Madagascar Economic Outlook

  • Economic growth in Madagascar is estimated to have plateaued at 3.2% in 2015, but is projected to accelerate to 4.0% in 2016 and 4.5% in 2017.
  • In 2015, the International Monetary Fund approved a second disbursement under the Rapid Credit Facility, while technical and financial partners provided support for the National Development Plan.
  • Sustainable growth requires rational territorial management and controlled urbanisation.

In 2015, Madagascar consolidated the institutions set up the previous year, adopted a decentralisation policy, held elections for local councils and for the senate, convened talks on national reconciliation attended by former presidents, launched a national consultation on public-security reform, and swore in the second government since the transition. Despite this progress, stability still seems to be fragile due to the rise in poverty and unemployment, and to ongoing tensions between the executive branch and parliament.

Economic growth is estimated to have stagnated in 2015 at 3.2%, falling short of the minimum 5% target set in the National Development Plan to reduce poverty. This poor performance was the result of political uncertainties, limited progress in terms of governance, low investment in the social sectors and in infrastructure, energy shortages, a 40-day summer strike at Air Madagascar and an overall deterioration of the business environment. These factors were compounded by exogenous shocks, including drought in the south, floods in the north, lower mineral prices and weak growth in the country’s European Partner

Economic growth is still driven by the secondary sector (export processing zones, agro-industry, and the metal and wood industries) and the services sector (banking, tourism, insurance and construction). As a whole, the primary sector recorded poor growth in 2015 (0.7%, down from 3.3% in 2014) due to floods in the north and drought in the south. Inflation was kept below 10%. The budget deficit widened to an estimated 4.6% of GDP in 2015, from 2.3% in 2014, and the current-account deficit deteriorated from 0.2% to 2.3% of GDP, so macroeconomic stability remains fragile and food insecurity is still a concern. Consequently, Madagascar still has a poor Human Development Index of 0.510, ranking the economy as 154th in the United Nations Development Programme’s 2015 Human Development Report. The country has become less resilient to external shocks.

In terms of the outlook for the future, a calmer political environment with better governance and the recovery of public and private investment should allow economic growth to reach 4.0% in 2016 and 4.5% in 2017, driven by agriculture, production in export processing zones, new information and communications technology, transport, tourism and construction. This economic growth should alleviate poverty and unemployment.

Sustainable development will require a structural transformation of the economy, with resources reallocated to the more productive sectors, rural and urban areas that are better integrated into the economy, and public policies to support efficient land management and better control of the rapid urbanisation taking place.