Economy of Madagascar

Economy - overview: Madagascar faces problems of chronic malnutrition, underfunded health and education facilities, a roughly 3% annual population growth rate, and severe loss of forest cover, accompanied by erosion. Agriculture, including fishing and forestry, is the mainstay of the economy, accounting for 34% of GDP and contributing more than 70% to export earnings. Industry features textile manufacturing and the processing of agricultural products. Growth in output in 1992-97 averaged less than the growth rate of the population. Growth has been held back by antigovernment strikes and demonstrations, a decline in world coffee demand, and the erratic commitment of the government to economic reform. Formidable obstacles stand in the way of Madagascar's realizing its considerable growth potential; the extent of government reforms, outside financial aid, and foreign investment will be key determinants. Growth should be in the 5% range in 2000-01.

Economy - in greater depth:
In 2000, Madagascar embarked on the preparation of a Poverty Reduction Strategy Paper (PRSP) under the Heavily Indebted Poor Countries (HIPC) Initiative. The boards of the IMF and of the World Bank concurred in December 2000 that the country is eligible under the HIPC Initiative, and Madagascar has reached the decision point for debt relief. On March 1, 2001, the IMF Board granted the country $103 million for 2001-03 under the Poverty Reduction and Growth Facility (PRGR). Resources freed up from HIPC will be directed toward improving access to health, education, rural roads, water, and direct support to communities. In addition, on March 7, 2001, the Paris Club approved a debt cancellation of $161 million. On February 28, 2001, the African Development Bank (ADB) approved under the HIPC a debt cancellation of $71.46 million and granted in June 2001 an additional credit of $20 million to fight against AIDS and poverty.

Partly as a result of these credits but also as a result of previous reforms, average GDP growth exceeded the population growth rate of 2.8% in 1997 (3.5%), 1998 (3.9%), 1999 (4.7%) and 2000 (4.8%). Madagascar’s appeal to investors stems from its competitive, trainable work force. More than 200 investors, particularly garment manufacturers, have organized under the country’s export processing zone (EPZ) system since it was established in 1989. The absence of quota limits on textile imports to the European market under the Lome Convention has helped stimulate this growth. In addition, there is evidence that Madagascar’s recent eligibility for AGOA is significantly increasing Malagasy exports and foreign investment.

In the short and medium terms, considerable economic growth can arise from greater efficiency in the allocation and use of resources. Since the mid-1980s, Madagascar has run sizeable balance-of-payment deficits. The current account deficit as a percentage of GDP averaged in excess of 6% during the last 6 years and registered nearly 4% in 1999. Madagascar’s debt ratio, which had reached 46% in 1996, is estimated at 15.4% in 2000. Within an overall framework of poverty reduction, the HIPC Initiative would enable the country to reduce its debt service ratio to 5.5% in 2003, and remain at around 5% throughout the projection period 2000-19.

An optimistic high-growth scenario is predicated on recovery of private investor interest and a continuing drop in inflation. From more than 60 % in 1994, the inflation rate dropped to 6.4% in 1998, before rising again to 14.4% in 1999 and 8.7% in 2000. The government hopes to bring this down to 5.8% by the end of 2001. In 2000, real GDP growth reached 4.8% and was forecast to accelerate to 6% in 2001. Tax revenues increased to more than 11% of GDP in 2000 and in 2001, the government forecasts a rate approaching 12%.

GDP: purchasing power parity - $11.5 billion (1999 est.)

GDP - real growth rate: 4.5% (1999 est.)

GDP - per capita: purchasing power parity - $780 (1999 est.)

GDP - composition by sector:
agriculture: 34%
industry: 12%
services: 54% (1997 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: 2.3%
highest 10%: 34.9% (1993)

Inflation rate (consumer prices): 9.5% (1999 est.)

Labor force: 7 million (1995)

Unemployment rate: 5.9%

Budget:
revenues: $553 million
expenditures: $735 million, including capital expenditures of $NA (1998 est.)

Industries: meat processing, soap, breweries, tanneries, sugar, textiles, glassware, cement, automobile assembly plant, paper, petroleum, tourism

Industrial production growth rate: 5% (1999 est.)

Electricity - production: 750 million kWh (1998)

Electricity - production by source:
fossil fuel: 33.33%
hydro: 66.67%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 698 million kWh (1998)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products: coffee, vanilla, sugarcane, cloves, cocoa, rice, cassava (tapioca), beans, bananas, peanuts; livestock products

Exports: $600 million (f.o.b., 1998 est.)

Exports - commodities: coffee 45%, vanilla 20%, cloves, shellfish, sugar, petroleum products (1995 est.)

Exports - partners: France 40%, United States 9%, Germany 8%, Japan 6%, United Kingdom 6% (1997)

Imports: $881 million (c.i.f., 1998 est.)

Imports - commodities: intermediate manufactures 30%, capital goods 28%, petroleum 15%, consumer goods 14%, food 13% (1995 est.)

Imports - partners: France 39%, Hong Kong 5%, Japan 5%, Mainland China, Singapore (1997)

Debt - external: $4.1 billion (1997 est.)

Economic aid - recipient: $838 million (1997)

Currency: 1 Malagasy franc (FMG) = 100 centimes

Exchange rates: Malagasy francs (FMG) per US$1 - 6,302.9 (October 1999), 5,877.81 (1999), 5,441.4 (1998), 5,090.9 (1997), 4,061.3 (1996), 4,265.6 (1995)

Fiscal year: calendar year

See also : Madagascar

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