The economic context of Madagascar

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Despite being rich in natural resources, Madagascar is among the poorest countries in the world. Political instability, weak institutions and poor governance have been impediments to the country's economic growth. Economic activity, which displayed a certain dynamism until 2019, contracted by an estimated -6.1% in 2020 due to the outbreak of the COVID-19 (IMF). Economic activity gradually recovered in 2021, with GDP growth reaching an estimated 2.9%, supported by the mining, textile, and service sectors (IMF). Growth is expected to further strengthen to 4.8% in 2022 and 5.1% in 2023 (IMF). Risk factors that can affect growth include social fragility, fiscal imbalances and vulnerability to external shocks.

The economy of Madagascar was severely impacted by the COVID-19 pandemic, due to the fall of tourism activities, exports and lower domestic demand. As tax revenues decreased sharply, the fiscal situation deteriorated, the domestic primary balance turning from a small surplus to a deficit. In 2021, the economy started to recover, but public finances continued to deteriorate. Public deficit reached 6.6% GDP in 2021 and is forecast to amount to 6.1% GDP in 2022 according to the 2022 budget. Public debt (almost exclusively concessional) increased from 46% GDP in 2020 to 48.8% GDP in 2021, but remains sustainable. It is expected to further increase to 49.3% GDP in 2022 and 49.4% GDP in 2023 (IMF). Mainly driven by food products and imports, inflation increased from 4.2% in 2020 to 6% in 2021, and is expected to reach 6.4% in 2022 and 6.2% in 2023 (IMF). The IMF called for prompt policy action to support the poor. In March 2021, the IMF and Malagasy authorities agreed on a medium-term program of about USD 320 million under the Extended Credit Facility (ECF). This program aims at supporting recovery, preserving macroeconomic stability, rebuilding fiscal space and advancing reforms. The authorities are also committed to pursue the delayed Madagascar Emergence Plan 2019/2023, that aims to stimulate the country's economic growth through an increase in public and private investments, the strengthening of human capital and the improvement of governance. Among the country's persistent socio-economic challenges are poverty, corruption and the infrastructure deficit.

The ILO estimates the unemployment rate in Madagascar in 2020 at 1.9% of the total active population, but Madagascar’s living conditions remain among the lowest in the world. According to the World Bank, extreme poverty concerned almost three quarters of the population in 2019, and the pandemic worsened the situation. The ongoing famine in the South of the country is a major concern. Malagasy people have a low life expectancy due to poor living conditions, particularly in matters of sanitation and hygiene. According to WaterAid Madagascar, around 70% of the population does not have access to adequate sanitation and 89% of Malagasy people do not have access to improved toilets. As a result, there is a high risk of the spread of major infectious diseases among the population. More than half of the country's children suffer from a serious form of malnutrition. In addition, the country remains extremely vulnerable to climate shocks, such as hurricanes, floods, locust infestations and public health crises. The south of the country faces security concerns due to armed robbery of livestock.

Main Sectors of Industry

Madagascar is the leading exporter of vanilla in the world. Agriculture, including fishing and forestry, accounts for 25.1% of GDP and employs 64% of the population according to World Bank data (even though the majority of inhabitants practice subsistence farming). The main crop is rice, grown on almost half of the agricultural land. The main other agricultural products are: coffee, sugar cane, cloves, cocoa, cassava, beans, bananas, peanuts and livestock products. The agricultural sector is limited by low productivity due to the minimal use of modern agricultural techniques, the lack of infrastructure and a great vulnerability to climatic fluctuations, but benefits from numerous ongoing investments aimed at meeting these challenges. Deforestation and erosion, compounded by excessive use of firewood, are of serious concern.

The industrial sector contributes 19.5% of GDP and employs 9% of the active population (World Bank). It is dominated by mining (precious stones including rubies, sapphires, emeralds, etc.), textiles and agro-industry. Other business sectors include soap making, glassware, cement, automotive assembly, paper and petroleum.

The tertiary sector contributes to 49.6% of the GDP and employs 27% of the active population. Trade has performed well in recent years (with growth of around 5% per year), as well as tourism, which is one of the main assets of the country and whose potential is still untapped.

Madagascar's economy suffered from the COVID-19 pandemic. Tourism, mining, vanilla production and textile were the most impacted sectors.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	64.1	8.7	27.1
Value Added (in % of GDP)	24.7	19.5	50.4
Value Added (Annual % Change)	-1.4	-21.6	-4.8

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:

57,7/100

World Rank:

112

Regional Rank:

17

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

 

Sources of General Economic Information

Ministries

Ministry of Economy and Finance
Ministry of Agriculture and Livestock
Ministry of Water, Sanitation and Hygiene
Ministry of Industry, Commerce and Handicrafts
Ministry of Transport, Tourism and Meteorology
Ministry of Energy and Petroleum

Statistical Office

National Institute of Statistics

Central Bank

Central Bank of Madagascar

Stock Exchange

Mex Madagascar

Economic Portals

Midi Madagasikara
Madagascar Tribune
La Verité
Fortune of Africa Madagascar