Outlook for 2011-12

The risk of serious political instability will be high at least until presidential and parliamentary elections are held. Long-running disputes between the opposition and the unelected transitional government, Haute autorité de la transition (HAT), mean that polls are unlikely to be held before late 2011, with further delays a distinct possibility. Another major threat to stability is posed by increasing popular exasperation at the economic toll that the political crisis has exacted on the country. In view of delays to the electoral timetable, a fiscal deficit equivalent to 0.9% is now forecast in 2011 (compared with a surplus of 0.4% of GDP previously). Assuming aid flows resume in 2012 and royalties from the Ambatovy nickel-cobalt mine start to flow, a surplus of 1.2% of GDP is forecast in 2012 (previously 2.7%). After shrinking by an estimated 2% in 2010, the economy is forecast to grow by 2% in 2011, largely on the back of mining activity. The Economist Intelligence Unit expects real GDP growth of 6% in 2012, again driven by the minerals sector, although political uncertainty poses severe downside risks to this optimistic outlook. The current-account deficit is expected to shrink to US$1.8bn in 2011 (equivalent to 19% of GDP), before narrowing to US$1.6bn in 2012 (13.1% of GDP).

The political scene

The prime minister of the HAT, Camille Vital, resigned in March to comply with the "roadmap" back to democratic government. However, he was swiftly reinstated by the HAT president, Andry Rajoelina-a move that angered the opposition. The new transitional government includes four army generals and several defectors from the opposition. A failed assassination attempt on Mr Rajoelina in March underlined the strong risk of political violence in the country.

Economic policy

The government has postponed indefinitely an auction of 225 hydrocarbon exploration blocks in the country's territorial waters in the Indian Ocean.

The domestic economy

The combined impact of the domestic political crisis and high global prices for food and fuel has increased hardship for much of the population. The government's rice monitoring unit says that the retail price of this basic staple has doubled over the past two years.

Foreign trade and payments

Total aid to Madagascar has been falling, owing to the near total freeze on general budgetary support. However, aid to social sectors has actually increased substantially, reaching US$256m in 2010, compared with just US$180m in 2008.