Image of a table selling grains and basic necessities. Photo taken in a grocery store in Antananarivo, capital of Madagascar., by Independent Reporter.

This article by Maurice Ranjalahy was originally published in French on August 16, 2024 on Independent Reporter. Global Voices republished and translated this article as part of a partnership agreement.

Despite a booming African economy with a growth rate of 3.8 percent, the economic situation in Madagascar, also known as the Great Island, continues to deteriorate.

In 2023, the global economic data platform Statista found that Madagascar’s average inflation rate was 10.5 percent, and poverty affected 24.8 million people or 80.7 percent of its estimated population of over 32 million. According to a World Bank report published on April 2, 2024, this figure is greater than the combined population of Burundi and South Sudan, which have around 12.89 million and 10.91 million citizens, respectively.

According to Serge Zafimahova, an economist whom Independent Reporter interviewed, this hyperinflation is affecting the Malagasy middle class and could potentially cause a social implosion.

Read: “This 7.3 percent inflation figure is wrong. We’re approaching 15 percent. This is hyperinflation.” Serge Zafimahova

What caused this hyperinflation? 

Although the price of essential commodities continues to rise in Madagascar, the average monthly income is still only MGA 196,359 (USD 42.64).

Under such circumstances, 1 kg of rice costs between MGA 2,800 to 3,500 (USD 0.60 to 0.76), and 1 kg of meat varies from MGA 20,000 to 23,000 ( USD 4.35 to 5). According to the economist Ny Nosy Andrianirina, this financial situation ultimately stems from the COVID-19 pandemic. Andrianirina told Independent Reporter:

Ce sont des séquelles de l’arrêt des activités de productions durant la crise sanitaire de la Covid qui ont été fatales pour le monde, mais bien plus impactantes pour Madagascar. Notamment en termes de recette fiscale et surtout suite aux restrictions sur les exportations de marchandise qui ont significativement impacté notre modèle économique.

Although the shutdown of production activities during the COVID-19 pandemic had a devastating global impact, it was particularly impactful on Madagascar in terms of fiscal revenue. The restrictions on the export of goods significantly impacted our business model.

Furthermore, Jirama (Madagascar’s state-owned electric utility and water services company) announced drastic measures for customers who fail to pay their water and electricity bills. These measures include cutting off supplies and penalties for late payments. The current situation has led to the closure of several businesses and higher production costs.

Andriananirina also explained that this inflation is partly due to other international factors:

Plusieurs autres facteurs expliquent ce phénomène, comme la hausse des produits énergétiques ainsi que l’instabilité des marchés avec la guerre russo-ukrainienne, même si l’échange commercial avec ces deux pays reste faible pour Madagascar. Ce conflit pèse sur le marché international entraînant la hausse des coûts des produits importés.

Several other factors are behind this phenomenon, such as increased energy costs and market instability due to the Russo–Ukrainian war. Although Madagascar’s trade with these two countries remains relatively low, this conflict still weighs heavily on the international market by driving up the cost of imported goods.

Generally speaking, trade deficits caused by massive imports remain the primary cause of all inflation. Expensive imports create a growing demand for foreign currencies, often leading to the devaluation of national currencies.

There were some encouraging indications in 2023. Tourism increased 97 percent compared with 2022, with the arrival of some 259,850 tourists. However, according to the Ministry of Tourism and Handicrafts’ official website, this will not be enough to compensate for the loss of revenue for the Malagasy economy.

Purchasing power down for endangered middle class

Due to an inflation rate of 7.4 percent and one euro roughly equal to MGA 5,000 (USD 1), Madagascar’s current economic situation directly impacts Malagasy households. Jean Andria, a father living in a district of Antananarivo, the capital of Madagascar, said:

Je suis obligé de faire des coupes budgétaires pour pouvoir subvenir aux besoins quotidiens de ma famille et préparer la rentrée scolaire de mes deux enfants.

I must make budget cuts to meet my family’s everyday needs and prepare for my two kids’ return to school.

Tsiory, a security guard in the capital, also explained to Independent Reporter:

La vie est plus que difficile, le fait que je gagne pas assez m’oblige à travailler plus avec des heures supplémentaires pour pouvoir arrondir chaque fin du mois.

Life is beyond difficult, and the fact I don’t earn enough forces me to do more overtime to make ends meet each month.

Many economists agree that the Malagasy middle class is at risk of vanishing due to the soaring cost of essential commodities and energy bills. Andriananirina summarized:

Le taux de pauvreté risque de s’aggraver en créant beaucoup plus d’inégalités sociales.

Poverty rates are likely to worsen, thus increasing social inequalities.

Government announces ambitious measures to address the situation 

Under Bill n°023/2023 on the 2024 Finance Act, the Malagasy government forecasts growth of 4.5 percent for 2024. Extractive industry activity is projected at 7.2 percent, the textile industry at 4.9 percent, construction and public works (BTP) at 4.0 percent, tourism at 10.1 percent, transport at 5.9 percent, and telecommunications at 10.7 percent.

With economic recovery in mind, the government plans to extensively reform the new investment law and mining code, and overhaul the legal and regulatory framework of telecommunications. Furthermore, the government also forecasts a customs revenue of MGA 4,687 billion (over USD 100 million) for 2024, a quarter of which will come from the taxation of petroleum product imports and 75 percent from the taxation of non-petroleum product imports. This Great Island imports rice from India and Pakistan, medication from India and China, and palm oil from Indonesia and Malaysia. The aim of this taxation is to limit the impact of imports. Zafimahova commented on these measures as follows:

Ces mesures sont louables, mais la priorité réside dans une volonté politique, la modélisation d’une économie robuste et d’une vision claire avec des techniciens patriotes.

Although these measures are laudable, political commitment, a robust economic model, and patriotic experts with a clear vision remain the priority.

Even though Malagasy officials appear determined to address this hyperinflation, it remains to be seen whether the cost will be manageable for the average consumer and whether self-sufficiency will meet the government’s expectations.