Article IV Consultation with the Republic of Madagascar

Madagascar is one of the poorest countries in the world. In a fragile environment, the uncertainty linked to political instability, weak institutions, and weak governance has been eroding the foundation for solid economic growth. Since the political crisis in 2009, economic growth has been slow and social services, including basic health care and primary education, have deteriorated. The government that assumed power in early 2014, following constitutional elections, has shown a commitment to addressing Madagascar’s challenges.

There are early signs of an economic recovery in 2014, with growth estimated at 3 percent and December inflation under 7 percent. 

Given still weak tax revenue collections, spending on high-priority areas, such as education and health, continued to be constrained in 2014. The need to finance fuel subsidies, public enterprises (such as the public utility JIRAMA), and the under-funded civil service pension fund added to budgetary pressures. At the same time, the authorities started to clear domestic budgetary arrears, took steps to define a plan to shore up the finances of JIRAMA, and adopted a priority action plan to strengthen public financial management.

Executive Board Assessment

Executive Directors welcomed the first signs of economic recovery in 2014. Nevertheless, the country is facing complex challenges stemming from weak institutions and governance, binding resource constraints, vulnerability to shocks, and the urgent need to reverse the deterioration of development indicators. Directors called for an acceleration of economic and structural reforms to unleash Madagascar’s significant potential. The forthcoming National Development Plan should give priority to reforms that would raise the level and efficiency of pro-poor/pro-growth government spending, improve governance and strengthen institutions, increase high-return infrastructure investment, and improve the business climate. Steadfast implementation of these reforms will promote employment and private sector growth and reduce poverty.

Directors saw some room for cautious external borrowing over the medium term to address Madagascar’s pressing infrastructure needs and stressed the need to strengthen monetary policy independence. They called for a prompt recapitalization of the central bank and a strengthening of its oversight mechanisms, and recommended avoiding the use of statutory advances for budget financing. Efforts to upgrade financial sector supervision and risk monitoring and develop the financial system should also continue.

It is expected that the next Article IV consultation with the Republic of Madagascar will be held on the standard 12-month cycle.

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