PESA Editorial - Madagascar - 1Q2017/18

Impact of Slow Global Growth on Madagascar

Madagascar is still undergoing a process of recovery following a political crisis that has engulfed the country since 2009. While the country aims at restoring international and regional relations, it remains one of the poorest countries in the world. Aside from its political quagmire, Madagascar has often experienced issues arising from international economic shocks, the recent El Nino drought affecting the region and natural disasters. In March 2017, it is estimated that tropical cyclone Enawo damaged as much as 30% of vanilla crop, which is one of the primary export goods of the country. This is likely to impact on economic growth for the 2017 financial year1. The government has shown itself open to close collaboration with the international donor community: IMF, World Bank, European Union, U.N. agencies, bilateral donors, but the political situation is still fragile.

The extractive industries, the agro-industry, banking, transport, livestock and fisheries are the main drivers of Madagascar’s economic growth. Prior to the 2009 political crisis, Madagascar grew at an average rate of 5% a year. Although the economy started recovering after the 2013 elections, economic growth has slowed to 3.1% in 2015 and was estimated at 4.1% in 20162 – short of the minimum forecast growth of 5% in 2015 and 7% in 2016 as set by the National Development Plan (NDP) 2015 – 20193. The inflation rate declined to 7.1% in 2016 from 7.6% the previous year due to growing mineral exports and the control of money supply. The current account deficit widened to 3.4% of GDP in 2016, from 2.3% of GDP the previous year, while the budget deficit is expected to increase to 4.4% in 2017 from 4.3% in 2016, as government aim to implement fiscal measures.

The central bank’s interventions on currency markets have kept the Ariary relatively steady against major currencies. There was some fluctuation in 2016, with the Ariary’s nominal value falling against the dollar from 3176,9 to 3349,8 Ariary. However, stability in the petrol and rice prices, combined with an absence of cyclones, have resulted in annual inflation rates decreasing from 7.6% in 2015 to 6.9% in 2016 which is lower than the SADC region average of 12.7% for 2016. External debt is expected to decline from 41% in 2016 to 38% in 2017, while internal debt is expected to rise to 62% in 2017 as compared to 59% in 2016.

The vanilla industry of the northeastern coast has remained a significant economic and political influence, since Madagascar is the world’s largest supplier of vanilla. However, infrastructure remains one of the persistent challenges faced by Madagascar with regard to this industry. The World Bank’s Ease of Doing Business index ranked Madagascar 167th in 2015, down from 164th place the previous year. By comparison, Mauritius was ranked 49th, and Somalia at 190th – out of 190 countries4. For instance, it takes a hundred days to register property in Madagascar compared to fourteen in Mauritius. According to the World Trade Organization (WTO) 5, the European Union (EU) remains the country’s largest trading partner, accounting for 16.5% of imports and 45.3% of exports in 2015. China has overtaken the EU to become the largest point of origin for imports at 18.2%, while the United States is the second-largest export destination (10.8%). However, the economic slowdown in China will have a negative impact on trade in Madagascar in 2017.

The secondary and tertiary sector are the main drivers of economic growth, while the primary sector recorded poor growth at 0.7% in 2015 due to the drought that impacted the country. However, in 2017, the primary sector is set to grow at 2.8% due to the implementation of major rehabilitation projects of irrigation systems which will also witness an increase in the agricultural sector by 3.5%.

The secondary and tertiary sectors are set to continue their positive growth pattern at 5.4% and 5.2% respectively. This is largely based on a positive growth rate of the extractive industry and the transport sector. Following the 2013 elections, the World Bank regularized its operations in Madagascar. In 2016, a USD 43.5 million rapid credit facility promised by the International Monetary Fund (IMF) was disbursed and this fund will be used to support growth and strengthen macroeconomic stability through economic and structural policies and measures.

Furthermore, the government needs to increase the space for fiscal maneuvering. Government needs to raise the level and efficiency of pro-poor and pro-growth spending, while preserving the sustainability of the public debt. This task should involve broadening the tax base, implementing a comprehensive revenue-mobilization strategy and strengthening public financial management. The damages caused by the cyclone are bound to have repercussions on the country’s economic growth especially in the primary sector, which is already experiencing slow growth due to the effect of the El Nino drought.


1 Bloomberg
2 World Bank & Malagasy Ministry of Finance
3 Malagasy Ministry of Finance
4 World Bank
5 World Trade Organisation




Richard Chelin

Former Regional Analyst

Add comment


Follow PESA Online

Follow PESA Online

Follow us on some of your favourite social media.

Contact Us

Please complete the General Enquiry form and submit it to us for a response. Please use the subject “Media” for all media-related requests.