This Public Expenditure Review (PER) analyzes the Government of Madagascar's efforts to meet the challenge of poverty reduction. The report first evaluates the macroeconomic and fiscal framework within which the Government is implementing its Poverty Reduction Strategy (PRS). Secondly, reviews the resource allocation and current budget management process in Madagascar, and the extent to which the current budgeting, and budget management process allows the Government to effectively implement the Poverty Reduction Strategy Paper (PRSP). This section also deals with overall budget execution in implementing the Government policies, and the use of human resources. The final sections analyze the effective use of public resources in three priority sectors which are crucial for the implementation of the PRSP - education, transport and environment - and absorb the largest sectoral allocations. The findings of this report expand, and further deepen existing knowledge about the public finance system in Madagascar, and its contribution to the delivery of services in specific sectors. While they acknowledge Government efforts to improve the system of public finance, they confirm significant weaknesses in allocating and executing public resources at the sectoral, and cross-sectoral levels. The findings and recommendations of the report call for the development of an integrated reform program, which prioritizes intended reforms in view of the absorptive capacity of the Government machinery. At the cross-sectoral level, it is anticipated to feed the recommendations into the development of the Priority Action Plan of the Ministry of Economy, Finance and Budget (MEFB) for the year 2005. At the sectoral levels the recommendations of this report will contribute to a refinement of government's interventions, aimed at improving implementation of sectoral policies, and delivery of services.