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PRESS RELEASE September 5, 2019

Madagascar Economic Update: Reforming Fuel Subsidies to Finance More Inclusive Policies

ANTANANARIVO, September 5, 2019 – The Malagasy economy remained strong in 2018, with an estimated growth rate of 5.2%, which is above the regional and global average. For the fifth consecutive year, economic growth outpaced the estimated population growth rate of 2.7%. These are the main conclusions of the latest economic update published today by the World Bank.

Published semi-annually, the report summarizes recent economic developments in Madagascar and presents the medium-term economic outlook. It notes that a combination of favorable macroeconomic conditions, such as lower inflation, a fiscal deficit under control, and an adequate level of international reserves helped sustain growth. The study projects a positive outlook, with a growth rate that is expected to reach 5.2% in 2019, a trend that should continue in the medium term.

The main challenge is to better redistribute the fruits of this growth to the entire population so that Madagascar can make inroads in reducing poverty. Increasing access to reliable, sustainable, and affordable energy, and credit and infrastructure is critical in this regard. It is also important to improve market access for farmers. There is also a need to invest sustainably in the human capital of the next generation by improving education, health, and social protection services,” notes Jan Kappen, Acting World Bank Country Manager for Madagascar.

Entitled “Managing Fuel Pricing,” the report devotes a special section to pump price subsidies to inform the current public debate on fuel pricing in Madagascar. The Malagasy Government has put in place various fuel pricing mechanisms to mitigate the impact of rising international oil prices on the domestic market. However, the report shows that these subsidies are very expensive for the State and that they mainly benefit the wealthiest who consume more petroleum products.

The Government's efforts to continue the reform of fuel pricing are laudable, the goal being to ensure that fuel is affordable and reliable, without the State having to bear the cost. The option of an automatic price adjustment mechanism would offer the possibility for the State not having to pay for subsidizing fuel. But this option should be accompanied by measures to mitigate the effects of high and volatile fuel prices on the poor,” states Natasha Sharma, author of the report.

To lower pump prices, the Government should further reduce the fixed costs of fuel imports and distribution (such as supply costs, storage and distribution costs and petroleum company margins), and promote competition in the petroleum sector. This requires strengthening the regulatory body tasked with independently monitoring prices at the pump. A transition to renewable energies could also reduce fuel consumption in the medium and long term.


PRESS RELEASE NO: 2019/098/AFR

Contacts

Antananarivo
Dia Styvanley
+261 32 05 001 27
dstyvanley@worldbank.org
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