Madagascar Reaches Completion Point

By Oliver Reichardt, Jubilee Research at nef

25^th October 2004

Last Wednesday Madagascar became the fifteenth country to reach completion point under the Heavily Indebted Poor Country (HIPC) Initiative[1].  They reached Decision Point in December 2000 but the original Completion Point date of December 2002 had been delayed due to political instability.  Madagascar will finally now receive debt relief of US$ 1.9 billion in nominal terms and US$836 million in net present value (NPV) terms[2].  While we welcome this reduction of Madagascar’s debt by the international community we believe more urgently needs to be done.

Despite continuous economic growth between 1994 and 2001, Madagascar is an extremely poor country with a national per capita income of around $290[3] and a GDP per capita (PPP) of $740, the seventh lowest in the world[4].  The poverty rate is 69 per cent[5] and over half the population does not have sustainable access to an improved water source.

Services account for over half of GDP which makes its economy extremely vulnerable to political and external shocks.  A 2002 political crisis sparked by a contested presidential election caused a drop in GDP of 12.7%.  Agriculture accounts for about 30% of GDP with coffee and vanilla being its main exports.  They are particularly vulnerable to exongenous shocks with two cyclones and a sharp deterioration in their terms of trade in 2004 alone.  This has led to a marked depreciation in their currency and runaway inflation in recent months.

Eighty per cent of Madagascar’s flora and fauna is unique to the island, it is a precious eco-system that is found nowhere else on earth.  Since humans first came to the island about 2,000 years ago approximately ninety per cent of the jungle has been destroyed.  What remains is now under severe threat.  People have turned to the forests to make charcoal which they can then sell to buy food – trees thousands of years old are being destroyed for a few pence in order for these people to survive.

Given the critical levels of poverty and the precarious state of the environment Jubilee Research believes that one hundred per cent debt cancellation should be granted.  After debt relief Madagascar will still pay substantial amounts in debt service - US$50.3 million in 2004, US$54.9 million in 2005 and US$69.9[6] million in 2006.  This should be forgiven as a basic human right and to allow urgent environmental regeneration.