Growth continued apace in 2019, although moderating slightly to an estimated 4.7%, according to Madagascar’s latest Economic Update. The report highlights two main decelerating factors: export revenues and industrial activity were adversely affected by a significant deceleration in major export markets, and execution of public spending was slow in the first half of the year, as the new government took office following the presidential election at the end of 2018.
A post-election rebound in public and private investments is expected to raise growth to 5.3% in 2020, offsetting the impact of softening activity in China, Europe, and the United States. However, risks to the outlook have intensified due to the international context and the potential for higher and more inclusive growth continues to be held back by inadequate infrastructures, low human capital, and weak governance.
“Madagascar is an island of hope, but poverty remains unacceptably high and the country is not immune to a deteriorating global environment,” said Marie-Chantal Uwanyiligira, World Bank Country Manager for Madagascar. “There is a window of opportunity for the country to implement transformative reforms and create a more competitive environment for private investors and job creation. This would require a clear delineation between areas where the private sector must take a leading role and where the public sector is expected to act.”
According to the report, Madagascar has an opportunity to review different tax abatements and preferential tax regimes, which cost the government nearly a quarter of its revenues every year.
“A more systematic and transparent cost-benefit analysis of these tax expenditures could help identify measures that are ineffective and that could absorb resources that could be better used in priority investments and social spending,” explained Marc Stocker, World Bank Senior Economist in Madagascar and author of the report. “In parallel, creating a more transparent and predictable business environment would help tap into a large potential for new investments and higher productivity.”
In this regard, the special focus section of this report analyses regulatory and non-regulatory barriers to competition in some sectors of the economy and ways to overcome them, with the ultimate objective of spurring higher growth and creating more and better paying jobs. This includes reinforcing competition laws and strengthening their enforcement by independent regulators as well as encouraging best practices for firms and professional associations.