The interim government, Haute autorité pour la transition (HAT), has continued to keep the wheels of state turning, but only through tight spending controls that have brought an almost total halt to public capital investment. This policy has so far proven effective. In its latest edition of its Regional Economic Outlook for Africa, the IMF estimates that the fiscal deficit in 2010 was a mere 1.7% of GDP (the Economist Intelligence Unit estimates the deficit at 2.1%, by contrast). There is little room for flexibility, however. Until there is a political settlement that restores Madagascar's access to budget aid the authorities have little choice but to continue this hand-to-mouth strategy.

Moreover, the financial pressures are intensifying: the IMF forecasts that the deficit will grow to 2.4% of GDP in 2011 and 6.4% next year. This trend is in line with many other Sub-Saharan African countries, but with the crucial difference that most of them have access to external budget support, and it is this that renders such large deficits sustainable. By contrast, we forecast a more positive fiscal performance, on the assumption of a return to political normality by the end of 2011. We expect the deficit to shrink to 0.9% of GDP in 2011 and to turn to a surplus of 1.2% of GDP in 2012. If a solution to the political crisis is achieved, the taps of international aid are likely to reopen and private investment should increase in response to stability.