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Balance of Payments and International FDI Position in Madagascar: FY2019/20

Madagascar BoP and FDI Position: FY2019/20

Madagascan merchandise export earnings have grown consistently since 2016. The export earnings growth has not been sufficient to improve Madagascar’s current account balance. The balance of payments deteriorated but gross official reserves increased slightly due to the consistent inward foreign direct investment (FDI) inflows and volatile outward FDI flows. These capital flows have improved Madagascar’s balance of payments but deteriorated the country’s net international FDI position. Nonetheless, Madagascar’s balance of payments is projected to remain stable from 2020 onwards, which is projected to support growth of gross official reserves in the medium-term.

 

Figure 1: Current Account Balance in Madagascar (2016-2024)

Current Account Balance in Madagascar (2016-2024)

Source: IMF 2019, Madagascar Fifth Review Under the Extended Credit Facility Agreement. Note: (*) Figures from 2019 onwards are projections.

 

Total merchandise imports to Madagascar increased to USD 4.0 billion in 2018, from an annual average of USD 3.2 billion for 2015 to 2017[1]. Exports increased to USD 3.1 billion in 2018, from an annual average of USD 2.4 billion for 2015 to 2017[2]. The slower growth in exports has deteriorated Madagascar’s current account balance from an average of SDR 23.3 million (approx. 0.3% of GDP) for 2016 to 2018, to a deficit of -SDR 172.3 million (approx. -1.9% of GDP) in 2019[3]. The slower growth in export earnings has not been sufficient to deteriorate Madagascar’s balance of payments and gross official reserves have increased.

 

Figure 2: Capital and Financial Account Balance in Madagascar (2016-2024)

Capital and Financial Account Balance in Madagascar (2016-2024)

Source: IMF 2019, Madagascar Fifth Review Under the Extended Credit Facility Agreement. Note: (*) Figures from 2019 onwards are projections.

 

Madagascar’s capital and financial account balance improved from a surplus (net inflows) averaging SDR 170.9 million (approx. 2.2% of GDP) for 2016 to 2018, to a surplus of SDR 230.9 million (approx. 2.5% of GDP) in 2019[4]. Madagascar’s balance of payments deteriorated from a surplus averaging SDR 163.4 million (approx. 2.2% of GDP) for 2016 to 2018, to a surplus of SDR 58.5 billion (approx. 0.6% of GDP) in 2019[5]. Gross official reserves increased from SDR 834.0 million in 2016 to SDR 1.2 billion in 2018, and continued increasing to SDR 1.4 billion in 2019[6]. During this period, Madagascar experienced persistent inward FDI inflows.

 

Figure 3: Gross Official Reserves and Balance of Payment in Madagascar (2016-2024)

Gross Official Reserves and Balance of Payment in Madagascar (2016-2024)

Source: IMF 2019, Madagascar Fifth Review Under the Extended Credit Facility Agreement. Note: (*) Figures from 2019 onwards are projections.

 

Inward FDI inflows decreased from USD 435.8 million in 2015 to USD 389.1 million in 2017, and continued decreasing to USD 349.1 million in 2018[7]. As a result, Madagascar’s inward FDI stock increased from an average of USD 5.9 billion for 2015 to 2017, to USD 6.4 billion in 2018[8]. Madagascan citizens investments abroad have been volatile.

 

Figure 4: Inward Foreign Direct Investment in Madagascar (2015-2018)

Inward Foreign Direct Investment in Madagascar (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

Outward FDI outflows decreased from USD 1.1 million in 2015 to net repatriations of -USD 857,000.0 in 2017, before increasing to net outflows of USD 123,300 in 2018[9]. As a result, Madagascar’s outward FDI stock decreased from an average of USD 16.8 million for 2015 to 2017, to USD 16.4 million in 2018[10]. These capital flows have improved Madagascar’s balance of payment but deteriorated the country’s net international FDI position.

 

Figure 5: Outward Foreign Direct Investment from Madagascar (2015-2018)

Outward Foreign Direct Investment from Madagascar (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

Madagascar’s balance of payment has been supported by the improved capital and financial account surplus despite the volatile current account deficit in the period from 2015 to 2018. Inward FDI inflows has been persistent despite the volatility in levels and outward FDI flows. Madagascar’s net international FDI position deteriorated from net liabilities amounting to an average of -USD 6.4 billion (approx. -63.4% of GDP) for 2015 to 2017, to net liabilities amounting -USD 6.7 billion (approx. -54.9% of GDP) in 2018[11].

 

Figure 6: International Foreign Direct Investment Position in Madagascar (2015-2018)

International Foreign Direct Investment Position in Madagascar (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

At these levels Madagascar’s foreign liabilities are significant as a proportion of GDP. Given the relatively narrow domestic capital markets, Madagascar should focus on attracting inward FDI in sectors that will expand its productive capacity and diversify its exports because the country is still heavily dependent on agricultural exports. Nevertheless, Madagascar’s balance of payments surplus is projected to remain stable in the medium-term, which is projected to support growth of gross official reserves.

 

Improvements in inward FDI inflows should continue supporting Madagascar’s balance of payments despite the widening current account deficit in the forward-looking medium-term. The current account deficit is projected to widen from a deficit of -SDR 172.3 million (approx. -1.9% of GDP) in 2019 to an average of -SDR 491.2 million (approx. -4.4% of GDP) from 2020 to 2024[12]. Madagascar’s capital and financial account balance is projected to improve to a surplus (net inflows) averaging SDR 570.3 million (approx. 5.1% of GDP) from 2020 to 2024[13]. Therefore, the balance of payment is projected to steadily increase from a surplus of SDR 47.8 million in 2020 to a surplus of SDR 100.7 million in 2024, which is equivalent to an average deficit of SDR 79.1 million (approx. 0.7% of GDP)[14]. Thus, Madagascar’s gross official reserves are projected to increase from SDR 1.5 billion in 2020, to SDR 2.0 billion in 2024[15].

 


[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 8 March 2020].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] IMF 2019. Madagascar Fifth Review Under the Extended Credit Facility Agreement, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020].
[4] IMF 2019. Madagascar Fifth Review Under the Extended Credit Facility Agreement, ibid.
[5] IMF 2019. Madagascar Fifth Review Under the Extended Credit Facility Agreement, ibid. There are relatively significant errors and omissions in Madagascar’s balance of payments data equivalent to -SDR 26.3 million in 2016, -SDR 2.2 million in 2017 and -SDR 63.9 million in 2018.
[6] IMF 2019. Madagascar Fifth Review Under the Extended Credit Facility Agreement, ibid.
[7] UNCTAD 2019. UNCTADStat Database, ibid.
[8] UNCTAD 2019. UNCTADStat Database, ibid.
[9] UNCTAD 2019. UNCTADStat Database, ibid.
[10] UNCTAD 2019. UNCTADStat Database, ibid.
[11] UNCTAD 2019. UNCTADStat Database, ibid.
[12] IMF 2019. Madagascar Fifth Review Under the Extended Credit Facility Agreement, ibid.
[13] IMF 2019. Madagascar Fifth Review Under the Extended Credit Facility Agreement, ibid.
[14] IMF 2019. Madagascar Fifth Review Under the Extended Credit Facility Agreement, ibid.
[15] IMF 2019. Madagascar Fifth Review Under the Extended Credit Facility Agreement, ibid.

 

 


Siyaduma Biniza

Siya is the Executive Director at PESA.

Siyaduma Biniza

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