According to forecasts by the International Monetary Fund (IMF) and the World Bank, Madagascar’s gross domestic product (GDP) is expected to recover at a slower pace than expected in 2023 and 2024. But many analysts believe that the Great Island has the means to establish more dynamic growth in the medium and long term.
GDP growth is expected to reach 4.2% in 2023 (compared to a previous projection of 5.1%) and 4.6% in 2024, driven by a rebound in consumer spending and private investment. These are the forecasts of the Bretton Woods institutions which judge that beyond the economic factors, the growth potential of the economy has been negatively impacted by the pandemic crisis and global inflation.
According to the World Bank, the job losses generated by the crisis should have pushed more people into subsistence agriculture and low-productivity informal services. This process, which has an impact on overall productivity and the standard of living, has been observed during previous recessions. In addition, economic uncertainty prompts companies to delay or scale back their investment plans, with negative consequences for growth and employment prospects. These factors are put forward to explain these cautious growth forecasts.
However, all those who are in the microcosm of economic analysis and forecasting agree that the country has the possibility of quickly returning to strong growth (more than 7%) and of placing it in the duration. A point of view that the two main donors of Madagascar do not contradict. Themselves admit that with new reforms supporting the resumption of investment, the Great Island can rebound and record a significant drop in the poverty rate. “Progress in poverty reduction will be largely determined by the ability of the economy to rebound and the absence of new shocks”, notes the World Bank before stressing that it is essential to better manage the risks to both international and domestic which have increased.
Indeed, at the international level, an escalation of geopolitical tensions has greater repercussions than expected on world prices and triggers a recession in the main trading partners. But exposure to climate shocks also affects the country’s economy. Madagascar has one of the highest cyclone risks among African countries, with an average of three to four cyclones affecting the country each year. There is also the need to preserve political and social stability, so as not to fall back into the shackles of the past. “The political crises of the past have interrupted all the phases of economic recovery since independence,” recalls the World Bank.
Various pull levers
If the risks are known, it is more interesting to focus on the tracks allowing the Big Island to build resilience and afford a long period of strong growth. Analysts suggest, as the first lever, more effective management of public finances. According to available statistics, after rising to 7.2% of GDP in 2022, the budget deficit is expected to gradually reduce to 5% in 2024, mainly due to the expected recovery in tax revenues. Projected debt levels remain relatively modest compared to other low-income countries and risks of debt distress are assessed as moderate, assuming reforms to boost domestic revenue mobilization and efficient management of public finances.
It is thus a question of having the institutional capacity to manage contingent liabilities and the growing financial pressures faced by the main public companies, with Jirama in the forefront. But analysts also note the need to ensure a high quality of governance of the structures called upon to boost investments, like the Malagasy Sovereign Fund (FSM) which should be operational in the coming months.
It is also important to launch or accelerate large-scale reforms that will allow new investments in sectors essential for job creation and structural transformation, better access to basic services and infrastructure, greater resilience to shocks and more transparency and accountability in public policies. Among the most important reforms, we can first mention the country’s industrialization program supported by the Odof (one district, one factory) and “Taninketsa Indostrialy” (industrial nursery areas) projects. industrial programming is also considered by analysts as a must. According to the Minister of Industrialization, Trade and Consumption, Edgard Razafindravahy, the time has come to accelerate the materialization of the country’s new industrial vision which is done within the framework of a permanent, frank and constructive dialogue with the economic operators.
The other lever to guarantee robust, sustainable and inclusive growth is the transformation of the agricultural sector to boost production and ensure food and nutritional security for rural populations. On this point, analysts maintain that the priority actions are, among others, the development of agricultural emergence zones, the improvement of access to agricultural inputs (mainly seeds and fertilizers), the facilitation of maintenance and financing of irrigation systems, facilitation of access to agricultural loans, amplification of cash transfer programs, increased storage capacity for agricultural products and better targeting of investments in connectivity infrastructure .
Moreover, a reform of land legislation would provide greater security and more incentive to millions of farmers and thus help to stimulate investment and promote increased productivity. Rapid response programs to mitigate the impact of a sequence of severe cyclones also need to be accelerated, alongside improved multi-hazard warning systems and local-level contingency plan implementation capacities. . “Initiatives aimed at mitigating the impact of rising international energy and food prices must be targeted to the poor and respond to imperatives of fiscal responsibility,” it also says.
Stimulate investments
Attracting much-needed investment in key sectors like electricity will require significantly improving the performance and financial viability of Jirama, strengthening the role of the private sector in service delivery, and improving the legal and institutional framework for Public-Public Partnerships. Private (PPP). The finalization of major projects (hydroelectric and solar power plants, infrastructure links, etc.). With regard to the digital sector, the government is invited to take immediate measures to promote greater competition in the market in order to promote the accessibility of services and reduce costs, by strengthening the rules of competition and regulation concerning the situations of a dominant position, by removing the remaining constraints for the establishment and marketing of fiber for all operators, and by ensuring that there is a strong, efficient and independent regulator.
The Bretton Woods institutions add the need to reform the Universal Access Fund (FDTIC) to ensure greater efficiency of investment in rural areas by instituting clear rules for the selection of projects and the allocation of funds and putting in place better financial management systems. In the transport sector, the acceleration of reforms to further stimulate private sector investment in the rail, air and maritime sectors and the development of a multimodal investment program are crucial. The selection of priority investments in the road sector must also meet the requirements of a well-developed road asset management system, while improving the management, resources and transparency of the Road Fund will be essential to ensure better maintenance of the road network.
The modernization and digitization of public financial management, procurement and payment systems should also be accelerated, including through the implementation of an integrated electronic platform including open contract data standards. Note also the adoption of a new strategy for the management of public investments and the establishment of a formal framework for the evaluation of projects on the basis of objective and transparent criteria, essential to improve the results in terms of development. and limit fiscal risks.
For the Bretton Woods institutions as for other analysts, the challenge is to stimulate investment by significantly improving governance and modernizing the key sectors that will drive growth. Rado Ratobisaona, specialist in network economy, points out, for his part, that there will be no lasting economic rebound without a significant increase in investment, but also that the projects financed must be appropriated by the populations.