Antananarivo, June 5, 2013_ Madagascar is a country with enormous potential. When it was not in crisis, Madagascar grew at an average 5 percent a year. But overall economic growth has been flat over the period 2009-13. Against a benchmark of 5 percent annual growth, GDP in 2013 would have been 20 percent above its current level. The gap between where the economy could have been and where it is suggests that the cumulative costs of the crisis now exceed US$8 billion.
Since January 2009, Madagascar has been in the throes of a political crisis, generated by an unconstitutional change of government, following the nomination of Andry Rajoelina who was, at that time, the mayor of Antananarivo, the capital city, as head of state. This was rejected by the international community. The political crisis and the enormous uncertainty it created for private investment acted as a brake on economic growth. Four and half years into the political crisis, the effects on Madagascar’s economic and social outcomes have been very severe.
The lost years of socio-economic development
- The economy has stalled, income per capita has fallen: With high population growth (2.9 percent), the population of Madagascar has increased by over 3 million people from 2008 to 2013. As a result of economic stagnation, income per capita in 2013 has fallen back to its 2001 level.
- Poverty has sharply increased: Preliminary estimates suggest that, from 2008 to 2013, the proportion of the population living under the poverty line (which was already high before the crisis), may have increased by more than 10 percentage points. With more than 92 percent of the population living under $2 a day, Madagascar is now one of the poorest countries in the world.
- Social outcomes have worsened: despite crisis-related aid, the number of out-of-school children has increased, possibly by more than 600,000. Acute child malnutrition remains critical, having increased in some areas by more than 50 percent. Numerous health care centers have closed, and poor parents have had to shoulder a heavy proportion of the cost of putting their children to school, due to a lack of government funding. These developments put the welfare of future generations at risk. At this point, Madagascar will not reach most of the UN Millennium Development Goals (MDG) by 2015, even the ones which in 2007 were deemed potentially achievable (e.g., reducing child mortality, increasing enrollment in primary education, and eradicating extreme poverty).
- Public finances are increasingly under stress: Sustaining macroeconomic stability has come under increasing pressure. Tax revenues are falling, tax evasion has increased, and the capacity to hold the line on overall spending is strained in the face of political pressures, strikes, and shocks .While macroeconomic policy remains prudent, the risk of transferring the mounting costs of cleaning up a weakened fiscal position to the next government is real.
- Foreign aid remains muted: Aid dropped sharply in 2009, and has remained subdued. Official aid over 2009-13 dropped by about 30 percent, with a larger share shifted to humanitarian programs, raising issues of sustainability.
- Infrastructure has deteriorated: In addition to damages from cyclones, severe budget cuts in investment and maintenance have resulted in increasingly deteriorated roads, power and water infrastructure, impairing the medium- and long-term development of the Malagasy economy.
- The ability to deal with exogenous shocks is severely curtailed: Current risks to the global economy, especially in Europe, make Madagascar’s economy even more vulnerable, given its dependency on exports and tourism. The country is also highly vulnerable to natural disasters (cyclones of 2008 and 2012).The political crisis is a major impediment to confronting and mitigating these shocks.
- The resilience of agriculture had helped avoid a food crisis so far, but new risks have emerged: The ongoing locust infestation threatens agricultural production and food security. The Food and Agriculture Organization (FAO) estimates that up to 60 percent of the rice crop is endangered. Here too, the political crisis acts as an impediment to mounting an appropriate response.
- Madagascar’s longstanding governance problems have only been exacerbated: the weakening rule of law, increasing insecurity, poor governance in natural resource exploitation (rosewood, gold, precious stones), limited progress on the anti-corruption front, and the lack of transparency in the management of public resources have only become more pressing.
- The resilience of the private sector is increasingly being tested: There has been little new investment, domestic or foreign, in the highly uncertain environment of the past few years. The lack of overall economic momentum, the mounting infrastructure problems, especially in roads and electricity, and the deteriorating governance environment are hurting the short-term prospects of the private sector and its long-term plans. No significant number of jobs has been created, or can be created, in this environment.
Madagascar was already among the poorest countries in the world and the crisis has only made matters worse. The crisis is diverting attention from the crucial challenges the country needs to face and mortgaging the future of Malagasy citizens. From a strictly developmental point of view, a political resolution of the crisis is urgently needed. While the first round of presidential elections was scheduled for July 24, 2013, the elections have been postponed to August 24.