This Selected Issues paper and Statistical Appendix analyzes the relationship among prices, income, and money in Madagascar over the period 1982–2004. It finds that a stable long-run relationship for the price level exists, but that the adjustment toward this long-term equilibrium is quite slow. The paper presents an assessment of the real effective exchange rate. It also presents some qualitative competitiveness indicators and examines the performance of exports in Madagascar at an aggregate and product level.
This 2005 Article IV Consultation highlights that macroeconomic developments in Madagascar in 2003 and 2004 were dominated by the sharp depreciation of the national currency, and rising inflation pressures, with year-over-year consumer price inflation reaching 30 percent at end-February 2005. At the same time, the current account deficit widened considerably in 2004. In the medium term, real GDP growth is expected to average 6 percent per year, and fiscal consolidation is projected to continue, driven by an improvement of revenue performance and modest expenditure increases.
This Selected Issues paper analyzes recent economic developments and policies in Madagascar. Real GDP growth in 2001 was 6 percent, continuing the trend of sustained increase in per capita real GDP that began during the period 1997–2000. The secondary and tertiary sectors were the main sources of growth. The value added of the secondary sector, which accounts for only 13.3 percent of output, increased by 7.6 percent in 2001, following an annual average increase of 5 percent in 1997–2000.
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
This paper describes the economic developments in Madagascar during the 1990s. In early 1994, the authorities prepared a medium-term policy statement with an outward orientation. Accordingly, a sweeping reform of the exchange and trade system was implemented in May 1994, including the floating of the Malagasy franc. However, financial policy was not sufficiently supportive: ad hoc tax exemptions were granted, particularly to foodstuffs and petroleum products, and other taxes were not fully collected. Thus, the fiscal deficit deteriorated, leading to a sharp acceleration in money creation and inflation, which rose to 61 percent by end-1994.
This paper shows how to utilize the data on trade structure to achieve the best possible estimates of the effects of price changes, given any reasonable array of elasticity estimates. The credibility of estimates of price effects depends on thorough and systematic use of these data, as well as on the statistical credentials of the elasticities assumed. The observations show that the impact of a given price change on a country's exports will be greater, the more that country's exports are concentrated in markets in which substitution elasticities are high, and vice versa, but for most countries strong correlations of this kind are not probable. The general conclusion to be drawn from the paper would seem to be that the information implicit in the base-period matrix is not enough to yield results in which a high degree of confidence can be placed. It remains essential to employ substitution elasticities that are supported by the historical record. Nevertheless, the role of trade structure is vitally important.
Stock and bond issues and capital markets in less developed countries (LDCs) have recently received increasing attention from policymakers, and this preliminary study provides a cross-country survey of the actual experience of LDCs in this respect. Capital markets in LDCs are markedly underdeveloped, reflecting a combination of historical circumstances, current level of economic and financial development, and government policy—including inflation and low interest rates on government debt. Through its regulatory powers, the government can do much to reduce uncertainty (and, hence, risk). Supervising capital markets has several dimensions: preventing fraud; improving information; reducing transactions costs; and developing capital market techniques and institutions. Information on the Brazilian experience includes the fact that a strong, self-sustained capital market has not yet been established, despite the gains made. Tax incentives do provide a way of promoting capital market development, but the benefits of initial development must be judged in terms of the cost of tax receipts forgone.
Mr. Arvind Subramanian, Aaditya Mattoo, and Mr. Devesh Roy
This paper describes the United States recently enacted Africa Growth and Opportunity Act (AGOA) and assesses its quantitative impact on African exports. The AGOA expands the scope of preferential access of Africa's exports to the United States in key areas such as clothing. However, its medium term benefits estimated at about US$100-$140 million, an 8 11 percent addition to current non-oil exports would have been nearly five times greater (US$540 million) if no restrictive conditions had been imposed on the terms of market access. The most important of these conditions are the rules of origin with which African exporters of clothing must comply to benefit from duty-free access.