- IMF Warns Madagascar’s Recovery Could Falter Without Faster Fiscal and Energy Reforms
Madagascar must accelerate fiscal consolidation, strengthen domestic revenue collection and confront persistent losses in its state-owned utility if it is to convert its IMF-supported recovery into durable economic progress.
That is the central message emerging from the International Monetary Fund’s latest engagement with the country, which comes as Madagascar faces a widening current account deficit, recurring electricity and water shortages, climate-related reconstruction costs and higher imported fuel prices.
An IMF mission led by Constant Lonkeng visited Antananarivo from October 5 to 9, 2026, for discussions focused on public financial management, domestic revenue mobilisation and the implementation of reforms under the country’s Extended Credit Facility and Resilience and Sustainability Facility arrangements.
The discussions took place as the government prepared its 2027 budget, giving the authorities a narrow opportunity to translate previous commitments into funded and measurable actions.
Madagascar’s economy is projected to grow by 3.8 per cent in 2026, demonstrating a degree of resilience despite domestic structural weaknesses and a difficult external environment.
“We see an economy that is showing resilience despite the shocks,” Mr Lonkeng said in remarks translated from a French-language report of an earlier briefing.
But resilience should not be confused with security. Madagascar’s growth remains vulnerable to energy disruptions, weak public institutions, commodity-price shocks and extreme weather. Without faster reforms, even positive headline growth may prove insufficient to improve public services, reduce poverty or strengthen the state’s capacity to respond to future crises.
The IMF Executive Board’s completion of the combined third and fourth programme reviews unlocked approximately US$155 million in financing.
Of that amount, about US$100 million is being provided under the Extended Credit Facility, which supports macroeconomic stability and structural reform in low-income countries. A further US$55 million is being made available under the Resilience and Sustainability Facility to help Madagascar strengthen its response to climate-related risks.
The financing provides important short-term support. It can ease external funding pressures, reinforce policy credibility and create additional space for investments intended to improve climate resilience.
However, the value of the disbursement cannot be judged solely by its size. The more consequential question is whether it helps Madagascar address the weaknesses that repeatedly create the need for external support.
If domestic revenues remain inadequate, public spending poorly executed and state-owned enterprises financially unstable, IMF financing may provide temporary liquidity without changing the country’s underlying economic trajectory.
Madagascar’s next programme reviews will therefore matter as much as the latest disbursement. The Fund is expected to return in the coming months to conduct formal fifth reviews of the ECF and RSF arrangements.
Those assessments will examine whether the government has moved beyond policy announcements and produced measurable improvement in fiscal management, governance, energy-sector performance and climate resilience.
The most immediate fiscal challenge is Madagascar’s limited capacity to raise revenue domestically.
Persistent weaknesses in tax collection, administrative capacity and compliance have reduced the resources available to finance infrastructure and essential public services. Delays in executing approved expenditure have compounded the problem by limiting the economic impact of the funds that are collected.
The result is a state constrained on both sides of its budget. It does not collect enough revenue, and it does not always deploy available resources efficiently.
The IMF has consequently called for stronger tax administration, a broader revenue base and tighter expenditure controls.
These reforms are necessary, but they carry difficult political choices. Broadening the tax base may involve removing exemptions, improving compliance among businesses and bringing more economic activity into the formal system. Stronger expenditure control may require the government to delay lower-priority projects, improve procurement and confront politically protected areas of spending.
For a low-income economy, the objective cannot simply be to raise taxes indiscriminately. Revenue measures must avoid placing a disproportionate burden on households and small businesses already affected by food, transport and energy costs.
The more sustainable route is to improve compliance, reduce leakages, review ineffective tax concessions and strengthen the capacity of the revenue administration. Madagascar must collect more from economic activity that is currently undertaxed or outside the formal system before relying heavily on higher rates for compliant taxpayers.
At the same time, higher revenue will produce little development value if public expenditure remains poorly targeted or delayed. Fiscal consolidation must therefore improve the quality of spending, not simply reduce its quantity.
Madagascar’s state-owned electricity and water utility, JIRAMA, sits at the intersection of the country’s fiscal, social and productivity challenges.
Persistent power and water interruptions weaken businesses, constrain industrial output and reduce household welfare. The utility’s financial and operational difficulties also create fiscal risks because the government may ultimately have to absorb losses, arrears or emergency financing requirements.
The IMF considers implementation of JIRAMA’s recovery programme essential to improving service reliability and limiting pressure on the public finances.
Reforming the utility will require more than adjusting tariffs. Its difficulties are connected to operational inefficiency, generation costs, network losses, weak revenue collection, governance and the quality of investment decisions.
Tariffs that do not reflect reasonable costs can undermine the utility’s finances. But simply raising prices without addressing inefficiency would transfer the cost of poor management to households and businesses.
Madagascar therefore needs a sequenced reform plan. This should establish transparent performance targets, improve billing and collection, reduce technical and commercial losses and ensure that investments are directed towards the most urgent network weaknesses.
Any government support should be reported clearly in the budget. Hidden transfers and unpaid obligations can obscure the utility’s true cost while weakening fiscal transparency.
Reliable electricity would produce benefits beyond JIRAMA’s balance sheet. It would reduce the need for businesses to rely on private generators, lower operating costs and improve Madagascar’s attractiveness to manufacturers and other investors.
Energy reform is therefore not merely a condition attached to IMF financing. It is central to the country’s wider growth strategy.
The IMF has also advocated restoring Madagascar’s automatic fuel-price adjustment mechanism.
Such a mechanism allows domestic petroleum prices to change in response to international prices and exchange-rate movements, reducing the need for government to absorb the difference through subsidies or arrears.
Mr Lonkeng has argued that universal fuel subsidies disproportionately benefit wealthier households.
“The majority of subsidies benefit the richest,” he said in comments translated from French.
The economic reasoning is that higher-income households generally consume more fuel directly and may consequently capture a larger share of an untargeted subsidy.
But removing or reducing subsidies remains socially sensitive. Fuel prices affect public transport, food distribution and the cost of moving goods across the country. A sharp adjustment can therefore affect households that consume relatively little fuel directly but depend heavily on services whose costs are linked to petroleum prices.
The policy challenge is not simply whether to remove subsidies. It is whether Madagascar can replace a costly universal subsidy with credible and targeted protection for vulnerable groups.
A well-designed transition could include phased price adjustments, targeted cash support and measures to protect essential transport services. Without such safeguards, fiscal reform could worsen hardship and undermine public support for the broader economic programme.
Madagascar’s current account deficit is expected to widen to approximately 8.3 per cent of gross domestic product in 2026, from 6 per cent in 2025.
The deterioration reflects higher import costs, external financing pressures and the effect of elevated oil prices. It also highlights the economy’s dependence on imported energy and its exposure to international shocks.
A widening deficit is not automatically unsustainable if it finances productive investment and is supported by stable capital inflows. But it becomes more concerning when imports are dominated by recurrent consumption, fuel shocks and emergency requirements rather than investments that expand future export capacity.
Madagascar must consequently examine both sides of its external account. In the short term, it needs adequate financing and reserves to meet import requirements. Over the longer term, it must diversify exports, reduce avoidable energy dependence and strengthen domestic production.
Climate events create an additional complication. Cyclones can destroy infrastructure, disrupt agriculture and increase imports at the same time that export earnings weaken. These shocks can rapidly widen both fiscal and external deficits.
The Resilience and Sustainability Facility is intended to help address that vulnerability. Yet climate finance will have limited effect if projects are poorly selected, procurement is weak or implementation is delayed.
The IMF has urged Madagascar to establish credible systems for monitoring reforms arising from its governance diagnostic assessment.
Stronger procurement, expenditure transparency and institutional accountability could improve public investment and strengthen confidence among investors and development partners.
Governance reform is often treated as separate from economic management, but the two are inseparable. Weak procurement raises the cost of infrastructure. Poor oversight allows state-owned enterprise losses to grow. Unclear tax exemptions narrow the revenue base, while delayed audits weaken accountability.
The government must consequently attach responsibility, timelines and measurable outcomes to its reform commitments. Publishing progress reports and procurement information would allow citizens, Parliament and development partners to assess whether implementation is occurring.
The fifth programme reviews will provide an external test, but domestic accountability should not depend exclusively on IMF missions. Reforms are more likely to endure when they are embedded in national institutions and supported by transparent public reporting.
Madagascar has secured financing and preserved economic growth despite severe pressures. Those are meaningful achievements, but they do not remove the risks surrounding the recovery.
The government must now demonstrate that IMF resources are being used to strengthen domestic capacity rather than postpone difficult decisions.
Its priorities are clear: raise revenue more efficiently, improve expenditure control, restore JIRAMA’s operational and financial viability, reform fuel pricing with appropriate social protection and implement measurable governance reforms.
Failure would leave the country trapped in a familiar cycle in which external shocks expose old weaknesses, emergency financing provides temporary relief and structural problems survive into the next programme review.
Success would mean something more durable: reliable energy, stronger public services, better-managed climate investment and a state increasingly capable of financing its own development.
The IMF has given Madagascar financial breathing room. Whether that space becomes the foundation of a stronger economy will depend on what the government does before the Fund returns.
