ANTANANARIVO Sun Jan 18, 2015 3:34am EST
ANTANANARIVO Jan 18 (Reuters) - Madagascar's economy showed early signs of recovery in 2014 with growth estimated at 3 percent, which could rise to 5 percent in 2015, but political instability, weak institutions and weak governance are hurting prospects, the IMF said.
The Indian Ocean island's economy was battered after a 2009 coup that drove away donors and investors. A peaceful 2013 election has brought back some aid, but the nation is still struggling to impose stable government and economic reforms.
The cabinet resigned last week and a new prime minister, Jean Ravelonarivo, an air force commander and businessman, was sworn in on Saturday. But his appointment faces a legal challenge, which could prolong efforts to pick new ministers.
"In a fragile environment, the uncertainty linked to political instability, weak institutions, and weak governance has been eroding the foundation for solid economic growth," the International Monetary Fund said in a report on its website.
"There are early signs of an economic recovery in 2014, with growth estimated at 3 percent and December inflation under 7 percent," it said, projecting growth of 5 percent in 2015.
But the IMF said weak tax revenue meant spending on vital areas such as health and education was constrained, adding that funding fuel subsidies and the under-funded civil service pension fund were also imposing budgetary pressures.
The IMF called for "an acceleration of economic and structural reforms to unleash Madagascar's significant potential", a demand that will be difficult to meet as long as politicians are haggling over who will be in the next cabinet.
Miners particularly eye mineral reserves in Madagascar, one of the world's poorest nations. The country boasts reserves of nickel, cobalt, gold and uranium, and has oil and gas prospects.
Ravelonarivo's government will have the task of dealing with mounting complaints about blackouts, mainly because the government cannot afford to pay for fuel, and other problems that forced his predecessor to quit.
The IMF welcomed a previously stated commitment by Madagascar to phase out fuel subsidies, as well as steps to stop transfers to loss-making state firms and other measures to improve financial management.
(Writing by Edmund Blair; editing by Ralph Boulton)
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