Country Risk Rating

A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high. - Source: Coface

Business Climate Rating

The business environment is difficult. Corporate financial information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments rated C.


  • Significant mineral reserves (precious stones, nickel, cobalt) and petroleum reserves
  • Agricultural potential, world’s leading producer of vanilla
  • Tourism development
  • Support from international multilateral and bilateral donors (United States and France)
  • Public debt mainly on concessional terms (65% of total)



  • Reliant on agricultural and mining products (petroleum oil), vulnerable to terms of trade fluctuations
  • Vulnerable to climatic hazards and natural disasters: ranked seventh most affected by climate risk in 2018 by the Global Climate Change Index
  • Poverty, with 75% of the population living below the extreme poverty line of USD 1.90 per day
  • Dependent on foreign aid
  • Inadequate road, water, and electricity networks (only 13% of people have access to electricity)
  • Chronic political instability (crises in 1972, 1991, 2002, and 2009)
  • Political corruption


Current Trends

Investment as a driver of recovery

In 2020, activity contracted due to the COVID-19 crisis. The state of emergency (border closures, limited gatherings) introduced on 23 March was lifted in October 2020. While industrial and commercial activities were no longer under severe restrictions, despite the extended state of emergency, only international flights to Nosy Be, a well-known tourist destination, had resumed by early October.

The Supplementary Budget Act (LFR) of June 2020, which was included as part of the Madagascar Emergence Plan 2019/2023 (mainly financed by international donors), focused on health, education, water and sanitation, and transfers to the most vulnerable members of society while maintaining the ambitious investment program (9.5% of GDP under the LFR). Madagascar's insularity, combined with its lack of infrastructure, makes commercial transactions more expensive and hinders the competitiveness of the private sector. Investments, which slowed in 2020 due to health priorities, are therefore concentrated on-road and energy infrastructure, but also on health and education infrastructure, which is boosting construction and transport. Despite the decline in oil prices, the purchasing power of the Malagasy people fell after the ariary depreciated steeply against the euro, losing 8.9% between 19 March and 30 July 2020 and going from MGA 4089 to MGA 4551 for EUR 1. In 2021, consumption is expected to be affected by the rising cost of imports and foodstuffs.

Given the cyclical nature of harvests, a slowdown in the growth rate of agriculture (which employs 80% of the population and provides 80% of household income) is expected in 2020/21, following a bumper rice harvest in 2019/20.

Twin deficits have deepened in the crisis

The release of USD 43.3 million in January 2020 signaled the end of the IMF program to which the country had committed in 2016 in return for an Extended Credit Facility (ECF) totaling USD 347 million (3% of GDP). This notwithstanding, the IMF released a total of USD 338 million in emergency funding under the Rapid Credit Facility (in April and again in July 2020). These disbursements helped finance health and economic assistance expenditures under the government's national emergency plan, while a decline in revenues and an increase in public expenditures were recorded in 2020. Beyond 2020 and the crisis, the authorities are committed to pursuing reforms, presumably with a view to a new ECF, by improving mobilization of customs and tax revenues to create sufficient space for priority investments and necessary social spending, and by pursuing reforms to mitigate fiscal risks, such as those related to state-owned enterprises. The budget deficit, which is mainly financed through multilateral and bilateral aid, is expected to decline slightly in 2021. Public debt, which is 70% external, is expected to barely increase. It is almost exclusively on concessional terms and remains sustainable.

Exports of mining products (15% of total exports), vanilla, and textiles declined because of the crisis. Imports also decreased, although to a lesser extent, due to weaker demand and transport disruptions. In 2021, imports and exports will recover in line with the economic upturn in domestic and external markets. However, the increase in export revenues is expected to outpace imports given persistently low oil prices. The capital and financial accounts were hit by the 20% reduction in FDI in 2020. Inflows of international financing largely offset both this and the deterioration in the trade deficit, generating a balance of payments surplus and an increase in foreign exchange reserves, which reached the equivalent of 4.8 months of imports at the end-2020.

President Andry Rajoelina faces many challenges

Senate elections in December 2020 took place against a tense backdrop. Opposition parties rejected the elections as unconstitutional and rushed, pointing out that several communes did not have electoral college representatives and complaining about irregularities in the approval of the ordinance reducing the number of senators from 63 to 18. Candidates from the president’s IRD party won a resounding victory in municipal elections in November 2019. Since these mayors and councilors make up the electoral college, which selects two-thirds of the senate’s members (the rest are appointed by the president), President Andry Rajoelina, who was elected in 2018, is set to control the senate.

The government must tackle the perennial socio-economic challenges facing Madagascar. People living in the southwestern part of the island are having to cope with famine, following a drought. International aid is being mobilized, and the country will receive support from the African Development Bank and the World Bank as part of the Agro-industrial Processing Zone Development Project (PTASO). This will be implemented in 2021 for a period of five years and aims to improve agricultural production infrastructure and marketing of production, in order to reduce dependence on imported agri-food products.



Coface (02/2021)