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Madagascar’s Financial Soundness Indicators Show Decline

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The financial soundness indicators of Madagascar, a country hit hard by the COVID-19 pandemic, have shown a decline from March highs. According to the International Monetary Fund (IMF), the non-performing loan (NPL) ratio has decreased to 9.9 percent in October, down from a peak of 10.9 percent in September.

While all microfinance institutions comply with prudential requirements, half of them are experiencing rising NPLs. The overall NPL ratio declined to 9.9 percent in October, while lending has resumed.

Economic Outlook Remains Favorable

The medium-term outlook for Madagascar’s economy remains favorable, with a real growth rate projected to reach:

  • 3.5 percent in 2021
  • 5.4 percent in 2022

The country’s public finance developments are expected to remain sustainable in the medium term, with a domestic primary deficit of 2.5 percent of GDP in 2021.

However, there are significant risks that could impact the economy, including:

  • Recurring COVID-19 outbreaks
  • New cyclones
  • Further increases in oil prices

Upside risks include the unlocking of large-scale projects in the energy and mining sectors.

Program Implementation

The implementation of Madagascar’s program has been broadly satisfactory, except for under-execution of social spending and some delays in structural reforms. The authorities have announced plans to release a new presidential development program (Plan Emergence Madagascar) to support their reform effort.

Policy Discussions

Achieving the objectives of the Plan Emergence Madagascar will require significant investments in:

  • Human capital
  • Infrastructure
  • Strengthening governance and financial sector development

Policy discussions focused on four key areas:

  • Creating fiscal space for growth-enhancing spending
  • Reducing fiscal risks
  • Improving public financial management and governance
  • Strengthening the monetary and financial policy framework

Budget Support Reduced

Development partners have reduced their 2021 budget support from $273 million to $144 million, citing structural reform delays. The authorities are working to address these concerns and implement key reforms to support economic growth and stability.