IMF pressure on Madagascar to raise taxes

High officials from the International Monetary Fund (IMF) have met with Madagascar's Finance Minister Benjamin Radavidson in Washington, urging for faster economic reforms. If the Malagasy government managed to raise tax revenues and reform the scandal-ridden public company JIRAMA by the end of the year, a new ad comprehensive IMF programme could soon be authorised.

Anne Krueger, the First Deputy Managing Director of the IMF, herself met with Finance Minister Radavidson and a visiting Malagasy delegation to discuss further structural reforms in Madagascar. Ms Krueger today said she had "held very open and constructive discussions" with the Malagasy delegation.

The government of Marc Ravalomanana has followed a strategy of fast and deep-ploughing economic reforms and liberalisation in line with prescriptions from the IMF and the World Bank. Until now, this has shown rapid results and strong donor confidence, including a very ample debt cancellation.

By now, however, results are getting more limited and growth is slowing. Compared with the ambitions of President Ravalomanana and the IMF, reforms are now too slow. Ms Krueger, in her meeting with Minister Radavidson, thus put pressure on the Malagasy government to speed up reforms even more.

In particular, there had been a focus on "fiscal developments in 2005 and on the 2006 budget," Ms Krueger revealed in Washington today. There had been "sizable tax revenue shortfalls earlier in 2005," she noted.

The IMF leader held that it was necessary to reverse these shortfalls and she welcomed "recent steps" to address this that were "beginning to bear fruit." Minister Radavidson had assured Ms Krueger that state tax revenues were beginning to increase again.

Another issue of great interest to the IMF had been the "severe financial and structural problems facing the public utility company, JIRAMA," according to Ms Krueger. The state-owned electricity and water utility, which the IMF wants to see privatised, has recently slipped from one financial scandal to another.

Minister Radavidson assured the IMF leader that Malagasy authorities now were developing an action plan for addressing the problems at JIRAMA. There were no details on what the government plans to do, but a typical IMF to loss-making state utilities is investing large amounts in infrastructure and management to make the company attractive to foreign investors.

The IMF had put considerable pressure on the Malagasy government to address the low tax revenues and the situation at JIRAMA, by making it a condition for negotiating a new and ample IMF-sponsored anti-poverty programme. This programme under the Fund's Poverty Reduction and Growth Facility (PRGF) usually is a condition for other donors to give substantial aid.

According to Ms Krueger, the concessions given by Minister Radavidson had prompted a decision to send IMF staff back to Madagascar in early December to continue the discussions on a PRGF programme. "The conclusion of the discussions will need to await verification of a turnaround in revenue collection during the fourth quarter of 2005 and finalisation of the JIRAMA action plan," she however added.




By staff writer

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