| Recent macroeconomic and financial developments: |
| Economic activity remained robust in 2023, with growth estimated at 4.4%, up from 4.3% in 2022. Growth was driven by extractive industries (up 5.2%), tourism (up 14.6%), and telecommunications (15.2%) on the supply side and by buoyant exports and booming public investment (12.2% of GDP in 2023, up from 5.4% in 2022) on the demand side. Inflation rose from 8.2% in 2022 to 9.9% in 2023, driven by the continuing rise in energy and food prices. |
| Higher spending, linked to measures for mitigating the effects of the COVID-19 pandemic and Russia’s invasion of Ukraine, increased the budget deficit from 5.4% of GDP in 2022 to 6.1% in 2023. The deficit was financed by public debt, which rose from 54.9% of GDP in 2022 to 56.1% in 2023. However, the risk of debt distress remains moderate. Buoyant prices for export products (nickel, cobalt, graphite) and the upturn in tourism narrowed the current account deficit from 5.3% of GDP in 2022 to 4.5% in 2023. Overall, the financial system is healthy, with credit to the economy up 11% in 2023, and the bad debt ratio down from 9.1% at the end of 2022 to 8.3% at the end of 2023. |
| According to the World Bank, the national poverty rate remains high, at 75.2% in 2022. Poverty is especially high in the south and the southeast, where it exceeds 91.2%, due to climate shocks (droughts, cyclones, and floods). Income inequality is high, with a Gini coefficient of 0.368 in 2022. The unemployment rate was an estimated 6.6% in 2022, according to the country’s National Institute of Statistics, and youth ages 15–30 account for 70% of the unemployed according to the International Labour Organization. |
| Outlook and risks: |
| The economic outlook is good, with projected growth of 4.5% in 2024 and 5.3% in 2025. Growth is expected to be driven by strong performance in the mining sector, recovery in tourism, a surge in public investment, and buoyant exports (graphite, nickel, cobalt) due to sustained global demand for these minerals, which support the country’s energy transition. Continuing restrictive monetary policy is expected to lower inflation to 8.1% in 2024 and 7.5% in 2025. The budget deficit is projected to improve to 4.1% of GDP in 2024, due to an anticipated rise in oil product revenue as a result of reforms, but then to worsen to 4.6% in 2025. The current account deficit is projected to narrow to 4.4% of GDP in 2024 and to 4% of GDP in 2025. The main downside risks to the outlook are climate shocks, rising energy and food prices, and geopolitical tensions (Russia’s invasion of Ukraine and the war in the Middle East). These risks could be mitigated by implementing the General State Policy and reforms in public finance, mining, telecommunications, and energy, with the support of development partners. |
| Reform of the global financial architecture: |
| Over the past two decades, the country’s economic structure has undergone a structural change in favour of industrialization, with increased investment in the mining sector. But because mining is not labour intensive, the transformation has been too slow to substantially reduce poverty. The industrial sector’s share of GDP rose from 16% in 2000 to 27% in 2021, but its share of employment remained at an average of 8.5%. Agriculture’s share of GDP fell from 29% in 2000 to 25% in 2021, and services’ share fell from 55% to 48%. But services’ share of employment rose from 14.7% in 2000 to 27.4% in 2021, though mostly in informal activities, to the detriment of employment in agriculture, which fell from 77% to 64.1%. |
| The structural transformation should be accelerated by implementing the Industrial Programming Agreement, which aims to speed up and diversify industrialization by 2040. Similarly, the country should boost domestic revenue, develop the domestic financial market, improve the business environment, and build resilient infrastructure. It should also take advantage of a reformed global financial system, enabling access to more concessional resources, co-financing, mixed financing (climate, green, and blue bonds), International Monetary Fund Special Drawing Rights mobilization, and facilitation of private investment and trade. |
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Madagascar: Economic Outlook & GDP |
