Soaring inflation cause for concern - IMF

Despite the impact of recent cyclones on Madagascar's major export crops, economic growth was expected to remain buoyant in 2004, the International Monetary Fund (IMF) said in a recent statement. An IMF mission visited the giant Indian Ocean island from 21 June to 6 July to assess progress under the Poverty Reduction and Growth Facility (PRGF) arrangement approved in March 2001. The Fund highlighted the sharp depreciation of the Malagasy franc in the first half of the year and said inflationary pressures had increased substantially since the beginning of 2004 as a result of rising world oil prices and Cyclones Elita and Gafilo. Although economic growth in 2004 was forecast at 5.3 percent, mainly due to the performance of the export processing zone, the Fund warned that soaring inflation threatened much of the gains made so far - inflation reached 9.3 percent in May. "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 jeopardised if inflation is not rapidly brought under control," said the Fund. The IMF recommended that authorities work towards reducing inflation to 5 percent in 2005, and try to curb the "considerable volatility" of the foreign exchange market. Efforts by the authorities to implement a set of policy measures to make economic activity more stable were welcomed, including the imposition of value added tax on non-capital goods, reducing government spending, and structural measures to improve the money and foreign exchange markets. "These measures have started to produce results, as evidenced by the recent stabilisation of the foreign exchange market. In addition, some structural reforms aimed at encouraging the opening of the economy and stronger competition, especially the liberalisation of the transportation sector, are helping to hold price increases down," the Fund noted. In recent weeks Madagascar has been rocked by a series of strikes over the rising cost of living. During the first three months of 2004, the cost of rice, a staple food, shot up by 12.7 percent.