Madagascar

Humanitarian Situation in Madagascar 20 Jul 2009

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CONTEXT

The outlook for Madagascar remains grim, as the on-going political uncertainty and global economic crisis continue to have a negative impact on fiscal revenues and on the economy as a whole. The combined impact of job losses, curtailment of development aid and reduction in basic social services is steadily eroding people's ability to cope, most particularly amongst the urban poor. According to the World Bank updates , the Malagasy economy is headed towards a severe recession. Both the International Monetary Fund (IMF) and the World Bank predict that the full negative impact of the crisis will be felt in the second semester of 2009, with a further serious crunch in early 2010, when the steady erosion in tax revenues and development funding will kick in.

The brunt of the impact is still expected to be felt by the urban population, and close monitoring remains crucial if a potential humanitarian crisis is to be averted. At present, most basic social services continue to function. However, with no political resolution in sight, a serious shortage of government funds is foreseen by the end of the year. Health sector partners warn that particular attention must be paid to the on-going availability of basic medicines, petrol and electricity, as any shortfalls in this area could affect critical interventions such as the maintenance of the cold chain. Another major concern is the cessation of donor funds for major initiatives such as the procurement of obstetric care kits.

Nevertheless, a large fraction of the Malagasy economy has been isolated from the current turmoil so far. The agricultural sector, which employs about 75% of the population, depends more on climatic and other factors, including public policy, not directly linked to international markets . A joint crop assessment carried out by FAO and WFP in twelve agricultural areas across the country where production is traditionally affected by drought or cyclones, showed a general improvement of the food security situation. Markets are well stocked and prices reasonable, with some decrease noted in the prices of basic foodstuffs. Preliminary findings reveal an overall increase of 17% in national production of rice for 2008/2009 as compared to 2007/200 - although in some rice-granary areas of the northeast and the southwest, the production has decreased up to 33% due to late and insufficient rainfall. Similarly for maize, despite the poor harvest reported in the drought-prone south, the overall national production has increased by 22%, particularly in the Vakinankaratra and the Betsiboka Regions, both of which had been supported by the Millenium Challenge Account project. However, due to the political situation, MCA funds are now frozen. It is therefore doubtful that these production gains will be sustainable over the next harvest season.

The volume of domestic rice being sold is up from the previous year, indicating that Madagascar could be close to achieving self-sufficiency for rice. This year's good rice harvest has therefore helped to reduce pressures on poor households, both through self-consumption in rural areas and lower prices in urban areas . This being said, the next challenge is around the corner: investment and planting decisions have to be taken at a time when lower producer prices might reduce rice intensification efforts by small commercial producers. This risk is exacerbated by the government's intervention in subsidizing prices (at a time of over-supply), and eliminating tariffs as well as Value Added Tax (VAT) on imported rice (at times of declining international prices), thereby favouring imports at the expense of local production . Investment and planting decisions may be affected as a result, and compounded by other factors linked to the socio-political crisis, such as security concerns, dysfunctonality of one of the major wholesalers, and reduced availability/higher prices of fertilizers, seeds and other agricultural inputs. Furthermore, the positive gains noted by the crop assessment are deemed to be temporary, given that producers are currently selling their produce without constituting reserve stocks (either of food and/or seeds).

In any event, the crux may be that, even if a political accord is struck in the near future and donors release funding, revenue levels will have decreased so significantly that the financial capacity of both government and individuals will remain severely affected. Indeed, the ability of Malagasy households to weather shocks is limited . The precarious nature of life in Madagascar means that people recover with difficulty, and over a considerable period of time. Based on previous experience, it is estimated that over half of households (53%) take over a year to recover, and an additional 23% take six months to a year.

Grave concerns therefore remain regarding the on-going deterioration of the situation, which could be either a gradual slide, as economic hardships deepen and coping strategies are exhausted; or a sudden implosion, should frustrations and despair reach breaking point.