Country Risk Rating

A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high. - Source: Coface

Business Climate Rating

The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.


  • Significant mineral (precious stones, nickel, and cobalt) and oil reserves
  • Agricultural (vanilla) and tourist potential
  • Public debt mostly on concessional terms


  • Dependence on agricultural and mining products
  • Inadequate road, hydraulic and electricity networks
  • Dependence on foreign aid
  • Enduring political instability

Current Trends

Growth limited by unpromising international context and political uncertainties

Growth is not expected to rise strongly in 2017. Activity in the agricultural sector (about 25% of GDP), which was badly affected by the drought of recent years, exacerbated by the effects of El Niño in 2016, could be more buoyant in 2017. Tepid growth in the EU (from where most tourist visitors to Madagascar come) and enduring uncertainties regarding the political situation are likely to dampen tourism. Textiles will continue to benefit from the positive impact of the US trade Act, the AGOA (African Growth and Opportunity Act), providing for trade preferences for entry of Malagasy products to the US market, but should also help deal with the competition from Asian countries. Mining production will not grow much: prices for the main resources exploited, nickel and cobalt, are at their lowest and the mining companies are not increasing production so as to avoid exacerbating the imbalance on the world market.

In contrast, the implementation of public investment projects should help sustain activity in the construction sector. Household consumption is likely to be constrained by high inflation. This is because poor harvests in 2016 will continue to drive up food prices in 2017. Meanwhile, as an importer of oil, the country will see no reduction in its energy bill.

The public debt could widen in 2017 and the current account stabilize

Weak economic growth is likely to continue to put pressure on fiscal revenues in 2017. Current public spending, in particular on wages (about half of total budget expenditure) is expected to remain high. Furthermore, the government is likely to increase its investment spending. Moreover, transfers to state-owned enterprises, in particular the national water and electricity operator (JIRAMA), could add further pressure to the 2017 budget, despite the government's commitment to reduce these.

The State of Madagascar will again benefit, as it has done since 2014, from financial support from international bodies, especially the World Bank and the IMF, which approved a new arrangement under the Extended Credit Facility in mid-2016 of around USD 305 million. This aid was interrupted following the coup d’état in 2009. Although steadily rising, the public debt remains sustainable due to its concessional nature.

The current account deficit is expected to narrow slightly in 2017, thanks to the combined effect of a weak rise in imports, curbed by sluggish growth, and a slight increase in exports. The nickel of price (accounting for over 25% of exports) is not expected to rise, but sales of agricultural commodities could benefit from price increases for some products (particularly vanilla, of which Madagascar is the world's leading producer), thus protecting the current account balance from further deterioration.

Enduring political instability, increasing number of protest movements and continued weak governance

The presidential election held at the end of 2013, after several years of transition following the 2009 coup d’état, allowed Madagascar to re-join regional organizations (SADC, UA) and re-establish relations with international institutions and donors. However, the new President, Hery Rajaonarimampianina, had to deal with the resignation of his government a few months after its formation and then a vote in Parliament calling for his removal. Still in power, the president lacks the support to implement reforms, while popular discontent has led to an increasing number of protest movements and strikes. Hostility towards a Chinese mining company which began operating a gold mine in May 2016, which led to the suspension of operations at the mine a few months later, is evidence of the increase in social tensions.

Finally, performance in term of governance remains weak according to the World Bank's indicators, especially as regards control of corruption (ranked 159th out of 204 countries) and government effectiveness (191st).


Coface (01/2017)