Madagascar needs fuel subsidy reforms to help the poor-IMF

ANTANANARIVO, July 1 Tue Jul 1, 2014 6:33am EDT

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ANTANANARIVO, July 1 (Reuters) - Madagascar needs to reform its fuel subsidy programme which does not help its poorest people, a senior International Monetary Fund official said as the lender considers more funding for the Indian Ocean island.

Famed for its wildlife and eyed by foreign companies for its minerals, Madagascar has struggled to lure back tourists and attract oil and mining giants since a coup in 2009.

The coup also prompted international donors to cut ties, leaving the economy to stagnate and poverty to deepen.

The IMF resumed its relationship with Madagascar earlier this year after peaceful elections in December, and in mid June approved a $47.1 million emergency loan to help the country meet urgent balance of payment needs.

IMF's Deputy Managing Director Min Zhu said told Reuters in an interview late on Monday during a visit to the country that the government's fuel subsidy programme - which costs 1.5 percent of gross domestic product (GDP) - was not reaching the vulnerable.

"Studies show the poorest people do not benefit from the major part of the subsidy. The big chunk of the money goes to the middle and upper class," he said.

"The government needs to prepare a targeted programme to help the poorest because if there is an oil price increase the poor will suffer."

Without giving a specific forecast, Zhu said in a separate statement that Madagascar's economic growth was expected to rise further in 2015 compared with a 3 percent forecast for this year, helped mostly by the mining sector.

"The country needs to move back to higher, sustainable, and inclusive growth, which will raise living standards, create more jobs, accelerate poverty reduction and improve the investment environment," Zhu said.

Madagascar has deposits of nickel, titanium, cobalt, iron, coal and uranium, and has shown hydrocarbon prospects that had previously attracted foreign firms seeking deals.

Among them, Rio Tinto began mining ilmenite, an ingredient used as pigment in paints, paper and plastics.

Zhu said the challenges Madagascar faced included the quality of its statistics, given they were based on data from 1993, and added the IMF would offer it all the technical assistance it needed to improve.

The IMF has scheduled talks in October where it will raise the issue of reforms in revenue collection, investment in education and healthcare and promotion of fiscal transparency, Zhu said.

"It is important to support Madagascar in this critical moment to move forward, after several years in very unstable political and economic situation," he said. (Writing by George Obulutsa; Editing by Ruth Pitchford)

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