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Madagascar’s Financial Regulation and Governance Under Siege Amidst Political Instability
Repeated political crises have ravaged Madagascar, crippling its economy and reversing growth. The country has faced three major political upheavals over the past three decades, sparking investor uncertainty, limiting access to finance, and devastating tourism - a crucial industry.
Impact on Economy and Human Development
- Income per capita plummeted
- Poverty rates surged by 10 points
- Public finances deteriorated significantly
- Number of out-of-school children increased by 53%
- Child malnutrition rose by 50% in some areas
World Bank’s Response to Crisis
A new report from the Independent Evaluation Group assesses how the World Bank Group adapted to Madagascar’s rapidly changing environment and addressed its development issues. The bank’s Operational Policy 7.30 on dealing with de facto governments was triggered by the 2009 coup, leading to a ban on non-technical discussions with the de facto government.
Challenges Faced by World Bank
- 30% drop in foreign aid due to pause in operations
- Continued elite capture and resource misuse
- Reversed or diluted reforms due to pressure from vested interests
Lessons Learned and Future Directions
Despite these challenges, the World Bank was able to adapt its approach, pivoting to a “bottom-up” strategy that prioritized local administrations’ capacity to deliver services and manage revenue transparently.
- Removed intermediaries in tax payments processing
- Introduced performance management in customs authorities
- Contributed to improvements in transparency, accountability, and participation post-2014
To mitigate constraints, the bank may want to:
- Reconsider how and when it supports reforms
- Refrain from working in sectors where elite capture is prevalent
- Find innovative ways to work around vested interests in Madagascar
The IEG’s evaluation finds that while the bank identified and analyzed political and governance risks well, it struggled to operationalize its findings. The World Bank will need to continue adapting its approach to effectively address the challenges facing Madagascar’s financial regulation and governance.