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Navigating the Challenges: Wages and Reforms in Madagascar's Economy. Part Nine - How the IMF manage the corruption risk.

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​The  IMF has mechanisms in place to monitor and ensure that the funds it provides are allocated correctly and used effectively, minimising the risk of corruption. Here are some key aspects of how the IMF conducts this oversight: 1. Conditionality: The IMF often attaches specific conditions to its loans, requiring countries to implement certain economic policies and reforms. These conditions can include measures to enhance transparency and accountability in public financial management. 2. Regular Reviews: The IMF conducts regular reviews of its lending arrangements. During these reviews, the IMF assesses the country's compliance with the agreed-upon conditions and evaluates the overall economic situation. 3. Reporting Requirements: Borrowing countries are typically required to provide detailed reports on how the funds are being utilized. This includes financial statements and progress reports on specific projects or reforms funded by the loans. 4. Technical Assistance: The IMF prov...
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Navigating the Challenges: Wages and Reforms in Madagascar's Economy. Part Eight - IMF Loans

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​ Here's a short timeline of Madagascar's latest loan disbursements and relevant updates: - June 2024: The IMF approved a 36-month Extended Credit Facility (ECF) totalling SDR 256.62 million (about US$337 million) and a Resilience and Sustainability Facility (RSF) of SDR 244.4 million (about US$321 million). - July 2025: The IMF completed the second reviews of the ECF and RSF, authorizing additional disbursements of SDR 36.66 million (about US$50 million) under the ECF and SDR 40.732 million (about US$56 million) under the RSF. - March 31, 2026: Madagascar's outstanding purchases and loans from the IMF totaled SDR 620.19 million. - April 2026: The IMF indicated that combined third and fourth reviews could unlock approximately US$183 million under the ECF and RSF arrangements. - July 2026: The IMF confirmed the potential total of SDR 134.4 million (about US$183 million) available through ongoing ECF and RSF reviews. Key Purposes of Loans - Macroeconomic Stabilisation  - Clim...
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Navigating the Challenges: Wages and Reforms in Madagascar's Economy. Part Seven - An inefficient tax system

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​ The inefficient tax system in Madagascar is characterised by several key issues that hinder effective revenue generation and economic growth: 1. Complex Tax Structure:    - The tax system features a mix of corporate taxes, personal income taxes, and various indirect taxes, which can create confusion and complicate compliance for businesses and individuals. 2. Low Tax Compliance:    - High levels of informality in the economy mean that many businesses and individuals do not pay taxes. This informal sector often escapes the tax net, resulting in significant revenue losses for the government. 3. Limited Tax Base:    - A large portion of the population, especially in rural areas, lacks formal employment, which limits the tax base. The reliance on a small number of larger companies for revenue increases vulnerability to economic fluctuations. 4. High Tax Expenditures and Exemptions:    - The government offers various tax incentives and exemptions tha...
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Navigating the Challenges: Wages and Reforms in Madagascar's Economy. Part Six - The Tax System

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Madagascar's tax system consists of several key components designed to generate revenue for the government, but it also faces challenges that impact its effectiveness. 1. Corporate Taxation:    - Corporate Income Tax (CIT): Companies are subject to a 20% tax on net profits if their turnover exceeds MGA 400 million. Smaller businesses with turnover below this threshold pay a synthetic tax of 5% of 70% of turnover, effectively 3.5%.    - Minimum Tax: All companies must pay a minimum tax of 0.5% of annual turnover, with specific minimum amounts based on the sector.    - Withholding Tax for Non-Residents: Non-resident entities face a 10% withholding tax on Madagascar-source income, while capital gains are taxed at 20%. 2. Personal Income Tax:    - Madagascar employs a withholding tax system (IRSA) on salary income with rates ranging from 0% to 20%, depending on income levels.     - For self-employed individuals, a presumptive tax applie...
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Navigating the Challenges: Wages and Reforms in Madagascar's Economy. Part Five - Remittances

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I first came across the term remittance economy when playing chess in Armenia.  Back in the 90’s post the collapse of the Soviet Union, Armenia was significantly dependent on remittances. Madagascar can be considered to some extent a remittance economy.   Remittances total around $ 500 million.  Remittances from Malagasy citizens working abroad significantly impact Madagascar's economy in several ways: 1. Income Support: Remittances provide essential financial support to families, improving their living standards. This additional income helps cover basic needs, such as food, healthcare, and education. 2. Poverty Reduction: By supplementing household incomes, remittances play a crucial role in reducing poverty levels. They can help families escape poverty traps and improve their overall economic well-being. 3. Consumption Boost: Increased disposable income from remittances often leads to higher consumer spending. This boost in demand for goods and services can stimulate lo...
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Navigating the Challenges: Wages and Reforms in Madagascar's Economy. Part Four -Financing Budget Deficits

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​ Madagascar's budget deficit is primarily financed through several key sources: 1. External Aid: The country receives significant financial assistance from international donors and organizations, such as the World Bank, International Monetary Fund (IMF), and various bilateral aid agencies. This aid often comes in the form of grants and concessional loans. 2. Foreign Loans: Madagascar borrows from foreign governments and international financial institutions to cover budget shortfalls. These loans may have favorable terms but still contribute to the country's overall debt burden. 3. Domestic Borrowing: The government may issue treasury bills or bonds to raise funds from domestic investors, including banks and private sector entities. 4. Remittances: Money sent home by Malagasy citizens working abroad contributes to the economy and can help support public finances indirectly. 5. Tax Revenue: Although the tax system in Madagascar has challenges, the government relies on tax collec...
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Navigating the Challenges: Wages and Reforms in Madagascar's Economy. Part Three - Budget Deficits

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Budget deficits   ​ Madagascar generates approximately US$1. 5 billion in annual government revenue with GDP around $17 billion. However, government spending exceeds revenue: - In 2024, total government expenditure was US$2.67 billion (16.43% of GDP). - In 2025, the budget deficit was 4.1% of GDP (~US$0.62 billion), and in 2024 it was 3.8% of GDP (~US$0.57 billion).  - Projected deficits for 2026–2027 remain around 4.0% of GDP annually.   Conclusion:   Madagascar’s current revenue is not sufficient to cover its expenses. The country consistently runs a budget deficit of 3.8–4.1% of GDP, relying on external aid, remittances, and borrowing to finance public services. Poor revenue generation (only ~11–12% of GDP) limits fiscal sustainability and constrains spending on education, health, and social protection. In the Financial Flows scenario (a development projection), government revenue could rise to 18.8% of GDP (~US$7.7 billion by 2043), enabling full coverage of expe...
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