Abstract
Madagascar’s governance indicators weakened significantly during the five-year transitional period following the military coup in 2009. Governance indicators that generally were on par with middle-income countries in sub-Saharan Africa regressed to close to the average of fragile sub-Saharan African countries by 2013. After the return of constitutional order in 2014, the new government started to address governance weaknesses through the introduction of new laws and broad-based public financial management (PFM) reforms. Going forward, the priority is to ensure that the anti-corruption legislation meets international good practices, to implement existing laws and regulations fairly and effectively, and to sustain the momentum of PFM reform.2
Introduction
The evolution of Madagascar’s institutions during the last twenty years can be divided into three distinct periods. Several ambitious institutional reforms were launched during the first period (2002–08). The second period (2009–13) was characterized by a rapid and generalized institutional decay following a military coup in early 2009. The third period (starting in 2014) began when a new democratically elected government assumed power and took steps to rebuild public institutions. While the reforms starting in 2014 stopped the general deterioration documented in responses to perception surveys, those responses have barely improved in recent years. A likely reason is that continued reforms and time are needed to rebuild credibility in public institutions, as trust in Madagascar’s institutions has been lost.
Most of the theoretical literature, as well as case studies and micro evidence, suggests that poor governance and corruption severely impede economic performance.3 Corruption reduces social welfare by diverting resources for private gain; by weakening institutions, reducing government legitimacy, and increasing the risk of conflict; by eroding the business climate and lowering the quantity and quality of investment; and by sapping fiscal stability. Corruption weakens the state’s capacity to raise revenue as well as its other core functions. Higher public spending is less likely to lead to better outcomes in countries with poor governance. Corruption reduces the efficiency of public spending, and higher spending will thus have limited positive effects in countries that are rated as very corrupt or as having a very ineffective bureaucracy.4 Based on an index measuring the perception of the control of corruption, IMF staff have estimated that if Madagascar could reduce corruption back to the level it had reached in 2005 (prior to the period of institutional decay), annual growth would, all else equal, be 0.5–0.8 percentage points higher, a significant amount of lost wealth when considering the compounding effect (IMF 2017).
In the following sections, this chapter gives a few reasons for the rapid institutional decay that started in 2009, summarizes the institutional reforms that have been implemented since 2014, and discusses the results of the reforms based on performance evaluations and perception surveys. The chapter also makes a few recommendations on reform priorities going forward.
2009–13: A Costly Period of Institutional Decay
Prior to the military coup in 2009, many ambitious institutional reforms to improve governance had been launched. Madagascar signed the United Nations Convention against Corruption (UNCAC) in 2003; the independent anticorrup-tion authority with investigative powers (Bureau Indépendant Anti-Corruption, BIANCO) was established in 2004; a special group of anticorruption prosecutors and judges (Chaîne Pénale Economique et Anti-Corruption, CPEAC) was also established in 2004; and the financial intelligence unit (SAMIFIN) was founded in 2008. In addition, the organic budget law adopted in 2004 was followed by a PFM reform package.
The years following the military coup in 2009 were characterized by generalized institutional decay, increasing corruption, and stalled momentum for reform. Notwithstanding the reforms launched after 2002, governance indicators that were on par with middle-income sub-Saharan African countries deteriorated and had approached the average of fragile sub-Saharan African countries by 2014. In terms of governance as measured by Transparency International, no sub-Saharan African country regressed more than Madagascar over 2006–16 (Figure 9.1). While governance improved slightly among low-income countries, Madagascar fell back on all aspects of governance (control of corruption, government effectiveness, political stability, regulatory quality, rule of law, and voice and accountability).
Low-Income Countries in Sub-Saharan Africa: Transparency International Corruption Index (2006 and 2016; higher = more corruption)
Source: Transparency International.Low-Income Countries in Sub-Saharan Africa: Transparency International Corruption Index (2006 and 2016; higher = more corruption)
Source: Transparency International.Low-Income Countries in Sub-Saharan Africa: Transparency International Corruption Index (2006 and 2016; higher = more corruption)
Source: Transparency International.What explained this rapid deterioration in governance? An interaction of several factors created a fertile ground for growing corruption:
Political culture: Corruption has challenged Madagascar’s political system for a long time. It is rarely a common program or ideology that unites party members. Instead, political parties depend on wealthy individuals who use the parties to maintain power through the distribution of favors (Box 9.1). Large-scale development projects have in the past been “white elephants in the service of grand corruption” (International Crisis Group 2010, p. 16). While Madagascar’s economic system gradually changed from a centrally planned economy to a market economy starting in the 1990s, the political culture remained relatively constant, with a state that many perceive to be authoritarian and to favor a small group of people. It is thought-provoking that several events prior to Madagascar’s 2009 crisis reinforced the perception that the state was not impartial (International Crisis Group 2010).
Lack of legitimacy: The interim government that assumed power in 2009 dissolved Parliament and the Senate, ruled by decrees, and appointed the 22 heads of regions, who were normally directly elected. The interim government was never recognized by the international community.
Large informal economy: Madagascar has a large informal economy with high usage of cash and limited financial deepening, which makes it more difficult to track and control corrupt transactions.
Lack of judicial independence: The independence of Madagascar’s anticor-ruption bodies has been undermined by the executive’s control over them (Transparency International 2014). Allegations of widespread corruption and executive interference in the Malagasy judiciary, including CPEAC, have been common.5 The relatively independent anticorruption authority (BIANCO) with investigative powers was lacking a similarly independent court that could turn its investigations into effective prosecutions and convictions. The experience of anticorruption agencies (like BIANCO in Madagascar) is that they have not been very successful in most countries. Effective law enforcement requires a generally honest bureaucracy and judicial system (Voigt, Field, and van Aaken 2008).
Weak and underfunded institutions: Starting from a situation with limited fiscal resources, following the 2009 military coup Madagascar became subject to international sanctions, which further reduced available resources. Aid fell from about 35 percent of government finances in 2008 to about 15 percent in 2012. Civil servants and the general population looked for other means of subsistence, and corruption became more generalized. Also, (largely) development-partner-financed anticorruption agencies were deprived of funding, and for several years the auditor-general (cour des comptes) did not receive the fiscal resources required to be effective.
Taxonomy of Corruption in Madagascar
Corruption, defined as the abuse of public office for private gains, is often divided into three main categories in Madagascar:
Petty corruption: People perceive petty corruption to be a frequent feature in interactions with the administration, the police, the gendarmerie, and the judicial system. A large majority of the population believes that some civil servants are cor-rupt.1 This form of corruption has always been present in the Malagasy context.
Grand (political) corruption: The political system is based on patron-client relations and informal networks. Political parties serve as a tool to maintain influential individuals in power by using favors. Some politicians, in turn, misallocate public resources or create red tape to ensure that resources are transferred to specific individuals.
Trafficking: Madagascar’s weak central government and long and inadequately monitored coastline make it vulnerable to trafficking. The weakening of the rule of law created a fertile ground for illegal logging and trafficking in rare woods and smuggling in illegal mining, gemstones, and protected flora and fauna, such as turtles. There are also reports of men, women, and children who are subjected to trafficking and forced labor (US Department of State 2016).
Fiscal management faced significant challenges:
Corruption weakened the state’s capacity to raise revenue and discharge its other core functions. The culture of compliance was weakened, and tax evasion increased. While other fragile countries in sub-Saharan Africa had improved their tax and customs collections to about 13 percent of GDP by 2013, collections in Madagascar declined from 10.3 percent of GDP in 2008 to 8.0 percent of GDP in 2013. The level of development was not enough by itself to explain the low revenue collections. Other countries with a comparable GDP per capita had significantly higher tax revenue collections (IMF 2015).
Weak revenues and waning aid flows forced sharp expenditure cuts, targeting public investment and social spending, but also goods and services. Additional budgetary pressures came from subsidized fuel prices, losses at the state-owned utility company (JIRAMA), and financial imbalances at the civil service pension fund. PEFA assessments based on data for 2008 and 2014 concluded that the general control and management of public expenditure had deteriorated.6 The government also accumulated a significant stock of budgetary arrears to domestic suppliers, and the central bank became undercapitalized because of financing of quasi-fiscal spending.
Weaknesses in governance also manifested themselves in other forms. Traffic in rosewood and precious stones, smuggling of rare and protected species, corruption among customs and tax officials, drug smuggling, and kidnapping were symptoms of more generalized corruption. Because of the weakening of institutions, activities such as money laundering through real estate purchases and trafficking in precious stones, to cite just two examples, were spreading and could not easily be punished by the legal system. At the same time, lack of information (for example, an inadequate property registry), imperfect tax and bank records, and limited international cooperation were obstructing the use of domestic and foreign information to tackle financial crime. Between 2004 and 2017, the courts only tried four cases of suspected money laundering, and this resulted in two convictions.
2014: The Return of Constitutional Order
The democratically elected government that assumed power in 2014 took the following steps to rebuild public institutions, strengthen governance, and fight corruption:
A new initiative, the National Strategy to Fight Corruption, 2015–2025, was launched to put in place an effective rule of law by strengthening state capacities, sanctioning corruption, and reducing risks and opportunities for corruption (Republic of Madagascar 2015a). The strategy aimed to (1) strengthen anticorruption legislation, (2) increase the independence and resources of the public anticorruption agencies, (3) develop an information system to track all legal anticorruption cases, and (4) improve the integrity of the judicial system. The new anticorruption legislation was intended to bring Madagascar closer to international standards, and several important laws have been passed in recent years (Box 9.2).
In PFM, the new government put in place an immediate action plan limited to 21 priority actions, and many reform plans and strategies were prepared by all the sectoral ministries and directorates of the finance ministry. A list of PFM assessments during 2014–16 illustrates the needs (Table 9.1).
Anticorruption Institutions and Legislation in Madagascar
New laws passed in recent years have strengthened the legal framework and established new institutions with the purpose of fighting corruption more effectively:
The Anti-Corruption Law (2015) is essential for the prevention and detection of the laundering of the proceeds of corruption. The law makes modifications or adjustments to the mechanisms for preventing corruption, including a more specific definition of corrupt actions and a requirement for senior officials and politically exposed persons to declare their assets.
The Law on Anti-Corruption Courts/Centers (2016) establishes specialized and independent tribunals. Evaluations had concluded that the existing court, the CPEAC lacked effectiveness and independence. The first anticorruption court was opened in Antananarivo in June 2018.
The Law on International Cooperation (2017) ensures that anticorruption agencies can effectively participate in international cooperation.
The Law on Anti-Money Laundering/Combating the Financing of Terrorism (AML/ CFT) (2018) requires that financial and nonfinancial institutions carry out customer due diligence and report suspicious activity. The law also establishes new administrative and criminal sanctions.
The Law on Asset Recovery (2019) ensures that judicial authorities can freeze, seize, or confiscate illegally acquired assets.
Key Anticorruption Institutions
Source: Author’s summary.Key Anticorruption Institutions
Source: Author’s summary.Key Anticorruption Institutions
Source: Author’s summary.Major PFM Assessments Conducted during 2014–16
Major PFM Assessments Conducted during 2014–16
| Name | Organization | Date |
|---|---|---|
| Public Expenditure and Financial Accountability (PEFA) Assessment | PEFA | 2014 |
| Debt Management Performance Assessment (DEMPA) | World Bank | 2014 |
| Elaboration of Medium-Term Expenditure Frameworks for Six Ministries | European Union | 2014 |
| Tax Administration Diagnostic Assessment Tool (TADAT) | World Bank, IMF | 2015 |
| Formulation of a Medium-Term Budget | IMF | 2016 |
| Public Investment Management Assessment (PIMA) | AFRITAC South, IMF, World Bank | 2016 |
| Evaluation of the Procurement System (MAPS) | African Development Bank, World Bank | 2016 |
| Institutional Audit of Control Bodies | European Union | 2016 |
| Data Quality Assessment | IMF | 2016 |
Major PFM Assessments Conducted during 2014–16
| Name | Organization | Date |
|---|---|---|
| Public Expenditure and Financial Accountability (PEFA) Assessment | PEFA | 2014 |
| Debt Management Performance Assessment (DEMPA) | World Bank | 2014 |
| Elaboration of Medium-Term Expenditure Frameworks for Six Ministries | European Union | 2014 |
| Tax Administration Diagnostic Assessment Tool (TADAT) | World Bank, IMF | 2015 |
| Formulation of a Medium-Term Budget | IMF | 2016 |
| Public Investment Management Assessment (PIMA) | AFRITAC South, IMF, World Bank | 2016 |
| Evaluation of the Procurement System (MAPS) | African Development Bank, World Bank | 2016 |
| Institutional Audit of Control Bodies | European Union | 2016 |
| Data Quality Assessment | IMF | 2016 |
The domestic tax administration was performing far below international best practice (Republic of Madagascar 2015b). Low tax collections were the result of noncompliance and tax exemptions. About 600 so-called free-zone companies were exonerated from payment of profit tax during their first five years and later paid a reduced profit tax of 10 percent. An indication of the size of these benefits is that the free-zone companies generated 9 percent of the turnover covered by Madagascar’s large taxpayer unit in 2013, but their corresponding share of tax collections was 2 percent.
In addition, the tax and customs administrations developed medium-term strategies and action plans to improve their efficiency and effectiveness. Within the tax administration, the aim was to improve tax compliance and fight corruption more effectively by refocusing limited staff resources on real challenges and compliance risks. Key areas with revenue potential and measures to recover missing payments of tax and duties included (1) establishing systems to identify all taxpayers and determine their tax liabilities, (2) making the best use of modern technologies to ease payment of taxes, (3) making compliance as easy as possible through adequate taxpayer services, (4) estimating the potential tax base (and thus the amount of tax evasion), and (5) establishing an adequate penalty structure to deter tax evasion. To identify taxpayers, it is crucial to coordinate the databases used by different bodies (tax administration, customs, pension providers) and to make a complete annual reconciliation between, on the one hand, taxes paid, recovery of tax arrears, and new tax arrears, and on the other, inflows to the consolidated revenue fund.
Customs aimed to move from strictly transaction-based controls to greater use of post clearance audits (PCAs). Customs administrations that are focused on transaction-based controls often inspect a significant share of imported goods, and thus long delays at the border occur frequently and there is often room for corrupt practices to grow and flourish. For example, the customs in Madagascar’s main port, Toamasina, inspected about half of all containers that passed through the port in 2014. In comparison, PCAs use a more comprehensive and holistic evaluation (including checks of bank statements and contracts) for the calculation of duties and taxes to be paid. Goods are released upon arrival at the port, and clearance is completed and duties paid later after the PCA, which typically takes the form of periodic and cyclic audits, usually at the premises of the importer.
To improve spending efficiency, the authorities launched reforms to strengthen all aspects of budget and expenditure management. Such measures included improving the budget process, investment and debt management, transparency and efficiency of public procurement, cash management (including implementation of the treasury single account), improving the quality of reporting and statistics, and strengthening internal audit and inspection bodies. Measures to strengthen the budget process focused on (1) forecasting fiscal revenue and spending based on consistent macroeconomic projections, (2) adopting and presenting a clear budget strategy with a medium-term (three-year) perspective, (3) establishing transparent procedures with clear directives for collection of inputs from line ministries, and (4) presenting a timely and comprehensive budget to the legislative assembly as input for debate before approval.
The reforms aimed to make the Ministry of Finance the engine of change and to transform the ministry from just a manager of public funds to the leader of Madagascar’s budgetary and financial strategy. The ministry would (1) take charge of the knowledge-sharing among line ministries and coordinate the reform process; (2) develop the capacity for budget analysis and results-based management, giving it a new and more strategic role in monitoring performance; and (3) ensure that the budget was consistent with the economic strategy of the government.
Public investment had fallen and was insufficient to support economic growth and reduce poverty. Public investment was crowded out during the transition period and amounted to only 2½ percent of GDP by 2013, with the result that the stock of public capital was deteriorating and the infrastructure deficit was growing. The estimated efficiency of public investment was also less than the efficiency of public investment for the average low-income country. In response, the new government elaborated a national development plan for the period 2015–19 and development partners pledged project funding amounting to about 50 percent of GDP in 2016. Ministries were instructed to program their spending over three years to ensure consistency between planned investment projects and their ministerial strategies and to start new investment projects only if full financing was available. A ceiling for indebtedness and loan guarantees was added to the budget law based on a regularly updated medium-term debt strategy. The authorities also established an organization (OCSIF) for coordinating and monitoring of both public and private investment projects and their financing. In addition, the authorities improved the framework for management of public-private partnerships (PPPs). A PPP unit attached to the ministry in charge of infrastructure became responsible for promoting PPPs and validating the technical studies carried out by line ministries (IMF 2019).
Weaknesses in public procurement had been exploited. While Madagascar had a strong legal framework for public procurement, numerous public contracts had been awarded without competitive bidding, and the public had limited access to procurement documents (Global Integrity 2016). A revised public procurement code issued in 2017 strengthened the principles of competition and transparency. The National Public Procurement Commission (CNM) was separated from the regulatory authority. The contracting authority became obliged to draw up a public procurement plan to be approved by CNM before the start of the fiscal year (with any subsequent modification or update of this plan to be allowed under specific conditions only). A new procedure with increased competition through more transparent publication of procurement information replaced the previous procedure, which had focused more on price comparisons. The mandate of staff responsible for public procurement was limited to three years.
The system for the control and audit of fiscal spending was in urgent need of repair. Control mechanisms had eroded and were close to nonexistent. The internal monitoring of actual service delivery was inadequate with, for example, no collection of performance data from primary schools or basic health centers during the transition period (2009–13). The budget review act covering spending in 2008 was transmitted to the auditor-general with a long delay in November 2013—four years and eleven months after the end of the year to be audited. At the end of 2013, the last budget review act examined by the parliament covered data on actual spending in 2006. The new government took actions to restore the control and monitoring system.
Reforms of the central bank aimed to increase its independence and reduce the risk that previous misconduct would be repeated. The government in place during the transition period had used the central bank to finance quasi-fiscal spending, and thereby eroded the central bank’s governance and financial autonomy. The new government recapitalized the central bank by securitizing its claims on the central government. The new Central Bank Act adopted in 2016 strengthened the bank’s independence, including by tightening limits on central bank lending to the government and mandating timely recapitalization in the event of new losses, and the central bank reinforced its audit oversight and control environment.
The Results (So Far)
The implementation of the National Strategy for the Fight against Corruption, which started in 2015, has improved the framework for the repression of corruption. New laws and decrees have been adopted, more transparency has reduced room for corrupt activities, and the general public is more aware of corruption challenges today.7 A civil society that is better organized and with somewhat higher access to public financing has also enhanced the fight against corruption (UNDP 2020). Tax and customs revenue collections have improved.
That said, reforming public institutions is a complex and difficult task, and time is needed to reap the full benefits of these efforts. While the government has implemented broad-based measures, the visible results still seem limited. Notwithstanding new laws, the general public appears suspicious about the judicial system. Ta x collections have increased but remain below the average of low-income countries and fragile states, and below Madagascar’s estimated tax potential. Reforms do not seem to have had a strong positive impact on the delivery of public services and control of corruption so far. The COVID-19 pandemic has also created challenges. Despite the authorities’ stated willingness to align their priorities to improved governance and the fight against corruption, the COVID-19 pandemic delayed the finalization and publication of the updated national anticorruption strategy and progress in reforms to public financial management.
Rule of Law and the Judicial System
Perception data confirm lingering widespread distrust of the judicial system. The Worldwide Governance Indicator (WGI) on rule of law captures perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence. Starting from a position typical of a sub-Saharan African middle-income country in 2008, Madagascar’s score had fallen to slightly above that of a sub-Saharan African fragile country by 2013. While this was followed by some improvements for a few years, the score measuring the confidence in the rule of law has been decreasing again in recent years and reached a new low in 2019 (Figure 9.2). Likewise, the percentage of respondents who trust the courts of law had fallen from an already low 43 percent in 2005 to 29 percent by 2015. While data from 2018 indicated a slight improvement, Madagascar remained well below the sub-Saharan African average.
Sub-Saharan Africa: Indicators of Judicial Performance
Sources: Afrobarometer database; and Worldwide Governance Indicators.Note: Based on a 95 percent confidence interval, Madagascar’s score on rule of law was in the range of -0.73 to -1.18 in 2019.Sub-Saharan Africa: Indicators of Judicial Performance
Sources: Afrobarometer database; and Worldwide Governance Indicators.Note: Based on a 95 percent confidence interval, Madagascar’s score on rule of law was in the range of -0.73 to -1.18 in 2019.Sub-Saharan Africa: Indicators of Judicial Performance
Sources: Afrobarometer database; and Worldwide Governance Indicators.Note: Based on a 95 percent confidence interval, Madagascar’s score on rule of law was in the range of -0.73 to -1.18 in 2019.Some observers caution that the new anticorruption legislation ratified in recent years is being unraveled. While new anticorruption courts were expected to be established in all six provinces, only the courts in Antananarivo and Mahajanga were operational in 2020. A bill to reform the anticorruption courts is also under discussion. The National Assembly is proposing major revisions in the legislation, including barring the anticorruption courts from dealing with cases of economic and financial offences, and dismantling the provision that permits the freezing of assets before indictment in corruption cases. These revisions would be a major step back according to CSI.8
Revenue Mobilization
Madagascar’s tax and customs revenue collections have increased in recent years. In 2018 the tax-to-GDP ratio was back to the level it had held in 2008, thereby reversing the revenue loss from the rapid drop in the ratio after 2008. Notwithstanding this recovery and tax and customs reforms, the tax potential remains largely unexploited based on evaluations of the tax and customs administration (IMF 2020b). Revenue collections are well below the average of other fragile and low-income countries in sub-Saharan Africa and the estimated tax frontier (Figure 9.3). Madagascar’s revenue performance is also weak when controlling for background data on the level of corruption (the lower tax frontier) (IMF 2018b). In addition, the CPIA rating on the efficiency of revenue mobilization published by the World Bank has not improved in recent years.9 Against the background of the COVID-19 pandemic, the tax ratio is estimated to have fallen back to about 9 percent of GDP in 2020.
Sub-Saharan Africa: Indicators of Revenue Performance
Sources: IMF (2018c, Annex Table 2.1.2); IMF, WEO database, October 2020; and World Bank Group, CPIA database.Sub-Saharan Africa: Indicators of Revenue Performance
Sources: IMF (2018c, Annex Table 2.1.2); IMF, WEO database, October 2020; and World Bank Group, CPIA database.Sub-Saharan Africa: Indicators of Revenue Performance
Sources: IMF (2018c, Annex Table 2.1.2); IMF, WEO database, October 2020; and World Bank Group, CPIA database.Budgetary and Financial Management
While some features of budgetary and financial management have improved, the impact on the delivery of public services remains less clear. Regular reporting procedures have been reestablished, but work remains to adapt the accounting standards to international norms. Transparency has improved, with better access to complete budget documentation and better access to and more transparent information on tax obligations, and debt management is more professional. Key remaining weaknesses include the supervision and control of public establishments and enterprises (and the budgetary risks from these entities are very high) and the role of the parliament. While the auditor-general is auditing the budget review acts, the recommendations are rarely implemented, and the parliamentary examination of the auditor-general’s report could be improved.
The Worldwide Governance Indicator on government effectiveness captures perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies. Starting from a position typical of a sub-Saharan African middle-income country in 2008, Madagascar’s score had fallen to that of a sub-Saharan African fragile country by 2013 with only minor improvements in recent years (Figure 9.4). The World Bank’s Country Policy and Institutional Assessment (CPIA) ratings on the quality of budgetary and financial management as well as public sector management and institutions reveal a similar pattern. These perceptions-based ratings are paralleled by the evolution of public investment—an indicator of public sector delivery—which has been slow to recover.
Control of Corruption
The public information on corruption has become more transparent in recent years. Quarterly statistics on corruption cases based on investigations made by BIANCO and the financial intelligence unit, SAMIFIN, have been published regularly since 2018, and there were five times as many reported suspicious transactions in 2019 compared to 2018. The detection, declaration, and reporting of illicit transactions are expected to increase further as a result of stronger collaboration between the tax and customs administrations and the five-year AML/CFT strategy, which should improve technical conformity and the coverage of vulnerable sectors such as mining and real estate. An online platform to publish all final court decisions by the anticor-ruption courts has been operational since December 2018. All reports and decisions made by the auditor-general since February 2019 are available (IMF 2020a).
Sub-Saharan Africa: Indicators of Budgetary and Financial Management
Sources: IMF, WEO database, October 2020; and WGIs.Note: With a 95 percent confidence interval, Madagascar’s score on government effectiveness was in the range of -0.77 to -1.51 in 2019.Sub-Saharan Africa: Indicators of Budgetary and Financial Management
Sources: IMF, WEO database, October 2020; and WGIs.Note: With a 95 percent confidence interval, Madagascar’s score on government effectiveness was in the range of -0.77 to -1.51 in 2019.Sub-Saharan Africa: Indicators of Budgetary and Financial Management
Sources: IMF, WEO database, October 2020; and WGIs.Note: With a 95 percent confidence interval, Madagascar’s score on government effectiveness was in the range of -0.77 to -1.51 in 2019.The perception of the control of corruption had been deteriorating up until 2017. The Worldwide Governance Indicator on control of corruption captures perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as capture of the state by elites and private interests. Starting from a situation with a more favorable score than that of an average middle-income country in sub-Saharan Africa around 2005, Madagascar has scored slightly below that of a fragile sub-Saharan African country since 2017 (Figure 9.5).
The perceived inefficiency in control of corruption is linked to the lack of independence of the institutions fighting corruption, political pressure, and the power of money (Bertelsmann Stiftung 2020). Strong and independent institutions are necessary to ensure a fair and effective execution of the anticorruption laws. Existing laws give the president of Madagascar extensive power over the judiciary.10 A variety of cases have illustrated the widespread impunity for officeholders who break the law, especially regarding the trafficking of natural resources. A plot of judicial independence (as classified by the World Economic Forum Global Competitiveness Index) and control of corruption supports a strong correlation between these variables. Madagascar is classified as having one of the least independent judicial systems in sub-Saharan Africa, and this is matched by the low score on control of corruption.
Sub-Saharan Africa: Indicators of Control of Corruption
Sources: World Economic Forum, Global Competitiveness Index dataset; and Worldwide Governance Indicators.Note: With a 95 percent confidence interval, Madagascar’s score on government effectiveness was in the range of -0.73 to -1.28 in 2019.Sub-Saharan Africa: Indicators of Control of Corruption
Sources: World Economic Forum, Global Competitiveness Index dataset; and Worldwide Governance Indicators.Note: With a 95 percent confidence interval, Madagascar’s score on government effectiveness was in the range of -0.73 to -1.28 in 2019.Sub-Saharan Africa: Indicators of Control of Corruption
Sources: World Economic Forum, Global Competitiveness Index dataset; and Worldwide Governance Indicators.Note: With a 95 percent confidence interval, Madagascar’s score on government effectiveness was in the range of -0.73 to -1.28 in 2019.Perception Indicators Quoted in the Chapter
Afrobarometer: Produced by a pan-African research network that conducts public attitude surveys on governance, economic conditions, and related issues in more than 35 countries in Africa, the work of the Afrobarometer is conducted through a partnership of research institutions based in Benin, Ghana, Kenya, South Africa, and the United States. The surveys are based on a series of face-to-face interviews with a random sample of 1,200, 1,600, or 2,400 respondents in each country.
Transparency International: An international nongovernment organization based in Berlin, Germany, Transparency International publishes the Corruption Perceptions Index, which provides perceptions of business people and country experts regarding the level of corruption in the public sector within the past two years. Worldwide Governance Indicators: Produced by Daniel Kaufman of the Natural Resource Governance Institute and Brookings Institution, and Art Kraay of the World Bank Development Research Group, this dataset summarizes views on the quality of governance provided by many enterprise, citizen, and expert survey respondents in over 200 countries. These data are gathered from several survey institutes, think tanks, nongovernmental organizations, and private sector firms.
Conclusion
The democratically elected government that assumed power in 2014 started to rebuild the public institutions that had been disintegrating since the military coup in 2009. Perception indicators measuring the quality of Madagascar’s institutions, which had been on par with middle-income sub-Saharan African countries in 2008, had deteriorated and were comparable with fragile sub-Saharan African countries by 2013. The reforms aimed to rebuild the anticorruption framework; strengthen all aspects of revenue, budget, and expenditure management; and reinforce the independence of the central bank.
The reforms were able to stop and reverse the institutional decay. The judicial framework for the repression of corruption has improved with new laws, decrees, and special anticorruption courts and centers. The management of fiscal revenue and spending is more robust. In 2018 the tax-to-GDP ratio was back to the level it had reached in 2008, thereby reversing a rapid drop over 2008–13. Regular control and reporting procedures have been restored, and the auditor-general is once again auditing public spending. There is more transparency with, for example, better access to information on public procurement, fiscal spending, and tax obligations as well as access to regular judicial statistics on corruption cases. The civil society is also better organized to fight corruption.
Notwithstanding these achievements, current performance evaluations and perception surveys indicate remaining challenges. While tax collections have increased, they remain below the average of low-income countries and fragile states, and below Madagascar’s estimated tax potential. Perception surveys of government effectiveness and control of corruption have barely improved since 2014, and respondents doubt the impartiality of the judicial system. These responses seem to confirm that continued reforms and time are needed to rebuild credibility in public institutions.
The reform priorities going forward include the following:
Ensuring that the anticorruption legislation meets international good practices: International standards like the FATF recommendations offer a pragmatic approach to improve governance and are increasingly used.
Implementing existing laws and regulations fairly and effectively: Judiciary and anticorruption institutions with appropriate human and financial resources are essential for a credible and effective enforcement of the anti-corruption legislation. Avoiding political interference is also critical for the predictability and effectiveness of the enforcement and should have a positive impact on governance, the business climate, and ultimately economic growth.
Continuing broad-based fiscal governance reforms: Many assessments have confirmed the general weakness of Madagascar’s PFM system. To improve the delivery of public services and guarantee maximum value for money, the authorities aim to deepen revenue reforms, ensure that public investment projects are prioritized based on rigorous cost-benefit criteria, strengthen the monitoring and management of public enterprises, and establish procedures for systematic follow-up of recommendations made by control institutions like the auditor-general.
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The chapter is based on an analysis of governance in IMF (2017). The author is grateful for comments from Marshall Mills, Gabriel Leost, Dominique Fayad, and other colleagues at the IMF.
The discussion in this chapter relies partly on survey-based perception indicators. Caution is needed when comparing these indicators across countries and over time. See Box 9.3 for further information.
See Svensson (2005, chapters 1 and 2).
See Rajkumar and Swaroop (2008, chapters 1 and 2).
In May 2015 the Union of Malagasy Judges voiced concerns about arbitrary placements and transfers of judges without justifcation based on official criteria. All appeals were reported to have been systematically rejected by the Supreme Council of Magistrates (CSM), the entity that is charged with the appointment, transfer, and dismissal of judges and that is chaired by the president of the republic.
PEFA (2014) and PEFA (2018).
Several studies show a positive correlation between corruption and lack of public budget transparency (IMF 2016).
Comité pour la Sauvegarde de l´Intégrité, “Loi Pole Anti-Corruption: Une question à approfondir,” press release, July 5, 2020, http://www.csi.gov.mg/loi-pole-anti-corruption-une-question-a-approfondir/.
The CPIA rates countries against a set of 16 criteria. The criterion on the efficiency of revenue mobilization assesses the overall pattern of revenue mobilization—not only the de facto tax structure, but also revenue from all sources as actually collected.
The Superior Council of the Judiciary (Conseil Supérieur de la Magistrature, CSM) manages the career of the judges, with the president as the chairman and the minister of justice as the vice chairman. The Constitutional High Court (Haute Cour Constitutionnelle, HCC) also has limited independence from the executive power. HCC has nine members, of which the president directly nominates three, including the HCC president, and the CSM nominates another three members. Against this background, judges can be extremely cautious and often anxious to avoid contradicting powerful decision-makers.
