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IMF Approves Three-year US$103 Million PRFG Loan

International Monetary Fund, Press Release, 1 March 2001

Washington, DC - The Executive Board of the International Monetary Fund (IMF) today approved a three-year loan for SDR 79.4 million (about US$103 million) under the Poverty Reduction and Growth Facility (PRGF) to support Madagascar's efforts to foster macroeconomic stability, promote accelerated growth, improve social services, and reduce poverty. The decision will enable Madagascar to draw shortly up to SDR 11.4 million (about US$15 million).

Following the Executive Board discussion on Madagascar, Stanley Fischer, First Deputy Managing Director and Acting Chairman, said: "Madagascar satisfactorily completed its first three-year PRGF supported program and reached the decision point under the enhanced HIPC Initiative in December 2000. Under the program, economic growth picked up, and inflation declined to single digit levels. Further, public finances were strengthened, the tax base grew, government revenues increased as a share of GDP, and there was progress in civil service reform. The banking system and the petroleum sector were privatized, and a comprehensive privatization plan for other sectors was launched.

"The new three-year PRGF-supported program focuses on promoting private sector development, reducing poverty, maintaining macroeconomic stability, and continuing to strengthen the quality and transparency of government operations.

"The authorities aim to further strengthen the public finances through improved tax administration and careful expenditure prioritization. This effort will focus on reallocating resources, including those released by the enhanced HIPC Initiative, to meeting priority social needs and building physical infrastructure in an efficient and transparent manner to the benefit of the poorest segments of the population. The authorities intend to improve the expenditure management system, including timely reporting and efficient financial controls. Directors strongly emphasized the need for prudence and full preparation before decentralizing responsibilities to regional institutions.

"A prudent monetary policy will continue with the aim of containing inflation while providing adequate room for private sector credit expansion. The level of official international reserves will be further strengthened, and a flexible exchange rate policy will be maintained to achieve this target.

"The broad framework of the poverty reduction and growth strategy, and the priority action programs, have been outlined in the Interim Poverty Reduction Strategy Paper, adopted by the authorities in November 2000.

"Executive Directors stressed that in the elaboration of the final Poverty Reduction Strategy paper, a full participatory process is important in order to secure the support of the civil society and development partners. The different sectoral strategies will need to be further specified, notably with regard to the agricultural sector and environmental concerns. In addition, it will be important to improve the collection and reporting of social and demographic data in order to monitor closely social and poverty indicators," Mr. Fischer said.