Economy continues to grow

Despite two major cyclones last year, Madagascar's economy has continued to grow on the strength of its tourism industry and exports, according to an International Monetary Fund (IMF) report. However, inflation remained high, fuelled by a rise in the prices of petroleum products and rice, said the IMF's sixth review of economic performance in terms of the Poverty Reduction and Growth Facility (PRGF). The PRGF arrangements are the IMF's concessional loan facility for low-income countries, and programmes supported by it are based on the poverty reduction strategy. Since last year the giant Indian Ocean island has been rocked by a series of demonstrations, mainly over the soaring cost of living. Three successive hikes more than doubled the base rate from 7 percent 16 percent, yet inflation surged to 27 percent in 2004, compared to 3.1 percent in 2003. The Malagasy government was confident that with a favourable forecast for the rice harvest, and lower world prices for rice and oil, combined with a reduced budget deficit and greater exchange-rate stability, the government's objective of lowering inflation to 5.5 percent by year-end, "although ambitious, appeared achievable", noted the IMF report. There was still "considerable uncertainty" over export earnings after the abolition of the Multi-Fibre Arrangement (MFA), which guaranteed clothing and textile export quotas for global markets to many developing-world countries. Besides, the "the value of vanilla exports in 2005 may turn out to be lower than projected, in spite of the relatively good harvest and an expected sharp increase in the volume of exports, if the world market remains depressed," the IMF cautioned. The price of vanilla, Madagascar's chief export, fell from about US $180 per kg in 2004 to $50 per kg in early 2005. The economy was expected to grow more rapidly in 2005, said the IMF, expanding by some 6.4 percent to reflect increased agricultural production and higher investment in both tourism and infrastructure. A report by The Economist Intelligence Unit this week commented: "Fortunately, the country reached completion point under the World Bank/IMF's highly indebted poor countries initiative last October, meaning that the country will receive some $836 million in debt relief over time; this will help improve its balance-of-payments and budgetary positions."