As Growth Slows, Madagascar Needs a New Reform Drive

The latest economic update  for Madagascar suggests that the economy is facing new headwinds following bouts of COVID-19, a series of extreme weather events and the fallout from the conflict in Ukraine at the start of 2022. An economic recovery had started in Madagascar in 2021 but was interrupted in 2022 by a sequence of domestic and international shocks which are expected to result in growth slowing to 2.6 percent in 2022 (from 4.4 percent in 2021), with the poverty rate now expected to remain close to 81 percent.

According to the Madagascar Economic Update: Navigating Through the Storm, the crisis is Ukraine is expected to affect Madagascar mainly through slowing demand from key trading partners and rising oil prices, which are projected to lead to growing fiscal pressures due to a lack of adjustment of regulated fuel prices and growing losses of the national utilities company JIRAMA. Beyond conjunctural factors, the decline in private investment and job creation since the outset of the crisis are expected to constraint in the growth potential of the economy moving forward. In this context, growth is expected to pick up to a slower than expected 4.2 percent in 2023 and 4.6 percent in 2024.  

“Faced with new shocks and uncertainties, Madagascar need more than ever to undertake bold reforms to accelerate growth and reinforce its resilience,” said Idah Z. Pswarayi-Riddihough, Country Director, Mozambique, Madagascar, Mauritius, Comoros and Seychelles. “This is the only chance to reduce poverty significantly in coming years and to start catching up with aspirational peers.”

Several policy priorities are highlighted as particularly urgent in this Economic Update, including (i) a clear strategy to speed up vaccination for vulnerable groups as well as in urban and tourist areas; (ii) the restoration of essential public services and connectivity infrastructure following recent climate shocks; (iii) forceful actions to address food insecurity and boost domestic food production; (iv) fuel and electricity price reforms that protect the poor while preventing ballooning fiscal deficits and socially regressive subsidies; ; (v) a new momentum to boost access and affordability of broadband and digital services; and (vi) more public sector transparency and accountability.

This report also highlights the importance of boosting public school performance following a continued deterioration in learning outcomes in recent years. Findings presented in the economic update suggest the need for new approach to performance enhancement that includes measures reinforcing teachers’ selection and evaluation, salary and school grant management, redress mechanism and local community participation.