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Quick Facts
- Population:
- GDP (PPP):
- $37.5 billion
- 3.0% growth
- 3.2% 5-year compound annual growth
- $1,505 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Madagascar’s economic freedom score is 56.8, making its economy the 119th freest in the 2018 Index. Its overall score has decreased by 0.6 point, with a significantly lower score for the government integrity indicator and declines in labor freedom and property rights outweighing improvements in fiscal health, business freedom, and monetary freedom. Madagascar is ranked 16th among 47 countries in the Sub-Saharan Africa region, and its overall score is above the regional average but below the world average.
Madagascar is endowed with bountiful untapped natural resources and a free-market economy, but it has not developed a capital market. The combination of a weak judicial system, convoluted administrative procedures, poor enforcement of contracts, and rampant government corruption impairs the business environment. The judicial system is underdeveloped. Improved financial governance would help to enforce laws against money laundering and strengthen supervision of the banking sector.
Background
After decades of military coups, political violence, and corruption, the former French colony of Madagascar has become more stable despite frequent turnover in the prime minister’s office. Prime Minister Olivier Mahafaly Solonandrasana succeeded Jean Ravelonarivo in 2016. Hery Rajaonarimampianina was elected to a four-year term as president in 2014 after years of political instability sparked by a 2009 coup. Given the country’s relative stability, international organizations and foreign donors have restored ties severed after the coup. Agriculture, forestry, and fishing are economic mainstays, but sustained drought brought about widespread hunger in southern Madagascar in 2016. Interruptions in the power supply caused by deficient infrastructure and natural disasters like cyclones are frequent.
Although the legal structure provides protections for private property rights and secured interests in property are recognized if not entirely enforced, the vast majority of farmers do not hold the official rights to their land. A lack of training, resources, and personnel hampers judicial effectiveness, and case backlogs are lengthy. Corruption is pervasive at all levels of government.
The top individual income and corporate tax rates are 20 percent. Other taxes include value-added and capital gains taxes. The overall tax burden equals 13.0 percent of total domestic income. Over the past three years, government spending has amounted to 15.4 percent of total output (GDP), and budget deficits have averaged 2.9 percent of GDP. Public debt is equivalent to 42.3 percent of GDP.
In 2016, Madagascar made starting a business easier by reducing the number of procedures required for registration of a company. The outmoded labor regulations are restrictive and hold back development of a dynamic labor market. Madagascar’s automatic fuel pricing mechanism prevents subsidies, but the government lost ground in 2017 on its commitment to reforming the state-owned power and water utility.
Trade is significant for Madagascar’s economy; the combined value of exports and imports equals 68 percent of GDP. The average applied tariff rate is 6.0 percent. Nontariff barriers impede some trade. Government openness to foreign investment is below average. Despite some progress, the relatively high cost of financing hinders entrepreneurial growth, particularly for small and medium-size firms. Capital markets remain undeveloped.