Economic Outline

Economic Indicators

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. Amid inflationary pressures associated with increased rice imports, elevated local fuel prices, and the impact of two cyclones causing supply disruptions, the country experienced an economic growth rate of 4% in 2023. In 2024, the minerals sector's development, driven by the new mining code, is anticipated to bolster growth. Public investment will bolster the construction sector through infrastructure projects, notably including the construction of a water pipeline in the south and a new motorway connecting Antananarivo and Toamasina by 2026. However, private consumption is forecasted to remain subdued in 2024. For the year as a whole, the IMF expects growth at 4.8%, followed by 4.7% in 2025.

In 2023, the budget deficit saw a slight reduction (to 5.5%, from 6% one year earlier - Coface), primarily due to higher revenues, including foreign aid and taxes, surpassing expenditures. However, increased losses incurred by the national water and electricity production and distribution company, Jirama, stemming from an accident at a hydroelectric power station in 2022, exerted pressure on the budget balance. To prevent arrears accumulation and ensure electricity supply, the government increased its transfers to Jirama. The implementation of an automatic mechanism for fuel price determination at the year's onset, coupled with reforms to Jirama, is expected to mitigate budgetary risks in 2024. Despite continued high capital spending on government infrastructure projects, revenue from the mining sector and ongoing structural reforms is projected to narrow the budget deficit. Public debt – at 54% of GDP in 2023 according to the IMF - will be maintained at a sustainable level, with the external portion constituting 40% of GDP, primarily held by multilateral institutions, and the domestic portion amounting to 15.3% of GDP, mainly held by state-owned enterprises. In 2022, inflation surged to 8.1%, propelled by increased energy and food costs. To alleviate its impact, the government implemented several measures, including capping the prices of essential goods such as rice, sugar, and cement. Additionally, government employee wages were raised by an average of 17%, and the value-added tax on fuel was reduced from 20% to 15%. Despite these efforts, inflation soared to 10.5% last year. However, it is anticipated to gradually ease over the forecast horizon, reaching 8.1% by 2025 (IMF).

The ILO estimates the unemployment rate in Madagascar in 2022 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, poverty concerns around 72.5% of the population, as the pandemic worsened the situation. Malagasy people have a low life expectancy due to poor living conditions, particularly in matters of sanitation and hygiene. In addition, the country remains extremely vulnerable to climate shocks, such as hurricanes, floods, locust infestations, and public health crises.

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