef up anti-corruption arm, improve public spending

Tanzania: IMF advises Madagascar to beef up anti-corruption arm, improve public spending

For Madagascar to meet development needs and to preserve macroeconomic stability, it must broaden its tax base, improve the quality and composition of public spending and reinforce anti-corruption institutions, a staff team of the International Monetary Fund (IMF) said late Tuesday at the conclusion of a two-week mission to the Indian Ocean island.

Preliminary findings of the mission indicated early signs of an economic recovery, with growth at 3 percent and inflation at under 7 percent in 2014, but, 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, and the under-funded civil service pension fund,” said IMF mission leader George Tsibouris.

“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,” Tsibouris said.

Madagascar’s current account deficit is projected to narrow to about 2 percent of GDP in 2014 (from 5½ percent of GDP in 2013) driven by growing mineral exports and decreasing food and energy imports.

But the island’s currency, 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.

“In the medium term, the key challenge for Madagascar is to secure strong, sustainable, pro-poor growth to help reverse the deterioration in development indicators,” said Tsibouris.

He said 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.

“Monetary and financial sector reforms should include strengthening the capital base of the central bank and enhancing its oversight and independence. 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 IMF official suggested.

Meanwhile, the IMF mission has welcomed the Malagasy authorities’ recent moves toward clearing domestic budgetary arrears and encouraged them to proceed with the planned phased further reduction in fuel subsidies and to ensure the financial viability of public enterprises.

The government’s reform programme, 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,” Tsibouris said, adding that discussions on a medium-term economic reform programme that could be supported by an Extended Credit Facility (ECF) arrangement with the Fund will continue in the period ahead.

During its visit, the IMF mission met with President Hery Rajaonarimampianina, Prime Minister Roger Kolo, Minister of Finance and Budget Jean Razafindravonona, Minister of Economic Planning Herilanto Raveloharison and Central Bank Governor Alain Rasolofondraibe, among other senior government officials.

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