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---

### History of the electricity sector and JIRAMA’s reforms — overview and capacity
- Around 36 percent of the population has access to electricity.
- Energy mix (population-level): 83 percent from wood and charcoal; remainder 17 percent from other sources; around 11 percent from hydrocarbons.
- Electricity production and capacity (2023/2021 figures):
  - Installed capacity totaling 718MW in 2023.
  - Installed-capacity mix: fossil fuels 53 percent, hydroelectricity 33 percent, solar energy 14 percent.
  - JIRAMA’s 2023 electricity production: 1,953 GWh.
  - Production mix (based on 2021 production numbers): heavy fuel and diesel 54 percent, hydroelectricity 45 percent, other renewable energy sources 1 percent.
- Resource potential:
  - Economically feasible potential hydroelectric power estimated at 7,800MW with only 3 percent currently used.
  - Solar potential: 2,800 hours of sun estimated annually.
  - Wind potential estimated at 2,000MW.

### Legal and institutional reform history
- JIRAMA created in 1975; sector originally governed by law 74-002 (February 4, 1974) and JIRAMA established by law 75-024 (October 1975).
- 1998: law 98-032 to privatize the sector and allow new operators (concession approach).
- 2002: rural electrification agency set up (decree 2002-1550).
- 2017: law 2017-020 to separate production, transmission, distribution/commercialization and facilitate renewable investments; in practice transmission and distribution still managed by JIRAMA and JIRAMA’s status remains unclear.

### Operational performance and technical losses
- Reliability and outages:
  - Recurrent outages: average of 6 hours of outage per day in Antananarivo in October 2024.
- Plant availability and efficiency:
  - Thermal power plants: availability factor around 45 percent (benchmarked acceptable range of 80 to 90 percent).
  - Hydroelectricity availability factor around 75 percent.
  - Fuel consumption in thermal plants: around 250 grams per kWh (reference values for similar plants between 200 and 215 grams per kWh).
- Losses and non-collection:
  - Transmission losses: 8.2 percent of production (benchmark range 5 to 7 percent).
  - Distribution losses: 22.6 percent (benchmark 9 to 10 percent); JIRAMA’s 2016 medium-term objective was 12 percent distribution losses by 2030.
  - Non-collection losses: 11 percent (benchmark 5 percent); more recent JIRAMA data suggest non-collection losses have increased to around 20 percent.
- Causes of inefficiency:
  - Lack of maintenance and investment, low thermal efficiency, high imported fuel costs, and contractual terms forcing fixed payments for declining production.

### Projects, targets and recommended production mix
- Projects under preparation: Ranomafana, Sahofika and Volobe hydroelectric projects; solar projects (e.g., FINEXPO) and another thermal power plant project.
- Recommended production targets by 2030:
  - Electricity production should be at least doubled by 2030.
  - Target production mix: 85 percent renewables (75 percent hydroelectricity, 5 percent wind energy, 5 percent solar energy).
  - Target thermal (fossil fuel) share: decrease to 15 percent.
- Loss reduction and metering:
  - Target losses around 20-25 percent of production (transmission, distribution, commercialization phases).
  - Requires broad use of smart and prepaid meters and full extension of prepaid meters in all administrations.

### Tariffs, cost recovery and fiscal impact
- Tariffs and costs (2023 figures):
  - Average price for electricity in 2023: 599 ariary per kWh (or around US$13 cents per kWh).
  - JIRAMA’s estimated total cost per kWh: twice the average price.
  - Cost breakdown in 2023: fuel expenses around 56 percent of total costs; electricity purchases from other suppliers 30 percent.
- Tariff reform adopted October 23, 2024:
  - Staggered increases over three years — 20 percent in the first year and 16 percent in the two subsequent years.
- Fiscal consequences:
  - Tariffs below cost recovery result in a high fiscal cost for the government, diverting resources from social spending and investment.

### Financial position, governance, and accountability
- Audits and financial statements:
  - 2020-22 audited financial accounts finalized in 2024 with a disclaimer opinion; external auditors working on 2023 audit.
  - Water and electricity activities are not separated in statements.
- SOE health indicators (2019-21 findings):
  - Net profit margin: -40 percent in 2021.
  - Debt to asset ratio: 160 percent in 2021.
  - Current assets over current liabilities ratio: 85 percent in 2021.
- Cash flow and arrears (2023 figures):
  - JIRAMA’s net cash flow (total revenue inflows minus total cost outflows): MGA 1,268 billion or 1.8 percent of GDP.
  - Government’s transfers to JIRAMA and selected suppliers: MGA 895 billion or 1.3 percent of GDP.
  - JIRAMA’s debt to the private sector, including arrears to suppliers, at end-2023: MGA 1,880 billion or 2.7 percent of GDP (estimation based on non-audited 2023 accounts).
  - Including debt to the State, JIRAMA’s debt would increase to: MGA 5,316 billion or around 7.6 percent of GDP at end-2023.
  - JIRAMA did not pay taxes due on employees’ wage incomes amounting to MGA 13 billion between January and August 2024.
- Government practice since 2022:
  - Issuance of special T-bills to pay for JIRAMA’s fuel requisitions and treating those payments as loans from the government to JIRAMA; transparency on T-bill conditions and characteristics needed.
- Governance concerns:
  - Reports of widespread corruption, misappropriation and theft.
  - May 2024 sentencing: former CEO and interim CEO sentenced to ten years of forced labor for abuse of office, misappropriation of public funds and money laundering.
  - Exceptional bonuses awarded in 2021 ranged from MGA 40 to 180 million.

### Sectoral and economic consequences
- System fragmentation:
  - Three interconnected networks (Antananarivo, Toamasina, Fianarantsoa) represent 80 percent of power demand; around 100 stand-alone urban networks; rural areas served by ADER.
- Impact on firms and growth:
  - Low electricity access and deficient service negatively impact firms’ productivity, economic growth and development; recovery plan finalization and implementation urgent and requiring strong executive support.

---

### Development gains from achieving 70 percent household electricity access by 2030
- Human Development Index (HDI) and distributional effects (counterfactual estimates):
  - National HDI would rise by 16 percent.
  - HDI would rise to 0.58 (from 0.49 as of 2023).
  - HDI gap between the most and least developed district would narrow by 29 percent.
  - For the least developed districts in the south, district-level HDI would rise by close to 25 percent.
  - A HDI of 0.58 would move Madagascar up by around 25 places in the global HDI ranking (everything else constant).
- IMF staff elasticity estimates:
  - A ten-percentage point rise in electricity access raises annual per capita GDP growth by between 0.4 and 0.9 percentage points.
  - If electricity access increased from current 35 percent to 70 percent by 2030, GDP per capita would be between 13 and 28 percent higher relative to the baseline after 10 years.

### Cross-country comparator findings and lessons
- SSA utility performance:
  - One third of electricity utilities in SSA encounter financial difficulties.
  - Only one in three utilities in SSA recover operating and debt-servicing costs (one in four if subsidies excluded) based on 2012-2018 UPBEAT data.
  - Fewer than half the utilities surveyed published audited financial statements; fewer than one in three had unqualified audit opinions.
- Reform features correlated with success:
  - Presence of an electricity law, a sector regulator, vertical unbundling, and private participation in asset management.
- Examples:
  - Côte d’Ivoire reduced non-technical losses and engaged early IPPs; Rwanda increased capacity (76 MW in 2009 to 225 MW in 2020) and access (6 percent in 2009 to 54 percent in March 2020).

### Recommended policy package for JIRAMA recovery and sector objectives
- Overarching objective: JIRAMA reaches financial sustainability and stops depending on government transfers; expand access and shift production mix toward renewables.
- Key actions:
  - Increase production capacity and improve production efficiency (including better monitoring of fuel stocks such as geo-filling).
  - Reduce losses via investments in maintenance, smart and prepaid meters, and network quality improvements.
  - Review tariff structure to align with recovery costs:
    - First-best: one single household tariff with targeted transfers to compensate most vulnerable households.
    - Second-best: tariff structure by consumption brackets when targeted transfers are difficult.
    - Implement an automatic indexation mechanism to keep prices in line with costs.

---

### Education — human capital, teacher supply, and learning outcomes
- Human capital and learning context:
  - Madagascar’s Human Capital Index (HCI) estimated at 0.39 in 2020.
  - Standardized test scores declined by about 19 percent between 2010 and 2020.
  - 24 percent of children of primary school age are out of school.
  - 97 percent of Malagasy children aged ten are classified as “learning poor” (could not read and understand a simple text).
  - PASEC2019: 83 percent and 78 percent of students reached the end of primary school without basic numeracy and reading skills respectively.
  - Net primary school enrollment rate: 97.9 percent in 2022.
  - Literacy rate: 80 percent in 2021.
  - Completion rate of the first cycle of secondary education: 30.2 percent in 2023.
  - Participation in pre-primary learning: 39.5 percent in 2023.
- Demographics and fiscal context:
  - Population projected to almost double from 27 million to 52 million between 2018 and 2050.
  - Working-age population projected to increase from 15 million to 33 million.
  - Public spending on education (2010-2022 average): about 2.7 percent of GDP in Madagascar; SSA average: 4.1 percent; LICs average: 13.4 percent.
  - Gap to reach SDG on education by 2030: about 8 percentage points of GDP (4.4 percent in 2020 against 12.3 percent in 2030).
  - Per-student spending gap: about US$123 (US$79.3 in 2020 versus US$201.9 in 2030).
  - Share of executed government budget to education has barely increased since 2018 and remains below the 20 percent recommended by UNICEF.

### Teacher supply, qualification and distribution
- Qualification levels and ratios:
  - Proportion of teachers with minimum required qualifications at primary level over 2014-2019: around 15.2 percent on average.
  - Student-to-qualified-teacher ratio: Madagascar 240:1 in 2019.
  - FRAM teacher numbers: rose from 13,000 in 2004 to 90,180 in 2024; FRAM teachers now represent more than 50 percent of public-system teachers.
  - At primary level: FRAM teachers (subsidized and unsubsidized) 51 percent; contractual and civil servant teachers hired and paid by the state 41 percent; private sector teachers 8 percent.
  - Over 85 percent of FRAM teachers are not qualified (lack a pedagogical diploma) according to INFP database.
- Regional disparities:
  - Student-to-qualified-teacher ratio falls below 100 in only 28 districts around the capital.
  - Student-to-qualified-teacher ratio exceeds 500 in 24 districts in the south and western parts of the country.
- Teacher skills, recruitment and supervision:
  - PASEC2019: 11 percent of teachers reach highest level in reading comprehension and 24 percent in mathematics.
  - 2021 SDI survey: proportion of teachers with minimum knowledge and skills is 3 percent in French and 8 percent in mathematics.
  - World Bank (2023): in 2023 only 3.6 percent of teachers mastered their subject content.
  - Recruitment: 41 percent of civil servant teachers and 64 percent of FRAM teachers reported they did not participate in a competitive recruitment process.
  - Supervision: just over half of teachers are adequately supervised (PASEC2019).
  - Job satisfaction (PASEC2019 and UNICEF 2023): 55 percent of teachers not satisfied with salary; 37 percent cite irregularity of pay; 24 percent cite lack of professional training opportunities. Contractual and subsidized FRAM teachers are 14 percentage points less likely to be satisfied than civil servants; unsubsidized FRAM teachers 24 percentage points less likely.

### Education outcomes and growth linkages
- Learning-adjusted years of schooling (LAYS) and comparisons:
  - Madagascar’s LAYS in 2018: 4.7 years.
  - SSA average LAYS in 2018: 5.1 years.
  - LIC average LAYS in 2018: 5.5 years.
- Growth elasticities and implications:
  - A 1-year increase in LAYS raises economic growth by 7 percentage points among LICs and countries in SSA (Text Box 2).
  - Raising Madagascar’s LAYS to the SSA average would imply a 2.8 percentage points increase in real GDP per capita growth relative to the baseline.
  - Share of working-age population expected to increase from 53 percent in 2023 to 63 percent in 2050; regression implies a 1 percentage point increase in primary education attainment yields 0.6 percentage point rise in real GDP per capita by 2050.
- Effects of improving teacher qualification:
  - A 10-percentage point increase in the share of qualified primary school teachers would raise LAYS by about 0.3 years (LICs and SSA sample).
  - Under the 7 percentage points per year LAYS-growth mapping, a 10-percentage point increase in qualified teachers is estimated to boost per capita real growth by 2.1 percentage points.
  - Doubling the share of trained teachers (from 15.2 percent toward about half of SSA/LIC levels) would raise LAYS by about 0.4 year and thus boost growth by between 2.5 to 3.1 percentage points.

### Education spending, governance, infrastructure and projected costs
- Budget execution and leakages:
  - Budget execution on decentralized technical, coaching and supervision support to teachers: 47 percent (2019 PETS survey).
  - Estimated resource leakages:
    - Civil servant teacher compensation loss rates: 11.8 percent (2018) and 8. 8 percent (2019).
    - Community teacher compensation loss rates: 28.5 percent (2018) and 23.7 percent (2019).
    - School funds loss rates: 19.1 percent (2018) and 18.4 percent (2019).
  - Teacher absenteeism (service in line with paid hours):
    - Civil servant teachers: 46.4 percent (2018) and 13.4 percent (2019).
    - Community teachers: 47.8 percent (2018) and 54.3 percent (2019).
- School infrastructure and inputs (World Bank SDI, 2021):
  - Average school access to essential infrastructure for learning: 34 percent.
  - Electricity: 0.4 percent of schools.
  - Internet: 2 percent of schools.
  - Functional and clean toilets: 8 percent of schools.
  - Potable water sources: 50 percent of schools.
  - Blackboards: 83 percent of schools.
  - Enough textbooks: 4 percent of schools.
  - Access to educational technologies: 23 percent of schools.
  - Stationery: 16 percent of schools.
  - Furniture: 23 percent of schools.
- Teacher number projections and cost estimates (UNICEF projection assumptions):
  - Primary pupils: about 4.2 million in 2023, projected to about 5.4 million in 2031 (UNICEF staff projection, assuming annual increase of 3 percent).
  - Target student-to-qualified-teacher ratio: 40 students per qualified teacher.
  - UNICEF estimate of annual cost until 2031 to reach 40:1 at primary level: MGA 181.7 billion (US$ 40.4 million) per year — described as a lower bound.
  - Primary school teacher training total cost included: MGA 15.7 million (US$ 3.5 million) per year.
  - Cumulative additional salaries: about MGA 71.8 billion (about US$ 16 million).
- Training unit cost assumptions:
  - Unit cost of initial training: MGA 600,000 (US $ 133) per teacher-student without teacher salary.
  - Unit cost of continuous training: MGA1,000,000 (US$222) per teacher.
  - Average gross monthly salary:
    - Civil servant teacher: MGA 932,000 (US$ 207).
    - Contract teacher: MGA 651,000 (US$ 145).
- Annual simulated costs (US$) for 2025–2030 (UNICEF simulation):
  - Total cost of training (each year 2025–2030): 3,488,889.
  - Total additional salary cost by year:
    - 2025: 2,551,889
    - 2026: 4,609,556
    - 2027: 6,996,556
    - 2028: 9,094,222
    - 2029: 11,481,222
    - 2030: 13,578,889
  - Total additional cost of reform by year:
    - 2025: 6,040,778
    - 2026: 8,098,445
    - 2027: 10,485,445
    - 2028: 12,583,111
    - 2029: 14,970,111
    - 2030: 17,067,778
  - Caveat: simulation is a lower bound; alternate assumptions and external estimates would change costs.

### Education policy recommendations and priorities
- Increase spending on education with improved execution and reduced leakages to support teacher work plans and school facilities.
- Strengthen financial governance across compensation flows, school funds, and school kits to reduce leakages.
- Raise number of qualified teachers through scaled initial and continuous training, absorb newly qualified teachers into contractual or civil servant posts per planning assumptions.
- Improve recruitment transparency and competitiveness; strengthen supervision and continuous professional development.
- Boost attractiveness of teaching via more competitive compensation, career progression, reduced job precarity and improved benefits.
- Target interventions to poorer, high student-to-qualified-teacher-ratio districts to reduce regional disparities.

---

### Local rice market sensitivity, production potential, and policy trade-offs
- Trade and import concentration:
  - Trade concentration: India and Pakistan accounted for 98 percent of total imported rice to Madagascar in 2022.
  - Historical trade policy events: one-off tariff increase in 2005 (average tariff rate on imported rice rose from 0 to 17.5 percent); VAT exemption on both imported and locally produced rice in place since July 2008 (previously 18 percent).
- Fiscal cost of exemptions:
  - VAT exemptions on local and imported rice estimated to amount to around 1.3 percent of GDP (1.1 percent from the former and 0.2 percent from the latter).
  - Exemption of customs duties on imported rice since 2005 estimated to cost another 0.2 percent of GDP annually.
- Elasticities and dynamic supply responses:
  - Price elasticity of supply (PES) estimated around 2 percent at a 4-to-5-year horizon.
  - Empirical response of local production to the 2005 tariff increase (percent change from 2005 baseline):
    - 2005: 0
    - 2006: 2.8%
    - 2007: 5.9%
    - 2008: 15.4%
    - 2009: 33.9%
    - 2010: 39.7%
  - Price elasticity of demand (PED): close to zero (local rice consumption inelastic to rice price).
- Yields, potential and climate risks:
  - Actual rice yield stagnated since late 2000s at around 2.75 tons per hectare.
  - FAO maximum potential yield: 11 tons per hectare.
  - If yields were 11 tons per hectare, 2023 production would be around 17.5 million metric tons (3.4 times the realized 2023 production of 5.3 million metric tons).
  - World Bank experts consider realistic improved yields to be 6 to 8 tons per hectare with improved farming systems.
  - Population projection: from 31 million in 2023 to nearly 52 million by 2050.
  - Projected local rice consumption in 2050: 7.4 million metric tons (assuming average annual consumption of 143 kg per person).
  - Climate projections:
    - Under RCP 4.5: annual potential rice yield 5 percent lower by 2050.
    - Under RCP 8.5: annual rice production would decline by 25 percent by 2080.
  - FAO projections under ideal input conditions show production could remain near 2020 baseline under RCP 4.5, but these are highly optimistic and abstract from natural disaster shocks.

### Climate-smart agriculture, hybrid rice, emissions and trade-offs
- CSA practices recommended: direct seeding, midseason drainage, residue management, improved fertilization, alternate wetting and drying (AWD), integrated rice and fish farming; System of Rice Intensification (SRI) noted for reducing water use and sometimes increasing yields.
- Hybrid rice (Box 2):
  - Pilot studies with Chinese hybrid seeds attained yields around 11 tons per hectare, but input conditions and comparability remain unclear.
  - Hybrid seeds cannot be saved and are around ten times more expensive than local seeds; require greater inputs (chemical fertilizers, water).
  - Risks: unaffordability for smallholders without subsidies, fiscal cost, crowding out local varieties, reduced crop diversity and resilience.
  - Further controlled comparisons planned (World Bank and FAO Rice+ Project field schools in Alaotra Mangoro Region at start of 2025).
- Emissions:
  - Paddy rice production responsible on average for 16 percent of agricultural methane emissions; equivalent to 4.3 percent of total agrifood system emissions.
  - IPCC GWP values: Methane 84-87 (GWP20) and 28-36 (GWP100); Nitrous oxide 289 (GWP20) and 298 (GWP100).

### Policy implications and recommendations for rice market and self-sufficiency goal
- Levelling the playing field:
  - Removing customs duty exemptions and reconsidering VAT exemptions could raise local rice prices and incentivize local production but would hit households given inelastic demand.
  - Targeted tax reform options:
    - Remove VAT exemptions on high-quality, specialty rice consumed by affluent households while maintaining exemptions for low-quality broken rice consumed by poorer households.
    - Reconsider VAT exemption design to target productivity-enhancing agricultural inputs and mechanization to farmers below a revenue threshold.
  - Implementation challenges: distinguishing rice quality for tax treatment and strengthening controls to limit evasion and misclassification.
- Complementary and supply-side measures:
  - Prioritize raising productivity on existing rice fields through improved irrigation, access to quality seeds and fertilizers, mechanization, and extension services.
  - Promote CSA practices to improve yields, climate resilience, and limit environmental impacts.
  - Enhance transport, storage, and market access; improve buffer stock management (local or foreign procurement) to manage shocks.
- Cautions on hybrid adoption: conduct further research and controlled trials before scaling; weigh fiscal, environmental and resilience implications.
- Self-sufficiency target:
  - Madagascar aims for rice self-sufficiency by 2027; success depends on productivity improvements, infrastructure, resilience to natural disasters, and careful policy sequencing.

*Italic: 1mdgea2025002-print-pdf — Selected excerpts and IMF staff analysis from the source PDF.*

### 1. History of Electricity Sector and JIRAMA’s Reforms  __________________________________ 7

### 1. History of Electricity Sector and JIRAMA’s Reforms

### Overview
- Around 36 percent of the population has access to electricity.
- Most of Madagascar’s energy provision comes from traditional sources: 83 percent from wood and charcoal; the remainder 17 percent from other sources, with around 11 percent coming from hydrocarbons.
- Electricity production in 2023: installed capacity totaling 718MW; fossil fuels represented 53 percent of installed capacity, hydroelectricity 33 percent, and solar energy 14 percent.
- Economically feasible potential hydroelectric power is estimated at 7,800MW with only 3 percent currently used.
- Solar potential: 2,800 hours of sun estimated annually. Wind potential estimated at 2,000MW.

### Background and legal reform history
- JIRAMA created in 1975; at creation the sector was governed by law 74-002 (February 4, 1974) and JIRAMA established by law 75-024 (October 1975).
- 1998: law 98-032 passed to privatize the sector and allow entry of new operators (concession approach).
- 2002: rural electrification agency set up (decree 2002-1550).
- 2017: law 2017-020 passed to separate production, transmission, distribution/commercialization and facilitate renewable investments; in practice transmission and distribution are still managed by JIRAMA and JIRAMA’s status remains unclear.

### Assessment of JIRAMA’s issues — Production and reliability
- Recurrent outages: average of 6 hours of outage per day in Antananarivo in October 2024.
- JIRAMA’s 2023 electricity production: 1,953 GWh.
- Production mix (based on 2021 production numbers): heavy fuel and diesel 54 percent, hydroelectricity 45 percent, other renewable energy sources 1 percent.
- Thermal power plants: availability factor around 45 percent (benchmarked acceptable range of 80 to 90 percent).
- Hydroelectricity availability factor around 75 percent.
- Fuel consumption in thermal plants: around 250 grams per kWh (reference values for similar plants between 200 and 215 grams per kWh).
- Causes of inefficiency: lack of maintenance and investment, low thermal efficiency, high imported fuel costs, contractual terms forcing JIRAMA to pay fixed amounts for declining electricity production.
- New projects under preparation: Ranomafana, Sahofika and Volobe hydroelectric projects; other solar projects (e.g., FINEXPO) and another thermal power plant project.

### Assessment of JIRAMA’s issues — Losses and non-collection
- Transmission losses: 8.2 percent of production (benchmark range 5 to 7 percent).
- Distribution losses: 22.6 percent (benchmark of 9 to 10 percent); includes technical and non-technical losses. JIRAMA’s 2016 medium-term objective was 12 percent distribution losses by 2030.
- Non-collection losses: 11 percent (benchmark 5 percent); more recent JIRAMA data suggest non-collection losses have increased to around 20 percent.
- Drivers of losses: lack of maintenance, reinforcement and extension efforts, illicit connections, meter-reading refusals, exemptions, delays in development projects.

### Assessment of JIRAMA’s issues — Tariffs and fiscal impact
- Average price for electricity in 2023: 599 ariary per kWh (or around US$13 cents per kWh).
- JIRAMA’s estimated total cost per kWh: twice the average price (tariffs far from cost recovery).
- Cost breakdown in 2023: fuel expenses around 56 percent of total costs; electricity purchases from other suppliers 30 percent.
- Tariff reform adopted October 23, 2024 by the Council of Ministers: staggered increases over three years — 20 percent in the first year and 16 percent in the two subsequent years.
- Fiscal cost: tariffs below cost recovery result in a high fiscal cost for the government, diverting resources from social spending and investment.

### Assessment of JIRAMA’s issues — Financial position and governance
- JIRAMA audited financial accounts: 2020-22 audited financial accounts finalized in 2024 with a disclaimer opinion; external auditors working on 2023 audit.
- Water and electricity activities are not separated in statements.
- SOE health check tool over 2019-21 findings:
  - Net profit margin: -40 percent in 2021.
  - Debt to asset ratio: 160 percent in 2021.
  - Current assets over current liabilities ratio: 85 percent in 2021.
- Commercial revenue covers only half of exploitation costs; the remainder is financed by subsidies, debt, or accumulation of arrears.
- Governance issues: reports of widespread corruption, misappropriation and theft. In May 2024, former CEO and interim CEO sentenced to ten years of forced labor for abuse of office, misappropriation of public funds and money laundering. Exceptional bonuses awarded in 2021 ranged from MGA 40 to 180 million.

### Operational and sectoral consequences
- Low electricity access and deficient service negatively impact firms’ productivity, economic growth and development, making finalization and implementation of JIRAMA’s recovery plan urgent and requiring strong executive support.
- System fragmentation: three interconnected networks covering Antananarivo, Toamasina, Fianarantsoa representing 80 percent of power demand, around 100 stand-alone urban networks, and rural areas served by the rural electrification development agency (ADER).

*Source: 1mdgea2025002-print-pdf - 1. History of Electricity Sector and JIRAMA’s Reforms — https://www.imf.org/-/media/files/publications/cr/2025/english/1mdgea2025002-print-pdf.pdf*

### Box 1. History of Electricity Sector and JIRAMA’s Reforms (concluded)

### Box 1. History of Electricity Sector and JIRAMA’s Reforms (concluded)

### History and Reforms of JIRAMA
- JIRAMA’s financial difficulties started in the 1980s after the costly installation of two hydroelectric power plants (Andekaleka and Namorona), leading to lack of maintenance and deterioration of power plants.
- Financial situation worsened in the 1990s with tariffs set below cost recovery and irregular adjustments.
- Over 2006-09, financial situation significantly improved, notably with tariff increases which helped improve JIRAMA’s profitability.
- Situation deteriorated again from 2009 following a sudden reduction in tariffs; profitability continued to decline due to significant losses (technical, non-technical, commercialization) and increased use of thermal production to meet demand.
- JIRAMA resorted to government subsidies to pay for fuel and electricity purchases from private producers.

Reform and investment programs:
- PAGOSE (launched 2016, World Bank support) aimed at:
  - improving planning and financial sustainability;
  - strengthening JIRAMA’s operational performance and governance;
  - improving electricity reliability;
  - improving coordination between JIRAMA and the Ministry.
- LEAD project (2019-24) to increase electricity access for households, businesses, and health centers.
- DECIM project (2023-2028) financing:
  - hybridization of JIRAMA thermal power plants supplying isolated grids with solar PV technology, battery storage, and associated equipment;
  - deployment of smart-grid and smart-metering technologies;
  - strengthening, densifying and extending climate-resilient distribution grids and connecting additional customers;
  - feasibility, affordability and other relevant studies.
- Expected outcomes of investments: improve and expand electricity access, contribute to improving JIRAMA’s financial situation, increase sustainability of the systems and reduce GHG emissions.

Sources cited in box: « Etude sur l’Economie Politique de la réforme du secteur de l’Energie », Dev2E, August 2022 ; 2017 Cour des Comptes report.

*Fiscal Impact*

### Fiscal Impact
- JIRAMA incurs a deficit every year, partly financed by government transfers.
- 2023 figures:
  - JIRAMA’s net cash flow (total revenue inflows minus total cost outflows): MGA 1,268 billion or 1.8 percent of GDP.
  - Government’s transfers to JIRAMA and selected suppliers: MGA 895 billion or 1.3 percent of GDP.
  - JIRAMA did not pay taxes due on employees’ wage incomes amounting to MGA 13 billion between January and August 2024.
- JIRAMA’s debt to the private sector, including arrears to suppliers, at end-2023:
  - MGA 1,880 billion or 2.7 percent of GDP. (Estimation based on JIRAMA’s 2023 non-audited financial accounts; derived by adding loans and financial debts from non-current liabilities to short-term debt and accounts payable from current liabilities, excluding debt to the State.)
- Including debt to the State, JIRAMA’s debt would increase to:
  - MGA 5,316 billion or around 7.6 percent of GDP at end-2023.
- Government practice started in 2022:
  - issuance of special T-bills to pay for JIRAMA’s fuel requisitions and treating those payments as loans from the government to JIRAMA; more transparency needed on T-bill conditions and characteristics.

### Impact on Business Competitiveness
- Electricity is the second biggest constraint to competitiveness reported by businesses in Madagascar (World Bank Enterprise Survey, 2022; 386 businesses surveyed).
  - Access to finance considered a constraint by 26 percent of businesses surveyed.
  - Electricity reported as an impediment by 17 percent of businesses.
- Cross-country comparisons (comparator group: “near fragile” countries in SSA):
  - 17 percent of firms in Madagascar report electricity as their biggest obstacle to doing business (comparator group average: 12 percent).
  - 52 percent of businesses report experiencing electrical outages (comparator group average: 73 percent).
  - For businesses experiencing outages, average losses due to outages represent an average of 26 percent of their annual sales (well above comparator group).
  - Number of days to obtain an electrical connection upon application in Madagascar: 73 days on average (higher than all countries in comparator group).
  - Firms owning or sharing a generator: 17 percent in Madagascar (comparator group average: 54 percent).

### Impact on Firm Productivity
- Madagascar’s average revenue-based total factor productivity (TFPR) is lower than that of peer countries.
- Descriptive evidence indicates a negative relationship at the firm level between TFPR and frequency of power outages.
- Supporting evidence from other countries:
  - Allcott et al. (2016): electricity shortages lowered productivity by 1.5 percent for the average manufacturing plant in India.
  - Fisher-Vanden et al. (2015): electricity shortages raised production costs by 8 percent on average for Chinese firms.

### Impact on Economic Growth
- Electricity availability directly impacts economic growth as a factor of production and indirectly via commercial activity at night, reduced indoor air pollution, and reduced time collecting firewood.
- Literature and empirical findings:
  - Best and Burke (2018): a 10 percentage point increase in electricity capacity per capita could increase GDP per capita growth by between 0.6 and 1.1 percentage points over a ten-year period.
  - Back-of-the-envelope implication from Best and Burke: were Madagascar’s electricity capacity 10 percentage points higher, annual GDP per capita could have been 9 percent greater after a ten-year period.
- IMF staff estimates using a similar empirical strategy:
  - A ten-percentage point rise in electricity access raises annual per capita GDP growth by between 0.4 and 0.9 percentage points.
  - If electricity access in Madagascar increased from current 35 percent to the objective of 70 percent by 2030 (PGE target), GDP per capita would be anywhere between 13 and 28 percent higher relative to the baseline after 10 years.

Box 2 (methodology note):
- Regression specification follows Best and Burke (2018) using average annual growth of GDP per capita over a decade and percentage of population with electricity access; results over two decades for 168 countries (2001-2010, 2010-2019).
- From regression: a one percentage point increase in share of population with electricity access significantly raises average annual per capita GDP growth anywhere between 0.04 and 0.09 percentage points.

### Impact on Human Development Index (HDI)
- Madagascar’s HDI has stagnated between 0.49 and 0.50 for the last ten years, placing the country in the category of “low human development” (UNDP).
- Madagascar has increasingly lagged behind its peers in SSA.
- Electricity access is expected to impact all facets of HDI (life expectancy, expected years of schooling, GNI per capita).
- Sub-national variation (district level):
  - Example: Toamasina I had HDI just under 0.66 in 2019; Benenintra had HDI around 0.37.
  - Gap in HDI between most and least developed districts has stagnated at around 0.34 since 2013.
- Causal estimate using instrumental variables (following Dinkelman (2011)):
  - A 10-percentage point increase in the share of households with reliable electricity access would raise HDI at the national level by 1.3 percentage points.

Box 3 and Box 4 (data and methodology notes):
- Sub-national HDI at district level from Sherman et al. (2023) using satellite imagery and machine learning; period focused on 2013 to 2019 to abstract from pandemic years.
- Electricity access estimates from Min et al. (2024) based on average yearly measures of luminosity at night; aggregated to district-level percentages of households with electricity access and fraction of nights lit.
- IV strategy uses land gradient (slope) of a district as instrument for electricity access; controls include time-varying population at district level; robustness checks include average and maximum slope, joint instrument usage, and Durbin-Wu-Haussman test of overidentifying restrictions (instruments not rejected as exogenous).

*Source: 1mdgea2025002-print-pdf - Box 1. History of Electricity Sector and JIRAMA’s Reforms (concluded), IMF staff estimates, World Bank Enterprise Survey (2022), Sherman et al. (2023), Min et al. (2024), Best and Burke (2018), Dinkelman (2011).*

### 20.      If    the authorities’ aim of 70 percent household electricity access by 2030 were

### If the authorities’ aim of 70 percent household electricity access by 2030 were achieved

### Development gains from increased electricity access
- National HDI would rise by 16 percent.
- The HDI gap between the most and least developed district would narrow by 29 percent.
- For the least developed districts in the south, district-level HDI would rise by close to 25 percent under the counterfactual where the electricity access objective is achieved.
- At the national level, HDI would rise to 0.58 (from 0.49 as of 2023), placing Madagascar on par with countries such as Cameroon.
- As of 2023, Madagascar’s HDI stood at 0.49, ranking 177th out of 192 countries. A HDI of 0.58 would move the country up by around 25 places in the global HDI ranking, everything else constant.

*Source: IMF staff estimates and national statistics.*

### Comparison with other Sub-Saharan African (SSA) electricity sectors
- One third of electricity utilities in SSA encounter financial difficulties.
- Only one in three utilities in SSA recover their operating and debt-servicing costs (one in four if subsidies are excluded), based on 2012-2018 UPBEAT data.
- Fewer than half the utilities surveyed published their audited financial statements; fewer than one in three had unqualified audit opinions.
- Improvements in cost recovery tend to result from reductions in non-technical losses or from sharp increases in capacity.
  - Example: Côte d’Ivoire reduced non-technical losses (fraud and other unmetered consumption).
  - Example: Rwanda increased generating capacity from 76 MW in 2009 to 225 MW in 2020 and expanded access from 6 percent in 2009 to 54 percent in March 2020; also reduced system losses through better monitoring of large customers and information systems.
- Successful electricity sector reforms are correlated with:
  - The presence of an electricity law,
  - A sector regulator,
  - Vertical unbundling,
  - Private participation in asset management.
- Côte d’Ivoire performance highlighted: early engagement in IPPs (1994) and successful privatization through a concession contract of Compagnie Ivoirienne d’Electricité.

### Recommendations for Madagascar’s electricity sector (JIRAMA recovery and sectoral objectives)
- Overarching objective: JIRAMA to reach financial sustainability and no longer be dependent on government transfers; also expand electricity access and shift production mix towards more renewables.
- Increase production capacity, efficiency, and expand access:
  - Electricity production should be at least doubled by 2030.
  - Improve production efficiency by reducing fuel needed to produce electricity, including through better monitoring of fuel stocks (geo-filling).
- Shift the production mix toward renewables:
  - Target production mix: 85 percent renewables (75 percent hydroelectricity, 5 percent wind energy, 5 percent solar energy).
  - Target thermal (fossil fuel) share: decrease to 15 percent.
  - Potential hydroelectric power: estimated at 7,800MW (large share with little storage capacity).
  - Potential solar resource: 2,800 hours of sun estimated annually (more expensive than hydroelectricity and tends to supply outside peak hours).
  - Potential wind energy: estimated at 2,000MW.
- Reduce losses:
  - Target losses around 20-25 percent of production (transmission, distribution, commercialization phases).
  - Requires broad use of smart and prepaid meters and full extension of prepaid meters in all administrations.
  - Investments in maintenance to improve network quality are crucial.
- Review the tariff structure:
  - Tariffs should be in line with recovery costs (operational, distribution, commercialization, and investment costs).
  - First-best approach: one single household tariff with targeted transfers to compensate most vulnerable households.
  - Second-best approach (when targeted transfers are difficult): tariff structure by consumption brackets.
  - Implement an automatic indexation mechanism to keep prices in line with costs.

### Education and human capital context (relevant cross-sectoral considerations)
- Current and historical indicators:
  - Madagascar’s Human Capital Index (HCI) was estimated at 0.39 in 2020.
  - SSA average HCI in 2020: 0.40; low-income countries (LICs) average: 0.37.
  - Standardized test scores declined by about 19 percent between 2010 and 2020 and are barely above the minimum score of 300.
  - 24 percent of children of primary school age are out of school.
  - 97 percent of Malagasy children aged ten are classified as “learning poor” (could not read and understand a simple text).
  - PASEC2019: 83 percent and 78 percent of students reached the end of primary school without basic numeracy and reading skills respectively.
- Systemic education performance:
  - Only 1 in 3 students completes primary school.
  - Only 60 percent of those completing primary continue to middle school.
  - Of students entering middle school, only 60 percent complete it, and just under 60 percent of graduates start high school.
  - Net primary school enrollment rate: 97.9 percent in 2022.
  - Literacy rate: 80 percent in 2021.
  - Completion rate of the first cycle of secondary education: 30.2 percent in 2023.
  - Participation in pre-primary learning: 39.5 percent in 2023.
- Demographics and fiscal space for education:
  - Madagascar population projected to almost double from 27 million to 52 million between 2018 and 2050.
  - Working-age population projected to increase from 15 million to 33 million.
  - Public spending on education (2010-2022 average): about 2.7 percent of GDP in Madagascar; SSA average: 4.1 percent; LICs average: 13.4 percent.
  - Gap to reach SDG on education by 2030: about 8 percentage points of GDP (4.4 percent in 2020 against 12.3 percent in 2030).
  - Per-student spending gap: about US$123 (US$79.3 in 2020 versus US$201.9 in 2030).
  - Share of executed government budget to education has barely increased since 2018 and remains below the 20 percent recommended by UNICEF.

*Italic: IMF staff analysis based on national statistics, UPBEAT, PASEC, and related sources.*

### 8.      The number of qualified teachers is severely inadequate. A quick comparison with peer

### 1mdgea2025002 — The number of qualified teachers is severely inadequate

### Teacher supply and qualification levels
- Over the period 2014-2019, the proportion of teachers with the minimum required qualifications at the primary school level stood at around 15.2 percent on average.
- Comparative benchmarks:
  - SSA countries: 79.4 percent
  - LIC countries: 76.1 percent
- Student-to-qualified-teacher ratio:
  - Madagascar: 240:1 in 2019
  - This ratio is "far above" the LIC and SSA average (exact LIC/SSA averages not provided in text).
- FRAM and teacher workforce composition:
  - From 2004 to 2024, FRAM teacher numbers rose from 13,000 to 90,180.
  - FRAM teachers now represent more than 50 percent of teachers in the public education system.
  - At the primary level, FRAM teachers (subsidized and unsubsidized) make up 51 percent of teachers; contractual and civil servant teachers hired and paid by the state form 41 percent; private sector teachers make up 8 percent.
  - Over 85 percent of FRAM teachers are not qualified (i.e., lack a pedagogical diploma) according to the INFP database.

### Regional disparities and classroom congestion
- Substantial heterogeneity across districts in student-teacher ratios:
  - Student-to-qualified-teacher ratio falls below 100 in only 28 districts around the capital.
  - Student-to-qualified-teacher ratio exceeds 500 in 24 districts in the south and western parts of the country.
- Poorer districts in the south-west have substantially higher student-to-teacher ratios than wealthier districts around the capital and in the north-east.

### Teacher skills, supervision, and recruitment
- Teacher competence and skills:
  - According to PASEC2019, only 11 percent of Malagasy teachers reach the highest level of the skills scale in reading comprehension and 24 percent do so in mathematics.
  - According to the 2021 SDI survey, the proportion of teachers with minimum knowledge and skills is 3 percent in French and 8 percent in mathematics.
  - According to World Bank (2023), in 2023 only 3.6 percent of teachers in Madagascar mastered their subject content.
- Recruitment and supervision:
  - 41 percent of civil servant teachers and 64 percent of FRAM teachers surveyed reported that they did not participate in a competitive recruitment process.
  - Just over half of teachers are adequately supervised (PASEC2019).
- Teacher job satisfaction (PASEC2019 and UNICEF 2023):
  - From PASEC2019, 55 percent of teachers are not satisfied with their salary level; 37 percent complain about irregularity of pay; 24 percent find that professional training opportunities are lacking.
  - UNICEF 2023: contractual and subsidized FRAM teachers are 14 percentage points less likely to be satisfied than civil servant counterparts; unsubsidized FRAM teachers are 24 percentage points less likely to be satisfied.

### Education quality, LAYS, HCI, and economic growth links
- Madagascar’s educational attainment and learning:
  - Working-age population with completed primary school: under 20 percent (Madagascar highlighted as one of the lowest in sample).
  - Madagascar’s LAYS in 2018: 4.7 years
  - SSA average LAYS in 2018: 5.1 years
  - LIC average LAYS in 2018: 5.5 years
- Estimated effects of education quality on growth (Text Box 2):
  - A 1-year increase in LAYS raises economic growth by 7 percentage points among LICs and countries in SSA.
  - Among LICs, a 0.1 unit increase in HCI raises economic growth by about 0.2 percentage point.
  - Raising Madagascar’s LAYS to the SSA average would imply a 2.8 percentage points increase in real GDP per capita growth relative to the baseline.
- Primary education attainment and demographic dividend (Text Box 1):
  - Share of working-age population expected to increase from 53 percent in 2023 to 63 percent in 2050.
  - Regression estimates imply that a 1 percentage point increase in primary education attainment would yield an additional 0.6 percentage point rise in real GDP per capita by 2050.
  - At current primary school completion among the working age population (around 20 percent), the rise in share of working-age population in the next two decades would have no significant impact on growth.
  - If primary school attainment among the working age population were to meet the SSA average (around 60 percent), the projected 5 percentage points increase in working age population in Madagascar would raise annual real GDP per capita growth by 4 percentage points.

### Impacts of improving teacher qualification on LAYS and growth
- Teacher training effects (Text Box 3 and summary):
  - A 10-percentage point increase in the share of qualified primary school teachers would raise LAYS by about 0.3 years (LICs and SSA sample).
  - Using the Text Box 2 finding that a 1-year increase in LAYS raises growth by 7 percentage points, a 10-percentage point increase in qualified teachers is estimated to boost per capita real growth by 2.1 percentage points.
  - Doubling the share of trained teachers in primary school (from current level at 15.2 percent to reach about half of the levels seen in SSA and LICs) would raise LAYS by about 0.4 year and thus boost growth by between 2.5 to 3.1 percentage points in Madagascar.

### Bottlenecks constraining teacher quality and training
- Identified constraints:
  - Insufficient number of qualified teachers due to lack of resources for training.
  - Non-transparent and non-competitive recruitment processes.
  - Poor support and supervision of teachers.
  - Entry-level and continuous training are inadequate: initial training quality weakened by insufficient and ill-adapted training structures; continuous training is irregular and has little impact due to lack of resources.
  - Heavy reliance on largely unqualified FRAM teachers, many of whom face late salary payments and lower pay (subsidized FRAM teachers paid 60 percent lower on average compared to civil servant counterparts, for 9 months in a year).

### Implications for policy and priorities (inferred from analysis and boxes)
- Prioritize scaling-up and improving teacher training to raise share of qualified teachers, with measurable targets (e.g., 10-percentage point increases) because of strong estimated payoffs to LAYS and GDP per capita growth.
- Address recruitment transparency and competitiveness to improve teacher quality.
- Strengthen supervision and continuous professional development to raise teacher pedagogical and subject-matter competence.
- Reduce overreliance on unqualified FRAM teachers or upgrade their qualification through structured programs, recognizing their large share of the workforce and the fiscal and administrative complexity of subsidies.
- Target interventions to poorer, high student-to-qualified-teacher ratio districts (south and west) to reduce regional disparities in access to qualified teachers.

*Source: IMF staff analysis and estimates in “REPUBLIC OF MADAGASCAR — INTERNATIONAL MONETARY FUND” (excerpts from provided content).*

### 20.      Education spending, including on teachers, remains low, poorly executed, and subject

### 1mdgea2025002-print-pdf - 20.      Education spending, including on teachers, remains low, poorly executed, and subject

### Education spending and financial governance
- Budget execution on resources allocated to the decentralized technical, coaching and supervision support to teachers in schools: 47 percent (2019) — based on the 2021 PETS survey.
- Public Expenditure Monitoring Survey (UNICEF 2021) identified financial governance issues across three expenditure flows: (i) compensation for civil servant teachers and community teachers; (ii) school funds; and (iii) school kits.
- Estimated resource leakages:
  - Civil servant teacher compensation loss rates: 11.8 percent (2018) and 8. 8 percent (2019).
  - Community teacher compensation loss rates: 28.5 percent (2018) and 23.7 percent (2019).
  - School funds loss rates: 19.1 percent (2018) and 18.4 percent (2019).
- Teacher absenteeism (indirect loss of service provision):
  - Civil servant teachers providing teaching services in line with paid hours: 46.4 percent (2018) and 13.4 percent (2019).
  - Community teachers providing teaching services in line with paid hours: 47.8 percent (2018) and 54.3 percent (2019).

### Infrastructure and classroom inputs (quality of learning environment)
- Average school access to essential infrastructure for learning: 34 percent (World Bank SDI, 2021).
- School access to utilities and sanitation:
  - Electricity: 0.4 percent of schools.
  - Internet: 2 percent of schools.
  - Functional and clean toilets: 8 percent of schools.
  - Potable water sources: 50 percent of schools.
- Availability of classroom learning tools:
  - Blackboards: 83 percent of schools.
  - Enough textbooks: 4 percent of schools.
  - Access to educational technologies: 23 percent of schools.
  - Stationery: 16 percent of schools.
  - Furniture: 23 percent of schools.
- Note: “There is considerable variation from region to region in terms of infrastructure availability.”

### Teacher numbers, qualification targets, and projected costs
- Primary school pupil projections and teacher requirement assumptions:
  - Primary pupils: about 4.2 million in 2023, projected to about 5.4 million in 2031 (UNICEF staff projection, assuming an annual rate of increase of 3 percent).
  - Target student-to-qualified-teacher ratio: 40 students per qualified teacher.
- UNICEF estimate of annual cost until 2031 to reach 40:1 at primary level: MGA 181.7 billion (US$ 40.4 million) per year — described as a lower bound.
  - Includes primary school teacher training total cost: MGA 15.7 million (US$ 3.5 million) per year.
  - Cumulative additional salaries: about MGA 71.8 billion (about US$ 16 million).
- Assumptions used in teacher training cost projection (Box 5):
  - Primary school enrollment increasing at an annual rate of 3.02 percent.
  - 14,500 teachers require continuous training annually and 2000 require initial training at the INFP annually.
  - The number of civil servants and contract teachers currently in post remains constant (numerical replacements in the state budget for retirements/others).
  - INFP continues to produce 2,000 teachers every two years who are absorbed into the public sector within 12 months.
  - All qualified teachers from continuing education will be recruited as contractual teachers.
  - Unit cost of initial training: MGA 600,000 (US $ 133) per teacher-student without teacher salary.
  - Unit cost of continuous training: MGA1,000,000 (US$222) per teacher.
  - Total annual cost of training (given unit costs and numbers): around US$3.5 million.
  - Average gross monthly salary used in calculations:
    - Civil servant teacher: MGA 932,000 (US$ 207).
    - Contract teacher: MGA 651,000 (US$ 145).
- Annual simulated costs (US$) shown for 2025–2030:
  - Total cost of training (each year 2025–2030): 3,488,889.
  - Total additional salary cost by year:
    - 2025: 2,551,889
    - 2026: 4,609,556
    - 2027: 6,996,556
    - 2028: 9,094,222
    - 2029: 11,481,222
    - 2030: 13,578,889
  - Total additional cost of reform by year:
    - 2025: 6,040,778
    - 2026: 8,098,445
    - 2027: 10,485,445
    - 2028: 12,583,111
    - 2029: 14,970,111
    - 2030: 17,067,778
- Caveat: UNICEF staff note that alternate assumptions (and other external estimates such as World Bank figures) would change costs; the simulation is a lower bound.

### Educational outcomes and macroeconomic implications
- Educational outcomes are declining; Madagascar is experiencing a learning crisis with students lacking minimum skills in reading and mathematics.
- Empirical implication of improved primary education: could add 0.6 percentage point to economic growth by 2050 (based on projected growth in working age population).
- Increasing the number of qualified teachers to the average level among peers could raise per capita real GDP growth by around 2.5 to 3.1 percentage points in Madagascar.

### Policy recommendations and priorities
- Increase spending on education, with improved execution and reduced leakages, to enable implementation and monitoring of teacher work plans and support/control of school facilities.
- Strengthen financial governance to reduce the identified leakages across compensation flows, school funds, and school kits.
- Raise the number of qualified teachers through:
  - Increased training (initial and continuous) consistent with projected needs.
  - Recruitment strategies to absorb newly qualified teachers as contractual or civil servant teachers per assumptions.
- Boost attractiveness of the teaching profession (longer-term reforms):
  - Increase competitiveness of teacher compensation.
  - Improve career progression structures.
  - Alleviate job precarity and improve medical benefits.
  - Promote meritocratic selection and effective deployment of teachers.
- Complement teacher-targeted measures with broader education reform:
  - Improve infrastructure, availability of teaching materials, and school feeding programs to enhance the learning environment.

*Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1mdgea2025002-print-pdf.pdf*

### 4.      The local rice market is sensitive to changes in import prices and quantity. Domestically

### 4. The local rice market is sensitive to changes in import prices and quantity.

### Market sensitivity and trade exposure
- Domestically produced rice often incurs higher production costs due to limited mechanization and input usage, making it less competitive in price compared to imported rice.
- Trade concentration: trade from India and Pakistan accounted for 98 percent of total imported rice to Madagascar in 2022, leaving the country vulnerable to policies enacted by its trading partners (e.g., the 2023 Indian export ban).
- Historical policy events affecting imports:
  - One-off tariff increase in 2005: average tariff rate on imported rice rose from 0 to 17.5 percent in year 2005.
  - VAT exemption on both imported and locally produced rice in place since July 2008 (previously at 18 percent).

### Fiscal policies and their costs
- VAT exemptions on local and imported rice are estimated to amount to around 1.3 percent of GDP (1.1 percent from the former and 0.2 percent from the latter).
- Exemption of customs duties on imported rice since 2005 is estimated to cost another 0.2 percent of GDP annually.
- These exemptions have maintained affordable rice prices for consumers but impose high fiscal costs and divert government resources from other public spending needs.

### Elasticities of rice demand and supply (empirical findings)
- Identification strategy: exploit the 2005 tariff shock (affecting imported rice prices) and the 2008 VAT exemption (affecting both imported and domestic prices) and estimate dynamic multipliers using local projections (LP).
- Price elasticity of supply (PES):
  - "The price elasticity of supply (PES) is estimated around 2 percent at a 4-to-5-year horizon."
  - Empirical response of local production to the 2005 tariff increase (percent change from 2005 baseline):
    - 2005: 0
    - 2006: 2.8%
    - 2007: 5.9%
    - 2008: 15.4%
    - 2009: 33.9%
    - 2010: 39.7%
- Price elasticity of demand (PED):
  - "The price elasticity of demand (PED) is close to zero." Local rice consumption is inelastic to rice price, consistent with rice being the main staple.

### Production potential, yields, and climate risks
- Actual and potential yields:
  - Madagascar rice yield has stagnated since the late 2000s at around 2.75 tons per hectare.
  - FAO country-level estimates of maximum potential yield: 11 tons per hectare.
  - If yields were at the 11 tons per hectare potential, rice production in 2023 would have been around 17.5 million metric tons, 3.4 times the realized 2023 production level of 5.3 million metric tons.
  - World Bank experts consider realistic improved yields to be 6 to 8 tons per hectare at best (with improved farming systems).
- Demand projections and land use:
  - Population projection: from 31 million in 2023 to nearly 52 million by 2050.
  - Projected local rice consumption in 2050: 7.4 million metric tons (projections assume an average annual consumption of 143 kg of rice per person).
- Climate change projections (FAO-based scenarios):
  - Under RCP 4.5: annual potential rice yield would be 5 percent lower by 2050.
  - Under RCP 8.5: annual rice production in Madagascar would decline by 25 percent by 2080.
  - FAO projections under ideal input conditions (irrigation, fertilizer, mechanization) show that rice production could remain near 2020 baseline under RCP 4.5, but these are highly optimistic and abstract from natural disaster shocks.
- Adaptation potential:
  - Access to irrigation and sustainable fertilizer use, plus adoption of heat-resistant rice varieties, could mitigate climate impacts; studies suggest rice production in East Africa could rise by as much as 25 percent due to CO2 fertilization and lower cold sterility if such measures are adopted.

### Key policy implications and recommendations
- Levelling the playing field:
  - Removing customs duty exemptions and reconsidering VAT exemptions on imported rice could raise local rice prices and incentivize local production, though price increases would hit households given inelastic demand.
  - A balanced approach is warranted given the trade-off between boosting local supply and protecting household welfare.
- Targeted tax reform options:
  - Remove VAT exemptions on high-quality, specialty rice consumed by affluent households while maintaining exemptions for low-quality broken rice consumed by poorer households to protect vulnerable households while spurring competitiveness for locally produced non-broken rice.
  - Reconsider VAT exemption design to enable targeted VAT exemptions on productivity-enhancing agricultural inputs and mechanization.
  - Target VAT exemptions on farming inputs to farmers with revenues below a given threshold to focus benefits on smaller-scale plantations where mechanization and fertilizer use are low.
- Implementation and enforcement challenges:
  - Distinguishing high- and low-quality rice for tax treatment could be challenging and would require strengthening controls to limit tax evasion and misclassification.
  - Broader constraints to raising local production include inadequate infrastructure, limited irrigation investment, insufficient access to quality seeds, fertilizers, and machinery, lack of coordination among government agencies, bureaucratic delays, limited agricultural extension services, traditional farming practices, and frequent climate shocks (droughts, cyclones, erratic rainfall) that undermine investment incentives.
- Complementary measures to support production and resilience:
  - Prioritize raising productivity on existing rice fields through improved irrigation, access to quality seeds and fertilizers, mechanization, and extension services.
  - Promote sustainable agricultural practices (e.g., SRI, SRA, permaculture) while addressing adoption barriers such as labor perceptions, lack of tools, lack of organic fertilizer, inadequate fast-growing seeds, technical knowhow, and financial liquidity constraints for smallholders.

*Source: IMF staff analysis in chapter section "The local rice market is sensitive to changes in import prices and quantity."*

### 18.      Intra-country changes in agricultural suitability in the face of climate change may

### Intra-country changes in agricultural suitability in the face of climate change may further complicate the achievement of Madagascar’s self-sufficiency goal

### Projected spatial shifts in rice suitability
- Under RCP 4.5, the projected suitability index for wetland rice cultivation is expected to:
  - increase in the north and east of the country;
  - decline in the south west over the coming decades.
- Time slices presented: 2011-2040 and 2041-2070 (Figure 10).
- Implications noted:
  - Adapting to shifting rice cultivation suitability while accommodating population growth and competing land use needs (including biodiversity conservation) will be challenging.
  - An adequate legal framework for land use management is required to address intra-country shifts.

### Physiological and CO2 effects on rice
- Higher CO2 concentration, assuming heat-resistant rice species and adequate irrigation, raises the rate of photosynthesis and promotes rice plant growth.
- Cold-induced sterility in rice plants in East Africa typically occurs in the highlands when temperatures fall below 22 degrees Celsius.

### Climate-Smart Agriculture (CSA) practices for rice cultivation
- Madagascar’s second Nationally Determined Contribution (NDC) identifies rice farming and cultivated soils as contributors towards agricultural GHG and recommends initiatives including:
  - climate-smart agriculture,
  - organic agriculture,
  - Integrated Resilient Rice Models (MIRRs),
  - conservation agriculture,
  - monitoring and technological capacity-building mechanisms.
- Ministry of Agriculture and Livestock measures to boost local rice production include:
  - adoption of high-yield hybrid rice seeds from China,
  - improved access to fertilizer,
  - increase in allotted land for rice cultivation.
- Cautions:
  - Need to consider secondary socio-economic and environmental impacts.
  - Rice cultivation practices should encourage prudent water and fertilizer use without sacrificing yield given methane and nitrous oxide emissions from flooded paddy fields and long-term adverse impacts of chemical fertilizers on soil fertility and the environment.
- CSA practices and on-farm techniques to reduce rice paddy emissions include:
  - direct seeding,
  - midseason drainage,
  - residue management,
  - improved fertilization,
  - alternate wetting and drying (AWD),
  - integrated rice and fish farming.
- System of Rice Intensification (SRI), originated in Madagascar in the 1980s:
  - reduces agricultural water use in addition to reducing GHG emissions;
  - has maintained, and sometimes increased, rice yields.
- Note on applicability:
  - Some CSA practices may be less suitable in lowland stepped rice fields where irrigation water supply is cascading and difficult to control at the plot level.

### Hybrid rice: potential, limitations, and risks (Box 2)
- Background:
  - Hybrid rice developed in 1974 by Yuan Longping; crossbreeding leads to heterosis (“hybrid vigor”).
  - Some hybrid strains in Hunan province studies reached yields of more than 15 tons per hectare.
  - Hybrid varieties are generally palatable and substitutable with non-hybrid varieties.
- Madagascar experience and data gaps:
  - Since a 2018 south-south cooperation agreement with China, adoption of hybrid rice is part of national strategy.
  - Pilot studies in Madagascar with Chinese hybrid rice seeds attained yields of around 11 tons per hectare.
  - Data on inputs used for these results are not available; no study has compared yields of local and hybrid varieties under the same conditions.
  - Pilot studies have typically been conducted under ideal input conditions, while local yields are often measured under non-controlled settings; yield gains from hybrid rice are thus unclear.
- Economic and environmental constraints:
  - Hybrid seeds cannot be saved and replanted; seeds must be newly procured each season.
  - Hybrid rice seeds are around ten times more expensive than local rice seeds.
  - Hybrid rice requires greater inputs including chemical fertilizers and water, with environmental implications.
  - Likely unaffordable for small-scale farmers without generous government subsidies, which could weigh heavily on the government budget.
  - Widespread adoption could crowd out local varieties, reduce crop diversity, and lower resilience to diseases, pests, and extreme climatic shocks such as cyclones and floods.

### Greenhouse gas emissions from rice cultivation
- Rice production contributes notably to methane (CH4) and nitrous oxide (N2O) emissions.
- IPCC Global Warming Potential (GWP) values reported:
  - Methane: 84-87 (GWP20) and 28-36 (GWP100).
  - Nitrous oxide: 289 (GWP20) and 298 (GWP100).
- Paddy rice production estimates:
  - Responsible, on average, for 16 percent of agricultural methane emissions;
  - Equivalent to 4.3 percent of total agrifood system emissions.
- Mechanisms:
  - Flooded fields create anaerobic conditions for methanogens that release methane during organic matter decomposition.
  - Nitrous oxide arises from nitrification (aerobic) and denitrification (anaerobic) microbial soil processes; over-application of fertilizers exacerbates N2O emissions.

### Financing, carbon markets, and incentives
- Policy and financing incentives rewarding low-emission practices could open access to climate finance, including carbon finance.
- Example cited: bilateral agreement between Ghana and Switzerland on Internationally Transferred Mitigation Outcome (ITMO) to purchase carbon credits from emission reductions from rice cultivation (UNDP 2022).

### Conclusion: productivity, markets, and policy trade-offs
- Key empirical findings:
  - Local rice supply displays positive price elasticity, rising significantly when rice price increases, albeit with several years lag.
  - Rice demand is inelastic; policies that raise rice prices (import tariffs, VAT increases) may erode consumer welfare and must weigh impacts on local production and food prices.
  - Supply-side policies that increase productivity could raise local production without spiking rice prices.
  - Rice yields in Madagascar are far below potential and, under right input conditions, could be substantially improved to meet self-sufficiency goals.
- Remaining constraints and risks:
  - Poor market access and storage, and natural disasters (cyclones, drought, locusts) would hamper self-sufficiency even if productivity improves.
  - Poor transport infrastructure limits market access, disincentivizes productivity investments, and prevents meeting demand.
  - Improvements to transport and storage of rice buffer stocks (procured locally or abroad) would help manage these challenges.
- On the self-sufficiency goal and hybrid rice:
  - Madagascar aims to reach rice self-sufficiency by 2027.
  - Further studies on the efficacy and unintended effects of hybrid rice adoption are needed given:
    - elevated cost of hybrid seeds,
    - greater need for chemical fertilizers,
    - lack of comparative studies under comparable input conditions,
    - risk of rice monoculture and reduced resilience.
  - At the start of 2025, the World Bank, in collaboration with the FAO, the Rice+ Project will install field schools in the Alaotra Mangoro Region to compare hybrid rice performance with high-yielding local varieties at various levels of organic and chemical fertilizations; farmers will be invited to choose varieties and cultivation methods best suited to their farms.
- Policy recommendation summary:
  - Prioritize CSA practices that improve yields, climate resilience, and limit negative environmental impacts.
  - Conduct further research and controlled comparisons before scaling hybrid rice seed use.
  - Balance rice self-sufficiency objectives with macro-economic, fiscal, and environmental sustainability considerations.
  - Enhance transport, storage, and market access to complement productivity-enhancing measures.

*Source: IMF staff estimates and FAO projections.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1mdgea2025002-print-pdf.pdf_