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- GDP (PPP):
- $35.4 billion
- 3.0% growth
- 2.6% 5-year compound annual growth
- $1,462 per capita
- Inflation (CPI):
- FDI Inflow:
Despite some gains in much-needed economic development, much of the progress made in reducing poverty in Madagascar has been undermined by poor management of economic policy and the ongoing risk of political instability. The judicial system is underdeveloped, and convoluted administrative procedures facilitate corruption. Privatization has halted because of the unfavorable investment climate caused by chronic political turmoil.
Nonetheless, some notable reforms have enhanced the entrepreneurial environment. Procedures for launching a business have been streamlined, and minimum capital requirements have been abolished. Tax rates on individual and corporate income have been lowered, and the overall tax system has been simplified.
After decades of military coups, political violence, and corruption, the former French colony of Madagascar has become more stable, although there has been frequent turnover in the prime minister’s office. Hery Rajaonarimampianina was elected president in January 2014 after years of political instability sparked by a 2009 coup. In January 2015, General Jean Ravelonarivo succeeded Roger Kolo as prime minister when Kolo and his government resigned after less than a year in office. Ravelonarivo subsequently resigned after serving approximately 15 months and was replaced by Olivier Mahafaly Solonandrasana. Given the country’s relative stability, international organizations and foreign donors have restored ties that they had severed after the 2009 coup.
Madagascar has continued French colonial land tenure policies, including presumed state ownership of all land and the central government as sole provider of legitimate land titles. The 2016 World Bank Doing Business survey reports that property transfer taxes have been reduced. High levels of corruption exist in nearly all sectors, especially the judiciary, police, taxation, customs, land, trade, mining, industry, environment, education, and health care.
The top individual income and corporate tax rates are 20 percent. Other taxes include a value-added tax and a capital gains tax. The overall tax burden equals 9.9 percent of total domestic income. Government spending has amounted to 15 percent of total output (GDP) over the past three years, and budget deficits have averaged 3.3 percent of GDP. Public debt is equivalent to 35.6 percent of GDP.
The overall climate for entrepreneurial activity is held back by a lack of progress on reform. Procedures for setting up a business have been simplified, but other regulatory requirements are generally costly. The outmoded labor regulations are restrictive and not conducive to development of a dynamic labor market. Although the government has told the IMF repeatedly that it would reduce fuel price subsidies, it has not done so.
Trade is important to Madagascar’s economy; the value of exports and imports taken together equals 70 percent of GDP. The average applied tariff rate is 6.0 percent. Judicial and regulatory barriers deter foreign investment, and state-owned enterprises distort the economy. The relatively high costs of financing and scarce access to credit are barriers to the development of a more dynamic private sector.