## 1mdgea2023003

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### Education Spending, Central Government — Key findings and recommendations
- Findings
  - Government education spending increased from 2.3 percent of GDP in 2011–15 to 2.6 percent of GDP in 2016–20 (on average).
  - Education spending remains low compared with other low-income and Sub-Saharan African (SSA) countries.
  - Education spending as percent of total government spending is higher than peers but reflects lower overall government spending levels.
  - Education spending per student significantly lags peers at both primary and secondary levels.
  - Teacher-student ratios (2018): about 40 primary students per teacher; about 20 secondary students per teacher.
  - Education outcomes (latest values available):
    - Adult literacy rate: 77 percent in 2021.
    - Net enrollment rate, primary: 96 percent in 2018.
    - Net enrollment rate, secondary: 29.8 percent in 2018 (compared to 44 percent in low-income countries).
    - Primary completion rate: 63 percent (latest trend shows decline over last decade).
    - Lower secondary completion rate: 35 percent (latest trend shows decline over last decade).
    - 97 percent of 10-year-old children are not able to read and understand a simple text in French (World Bank, 2022b).
    - Harmonized test scores have fallen significantly since 2010.
    - Trained teachers, primary: Madagascar lags peers; Maîtres FRAM represent about 80 percent of teachers in primary schools and the majority lack formal credentials or teacher training.
- Policy recommendations and measures
  - Increase resources for the education sector and improve budget execution through public financial management (PFM) reforms:
    - Prepare annual expenditure commitment plans by social ministries in 2023, in line with sectoral strategies.
    - Streamline spending commitment process (both commitments under the ECF program).
    - Improve public investment prioritization and ensure appropriate costing of operational and maintenance costs (e.g., of school buildings).
  - Teacher workforce reforms:
    - Integrate FRAM teachers into the civil service via a phased approach over several years given limited fiscal space.
    - Implement transparent and merit-based recruitment: award contracts based on qualifications and competency tests—conducted, for example, by an independent agency for all civil service teachers.
    - Undertake a biometric census of all civil servants including FRAM teachers and volunteer health personnel and use results to verify the quality of the AUGURE database to eliminate any “ghost teachers”.
    - Ensure timely release of funds to public school teachers and to community teachers.
  - Decentralization and school-level financing:
    - Increase decentralized management by allocating additional resources to schools (through school grants or transfers to “Caisse Ecole”) while improving transfers’ timeliness.
    - Note: school grants combined with school feeding transfers amounted to MGA 39 billion in 2021 (0.07 percent of GDP).

*Prepared by Samah Mazraani. February 15, 2023.*

### Social assistance — coverage, scenarios, and fiscal implications
- Current situation and coverage
  - Social safety net spending (excluding social insurance such as pensions) averaged 0.2 percent of GDP over 2011–20 (ASPIRE database).
  - This is below peers: 0.9 percent of GDP median in SSA and 0.8 median in LIDCs.
  - Government strategy targets: cover 15 percent of extremely poor households by 2023 and 50 percent by 2030.
  - Actual coverage of social safety nets: 5 percent of the population (compared to 20 percent in peers).
  - Two regular cash transfer programs (mostly donor-funded) by Fonds d’Intervention pour le Développment (FID):
    - TMDH (Transfert Monétaire pour le Développement Humain): conditional cash transfer for families with children under 12; UNICEF-funded top up (LUL) for transition to secondary school; includes beneficiaries from “Fiavota”.
    - ACTP (Asa Avotra Mirindra “Argent contre Travail Productif”): cash-for-work over a minimum of three years in select districts; includes unconditional transfers for persons unable to work.
  - Combined coverage: about 309.000 households in extreme poverty (mostly rural; 89 percent financed by donors).
  - Geographical limitations: programs operate in 7 out of 22 regions; within beneficiary regions reach only 30 percent of households.
- Shock-responsive instruments (selected)
  - TVA (Toseke Vonje Aigne), launched 2018: total beneficiaries about 108,000 households receiving MGA 80.000 per month for 5 months.
  - Tosika Fameno (COVID-19 response): reached around 215,000 households receiving MGA 100.000 per month for two months (May and July 2020).
  - Vatsy Tsinjo (presidential project): estimated 305,000 food packs distributed (out of initial objective of 500.000 packs); each household received two packs for two months (April and July 2020).
- Poverty and distributional outcomes
  - Poverty rate (international definition, US$1.90/day 2011 PPP): around 78 percent in 2012; World Bank (2022a) estimates poverty at 81 percent in 2020 (record high).
  - Poverty gap: around 40 percent (compared to 13 percent in SSAs).
  - Inequality: GINI coefficient 42.6 (latest measure from 2012).
  - Projection: poverty projected to remain close to 80 percent over the next three years.
- Policy recommendations (key areas for action)
  - Update the social protection strategy: PNPS adopted 2015; SNPS 2019–23 targets 15 percent coverage by 2023—update medium-term strategy and link objectives with a clear funding strategy.
  - Develop a national social registry: scale up existing register of beneficiaries to a national social registry managed and regularly updated by the Ministry of Population.
  - Ensure predictable and sufficient budget allocations and scale up social protection sustainably: find fiscal space (spending reallocation and/or revenue mobilization).
  - Use rapid design/implementation lessons from “Tosika Fameno” to scale up programs.
- Simulations of expanding social assistance (Scenarios A–D)
  - Common assumptions:
    - Transfer increases every year with average inflation.
    - Administrative costs are about five percent of the transfer size.
    - Average transfer amount for all current social transfer programs assumed to be 22.500 MGA per household (implicit for 2022).
  - Scenario A: Average transfer 50.000 MGA per household per month; coverage immediately reaches 15 percent in 2023.
  - Scenario B: Average transfer 80.000 MGA per household per month; coverage immediately reaches 15 percent in 2023.
  - Scenario C: Average transfer 50.000 MGA per household per month; coverage gradually reaches 15 percent by 2027 and increases to 20 percent by 2030.
  - Scenario D: Average transfer 80.000 MGA per household per month; coverage gradually reaches 15 percent by 2027 and increases to 20 percent by 2030.
  - Fiscal implications:
    - Budgetary cost of social assistance would need to increase from current 0.1–0.2 percent of GDP to 0.7–1.5 percent of GDP by 2030 (across scenarios).
    - Under Scenario C, increases of 0.1 percent of GDP per year could reach SSA spending average of 0.9 percent of GDP by 2030.
- Fiscal framework to reach SSA averages by 2030 (estimated annual increases)
  - Education: increase by 0.2 percent of GDP every year (from 2.6 to reach SSA average of 3.8 by 2030).
  - Health: increase by 0.1 percent of GDP every year (from 1.0 to reach SSA average of 1.9 by 2030).
  - Social assistance: increase by 0.1 percent of GDP every year (consistent with Scenario C).
  - In total: social spending needs to increase by 0.5 percent of GDP in 2023, then by 0.3 percent of GDP every year during 2024–30 to reach SSA spending levels and cover 15 percent of the vulnerable population by 2027.
- Conclusions and institutional reforms
  - Priority: find fiscal space to allocate more public resources to education, health, and social protection.
  - Sectoral needs highlighted:
    - Education: integrate community teachers into civil service via transparent merit-based recruitment; increase decentralized management.
    - Health: mobilize resources to address equipment and medical staff shortages; improve merit-based recruitment; identify criteria for free basic healthcare coverage for most vulnerable; encourage formalization or voluntary participation in contributory health insurance for those not eligible for free care.
    - Social protection: identify clear and predictable funding sources to gradually scale up programs; develop a national social registry.
  - Cross-sectoral: undertake PFM reforms to address significant budget under-execution, implement expenditure commitment plans by social ministries, and strengthen public investment prioritization, budgeting, and management.

*Source: 1mdgea2023003 - 10.      Social assistance.*

### Informality — stylized facts, links to the state, and implications for growth
- Definition and data
  - Informal production units (IPUs) per ENEMPSI 2012: production units failing to provide statistical identification numbers and written financial records.
  - ENEMPSI 2012 coverage: informal non-agricultural production units; updated 2021/2022 survey preliminary results broadly unchanged.
- Prevalence and structure (2012)
  - Total individual production units: 2,268,900; 99.9 percent classified as informal.
  - Sectoral concentration: garment manufacturing 43 percent; trade 34 percent.
  - Location: IPUs mostly in rural areas 71 percent.
  - Premises: operate without specific premises 52 percent; at home 28 percent.
  - Employment structure: 72 percent are one self-employed individual; 8 percent employ salaried workers.
  - Average unit size: about 1.4 person.
  - Average longevity: about 10.3 years.
- Employment and demographics
  - Informal sector provides 95 percent of total employment.
  - Female share of informal jobs: 52 percent; self-employed mostly women: 58 percent.
  - Age: informal workers average 35 years vs. 41 years in the administration; almost one third under age 26.
  - Education and training: average 4.7 years of schooling; seven out of ten employees learned on the job; 2.4 percent pursued official training.
- Work conditions and protections
  - Only 3 percent benefit from a written contract; 27 percent have oral contracts; nearly 70 percent have no contracts.
  - Paid leave: 0.8 percent among dependent workers; 2.5 percent among employees.
  - Social protection: about 97 percent of workers are excluded from existing contributory social security.
- Assets, investment, and finance
  - Average physical capital per unit: MGA 956,600.
  - Investment amount: about MGA 380,200 on average.
  - Only 44 percent of IPUs report having invested during the survey year; investment estimated at 8 percent of their value added.
  - Borrowing: only 3.4 percent of IPUs recourse to borrowing; loan sources: family and friends 48 percent; microfinance institutions 21 precent; suppliers 15 percent.
- Administrative registration and links to the state
  - Nearly nine out of ten IPUs are completely unknown to administrative services.
  - Administrative coverage: 11 percent have a statistical identification number; 9 percent pay the patent; 9 percent have professional license; 3 percent registered at the “Trade registry”.
  - Social security affiliation: 0.2 percent.
  - Reasons for noncompliance: unfamiliarity with procedures 40 percent; lack of awareness 33 percent; 8 percent consider procedures complicated; 7 percent consider formal registration expensive.
  - Willingness to formalize: more than 40 percent ready to administratively register; 61 percent willing to pay taxes.
- Informality and growth (2012 and empirical evidence)
  - Informal sector accounted for 43 percent of GDP in 2012.
  - Excluding agricultural activities, informal sector contributed 36 percent to non-agricultural GDP (equivalent to 24 percent of total GDP).
  - Informal trade businesses: 69 percent of informal sector total turnover; 45 percent of total production; 46 percent of overall added value.
  - Empirical panel (40 SSA countries, 1993-2018) indicates cointegration between formal and informal GDP; Granger causality tests sensitive to cross-sectional dependence.
  - Madagascar-specific regressions (1993-2018) confirm a long-term positive relation between informal and formal economy; relation stronger when controlling for political crises of 2002 and 2009.
  - Total Factor Productivity (TFP) findings: informal sector’s TFP growth is more stable and higher on average than formal sector’s TFP growth; informal sector TFP growth is close to zero.
- Policy direction
  - Section E contains policy recommendations (detailed in the chapter’s Section E in the source).

*Prepared by Mokhtar Benlamine, Véronique Salins, Ghislain Afavi, Ialy Rasoamanana (all AFR); Coffi Agossou and Nombàna Razafinisoa (all ILO).*

### ILO Recommendation R204 — transition from informal to formal economy (selected highlights)
- R204 recommends three ways to complete formalization:
  - (i) creation of decent jobs and sustainable businesses in the formal economy;
  - (ii) transition of workers and enterprises from the informal to the formal economy;
  - (iii) prevention of jobs informalization.
- Institutional and legal measures
  - Strengthen labor market information: National Employment and Training Office; General Directorate of Employment and Public Employment Service.
  - Labor Code: Law No. 2003-044 of July 28, 2004; issue of the informal economy not considered—ILO supported revisions to articles 1, 2 and 3.
  - New Labor Code expected to be submitted to the National Assembly and Senate during the next parliamentary session.
- Social protection and taxation
  - Extend social security and health coverage to rural and self-employed workers; rural workers constitute 82 percent of Malagasy workers.
  - Social Security Code: Decree No. 69-145 of April 8, 1969; coverage limited; roadmap for new code to be available around 2024.
  - Tax regime for micro-enterprises:
    - Micro-enterprise turnover threshold: MGA 200 million per year.
    - IS rate: 5 percent of turnover; minimum tax MGA 16 000.
    - Deduction: 2 percent of purchases if invoices match tax authority model.
    - ISI withholding rate: 5 percent (climbs to 10 percent when the transaction implies non-residents).
  - Policy suggestions: consider lowering IS rate (e.g., to 3 percent), ensure IS < ISI to promote formalization, simplify and digitalize procedures, stabilize regime to build trust.
- Access to finance
  - Suggested measures: national guarantee fund, start-up fund, reconcile financial stability with new financing channels, support via a development bank.

### Household structure, livelihoods, and food security in the Great South
- Household composition and education
  - More than one-third of households in the Great South have 4 to 5 members.
  - About one-fourth of households have more than 7 members.
  - National rural average household size: 4.3 members.
  - Less than 15 percent of the Great South population attended primary education; of those, 35 percent dropped out.
  - Result: 80 percent of regional population are very low qualified; about 45 percent are analphabet in the region (against 23 at the national level).
- Livelihood diversification and shocks
  - An average household resorts to more than 13 activity types to generate income over one month.
  - 75 percent of households are hit by at least one natural hazard, food price or insecurity shock over 6 months.
  - Nearly 84 percent of households practice agriculture; 37 percent practice livestock; about 32 percent practice trade.
  - Half of communities reported a 53 percent decrease in cultivated areas in 2021 compared to normal; future production (high season) expected to be 63 percent lower than normal.
- Women, water, health, and energy
  - 35 percent of households in the Great South are led by women (national: 24 percent).
  - 37 percent of households include only one parent; majority headed by women.
  - Responsibility of fetching water beyond 30-minute journey time falls on 95 percent of women.
  - Access to quality water supply in the Great South: 4.2 percent (national: 27.7 percent).
  - Diarrheal diseases affect 18.3 percent of children aged 6–59 months in the ten districts.
  - Febrile illnesses affect 66.2 percent of children aged 6–59 months in the ten districts.
  - Direct use of wood as fuel: 76 percent in rural areas and 87 percent in the Great South.
  - Acute respiratory infection affects 6.8 percent of children aged 6-59 months in the ten districts.
  - World Bank estimate: productivity cost of fuelwood for cooking borne by women is USD 4.71 billion annually.
- Agricultural and market structural issues
  - Main obstacles cited by farming households: climate (first), pests (second), high cost of agricultural inputs and poor/no infrastructure (third).
  - Landholding distribution in ten districts: 45 percent operate less than 50 acres; 34 percent operate between 50 to 100 acres; 21 percent operate more than 100 acres.
  - Less than 10 percent of farmers use certified seeds; seed provision accounts for 3.5 percent of assistance and reached 34.5 percent of households.
  - Low mechanization; fertilizers not registered and often unaffordable; reliance on rainfall due to low irrigation access.
  - Rehabilitation costs penalized by increase in price of construction materials and transportation costs (about 44 percent in July 2022).
- Climate-related frequency and impacts
  - Tropical cyclone frequency: every 0.9 years on average.
  - Droughts: every 2.7 years on average.
  - Floods: every 3 years on average.
  - A typical tropical cyclone could become 18.4 percent more damaging by 2050 (Acevelo, 2016).
  - Agricultural productivity in Madagascar is already less than half the global average.
  - Climate change expected to decrease agricultural production through loss of cultivable land, decline in land productivity, and loss of labor productivity (labor productivity has already fallen by USD 95 per worker over the past 20 years).

*Source: 1mdgea2023003 - 5.      Household’s structure, low*

### The slow-moving effects of climate — impacts, preparedness, and policy responses
- Observed environmental and sectoral impacts
  - Climate change has reduced volume and productivity of natural capital in terrestrial and marine ecosystems.
  - Observed ecosystem impacts: reduced tree growth and reproduction; coral bleaching; seagrass loss; fisheries loss; ocean acidification.
  - Sectoral effects: harm to agriculture, fisheries, and tourism; silting of reservoir dams and irrigation canals reduces water storage for irrigation of rice crops.
  - Agriculture contributes to 16 percent of Co2 emissions; subsistence agriculture rapidly destroying forest and wetland carbon stocks.
- Vulnerability, readiness, and humanitarian response
  - Development partners’ assistance in 2022: 4.7 million people benefited from cash and in-kind humanitarian and development partners’ assistance for food and subsistence.
  - National Risk and Catastrophe Management Bureau (BNGRC): LFI 2023 allocates a budget of 15.6 billion to the BNGRC and projects increases to 19.8 billion in 2024 and 22.4 billion in 2024.
- Preparedness, early warning, and coordination recommendations
  - Operationalize a flexible and responsive single registry; harmonize targeting approaches and eligibility criteria; establish evidence-based triggers for shocks and systematic responses.
  - Scale up school feeding programs and link to local production; provide family rations and promote school retention.
  - Strengthen early warning systems on climate, hydrological, geological, vulnerability, and health monitoring.
  - Develop emergency response plans with local authorities and humanitarian organizations; include evacuation strategies and conflict prevention/management.
  - Establish regional/community grain reserves for lean periods or shocks.
- Structural and fiscal measures for resilience
  - Infrastructure investments needed: rehabilitate and develop road network, irrigation systems, electricity, and telecommunications.
  - Energy and taxation measures:
    - Gradual removal of distortive exoneration on rice imports may boost local production competitiveness.
    - Tax expenditure on imported rice estimated at MGA 124bn (0.2 percent of 2021 GDP).
    - Exemption of rice from domestic VAT accounts for almost three-quarters of total domestic VAT tax expenditures and amounts to 4.7 times the tax expenditure on imported rice.
  - Green PFM and PIM reforms:
    - The 2023 Budget Law does not integrate climate shocks in baseline projections nor provide a climate risk analysis to the baseline.
    - Recommendations: mainstream climate into sectoral strategies, identify vulnerable infrastructure assets, define methodology to integrate climate change into ex-ante project assessments and project prioritization, introduce climate budget tagging, and develop a climate change annex in the annual budget.
- IMF program, financing, and investment needs
  - A 40-months Extended Credit Facility (ECF) arrangement supports sustaining inclusive growth, addressing long-term fragilities, maintaining macroeconomic stability, improving governance, and creating fiscal space for investment in physical and human capital.
  - Madagascar benefitted from an SDR allocation of US$322 million on August 23, 2021, that can be used to finance the water pipeline project in the Great South and other PEM objectives related to food security, adaptation to climate change and sustainable development.
  - OECD climate finance database reported US$1.29 billion in climate funding committed to Madagascar between 2015 and 2019; bilateral and multilateral climate funds such as EDF and GCF provided approximately US$377 million (29 percent).
  - Economic case for resilient infrastructure: total damage to infrastructure from four tropical storms in 2022 assessed around USD170 million; if roads and railways had been more resilient, damage would have been reduced by USD85 million. Adaptation investment could cost between USD25 million and USD115 million depending on cost assumptions.

*Source: Chapter 22, "The slow-moving effects of climate," IMF Republic of Madagascar country report.*

### 1. Education Spending, Central  Government ___________________________________________ 5

### 1. Education Spending, Central  Government

### A. Introduction
- Madagascar experienced improvement in development outcomes over 2000–2010 but remains challenged after two decades of income stagnation and recent pandemic and climate shocks.
- Authorities’ Plan Emergence (PEM) targets:
  - increase GDP per capita to US$4,000 in 2040 (compared to US$522 in 2019)
  - raise the human capital index to 0.60 (0.39 in 2020)
  - reduce the poverty rate from 81 percent to 35 percent by 2040
- Disconnect between announced ambitions and limited financial and human resources has led to slow reform implementation.
- The paper examines social spending and outcomes and addresses: (i) How large has social spending been over time and compared to peers? (ii) How does Madagascar perform on various socioeconomic outcomes? (iii) What are policy options and how can outcomes be improved?

### B. Education — Key Findings
- Government education spending:
  - increased from 2.3 percent of GDP in 2011–15 to 2.6 percent of GDP in 2016–20 (on average)
  - remains low compared with other low-income and Sub-Saharan African (SSA) countries
- Education spending as percent of total government spending is higher than peers but reflects lower overall government spending levels.
- Education spending per student significantly lags peers at both primary and secondary levels.
- Teacher-student ratios (2018):
  - about 40 primary students per teacher
  - about 20 secondary students per teacher
- Education outcomes (latest values available):
  - Adult literacy rate: 77 percent in 2021
  - Net enrollment rate, primary: 96 percent in 2018
  - Net enrollment rate, secondary: 29.8 percent in 2018 (compared to 44 percent in low-income countries)
  - Primary completion rate: 63 percent (latest trend shows decline over last decade)
  - Lower secondary completion rate: 35 percent (latest trend shows decline over last decade)
  - 97 percent of 10-year-old children are not able to read and understand a simple text in French (World Bank, 2022b)
  - Harmonized test scores have fallen significantly since 2010
  - Trained teachers, primary: Madagascar lags peers; Maîtres FRAM represent about 80 percent of teachers in primary schools and the majority lack formal credentials or teacher training

### B. Education — Policy Recommendations and Measures
- Increase resources for the education sector and improve budget execution through public financial management (PFM) reforms:
  - Prepare annual expenditure commitment plans by social ministries in 2023, in line with sectoral strategies.
  - Streamline spending commitment process (both commitments under the ECF program).
  - Improve public investment prioritization and ensure appropriate costing of operational and maintenance costs (e.g., of school buildings).
- Teacher workforce reforms:
  - Given limited fiscal space, integrating all FRAM teachers into the civil service is not feasible in the short term; adopt a phased integration over several years.
  - Implement transparent and merit-based recruitment: award contracts based on qualifications and competency tests—conducted, for example, by an independent agency for all civil service teachers.
  - Undertake a biometric census of all civil servants including FRAM teachers and volunteer health personnel and use results to verify the quality of the AUGURE database to eliminate any “ghost teachers”.
  - Ensure timely release of funds to public school teachers and to community teachers.
- Decentralization and school-level financing:
  - Increase decentralized management by allocating additional resources to schools (through school grants or transfers to “Caisse Ecole”) while improving transfers’ timeliness.
  - Note: school grants combined with school feeding transfers amounted to MGA 39 billion in 2021 (0.07 percent of GDP).

### C. Health — Key Findings
- Government health spending trends:
  - decreased from 1.3 percent of GDP in 2016 to 1.0 percent of GDP in 2020
  - remains low compared with peers: LICs (1.8 percent of GDP over 2016–20), EMs (2.5 percent of GDP over 2016–20), SSAs (1.9 percent of GDP over 2016–20)
- Government health spending as percent of total government spending is higher than in peers (18.6 in Madagascar compared to 10.2 in LICs) reflecting lower overall government spending.
- Total health spending per capita (government and private):
  - about US$ 78 per person per year (PPP basis)
  - compared with $202 per person per year average in low-income countries
- Health system structure:
  - four types of health facilities with limited autonomy: basic health centers (communes), referral hospitals (districts), referral and university hospitals (regions), and specialized centers (regional and central levels)
  - private and community-based health insurance limited due to low incomes and small formal employment base
  - free services and vouchers limited to specific programs and regions
- Health outcomes:
  - Life expectancy: 67 years in 2020 (compared to 62 in SSA)
  - Maternal mortality: 335 deaths per 100,000 live births in 2017 (compared to 534 in SSA)
  - Infant mortality: 36 deaths per 1,000 live births in 2020 (compared to 50 in SSA)
  - Prevalence of malnutrition: increased from 28 percent of the total population in 2010 to 49 percent in 2020
  - Prevalence of stunting among children under five: 39.8 percent
  - Basic immunization coverage (Diphtheria, Tetanus, Pertussis) among 12–23 months aged children: 55 percent in 2021
  - Severe human resource shortages (physicians, nurses, midwives) and shortages in other resources (e.g., hospital beds) relative to SSA and LIC countries

### C. Health — Policy Recommendations and Measures
- Mobilize additional domestic resources and implement large-scale reforms:
  - Prioritize additional resources for primary healthcare services to retain qualified and motivated health workers and improve distribution in rural areas (strengthen decentralization and increase allocations to basic health centers).
  - Implement PFM reforms to improve budget execution and sound public investment management in the sector.
- Universal Health Coverage (UHC) strategy actions:
  - The national social policy (2015) and national social protection strategy (2019–23) outline the goal to attain UHC with a contributory system and free healthcare for the poorest households.
  - The implementation plan for the UHC strategy was never finalized; a clear financing strategy is needed to achieve UHC.
  - Clear identification criteria of the poorest and most vulnerable households are required—based on the social registry currently in development.

### D. Social Assistance
- The chapter signals that social assistance, coverage, and outcomes are addressed in subsequent sections (titles listed in contents), and that Madagascar faces constraints to execute and deliver social spending and services in a context of social fragility and vulnerability to exogenous shocks.
- Overall policy direction:
  - Create fiscal space for higher social spending combined with institutional reforms to ensure more efficient use of resources.
  - Sustained efforts are needed to implement the authorities’ development agenda in the Plan Emergence Madagascar and support needed investments in human capital.

*Prepared by Samah Mazraani. February 15, 2023.*

### 10.      Social assistance

### 10.      Social assistance

### Overview
- Social safety net spending (excluding social insurance such as pensions) averaged 0.2 percent of GDP over 2011–20 (ASPIRE database).
- This is below peers: 0.9 percent of GDP median in SSA and 0.8 median in LIDCs.
- Government strategy targets: cover 15 percent of extremely poor households by 2023 and 50 percent by 2030.
- Actual coverage of social safety nets: 5 percent of the population (compared to 20 percent in peers).

### Current social safety net programs and coverage
- Two regular cash transfer programs (mostly donor-funded) implemented by Fonds d’Intervention pour le Développment (FID):
  - TMDH (Transfert Monétaire pour le Développement Humain)
    - Conditional cash transfer for families with children under 12, conditional on primary school attendance.
    - UNICEF-funded top up for children transitioning to secondary school (LUL “Let us Learn”).
    - Includes beneficiaries from “Fiavota”, an emergency cash transfer for families severely affected by drought in the South.
  - ACTP (Asa Avotra Mirindra “Argent contre Travail Productif”)
    - Productive safety net providing cash-for-work opportunities over a minimum of three years for poor workers in select districts.
    - Includes an unconditional transfer component for vulnerable persons unable to work due to disabilities.
- Combined coverage: about 309.000 households in extreme poverty (mostly rural; 89 percent financed by donors).
- Geographical limitations: programs operate in 7 out of 22 regions; within beneficiary regions reach only 30 percent of households despite pervasive poverty (per UNICEF).

### Shock-responsive social protection instruments
- TVA (Toseke Vonje Aigne), launched 2018 after El Nino drought:
  - Targeted victims in areas affected by poor harvests, cyclones, droughts in the South.
  - Total beneficiaries about 108,000 households receiving MGA 80.000 per month for 5 months.
- Tosika Fameno (COVID-19 response):
  - Reached around 215,000 households receiving MGA 100.000 per month for two months (May and July 2020).
  - Enrollment via self-registration online survey at community level; payments in cash or via mobile money.
- Vatsy Tsinjo (domestically financed presidential project):
  - In-kind donations; estimated 305,000 food packs distributed (out of initial objective of 500.000 packs).
  - Each household received two packs for two months (April and July 2020).
  - Target broadened from homeless/elderly/affected by confinement to include university students, artists, persons with disabilities, and public school teachers.

### Poverty and distributional outcomes
- Poverty rate (international definition, US$1.90/day 2011 PPP):
  - Around 78 percent in 2012.
  - World Bank (2022a) estimates poverty at 81 percent in 2020 (record high).
- Poverty gap: around 40 percent (compared to 13 percent in SSAs).
- Inequality: latest measure from 2012 shows a GINI coefficient of 42.6.
- Projection: poverty projected to remain close to 80 percent over the next three years.

### Policy recommendations (key areas for action)
- Update the social protection strategy:
  - PNPS adopted 2015; SNPS 2019–23 targets 15 percent coverage by 2023.
  - Update medium-term strategy and link objectives with a clear funding strategy.
- Develop a national social registry:
  - Scale up existing register of beneficiaries to a national social registry (pilot phase suggested).
  - Registry to be managed and regularly updated by the Ministry of Population.
  - Purpose: identify beneficiaries, harmonize responses, avoid fragmentation.
- Ensure predictable and sufficient budget allocations and scale up social protection sustainably:
  - Social assistance spending is extremely low and mostly donor-financed.
  - Find fiscal space (spending reallocation and/or revenue mobilization) to expand coverage and resilience.
  - Use rapid design/implementation lessons from “Tosika Fameno” to scale up programs.

### Simulations of expanding social assistance (Scenarios A–D)
- Assumptions common to all scenarios:
  - Transfer increases every year with average inflation.
  - Administrative costs are about five percent of the transfer size.
  - The average transfer amount for all current social transfer programs is assumed to be 22.500 MGA per household for the purpose of these simulations (implicit for 2022).
- Scenario A:
  - Average transfer: 50.000 MGA per household per month.
  - Coverage immediately reaches 15 percent in 2023.
- Scenario B:
  - Average transfer: 80.000 MGA per household per month.
  - Coverage immediately reaches 15 percent in 2023.
- Scenario C:
  - Average transfer: 50.000 MGA per household per month.
  - Coverage gradually reaches 15 percent by 2027 and increases to 20 percent by 2030.
- Scenario D:
  - Average transfer: 80.000 MGA per household per month.
  - Coverage gradually reaches 15 percent by 2027 and increases to 20 percent by 2030.
- Fiscal implications:
  - Budgetary cost of social assistance would need to increase from current 0.1–0.2 percent of GDP to 0.7–1.5 percent of GDP by 2030 (across scenarios).
  - Under Scenario C, increases of 0.1 percent of GDP per year could reach SSA spending average of 0.9 percent of GDP by 2030.

### Fiscal framework for social spending to SSA levels
- Estimated annual increases needed to raise education, health, and social assistance to SSA averages by 2030:
  - Education: increase by 0.2 percent of GDP every year (from 2.6 to reach SSA average of 3.8 by 2030).
  - Health: increase by 0.1 percent of GDP every year (from 1.0 to reach SSA average of 1.9 by 2030).
  - Social assistance: increase by 0.1 percent of GDP every year (consistent with Scenario C).
- In total:
  - Social spending needs to increase by 0.5 percent of GDP in 2023.
  - Then by 0.3 percent of GDP every year during 2024–30 to reach SSA spending levels and cover 15 percent of the vulnerable population by 2027.

### Conclusions and institutional reforms
- Priority: find fiscal space to allocate more public resources to education, health, and social protection.
- Sectoral gaps and needs:
  - Education: quality has deteriorated; need to integrate community teachers into civil service via transparent merit-based recruitment; increase decentralized management.
  - Health: mobilize resources to address equipment and medical staff shortages; improve merit-based recruitment; identify criteria for free basic healthcare coverage for most vulnerable; encourage formalization or voluntary participation in contributory health insurance for those not eligible for free care.
  - Social protection: identify clear and predictable funding sources to gradually scale up programs; develop a national social registry to harmonize responses and support expansion of coverage.
- PFM and institutional reforms across sectors:
  - Undertake PFM reforms to address significant budget under-execution, implement expenditure commitment plans by social ministries, and strengthen public investment prioritization, budgeting, and management.

*Source: 1mdgea2023003 - 10.      Social assistance.*

### 1.      The concept of informality has evolved over time. Since its introduction in the early

### 1mdgea2023003 - 1.      The concept of informality has evolved over time. Since its introduction in the early

### Evolution of the concept and purpose of the chapter
- Since its introduction in the early seventies, the definition, causes, measurements and implications of the informal sector have generated lively debates; the concept remains elusive and measurement is subject to many criticisms and limitations.
- Recognizing informality’s possible contours and associations is key to design successful policy measures.
- This chapter uses the 2012 national survey on employment and informal sector (ENEMPSI) conducted by the National Statistics Office (INSTAT), covering all informal non-agricultural production units in Madagascar.
- An updated survey was carried out in 2021/2022; preliminary results to be published remain broadly unchanged compared to the 2012 survey.
- The informal sector used in this chapter represents production units that failed to provide statistical identification numbers and written financial records; the written financial records criterion was introduced to avoid excluding units with a statistical identification number but not functioning like formal units.

### Chapter structure
- Section B: Stylized Facts of informality in Madagascar.
- Section C: Link between informality and the state.
- Section D: Link between informality and growth.
- Section E: Policy recommendations.

### Definition and data scope
- Informality is generally recognized as missing legal and administrative compliance.
- Informal production units (IPUs) represent economic activities not covered or only partially covered – by law or in practice – by formal arrangements.
- The ENEMPSI 2012 covers informal non-agricultural production units; 2021/2022 survey updates are ongoing with ILO support.

### Stylized facts of informality in Madagascar
- Prevalence and structure
  - As of end-December 2012, Madagascar had 2,268,900 individual production units, 99.9 percent of which were classified as informal.
  - Sectoral concentration: garment manufacturing (43 percent) and trade (34 percent).
  - Location: IPUs are mostly located in rural areas (71 percent).
  - Premises: operate without specific premises (52 percent) or at home (28 percent).
  - Employment structure: most informal units only include one self-employed individual (72 percent); only 8 percent employ salaried workers.
  - Average unit size: about 1.4 person.
  - Average longevity: IPUs operate for about 10.3 years on average; longer lifespan in rural areas and for units operating in both manufacturing and agricultural sectors; shorter lifespan for trade and services IPUs.

- Employment and demographics
  - The informal sector provides 95 percent of total employment.
  - Gender: 97 percent of women employment is in IPUs vs. 94 percent for men.
  - Age: workers in informal sector average 35 years vs. 41 years in the administration; almost one third of the informal workforce are individuals under the age of 26 years.
  - Management: young people represent 18 percent of IPUs managers.
  - Education and training: average of 4.7 years of schooling; seven out of ten employees learned on the job; only 2.4 percent pursued official training.
  - Prior experience: share of employees with work experience in a large company is 0.4 percent.

- Gender participation and roles
  - Female share of informal jobs: 52 percent.
  - Self-employed are mostly women: 58 percent.
  - Family helpers in IPUs are women: 53 percent.
  - Women occupy lowest paid or most vulnerable positions (domestic services and family aid).
  - Female labor supply outside agriculture: female informal jobs represent 21 percent vs. 14 percent for male jobs.
  - Informal agricultural enterprises mobilize more male labor than informal non-agricultural enterprises.

- Work conditions and protections
  - Eight out of ten employed individuals are affected by inadequate employment situations.
  - Contract coverage: only 3 percent benefit from a written contract; 27 percent have oral contracts; nearly 70 percent have no contracts at all.
  - Paid leave: 0.8 percent among dependent workers; 2.5 percent among employees.
  - Social protection: about 97 percent of workers are excluded from existing contributory social security system.
  - Employment protection: none; four out of ten dependent jobs and one third of salaried jobs are non-permanent.

- Assets, capital and investment
  - Working hours: majority of informal workers not working more than 35 hours per week (53 percent).
  - Average physical capital per unit: MGA 956,600 (less than 250USD).
  - Composition of physical capital: premises (54 percent), vehicles (33 percent), machineries and tools (12 percent).
  - Quality and acquisition: nearly 60 percent of capital purchased on second-hand market, 34 percent newly acquired, 6 percent self-built.
  - Ownership: about 65 percent personal properties, 23 percent shared with other IPUs, 11 percent rented.
  - Investment amount: about MGA 380,200 (less than 100USD) on average.
  - Investment use: premises (48 percent) and rolling stock (33 percent).
  - Investment incidence and intensity: only 44 percent of IPUs report having invested during the survey year; investment estimated at 8 percent of their value added.

- Access to finance
  - Borrowing: only 3.4 percent of IPUs affirm having recourse to borrowing over the reporting period.
  - Loan sources: family and friends (48 percent); microfinance institutions (21 precent); suppliers (15 percent).
  - Use of loans: essentially to finance acquisition of raw materials.
  - Investment financing: largely financed by individual savings for almost 97 percent of its nominal value; minimal use of banking and microfinance services.

### The informal sector and the state
- Access to public services
  - More than eight out of ten IPUs are housed in makeshift facilities.
  - Access rates (overall): water 10.2 percent; phone communication 8.8 percent; electricity 8.4 percent.
  - Rural access rates: water 9.8 percent; electricity 4.6 percent; phone 6.4 percent.
  - Urban access rates: water 17.7 percent; electricity 17.7 percent; phone 14.5 percent.

- Administrative registration and links to the state
  - Nearly nine out of ten IPUs are completely unknown to administrative services.
  - Administrative coverage: 11 percent have a statistical identification number; 9 percent pay the patent (professional tax); 9 percent have professional license; 3 percent are registered at the “Trade registry”.
  - Social security affiliation: 0.2 percent.

- Reasons for noncompliance
  - Main causes: unfamiliarity with procedures (40 percent); lack of awareness on companies’ obligations (33 percent).
  - Other perceptions: 8 percent consider procedures complicated; 7 percent consider formal registration expensive.
  - Motivations to remain informal: only 6 percent report being informal to circumvent current legislation, avoid paying a patent, obtain professional license or contribute to social security.

- Willingness to formalize and conditions
  - More than 40 percent stand ready to administratively register; 61 percent confirm willingness to pay taxes.
  - Main motivations for formalization: better access to market location (25 percent); higher credit access (14 percent).
  - Registration process: 6 percent have launched registration but could not finalize due to complexity and high cost of procedures.
  - Tax destination preferences: nearly 67 percent consider taxes should be paid to local administration to (i) build infrastructure (44 percent); (ii) invest in health and education (30 percent); and (iii) establish a fund to support micro-enterprises (18 percent).
  - Support for one-stop-shop principle: IPUs supportive (figure-level detail in source).

- Motivations for setting up informal activities
  - Main motives: to get higher income (46 percent); to be independent (18 percent); to perpetuate family tradition (13 percent).
  - Less than a quarter cite difficulty finding salaried jobs as reason to create an individual company.
  - Urban vs rural: creation of non-agricultural informal units to compensate for failure to find salaried employment is higher in urban areas than rural areas.

### Informality and growth
- Conceptual approaches to informality
  - Dualist approach: informal sector engages in survival activities and operates in isolation from formal sector.
  - Structuralist approach: informal units are subordinated economic units; informality used by formal units to reduce costs.
  - Legalist approach: informal sector is response to hostile legal system with cumbersome rules creating barriers to formalization.
  - Voluntarist approach: informal sector is deliberate choice by micro-entrepreneurs weighing benefits and costs.

- Contribution to GDP and sectoral shares (2012)
  - Informal sector accounted for 43 percent of GDP in 2012.
  - Excluding agricultural activities, informal sector contributed 36 percent to non-agricultural GDP, equivalent to 24 percent of total GDP.
  - Informal trade businesses: 69 percent of informal sector total turnover; 45 percent of total production; 46 percent of overall added value.
  - Manufacturing in informal sector: 15 percent of total turnover; 28 percent of production of goods and services; 29 percent of informal sector value added.

- Competition with formal sector
  - 2013 World Bank Enterprise Survey: 71.7 percent of formal firms compete against unregistered or informal firms; 19 percent of firms identify practices of informal competitors as a major constraint.

- Empirical relationships (panel and country evidence)
  - Panel cointegration (40 SSA countries, 1993-2018) using multiple indicators multiple causes model-based estimates (Schneider, Buehn, and Montenegro 2010):
    - Dependent variable: formal sector’s GDP; independent variable: informal sector’s GDP.
    - Cointegration tests: Kao test and Westerlund test suggest series are cointegrated; Pedroni test also performed.
    - Granger causality (no cross-sectional dependence assumed): informal nominal GDP Granger causes formal GDP and the inverse is also true.
    - When controlling for cross-sectional dependence in Granger causality test, Granger causality disappears in both directions.
    - Implication: importance of formalizing economy by providing incentives rather than constraining the sector, to avoid negative implications on the formal sector.

  - Madagascar-specific regressions (1993-2018)
    - Using multiple indicators multiple causes model-based estimates for Madagascar confirm a long-term positive relation between informal and formal economy.
    - Relation stronger when controlling for the political crisis of 2002 and 2009.
    - Both formal and informal GDP series are integrated with order one, and Johansen cointegration tests are conclusive.
    - Residual is stationnary at 10 percent.

- Total Factor Productivity (TFP) findings
  - Method: estimate economy TFP (Annex VI of IMF staff report on Madagascar 2022 Article IV consultation); estimate informal sector TFP assuming sector uses only labor and employs 95 percent of country’s labor force; compute TFP using linear Cobb-Douglas; formal sector TFP computed assuming economy TFP is weighted average of both sectors’ TFP with time-variant weights equal to sector GDP shares.
  - Result: informal sector’s TFP growth is more stable and higher on average than formal sector’s TFP growth; informal sector TFP growth is more stable and is close to zero.
  - Supporting literature: Grimm and Lay (2011) find growth in informal sector mostly extensive (little job creation or capital accumulation), expansion via creation of new firms rather than expanding existing ones; Byiers and Iacovone (2011) find lower labor productivity in formal firms compared to small informal firms, explained by high costs of formalization.

### Policy recommendations (section heading in source; detailed recommendations follow in the source beyond provided excerpt)
- Section E in the chapter contains policy recommendations (detailed recommendations are in the chapter’s Section E in the source text).

*Prepared by Mokhtar Benlamine, Véronique Salins, Ghislain Afavi, Ialy Rasoamanana (all AFR); Coffi Agossou and Nombàna Razafinisoa (all ILO).*

### 21.      ILO recommendation R204 on the transition from the informal to the formal economy

### 21.      ILO recommendation R204 on the transition from the informal to the formal economy

### Overview of R204 approach
- R204 recommends three ways to complete the formalization process:
  - (i) the creation of decent jobs and sustainable businesses in the formal economy;
  - (ii) the transition of workers and enterprises from the informal to the formal economy; and
  - (iii) the prevention of jobs informalization.

### Importance and cross-sectoral links
- Formalizing the economy aligns with Madagascar's Emergence Plan (Velirano 8: Decent employment for all).
- Formalization affects sectoral and specific policies including:
  - inclusive growth (improving productivity and efficiency of production units, equal opportunity for access to markets and means of production);
  - tax policies (broadening of the tax base, transparency and tax justice);
  - employment policies (promotion of decent work);
  - trade policies (integration in value chains, competition law);
  - education and health policies (abolition of child labor, improvement of scholarship rate, improvement of working conditions and women's health).

### Data, diagnostics, and labor market information
- Recognized need to account for the importance and dynamics of informality before designing policies.
- National Institute of Statistics compiling results of the 2021/2022 informal survey conducted with ILO support; timely access to this information is emphasized.
- Strengthening institutions to improve labor market information and job matching:
  - National Employment and Training Office: centralize, analyze, and disseminate employment statistics.
  - General Directorate of Employment: strengthen Public Employment Service to provide orientation, training, placement, and follow-up services.

### Labor regulation and institutional coordination
- Current Labor Code: Law No. 2003-044 of July 28, 2004; the issue of the informal economy is not considered in this law.
- ILO supported revisions to articles 1, 2 and 3 to better consider rights of informal workers.
- New Labor Code expected to be submitted to the National Assembly and Senate during the next parliamentary session.
- Suggested policy measures:
  - promote formal employment via youth entrepreneurship initiatives and strengthen existing projects (FIHARIANA, etc.);
  - reform legal and regulatory standards to conform to ratified international instruments;
  - enact legislation to facilitate transition from informal to formal economy by reducing administrative formalities and proposing incentives for IPUs to formalize;
  - broaden social protection by extending social security coverage to workers in the informal economy (at the level of the CNaPS and other related services).

### Social protection and coverage gaps
- Promotion of social security is a priority to reduce inequalities and vulnerabilities.
- Rural and self-employed workers should gain access to existing social security mechanisms, notably health coverage and retirement pension.
- Rural workers constitute 82 percent of Malagasy workers.
- Current Social Security Code: Decree No. 69-145 of April 8, 1969; coverage is limited and requires overhaul.
- Government requested ILO support to revise the Social Security Code; a roadmap is being developed for the new code to be available around 2024.
- Interim actions: explore mechanisms to extend social protection to all workers and improve occupational safety and health at enterprise level, including in informal and agricultural sectors.

### Tax policy, taxpayer awareness, and compliance costs
- Public awareness of tax law and procedures should be raised alongside enhancing tax administration quality and reducing cost of formality and compliance.
- Designing a simplified tax system accounting for informal sector characteristics and tax administration capacity is important.
- Informal sector has non neglible tax potential; digitalization offers new opportunities for taxing the informal sector.
- Suggested approach: design tax policy specific to IPUs that maximizes gains while maintaining taxation costs at an optimal level for tax administration.

### Taxation of micro-enterprises (Box 1 findings)
- Current regime:
  - Single combined tax (Impôt synthétique, IS) applies to businesses or individuals with turnover lower than MGA 200 million per year.
  - IS rate: 5 percent of businesses’ turnover with a minimum tax of MGA 16 000.
  - Deduction: 2 percent of the amount of purchases of goods and services can be deduced if invoices match the tax authority model.
  - Personnel costs deductible if subject to the personal income tax (IRSA, Impôt sur les Revenus Salariaux et Assimilés).
  - Impôt Synthétique Intermittent (ISI) targets the informal sector: withholding of 5 percent on payments to registered persons or businesses purchasing goods or services from the informal sector (rate climbs to 10 percent when the transaction implies non-residents).
- Policy observations and suggestions:
  - A 5 percent turnover tax can be significant for micro-businesses with low profit margins; reducing to 3 percent via registered purchases raises administrative burden.
  - Authorities could envisage lowering the IS rate while keeping the minimum of perception.
  - Ensure IS rate is lower than ISI rate to promote formalization.
  - Simplify procedures and digitalize declaration and payment processes to reduce compliance burdens.
  - Stabilize the regime and avoid excessive controls after formalization to build trust.

### Access to finance and investment constraints
- Alleviating financial constraints and reducing cost of financial services would support higher investment.
- Possible measures:
  - set up a national guarantee fund with subsidized rates and a start-up fund to help companies comply with regulation;
  - design and implement regulations reconciling financial stability and opening new financing channels for businesses;
  - encourage investors’ participation;
  - support private sector via a development bank and bring more resources to formal financial intermediation at lower costs.

### Key empirical and context statistics (selected)
- Rural workers: 82 percent of Malagasy workers.
- Micro-enterprise turnover threshold: MGA 200 million (about USD 50 000) per year.
- IS rate: 5 percent of turnover; minimum tax: MGA 16 000.
- ISI withholding rate: 5 percent (climbs to 10 percent for transactions involving non-residents).
- Expected agricultural food insecurity projection: 1.5 million people in emergency levels (IPC Phase 3) over April to July 2023.
- As of September 2022, 8.8 million people (about 33 percent of the population) are food insecure; 2.22 million people in the Great South and Great South-East faced emergency levels of food insecurity as of November 2022.
- Cost of the average food basket in markets of the Great South: MGA 2 013 (USD 0.45) per person per day.
- Cost of the food basket increased on average by 19 percent over the last three years.
- Madagascar was hit by 5 tropical weather events in 45 days during the 2021/2022 cyclonic season.

*Source: 1mdgea2023003 - 21.      ILO recommendation R204 on the transition from the informal to the formal economy.*

### 5.      Household’s structure, low

### 5.      Household’s structure, low

### Household structure, education, and living conditions
- More than one-third of households in the Great South have 4 to 5 members.
- About one-fourth of households have more than 7 members.
- National rural average household size: 4.3 members.
- Multidimensional poverty and the degree of deprivation are positively correlated with the number of individuals in the household.
- On average, 78.5 percent of dwellings in the ten assessed districts are made of precarious materials (sheet metal, plank and others).
- In Betroka (regional granary area) only 28 percent of dwellings are made of precarious materials.
- Less than 15 percent of the Great South population attended primary education.
- Of those who attended primary education, 35 percent dropped out of school.
- As a result: 80 percent of the regional population are very low qualified.
- About 45 percent are analphabet in the region, against 23 at the national level.
- The inactive/active ratio is about 48.4 percent in 2021.

### Diversification of household activities and shocks
- An average household resorts to more than 13 activity types to generate income over one month.
- 75 percent of households are hit by at least one natural hazard (droughts, pests and cyclones), food price or insecurity shock over 6 months.
- Nearly 84 percent of households practice agriculture.
- 37 percent of households practice livestock.
- About 32 percent of households practice trade; other activities (including mining operations and borrowing or debt) are less practiced.
- Rainfall deficit and drought account for most shocks affecting households in the ten districts, followed by rising food prices and crop damage due to pests.
- Half of the communities reported a 53 percent decrease in cultivated areas in 2021 compared to normal.
- Future production (high season) is expected to be 63 percent lower than normal.
- Harvest coverage in terms of consumption varies between 1 to 5 months.
- In half of the districts, over-indebtedness is the fourth shock experienced by households.

### Women-led households, household size, and water access
- 35 percent of the households in the Great South are led by women, compared to 24 percent at the national level.
- In some Southern regions, the share of women head of households is about twice higher than the national average.
- 37 percent of households include only one parent (separated, divorced, widowed and single), with a majority headed by women.
- Female-headed households spend relatively more on food than male-headed households and have a higher risk of being severely food insecure.
- Larger households are more likely to be food insecure.
- The responsibility of fetching water beyond the 30-minute journey time (including waiting time) falls on 95 percent of women.
- Only 4.2 percent have access to a quality water supply from an improved water source in the Great South, compared to 27.7 percent at the national level.
- Diarrheal diseases affect 18.3 percent of children aged 6–59 months in the ten districts.
- Febrile illnesses from all causes, including malaria, affect 66.2 percent of children aged 6–59 months in the ten districts.

### Energy sources, health, and productivity costs
- Direct use of wood as fuel: 76 percent in rural areas and 87 percent in the Great South.
- Acute respiratory infection affects 6.8 percent of children aged 6-59 months in the ten districts of the Deep South.
- According to the World Bank, the productivity cost of the use of fuelwood for cooking borne by women is estimated at USD 4.71 billion annually.

### Structural issues in the food value chain — Agriculture
- Climate is identified as the first obstacle to agriculture by surveyed farming households.
- The second impediment is the presence of pest; the third is the high cost of agricultural inputs and poor condition or non-existence of infrastructure (dams, irrigation canals).
- Household landholding distribution in the ten surveyed districts:
  - 45 percent operate less than 50 acres.
  - 34 percent operate between 50 to 100 acres.
  - 21 percent operate more than 100 acres.
- Less than 10 percent of farmers use certified seeds.
- Provision of seed accounts for 3.5 percent of all assistance received by households, and 34.5 percent of households received it.
- Less than half of the inhabitants in the Southern part have access to phytosanitary products.
- Farmers report causes of delays in seedings including: delayed rainfalls, lack of seeds, lack of financing, early rainfalls, lack of workforce, and other causes.
- Low mechanization: family labor predominates and lack of equipment and energy access impacts production yields.
- Fertilizers are not registered; other inputs are often unaffordable.
- Low access to water sources for irrigation forces reliance on rainfalls; short rain periods limit yields.
- Rehabilitation plans for infrastructure were penalized by an increase in the price of construction materials and transportation costs (about 44 percent in July 2022).

### Structural issues — Roads, post-harvest, and markets
- Inadequate rural road infrastructure limits access to markets and distribution of food production.
- Agricultural products for sale are often unprocessed and perishable amid high transportation time and storage needs.
- Production and service infrastructures are outdated or non-existent in some rural areas.

### Livestock and fishing
- About 62 percent of households practice livestock farming.
- Livestock generates 12.5 percent of revenues for households.
- Breeding methods remain mainly traditional.
- Fishing sector bottlenecks include insularity, climate change, lack of equipment, high price of inputs, and need for fish conservation equipment (cold rooms, transformation tools).
- In many places fish must be sold the very same day, limiting storage and export opportunities.

### Climate-related food insecurity — frequency and channels of impact
- Madagascar has been historically hit by a tropical cyclone every 0.9 years on average.
- Droughts take place every 2.7 years on average.
- Floods take place every 3 years on average.
- A typical tropical cyclone could become 18.4 percent more damaging by 2050 (Acevelo, 2016).
- Agricultural productivity in Madagascar is already less than half the global average.
- Climate change is expected to decrease agricultural production through:
  - (i) loss of cultivable land because of erosion, more intense rainfall, cyclones, and floods;
  - (ii) decline in land productivity due to more severe drought and drought-induced pests including locust outbreaks;
  - (iii) loss of labor productivity caused by extreme heat (labor productivity has already fallen by USD 95 per worker over the past 20 years).

*Source: 1mdgea2023003 - 5.      Household’s structure, low*

### 22.      The slow-moving effects of climate

### 22. The slow-moving effects of climate

### Impacts on natural capital and economic sectors
- Climate change has reduced the volume and productivity of natural capital in Madagascar's terrestrial and marine ecosystems.
- Observed ecosystem impacts include:
  - Reduced tree growth and reproduction.
  - Coral bleaching, seagrass loss, fisheries loss, and ocean acidification.
- Direct sectoral effects:
  - Harm to agriculture, fisheries, and tourism.
  - Silting of reservoir dams and irrigation canals linked to environmental degradation and erosion reduces water storage necessary for irrigation of rice crops.
- Human activities and land use:
  - Poor land use practices and land degradation exacerbate risks from extreme events and are the largest contributors to Co2 emission.
  - Agriculture contributes to 16 percent of Co2 emissions, with subsistence agriculture rapidly destroying forest and wetland carbon stocks.
  - Deforestation degrades dune fixation and generates silting of crops.
- Coastal and marine vulnerability:
  - Madagascar is highly vulnerable to coral bleaching and reef loss, affecting mangroves and coral reefs.
  - The blue economy offers large potential for food diversification and new household income sources conditional on large investments in infrastructure and equipment.

### Vulnerability, readiness, and hazards (figures referenced in source)
- Vulnerability and Readiness to Climate Change: source Notre Dame Global Adaptation Initiative, 2020 (readiness higher is better; vulnerability lower is better).
- Major climatic hazards by region: source National Adaptation Plan, 2021.
- Vulnerability to coral reef loss: Social Vulnerability index based on Reef Dependence index, Adaptive Capacity index, and exposure to reef threats (source: Resource Watch West Indian Ocean).
- Development partners’ assistance beneficiaries in 2022: 4.7 million people benefited from cash and in-kind humanitarian and development partners’ assistance for food and subsistence.

### Emergency preparedness and response
- Authorities' emergency measures:
  - Price caps on 4 main imported products (rice, oil, sugar, and cement) from April to July 2022 (without paying explicit subsidies) to contain transmission of international inflation.
  - In 2022, 4.7 million people benefited from cash and in-kind humanitarian and development partners’ assistance for food and subsistence.
- National Risk and Catastrophe Management Bureau (BNGRC):
  - Needs adequate financial and human resources to improve local crisis response.
  - Historical budget allocations were often revised down from the LFI and final amounts allocated ended up significantly lower, except for transfers in 2020.
  - LFI 2023 allocates a budget of 15.6 billion to the BNGRC and projects an increase to 19.8 billion in 2024 and 22.4 billion in 2024.
  - BNGRC is an administrative public institution under technical supervision of the Ministry of the Interior and Decentralization.

### Social safety net extension and shock preparedness (policy recommendations)
- Objectives:
  - Operationalize a flexible and responsive single registry.
  - Scale up school feeding programs.
  - Support financial inclusion.
- Recommended measures:
  - Harmonize targeting approaches and eligibility criteria; use community platforms for targeting beneficiaries; establish evidence-based triggers for shocks and a systematic response during lean/hurricane seasons.
  - Extend the social safety net to prevent negative coping strategies and asset depletion, helping households maintain access to food and essential services.
  - Further develop conditional cash transfers and social safety nets; remove financial barriers and promote health care, nutrition services and appropriate food and nutritional products.
  - Scale up food supply to schools based on local production; use school feeding programs to reach shock-prone families; provide family rations; promote school retention; develop food education and vegetable garden training.

### Strengthening preparedness and coordination
- Measures to improve preparedness and collaboration:
  - Early warning systems: establish monitoring and early warning systems on climate, hydrological, geological, vulnerability monitoring mechanisms, and health monitoring systems to detect epidemics.
  - Emergency response plans: local authorities and communities to work with humanitarian organizations to develop evacuation strategies, back-up mechanisms, and support for the most vulnerable; include prevention and management of emergency-related conflicts.
  - Integrate prevention of food security risks into climate strategies: crop diversification, improved resilience of food production systems, integrated natural resource management, education programs, and promotion of sustainable agricultural practices.
  - Programs to reduce rural vulnerability: promote food security, diversify income sources, improve access to drinking water and health care, and provide social protection mechanisms for the most vulnerable.
  - Strengthen coordination of international aid within national structures: i) partnership for research and development, ii) funding for sustainable initiatives, iii) cooperation for implementation of policies and programs to support vulnerable populations.
  - Establish regional/community grain reserves for activation during lean periods or times of shocks.

### Policies to address structural food insecurity and improve food chains
- Agricultural practices and resilience:
  - Promote sustainable and climate-smart agriculture: conservation agriculture, drip irrigation, water management systems.
  - Protect agricultural land by preventing urban expansion on agricultural land and promote sustainable land management.
  - Support smallholder farmers with training and communication for practices that preserve soil organic matter.
  - Diversify agriculture to increase crop variety and resilience.
- Food value chain and inputs:
  - Improve access to affordable fertilizers and strengthen locust control.
  - Strengthen access to agricultural services and equipment via the Agricultural Development Fund.
- Energy-Water-Food Nexus and digital innovation:
  - Rapid rural transformation project: establish hubs to provide remote communities with scalable services supported by off-grid green energy solutions.
  - Recommended off-grid green energy entry point capacity: 25kW to support drinking water supply, internet connection, digital classrooms, climate/agriculture/health information sharing, processing and conservation equipment, entrepreneurial opportunities, and access to local public administration services.
- Reduce reliance on biomass and increase reforestation:
  - Favor modern and cleaner cooking fuels and technologies to decrease deforestation, CO2 emissions, and health impacts.
  - Increase renewable energy share in the national energy mix, including for isolated grids still relying on fossil fuels, to reduce CO2 emissions, fuel costs, and exposure to international market volatility.
  - Accelerate reforestation interventions at scale (green belt, dune fixation), promote alternative energy sources, and strengthen livelihoods to ensure forest sustainability.

### Infrastructure, market, and fiscal measures
- Infrastructure investments needed:
  - Rehabilitate and develop road network, irrigation systems, electricity, and telecommunications to address root causes of food insecurity and facilitate distribution of food and cash transfers.
  - Invest in rural infrastructure including construction of water reservoirs, irrigation facilities, and rural roads to strengthen market connectivity.
- Trade and tax measures for rice sector competitiveness:
  - Gradual removal of distortive exoneration on rice imports may boost local production competitiveness.
  - Imported rice is exempt from custom duty; tax expenditure estimated at MGA 124bn (0.2 percent of 2021 GDP).
  - Other milled or semi-milled rice accounts for over 92 percent of total rice imports for 2019, 2020, and 2021.
  - Exemption of rice from domestic VAT accounts for almost three-quarters of total domestic VAT tax expenditures and amounts to 4.7 times the tax expenditure on imported rice.
  - Small producers would not be affected by removal of the VAT exemption as they fall under the VAT applicability threshold; larger cooperatives could deduct VAT on inputs from tax declarations.
  - Agricultural inputs and imported agricultural materials and equipment largely benefit from significant VAT exemptions.

### Nutrition, inclusion, and livelihoods
- Improving nutrition:
  - Improve access to nutritious and affordable food through greater local production and food supplementation programs for the most vulnerable households.
  - Promote economic inclusion via vocational training programs and microcredits to help disadvantaged populations lift themselves out of poverty and reduce food insecurity.

### Green public financial management (PFM), public investment management (PIM), and climate risk integration
- Current gaps:
  - The 2023 Budget Law (LF) does not integrate climate shocks in baseline projections nor provide a climate risk analysis to the baseline.
  - Official macroeconomic and fiscal projections do not factor in climate and climate change risks despite frequent natural disasters.
  - Growth projections reflect authorities’ objectives and are not adjusted for possible climate shocks.
  - Macroeconomic impacts of climate are mentioned only in a paragraph in the Annex of the LF among risks to the real economy.
  - LF 2023 lacks discussion on contingency plans for budget reallocation in case of severe climate events or on public policies to address the Kere (chronic food insecurity in the Great South).
  - Additional spending needs are handled reactively via supplemental budgets and emergency donor funding rather than pre-emptively through contingency measures.
  - A climate risk annex should provide a comprehensive picture of policies and financing for planning and efficient public resource management.
  - Comprehensive reporting on implementation progress and use of funds for climate mitigation and adaptation is currently lacking.
- Opportunities via PFM and PIM reforms:
  - Strengthen relations between the Ministry of Environment, Ministry of Economy and Finance, and line ministries at planning stage; mainstream climate concerns into sectoral strategies.
  - Identify infrastructure assets most vulnerable to climate change and define maintenance methodologies by sector.
  - Define a methodology to integrate climate change into ex-ante project assessments and project prioritization criteria.
  - Introduce climate budget tagging (e.g., through public investment manual) to identify and track adaptation and mitigation spending and develop a climate change annex in the annual budget.

### IMF program, financing, and investment needs
- IMF support and program features:
  - A 40-months Extended Credit Facility (ECF) arrangement supports sustaining inclusive growth, addressing long-term fragilities, maintaining macroeconomic stability, improving governance, and creating fiscal space for investment in physical and human capital.
  - Program objectives include improving budget execution, public financial management, strengthening social safety nets, and developing a shock-responsive cash transfer program.
  - Capacity development includes extensive PFM technical assistance and a long-term resident expert on budget expenditure tagging.
- Use of SDR allocation:
  - Madagascar benefitted from an SDR allocation of US$322 million on August 23, 2021, that can be used to finance the water pipeline project in the Great South and other PEM objectives related to food security, adaptation to climate change and sustainable development.
- Donor and climate financing landscape:
  - OECD climate finance database reported US$1.29 billion in climate funding committed to Madagascar between 2015 and 2019, mainly focused on agriculture, energy, and multisector sectors.
  - Bilateral and multilateral climate funds such as the European Development Fund (EDF) and the Green Climate Fund (GCF) provided approximately US$377 million (29 percent) of this funding.
- Economic case for resilient infrastructure:
  - Total damage to infrastructure from four tropical storms in 2022 assessed around USD170 million (Global Rapid Damage Estimation (GRADE) Report for Madagascar, February 2022).
  - If roads and railways had been more resilient, the damage would have been reduced by USD85 million.
  - Adaptation investment could cost between USD25 million and USD115 million depending on cost assumptions (LMIC average 5 percent; Madagascar has assumed 25 percent), and may have paid off from one year’s climate events alone.

*Source: Chapter 22, "The slow-moving effects of climate," IMF Republic of Madagascar country report.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1mdgea2023003.pdf_