- Madagascar Secures US$155m IMF Disbursement Amid Widening External Deficit
The International Monetary Fund has approved an immediate US$155m disbursement to Madagascar, offering financial support to the island nation as it confronts a political transition, electricity and water shortages, cyclone damage and rising oil-import costs.
The IMF Executive Board completed the combined third and fourth reviews of Madagascar’s programmes under the Extended Credit Facility and the Resilience and Sustainability Facility on September 30.
The decision unlocks SDR73.32m, equivalent to about US$100m, under the ECF and a further SDR40.73m, or approximately US$55m, under the climate-focused RSF.
The financing comes at a difficult moment for Madagascar. Public frustration over persistent power outages and water shortages has contributed to political protests and a transition in government, while tropical cyclones earlier in 2026 damaged infrastructure and disrupted parts of the economy.
The spillover effects of the war in the Middle East and higher global oil prices have added to the pressure on the import-dependent economy.
Madagascar’s real gross domestic product expanded by an estimated 3.1 per cent in 2025, below the 4 per cent projected at the IMF’s second programme review.
Growth is expected to recover to 3.8 per cent in 2026, supported by post-cyclone reconstruction and the government’s economic recovery plan. It is projected to strengthen further to 4.5 per cent in 2027.
The recovery, however, is being accompanied by a significant deterioration in Madagascar’s external and fiscal positions.
The current account deficit is projected to widen from 6 per cent of GDP in 2025 to 8.3 per cent in 2026, reflecting higher petroleum prices, reconstruction-related imports and damage to the mining sector.
Inflation is also expected to accelerate, with end-of-period consumer price growth rising from 7.2 per cent in 2025 to 9.3 per cent in 2026 before declining to 7.1 per cent in 2027.
The IMF said performance under the ECF had been broadly satisfactory.
Madagascar missed an end-June 2025 performance target covering the primary fiscal balance but subsequently introduced corrective measures and met all the quantitative performance criteria set for the end of December.
The Fund’s board granted a waiver for the missed target after concluding that the breach was temporary and that the authorities had taken adequate remedial action.
The more persistent weakness lies in government revenue. According to the Fund, “tax collection has fallen well below expectations”.
Madagascar’s tax revenue declined from 10.9 per cent of GDP in 2024 to an estimated 9.8 per cent in 2025. It is expected to recover to 11 per cent in 2026 and 11.3 per cent in 2027, but achieving that improvement will require difficult policy choices.
The IMF wants tax measures contained in Madagascar’s supplementary 2026 budget to be supported by a reduction in tax exemptions and stronger tax and customs administration.
For Madagascar, this goes to the centre of the programme’s credibility. External financial support can close short-term funding gaps, but a government collecting taxes equal to only about a tenth of its economy has limited capacity to finance electricity, water, education, healthcare and climate resilience without continuing to depend on donors and borrowing.
Total government expenditure is projected to rise sharply from 13.5 per cent of GDP in 2025 to 17.1 per cent in 2026, driven partly by reconstruction and investment needs.
The overall fiscal deficit is consequently expected to widen from 2.1 per cent of GDP to 4.5 per cent.
One of the programme’s most politically sensitive requirements concerns fuel pricing.
The IMF is pressing Madagascar to apply its automatic fuel-pricing mechanism fully by January 2027. The system is intended to allow domestic fuel prices to adjust in line with global prices and exchange-rate movements rather than requiring the government to absorb the difference through subsidies or delayed payments.
The Fund argues that the reform would release public resources for education, health and social protection while limiting the fiscal risks created by volatile global oil prices.
But implementing automatic pricing during a period of high international energy costs could produce immediate increases in transport and household expenses.
The IMF has therefore called for targeted support for the most vulnerable households. The effectiveness of that protection will be critical to whether the reform strengthens the budget without provoking further public opposition.
The policy dilemma is familiar across many African economies: universal energy subsidies are expensive and often benefit wealthier consumers disproportionately, but removing them before credible social-protection systems are in place can transfer the adjustment burden to low-income households.
The financial and operational condition of Madagascar’s state-owned electricity and water utility, JIRAMA, is another central risk.
Persistent service disruptions have damaged economic activity and contributed to the political unrest confronting the authorities. They have also exposed the fiscal cost of maintaining a public utility that cannot reliably cover its operational and investment requirements.
The IMF has called for swift implementation of JIRAMA’s recovery plan to improve electricity and water services while reducing demands on the state budget.
The utility’s reform will determine whether the programme produces improvements that households and businesses can actually experience.
Fiscal targets and financing assurances may satisfy programme reviews, but the legitimacy of Madagascar’s adjustment effort will ultimately depend on whether electricity remains available, water becomes more reliable and public institutions deliver essential services.
The IMF also said Madagascar’s central bank, the Banky Foiben’i Madagasikara, should “stand ready to tighten monetary policy further” if inflationary pressures persist.
The Fund wants the central bank to continue modernising its monetary-policy framework and maintain exchange-rate flexibility to absorb external shocks without excessively depleting reserves.
Gross official reserves are projected to decline from SDR2.60bn in 2025 to SDR2.53bn in 2026, although import cover is expected to remain relatively strong at 6.1 months.
Public debt is projected to increase from 47.7 per cent of GDP in 2025 to 49.3 per cent in 2026 and 49.5 per cent in 2027. External public debt, including central bank liabilities, is expected to rise to 40 per cent of GDP by 2027.
The US$155mn disbursement gives Madagascar immediate breathing room, but the programme’s longer-term success will depend less on the release of IMF resources than on whether the government can rebuild public trust while implementing unpopular reforms.
Madagascar must increase tax revenue, reduce fuel-related fiscal risks, repair its public utility and contain inflation at the same time as it responds to cyclone damage and political pressure.
The IMF financing can support that transition. It cannot substitute for the institutional capacity and political consensus required to complete it.
