The economic context of Madagascar

Economic Indicators

Despite being rich in natural resources, Madagascar is among the poorest countries in the world. Political instability, weak institutions, and poor governance have been impediments to the country's economic growth. Real per capita income has fallen 60% since 1975. The international poverty rate (USD 2.15, 2017 PPP) is 80%, while multidimensional poverty stands at 69%, the fifth highest globally. Madagascar has struggled to capitalise on its commodity exports for structural transformation, with low-productivity agriculture remaining the dominant sector. Growth was driven by extractives, construction, and public works, but these were hit hardest by COVID-19 (World Bank). After growing by 4.2% in 2023, growth was estimated at 4.2% in 2024 too, with an expected increase to 4.6% in 2025, gradually reaching its 5% potential in the medium term. This growth will be driven by anticipated rises in agricultural production, improvements in mining and textiles, and strong performance in key tertiary sectors such as transport, construction, tourism, and telecommunications (IMF).

Concerning public finances, the primary deficit is estimated at 2.6% of GDP in 2024, following the near-complete repayment of oil customs tax arrears. Beyond 2024, the primary deficit is expected to stay below 3.0% of GDP, with efforts to mobilise domestic revenue allowing for increased public investment and social spending. The public debt-to-GDP ratio was revised down from 55.6% to 52.7% at end-2023 due to a reduction in JIRAMA's (the state-owned electric utility and water services company) domestic debt. Public debt is projected to peak at 54.2% in 2028 and then decline to 52.2% by 2034, in line with the goal to keep debt below 60% (IMF). Headline and core inflation reached 8.6% and 8.5% year-on-year in December 2024, up from 7.3% and 8% in March 2024. Food and energy price inflation persisted due to Cyclone Gamane and the depreciation of the ariary since April. Supply-side constraints, including poor road infrastructure and unreliable electricity, have increased transport and production costs, contributing to the rise in core inflation. In response, the central bank (BFM) raised the deposit facility and marginal lending rates by 50 basis points to 9.5% and 11.5%, respectively, in August 2024, and increased the reserve requirement ratio from 12% to 15% in November 2024 (IMF).

The World Bank estimated the unemployment rate in Madagascar in 2023 at 3.1% of the total active population, but Madagascar’s living conditions remain among the lowest in the world. Malagasy people have a low life expectancy due to poor living conditions, particularly in matters of sanitation and hygiene. In addition, the country remains extremely vulnerable to climate shocks, such as hurricanes, floods, locust infestations, and public health crises. The IMF estimated the country’s GDP per capita (PPP) at only USD 1,989 in 2024, one of the lowest globally.

Main Sectors of Industry

Madagascar is the leading exporter of vanilla in the world. Agriculture, including fishing and forestry, accounts for 22.6% of GDP and employs 69.4% of the population according to World Bank data (even though the majority of inhabitants practice subsistence farming). The main crop is rice, grown on almost half of the agricultural land. The main other agricultural products are: coffee, sugar cane, cloves, cocoa, cassava, beans, bananas, peanuts, and livestock products. The agricultural sector is limited by low productivity due to the minimal use of modern agricultural techniques, the lack of infrastructure, and great vulnerability to climatic fluctuations, but benefits from numerous ongoing investments aimed at meeting these challenges. Deforestation and erosion, compounded by excessive use of firewood, are of serious concern. A better-than-average 2024 paddy harvest, driven by generally favourable weather conditions, has led to lower-than-usual rice import needs for the 2024/25 marketing year (April–March). By December 2024, in line with these reduced requirements, the monthly rate of rice imports was about one-third lower than in the 2023/24 marketing year (FAO).

The industrial sector contributes 22.4% of GDP and employs 10.1% of the active population (World Bank). It is dominated by mining (precious stones including rubies, sapphires, emeralds, etc.), textiles, and agro-industry. Other business sectors include soap making, glassware, cement, automotive assembly, paper, and petroleum. The manufacturing sector is rather limited, accounting for only 9% of GDP. The development of the industrial sector is primarily hindered by the lack of infrastructure renovation and the absence of a stable and profitable energy supply for businesses. The Malagasy textile industry is currently under the influence of Mauritius, a historical operator in the clothing sector, which has relocated much of its production to Madagascar to cope with rising production costs in its own country.

The tertiary sector contributes to 44.7% of the GDP and employs 20.5% of the active population. Key industries include tourism, telecommunications, financial services, and trade. Tourism, driven by the island’s unique biodiversity and natural attractions, is a major foreign exchange earner, with 308,275 visitors registered in 2024 (+18.6% y-o-y). The banking sector is relatively underdeveloped but growing: the country has eleven commercial banks, with nine being subsidiaries of foreign institutions. The sector is highly concentrated, with four leading banks accounting for 86% of total loans. Banking penetration, measured by the percentage of adults with access to a bank account or mobile money service, stands at approximately 18%, one of the lowest rates in sub-Saharan Africa (data U.S. Trade Administration).

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	69.4	10.1	20.5
Value Added (in % of GDP)	22.6	22.4	44.7
Value Added (Annual % Change)	4.1	2.9	3.6

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:

57,7/100

World Rank:

112

Regional Rank:

17

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

 

Sources of General Economic Information

Ministries

Ministry of Economy and Finance
Ministry of Agriculture and Livestock
Ministry of Industrialisation, Commerce and Consumption

Statistical Office

National Institute of Statistics

Central Bank

Central Bank of Madagascar

Stock Exchange

There is no stock exchange in Madagascar

Economic Portals

Madagascar Tribune
La Verité
L'Écho du Sud
Midi Madagasikara