Abstract
The staff report for the First Review Under the Three-Year Arrangement for the Republic of Madagascar reviews economic and financial policies. The 2007 economic program is designed to sustain growth, promote fiscal consolidation, and reduce poverty while keeping inflation to single digits and reducing the economy’s vulnerability to shocks. Central bank interventions will be limited to smoothing large variations in the exchange rate and meeting the program’s foreign reserve target. Planned spending reductions should offset any shortfall in revenues, which would allow the domestic financing target to be met.
Since the issuance of the staff report (December 6, 2006), the following information has become available. The thrust of the staff appraisal remains unchanged.
Revenue shortfalls continue, but the revised end-year target remains within reach. The authorities revised downward their preliminary estimate for taxes on wages at end-September by about MGA 2 billion (0.01 percent of GDP) based on actual data, implying that the quantitative indicative revenue target was missed by about the same amount. Budget execution data at end-September indicate that the quantitative indicative target on domestic financing of the central government was met. The authorities are confident that they will achieve their revised revenue objective for the year as a whole as they are redoubling their efforts to recuperate tax arrears. If these efforts are successfully implemented, the staff concurs that the revised revenue target can be met.
Inflation remains on track to meet the end-year target. Consumer prices rose by 11.4 percent (year-on-year) in November, down from 13.6 percent in June, mainly due to a decline in nonfood inflation. The monetary program is on track as central bank net foreign assets are expected to be well above the floor and net domestic assets below the ceiling set for December.
Structural reforms are proceeding as expected, except for the modernization of customs bureaus. The new customs software (a structural benchmark for September 30, 2006) has been deployed in two offices, but deployment in the remaining three offices is now scheduled for March 2007 owing to delays in the construction of buildings to house the new computer systems. The verification of at least 80 percent of outstanding VAT credits at end-June 2006 (a structural benchmark for December 31, 2006) has been completed and the remaining two structural benchmarks are expected to be completed by year end as planned.
Madagascar will benefit from the U.S. Congress’s extension to 2012 of the Africa Growth and Opportunities Act’s Third-Country Fabric Provision. This provision, which applies to Madagascar and 13 other African countries, was scheduled to expire in September 2007.
Unofficial results indicate that President Ravalomanana was re-elected. Complete, but unofficial, results indicate that incumbent President Marc Ravalomanana won the December 3 presidential election with close to 55 percent of the vote. The final results need to be confirmed by the Constitutional Court.