Financial Crime World

MADAGASCAR ECONOMY IN CRISIS: COVID-19 PANDEMIC UNDOES NEARLY A DECADE OF PROGRESS

Economic Fallout of the Pandemic

Antananarivo, December 16, 2020 - The economic impact of the COVID-19 pandemic has sent Madagascar’s economy into a tailspin, erasing nearly a decade of progress in poverty reduction and economic growth. According to the World Bank’s latest economic update for Madagascar, the country’s GDP contracted by 4.2 percent in 2020, comparable to the decline seen during the 2009 constitutional crisis.

Devastating Impact on Economy

  • Export revenues and private investments have plummeted due to global trade disruptions and domestic activity grinding to a halt.
  • The sudden loss of fiscal revenue combined with increased government spending has resulted in a widening of the fiscal deficit to 5.2 percent of GDP.

Poverty Rate Soars

  • Nearly 1.4 million people are expected to have fallen below the poverty line of $1.9 per day in 2020, bringing the overall poverty rate to 77.4 percent - its highest level since 2012.
  • Vulnerable populations in urban areas have been particularly hard hit:
    • 64.4% of households reported a loss of revenue
    • 97% of companies experienced a decline in demand for their products and services

Financial Sector Impacted

  • Rising credit risks pose a threat to bank solvency.
  • Debt distress risks remain moderate due to past fiscal prudence and a heavy reliance on concessional financing.

Underlying Structural Weaknesses Exposed

According to World Bank Senior Economist Marc Stocker, the pandemic has exposed underlying structural weaknesses in Madagascar’s economy, including:

  • Inadequate human capital
  • High levels of informality
  • Insufficient infrastructure
  • Governance and institutional challenges

Without ambitious reforms, these constraints could hinder the country’s growth potential for years to come.

Recovery and Projections

  • Growth is expected to recover slowly in 2021, reaching just 2 percent before bouncing back more noticeably in 2022 to 5.8 percent.
  • Poverty rates are expected to remain high, declining only moderately to 76.6 percent by 2022.

Uncertainty and Need for Action

Projections are highly uncertain, and the risk of a second wave of the pandemic looms large, as do other potential shocks such as natural disasters and social unrest. To deliver a sustained economic revival, Madagascar will need to:

  • Mobilize additional resources for priority investments in human capital and infrastructure
  • Implement far-reaching reforms to stimulate private investment and job creation

“The crisis has laid bare the underlying structural weaknesses of our economy,” said Marie-Chantal Uwanyiligira, World Bank Country Manager for Madagascar. “To achieve sustained economic growth and reduce poverty, we need to address these challenges head-on.”