The government will broadly continue to target fiscal stability and discipline as the most effective means of coping with the loss of budgetary support from donors, which may be restored in 2012 if elections with broad legitimacy are held in 2011 as we tentatively forecast. However, we nonetheless expect the HAT to resort increasingly to populist measures as it tries to protect living standards and garner support ahead of the polls. The freeze on capital investment applied in most of 2009-10 is set to end as the HAT announces vote-courting initiatives such as new roads, schools and hospitals. A shift in the balance of spending power away from sector ministries in favour of the presidency is a sign of this increased politicisation of expenditure decisions.

Looking beyond the immediate post-crisis economic reconstruction that is likely to dominate the agenda in 2012 (assuming that the country returns to constitutional rule by then), Madagascar will need to develop a strategy for more effective growth and development over the long term. Tourism, minerals, agriculture and labour-intensive industries such as textiles are likely to receive most government investment. To boost the country's long-term growth potential, heavy investment in health, education, infrastructure and telecommunications is expected. We expect a rapid return to close co-operation with the IMF and the World Bank, both of which would favour strengthening the monetary policy independence of the central bank, Banque centrale de Madagascar (BCM).