By Ford, Neil
African Business , No. 316
Heralded as a leader who could pull off the difficult combination of kick starting the moribund, state dominated economy through his entrepreneurial skills and improving the living standards of the country's rural poor, Madagascar's President Marc Ravalomanana's reputation could be threatened if he makes the wrong choices over the next six months.
On the economic front, the IMF initially welcomed Ravalomanana's approach, but as with many reforming African economies, the government has struggled to implement the reforms as planned. In November, the multilateral said that the planned Poverty Reduction and Growth Facility (PRGF) could be in doubt if taxes were not cut quickly. The IMF is also concerned about "the severe financial and structural problems" facing the public utility company Jirama, which controls the electricity and water sectors in the country.
The company has hit the Malagasy headlines as a result of a string of financial irregularities. One of the biggest problems facing Jirama is the cost of importing oil. High oil prices are hitting the island nation harder than most as Jirama generates most of its electricity from diesel fired plants. The company has been forced to introduce power rationing.
A Jirama spokesperson commented: "The tariff is simply too low compared to what it costs to generate power. The hard truth is we have to charge more."
The seemingly obvious solution is to commercialise the company, lift the government subsidies and greatly increase electricity tariffs but Ravalomanana is loath to do so ahead of the presidential election due at the end of 2006 because of the likely impact on his personal popularity. An earlier government had planned to privatise Jirama in the mid-1990s but backed down under public pressure.
Following a meeting between Ravalomanana and IMF President James Wolfensohn towards the end of 2004, the IMF praised the government's "strong commitment to economic and structural reforms" and took "note of the burden of Madagascar's external debt and agreed to recommend to their governments a reduction of its stock of debt".
This resulted in widespread debt cancellation under the enhanced heavily indebted poor countries (HIPC) initiative, including a $752m cut in the money owed to the Paris Club of major creditors and another $700m agreed by a variety of bilateral lenders--leading to an overall reduction of 90% in the nation's external debt.
While there is no suggestion that the government has given up on reform, it does appear that it pulled out all the stops in order to achieve such a deep seated debt cancellation and is now struggling to make the other changes requested by the IMF as quickly as agreed. It also appears that tax revenue collection was lower than expected during the first half of 2005, although an IMF spokesperson conceded that steps taken to improve revenue collection were now "beginning to bear fruit".
The government is yet to reveal its plans for Jirama but it is likely that the IMF will push for privatisation, or at least some form of private sector involvement.
With regard to the PRGF, that would provide funding to enable the government to implement measures to boost economic growth in the long run, the IMF spokesperson noted: "The conclusion of the discussions will need to await verification of a turnaround in revenue collection during the fourth quarter of 2005 and the finalisation of the Jirama action plan."
Focus is on roads
Top of the government's wish list is to continue with improving the island nation's road network. Rather than attempting to improve all forms of state infrastructure at the same time and at a gradual pace, the government has opted to target one sector at a time and the president is convinced that investment into transport will pay the greatest dividends in terms of economic growth and poverty reduction. …