Key economic sectors such as tourism and mining have been hardly hit by the economic impact of the sanitary crisis in Madagascar and worldwide. According to economist Fano Andriamahefazafy, the country’s economic recovery will largely depend on the sanitary parameter. Today, Madagascar is still in a state of flux.

Notable lack of visibility over the economic recovery

The current economic crisis is the outcome of the sharp drop in domestic and international demands. Lockdowns, travel bans and restrictions everywhere in the world carried very severe consequences on our economy, especially on the tourism and hospitality sector, and the economic downturn at the national and international levels had significant impact on Madagascar’s largest contributors to the GDP, including mining and services. However, the impact has been somehow counteracted by resilient sectors such as the agriculture sector. In the same way, households who can rely on supplementary economic activities are more resilient than those who do not. The crisis later touched the social and political spheres. In Fano Andriamahefazafy’s opinion, the biggest issue that economic actors are facing today is a cruel lack of visibility, as only short-term approach has been adopted so far.

Economic recovery based on public contracts.

The budgetary policy adopted by the government was intended to support the private sector through public contracts. However, it is debatable if the initiative does really support local economy, or if it promotes imports instead. For example, building materials used for roads and school constructions are generally imported.

Even though the government implemented an emergency plan and granted loans to salaried employees through CNaPS, Fano Andriamahefazafy explains that the available budget resources are limited.

In terms of monetary policy, the Central Bank of Madagascar was bound to adopt a prudent one. Madagascar has an outward-looking economy, a decrease of the policy rate would in fact boost external demand and generate inflation. Thanks to a prudent monetary policy, the Central Bank managed to contain inflation amid the pandemic.

The recovery will depend on the health situation.

According to economist Fano Andriamahefazafy, Madagascar is now on track to start its economic recovery. However, it will depend mainly on how the sanitary situation evolves. Potential future lockdowns would be disabling for our economy. Madagascar can envisage a positive GDP growth of five percent like in 2019.

An appropriate economic policy to address the crisis.

Fano Andriamahefazafy prescribes an economic policy which targets better the driving forces of economic growth. This means, the government should prioritize sectors like agriculture, agribusiness and food industry, services, mining, and tourism.

However, the beneficiaries of those measures must adhere to a performance contract. The contractual approach proved to have been efficient in Asian countries. The private sector should commit, for example, to not laying off staffs, or to creating new jobs and recruiting new employees. With a contractual approach, supported by a proper design brief, private companies should meet a performance requirement. Otherwise, the effect of the economic policy will be weakened.