Madagascar

MAJOR MACRO ECONOMIC INDICATORS

(f) Forecast

RISK ASSESSMENT 

Growth dependent on the EU and held back by the political situation

Growth is expected to increase only slowly in 2015. The primary sector (approximately 30% of GDP) should benefit from the measures taken by the government with the aim of increasing rice yields. Agricultural production is nevertheless highly vulnerable to locust invasions and climatic conditions that impact harvests on a regular basis. Mineral production, notably nickel and cobalt started in 2013, will continue, together with the exploitation of the Tsimiroro oil field, begun in 2014. The textile and clothing sector will be revitalised with the reopening of the US market to Malagasy products and the slight upturn in European demand. Services (55% of GDP), and tourism in particular, should remain strong but the enduring political uncertainties as well as the lack of real strength in economic growth in Europe will hold back any increase in tourism revenue.
The National Development Plan (NDP) expected for early 2015 will restart the public investment projects on hold since 2009, provided that the level of political stabilisation enables the restarting of the flow of aid to help their financing.
Inflation should slowdown in 2015 thanks to a lower rate of growth in agricultural products. The reduction in the subsidies for fuel prices, if actually implemented by the government, could however hamper efforts to hold down inflation. 

Stabilisation of the budget and current account deficits

Public spending is likely to rise in 2015. The State will gradually reimburse the arrears of domestic payments accumulated over a number of years, estimated by the IMF at 2% of GDP. The financial situation of the national water and electricity company (JIRAMA), the source of part of the unpaid public debt, is also a heavy burden on the budget. The government is expecting the restarting of the international aid that was suspended with the 2009 coup d’état to provide the funding for its investment spending. The financial backers, in particular the United States and the EU, have indicated their agreement in principle to restarting their aid following the signing of an agreement between the Malagasy government and the IMF in June 2014. The actual payment of the aid is however conditional on the finalisation of the NDP and the stabilisation of the political situation. The cutting of subsidies, higher tax revenues because of increased mining production and the reforms intended to improve tax collection, should help prevent any serious worsening in the public finances.
The public debt is essentially domestic because of the problems of accessing external markets over a number of years. The concessionary nature of the loans the country could be granted once the flow of aid restarts should not seriously increase the country’s debt burden.
The current account deficit will stabilise in 2015. Clothing exports will benefit from the gradual economic recovery in the EU, Madagascar’s main trading partner, as well as by the decision of United States to include the country again within the AGOA (Africa Growth and Opportunity Act) programme granting preferential access by specific African countries to the US market. With the completion of the mining and oil and gas development projects, imports of capital goods are slowing. The need to import food, in particular rice, should ease thanks to improved harvests, alongside the slowdown in world raw material prices. The repatriation of profits from the extraction activities will continue to impact on the balance of payments. Because of the continuing uncertainties in the situation political, FDI will remain at a low level.

Improved political situation remains fragile

The election of Hery Rajaonarimampianina at the end of 2013 to lead the country marked the end of a period of transition that began with the 2009 coup d’état. This election made it possible for Madagascar to re-join the African Union (AU) and the Southern African Development Community (SADC). The political stability however remains uncertain following the unexpected return to Madagascar in October 2014 of Marc Ravalomanana, the former President overthrown in 2009. His house arrest triggered protest movements and any suggestion of dialogue has been rejected by A. Rajoelina, who overthrew him in 2009. The new President elected in 2013 will have to manage a reconciliation in order to ensure the political and social stability of the country. Governance in the country remains weak, with a high level of corruption.