1. MADAGASCAR 1 Foreword Climate change is already affecting the Malagasy people’s lives and livelihoods, as well as the economy at large. Madagascar is the fifth-poorest country in the world in terms of multidimensional poverty, and climate shocks are exacerbating poverty. The country is already experiencing increasingly severe climate- related disasters: intensifying cyclones affect the island more than any other country in Africa, with three to four cyclones per year, and the worst multiyear drought in decades is unfolding in the south. Over the past 20 years, Madagascar has been hit by 35 cyclones, 8 floods, and 5 severe drought periods. As global temperatures continue to rise, climate change impacts on Madagascar are expected to worsen. Impacts on water resources are expected to be particularly severe and will affect food and energy production. Mean annual temperatures have already increased by 1.6°C since 1961, depending on the region, and annual rainfall has declined by 15-20 percent. Climate-related disasters also take a large financial and human toll: total losses from cyclones in 2020 alone were equivalent to 4.8 percent of GDP. Against this backdrop, the Madagascar Country Climate and Development Report (CCDR) examines the implications of climate change—and global decarbonization efforts—for the country’s development ambitions, and identifies priority actions to achieve climate-resilient development and set out on a more sustainable, inclusive growth path. Madagascar has significant renewable resources to facilitate this process, including agricultural land, forests, ample water resources, abundant biodiversity, and over 5,000 km of coastline. Above all, it has human capital, the Malagasy people. However, in the face of climate change, realizing this potential will require targeted investments and policy reforms. The CCDR outlines how achieving climate resilience first means getting development right, as climate change makes it ever more urgent for Madagascar to advance on its existing development targets. Simply put, climate change increases the urgency of delivering better development in Madagascar, starting today. The report shows that the country can generate clean electricity and leverage its rich natural capital, reduce vulnerability to climate-related shocks, build climate resilience across key development sectors, and promote sustainable urban growth, while strengthening human capital, improving road maintenance, building crucial skills, and strengthening good governance. These investments will lay the foundation for resilient, inclusive, equitable, and sustainable growth in Madagascar. They offer a guide for the Grande Ile to bolster its resilience to intensifying climate shocks while accelerating its path out of poverty. CCDRs are the World Bank Group’s new flagship report, aiming to align climate action and development priorities. This CCDR is informed by robust climate modeling, combined with an in-depth analysis of the macroeconomic and sectoral implications of climate change, including the impacts of climate change on Madagascar’s future growth and poverty. The report has leveraged our best technical sector teams from across the World Bank, the International Finance Corporation, and the Multilateral Investment Guarantee Agency, working in close partnership with the Government of Madagascar through a cross-sectoral committee established specifically for this report. We sincerely hope this CCDR can serve to inform Madagascar’s national development plan, the Plan Émergence Madagascar, and the more recent Politique Generale de l’Etat, providing concrete investment and policy reform options in the short, medium, and long terms for achieving climate-resilient development in this richly endowed island nation. We look forward to working together with the Government of Madagascar, other development partners, and bilateral donors to operationalize the report and leverage the financing necessary to set Madagascar on the path of climate-resilient development. Idah Z. Pswarayi-Riddihough, Country Director, World Bank i Acknowledgments The Madagascar CCDR was delivered by a cross-World Bank Group task team with sector expertise across the World Bank, the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). The report was led by Arame Tall (Task Team Leader), and Jean-Pascal Nguessa Nganou (co-Task Team Leader) under the direction of Idah Z. Pswarayi-Riddihough (Country Director), Marie- Chantal Uwanyiligira (Country Director, previously Country Manager), Atou Seck (Country Manager), Africa Olojoba (Practice Manager), and Iain Shuker (Regional Director). The task team was composed of the following core team members: Nathalie Abu-Ata (Consultant), Marco Alcaraz (Consultant), Lucile Gingembre (Consultant), Andrianina Noro Rafamatanantsoa (Senior Program Assistant), Anouk Pechevy (Economist), Atishay Abbhi (Senior Disaster Risk Management Specialist), Caroline Cerruti (Lead Financial Sector Specialist), Charlotte De Fontaubert (Senior Fisheries Specialist), Cristian Quijada Torres (Senior Private Sector Specialist), Diana Styvanley (External Affairs Officer), Eliane Razafimandimby Ramiandrison (Senior Health Specialist), Emre Ozaltin (Program Leader), Etienne Sannicolo (Financial Sector Specialist), Ezgi Canpolat (Social Development Specialist), Francis Muamba Mulangu (Senior Economist, Statistician), Joanna P. De Berry (Senior Social Development Specialist), Justin Marie Bienvenu Beleoken Sanguen (Senior Energy Specialist), Landy Fabienne Rasamoeliniaina (Education Specialist), Marcos Vaena (Senior Strategy Officer, IFC), Noro Aina Andriamihaja (Senior Financial Sector Specialist), Olivia Rakotomalala (Senior Public Sector Specialist), Rebecca Jean Gilsdorf (Senior Water Supply and Sanitation Specialist), Remi Bealle (Consultant), Sachiko Kondo (Senior Natural Resources Management Specialist), Stephen D’Alessandro (Senior Agricultural Specialist), Tsiry Andriantahina (Senior Energy Specialist), Unnada Chewpreecha (Consultant), Vincent Vesin (Senior Transport Specialist), Zubair Khurshid Bhatti (Lead Public Sector Specialist), and Diane Narindra Rasoloarisoa (Administrative Assistant). The extended team included Agathe Randrianarisoa (Consultant), Almedina Music (Senior Economist), Amy Jane Chamberlain (Consultant), Ana Ruth Menezes (Senior Education Specialist), Andrew Zakharenka (Senior Natural Resources Management Specialist), Andriambolantsoa Rasolohery (Consultant), Antsa Raoelijaona (ET Consultant), Ara Tatiana De Carvalho Emilio (ET Consultant), Berina Uwimbabazi (Lead Water Resources Management Specialist), Daniel Thomas Lyng (Consultant), David Casanova (Senior Water Resources Management Specialist), David Seth Warren (Practice Manager), Douglas Pearce (Practice Manager), Erik Winter Reed (Senior Environmental Specialist), Erika Ella Auer (Senior Social Development Specialist), François Lesage (ET Consultant), Fanjaniaina Prisca Mamitiana (Private Sector Development Specialist), Francis Dennig (Economist), Francisco Obreque (Senior Agricultural Specialist), Gael Fetraniaina Raserijaona (Urban Specialist), Hanta Mina Ramalanjaona (Senior Executive Assistant), Ibrahim El Ghandour (Public Sector Specialist), Jessica Leete Werner Flannery (Consultant), Joeri Frederik de Wit (Senior Energy Economist), John Van Dyck (Senior Social Development Specialist), Juan Manuel Monroy Barragan (Consultant), Lantosoa Patricia Ramarojaona (Consultant), Laza Rakotondrasoa (Natural Resources Management Specialist), Loic Braune (Senior Natural Resources Management Specialist), Lira Hariravaka Rajenarison (Public Sector Specialist), Luis Alton (Senior Financial Sector Specialist), Maimouna Gueye (Senior Financial Sector Specialist), Mampionona Amboarasoa (Senior Agriculture Economist), Marc Navelet (Lead Transport Specialist), Maria Cordeiro (Consultant), Maud Juquois (Senior Economist, Health), Memory Machingambi (Economist, IFC), Neelam Nizar Verjee (Senior Operations Officer), Peter D. Ellis (Practice Manager), Pierre Francois-Xavier Boulenger (Senior Water Supply and Sanitation Specialist), Pierre Jean Claude Randrianarisoa (Consultant), Ram Akers (Resident Representative, IFC), Reyna Liza Alorro (Consultant), Samantha Zaldivar Chimal (Senior Social Protection Specialist), Sohaib Athar (Senior Urban Specialist), Solofoson Jean Rabary (Transport Specialist), Zafyson Hasina Randrianasolo (Consultant), Zayra Romo (Lead Energy Specialist, Program Leader), and Ziad Nakat (Resident Representative). The team also wishes to thank Idah Z. Pswarayi-Riddihough (Country Director), Marie-Chantal Uwanyiligira (Country Director, previously Country Manager), and Atou Seck (Country Manager), of the World Bank; Hiroyuki Hatashima (Chief Evaluation Officer) and Moritz Nikolaus Nebe (Sector Manager), of MIGA; ii Cláudia Conceição (Regional Director for Southern Africa), Marcelle Ayo (Manager, Strategic Initiatives Unit), and Adamou Labara (Country Manager), of IFC; and Frederic Lambert (Deputy Division Chief, International Monetary Fund [IMF]), and Mokhtar Benlamine (Resident Representative, IMF) who provided essential guidance and insights throughout the CCDR process. We are also grateful to the following colleagues who provided valuable guidance and peer-reviews: Ahmadou Moustapha Ndiaye (Director, Strategy and Operations), Alberto Rodriguez (Regional Director), Ana Bucher (Senior Environmental Specialist), Bekele Ambaye Shiferaw (Senior Environmental Economist), Craig Meisner (Senior Economist), Diji Chandrasekharan Behr (Lead Environmental Economist), Fan Zhang (Lead Economist), Jacques Morisset (Lead Economist, Program Leader), Kevin Carey (Program Manager), Marcelle Ayo (Manager), Merli Margaret Baroudi (MIGA), Pablo Andrés Salas Bravo (Senior Economist), Pablo Fajnzylber (Director, IFC), Remi Moncel (Senior Counsel), Sarah Moyer (Senior Environmental Specialist), Sebastian-A Molineus (Director, Strategy and Operations), Thomas Kerr (Lead Climate Change Specialist), Urvashi Narain (Program Leader), Victor Mosoti (Chief Counsel), and Zano Mataruka (Resident Representative, IFC). Lastly, the team thanks the Government of Madagascar for critical feedback and inputs provided by the cross-ministerial task team established for the purposes of the CCDR under the Prime Minister’s Office leadership and for the multiple consultations held in Antananarivo with the line ministries and offices involved, including Presidency Office; the Prime Minister’s Office; the Ministry of Economy and Finance (MEF); the Ministry of Environment and Sustainable Development (MEDD); the Ministry of Agriculture and Livestock (MINAE); the Ministry of Energy and Hydrocarbon (MEH); the Ministry of Water, Sanitation and Hygiene (MEAH); the Ministry of Transport and Meteorology (MTM); the Meteorological Department (Météo Madagascar); the Ministry of Fisheries and Blue Economy (MPEB); the Ministry of Public Health (MSP); the Ministry of Population and Solidarity (MPS); the Ministry of Decentralization and Land Use Planning (MDLUP); the Ministry of Tourism (MT); the Ministry of Mines (MM); the Ministry of Industry and Commerce (MIC); the Ministry of Public Works (MTP); the Agro-ecology, Biodiversity and Climate Department (ESSA Forêt); the Prevention and Emergency Management Support Unit (CPGU); and the National Office in charge of Risk and Disaster Management (BNGRC). Acknowledgements are also extended to the group of technical and financial partners, as well as the private sector, academia, and civil society organizations in Madagascar, who participated in the various CCDR consultations held and provided valuable inputs. Industrial Economics Inc. conducted the climate impact modeling analysis for this CCDR. The agricultural deep dive was prepared jointly by the Alliance of Biodiversity International, the International Center for Tropical Agriculture (CIAT), and the World Bank. The migration modeling was funded under the Climate Resilience and Fragility in Southern Madagascar State and Peacebuilding 2.0 Umbrella Trust Fund (SPF2.0). Markov estimation and input-output macro modeling work were supported by the Green Growth for Mozambique and Madagascar Program under the Whole-of-Economy Trust Fund. Fiona Hinchcliffe and Marion Davis copy-edited the report. The CCDR would not have been possible without the generous financial support from the Climate Support Facility (CSF), the State and Peace-building Fund (SPF), and the PROGREEN and the PROBLUE Trust Funds. iii Acronyms and Abbreviations AAL Average Annual Losses ARC African Risk Capacity BAU Business as Usual BFM Banky Foiben’i Madagasikara (Madagascar Central Bank) BN-CCREDD+ National Office for Climate Change and the Reduction of Emissions from Deforestation and Forest Degradation BNGRC Bureau National de Gestion des Risques et des Catastrophes (National Office in Charge of Risk and Disaster Management) CCDR Country Climate and Development Report CC-MFMOD Climate Change Macro-Fiscal Model CEA Country Environmental Assessment CG Constrained Growth CIAT Centre International d’Agriculture Tropicale CIME Inter-ministerial Committee for the Environment CMAP Climate Macroeconomic Assessment Program CNCC National Committee on Climate Change CPGU Cellule de Prévention et d’appui à la Gestion des Urgences (Prevention and Emergency Management Support Unit) CPSD Country Private Sector Diagnostic CR Climate Resilience CRMP Climate Risk Management Plan CSA Climate-Smart Agriculture DECIM Digital and Energy Connectivity for Inclusion in Madagascar DfNS Debt-for-Nature Swaps DGM Directorate General of Meteorology DRF Disaster Risk Finance DRM Disaster Risk Management EEZ Exclusive Economic Zone EU European Union EWS Early Warning Systems FAO United Nations Food and Agriculture Organization FDI Foreign Direct Investment FNC Fonds National de Contingence (National Contingency Fund) GCAM Global Climate Change Analysis Model GDP Gross Domestic Product GHG Greenhouse Gas GIZ Deutsche Gesellschaft fur Internationale Zusammenarbeit (German Agency for International Cooperation) GPP Green Public Procurement GRADE World Bank’s Global Rapid Damage Estimation HCI Human Capital Index iv HDI Human Development Index ICZM Integrated Coastal Zone Management IFC International Finance Corporation ILO International Labour Organization IMF International Monetary Fund IWRM Integrated Water Resources Management JIRAMA Madagascar Integrated Energy and Water Utility LCDP Least Cost Development Plan M&E Monitoring and Evaluation MDB Multilateral Development Bank MEDD Ministry of Environment and Sustainable Development MERG DPO Madagascar Equitable and Resilient Growth Development Policy Operation MFI Microfinance Institution MPI Multidimensional Poverty Index MRV Monitoring, Reporting, and Verification NbS Nature-Based Solutions NDC Nationally Determined Contribution ND-GAIN Notre Dame Global Adaptation Initiative NGO Nongovernmental Organization NMHS National Meteorological and Hydrological Services PEM Plan Émergence Madagascar (Madagascar National Development Plan) PFM Public Finance Management PGE Politique Générale de l’Etat (General State Policy) PIM Public Investment Management PNA Plan National d’Adaptation de Madagascar (Madagascar National Adaptation Plan) PPCR Pilot Program for Climate Resilience PPP Public-Private Partnership PRODUIR Integrated Urban Development Project for Greater Antananarivo R&D Research and Development REC Renewable Energy Certificate REDD+ Reducing Emissions from Deforestation and Land Degradation SDGs Sustainable Development Goals SOP Standard Operating Procedure SR Structural Reforms SSP Shared Socioeconomic Pathways UNFCCC United Nations Framework Convention on Climate Change VAT Value Added Tax WASH Water, Sanitation, and Hygiene WBG World Bank Group WFP World Food Programme v TABLE OF CONTENTS Foreword ............................................................................................................................... i Acknowledgments ................................................................................................................. ii Acronyms and Abbreviations .................................................................................................iv Executive Summary ..................................................................... Error! Bookmark not defined. Madagascar is especially vulnerable to climate change ........................ Error! Bookmark not defined. A blueprint for urgent action ................................................................. Error! Bookmark not defined. Priority Area 1: Ensuring Climate Resilience in Key Sectors ................... Error! Bookmark not defined. Priority Area 2: Achieving Institutional and Policy Climate Readiness... Error! Bookmark not defined. Priority Area 3: Securing Climate Finance and Mobilizing the Private Sector ...... Error! Bookmark not defined. Recommendations ................................................................................. Error! Bookmark not defined. 1. Madagascar’s Dual Climate and Development Challenge .............................................. 1 1.1. Madagascar’s Development Ambitions and Challenges .............................................................2 1.2. Climate Change and Variability in Madagascar ..........................................................................5 1.2.1 Climate change is already a reality in Madagascar: Observed trends ......................................... 6 1.2.2 Future climate in Madagascar ...................................................................................................... 9 2. Are Madagascar’s Policies and Institutions Ready for the Climate Crisis? .................... 11 2.1. Climate Governance in Madagascar: A Gap Analysis ............................................................... 12 2.2. Madagascar’s Approach to Disaster Risk Management............................................................ 14 2.3. Priority Actions to Improve Madagascar’s Climate and DRM Governance ................................ 16 3. Climate-Resilient Development Pathways for Madagascar ......................................... 18 3.1. Water, Food, and Energy Security in a Changing Climate ......................................................... 19 3.1.1 The future of Malagasy agriculture under climate change ........................................................ 20 3.1.2 Making hydropower work for development and energy security ............................................. 24 3.2. Scaling Up the Coastal and Blue Economy ............................................................................... 26 3.3. Creating Vibrant, Climate-Resilient Cities................................................................................ 30 3.3.1 Climate and disaster risk trends in urban areas ......................................................................... 30 3.3.2. Key constraints to climate-resilient urban growth.................................................................... 31 3.3.3. A way forward for creating vibrant, climate-resilient cities ...................................................... 32 3.4. Towards a Climate-resilient, Multimodal Transport System..................................................... 33 3.4.1 Climate-vulnerable transport infrastructure .............................................................................. 33 4.4.2 Investment and reforms to increase transport resilience.......................................................... 33 3.5. Investing in Human Capital Growth under a Changing Climate ................................................ 35 3.5.1. Social protection to build climate resilience and cope with shocks ......................................... 36 3.5.2 Proactively addressing the health impacts of climate change ................................................... 38 vi 3.5.3 Educating for climate change: Investing in Madagascar’s future .............................................. 39 4. Whole of-Economy and Poverty Impacts of Climate Change ....................................... 41 4.1 Estimating Future Macroeconomic Impacts of Climate Change ................................................. 41 4.1.1 How severe climate shocks affect Madagascar’s economy ....................................................... 41 4.1.2 Modeling Madagascar’s economy under different climate and policy scenarios...................... 42 4.2 Poverty and Inequality in a Changing Climate .......................................................................... 47 5. Financing Madagascar’s Climate Transition ................................................................ 51 5.1. Key Sources of Climate Finance for Madagascar ...................................................................... 51 5.1.2 Insurance and risk management products ................................................................................. 53 5.1.3 Voluntary carbon markets .......................................................................................................... 53 5.1.4 Innovative climate finance solutions.......................................................................................... 54 5.2. Fiscal Policy and Reforms to Support Climate-Resilient Growth ............................................... 55 5.3. Managing Climate-related Financial Risks ............................................................................... 58 6. Recommendations ..................................................................................................... 60 vii Executive Summary Climate change has made delivering better development in Madagascar ever more urgent. This Country Climate and Development Report (CCDR) finds that Madagascar’s aspiration to evolve into an emerging country by 2040 will be derailed unless it can bolster its resilience to intensifying climate shocks to safeguard its modest development gains and boost economic growth. The high frequency of extreme climate shocks since the 1970s has led to significant macroeconomic disturbances and weak growth. This CCDR examines the implications of future climate change for Madagascar’s growth, and the potential benefits of both structural reforms and adaptation investments. It outlines three priority areas for building resilience to climate change, and calculates the costs needed to achieve this. It provides detailed recommendations for finding the finance required, as well as for implementing the policy challenges identified. Madagascar is especially vulnerable to climate change Madagascar is considered one of the countries most vulnerable to, and least prepared to cope with, climate change, yet is responsible for only 0.09 percent of global greenhouse gas (GHG) emissions. Over the past 20 years, the island nation has been hit by 35 cyclones, 8 floods, and 5 periods of severe drought: a three-fold increase in such events compared to the previous 20-year period. Madagascar has the highest risk of cyclones in Africa, experiencing three to four cyclones per year on average between November and April, and a major tropical cyclone once every three years. Total losses from cyclones in 2020 alone were equivalent to 4.8 percent of GDP, according to the World Bank’s Global Rapid Damage Estimation (GRADE). Severe multi-year drought has an even more profound effect than cyclones, deepening poverty and food insecurity, especially in the south. Climate change projections predict continued warming and increased rainfall variability, leading to more intense and frequent climate-related impacts. Under mid-range and high-emissions scenarios, warming of up to 4°C could be expected by 2100 in Madagascar. While the frequency of tropical cyclones making landfall is projected to decrease, the intensity of these storms is expected to worsen, with annual damages expected to increase almost fivefold by 2050 relative to the baseline, and higher under a pessimistic (high-emissions) scenario. Madagascar’s unique ecosystems are highly vulnerable to climate change through ocean acidification and sea - level rise. Madagascar is a global biodiversity hotspot; it contains 5 percent of the world's biodiversity and 90 percent of species are endemic to the island. However, a large number are threatened with extinction. With 5,000 km of coastline, Madagascar is also known for its unique coral reef ecosystems, which draw a significant portion of tourists visiting the island. Addressing climate variability is becoming an urgent development priority if it is to preserve its rich natural capital and the associated essential global public good services it provides. i The country is already struggling to escape from a low-growth, high-poverty context Madagascar’s National Development Plan (Plan Émergence Madagascar, PEM) lays out a roadmap for development focused on accelerating growth, investing in human capital and the environment, and improving governance. The Malagasy economy has been trapped for decades in a low-growth, high-poverty equilibrium, caused by persistent governance challenges and low human and physical capital accumulation. Low economic growth and a rapidly expanding population have resulted in one of the world’s highest poverty rates, reaching 75.2 percent in 2022, with 45.8 percent of people in severe deprivation. By 2040, the PEM aims to grow GDP to US$172.5 billion, a twelvefold increase from the US$14.1 billion in 2019, and raise GDP per capita to US$4,000.1 The PEM also aims to reduce the poverty rate to 38 percent and raise the Human Development Index (HDI) from 0.39 in 2020 to 0.60. 2 Though optimistic in its macroeconomic assumptions, the plan is well-structured, with strategies for mobilizing resources and tracking progress. However, the road to realizing the PEM’s ambitions is paved with challenges – not least of them climate change. Adaptation and resilience to climate change will be imperative for the country to return to growth. Climate change modelling helps to define priority actions A climate change macro-fiscal model (CC-MFMOD) was used to examine the implications of future climate change for Madagascar’s growth, and the potential benefits of both structural reforms and adaptation investments. Three economic policy scenarios were modeled (Figure ES1): (1) Constrained Growth (CG), or business as usual (BAU), which assumes no change in GDP growth or additional climate change; (2) Structural Reforms (SR), where a package of structural reforms is implemented, aligned with the Madagascar Equitable and Resilient Growth Development Policy Operation (MERG DPO), emphasizing macro-fiscal reforms and climate resilience initiatives, such as a climate- resilient public investment management system, as well as reforms to critical sectors such as mining, energy, and telecommunications and a focus on renewable energy; and (3) Climate Resilience (CR), a comprehensive approach that combines the structural reforms with targeted adaptation measures across sectors. The three economic policy scenarios were combined with climate scenarios for 2020 to 2050. These climate scenarios, which are in line with those used in the latest national government projections, were analyzed for two alternative futures: hotter and drier (pessimistic, high-emissions), versus warm and wetter (optimistic, moderate- emissions). FIGURE ES1. THREE POLICY SCENARIOS MODELED FOR THIS CCDR 1. Constrained Growth (CG) | Business as Usual (BAU) - Without Adaptation CG scenario: Lack of resources, limited structural transformation & adaptation investment. 2. Structural Reforms (SR) | Structural Reforms – With Some Adaptation Co-benefits SR scenario: reforms including market competition, responsible private sector investments, and corporate governance in key sectors such as telecoms, mining, and energy will result in higher growth and structural transformation, with resulting climate resilience co-benefits. 1 Republic of Madagascar. 2022. “Plan Émergence Madagascar.� Antananarivo. https://www.mef.gov.mg/assets/vendor/ckeditor/plugins/kcfinder/upload/files/Documents_travail_provisoires.pdf. The Politique Générale de l ‘Etat (February 2024) reconfirms the priority of climate and environment protection through embedding climate considerations into all public policies and investments and undertaking large-scale reforestation efforts. 2 For a detailed overview of Madagascar’s performance on the Human Development Index (HDI), see the country page on the HDI website: https://hdr.undp.org/data-center/specific-country-data#/countries/MDG. ii 3. Climate Resilience (CR) | Structural Reforms - With Targeted Climate Action CR scenario: Same as SR scenario, but additional investments in proactive climate adaptation interventions are undertaken. The cumulative impact on Madagascar’s GDP of climate shocks and missed economic opportunities from 2020 to 2050 could reach US$23.7 billion in the CG scenario, but structural reforms and adaptation combined (CR scenario) could help avoid most of these losses. Most of the projected losses—about US$20 billion by 2050—would occur due to the missed economic opportunities presented by structural reforms, such as diversifying the economy away from agriculture toward the services sector and increasing infrastructure investment. The scenarios are assessed for the impacts on GDP by 2050 (Table ES1). Under the business-as-usual Constrained Growth (CG) scenario, a pessimistic high-emissions climate future (hot and dry) could reduce GDP by 5.8 percent against the baseline in 2050 (Error! Reference source not found.). In the more optimistic moderate-emissions climate future (warm and wet), GDP is dampened by 4.4 percent against the baseline. Under the Structural Reform (SR) scenario, the declines in GDP are between 3.9 percent and 5.1 percent (depending on the climate scenario), indicating some climate benefits from structural reforms. GDP damages can be further reduced to 1.7 percent and 2.8 percent with adaptation investments in the Climate Resilience (CR)3 scenario, illustrating the benefit of early, targeted climate adaptation actions. Reductions in tourism and agricultural outputs (which together account for about 35 percent of GDP) and cyclone impacts are key factors in both sets of climate scenarios, while under the hot and dry climate futures, heat impacts on labor productivity also stand out. These results should be considered as lower-bound estimates due to the structure of the macro-model. TABLE ES1. IMPACT OF CLIMATE SCENARIOS ON MADAGASCAR’S GDP IN 2050 Alternative climate futures Constrained Growth (CG) Structural Reforms (SR) Climate Resilience (CR) Optimistic moderate emissions -4.4% -3.9% -1.7% scenario (warm/wet) Pessimistic high-emissions -5.8% -5.1 % -2.8% scenario (hot/dry) (An additional 1.68 million people fall into poverty, hiking national poverty rate to 77%) Source: Industrial Economics estimates; World Bank staff estimates using the CC-MFMOD for Madagascar. Note: The GDP impacts are compared against the CG, SR, and CR baselines respectively, which assume no additional climate change. The figures given are percentage differences from a baseline level in 2050. For example, if the baseline GDP in 2050 is $1 billion without further climate change, a 5% reduction due to climate change would decrease GDP by $0.05 billion, resulting in a GDP of $0.95 billion in 2050. Social inclusion and pro-poor growth will protect the poorest from falling deeper into poverty Climate change affects Madagascar’s poorest people disproportionately. CCDR modeling projects an increase in poverty, social exclusion, and income inequality by 2050, particularly in the South (‘Grand Sud’). Without structural reforms and adaptation, climate change will fuel a higher poverty rate, continuing a pattern of disproportionate impacts on the most vulnerable people. Under the pessimistic climate change and CG scenario, the national poverty rate is 3.4 percentage points higher by 2050 than in a no-climate change scenario – approximately 1.68 million additional people would be living in poverty, and the poverty rate would be 77 percent by 2050. In the more 3 The Climate Resilient baseline is the same as the Structural Reform baseline, but assumes that investments in proactive climate adaptation interventions are undertaken. iii optimistic CG scenario, the poverty rate is 3 percentage points higher than without climate change, with 1.5 million additional people in poverty.4 A blueprint for urgent action This CCDR has identified the most immediate interventions to implement (in the next 3 –5 years), with a total estimated cost of US$3.37 billion by 2030. This blueprint for urgent action could help the Government of Madagascar achieve climate-resilient growth. Urgent CCDR recommended investments are grouped into three priority action areas: Ensuring Climate-Resilience in Key Sectors (Priority Area 1); Achieving Institutional and Policy Readiness (Priority Area 2); and Securing Climate Finance and Mobilizing the Private Sector (Priority Area 3). Most climate actions will require institutional capacity building and reforms as prerequisites for success. A solid and comprehensive regulatory, policy, and institutional foundation for climate adaptation is also necessary. Priority Area 1: Ensuring Climate Resilience in Key Sectors The report identifies five key development sectors that can serve as levers of future climate-resilient growth in Madagascar, identifying priority interventions, investments and opportunities to strengthen the economy and improve the daily lives of the Malagasy: 1. Water, food, and energy security Climate change is expected to have significant impacts on food systems and water availability and quality across Madagascar, while population growth is expected to increase demand. Agriculture is crucial to Madagascar’s food and nutrition security and to the livelihoods of over 5 million people—mainly subsistence farmers. Droughts are already deepening poverty and causing hunger in the south, and climate change poses acute risks to a sector that is struggling with low productivity, crop pests, land degradation, and marginalization. Given the importance of water for the agriculture and energy sectors, the large year-to-year variability in rainfall, and the projected decline in precipitation in the coming decades, more and better investments are key to improving the climate resilience of both sectors. Improved natural resource management will be essential to Madagascar’s sustainable economic growth and its food security. Madagascar will also need to expand hydropower and clean energy access. The country has an estimated 180 terawatt hours (TWh) of hydropower potential, the third largest in Africa, but currently taps into less than 1 percent of this potential. Madagascar could also exploit its ample solar potential to expand electricity access by hybridizing JIRAMA’s isolated centers and developing solar power plants. The actions proposed in this CCDR (detailed in Table ES2 at the end of this summary) will make the most of Madagascar’s ample, but unevenly distributed, water resources, addressing both water stress and flood risks and enhancing ecosystem health for more resilient food systems. They include increasing the percentage of irrigated cultivated land through small-scale, water-efficient irrigation and assessing the future suitability for all crops and livestock based on climate projections, while promoting increased adoption of climate-smart technologies and practices, which can help boost yields while making food systems more resilient to climate impacts. They also include enhancing farmers’ access to markets while strengthening the enabling environment for private sector investment in agriculture; investing urgently in landscape restoration, integrated watershed management, biodiversity conservation and afforestation; and developing four priority hydropower projects while expanding, reinforcing and interconnecting grids and maintaining existing hydropower plants. 2. The blue economy Madagascar’s abundant marine and coastal resources could support significant sustainable development . Ecosystem services from its coral reefs, mangroves, seagrass beds, wetlands, and beaches have been estimated at 4The poverty results presented in this section are conservative as our tools for measuring the poverty impacts of climate change are limited. The results should therefore be interpreted with caution. iv US$192 million per year, and include food, storm protection, and carbon sequestration. Coastal and nature-based tourism account for 12.7 percent of GDP and 9.9 percent of employment, while fisheries accounted for over 7.7 percent of GDP and 7 percent of exports in 2020 and are an important source of animal protein. However, the country’s coastal and marine ecosystems are highly vulnerable both t o climate change and environmental degradation, and the sector is already affected by extreme weather events. Climate change could reduce the maximum fish catch potential by almost 10 percent by 2050, and sea level rise threatens coastal communities, including through saline intrusion in coastal waterways and groundwater reservoirs. While Madagascar is already engaged on a blue economy pathway, accelerating actions would address threats to its vulnerable coastal and marine resources, help to develop sustainable and resilient fisheries, and grow blue and coastal nature-based tourism. Recommendations include promoting sustainable blue tourism through participatory, public-private approaches to managing coastal and marine attractions and encouraging private sector investments in coastal, nature-based tourism. 3. Vibrant, climate-resilient cities Madagascar’s cities are already experiencing severe urban floods and landslides partly due to unplanned, unmanaged, and informal urban expansion; climate change is expected to intensify these risks. Madagascar is urbanizing rapidly, with 40 percent of the population now living in cities. An estimated 700,000 urban residents live in high-risk, flood-prone areas, where severe urban floods and destructive landslides occur frequently. Coastal cities are also exposed to tropical cyclones and storms, high winds, sea level rise, and erosion —all of which are expected to worsen with climate change. The urban heat island effect is a growing concern. Standards and guidelines are in place to ensure that new buildings and infrastructure are resilient to climate hazards, but implementation is weak and drainage systems blocked by uncollected waste increase flood risk. Moreover, municipalities lack resources to meet residents’ needs, and outdated land registries make urban planning challenging. The priority actions proposed here involve promoting climate-smart infrastructure and integrated urban services. The target is to introduce risk-informed land-use plans and investments in 40 cities over the next 5 years. This will require upgrading municipal infrastructure to mitigate flood risks, including integrated solid waste management, water supply and wastewater systems, and flood protection infrastructure, as well as investing in nature-based solutions (NbS) to mitigate hazard risks and impacts. Investments in mobility, including public transport, are also needed to improve access to jobs and services. Putting in place a program of targeted fiscal transfers to municipalities specifically for managing climate-related needs will increase financing at the municipal level for climate adaptation, resilience, and risk preparedness, while injecting needed investment to boost urban centers as hubs of development and services. The government’s ongoing decentralization and localized service delivery efforts are a step in the right direction. 4. Resilient transport systems The country’s transport network is limited and in poor condition, hindering access to domestic and international markets and even to basic services in some rural areas. Major roads are often unable to withstand the impacts of heavy use, and extreme weather events cause severe damage, disrupting connectivity and access to basic services, jobs, and markets. Many populated areas have no r oads at all. Madagascar’s ports and railways have also been poorly maintained and cannot fulfill their potential to support domestic connectivity and economic development. Priority actions listed in this report aim to increase the climate resilience of Ma dagascar’s road networks and develop a multimodal transport system, while supporting economic activity, service delivery, and disaster response. These include firstly improving transport asset maintenance, followed by asset rehabilitation and upgrades to reduce asset losses due to extreme climate events as well as the overall lifecycle costs of the infrastructure (which could increase by 50 percent in the transport sector by 2030 otherwise). Multimodal v connectivity needs to be developed via climate-smart investments in railways, waterways, ports, and airports, such as modifying the design and construction materials to adjust to higher temperatures, flood and landslides hazards. Key policy reforms include increasing and diversifying dedicated revenues for road maintenance through the existing Road Fund; and establishing a climate-risk informed transport asset management system. 5. Human development, health and well-being To safeguard its most valuable resource—its people—Madagascar will need to invest in human capital growth for climate resilience. Madagascar is the fifth-poorest country in the world in terms of multidimensional poverty, and climate shocks exacerbate poverty and deprivation. When disasters strike, homes and livelihoods are destroyed, children cannot attend school, workers migrate to find employment, and the social fabric is weakened. Investments in social protection, education, and improved health services are crucial to reducing climate vulnerability, but they are inadequate. Key vulnerabilities include food insecurity, high dependency on natural capital, poor access to clean water and risks of future water stress, poor sanitation infrastructure, and limited medical staff to provide health services. Social protection and public health programs can shield households from extreme poverty, hunger and disease, and act as a buffer in times of climate crisis. Currently, there is only funding for about 300,000 households (1.5 million people equivalent) to receive benefits under classic safety net programs, leaving 21.6 million people unprotected. Priority actions listed in this report aim to invest in effective and climate-resilient health services, schools, and social protection, as a well-educated and healthy population is central to future prosperity and climate resilience. Actions include mainstreaming climate considerations into the design of social protection programs and integrating climate data into the social registry nationwide; scaling up adaptive social safety net programs to reach 3.1 million more people by 2027 and 21.6 million more people by 2030; ensuring that health and education infrastructure is built to be climate resilient; and providing training to enable people to harness the benefits of the green transition through jobs in renewable energy and energy efficiency, among others. Improving climate risk management across sectors Across all sectors, improving climate and disaster risk management will be required to bridge gaps in risk identification/projection, mainstreaming, and action. Madagascar will need to enhance national capacities for the delivery of effective climate data exchange, hydrometeorological services, early warning systems (EWS), and disaster preparedness and response. It will be vital to establish fully operational EWS services by 2030, deliver multi-hazard early warning alerts to inform early action at the local level, and improve the data collection and coordination framework with clear institutional mandates and financing for effective early warning/early action in the country. Strengthening knowledge of climate-related risks and risk awareness is also needed to create a risk-aware society by 2030. Priority Area 2: Achieving Institutional and Policy Climate Readiness Madagascar needs a comprehensive Climate Change Framework Law to tackle policy, regulatory, and institutional gaps. Although the country has the Nationally Determined Contribution (NDC2) and National Adaptation Plan (NAP), and is preparing a long-term strategy, it has yet to develop a whole-of-government climate action framework law to implement its climate policies. The national climate agenda is still fragmented institutionally and politically, and climate change is not yet fully integrated into development planning and public finance management (PFM). The government also lacks adequate access to real-time information to inform policy making and private sector mobilization. Championing political ownership of climate risks, strengthening collaboration among all ministries, mainstreaming climate change in budget planning, adopting transparent procurement processes, and encouraging public awareness and data-driven monitoring and evaluation systems for greater accountability will better equip vi Madagascar to face future climate impacts. A new climate governance framework model, which the government could use to improve national coordination of the climate change agenda in the short term, is also needed. New/updated sectoral policies should include climate risks and investment needs by 2026 and make climate-related risks data reporting and a tracking framework for adaptation mandatory by 2027. Mainstreaming climate change in PFM is a top priority, in conjunction with broader climate governance reforms. Efforts would entail developing mechanisms and information systems to mainstream climate action within existing plans, projects, and annual budgets, based on climate change projections; establishing a typology of climate-change- related sectoral activities to support robust tagging of the climate change budget at the sectoral budget formulation level; systematically tracking spending on climate action; and mainstreaming the assessment of climate risks in public investments. Madagascar will need adequate capacity building, financial resources, and tools for mainstreaming climate change at the sectoral and subnational government levels and in state-owned enterprises. While a more robust public investment management (PIM) framework introducing climate change criteria for public investment prioritization was adopted in March 2023, implementation is hindered by lack of capacity . The revised PIM framework (Décret 2023-255) and its subsequent PIM manual (Arrêté 13811/2023) were adopted as a prior action of the First Equitable and Resilient Growth Development Policy Operation (P180288). In practice however, the content of the PIM manual was not fully reflected in the 2024 Budget Law due to lack of resources and capacity. Additional guidance on climate-smart public investment is needed to build expertise on climate change mainstreaming. Priority Area 3: Securing Climate Finance and Mobilizing the Private Sector Madagascar faces an achievable but pressing climate finance gap if it is to implement the most urgent priority actions to safeguard its economy, people and unique ecosystems from the climate crisis. The total climate- resilience investments and reforms across Madagascar’s five priority climate-sensitive development sectors outlined above are estimated to cost nearly US$7.5 billion by 2050. 5 This is equivalent to 46 percent of the country’s GDP in 2022. Given Madagascar’s constrained macro-economic and fiscal context, this CCDR has prioritized interventions further to identify the most urgent actions in the next 3 to 5 years. These would represent a total cost of around US$3.37 billion by 2030. These prioritized investments and policy reforms offer a blueprint for urgent action by the Government of Madagascar to achieve climate-resilient growth. The cost estimate covers only a subset of priority and urgently needed adaptation actions across sectors (Error! Reference source not found.). Additional investments are necessary to achieve the full ambition laid out in Madagascar’s NDC2 and NAP. The cost of adaptation and mitigation measures contrasts with the US$416 million mobilized in 2020, highlighting an achievable but urgent funding gap for implementing these actions. Several potential funding sources can be mobilized to bridge Madagascar’s climate funding gap and generate needed revenue. These include: (i) domestically phasing out fossil fuel subsidies (US$500 million/year based on 2023 subsidies); (ii) developing carbon markets (US$44 million/year); (iii) ramping up support from multi-lateral development banks (MDBs) and global green finance funds based on historical trends; and (iv) additional support from the financial and the private sector, encouraged by clear public sector leadership in green and blue projects and adequate de-risking (Figure ES2). The collaboration between the World Bank Group (WBG) and the International Monetary Fund (IMF) under the new WBG-IMF’s Resilience and Sustainability Trust (RST) is a start for operationalizing the CCDR recommendations, bringing a cohesive framework for action on climate policy reforms, and much needed resources to support their implementation. FIGURE ES2: BRIDGING THE CLIMATE FINANCE GAP vii Climate finance gap reduced in the periods 2023-2030 and 2040-50 if CCDR recommendations are implemented (in US$ million) 850 650 240 240 34 137 433 44 44 450 28 11 125 375 375 375 205 375 250 275 263 50 99 99 2027 2023 2024 2025 2026 2028 2029 2030 2040 2050 (150) (350) (433) (205) (550) Potential climate finance source - Progressive investment of 10% of banks' portfolio on de-risked investments by 2030 Potential climate finance source - Carbon markets revenues Potential climate finance source -Progressive removal of 75% of 2023 fossil fuel subsidies Potential climate finance source - Climate funding from MDBs (80% of the average trend 2019-2022 for 2023, 30% from 2024 onwards) Climate finance needs - CCDR assessment of urgent priority investment needs for climate resilience across priority sectors (2023-2050) Annual Funding gap with no climate action (Business as Usual) Source: World Bank with data from the present report and the Joint Report of MDBs Climate Finance (EIB, 2022) To tap into these potential sources, Madagascar will need to design a clear multi-faceted national strategy for climate finance mobilization; address roadblocks to the development of climate financial markets; and define a regulatory framework for Renewable Energy Certificate (REC) origination, registration, and issuance. The national strategy should prioritize and coordinate policies and activities, setting clear milestones and a timeline to track progress against targets and build accountability. Putting in place an adequate enabling environment geared towards businesses and low-risk climate investment will be fundamental to attract private entrepreneurs and capital. Key sectors for private sector opportunities include tourism, fisheries, agri-business, mining and hydro-resources. Insurance and risk management products are available in Madagascar, but scaling up their use is a challenge. Initiatives such as index-based insurance for farmers remain funded by financial and technical partners, and the insurance sector is still dominated by state-owned enterprises. The government should unlock financing for larger-scale, private sector-led projects, which the banks could support. To restore carbon sinks, Madagascar can draw additional resources from the forest carbon market and use them to finance REDD+ initiatives, addressing the governance requirements for such carbon-based finance to translate into resilience-building opportunities for beneficiary local communities and businesses. Large mining companies can undertake large-scale reforestation and forest restoration activities to boost their corporate social responsibility efforts and tap into carbon finance. viii Despite greater awareness of climate-related financial risks, financial institutions —including Madagascar Central Bank (Banky Foiben’i Madagasikara, BFM)—need to comprehensively integrate climate-related risks into their governance and operations. Banks and insurance companies have relatively low exposure to climate risks, but these risks do exist—for example, in connection with fossil fuel imports. The booming mining sector carries substantial risks as a polluting industry with negative impacts on natural habitats and biodiversity. Collecting and disclosing data to assess the exposure of financial institutions to climate risks is a first step to support financial climate readiness. The BFM should apply systematic climate risk assessments for financial and banking institutions by 2026. Dedicated funding is also required for disaster response and prevention, as well as reconstruction. Madagascar has made important progress in putting in place pre-arranged financing for disaster response, starting with a National Contingency Fund (FNC) for disasters. This fund, managed by the National Office in Charge of Risk and Disaster Management (BNGRC), will allocate resources to sector ministries/agencies and decentralized local entities to respond to disasters, in line with their contingency plans. 6 A budget allocation of two billion Ariary (about US$420,000) was allocated to the FNC, under the BNGRC credit line. It will be important for the government to mobilize significantly larger resources, given the level of risk. In addition, the government has obtained sovereign insurance for droughts and tropical cyclones through the African Risk Capacity (ARC). A key challenge will be to sustain the payment of insurance premiums over time, as they are currently partly financed by international partners. Madagascar still relies largely on support from international partners for disaster response and recovery and makes limited use of private sector solutions. 6The establishment of the fund was supported by World Bank Disaster Risk Management Development Policy Financing with a catastrophe deferred disaster drawdown option (CAT DDO) (US$50 million) (P167941). ix Recommendations Multiple priority interventions emerge from the Madagascar CCDR to set the country on a path to climate-resilient development and low-carbon growth. The CCDR recommends near- and medium-to-long-term climate-resilience investments and reforms across Madagascar’s five priority climate -sensitive development sectors. The combined cost of these actions is estimated at nearly US$7.5 billion by 2050. 7 Given Madagascar’s constrained macro-economic and fiscal context, further prioritization of interventions was conducted for this CCDR to identify the most immediate interventions to implement in the next 3 –5 years, with total costs estimated at US$3.37 billion by 2030. These prioritized investments and policy reforms offer a blueprint for urgent action by the Government of Madagascar to achieve climate-resilient growth. Table ES2 below provides a summary of these recommendations, including costings and quantifiable targets. TABLE ES2 – RECOMMENDED PRIORITY ACTIONS AND TARGETS WITH ESTIMATED COSTS AND PREREQUISITES Recommended Priority Actions and Targets Estimated Type of By By By Prerequisites for Investment Costs Intervention 2026 2030 2050 Climate-Resilient Sector Pathways (Priority Area 1) Aligns with the IMF’s Resilience and Sustainability Facility (RSF) Reform Area 2: Enhance adaptation to climate change and strengthen resilience against natural disasters; Reform Area 3: Support efforts to curb the growth of GHG emissions; and Reform Area 4: Reinforce the protection of forests and biodiversity Promoting increased adoption of Climate-smart US$130 million Political economy: agriculture technologies and practices • Enhance partnership and provide business opportunities with local 1. Improve irrigation performance, especially in US$46 million X manufacturers to produce necessary drought-prone areas by increasing the infrastructure, mainly drip lines and percentage of irrigated cultivated land through solar panels. small-scale, water-efficient irrigation and water • Improve land tenure security. catchment systems. • Farmer training and extension Target: 12,500 farmers by 2030. US$37.4 million Investment X support. 2. Scale up provision of improved (i.e., higher backed by yielding, drought- and flood-tolerant) seeds and policy Political will: X crop varieties to farmers and local breeders reforms • Whole-of-government and sector Target: Average yield gains of 15–40 percent by objectives prioritizing climate-resilient US$17 million 2030; 30 percent more farmers using improved development. seeds by 2050. 3. Effective soil/crop nutrition management through Financial incentives: tailored extension. • Establish decentralized variety testing X networks. Target: Income of 360,000 farmers increased by 20 percent. • Support decentralized seed production of well-performing varieties by local x Recommended Priority Actions and Targets Estimated Type of By By By Prerequisites for Investment Costs Intervention 2026 2030 2050 4. Reduce postharvest losses and distress sales US$6.1 million seed producer groups, especially in Target: 15-20 percent reduction in postharvest X ‘Grand Sud’. losses and distress sales. • Farmer training and extension support. 5. Improve market access and enhanced product US$23.5 million value for farmers Target: 2500 cooperatives/225,000 farmers with improved market access by 2030 Supporting Sustainable & Integrated Landscape Political economy: Management (ILM) • Improve regulatory framework for community-based natural resources 6. Support integrated watershed restoration and land management. management actions by setting up a green belt in Investments • Promote institutional mechanisms to the ‘Grand Sud’ to combat desertification and US$480 facilitate coordination of ILM. backed by X improve forest conservation and management of million policy • Enhance local plant production to provide protected areas. reforms quality local nurseries. 7. Target: Increase the surface areas under forest • Secure land tenure status and regulation of cover with indigenous species by 150,000 ha per protected areas. year  • Develop a sustainable logging strategy/plan. Improving Coastal and Blue Economy investments 8. Promote sustainable blue tourism through participatory, public-private approaches to management of coastal and marine attractions. 9. Target: National Maritime Spatial Planning Investments Policy: Coordinated planning across relevant Document, including coastal tourism potential US$70 backed by public/private sector actors for the viable X X realization, to be completed by 2027 million Policy promotion of Madagascar as a destination reforms for coastal/nature-based tourism 10. Develop nature-based tourism promotion and promote private sector investments in coastal/nature tourism. 11. Target: 100% private sector adoption of adaptive practices and product diversification. Expanding Hydropower and Clean Energy Investments Regulatory: Adoption of new legislation backed by 12. Enhance hybridization of JIRAMA’s isolated centers; US$250 X • Adopt legal texts for the million policy selection/prioritization of generation develop solar power plants.* reforms projects  xi Recommended Priority Actions and Targets Estimated Type of By By By Prerequisites for Investment Costs Intervention 2026 2030 2050 Target: 100% adoption and implementation of • Reinforce planning unit in line ministry to LCDP by 2030 ensure LCDP implementation 13. Develop priority hydro projects selected under the LCDP, set up a watershed protection program, Regulatory: expand and reinforce grids, and finalize the • Restructure JIRAMA. interconnection of the existing grids.* Investments US$1,800 backed by • Regulate mining and agriculture activities Target: Development of 4 priority hydroelectric X in watershed.   plants selected under the LCDP by 2050 million policy • Adopt legal texts related to reforms selection/prioritization of transmission projects. Scaling Up Urban Resilience Policy: • Urban land reform 14. Upgrade climate-resilient municipal infrastructure Investments • Improve sector coordination to align Target: 40 cities with risk-informed land-use plans backed by US$165 infrastructure investment with land use and investments in the next 5 years policy and X million plans structural • Strengthen institutional capacity to reforms support the rollout of regional facilities · • Capital investments to support resilient urban infrastructure systems • Capital investments to support resilient 15. Invest in Nature-based Solutions to mitigate hazard urban infrastructure systems US$460 risks and impacts and produce more resilient Investments X • New regulations introducing performance- million municipal services. based climate financing Target: 6 climate-resilient cities by 2040 Improving Climate Risk Management 16. Enhance national capacities for climate and disaster risk management across the board, strengthening training and knowledge of climate risks and risk Policy: Coordinated planning across sectors awareness across society. Investments • Implement soft measures such as Target: Creating a fully risk-aware society by 2030 US$194.5 backed by improved risk knowledge and weather X million capacity forecasting capacities. 17. Bridge gaps in early warning action, delivery of building • Strengthen capabilities and procedures for effective hydrometeorological services, EWS, and EWS, preparedness, and response. disaster preparedness and response. Target: Operational EWS services by 2030 delivering multi-hazard early warnings to inform early action at local level xii Recommended Priority Actions and Targets Estimated Type of By By By Prerequisites for Investment Costs Intervention 2026 2030 2050 Building Climate-resilient, Multimodal Transport Systems 18. Maintain national roads in good condition. Target: 60% of national roads in good condition by US$1,250 X 2030, compared to the baseline of 10% million 19. Rehabilitate and upgrade national roads and the northern railway line to functional and climate- Infrastructure challenges: Improve transport resilient design standards, and establish a climate- Investments infrastructure conditions and connectivity risk-informed transport asset management system.* US$1,100 Target: 100% by 2030 million X 20. Develop multimodal connectivity via climate-smart US$1,350 investments in railways, waterways, ports, and million airports. Target: Implementation of the long-term national X plan for multimodal transport sector, 100% by 2050 Boosting Human Capital 21. Operationalize social registry with climate data X Finance: (social protection). Mobilize required scaled financing Target: 100% operational nation-wide social registry with climate data by 2027 US$250 Investments Political economy: Address social and 22. Increase support to household resilience to shocks million backed by regional disparities Target: adaptive social safety net programs scaled policy up to reach 3.1 million more people by 2030 reforms X Institutional and Policy Readiness to Face Climate Crisis (Priority Area 2) Aligns with RSF Reform Area 1: Reinforce governance and mainstream the climate agenda into PFM/PIM processes, and Reform Area 2: Enhance adaptation to climate change and strengthen resilience against natural disasters 23. Champion political ownership of climate risks for policy planning Policy & Political will: Whole-of-government and — institutional X X sector objectives prioritizing climate-resilient Target: 100% of new/updated sectoral policies reforms development include climate risks and investment needs by 2026 xiii Recommended Priority Actions and Targets Estimated Type of By By By Prerequisites for Investment Costs Intervention 2026 2030 2050 24. Strengthen knowledge of climate-related risks and risk awareness Target: climate-related risks data reporting and tracking framework for adaptation mandatory by 2030 25. Improve climate mainstreaming in public investment management (PIM) and coordination of various government directorates with a mandate Policy & Policy: High-level coordinated planning on climate action. — institutional X across relevant sectors Target: Implement revised governance framework reforms for improved coordination of climate change in Madagascar by 2026 Climate Finance and Private Sector Mobilization (Priority Area 3) Aligns with RSF Reform Area 5: Mobilize climate finance 26. Design a clear national strategy for climate finance mobilization with the support of relevant partners Policy: High-level political championing and Policy to fund NAP and NDC2 implementation. X coordinated planning across relevant sectors reforms Target: Establishment of a Public Climate — Contingency Fund and VAT adjustments by 2026 27. Address roadblocks to the development of financial markets. Policy Financial: Incentives for private sector X Target: climate risk assessments for financial and — reforms participation banking institutions by BFM by 2026 28. Define a regulatory framework for REC origination, Policy: High-level political championing and registration, and issuance* Policy X coordinated planning across relevant sectors Target: Regulatory framework for REC connected to — reforms a global framework in place by 2030 TOTAL Investment Costs: Priority Actions • By 2030: US$3.37 billion US$3.37 US$4.12 billion • Between 2030 and 2050: US$4.12 billion billion • Total, 2024-2050: US$7.49 billion Note: There is no costing for Priority Area 2 and Priority Area 3 actions because they are policy and institutional reforms that back up Priority Area 1 actions. *Actions 7,8,14 and 19 are supported by the Madagascar Equitable and Resilient Growth DPO. xiv 2. Madagascar’s Dual Climate and Development Challenge Madagascar, one of the poorest countries in the world, is challenged by recurring political crises, instability, weak governance, and low productivity, as well as the impacts of major climate-related disasters. Real income per capita is lower today than it was in 1960,8 and in 2022 gross domestic product (GDP) per capita was only US$517, the sixth lowest in the world.9 While Madagascar has avoided large-scale violent conflict and civil war since independence, it has experienced repeated political crises,10 each of which has set back growth and seen development assistance suspended. Limited institutional capacity and application of the rule of law have perpetuated fragility and insecurity. Socioeconomic and demographic factors create profound and widespread vulnerability. An estimated 74 percent of Madagascar’s labor force was employed in agriculture in 2021 11 —mainly in low-productivity subsistence farming—and the share of GDP from agriculture, forestry, and fisheries has steadily declined, to an estimated 21.9 percent in 2022. 12 Services account for only 16 percent of employment, 13 and industry just 10 percent. 14 While population growth has declined from an estimated 3 percent per year in 2000, it remains significant—at 2.4 percent in 2022.15 An estimated 39 percent of Malagasy in 2023 were under 14 years old, while 58 percent were of working age (15–64 years).16 Poverty and lack of opportunities in rural areas have driven large-scale migration, increasing the urban share of the population from an estimated 27.1 percent in 2000, to 35.2 percent in 2015 and to 40.6 percent in 2023.17 In cities, rapid growth has strained infrastructure and public services, and poverty remains widespread. 18 Entrenched poverty, climate-dependent livelihoods, rapid population growth, unplanned urbanization, inadequate application of building and infrastructure standards, environmental degradation, and governance challenges exacerbate Madagascar’s vulnerability in the face of recurrent slow-onset climate events—as captured by changes in temperatures, rainfall patterns, and sea-level rise—and sudden, severe and frequent climate shocks, such as cyclones and major floods. Madagascar is still recovering from the impact of the COVID-19 pandemic. Per capita income dropped to historical lows, and the extreme poverty rate rose from an already-high 77.4 percent to 81.0 percent. The gains of more than a decade of poverty reduction were reversed. Though GDP growth resumed in 2021 and 2022 (at 5.7 and 3.8 percent, respectively),19 far more will be needed to reduce poverty significantly. At the same time, it is crucial to address the 8 See historical data from the St. Louis Fed: https://fred.stlouisfed.org/series/NYGDPPCAPKDMDG and, for 1990–2022 only, World Bank data for GDP per capita, purchasing power parity (constant 2017 international $): https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.KD?locations=MG. 9 See World Bank data for GDP per capita (current US$): https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=MG. 10 World Bank. 2022. The World Bank Group in Madagascar, Fiscal Years 2007–21: Country Program Evaluation. Country Program Evaluation. Independent Evaluation Group. Washington, DC: World Bank. http://hdl.handle.net/10986/38052. 11 See World Bank data for employment in agriculture, using modeled International Labour Organization (ILO) estimates: https://data.worldbank.org/indicator/SL.AGR.EMPL.ZS?locations=MG-ZG. For comparison, the average for Sub-Saharan Africa is 52 percent. 12 See World Bank data for agriculture, forestry, and fishing, value added (% of GDP): https://data.worldbank.org/indicator/NV.AGR.TOTL.ZS?locations=MG-ZG. The average for Sub-Saharan Africa is 17.3 percent. 13 See World Bank data for employment in services (% of total employment), using ILO modeled estimates: https://data.worldbank.org/indicator/SL.SRV.EMPL.ZS?locations=MG-ZG. The average for Sub-Saharan Africa is 37 percent. 14 See World Bank data for employment in industry (% of total employment), using ILO modeled estimates: https://data.worldbank.org/indicator/SL.IND.EMPL.ZS?locations=MG-ZG. The average for Sub-Saharan Africa is 12 percent. 15 Custom data acquired via website from: UN DESA. 2022. World Population Prospects 2022. New York: United Nations Department of Economic and Social Affairs, Population Division. http://esa.un.org/unpd/wpp/. 16 See UN Population Fund World Population Dashboard data: https://www.unfpa.org/data/world-population/MG. 17 Custom data acquired via website from: UN DESA. 2018. “World Urbanization Prospects 2018.� New York: United Nations Department of Economic and Social Affairs, Population Division. http://esa.un.org/unpd/wup/. Note that the UN DESA definition of urban areas is broader than that of many governments. 18 World Bank. 2022. Madagascar Economic Update: Navigating through the Storm. Washington, DC: World Bank. http://hdl.handle.net/10986/37506. 19 See World Bank data for GDP growth (annual %): https://data.worldbank.org/indicator/SP.POP.GROW?locations=MG. 1 structural factors that have thwarted development in the past, especially as climate change is compounding these challenges. 2.1. Madagascar’s Development Ambitions and Challenges The Plan Émergence Madagascar (Madagascar National Development Plan, PEM) lays out a roadmap for development focused on accelerating growth, investing in human capital and the environment, and improving governance.20 By 2040, it aims to grow GDP to US$172.5 billion, a twelvefold increase from the 2019 GDP of US$14.1 billion, and raise GDP per capita to US$4,000. The PEM also aims to reduce the poverty rate to 38 percent and raise the Human Capital Index (HCI) from 0.39 in 2020 to 0.60.21 Though optimistic in its macroeconomic assumptions, the plan is well-structured, and includes strategies for mobilizing resources and tracking progress. However, the road to realizing the PEM’s ambitions is paved with challenges. Madagascar is rich in natural capital, but it is threatened by environmental degradation. The island is a global biodiversity hotspot, home to more than 13,000 plant and 1,000 animal species —most of them endemic to Madagascar. 22 Its terrestrial ecosystems include multiple types of forest, savannahs, steppes, drylands, and wetlands, and its coastal ecosystems are among the richest and most biodiverse in the Indian Ocean region, and include coral reefs, mangroves, seagrass beds, and marshes. However, over 80 percent of the original forest cover has been lost, and many species are endangered. From 2000 to 2020 alone, forest cover declined from 29 percent to 21 percent,23 with 35 percent of the country’s land area becoming degraded over the past 30 years. Key drivers include land-clearing for low-productivity subsistence agriculture, livestock grazing, and cash crops; firewood and charcoal use; logging; artisanal mining; and hunting—all amid rapid population growth and deepening poverty. The result has been high erosion rates, increased flood risks, and reduced water yield, despite abundant water resources. The estimated cost of land degradation since 2000 exceeds US$6.7 billion, or 1.78 percent of GDP per year. As natural and productive ecosystems have declined, Madagascar’s renewable natural capital per capita has dropped by 31 percent (Figure 1.11). 20 Republic of Madagascar. 2022. “Plan Émergence Madagascar.� Antananarivo. https://www.mef.gov.mg/assets/vendor/ckeditor/plugins/kcfinder/upload/files/Documents_travail_provisoires.pdf. 21 For a detailed overview of Madagascar’s performance on the Human Development Index (HDI), see the country page on the HDI website: https://hdr.undp.org/data-center/specific-country-data#/countries/MDG. 22 This description is based on the Madagascar country profile under the Convention on Biological Diversity: https://www.cbd.int/countries/profile/?country=mg. See also Ralimanana, H. et al. 2022. “Madagascar’s Extraordinary Biodiversity: Threats and Opportunities.� Science 378 (6623): eadf1466. doi:10.1126/science.adf1466. 23 World Bank. 2022. Madagascar Country Environmental Analysis - Promoting Green, Resilient, and Inclusive Development. Washington, DC: World Bank. http://hdl.handle.net/10986/38211. 2 FIGURE 1.1. CHANGES IN MADAGASCAR’S NATURAL CAPITAL, 1995-2018 Source: Reproduced from Figure ES.2 in World Bank (2022), using data from World Bank (2021).24 If better managed, Madagascar’s natural assets could support strong growth in multiple sectors and contribute to poverty reduction. The 2022 Country Environmental Assessment (CEA) 25 found that integrated landscape management approaches, combined with governance measures and targeted investments (for example, in clean cooking), could reverse degradation and enable Madagascar to harness land and water resources for growth. This includes not only agriculture and forestry, but also hydropower, which would benefit from reduced sedimentation. The CEA also highlighted large potential in the blue economy and nature-based tourism. Minerals, including cobalt and nickel, are the most significant of Madagascar’s non-renewable resources, and the mining sector accounted for more than one-third of real GDP growth in 2012-202126 (Figure 1.2). But despite reform efforts, concerns remain that rents may be dissipated due to poor governance, and local accountability still needs to improve.27 Overall, improved natural resource management is essential to Madagascar ’s sustainable economic growth. FIGURE 1.2. MADAGASCAR’S KEY GROWTH SECTORS, 2012–2021 Share of GDP Contribution to GDP growth 25.0 40.0 36.5 22.0 20.0 18.0 30.0 24.5 15.0 11.9 20.0 10.1 10.1 9.3 8.5 10.0 7.6 7.3 7.0 10.0 5.6 4.8 5.9 2.0 1.8 0.8 0.5 3.5 3.3 0.0 5.0 1.3 0.9 1.2 -1.5 -2.8 0.0 -10.0 Source: Original figure based on Instat database. Note: 2007 = 100 Deep poverty and deprivation point to an urgent need to invest in Madagascar ’s human capital—to improve living conditions and boost economic growth. The Multidimensional Poverty Index (MPI), which measures deprivation in 24 World Bank. 2022. Madagascar Country Environmental Analysis -Promoting Green, Resilient and Inclusive Development; World Bank. 2021. The Changing Wealth of Nations 2021: Managing Assets for the Future. Washington, DC: World Bank. http://hdl.handle.net/10986/36400. 25 World Bank. 2022. Madagascar Country Environmental Analysis - Promoting Green, Resilient, and Inclusive Development. 26 World Bank. 2022. Madagascar Economic Update: Navigating through the Storm. 27 World Bank. 2022. The World Bank Group in Madagascar, Fiscal Years 2007–21: Country Program Evaluation. 3 health, education, and living standards, shows that as of 2021, 68.4 percent of Malagasies were experiencing multidimensional poverty—the fifth-highest share in the world—and 45.8 percent were in severe deprivation.28 As shown in Error! Reference source not found., however, poverty is unevenly distributed, being far more prevalent in the south and on the west coast than in the rest of the country.29 Overall, access to basic services is low: in 2022, just 53 percent of the population had access to basic drinking water,30 and 15 percent to basic sanitation services;31 and in 2021, only 35.1 percent had electricity,32 and 1.4 percent had clean cookstoves and fuels.33 Madagascar’s low HCI score (0.39 in 2020) 34 means that Malagasy children are likely to be only 39 percent as productive when they grow up than if they had enjoyed good health and a full education. Key issues include chronic malnutrition, which leads to a 42 percent FIGURE 1.3. MULTIDIMENSIONAL POVERTY stunting rate among children under five; low school completion INDEX (MPI) BY REGION IN MADAGASCAR rates; a high teen pregnancy rate; and a large share of youth neither in school or working. Rural poverty has driven labor migration to urban areas, where employment is largely informal, with limited job opportunities in industry or high-value-added services. Decades of underinvestment have led to deteriorating public infrastructure and limited coverage. Poor infrastructure has hindered agricultural productivity growth, and lack of adequate transport networks keeps rural areas isolated and impoverished. Inefficient public investment management has meant that only 30 percent of funds committed to public infrastructure investment are Source: Reproduced from World Bank (2022), which used data from the Oxford Poverty and Human Development Initiative. Note: The Multidimensional Poverty Index (MPI) is measured on a scale from 0 to 1, where 0 indicates no deprivation across the considered dimensions, and 1 represents severe deprivation in all dimensions. The MPI combines indicators across health, education, and living standards to assess the intensity and incidence of poverty. 28 UNDP (United Nations Development Programme) and OPHI (Oxford Poverty & Human Development Initiative). 2023. Global Multidimensional Poverty Index 2023 – Unstacking Global Poverty: Data for High Impact Action. Human Development Reports, New York and Oxford: United Nations Development Programme and Oxford Poverty & Human Development Initiative. https://hdr.undp.org/content/2023- global-multidimensional-poverty-index-mpi. 29 World Bank. 2022. The World Bank Group in Madagascar, Fiscal Years 2007 –21: Country Program Evaluation. 30 See World Bank data for people using at least basic drinking water services (% of population), based on UN data: https://data.worldbank.org/indicator/SH.H2O.BASW.ZS?locations=MG-ZG. For comparison, the share for Sub-Saharan Africa is 65 percent. 31 See World Bank data for people using at least basic sanitation services (% of population), based on UN data: https://data.worldbank.org/indicator/SH.STA.BASS.ZS?locations=MG-ZG. For comparison, the share for Sub-Saharan Africa is 35 percent. 32 IEA et al. 2023. Tracking SDG 7: The Energy Progress Report 2023. Joint report by the International Energy Agency, the International Renewable Energy Agency, United Nations Statistics Division, World Bank, and World Health Organization. Washington, DC: World Bank. https://trackingsdg7.esmap.org/. For comparison, the share for Sub-Saharan Africa is 50.6 percent. 33 See World Health Organization data: https://www.who.int/data/gho/data/indicators/indicator-details/GHO/gho-phe-primary-reliance-on- clean-fuels-and-technologies-proportion. 34 World Bank. 2023. Human Capital Country Brief: Madagascar. Washington, DC: World Bank. https://www.worldbank.org/en/publication/human-capital#Briefs. 4 spent, and projects are often poorly selected and run. 35 Lack of maintenance and limited resilience to climate shocks have also left key infrastructure in disrepair. 36 Low private sector investment rates, including foreign direct investment (FDI), which amounted to just 2.6 percent of GDP in 2019, reflect an unfavorable business climate (characterized by limited access to finance, land, skills, and markets) and weak governance, among other factors. The PEM aims to tackle all these challenges through 13 commitments linked to the Sustainable Development Goals (SDGs),37 including to build climate resilience, ensure sustainable growth, and protect natural resources and biodiversity. 38 It identifies climate change as a significant risk, and proposes contingency planning and capacity building as mitigation measures. More recently, the 2024 General State Policy (Politique Générale de l’Etat or PGE) sets the priorities for the new administration following the November 2023 presidential elections. Building on and aligning with the PEM, the 2024 PGE emphasizes human capital development, economic transformation and governance as key pillars and insists that all “public policies will have to integrate the need to adapt to climate challenges.�39 2.2. Climate Change and Variability in Madagascar FIGURE 1.4. MADAGASCAR’S SIX CLIMATIC ZONES 35 World Bank. 2022. The World Bank Group in Madagascar, Fiscal Years 2007–21: Country Program Evaluation. 36 World Bank. 2022. Madagascar Economic Update: Navigating through the Storm. 37 The 13 commitments are: (1) peace and security; (2) energy and drinking water for all; (3) fighting corruption and strengthening governance; (4) education for all; (5) health for all; (6) decent employment for all; (7) industrialization and economic emergence; (8) support for women, young people, and the most deprived; (9) food self-sufficiency and development of a modern agricultural sector; (10) sustainable natural resource management; (11) modernization of Madagascar; (12) decentralization and autonomy and empowerment of communities; and (13) sport and culture. 38 Commitment #10 focuses on sustainable natural resource management and intensive reforestation, promoting projects like local reforestation, waste valorization, alternative energy sources, and sustainable mangrove management. The PEM also includes disaster prevention and management strategies, advocating for multihazard contingency plans and long-term capacity building in disaster risk management (DRM). Furthermore, in addressing food self-sufficiency and agricultural modernization (Commitment #9), the PEM includes objectives that indirectly support the climate change agenda, such as issuing green titles and strengthening fisheries management for sustainable practices. 39 Republic of Madagascar. 2022. “Plan Émergence Madagascar.� Antananarivo. https://www.mef.gov.mg/assets/vendor/ckeditor/plugins/kcfinder/upload/files/Documents_travail_provisoires.pdf. The Politique Générale de l‘Etat (February 2024) 5 Madagascar is the fourth-largest island in the world,40 its climate shaped by its rugged topography and the trade winds and currents of the Indian Ocean. 41 There are two main seasons: summer, from November to April, which is hot and humid; and winter, from May to October, which is drier and cooler. Winter conditions are shaped by the southeast trade winds, while from November to April the trade winds are less regular, and activity linked to the Intertropical Convergence Zone brings rainfall and storms. With six distinct climatic regions (Figure 1.4), 42 annual rainfall in Madagascar ranges from about 1,500 mm in the north to less than 400 mm in the south. 43 There is also significant interannual variability in temperature and rainfall, affected by factors such as the El Niño Southern Oscillation (ENSO). 44 Madagascar’s exposure to cyclones is the highest in Africa, with three to five storms annually. Madagascar’s six climate regions are the Extreme 1.2.1. Climate change is already a reality in North (transitional tropical humid and high-elevation climate), the East Coast (hot and humid tropical Madagascar: Observed trends climate), the Central Highlands (tropical high-elevation Madagascar has contributed minimally to causing climate climate), the South and Southwest continental regions change, but the country is highly vulnerable to its impacts. In (semi-arid tropical climate), the Northwest region (temperate tropical climate), and the Southwestern 2020, the country emitted an estimated 40.21 million tons of Coast (arid tropical climate). carbon dioxide equivalent (Mt CO2e), or 0.09 percent of global Source: Reproduced from Météo Madagascar (2023). Tendances Climatiques Observées et Futurs greenhouse gas Changements Climatiques à Madagascar 2023 45 (GHG) emissions. In per capita terms, Madagascar’s emissions rank 169th in the world in 2021, at just 1.45 tons CO2e emitted per person. However, due to its high exposure to climate hazards, deep social and economic vulnerabilities, dependency on natural capital, and other factors, Madagascar is considered one of the countries most vulnerable and least prepared to cope with climate change, ranked 172 out of 185 countries by the 2022 Notre Dame Global Adaptation Initiative (ND-GAIN) Index.46 40 After Greenland, New Guinea, and Borneo. 41 The island is dominated by highlands that cover two-thirds of the country, with elevations of 800–1,600 meters above sea level and tall mountains in the north. Unless otherwise noted, the description of Madagascar’s climate is based on: Météo Madagascar. 2023. Tendances Climatiques Observées et Futurs Changements Climatiques à Madagascar 2023. La Réunion: Direction Générale de la Météorologie de Madagascar & Direction Interrégionales de la Météo-France pour l’Océan Indien. 42 Météo Madagascar. 2023. Tendances Climatiques Observées et Futurs Changements Climatiques à Madagascar 2023 ; Nematchoua, M. K. 2017. “A Study on Outdoor Environment and Climate Change Effects in Madagascar.� Journal of Buildings and Sustainability 1 (1): 1–12. 43 Republic of Madagascar. 2022. Deuxième Contribution Determinée Au Niveau National de La République de Madagascar. Antananarivo: Ministry of Environment and Sustainable Development (MEDD). https://cbit-madagascar.mg/document/contribution-determinee-nationale-i- et-ii-de-madagascar-2016-2023/. 44 Randriamahefasoa, T. S. M., and C. J. C. Reason. 2017. “Interannual Variability of Rainfall Characteristics over Southwestern Madagascar.� Theoretical and Applied Climatology 128 (1): 421–37. doi:10.1007/s00704-015-1719-0; Weiskopf, S. et al. 2021. “Climate Change Risks and Adaptation Options for Madagascar.� Ecology and Society 26 (4). doi:10.5751/ES-12816-260436. 45 GHG data is sourced from Climate Watch data for historical GHG emissions: https://www.climatewatchdata.org/ghg-emissions. Note that while the Nationally Determined Contribution (NDC) estimates are different, this Country Climate and Development Report (CCDR) has used the Climate Watch data for global benchmarking purposes. Madagascar’s first NDC (2015) indicates that the country absorbed a total of −63,121 Mt CO2e in 2010. The same document estimated that the country will continue to absorb −23,609 Mt CO2e in 2020 but will be a net emitter by 2030, with estimated emissions of 22 Mt CO2e, https://cbit-madagascar.mg/wp-content/uploads/CDN_MADAGASCAR_2015.pdf. 46 The Notre Dame Global Adaptation Initiative (ND-GAIN) Country Index summarizes a country’s vulnerability to climate change and other global challenges in combination with its readiness to improve resilience. See https://gain-new.crc.nd.edu/ranking. 6 Between 1961 and 2018, mean annual temperatures across Madagascar increased by 0.75-1.6°C, while annual rainfall declined—though both showed large inter-regional differences.47 Maximum temperatures have increased by 0.23°C per decade on average, while annual rainfall has dropped by 15-20 percent, with the greatest declines on the southwest coast and in the far north. There is significant interannual variability, making it difficult to discern trends, particularly for rainfall, but a lengthening of dry seasons and more intense torrential rains have been observed. Sea level rose by 0.6 cm per year from 1994 to 2008. Over the past 20 years, Madagascar has been hit by 35 cyclones, 48 eight floods, and five periods of severe drought (that is, three times more than during the previous 20-year period). In January and February 2022 alone, Madagascar was hit by four cyclones, two of which were category 3-4 events.49,50 In a 2022 public survey, more than two-thirds of respondents said they were familiar with climate change, and half said it was making life in Madagascar “much worse.�51 Extreme weather events take a heavy toll on Madagascar. A typical tropical cyclone costs the economy an estimated 1 percent of GDP per year and up to 8 percent of GDP for once-in-a-century events, devastating rural communities and agriculture, especially along the eastern coast. Total losses from cyclones in 2020 alone were equivalent to 4.8 percent of GDP. 52 The economic and human impacts of droughts are even more profound, especially in the south, where a multiyear severe drought has deepened poverty and food insecurity (see Box 1).53 The impacts of climate shocks are unevenly distributed across the island. While severe drought and water stress risks are concentrated in the south and southwest, exposure to tropical cyclones is of greatest concern by far in the north and on the east coast. Combined with economic disparities, this translates into large differences in average annual losses (AAL) across regionsError! Reference source not found.. For example, while in absolute terms Antananarivo accounts for the largest share of total national exposure of monetary value (over 28 percent), total AAL as a share of the city’s total exposure is very low (only one-tenth of 1 percent); on the other hand, cities in the Diana region (Antsiranana, Ambilobe, Ambanja, Hell-Ville) have the highest AAL as a percentage of their exposure (at about 2 percent).54 Climate-related disasters and shocks have a significant impact on poverty levels. They can cause people to fall into poverty both through direct immediate losses and damage, as well as through long-term indirect impacts on nutrition and education, among others. Overall, from 2008 to 2022, disasters linked to natural hazards displaced 1.4 47Météo Madagascar. 2023. Tendances Climatiques Observées et Futurs Changements Climatiques à Madagascar 2023. Météo Madagascar, the National Meteorological Service, estimates that the southwest coast, the continental south and southwest, and the central highlands warmed by 0.3°C per decade, while the east coast and northwest warmed by 0.23°C, and the north by less than 0.15°C. Analysis by the World Bank is roughly consistent with these findings, showing that since 1971, mean annual surface air temperatures across Madagascar have increased by 0.16-0.30°C per decade, depending on the region, while rainfall has declined in most of the country, but increased in the north. See World Bank Climate Knowledge Portal data for Madagascar: https://climateknowledgeportal.worldbank.org/country/madagascar/trends-variability- historical. 48 Madagascar has the highest risk of cyclones in Africa and currently experiences three to four cyclones per year between November and April. Major tropical cyclones have hit Madagascar an average about once every three years since 1998. 49 Cerra, V. et al. 2022. Republic of Madagascar: Technical Assistance Report – Climate Macroeconomic Assessment Program. IMF Country Report No. 22/342. Washington, DC: International Monetary Fund. https://www.imf.org/en/Publications/CR/Issues/2022/11/14/Republic-of- Madagascar-Technical-Assistance-Report-Climate-Macroeconomic-Assessment-Program-525665. 50 Météo Madagascar. 2023. Tendances Climatiques Observées et Futurs Changements Climatiques à Madagascar 2023. The number of cyclonic events arising in the Indian Ocean and the Mozambique Channel varies considerably from year to year, with no clear trend in recent decades, though there has been an increase in the most severe storms. 51 Afrobarometer. 2023. Madagascar Round 9 Résumé Des Résultats. Accra. https://www.afrobarometer.org/publication/madagascar-round-9- resume-des-resultats/. The shares were 68.5 percent (know about climate change) and 48.6 percent (making life “much worse�), including 53.2 percent of urban residents (76.1 percent of whom had heard about climate change) and 47.2 percent of rural respondents (66.5 percent of whom had heard about climate change). 52 World Bank’s Global Rapid Damage Estimation (GRADE). 53 It is important to note that while, as discussed further below, climate change poses enormous threats to food security in Madagascar’s Grand Sud, scientific analysis has found that the ongoing crisis is due mainly to climate variability and social, economic, and structural issues. See: Harrington, L. J., et al. 2022. “Limited Role of Climate Change in Extreme Low Rainfall Associated with Southern Madagascar Food Insecurity, 2019–21.� Environmental Research: Climate 1 (2): 021003. doi:10.1088/2752-5295/aca695; Tandon, A. 2021. “Climate Change Not the Main Driver of Madagascar Food Crisis, Scientists Find.� Carbon Brief, December 1. https://www.carbonbrief.org/climate-change-not-the-main- driver-of-madagascar-food-crisis-scientists-find/. 54 World Bank. 2022. Madagascar Urbanization Review. Washington. 7 million people—1.3 million of them due to storms alone. 55 A 2015 study found that the average cyclone was associated with a 12.3 percent decrease in rural household expenditure, a 7.4 percent increase in the probability of falling below the national poverty line,56 and a 2.4 percent decrease in the probability of having access to electricity the following year.57 BOX 1 – FOCUS ON MADAGASCAR’S ‘GRAND SUD’: ACUTE VULNERABILITY TO CLIMATE SHOCKS Madagascar’s ‘Grand Sud’ (Great South) is the hottest and driest part of the island and has a long history of poverty, political marginalization, insecurity, and patchy access to public services. It comprises three administrative regions—Atsimo Andrefana, Androy, and Anosy—that are home to about 3.7 million people.58 Socioeconomic vulnerability is acute, with an estimated 91 percent of households living in poverty, 59 and deprivation is widespread. Historically, many people were seminomadic pastoralists, but today a majority of the population depends on smallholder rainfed agriculture, and income-earning opportunities are limited.60 Limited transport systems make it difficult to access markets, increasing the price of food. Men often migrate for work, resulting in 35 percent of households being headed by women, versus 24 percent nationwide.61 Due to chronic underinvestment, the Grand Sud trails the rest of the country for many measures of human and economic development.62,63 Just over 4 percent have access to an improved water source, versus 28 percent nationwide. Limited state presence, historical tensions with the central government, and persistent economic hardship and inequalities have contributed to violence and insecurity. Stealing livestock (zebu) has long been a rite of passage for boys, but armed groups of bandits known as dahalo—who are also active elsewhere in Madagascar—not only steal cattle and personal property but also burn homes and kidnap and kill people.64 From 2020 to March 2022 alone, there were 139 dahalo-related fatalities in the three Grand Sud regions. Moreover, trust in law enforcement is low—47 percent of rural Malagasy say they have little or no trust in the police, and 69 percent say the same about the courts—and this has led to vigilante violence.65,66 These conditions make farmers highly vulnerable to climate change and variability, as they have limited coping capacity.67 Drought is a persistent problem, and is being exacerbated by climate change, as well as deforestation, catchment degradation, and a lack of adequate water supply infrastructure. A prolonged drought in 2015-2017 affected more than 1.1 million people in southern 55 See Internal Displacement Monitoring Centre data: https://www.internal-displacement.org/countries/madagascar. 56 The same study also finds that if parts of a house are destroyed by a cyclone, it can take a household more than a year (and up to three) to build a sturdy replacement. 57 Andrianarimanana, D. 2015. “The Role of Inter-Household Transfers in Coping with Post-Disaster Losses in Madagascar.� Note Brève Ferdi B117. Fondation pour les Études et Recherches sur le Développement International. https://ferdi.fr/publications/the-role-of-inter-household- transfers-in-coping-with-post-disaster-losses-in-madagascar. 58 ACAPS. 2022. Madagascar: Food Insecurity Crisis in the Grand Sud Regions. https://www.acaps.org/fileadmin/Data_Product/Main_media/20220310_acaps_thematic_report_madagascar_food_security.pdf. For a perspective on the World Bank’s recent work in the Grand Sud, see: World Bank. 2023. “Restoring Dignity and Livelihoods in Madagascar’s Grand Sud.� Immersive news story, October 17, 2023. https://www.worldbank.org/en/news/immersive-story/2023/10/17/restoring-dignity- livelihoods-in-madagascars-grand-sud. 59 World Bank. 2020. “World Bank Provides $100 Million to Support Resilient Livelihoods in the South of Madagascar. � Press release. December 10, 2020. doi:10/world-bank-provides-100-million-to-support-resilient-livelihoods-in-the-south-of-madagascar. 60 ACAPS. 2022. Madagascar: Food Insecurity Crisis in the Grand Sud Regions. 61 WFP (World Food Programme), FAO (Food and Agriculture Organization), UNICEF (United Nations Children’s Fund), and Ministry of Population, Social Protection, and Promotion of Women. 2022. “Evaluation Approfondie Multisectorielle de La Sécurite Alimentaire Grand Sud de Madagascar.� Antananarivo: WFP, FAO, UNICEF, and Ministry of Population, Social Protection, and Promotion of Women. https://reliefweb.int/report/madagascar/evaluation-approfondie-multisectorielle-de-la-securite-alimentaire-grand-sud-de-madagascar-avril- 2022. For data highlights in English, see: Fayad, D. 2023. “Food Insecurity and Climate Shocks in Madagascar: Republic of Madagascar.� Selected Issues Paper No. 2023/037, Washington, DC: International Monetary Fund. https://www.imf.org/en/Publications/selected-issues- papers/Issues/2023/06/05/Food-Insecurity-and-Climate-Shocks-in-Madagascar-Republic-of-Madagascar-534103. 62 For a comparison of Sava in the north and Atsimo-Andrefana in the south on several measures of deprivation, see Figures 1.6 and 1.7 in World Bank. 2022. Madagascar Economic Update: Navigating through the Storm. 63 Grand Sud data from WFP et al. (2022). Nationwide, the primary school completion rate was 59 percent as of 2022; see World Bank data for “Primary completion rate, total (% of relevant age group)� at https://data.worldbank.org/indicator/SE.PRM.CMPT.ZS?locations=MG (using data from UNESCO). 64 ACAPS. 2022. Madagascar: Food Insecurity Crisis in the Grand Sud Regions. https://www.acaps.org/fileadmin/Data_Product/Main_media/20220310_acaps_thematic_report_madagascar_food_security.pdf. 65 Public opinion data from this 2022 survey: Afrobarometer. 2023. Madagascar Round 9 Résumé Des Résultats. Distrust of the authorities is even higher among urban Malagasies. For a discussion of vigilante justice, see Moody, D. 2017. “Madagascar - March 2017 Update.� ACLED blog, April 11. https://acleddata.com/2017/04/11/madagascar-march-2017-update/. 66 World Bank. 2022. The World Bank Group in Madagascar, Fiscal Years 2007 –21: Country Program Evaluation. 67 See also: Amnesty International. 2021. It Will Be Too Late to Help Us Once We Are Dead: The Human Rights Impact of Climate Change in Drought-Stricken Southern Madagascar. https://www.amnesty.org/en/documents/afr35/4874/2021/en/. 8 Madagascar.68,69 In January 2024, the World Food Programme said 334,000 people in the Grand Sud faced emergency levels of food insecurity70 as the region faces its worst drought in 40 years.71 The mechanisms to protect vulnerable households from shocks are limited, as social assistance and social insurance schemes are relatively underdeveloped. Women and girls are disproportionately affected, as early marriage and sex work are common coping strategies for the food-insecure, and there is a high incidence of gender-based violence and school dropouts reported during periods of drought. Addressing climate change in the Grand Sud is thus closely intertwined with addressing social exclusion, fragility, geographical isolation, and entrenched poverty. 1.2.2. Future climate in Madagascar The latest climate modeling for Madagascar foresees continued warming, increased rainfall variability, and more intense (though less frequent) cyclones, with increased impacts across all sectors of Malagasy society. This is based on the available climate scenario models72 —low emissions (SSP731-2.6), intermediate (SSP2-4.5), and high emissions (SSP5-8.5)—with projections to 2041-2070 and 2071-2100, and compared with climatic conditions in 1981-2010. An increase of +1.5°C is expected toward the end of the century (compared to the historical period 1981- 2010) for the low-emissions SSP1-2.6 scenario and for all climatic zones, while a warming of +2°C to +3°C is projected for the intermediate SSP2-4.5 scenario, and +3°C to +5°C for the high-emissions (pessimistic) scenario SSP5-8.5. Future precipitation patterns are less predictable and vary depending on the region and the climate scenario, with precipitation declining under a most pessimistic (hot/dry) scenario and increasing under an optimistic (wet/warm) scenario. Under a hot/dry scenario, the percentage change in average national precipitation from 2031 to 2050 relative to 1995-2020 is −5.0 percent (compared to +5.1 percent under the wet/warm scenario). While precipitation is expected to diminish by 2100 on the east coast, the extreme north, northwest, center (highlands), south and southwest parts of the island, including the southwest coast, may experience increased precipitation. Finally, the frequency of tropical cyclones is projected to remain the same or decrease, but their intensity is expected to worsen.74 Madagascar’s high and frequent exposure to both rapid and slow -onset climate shocks thus makes climate resilience crucial to the success of its development agenda. The annual damages from tropical storms, measured as a percentage of capital stock loss, are expected to increase significantly (almost fivefold) relative to the baseline, with damages higher under the pessimistic scenario (Figure 1.5). 68 ACAPS. 2022. Madagascar: Food Insecurity Crisis in the Grand Sud Regions. https://www.acaps.org/fileadmin/Data_Product/Main_media/20220310_acaps_thematic_report_madagascar_food_security.pdf. 69 Berry, J. de. 2023. “Madagascar and the Social Impacts of Drought.� World Bank. Development and a Changing Climate (blog), March 3. https://blogs.worldbank.org/climatechange/madagascar-and-social-impacts-drought. 70 See https://www.wfp.org/countries/madagascar [accessed 4 January 2024]. 71 For a detailed discussion of the drought, see Amnesty International (2021). It Will Be Too Late to Help Us Once We Are Dead: The Human Rights Impact of Climate Change in Drought-Stricken Southern Madagascar. 72 Météo Madagascar future climate modeling was conducted under the World Meteorological Organization Indian Ocean Project. The projections were made using the high-resolution ALADIN-Climate Regional Climate Model, version 6.3; for details, see Section 4 in Météo Madagascar (2023). Tendances Climatiques Observées et Futurs Changements Climatiques à Madagascar 2023. 73SSPs (Shared Socioeconomic Pathways) are climate change scenarios of projected socioeconomic global changes up to 2100 as defined in the IPCC Sixth Assessment Report on climate change in 2021 74 Météo Madagascar (2023). Tendances Climatiques Observées et Futurs Changements Climatiques à Madagascar 2023. 9 FIGURE 1.5. IMPACT FROM TROPICAL CYCLONES BY 2050 UNDER DIFFERENT CLIMATE SCENARIOS Source: Industrial Economics analysis for this CCDR. Note: Includes capital infrastructure damage in transport sector but also on urban, coastal, and other rural infrastructure. Chapter 4 presents modelling work done for this report which assesses the impacts of a changing climate on poverty and growth in Madagascar. 10 3. Are Madagascar’s Policies and Institutions Ready for the Climate Crisis? Climate resilience and inclusive, sustainable economic development are inextricably linked in Madagascar. Reducing poverty and deprivation and creating new economic opportunities will reduce vulnerability to climate shocks—but only if development investments address climate change, as otherwise the next disaster could reverse hard-fought gains. Climate action in itself can create valuable opportunities to achieve development goals, as discussed in Chapter 3, and attract new finance, as discussed in Chapter 5. Madagascar has long recognized the need to address climate change and disaster risks to achieve its development goals. Madagascar ratified the United Nations Framework Convention on Climate Change (UNFCCC) in 1998 and the Paris Agreement in 2016 and has made several submissions under the UNFCCC, highlighting its adaptation needs and its contributions to mitigation. It has also prioritized the establishment of disaster risk management (DRM) policies and institutional frameworks, and begun to integrate climate and DRM in sectoral strategies and economic development initiatives. However, as the discussion in this chapter shows, mainstreaming climate issues remains a monumental challenge.75 Madagascar’s NDC prioritizes adaptation and DRM, but also includes mitigation commitments, mainly focused on energy and land use, land-use change and forests (LULUCF). The initial NDC, submitted in 2016 with commitments to 2025, laid out a package of actions that were projected to cost US$42.1 billion. Most of the near-term goals in the initial NDC were not achieved, so an NDC update was drawn up in 2022 (NDC2) and submitted in 2024 aiming to set more realistic, achievable goals by 2030. 76 The five priority climate-sensitive development sectors in NDC2 are agriculture, land, and blue economy; hydropower; urban resilience; resilient transport; social protection, health, and education. The estimated costs for NDC2 implementation amount to US$24.406 billion over 2022-2030. The NDC2 pledges by 2030 to reduce cyclone-related loss of life, lower GHG emissions (by 28 percent), increase land-based carbon sinks, boost the share of renewable energy in the electricity mix to 80 percent, scale up household adoption of improved stoves, slow coastal erosion in vulnerable areas, triple marine protected areas, and restore 170,000 hectares (ha) of degraded mangroves. The government is now drafting a long-term low-emissions development strategy under the UNFCCC,77 laying out a vision for achieving a just transition to net zero by mid-century. Madagascar’s 2021 National Adaptation Plan (Plan National d’Adaptation de Madagascar, PNA) explicitly references the PEM and aims to strengthen adaptation governance and mainstreaming in priority sectors, and to mobilize finance.78 It includes a diverse array of actions over a 10-year period, including creating a ‘green belt’ to prevent desertification and enhance climate resilience; promoting adaptation in agriculture, especially in the Grand Sud; improving access to drinking water; strengthening early warning systems; accelerating reforestation and conserving natural forests; protecting coastal infrastructure; and making cities more resilient. To grow the economy, sharply reduce poverty, and improve living standards, the government will need to fully integrate climate action 75 A recent assessment found that Madagascar has key climate-related policies and strategies in place that are linked to development goals. It added, “However, climate change has not been mainstreamed into sectoral strategies. Instead, some sectors developed standalone documents on climate change. The impact of future climate developments and related hazards is not well understood at the sectoral level, which hinders the development of proactive measures for addressing climate change. Madagascar has also developed a complete set of land use and building regulations primarily promoting resilience to climate risks. However, a lack of capacity has hindered the implementation of the new framework.� See p. 8 of Cerra, et al. 2022. Republic of Madagascar: Technical Assistance Report - Climate Macroeconomic Assessment Program. 76 Republic of Madagascar. November 2022. Deuxième Contribution Determinée Au Niveau National de La République de Madagascar . https://unfccc.int/documents/636850 77 A low-emissions development strategy is an important complement to NDCs under the Paris Agreement. See https://www.undp.org/fr/madagascar/press-releases/le-processus-de-validation-de-la-strat%C3%A9gie-de-d%C3%A9veloppement-%C3%A0- faible-%C3%A9mission-de-carbone-lanc%C3%A9-%C3%A0-antsirabe. 78 Republic of Madagascar. 2021. “Plan National d’Adaptation Au Changement Climatique (PNA) Madagascar [National Adaptation Plan of Madagascar].� Antananarivo: Ministry of Environment and Sustainable Development. https://unfccc.int/documents/488094. 11 across national, sectoral, and territorial development strategies, addressing climate risks in publicly and privately financed investments alike, and paying particular attention to climate vulnerability hotspots across the country, especially the south and coastal zones. The poorest and most marginalized populations need urgent attention. 3.1. Climate Governance in Madagascar: A Gap Analysis Responsibilities for achieving Madagascar’s climate objectives are concentrated in the Ministry of Environment and Sustainable Development (MEDD). As part of its broad mandate, the MEDD is responsible for designing and implementing policies on climate change mitigation, adaptation, and resilience. It also oversees the mainstreaming of climate objectives in sectoral policies and programs. Within the MEDD, the National Office for Climate Change and the Reduction of Emissions from Deforestation and Forest Degradation (BN-CCREDD+) is responsible for coordinating all climate-related initiatives, including Reducing Emissions from Deforestation and Land Degradation (REDD+) activities, with the overarching objective of promoting a low-carbon, climate-resilient economy. Several other key climate-related functions are housed in other ministries and institutions, including some specialized committees. The Ministry of Economy and Finance, which coordinates the development of the government’s annual budget, is responsible for ensuring that climate-related programs and investments are funded. The Directorate General of Meteorology (DGM) housed under the Ministry of Transport produces weather forecasts and climate research. The Emergency Prevention and Management Unit (Cellule de Prévention et d’appui à la Gestion des Urgences, CPGU), reporting to the Prime Minister’s office, is in charge of providing strategic guidance on DRM and serves as focal point for the Pilot Program for Climate Resilience (PPCR).79 In addition, several cross-sectoral committees have been created to engage sectoral ministries, the private sector, academics, and civil society in climate action.80 A few sectoral ministries (agriculture, coastal/marine areas, forestry) have produced stand-alone climate change documents, but the approach has not been centrally coordinated or sufficiently integrated. These sectoral ministries lack systematic data on past disasters and projections of future climate change impacts and disaster risks. Sectoral documents tend to provide only an overarching national perspective and do not indicate how climate change might affect different parts of the country or different groups of people. This lack of detail hinders the documents’ usefulness for guiding action at the local level. Commitments to inclusive transitions —ensuring that climate investments have local poverty alleviation and development benefits—are also not explicitly covered in the documents. Subnational government entities in Madagascar81 also hold important climate and DRM-related responsibilities, but there are several challenges, especially at the local level. Subnational governments are tasked with integrating climate resiliency into their investment planning (especially for regional development plans and urban zoning plans). The Inter-Regional and Regional Directorates for the Environment and Sustainable Development act as representatives to the MEDD at the subnational government level, coordinating and monitoring the implementation of national climate strategies and initiatives. The national REDD+ strategy is also implemented through regional 79 For more information on PPCR activities in Madagascar, see the overview on the Climate Investment Funds (CIF) website: https://cif.org/projects/bdrp-strengthening-early-warning-systems-and-disaster-preparedness-madagascar-project. 80 These include the Inter-ministerial Committee for the Environment (CIME), established in 1997, which reports to the Prime Minister and is responsible for mainstreaming environmental actions into sectoral policies; and the National Committee on Climate Change (CNCC), created in 2014 and chaired by the MEDD Secretary General to support implementation of the National Plan to Fight Climate Change. It includes representatives of sectoral ministries, non-government organizations (NGOs), and the private sector. An advisory coordination committee for the PNA, created in 2016 by the BN-CCREDD+, includes representatives of particularly climate-vulnerable sectors. A national REDD+ platform (PFN REDD+) was established in 2016 with the mandate to formulate the REDD+ strategy adopted in 2018. It includes government representatives at the central, regional, and district levels, as well as the private sector, technical and financial partners, academics, and civil society. The Climate Change Thematic Group is an informal group of volunteers and representatives of different institutions (ministries, civil society) that serves as a platform for knowledge exchange and capacity building on adaptation and mitigation. 81 Madagascar is divided into 23 administrative regions, and 1,695 municipalities (communes). 12 REDD+ platforms. Finally, the National Office in Charge of Risk and Disaster Management (BNGRC) coordinates Disaster Management Committees that have been established by decree for each commune. Structures for local engagement82 and community participation are built into subnational government systems and offer strong potential, but local governments face several constraints. National climate-related sectoral policies lack explicit mandates for local government responsibility and action, and both technical capacity and financial resources are inadequate. Effective decentralization has remained elusive, with the ratio of the budget transferred to regions and communes decreasing from 1.21 percent of the total budget in 2021 to 0.93 percent in 2022, and to 0.86 percent in 2023. Additionally, in 2023, only 86 percent of the transfers to CTDs (Collectivités Territoriales Décentralisées or Decentralized Territorial Entities) were executed effectively.83 Currently, no dedicated local climate action financing is available for communes. An analysis of Madagascar’s climate governance framework for this CCDR identified three key challenges. These are as follows: (1) lack of support mechanisms for implementing Madagascar’s multiple climate commitments; (2) a fragmented climate agenda; and (3) lack of climate change mainstreaming into public finance management, including budgeting, investment, and procurement. Alongside these, there is a lack of technical capacity and financial resources, and existing coordination structures are fragmented and lack high-level leadership to ensure that climate change is truly prioritized and mainstreamed. For example, the Inter-ministerial Committee for the Environment (CIME), headed by the Prime Minister, does not address climate issues in policy design. The National Committee on Climate Change (CNCC), which has a cross-sectoral perspective, is under the leadership of the MEDD, with limited convening power and participation by non-government actors. The National Office for Climate Change and the Reduction of Emissions from Deforestation and Forest Degradation (BN-CCREDD+) also has limited political influence and resources. Overall, there is a lack of systematic government ownership of climate risks and opportunities in Madagascar. The national climate agenda is fragmented institutionally and politically. Climate change is still considered an environmental issue, not an economy- and society-wide concern, and coordination is weak. Climate change focal points within ministries change frequently. There is limited transparency and access to climate information, including on how different sectors can access climate finance. There is no single climate investment fund in place —for instance, at the Ministry of Finance—to gather resources from various sources (carbon markets, disaster funds, REDD+, and so on). Because there is no systematic training, climate-sensitive ministries are not equipped with the skills to manage climate risks. While some sectoral ministries have produced documents to address climate change (including energy, waste, water, industry, and forestry), they have not provided detailed cost information. Monitoring and evaluation also need to be improved. Building robust M&E capacity may be challenging and expensive, but it is key to unlocking climate finance and ensuring that resources are well spent. The PNA addresses the need for good M&E, but there are several challenges. The first is tracking inputs such as projects, programs, and financing. The second is collecting and ensuring the quality of climate-related data for tracking and reporting, particularly in regions with limited qualified staff, transportation, and connectivity. As part of a new monitoring, reporting, and verification (MRV) system for climate mitigation, a metadata catalog and database have been set up to help track emissions in the country. Moving forward, it is important for the government to maintain and enhance the newly established MRV system; bolster the capacity for tracking adaptation progress, ensuring adequate 82 The local structure of consultation (SLC) at the communal level are legally mandated (Décret 2015-957) to foster public participation and strengthen accountability. They also serve as a consultation platform to support decision making processes and monitor policy execution. They are, for instance involved in local development plans elaboration process and monitoring. SLCs are chaired by mayors and consist of representatives from the communal council, deconcentrated sectors, private sector, civil society organizations, traditional leaders, women and youth associations. 83 Representing the total of operating grants and capital grants to regions and communes, including operating transfers for health centers spent through the communes. 13 resources and expertise; and establish a reporting framework to systematically monitor adaptation actions, including finance, and assess outcomes. 3.2. Madagascar’s Approach to Disaster Risk Management Madagascar has adopted a strong DRM policy framework in addition to its climate commitments, strategies, and plans. In 2015, the country adopted a National Disaster Risk Management Policy, followed by the National Disaster Risk Management Strategy 2016-2030,84 reflecting Madagascar’s awareness of its significant exposure to disaster risks. For example, the 2018 National Social Protection Policy and the 2019-2023 National Social Protection Strategy both aim to create a social protection system that can respond effectively to shocks and channel assistance to the poor when they are affected by disasters. The 2021 law validating the Emerging Decentralization Policy also enables a greater transfer of financial and technical resources for DRM to subnational entities. Several entities have been established to oversee DRM, but with limited coordination with climate-related activities. In 2005, Madagascar set up the National Disaster Risk Management Council (CNGRC), an interministerial body headed by the Prime Minister; and a national DRM agency (BNGRC) under the Ministry of Interior and Decentralization (MID). The BNGRC oversees operational aspects of DRM and coordinates emergency response and relief at the national level. In addition, the CPGU, mentioned above, provides high-level strategic advice on DRM, primarily by mainstreaming it into sectoral planning and programs. Its objectives are to reduce the vulnerability of the country’s infrastructure and build resilience to climate hazards. More recently, Madagascar established the National Platform for Risk and Disaster Reduction (PNRRC), a consultative platform to foster dialogue, share DRM experience between all stakeholders, and provide recommendations. Madagascar’s DRM policy framework still has several shortcomings. First, it lacks specificity on key issues such as defining roles and responsibilities for emergency preparedness and response. Second, although local governments are responsible for many DRM tasks, and the government has tried to strengthen and expand the capacities of the BNGRC, many subnational entities lack the personnel, funds, and technical and coordination capabilities needed to fulfill their responsibilities. The BNGRC has only been able to establish 3 of the 16 regional offices it planned, and only one—the office in Toamasina—is currently operational. In the absence of an effective government-led response system, Madagascar still largely depends on international NGOs and development partners for disaster response. In addition, insufficient information about disaster risks is a major obstacle to effective DRM. A Climate Risk Atlas 85 and a GIS GeoNode86 are able to provide limited georeferenced data. However, risk information in Madagascar is scattered across institutions and partners. This makes it difficult to consolidate data, risk maps, and models to support decision making. Madagascar needs a comprehensive and proactive nationwide cyclone and flood risk mitigation program. The country needs to systematically assess risks and invest in resilience-building measures. A multi-decadal national program should identify and prioritize both structural and nonstructural measures for each location. Solutions are likely to include gray, green, and blue infrastructure, such as local embankments, drainage works, retention basins, and catchment restoration, as well as cyclone shelters, flood-proofing of houses, planning and enforcement of no- 84 Republic of Madagascar. 2016. Politique Nationale de Gestion Des Risques et Des Catastrophes [National Policy for Managing Risks and National Catastrophes]. Antananarivo. https://www.primature.gov.mg/cpgu/wp-content/uploads/2017/01/PNGRC_2015- 031_VERSION_FRANCAISE.pdf. 85 CPGU. 2020. Atlas Des Risques Climatiques de Madagascar [Atlas of Climatic Risks in Madagascar]. Antananarivo: Cellule de Prévention et d’appui à la Gestion des Urgences. https://www.resiliencemada.gov.mg/catalogue/#/document/619. 86 See https://www.resiliencemada.gov.mg. 14 build zones, public awareness campaigns, and relocation of vulnerable communities. A long-term financing strategy must also be developed.87 Madagascar lags behind the region for hydrometeorological services and early warning systems (EWS), hampered by institutional and regulatory fragmentation, insufficient equipment, and capacity gaps. A 2015 decree established the National Multidisciplinary Committee for the Implementation of the National Framework for Climate Services, which provides some regulatory guidance on this topic, but there are no dedicated regulatory provisions on EWS. The DGM within the Ministry of Transport and Meteorology operates Météo Madagascar 88 and is the main provider of national meteorological and hydrological services, including early warnings. However, it has limited institutional, financial, and technical capacities to monitor climate and weather and to produce location-specific and end-user tailored forecasts to inform decision making. Hydrological and meteorological equipment needed for effective detection, monitoring, analysis, and forecasting of hazardous weather conditions are lacking as there are very few automated weather stations on the island, and no upper-air station or weather radar network to monitor rainfall and cyclones.89 A regional hydromet project led by the Indian Ocean Commission (IOC), with funding from the Green Climate Fund (GCF), and a Regional Climate Resilience Project financed by the World Bank, should close some of these gaps, but support is needed to ensure sustained operations and maintenance. Madagascar needs to create a centralized multi-hazard EWS linking all relevant agencies under a single authoritative agency with the capacity for reaching end-users (last-mile connectivity). Key roles and responsibilities need to be more clearly defined to avoid gaps and duplication. Currently, except for cyclones, Madagascar has no end-to-end EWS—a critical gap. Coordination between various agencies should also be significantly improved, and standard operating procedures (SOPs) are needed for near real-time data exchange and for alert communication and dissemination across agencies. Only a few national institutions have developed SOPs for emergency management and/or service continuity, and operationalization is often an issue. These systems lack interoperability and are not leveraging digital public infrastructure to support faster response time and dissemination of safety information. All this exacerbates Madagascar’s dependence on international partners for disaster response. It also results in mainly ad hoc emergency response interventions, rather than systematized procedures for intervention and coordination. Several Malagasy cities—especially Toamasina and Mananjary—have made important strides toward risk- informed planning, including detailed multihazard risk maps and a strategic investment plan. 90 These cities are prone to multiple hazards—including coastal, pluvial, and fluvial flooding, very strong cyclonic winds, and coastal erosion. Risk maps have been generated of both present and future conditions, including climate change as well as different urban growth scenarios. The risk maps, in turn, have informed planning for the near, medium, and long term. Another good example are several recent risk-informed regional, communal, and urban master plans. Madagascar’s seven largest cities (Antananarivo, Toamasina, Antsirabe, Mahajanga, Fianarantsoa, Toliary, Antsiranana) all have urban master plans that incorporate disaster and climate risk considerations. 87 Inspiration can be found from countries such as Bangladesh and the Netherlands. See the Netherlands Delta Programme website: https://www.government.nl/topics/delta-programme, as well as: Government of Bangladesh. 2018. “Bangladesh Delta Plan 2100: Bangladesh in the 21st Century (Abridged Version).� Dhaka: General Economics Division (GED), Bangladesh Planning Commission, Ministry of Planning, People’s Republic of Bangladesh. http://preventionweb.net/go/70613. 88 See https://www.meteomadagascar.mg. 89 The three radars in Antananarivo, Morondava, and Antalaha have ceased operations since 1994, as they reached the end of their lifecycle and/or spare parts were lacking. The hydrological monitoring network is also weak and fragmented, limiting the accuracy of location-specific forecasts. 90 Deltares and Geosystems. 2023. “Flood, Coastal and Wind Risk Assessment and Development of Mitigation Actions for Coastal Cities in Madagascar.� Antananarivo: Study commissioned by the World Bank. 15 3.3. Priority Actions to Improve Madagascar’s Climate and DRM Governance A comprehensive Framework Climate Law aligned with the existing Disaster Risk Management Regulatory Framework could help Madagascar structure its climate interventions, simultaneously leveraging legislation, institutions, and capacity-building instruments. Madagascar needs to raise the profile of climate through high-level political leadership; improve collaboration and coordination across ministries; mainstream climate and disaster risk management in budget and sectoral planning; and boost public awareness, all of which are integral elements of a comprehensive framework climate law.91 A high-level mandate is crucial for strengthening political ownership of climate change in Madagascar. This means expanding the CIME’s mandate to include a focus on climate change (CIME+CC); naming a special climate change advisor reporting to the Prime Minister to strengthen inter-ministerial coordination and political levers; supporting the PNA implementation plan; and building the capacity of the CNCC through expanded civil society representation, and co-chaired by the Ministry of Economy and Finance and the Ministry of Environment. Budgetary and procurement processes need to be safeguarded so that future public resources intended for climate action are used efficiently and transparently. Figure 2.1 illustrates the institutional changes recommended by this CCDR. Clarifying functional climate change mandates, roles, and responsibilities will improve horizontal and vertical coordination across sectors and levels of government. Synergies between climate and disaster risk management coordination mechanisms (including CPGU, BNGRC, and the National Platform for Disaster Risk Reduction) need to be reinforced and roles and responsibilities clearly outlined. Climate change units within each sectoral ministry should systematically integrate, monitor and assess climate change risks and facilitate links with the DPSE (Directorate of Programming and Monitoring-Evaluation). Collecting and disseminating climate data and mobilizing the youth and wider civil society can bring greater participation and accountability and move the climate agenda forward.92 Strengthening the involvement of civil society in the national climate policy agenda—including women, youth, and vulnerable groups; universities; national research institutions; and the private sector—will strengthen transparency and buy-in for future reforms. It is also important to invest in sustained climate capacity-building and research programs, including extension services focused on climate-resilient agriculture. Madagascar also needs both near-term and long-term investments to strengthen its DRM systems. Priorities include strengthening knowledge of natural hazards and climate-related risks for informed decision making (near term); scaling up financial protection and disaster risk financing mechanisms for greater resilience to disasters and climate shocks (near term); and bridging gaps in hydromet services, EWS, and emergency preparedness and response, including implementing soft measures such as improved risk knowledge and weather forecasting capacities (both near and long term). 91The World Bank Reference Guide on Climate Legislation offers a practical checklist which Madagascar could use in this effort. 92Météo Madagascar’s interactive climate data platform, Maproom, makes it easier for Malagasy to learn about current and future climate conditions and start to engage in climate action. 16 FIGURE 2.1. PROPOSED GOVERNANCE FRAMEWORK FOR THE CLIMATE CHANGE AGENDA IN MADAGASCAR Source: Authors. The text in green are the institutional changes recommended by this CCDR. 17 4. Climate-Resilient Development Pathways for Madagascar Climate change poses serious threats to Madagascar’s development, with impacts across multiple sectors. This chapter delves deeper into five key development sectors that can serve as levers of future climate-resilient growth in Madagascar, identifying priority interventions, investments and opportunities to strengthen the economy and improve the daily lives of the Malagasy (Figure 3.1): 1. Water, food, and energy security. Making the most of Madagascar’s ample, but unevenly distributed, water resources in a changing climate, addressing both water stress and flood risks and enhancing ecosystem health for more resilient food systems. 2. The blue economy. Addressing threats to Madagascar’s vulnerable coastal and marine resources and seizing opportunities to develop sustainable and resilient fisheries and grow blue nature-based tourism. 3. Vibrant, climate-resilient cities. Urgently addressing climate-related disaster risks in urban areas, where both poverty and flood risks are increasingly concentrated, and promoting sustainable, inclusive urban growth. 4. Resilient transport. Ensuring that Madagascar’s transport infrastructure can withstand climate hazards, with a view to building a multimodal network that supports economic activity, service delivery, and disaster response. 5. Human development, health, and well-being. Investing in effective and climate-resilient health services, schools, and social protection, as a well-educated and healthy population is central to future prosperity and climate resilience. The five cross-cutting areas listed in Figure 3.1 correspond to critical interventions applicable to each sector’s development pathways. FIGURE 3.1. MADAGASCAR CCDR’S FIVE KEY INTERVENTION SECTORS AND CROSS-CUTTING FOCUS AREAS The following sections outline the critical climate-resilient trajectory shifts required in each key development sector to set Madagascar on the path of climate-resilient growth. In-depth sector context and climate vulnerability data, as well underpinning analyses used to derive priorities for action, are covered in the Background Notes. 18 4.1. Water, Food, and Energy Security in a Changing Climate Madagascar has ample renewable water resources, averaging 12,528 m 3 per capita per year,93 mainly from rivers and lakes, but they are unevenly distributed.94 The vast majority of water withdrawals in Madagascar today are for irrigation. Overall, more than four in five jobs in the economy are in water-dependent sectors. These are mainly in farming, but also in textiles and mining—which together account for more than half the country ’s annual exports95— and others. By 2050, water demand could nearly double from 2020 levels, with a particularly steep increase after 2030, mainly due to irrigation. Access to safe drinking water is limited, particularly in rural areas, and could worsen with population growth, climate change and contamination. As of 2017, only 53.5 percent of Malagasies had access to a basic water supply, with considerable disparities between rural and urban areas (38.4 and 80.5 percent, respectively). Drinking water was contaminated in 86.4 percent of households. 96 There are also large disparities between rich and poor households (82 versus 20 percent have access to basic water supply, respectively).97 Based on the low levels of access to improved water sources and sanitation, the Africa Infrastructure Development Index ranked the country ’s water, sanitation, and hygiene (WASH) infrastructure 53rd out of 54 countries in 2018-2020, better only than Chad.98 On the ND-GAIN index of vulnerability to climate change, Madagascar ’s single worst score is for dam capacity. 99 In Antananarivo, current water production falls short of demand by 100,000 m3 per day. Without a significant increase in the supply, by 2030 the daily deficit is projected to increase by 50,000 m3. Madagascar’s water sector has generally suffered from a lack of investment; no major improvements have been made in Antananarivo for about 20 years. Today, 86 percent of investment in the sector comes from external aid. Water tariffs are too low to cover operation and maintenance costs. The lack of steady leadership, combined with a lack of capacity at the regional and municipal levels, has hindered the achievement of SDG 6 (Ensure access to water and sanitation for all). In the absence of strong, accountable institutions, community-based structures have become fundamental in mediating local water access. These can be prone to conflict and exclusion, especially when water is scarce, but they also have strong potential for participatory local management. Climate change is expected to have significant impacts on water availability and water quality across Madagascar. Analysis using a GCAM model100 shows that Central Madagascar, the area of greatest concern for water scarcity given its large and growing population, is likely to see its problems worsen with climate change (Figure 3.2). The southwest of the country may also face increased water stress. Climate change is already making water supplies less reliable and affecting water quality, which is important both for drinking water and for irrigation. Key threats include saltwater intrusion in some aquifers, as well as contamination from human activities (fertilizer use, poor sanitation). 93 World Bank. 2022. Madagascar National Water Project. Project Assessment Document. Own calculation based on the FAO Aquastat total renewable water resources of 337 km3 per year and population data from the National Institute of Statistics (Institut National de la Statistique de Madagascar - INSTAT) (26.3 million people in 2020). 94 World Bank. 2022. Madagascar Country Environmental Analysis - Promoting Green, Resilient, and Inclusive Development. 95 The Central and Northern regions receive ample rainfall that often causes floods and erosion, while the South is frequently water stressed, with inadequate perennial rivers. See Observatory of Economic Complexity data: https://oec.world/en/profile/country/mdg?depthSelector1=HS2Depth. 96 National Survey on the Socio-Demographic Situation of Households (MICS) 6), from 2018. 97 World Health Organization. 2019. Progress on household drinking water, sanitation and hygiene I 2000 –2017. Focus on Inequalities. https://www.who.int/water_sanitation_health/publications/jmp-2019-full-report.pdf. 98 AfDB (African Development Bank). 2020. “The Africa Infrastructure Development Index (AIDI) 2020.� AfDB Statistics Department Economic Brief, African Development Bank. https://www.afdb.org/en/documents/economic-brief-africa-infrastructure-development-index-aidi-2020-july- 2020. 99 See the ND-GAIN country page for Madagascar: https://gain-new.crc.nd.edu/country/madagascar#vulnerability. The country’s overall vulnerability score is 0.557, which makes it 165 out of 185 countries ranked with 2021 data, but its score for dam capacity is 0.996 (a higher number denotes worse performance). 100 Calvin, K. et al. 2019. “GCAM v5.1: Representing the Linkages between Energy, Water, Land, Climate, and Economic Systems. � Geoscientific Model Development 12 (2): 677–98. doi:10.5194/gmd-12-677-2019. 19 FIGURE 3.2. WATER AVAILABILITY ACROSS MADAGASCAR UNDER RCP8.5 (BASELINE, CHANGE FROM 2030 TO 2050, SITUATION IN 2030, 2040, AND 2050, RESPECTIVELY) Source: Original figure, based on GCAM modeling. Note: RCP 8.5 refers to the concentration of carbon that delivers global warming at an average of 8.5 watts per square meter across the planet. RCP8.5 refers to the high emissions scenario among the four RCP pathways corresponding to a future in which emissions continue to rise throughout the twenty-first century with minimal efforts to reduce them (Source: IPCC) 3.1.1. The future of Malagasy agriculture under climate change Agriculture is crucial to Malagasies’ food and nutrition security and to the livelihoods of over 5 million people — mainly subsistence farmers—but productivity is low, and growth has been slow and uneven.101 Agriculture still employs three-quarters of the workforce102 and contributes roughly one-fifth of GDP: 21.1 percent in 2023 (WDI), when combined with forestry and fishing.103 While the sector’s share of total exports amounts to 37 percent, labor productivity was just US$370 per person in 2019, one-quarter of the Sub-Saharan Africa average (US$1,526), and has fallen by 22 percent since 1995.104 Underinvestment and deep-seated structural deficiencies impede growth, including very low fertilizer use, 105 limited storage and logistical capacities, poorly maintained irrigation infrastructure, lack of investment in research and extension, underdeveloped and poorly maintained road networks that limit access to markets (see Section 3.4); environmental degradation; and land tenure issues. Moreover, gender 101 In several of the last 25 years, the sector’s output has actually declined. See World Bank data for agriculture, forestry, and fishing, value added (annual % growth): https://data.worldbank.org/indicator/NV.AGR.TOTL.KD.ZG?locations=MG. 102 See World Bank data for employment in agriculture (% of total employment), from modeled ILO estimates: https://data.worldbank.org/indicator/SL.AGR.EMPL.ZS?locations=MG. 103 See World Bank data for agriculture, forestry, and fishing, value added (% of GDP): https://data.worldbank.org/indicator/NV.AGR.TOTL.ZS?locations=MG. See also: Madagascar Alliance of Bioversity International and CIAT & AfricaRice. 2022. “Climate-Smart Agriculture in Madagascar.� 104 See World Bank data for agriculture, forestry, and fishing, value added per worker (constant 2015 US$): https://data.worldbank.org/indicator/NV.AGR.EMPL.KD?locations=MG-ZG. 105 Madagascar’s fertilizer consumption per hectare of arable land was just 11.9 kg in 2019, well below the 21 kg average for Sub-Saharan Africa, and it plummeted to 3.3 kg per hectare in 2021, during the COVID-19 crisis. See World Bank data for fertilizer consumption (kilograms per hectare of arable land), using FAO data: https://data.worldbank.org/indicator/AG.CON.FERT.ZS?locations=MG-ZG. 20 disparities limit women farmers’ access to productive assets (for example, land, equipment) and services (for example, finance, extension), and thus their capacity to contribute to growth. Climate change and variability, particularly extreme events, put significant pressure on the agriculture sector. Water stress due to droughts is a particular concern, especially in already arid regions. The sector also faces growing losses from erosion of cultivable land during intense rainfall, cyclones, and floods; increases in pests, including locust plagues; and reduced labor (and animal) productivity during times of extreme heat. One study of upland rice farmers found that over 2009-2014, 51 percent of farmers had been affected by cyclones, 68 percent by droughts, and 44 percent by floods.106 In addition, deforestation and natural resource degradation (soil, water, biodiversity) and other anthropogenic pressures from agriculture combine with climate change to deepen impacts on the agriculture sector (See Background Note on Climate Smart Agriculture). Modeling reveals a decline in the crop area suitability for most staple and cash crops based on projected temperature and precipitation changes. 107 Potatoes, onions, beans, peas, and rice (Figure 3.3Error! Reference source not found.) show the greatest declines in suitability across the country. Maize is the only crop to show an increase in suitability. Pests are already a major factor influencing crop productivity, and are projected to increase in Southern Africa with climate change.108 While the effects of climate change vary by species, most climate change scenarios tend to favor pest proliferation, depending on their ecological context.109 For instance, while more arid conditions would likely reduce locust threats, extreme rainfall events can contribute to massive locust outbreaks.110 Climate change can also exacerbate disease threats for livestock. Some diseases are especially sensitive to climate change, such as Rift Valley fever and tick-borne diseases, which are particularly prevalent in the highlands and in forests, as well as coastal areas.111 FIGURE 3.3. RICE SUITABILITY: HISTORICAL SUITABILITY 1970- 2000 (LEFT), SUITABILITY UNDER FUTURE CLIMATE, 2050S - SSP585 (RIGHT). 106 IMF (International Monetary Fund). 2022. Republic of Madagascar: Technical Assistance Report-Climate Macroeconomic Assessment Program. https://www.imf.org/en/Publications/CR/Issues/2022/11/14/Republic-of-Madagascar-Technical-Assistance-Report-Climate- Macroeconomic-Assessment-Program-525665. 107 The crop suitability analyses for Madagascar were conducted using the Ecocrop model which assesses the environmental suitability of a crop based on the default crop parameters databases provided by the FAO. The modeling was done based on the combination of precipitation and temperature climatic parameters only. The data used as inputs for the crop suitability analysis were obtained from WorldClim (https://worldclim.org/data/index.html ) for the historical period 1970-2000 and future period 2050s and 2070s SSP585 scenario. 108 Mafongoya, P., et al. 2019. “Climate Change and Rapidly Evolving Pests and Diseases in Southern Africa.� In New Frontiers in Natural Resources Management in Africa, edited by E.T. Ayuk and N.F. Unuigbe, 53:41–57. Natural Resource Management and Policy. Cham: Springer International Publishing. doi:10.1007/978-3-030-11857-0_4. 109 Schneider, L., M. Rebetez, and S. Rasmann. 2022. “The Effect of Climate Change on Invasive Crop Pests across Biomes.� Current Opinion in Insect Science 50 (April): 100895. doi:10.1016/j.cois.2022.100895. 110 Meynard, C. N., et al. 2020. “On the Relative Role of Climate Change and Management in the Current Desert Locust Outbreak in East Africa.� Global Change Biology 26 (7): 3753–55. doi:10.1111/gcb.15137. FAO. 2021. “Madagascar | FAO Provides Support to Anticipate and Halt the Drivers of the Major Outbreak of Malagasy Migratory Locust - Madagascar | ReliefWeb.� UN Food and Agriculture Organization press release. ReliefWeb, October 21. https://reliefweb.int/report/madagascar/madagascar-fao-provides-support-anticipate-and-halt-drivers-major-outbreak. Locust outbreaks have occurred in Madagascar in 1997–2000 (60 millions d’USD (9/10 du territoire malgache touché par l’invasion), 2010– 2011, 2011–2012, 2013–2016, 2021–2023. 111 Tantely, L. M., S. Boyer, and D. Fontenille. 2015. “A Review of Mosquitoes Associated with Rift Valley Fever Virus in Madagascar.� The American Journal of Tropical Medicine and Hygiene 92 (4): 722–29. doi:10.4269/ajtmh.14-0421; Qurollo, B. A. et al. 2018. “Molecular Surveillance of Novel Tick-Borne Organisms in Madagascar’s Lemurs.� Ticks and Tick-Borne Diseases 9 (3): 672–77. doi:10.1016/j.ttbdis.2018.02.012. 21 Extreme weather events are significant drivers of persistent rural poverty in Madagascar through their impacts on crops and livestock systems and associated livelihoods. For example, floods and cyclones reduce expected yields by 10 percent on average among the richest farming households, but up to 34 percent among the poorest households. 112 This is because the Source: CIAT for the CCDR. Note: The suitability scores for poor tend to occupy marginal lands in disaster- the different crops range from 0 to 1, with 0 being the lowest suitability and 1 the highest suitability. Green prone areas and are less able to cope with the means improved suitability. impacts. Tropical storms and cyclones not only destroy crops, especially in coastal areas, but can also cause or increase the salinization and siltation of rice fields, reducing yields. Smallholder farmers are particularly vulnerable to climate shocks due to dependence on rainfed agriculture, limited land area for growing crops, high poverty, food insecurity, and lack of information and resources to prepare for and cope with extreme events. Moreover, many farm villages are remote, with limited access to roads or means of transportation, and no formal safety nets. Without climate action, and in a high-emission scenario, the impact of increasing temperatures and changing water availability on crops ( Figure 3.4a) and livestock could reduce annual agricultural revenues by 5 percent in 2041-2050.113 Heat stress on workers could reduce labor productivity by as much as 4.7 percent ( Figure 3.4b). Erosion, driven by heavy rainfall, is projected to decrease under future pessimistic hot, dry conditions. The modeling shows crop productivity gains of 0.8 percent due to reduced erosion under hot, dry futures, holding all else constant ( Figure 3.4c). Livestock productivity is projected to decline by about 10 percent in a hot and dry climate scenario ( Figure 3.4d). Milk production from dairy cows is projected to be the most severely impacted animal product, with reductions of more than 20 percent projected by 2050. In more optimistic, low-emission scenarios, increased temperatures are projected to reduce crop revenue by 2.5 percent and reduce labor productivity for workers by 2.6 percent due to heat stress ( Figure 3.4a&b). Wetter conditions are anticipated to increase erosion risk, reducing crop productivity by 1.5 percent (see 112 Weiskopf, S., et al. 2021. “Climate Change Risks and Adaptation Options for Madagascar.� Ecology and Society 26 (4). doi:10.5751/ES-12816- 260436. 113 See Chapter 4 for a description of these economic and climate scenarios. 22 Figure 3.4c). Livestock productivity losses are also estimated at about 5.9 percent under future wetter conditions. Madagascar’s high vulnerability to climate change poses acute risks to its food systems and food security. Additional modeling results show that climate change could mean that by 2050, crop and livestock production could be 158 kcal per capita per day lower than in a scenario without climate change.114 The population at risk of hunger is projected to be about 15 percent larger by 2030 than in a no-climate change scenario and upward of 30 percent larger by 2050; this is in a country where an estimated 1 in 3 people already lack enough food to eat and 4 in 10 children under 5 years of age suffer from chronic malnutrition. Extreme weather events also pose threats to agri- food sector infrastructure115—and, as discussed in Section 3.4—to the transport infrastructure needed to deliver food. Enhancing climate resilience and ensuring that infrastructure is well maintained will be crucial both for agri- food value chains and the food security of the Malagasy.116 Land tenure is a major issue in Madagascar, especially as it relates to climate resilience and development. The absence of clear and transparent land tenure rights is a major impediment to rural/urban development and social cohesion, forestry and protected areas programs, private and public investment, decentralization, and land-use planning. Experience has shown that as soon as they are sure of their land ownership, family farmers are incentivized to plant trees and to adopt sustainable agricultural practices. In urban areas, land rights registration and updated land transaction records could provide the basis for a property taxation system that mobilizes local revenues more efficiently. Clear definition of protected areas boundaries requires a continuous effort to conduct inclusive mapping for a better demarcation of state domains and land under individual or collective ownership. Since 2005, the Government of Madagascar has embarked on an ambitious land reform to register land rights on a massive scale and at low cost, crossing the threshold of one million land certificates issued by 400 municipalities with donor support. Municipalities and civil society are calling for this effort to be scaled-up so that the reform covers the whole country. FIGURE 3.4. CLIMATE IMPACTS ON AGRICULTURE UNDER BAU CLIMATE SCENARIOS AND NO CLIMATE ACTION (A) TOTAL CROP REVENUE SHOCK (FOR RAINFED + IRRIGATED) (B) LABOR PRODUCTIVITY IMPACTS DUE TO HEAT STRESS (C) EROSION IMPACTS ON CROP REVENUES UNDER DIFFERENT CLIMATE SCENARIOS (D) EFFECT OF CHANGING HEAT STRESS AND PASTURE AVAILABILITY ON LIVESTOCK PRODUCTIVITY 114 Results were modeled out to 2050 using the International Model for Policy Analysis of Agricultural Commodities and Trade (IMPACT), which covers 11 Malagasy commodities or commodity groups, including crops and livestock. 115 Fayad. 2023. Food Insecurity and Climate Shocks in Madagascar: Republic of Madagascar . 116 Extract from GIZ (Deutsche Gesellschaft fur Internationale Zusammenarbeit). 2020. Climate Risk Profile: Madagascar. https://agrica.de/wp- content/uploads/2021/01/GIZ_Climate-Risk-Profile-Madagascar_EN_final.pdf. Also, in line with the country’s NDC and PNA. 23 Source: Industrial Economics analysis for this CCDR. Given the sizable economic footprint of agriculture and its critical importance to the country’s food security, it is imperative that Madagascar take concerted action to mobilize adaptation investments to strengthen the sector’s growth and its resilience to climate change adversity. Priority actions include promoting broader farmer adoption of climate-smart agriculture (CSA). 117 118 This can be achieved by strengthening seeds systems to deliver more drought and flood-tolerant, and higher-yielding varieties; 119 protecting and enriching soils through conservation agriculture practices and agroforestry;120 improving irrigation performance and expanding the use of water-efficient micro-irrigation technologies;121 enhancing rural connectivity and the efficiency of domestic markets; and deploying digital technologies to enhance farmers’ access to knowledge, net works, and services, and strengthen their risk management capacity. Also critical to increasing sector resilience, strengthening the enabling environment can crowd in private sector investments. This includes removing regulatory barriers, improving access to finance, providing technical assistance, and promoting public-private partnerships (PPPs), information sharing and capacity building. By combining instruments such as grants, loans, insurance, and guarantees (climate risk coverage) supported by the buildout of requisite data collection and management systems, the private sector’s role in climate finance can be strengthened, enabling greater support for risk management and agricultural adaptation initiatives. The private sector can also provide climate-smart technologies and practices via contract farming systems with producer groups or small-scale farmers, especially for high-value (including bio-certified) export products such as vanilla and other spices, cocoa, fresh and processed fruits, and sea cucumbers. 3.1.2. Making hydropower work for development and energy security Madagascar has enormous untapped hydropower potential; if exploited fully it could bring clean energy to all. Madagascar has an estimated 180 terawatt hours (TWh) of technically feasible hydropower potential, the third- largest amount in Africa after the Democratic Republic of Congo and Ethiopia (Figure 3.5). To date, Madagascar has developed only 0.49 percent of that potential—and 1.81 percent of the potential deemed to be economically feasible. Hydropower development could be highly beneficial, both to close the energy access gap and to provide 117 See Background Note on Climate-Smart Agriculture for more detail regarding CSA interventions tailored to specific cash and staple crops vulnerable to climate in Madagascar, and further requirements for private sector participation in the sector. 118 CSA is an integrated approach to managing landscapes—cropland, livestock, forests and fisheries—that addresses the interlinked challenges of food security and accelerating climate change. CSA aims to simultaneously achieve three outcomes: (1) increased productivity (that is, produce more and better food to improve nutrition security and boost incomes); (2) enhanced resilience (that is, reduce vulnerability to drought, pests, diseases and other climate-related risks and shocks while strengthening adaptation capacity in the face of longer-term stresses like shortened seasons and erratic weather patterns; (3) reduced emissions (that is, lower emissions for each calorie or kilo of food produced). 119 Food availability under climate change is projected to rise above the no-climate change baseline by 158 kcal per day; additional investments in research and development on CSA techniques for priority staple crops in Madagascar would add another 246.7 kcal per capita per day to diets by 2030, and 316.6 kcal per capita per day by 2050. Through R&D, the population at risk of hunger is projected to fall below the no- climate change baseline by about 25 percent in 2030 and 30 percent in 2050. 120 Minten, B. and C.B. Barrett. 2008. “Agricultural technology, productivity, and poverty in Madagascar�, World Development, 36(5): 797-822, May 2008. 121 Currently, 96 percent of water withdrawals in Madagascar are for agriculture, and almost 1.1 million ha of cropland are equipped for irrigation. Water use is particularly high for rice, so it is important to use water more efficiently. 24 electricity for economic diversification. It will be crucial to site hydropower production in areas that are not currently water-stressed, or projected to become so under a changing climate, where events such as torrential rain can have catastrophic consequences if dams fail. FIGURE 3.5. BREAKDOWN OF MADAGASCAR’S RENEWABLE ENERGY MIX, 2010-2022 Source: JIRAMA, 2023. The Least Cost Development Plan (LCDP) 122 and its sensitivity analyses validated in 2022 concluded that Madagascar’s generation mix over the next 15 years should be based primarily on hydroelectricity. To this end, it recommended that hydroelectric projects such as Volobe (121 MW), Sahofika (192 MW), Antetezambato (142 MW), and Mahavola (300 MW) be developed as soon as possible, within a 15-year time frame.123 These major projects will be concentrated mainly on the three interconnected networks, which together account for around 80 percent of national consumption. The substitution of fossil energy by renewable energy would have immediate financial benefits for JIRAMA 124 (the energy regulator), its consumers, and Malagasy taxpayers by reducing the need for expensive fossil fuel imports. It would also have long-term environmental and health benefits. JIRAMA has been in deficit since 2010; by 2022, with loans and financial debts, the deficit amounted to almost US$355 million on the balance sheet. One of the main reasons for JIRAMA’s deficit is its dependence on imported fuels, with prices for heavy fuel oil and light fuel oil having risen by 29 percent and 48 percent, respectively, in 2022 compared with 2021, increasing costs by US$75 million. At the same time, the Malagasy ariary has devalued by 27 percent against the US dollar and 30 percent against the euro since 2018. In 2023, the quantity of imported heavy and light oil fuels dropped compared to 2022 causing a decline in the combined costs of imported fuels, especially for light fuel oil and despite higher prices. Nonetheless the total costs of imported fuels in 2023 are close or above the 2021 costs, indicating that the company’s dependency on imported fuels remain s on an upward trend. Estimates show that each annual delay in large hydroelectric projects can cost JIRAMA over US$100 million. It is crucial to track variations in water availability as a function of climate change. Creating a long-term monitoring mechanism by installing stations to measure the potential of the sites identified in the LCDP will be vital. A few stations have already been installed, but they are not sufficient and need to be maintained and secured. Standards for climate-resilient infrastructure are needed to ensure the sustainability of the installations. For instance, the World Bank-funded Digital and Energy Connectivity for Inclusion in Madagascar (DECIM) project is developing detailed network construction guidelines and technical design specifications for energy and digital infrastructure to ensure robustness and redundancy, and to strengthen the grid infrastructure for energy distribution to the major 122 https://meh.mg/wp-content/uploads/2022/07/8-51-4990_PDMC_MaJ_2021.pdf 123 In 2020, IFC was mandated to finance the construction and operations of the 120 MW hydropower plant Volobe, whose development resumed in 2022 after JIRAMA signed a power purchase agreement with the special purpose vehicle in May 2023. Discussions on financing are currently expected to resume in 2024. 124 Jiro sy Rano Malagasy, the national electricity and water company. 25 consumption centers. 125 It should be noted that every year JIRAMA records cyclone damage to its network infrastructure (transport and distribution) estimated at several million dollars. Each project should adopt a Climate Risk Management Plan (CRMP) that covers risks and opportunities, as well as the performance metrics and resilience measures. The CRMP should include or refer to operation and maintenance processes identified to cover the implementation of resilience measures, as well as the Emergency Action Plan if it already exists.126 The Monitoring, Evaluation, and Reporting Plan will monitor the successful and timely implementation of the CRMP. Urgent actions and structural reforms are needed to ensure the optimal operation of existing hydropower plants and new projects under development. Lack of finance and the fiscal unsustainability of the off-taker JIRAMA hinder project development. Reforms of JIRAMA’s operations are needed to restore trust. The actions needed include utility restructuring and governance, rationalization of thermal power purchase and rental agreements, periodic tariff adjustments to reflect inflation, and increases in oil prices to reduce JIRAMA’s financial deficit. A PPP is recommended that can put in place a financing plan for major hydropower projects, with a mechanism to ensure the sustainability of investments. In this context, there are plans to integrate digital services into the energy sector, crucial for ensuring Madagascar’s energy market’s resilience and stability. Hydropower investments are likely to have large social and environmental impacts that must be carefully managed. These include resettlement needs, changes to local land markets, and reshaping of the local structures and power dynamics for water management in the investment areas. Adequate social inclusion measures will be essential, specifically investment in responsive and accountable decentralized institutions to manage the impacts and ensure equitable benefit sharing. Also, soil degradation due mainly to erosion, and unsustainable gold and artisanal mining—and lavaka127in some areas (especially in the south, midwest, and west)—may have an impact on the viability and even the feasibility of some hydraulic projects. This context of watershed degradation and sediment management should be considered in all future hydropower projects, whether large or small. In general, any new development must be part of an Integrated Watershed Resources Management (IWRM) plan to preserve the natural water resources of Madagascar in a sustainable manner. In particular, areas of current and future projected water stress will need to be closely monitored to avoid exacerbating water disparities in already water-stressed areas. While large hydropower investments offer clean energy solutions for locations connected to the grid, Madagascar has also developed plans to deploy various technologies to scale up off-grid energy access in rural areas. These include renewable mini grids (hydro, solar, and wind) for localities with higher concentrations of demand, and individual solar kits for remote areas where grid extensions are neither economically viable nor technically feasible. The Digital and Energy Connectivity for Inclusion in Madagascar (DECIM) project is hybridizing and digitizing isolated grids to enhance access for underserved communities. In the longer term, Madagascar has potential for green hydrogen, which can be used to leverage its renewable energy development. Although not identified as a potential energy source by 2035 in the LCDP, Madagascar’s vast renewable energy sources make it prime for green hydrogen production on a longer-term horizon. This transition could eventually (1) enhance energy independence, reducing reliance on imported fossil fuels; (2) provide access to international climate financing; (3) foster economic diversification and job creation; (4) reduce environmental impact and contribute to global climate goals; (5) encourage regional and global collaborations on green hydrogen projects; and (6) benefit from technological advances that are making green hydrogen production more efficient and cost- effective. However, leveraging the full potential of green hydrogen in Madagascar is a long-term prospect that would require building local capacity and increasing access to expertise and finance first, which globally remain limited.128 125 Digital infrastructure can also help people stay connected in the event and aftermath of climate disasters, allowing the government to dispatch aid groups or populations to benefit from emergency weather alerts or emergency cash transfers. 126 Based on the Climate Resilience Guide developed by the International Hydropower Association for existing and future hydropower projects. International Hydropower Association, 2019. Hydropower Sector Climate Resilience Guide. At: www.hydropower.org. 127 Lavaka is the Malagasy word for "hole", usually found on the side of a hill. It is a type of erosional feature, like a gully, common in Madagascar (https://en.wikipedia.org/wiki/Lavaka). 128 World Bank. 2020. Green Hydrogen in Developing Countries. Energy Sector Management Assistance Program (ESMAP) Publication, World Bank Group. 26 4.2. Scaling Up the Coastal and Blue Economy Madagascar has abundant marine and coastal resources that could support significant sustainable development, especially fisheries and blue tourism, based on integrated management in collaboration among the private sector, local communities, and the government. The country’s coastline is the longest in Africa, and its 1.2 million km2 of exclusive economic zone (EEZ) includes valuable fisheries supported by ecologically valuable mangroves, coral reefs, and seagrass beds. Over 250,000 ha of mangroves, representing 2 percent of the global total, provide fish nurseries, carbon storage, coastal protection, and timber; and close to half a million hectares of coral reefs host a high diversity of fish species. Ecosystem services 129 from Madagascar’s coral reefs, mangroves, seagrass beds, wetlands, and beaches have been estimated at US$192 million per year.130 Climate change threatens the livelihoods of Madagascar’s generally poor coastal communities as they are highly dependent on their natural capital. Even before the climate began to change, Madagascar’s coastal areas were prone to a vicious cycle of poverty and natural resource degradation and a challenging private sector business environment. Madagascar’s coastal areas host more poverty (with mean wealth 7 percent higher inland than in coastal areas; Figure 3.6), more food insecurity, and less adequate road infrastructure than other parts of the country. Key climate change impacts include sea level rise, coastal erosion, land and water degradation, and worsening extreme weather events. For example, intensifying cyclones and precipitation during the rainy season in coastal regions damage connectivity infrastructure and dampen tourism supply and demand. Furthermore, the deforestation of mangroves and other forest types (combined with upland erosion, which is a threat to mangroves due to increased sedimentation131) undermines fisheries, tourism, economic and social development, and climate resilience.132 129 A variety of services such as provision of fish, coastal erosion control, carbon sequestration, and tourism. 130 World Bank. 2022. Madagascar Country Environmental Analysis - Promoting Green, Resilient, and Inclusive Development. Washington, DC: World Bank. http://hdl.handle.net/10986/38211. 131 WWF (World Wildlife Fund). 2023. “In Madagascar, Restoring Mangroves and Building Resilience.� https://www.worldwildlife.org/stories/in- madagascar-restoring-mangroves-and-building-resilience. 132 COVID-19 restrictions of activities also worsened the situation (Midi Madagasikara. 2020. Secteur de la petite pêche: Bouleversement des activités productives, selon le réseau Mihari. https://midi-madagasikara.mg/secteur-de-la-petite-peche-bouleversement-des-activites- productives-selon-le-reseau-mihari/ 27 FIGURE 3.6. MAP OF COMMUNITIES’ RELATIVE WEALTH IN MADAGASCAR Fisheries are a key sector of the Malagasy economy, accounting for over 7 percent of GDP and 6.6 percent of exports in 2020.133 Fisheries support the livelihoods and food security of the Malagasy people and directly or indirectly employ over 2 million people, or about 6.8 percent of the population. The United Nations Food and Agriculture Organization (FAO) reports that fish and seafood provide 3 percent of the total protein supply (and 22 percent of animal-derived protein supply). 134 Aquaculture and mariculture could be important potential revenue generators for export and domestic markets. However, unclear rules (for example, discretionary licensing procedures) associated with loose regulations and weak law enforcement threaten the development of the aquaculture subsector and allow exploitation of export-oriented products such as seaweed and mangrove crabs135,136 While aquaculture can help increase carbon sequestration and storage, it must be managed to avoid undue impact on marine and coastal ecosystems. Climate change threatens the development of the fisheries sector. A rising sea level, which is expected to rise by 11 cm by 2030, 22 cm by 2050, and 43 cm by 2080, can lead to saline intrusion in coastal waterways and groundwater reservoirs, Source: based on population data from Facebook which in turn can affect aquaculture production facilities and Connectivity Lab and wealth data from Lee and Braithwaite (2022). breeding programs. Extreme coastal weather conditions also limit the number of days when fishermen can go out on their artisanal pirogues, and higher sea temperatures affect the health and productivity of fish and fisheries in Madagascar ’s waters. Projections show that climate change impacts could reduce the maximum catch potential overall in Madagascar by up to 6 percent by 2040 and close to 10 percent by 2050 under pessimistic scenarios (Figure 3.7). Thus, it will be key to identify measures to enhance fisheries’ adaptation capacity at a local scale and consider alternative sources of income under scenarios involving large declines in potential fisheries catch. The World Bank Group’s Madagascar Country Private Sector Diagnostic (CPSD) Phase 2 Tourism Deep Dive found that some businesses in resource-dependent sectors in the Toliara region—for example, an octopus fishing company and another harvesting seaweed—were using local data on natural capital to drive their decision making. The deep dive also found other examples of large companies accessing and generating internal data to measure their natural capital dependencies, including mining companies. It is worth noting that businesses which have been through environmental and social impact assessments typically have an obligation to collect data to monitor their environmental and social impacts, but this is often not fully sustained and lacks an explicit natural capital focus. 133 World Bank. 2022. Madagascar Country Environmental Analysis - Promoting Green, Resilient, and Inclusive Development. Washington, DC: World Bank. http://hdl.handle.net/10986/38211. 134 FAO. 2024. “Aquaculture growth potential in Madagascar�, WAPI Factsheet, FAO, February 2024. https://openknowledge.fao.org/server/api/core/bitstreams/503ed78c-157d-48d3-b09e-6ac1ab48dfaa/content 135 Mongabay. 2020. “An export boom threatens to put Madagascar’s mud crabs in hot water.� https://news.mongabay.com/2020/07/an- export-boom-threatens-to-put-madagascars-mud-crabs-in-hot-water/; Nairobi Convention. 2021. Making Madagascar’s Mangrove Crab Fisheries Sustainable Again. https://www.nairobiconvention.org/making-madagascars-mangrove-crab-fisheries-sustainable-again/ 136 World Bank Group. 2021. Madagascar Country Private Sector Diagnostic (CPSD). Creating Markets in Madagascar for Inclusive Growth. 28 FIGURE 3.7. PROJECTED CLIMATE IMPACTS ON FISHERIES OUTPUTS UNDER DIFFERENT CLIMATE SCENARIOS IN MADAGASCAR TO 2040 AND 2050, RELATIVE TO 2015, AS PERCENTAGE OF MAXIMUM CATCH POTENTIAL Source: Industrial Economics analysis for this CCDR. Madagascar holds significant, largely untapped potential for sustainable value generation through coastal and marine tourism. The tourism sector, mostly nature based, accounts for 12.7 percent of GDP and 9.9 percent of employment.137 Madagascar’s comparative advantage in coastal tourism derives from its pristine beaches, marine resources, and fauna that can attract high-end market segments through activities such as diving. An estimated 63 percent of tourists in Madagascar spend time on the coast. The average tourist length of stay, at around two weeks, is longer than in peer countries, partly due to lack of transportation options and diverse tourism offerings across the country. After a collapse in tourist visits due to the COVID-19 pandemic, international visits are recovering; in 2023 they were only 10-20 percent below 2019, the peak year. Climate change will reduce the socioeconomic contribution of coastal tourism through both supply and demand factors. Tourism, fisheries, and agriculture will be the most negatively affected by climate change given their dependence on a healthy ecosystem. Recent projections of the impacts of incremental increases in average temperatures on total tourism revenues (from domestic and international leisure travelers) in Madagascar suggest that temperature increases may negatively affect tourism arrivals and therefore revenues by making locations less desirable as temperatures increase above optimal thresholds. Impacts are projected to be substantial under both future optimistic and pessimistic climate scenarios, reaching mean losses in tourism revenue of around 8.0 and 13.7 percent, respectively, by 2050. Madagascar has developed a national blue economy strategy 138 to address these challenges and generate more benefits from its marine and coastal resources. Implementation and M&E of the blue economy vision require stronger cross-sectoral coordination, collaboration, and capacity building among private business and investors,139 local communities, and the government, as well as scientific, academic, global communities, and other stakeholders.140 Integrated planning processes can identify areas to prioritize for conservation, ensure net benefit sharing for local communities considering potential trade-offs and future climate risks, and provide certainty to 137 World Bank. 2022. Madagascar Country Environmental Analysis - Promoting Green, Resilient, and Inclusive Development. Washington, DC: World Bank. http://hdl.handle.net/10986/38211 License: CC BY 3.0 IGO 138 Ministère de la Pêche et de l’Économie Bleue. 2023. Stratégie Nationale de l’Économie Bleue, 2023-2033 [National Strategy for the Blue Economy]. https://www.mpeb.mg/wp-content/uploads/2023/12/Strategie-Nationale-de-lEconomie-Bleue-SNEB.pdf 139 The importance of private sector involvement is highlighted in the CEA and CPSD and the CCDR is also aligned with these recommendations. 140 Such actions are emerging. For example, during the Madagascar CPSD Phase 2 Tourism Deep Dive, when the team made a presentation at Madagascar’s first natural capital forum in 2021, private companies showed interest in learning natural capital accounting for their business practices, and the forum and the CPSD contributed to the establishment of a Capitals Hub in Madagascar to connect private business, the public, and other stakeholders to ensure collaboration across the system and provide a space for geographic, sector, or context-specific challenges, opportunities, and solutions to be explored by stakeholders: https://capitalscoalition.org/the-coalition/capitals-hubs/. 29 investors. Marine spatial ridge-to-reef planning 141 can also provide a comprehensive and integrated private and public investment framework by defining how and who will use different coastal and marine areas and share costs and benefits among the private business and investors, local communities, and the government as well as global communities for global public goods, if relevant. Blue public expenditure and institutional reviews may also be useful. 4.3. Creating Vibrant, Climate-Resilient Cities 3.3.1. Climate and disaster risk trends in urban areas Madagascar is urbanizing rapidly, with 40 percent of its population resident in urban areas as of 2022—about half of them in the fast-growing Greater Antananarivo region.142 While urbanization is typically associated with rising incomes, poverty has worsened in cities in the last decade, and the extreme poverty rate has risen from 71 percent in 2001 to an estimated 81 percent today.143 Urban areas still generate about 75 percent of GDP, but Madagascar has been unable to leverage urbanization to transform its economy and build prosperity. Cities across the country are already experiencing severe urban floods and landslides partly due to unplanned, unmanaged, and informal urban expansion, and climate change is expected to intensify those risks. The urban built-up land area exposed to flood risks has grown steadily over recent decades.144 Heavy rainfall and storm surges often overwhelm cities’ limited drainage systems and damage buildings and other infrastructure, as demonstrated by recent cyclone events in 2022 and 2023 that affected several cities and about 750,000 people.145 Heavy rainfall also destabilizes slopes, particularly those that have been deforested, leading to landslides that can be destructive and deadly. The plains of Antananarivo are regularly affected by floods, as the low areas of the capital do not allow for the rapid flow of runoff water. Poor maintenance of existing infrastructure (dikes, drainage network, road networks for accessibility, and so on) exacerbates these risks. For example, poor municipal solid waste management results in uncollected waste obstructing stormwater drainage systems, exacerbating flooding every year. Most cities also lack adequate landfills, and about 97 percent of solid waste nationwide is currently dumped in non-sanitary dumpsites.146 In fact, it is estimated that more than half of the municipal solid waste in urban areas is dumped in canals, which severely limits their drainage capacity. Coastal cities are particularly exposed to tropical cyclones and storms, high winds, sea level rise, and coastal erosion, with some cities experiencing a ‘coastal squeeze’ between the ocean and built infrastructure. Integrated coastal zone management (ICZM) initiatives have been adopted by the government for some cities to improve preparedness and build capacity, but implementation is yet to take place. The National Action Plan for Integrated Coastal and Marine Area Management 2019-2023 (NAP-ICZM) focuses on the optimal protection of the coastline, protecting coastal communities from erosion and marine submersion, and developing and promoting sustainable economic activities in coastal areas. However, at the time of writing it had yet to be implemented. 141 Inherent in the ridge-to-reef approach is the philosophy of cross-sectoral coordination in the planning and management of freshwater use, sanitation, wastewater treatment and pollution control, sustainable land use and forestry practices, balancing of coastal livelihoods and biodiversity conservation, hazard risk reduction, and climate variability and change. https://www.pacific-r2r.org/help/faq/what-ridge- reef#:~:text=Inherent%20in%20the%20Ridge%20to%20Reef%20approach%20is,hazard%20risk%20reduction%2C%20and%20climate%20variabi lity%20and%20change. 142 UN DESA. 2018. World Urbanization Prospects 2018. https://esa.un.org/unpd/wup/ 143 See World Bank historical data for poverty headcount ratio at US$2.15 a day (2017 purchasing power parity) (% of population): https://data.worldbank.org/indicator/SI.POV.DDAY?locations=MG and current estimates in: World Bank. 2023. Macro Poverty Outlook for Madagascar: April 2023. Washington, DC: World Bank Group. https://documents.worldbank.org/en/publication/documents- reports/documentdetail/099201404122313890/IDU0202690010f45104a7f0b3b102cd5e27b8b7a. 144 An analysis of six major cities by the World Bank for this report shows that built-up areas exposed to floods in these cities grew by more than 85 percent from 1985 to 2015. 145 An area is considered as being exposed to flooding if it is expected to experience a water height of 30 cm or more because of a fluvial or pluvial flooding event with a defined frequency. World Bank. 2022. Background Contribution to: World Bank, Urbanization Review, Madagascar. 146 World Bank. 2018. What a Waste (Updated). 30 3.3.2. Key constraints to climate-resilient urban growth Cities can play a key role in climate-resilient development across Madagascar, but they urgently need strategic and coordinated investments and improved institutional and technical capacity governance reforms. While the National Urban Development Policy of 2019 lays out a vision for “well planned, safer, resilient cities,� 147 there has been limited implementation due to cities ’ inadequate resources and technical capacities and lack of coordination at the central level. Risk-informed land-use plans can be useful tools for building urban resilience, but an incomplete process of decentralization in the country has left local governments—especially cities—with little financing or capacity to foster climate-resilient and sustainable growth. Only a few cities have developed an urban master plan, but they lack the resources to implement the plan. Making cities resilient to the impacts of climate change will require policy reforms and capital investment to upgrade municipal services systems in a coordinated manner, including solid waste management, water supply, wastewater, stormwater drainage and urban transport (Box 2). Madagascar does not have a clear strategy for making cities resilient to the impacts of climate change. The NDC’s sole mention of urban areas is a pledge to achieve a 50 percent composting rate for household organic waste. The PNA addresses urban issues at length, including discussions on land planning and infrastructure; a vision for building ‘new cities’ with large amounts of housing that is sustainable and resilient; coastal flood risk management; and access to safe drinking water in both urban and rural areas, among other topics. 148 However, local governments do not have the means to invest in or administer the services needed to support resilience. Standards and guidelines have been adopted to ensure buildings and built infrastructure consider disaster and climate resilience in their design, but their implementation is extremely weak. Risk-informed spatial land-use plans can be useful to encourage climate-resilient development and mitigate harmful climate effects, but deficiencies in planning, building controls, and urban land administration systems hamper their development and enforcement. Resilient building standards exist but are rarely enforced because national institutions, local authorities, and private entities from the building industry (engineers, construction companies, and so on) have limited capacity to apply the norms or ensure compliance. Green building standards promoting energy efficiency also do not exist. More could be done to leverage digital technologies and improve green service centers and infrastructure, for example through digitally enabled processes, integrated monitoring platforms or artificial intelligence to increase efficiency and resilience. A major obstacle to effective, risk-informed urban development is the current land administration system. Land registries and cadaster records are incomplete and outdated and do not reflect current land occupation. Unclear property rights and weak land administration systems raise serious challenges in growing urban areas, constraining effective urban planning, limiting private sector investment, and thus hindering resilient urban development. Fiscal resources and financing mechanisms are also lacking at the local level to increase resilience and address climate and disaster impacts in cities. The Local Development Fund is the primary source of funding from the central government to communes for capital investments. However, the total budgetary allocation by the government to the Local Development Fund amounted to only MGA 6 billion (US$1.4 million) in fiscal year 2024, equivalent to a miniscule 0.05 percent of the total government budget. Cities need increased support in the shape of dedicated fiscal transfers in the medium term, not only to address basic investment needs, but also incremental needs for climate-resilient infrastructure. Other financing instruments such as green/municipal bonds, local green taxes, and so on may not be a viable option in the country given the level of institutional development. Own-source revenues such as property tax collection is also limited and below potential —with the result that urban local governments spend less than 10 percent of their budgets on capital investments. 147 MAHTP (Ministère de l’Aménagement du Territoire, de l’Habitat, et des Travaux Publics). 2019. Politique Nationale de Développement Urbain (PNDU) [National Policy for Urban Development]. 148 Republic of Madagascar. 2021. Plan National d’Adaptation Au Changement Climatique (PNA) Madagascar [National Adaptation Plan of Madagascar]. Antananarivo: Ministry of Environment and Sustainable Development. https://unfccc.int/documents/488094. 31 BOX 2. ANTANANARIVO: A MALAGASY PIONEER IN CLIMATE RESILIENCE Antananarivo, the capital city, has a population of about 1.8 million people, and the larger metropolitan area encompasses 38 urban and peri-urban municipalities. Every year 100,000 residents migrate to the metro area from rural and other urban areas. Antananarivo is an engine of economic growth, accounting for 50 percent of Madagascar’s GDP. The city faces heightened vulnerability, exacerbated by climate change. The city’s unique topography, characterized by hills and expansive natural flood plains, has seen a 50 percent increase in its urban built environment since 2003. In some municipalities, half the built environment is situated in flood-prone zones, where a 20-year return flood could affect 750,000 people. The drainage network, especially canals, suffers from severely compromised functionality due to inadequate maintenance and limited capacity, with sediments and municipal solid waste clogging certain sections, and with built structures such as low bridges and buildings obstructing them. Heavy rainfall exacerbates the instability of slopes, especially in areas with unplanned development, causing destructive landslides. About 3,000 buildings are directly at risk of landslides in the hills. The city is actively enhancing its resilience to these risks and serves as an example for other cities. It has adopted master plans for drainage and urban development that address these challenges while factoring in the impact of climate change. The city is also implementing complementary initiatives and investment projects supported by development partners, including Agence Française de Développement (AfD) (Programme Intégré d’Assainissement d’Antananarivo) and the World Bank (Integrated Urban Development Project for Greater Antananarivo, PRODUIR). Key efforts include the rehabilitation of about 30 km of drainage canals in the metropolitan area to better manage climate change-related impacts. PRODUIR supports drainage rehabilitation with nature-based solutions (NbS), using rice fields and retention ponds to control flooding effectively and to protect 650,000 vulnerable people living in flood-risk areas. The project is also formulating risk-informed urban plans and strategies for solid waste management. Municipalities in the metro area are also benefiting from technical assistance for local revenue mobilization, improving their capacity to maintain infrastructure. 3.3.3. A way forward for creating vibrant, climate-resilient cities There is a need to promote climate-smart and risk-informed urban development, infrastructure, and municipal services to make Malagasy cities more resilient to the increasing impacts of climate change. In a business-as-usual scenario that does not promote climate-resilient development in cities, economic losses and vulnerability of the urban poor will increase with recurring disasters driven by climate change. Without urgent action, cities will continue to grow informally, with negative environmental outcomes. The government is currently implementing an ambitious institutional reform agenda aimed at deepening decentralization and localized service delivery. This represents a unique opportunity for cities and local governments to increase climate-related investments. This agenda can be pursued through the following courses of action: • Strengthening capacity for implementing climate-resilient building standards and guidelines and risk- informed territorial planning. The government needs to be equipped to support regions and cities in developing and implementing risk-informed policies and spatial/land-use plans which can include climate action plans, especially in high-risk coastal areas to protect populations and coastal economies. This will need to be followed by implementing and enforcing risk-resilient building standards, with a focus on housing, government buildings, and critical local service facilities. This also requires cross-sectoral coordination at the subnational level. • Upgrading municipal infrastructure and services to make them more resilient, and invest in disaster- and climate-proof priority infrastructure systems. This applies especially to integrated solid waste management (e.g. waste minimization, collection, separation, and treatment); flood protection infrastructure (e.g. stormwater drainage); water supply and wastewater systems (e.g. coordination of water supply, sewerage, wastewater treatment); and urban mobility and public transport infrastructure, all based on cost-effectiveness criteria. NbS can help mitigate hazard risks and promote resilient development, including through retention ponds, urban forests/trees, mangrove regeneration, bioretention areas, bioswale, green walls/roofs, solar streetlights, floodable parks, and constructed wetlands. These solutions need to be informed by localized assessments to determine their suitability. • Increasing the adequacy of financing at the municipal level for climate adaptation, resilience, and risk preparedness. In addition to central-level investments in major urban infrastructure, adequate financing is 32 also needed at the local level for climate resilience. Madagascar could develop a program of targeted fiscal transfers to municipalities specifically for climate-related needs. Using performance-based financing approaches, the program could provide access to financing tied to demonstrated climate action by local governments. It could be targeted to vulnerable areas and complement other sources of financing made available especially to the central government (see Background Note on Disaster Risk Management and Urban Resilience for more details). 4.4. Towards a Climate-resilient, Multimodal Transport System 3.4.1. Climate-vulnerable transport infrastructure Climate change poses major threats to roads, hydraulic structures such as bridges, and other transport infrastructure, with poor construction and inadequate maintenance increasing its vulnerability to extreme weather. High temperatures can cause paved surfaces to buckle, especially if combined with heavy truck traffic; this also occurs on airport runways and paved surfaces at the ports. Floods and landslides also routinely damage roads, hydraulic structures, and drainage systems, incurring high repair costs. The cost of annual damage to roads and railway assets in Madagascar is already estimated at about 0.2 percent of GDP—and, as noted in Chapter 1, extreme weather is expected to worsen this.125 The four primary national roads RN2, RN4, RN6, and RN7 have a high volume of traffic but are not in good operational condition, and are frequently affected by cyclones. Climate change impacts on the transport sector also pose indirect major threats to other sectors through disrupted connectivity and reduced access to basic services, jobs, and markets. Madagascar’s low transport network density and mode integration means that network connectivity is highly vulnerable to climate change impacts as it embodies low levels of redundancy. Even low levels of disruption (below 20 percent of transport links) can quickly reduce the functionality of the road network by 80 percent. 124 Poor construction, lack of maintenance, and weak governance and institutional capacity further contribute to the sector’s vulnerability to climate impacts. Transport connectivity in Antananarivo is easily disrupted by heavy precipitation due to the poor drainage system, with 16 percent of the city’s total road network being in flood-prone areas. In rural Madagascar, it is challenging to have timely distribution of medical supplies and equipment, especially during the rainy season. Dealing with climate change in the transport sector is made more difficult by complex institutional organization and diluted responsibilities. Two ministries and more than a dozen public agencies and private concessionaires are involved in the management of the transport sector, including the existing Road Fund, which is responsible for collecting and managing road sector resources and dedicated taxes (primarily a fuel levy). Public investment needs to be complemented by private sector investment and participation to increase financial resources and help to improve effectiveness and efficiency in disbursements and operations. To attract private sector investment, it is important to address policy unpredictability by defining mid- to long-term strategies and instigating mechanisms for public-private dialogue and effective competition and regulatory frameworks (see Background Note on Resilient Transport in Madagascar). 3.4.2. Investment and reforms to increase transport resilience Significant resources are needed to improve the climate resilience of Madagascar ’s road transport assets. Improving asset maintenance is a good investment for climate resilience as it has the potential to significantly reduce asset losses due to extreme climate events, and reduce the overall lifecycle costs of the infrastructure.149 Without appropriate maintenance, infrastructure costs could increase by 50 percent in the transport sector by 2030, due to 149Cordeiro, J. D. A. R., C. R. Bennett, S. D. Michaels, F. F. Pedroso, M. S. Forni, and J. Rozenberg. 2017.Climate and Disaster Resilient Transport in Small Island Developing States: A Call for Action. World Bank, Washington, DC. https://openknowledge.worldbank.org/handle/10986/28798. 33 reduced lifespans.150 Maintenance and rehabilitation are especially critical for Madagascar’s road sector. Based on the average unit costs of road works defined in Madagascar´s Strategy and Program of Activities for 2020-2024,151 rehabilitation and upgrade (paving) limited to the core national road network would cost between US$1.1 and 1.5 billion. The integration of climate-resilient standards could add an incremental cost of between 3 and 23 percent.152 Modifying the design and construction materials in response to anticipated higher temperatures is considered a low or no-regret option for paved roads as the savings accrued over the road lifecycle would more than offset the higher construction costs. The need for proactive adaptation in response to precipitation would need to be assessed case by case due to uncertainties regarding future climate projections and regional variability. Around US$250 million per year would be needed to provide periodic and routine maintenance for national roads. Failure to conduct routine and periodic maintenance would increase rehabilitation costs, and failure to rehabilitate roads to climate resilient design standards would increase routine and periodic maintenance costs. It is therefore essential to have a climate- risk informed transport asset management system that considers resilience at the network and asset level, assesses transport asset conditions, and enables the estimation of asset lifecycle costs. Investing in more resilient infrastructure is expected to generate benefits that exceed the initial cost. While enhancing the resilience of transport assets and networks can add to capital costs, it also reduces damage risks, disruption costs, maintenance, and rehabilitation costs. Adaptation measures for transport assets typically consist of construction or rehabilitation with higher resilience standards, as well as low-cost maintenance including clearing blocking debris under bridges and in road hydraulic structures (culverts, ditches). The total damage to the infrastructure sector (mainly roads and railways) from the four tropical storms of early 2022 is estimated at around US$170 million.153 If the affected roads and railways had been more resilient, the damage would have been reduced by US$85 million. On the other hand, investing in adapting the impacted assets could cost between US$25 million and US$115 million, depending on the cost assumption (the low- and middle-income country average is 5 percent, while Madagascar has assumed 25 percent in general). This means that the adaptation costs could be paid off following one year’s climate events alone.154 The incremental cost of resilience can be further reduced by addressing network criticality and redundancy, applying multimodal transportation solutions, and using NbS. The primary focus in Madagascar in the short term should be on reinstating routine maintenance and implementing periodic maintenance of roads, followed by rehabilitating roads which have exceeded the maintenance threshold, and maintaining the key economic railway line. Road climate resiliency can be enabled through a combination of measures along the assets’ lifecycle, considering their criticality and vulnerability, and the government objectives for primary connectivity, rural connectivity, and multimodal connectivity. Investments to increase road network redundancy may be justified based on avoided annual user losses from floods and landslides. Investments will need to enhance infrastructure and be complemented by building governance and institutional capacity, and policy reforms. Key policy reforms include (1) strengthening the existing Road Fund to increase resources for road maintenance through a financing strategy that augments and diversifies dedicated 150 Rozenberg J. Fay M. 2019. “Beyond the Gap - How Countries Can Afford the Infrastructure They Need while Protecting the Planet.� Sustainable Infrastructure Series. World Bank Group. 151 Strategies and Program of Activities 2022–2024, Ministry of Land Development and Public Works, November 2020. URL: https://docslib.org/doc/20086/strat%C3%A9gies-et-programmation-des-activit%C3%A9s. 152 Rozenberg J., X. A. Espinete, P. Avner, C. Fox, S. Hallegatte, E. Koks, J. Rentschler, and M. Tariverdi. 2019. “From a Rocky Road to Smooth Sailing - Building Transport Resilience to Natural Disasters.� Sector note for LIFELINES: The Resilient Infrastructure Opportunity, World Bank, Washington, DC. https://openknowledge.worldbank.org/bitstream/handle/10986/31913/From-A-Rocky-Road-to-Smooth-Sailing-Building- Transport-Resilience-to-Natural-Disasters.pdf?sequence=1&isAllowed=y. 153 World Bank. 2022. Global Rapid Damage Estimation [GRADE] Report for Madagascar, February 2022 . 154 IMF. 2022. Republic of Madagascar: Technical Assistance Report - Climate Macroeconomic Assessment Program. November 2022. ISBN: 9798400226212/1934-7685. https://www.imf.org/en/Publications/CR/Issues/2022/11/14/Republic-of-Madagascar-Technical-Assistance- Report-Climate-Macroeconomic-Assessment-Program-525665. 34 revenues;155and (2) integrating climate risk considerations into the road asset management system to improve the planning and prioritization of expenditures. In the medium to long term, it would be important to foster climate resilience across the transport network by promoting multimodal connectivity and lower-carbon alternatives to road transport, and through an integrated approach to developing the transport sector and improving the competitiveness of maritime, air, and rail transport. Multimodal systems would also enhance resilience as users can switch between modes after a disruption. In the maritime sector, to promote balanced economic development across regions, it is important to optimize traffic distribution across all ports instead of concentrating flows in the port of Toamasina, which fulfils most of the country’s demand. Other ports could serve more population and economic activities, especially the ports of Anstiranana in the north and Ehoala/Toliara in the south. Coastal shipping can play an important role in improving domestic connectivity to remote regions, complementing and providing an alternative to the low-density road network, thus improving climate resilience and mitigation, as coastal shipping is an efficient and low-carbon alternative to road transport. Railways could also play a more important role in the transport system. Expanding and upgrading rail services to convey people and cargo would do much to ease the strain on roads. For example, the northern railway line has been identified as a priority for investment based on its economic viability and large potential for freight and passenger transport between the main port of Toamasina and Antananarivo. Freight between the two cities is currently transported mainly by road, on RN2, which is in a bad state from heavy use. Improving the rail service on the Antananarivo–Toamasina line would alleviate road traffic on RN2, reduce GHG emissions, and provide an alternative to road transport during emergencies. Furthermore, rail is estimated to be economically and financially viable as long as infrastructure is properly invested in and maintained.156 To unlock this potential, governance issues, weak regulatory capacity, and underinvestment in infrastructure and rolling stock all need to be addressed. Expanded maritime and rail transport could help to develop Madagascar’s green mineral sector, which is in high demand to support the global energy transition, while aviation could support the tourism industry. Madagascar produces several metals and rare earths that are used in the electric vehicle industry. Improving maritime and railway transport could facilitate their export, and better port infrastructure could enhance domestic connectivity for the island nation. Madagascar also has potential for international shipping as it is located on major international shipping routes between Asia, East/South Africa, and Europe. The government has prepared a national ports master plan to further develop the port sector by mobilizing large investments and making greater use of PPPs in ports ’ operations. Building climate resilience into these developments will be crucial. Finally, a more reliable and sustainable aviation sector would improve passenger access to remote areas and contribute to development of the tourism industry. 4.5. Investing in Human Capital Growth under a Changing Climate Madagascar urgently needs to strengthen its social protection, public health, and education programs to shield households from extreme poverty, hunger, and disease —and, more broadly, it needs to invest in protecting and building its human capital. Extreme weather events disproportionately affect the poorest and most vulnerable Malagasies and contribute to recurring humanitarian crises. Among the poorest 20 percent of rural residents, climate shocks are the most important determinants of reduced household consumption and can lead to more significant asset losses and long-term poverty. Extreme weather events also disrupt school attendance and learning, affect 155 World Bank. 2022. Madagascar: Public Expenditure and Institutional Review - Boosting Infrastructure and Social Service Delivery. November 2022. http://documents1.worldbank.org/curated/en/099042823082511495/pdf/P17517408198ff01d09f35004cd80e23b70.pdf?_gl=1*1ogv8rp*_gcl_ au*MTkxMDIyNjAwMy4xNzIxMzgxMjc0. 156 International Finance Corporation. 2021. Country Private Sector Diagnostic: Creating Markets in Madagascar for Inclusive Growth. World Bank Group; https://www.ifc.org/content/dam/ifc/doc/mgrt/cpsd-madagascar-summary.pdf. 35 nutrition, and have led to surges in malaria.157 It is crucial to ensure that access to vital services is not disrupted when people most need them. At the same time, by investing in a healthier and better educated population, Madagascar can build the workforce it needs for a thriving economy, expanding opportunities for all. More educated and better- off citizens will also be better equipped to adapt to climate change. Though challenging, it will be essential to balance reducing households’ vulnerability to climate with building the resilience of key infrastructure. With extreme weather events having an impact on all types of capital stock (human, physical and natural), and with economic activity expected to grow in the coming decades, Madagascar faces a major challenge in prioritizing its adaptation investment. Recent modeling by CMAP 158 indicates that large, proactive investment in a combination of human capital and resilient infrastructure is likely to lead to much better outcomes for Madagascar’s long-run productivity and economic growth in a scenario of worsening climate impacts than a policy focused only on infrastructure investment. 3.5.1. Social protection to build climate resilience and cope with shocks Madagascar has recently created ‘safety net’ programs to assist very poor households and to contribute to crisis response, but coverage is low. Although in 2021 more than four in five Malagasy lived on less than US$2.15 per day, and 71 percent were below the national poverty line,39 Madagascar’s main social safety net programs only cover 7 percent of households and 8 percent of the poor (Table 3.1). These consist of core safety net programs that operate on a continuous basis, as well as crisis response safety nets that can be scaled up as needed. Spending on social safety nets amounted to about 0.35 percent of GDP in 2022, a fraction of the 0.9 percent average for all low-income countries.159 It is mainly funded externally, largely by the World Bank. TABLE 3.1. NUMBER OF SOCIAL SAFETY NET BENEFICIARY HOUSEHOLDS PER YEAR 2016 2017 2018 2019 2020 2021 2022 2023 2024 Core safety net 1,500 132,100 142,500 142,500 167,300 161,900 362,600 260,900 409,160 programs Crisis response — 61,715 75,200 30,150 223,043 196,409 215,852 242,620 731,470a programs Total 1,500 193,815 217,700 172,650 390,343 358,309 578,452 503,520 1,140,630 Note: a. Including 657,000 estimated beneficiaries supported from the Contingency Emergency Response Component (CERC) (P178566). Source: Original calculation for this CCDR. The government and partners have categorized the main risks to households from climate change into two types: risks from rapid-onset shocks and risks from slow-onset shocks. Disasters linked to extreme weather events, such as the average cyclone, decrease total household consumption by 12 percent and increase the probability of being poor by 7.4 percent. 160 These shocks affect all types of household—rich and poor, urban and rural—but poor households generally have heightened vulnerability due to their lower quality housing, likelihood of living in areas more vulnerable to flooding, and lack of assets to cope with shocks. Disasters emanating from a slow-onset hazard, such as a prolonged drought, create long-term social and economic crises in the affected areas. Prolonged drought prevents households from producing for daily consumption and compromises their health and nutritional well-being. The medium- to long-term effects of both rapid-onset and slow-onset hazards can force households to adopt 157 Marchetta, F., D. E. Sahn, and L. Tiberti. 2019. “The Role of Weather on Schooling and Work of Young Adults in Madagascar.� American Journal of Agricultural Economics 101 (4), 1203–1227. https://doi.org/10.1093/ajae/aaz015. 158 Cerra, V., Z. Aligishiev, V. Balasundharam, S. Black, C. Chen, E. Rayess, D. Fayad, K. Funke, N. Hamliri, A. Hosny, J. Kilpatrick, and C. Wendling. 2022. Republic of Madagascar Climate Macroeconomic Assessment Program (CMAP). http://www.imf.org/external/np/pp/eng/2013/061013.pdf. 159 ASPIRE database - www.worldbank.org/aspire. 160Andrianarimanana, D. 2015. “The Role of Inter-Household Transfers in Coping against Post-disaster Losses in Madagascar.� In Disaster Risk Financing and Insurance: Issues and Results, edited by Daniel Clarke, Alain de Janvry, Elisabeth Sadoulet, and Emmanuel Skoufias. http://www.ferdi.fr/en/publication/ouv-disaster-risk-financing-and-insurance-issues-and-results. 36 negative coping strategies such as withdrawing their children from school, resorting to early marriage and child labor, and selling assets and capital essential for their income-generating activities. Adaptive social protection helps build the resilience of poor and vulnerable households by investing in their capacity to prepare for, cope with, and adapt to shocks, so that they do not fall into —or deeper into—poverty. It has proved promising both in Madagascar and globally, but more needs to be done to incorporate adaptation and mitigation measures into the design of social protection programs. Enhanced tracking of the social consequences of climate impacts for the most vulnerable could identify complementary community-based support which might also be needed alongside social protection. For instance, migration can be a pathway out of poverty and a coping response in the face of climate impacts, but comes with risks that need to be managed, such as increased urban pressure and marginalization, social tensions between receiving and incoming communities, and exploitation (Box 3). Madagascar’s existing institutional framework is generally well set up for assigning roles and responsibilities to the various actors in adaptive social protection and shock response. Laws, policies, and partnership agreements governing adaptive social protection and shock response in Madagascar are described in the Background Note on Human Capital. BOX 3. IMPACTS OF CLIMATE CHANGE ON HUMAN MOBILITY Modelling of potential internal migration within Madagascar161 shows that by 2050, climate change is expected to trigger internal migration by between 0.62% of the population (under the optimistic wet scenario: SSP1-RCP 2.6) and 1.96% (pessimistic dry scenario: SSP5-RCP 8.5), representing up to 37.35% of all internal migrants. By 2050, the ‘dry’ scenario yields more climate migrants than the ‘wet’ scenario for each SSP-RCP combination. As expected, net climate out-migration will mostly concern the southern and eastern parts of the country (SSP1-RCP 2.6, SSP5-RCP8.5) and to a lesser extent the southwestern part (Figure 3.8). Under the ‘middle of the road’ scenario (SSP2-RCP 4.5), most of the western half of the country would become a net climate in-migration area. Under all scenarios, the main net in-migration hotspots for total internal migration (that is, including climate and non-climate migrants moving for family/work/study reasons) will be the capital region and coastal urban areas. In the in- and out-migration hotspots, likely emerging development issues to be tackled will include access to work, housing, and land ownership, as well as social conflicts and unsustainable environmental practices. FIGURE 3.8. PROJECTED CLIMATE MIGRANTS, 2050, SSPS/RCP8.5 161 Modelling was done using a methodology pioneered under the global Groundswell project. 37 While the main safety net instruments to respond to both rapid-onset and slow-onset climate shocks are well- established and operational, the main constraint is the availability of financing to increase their coverage. In 2022, Madagascar’s expenditures on safety nets amounted to about 0.35 percent of GDP, compared to an average of 0.9 percent of GDP for all low-income countries.162 As climate change continues and other global sources of uncertainty evolve, and given the many shocks that have hit the country in recent years, Madagascar must strengthen its ability to mobilize financing to address future shocks that could threaten to further derail economic growth and poverty reduction. While Madagascar’s fiscal position remains delicate following the COVID-19 pandemic and the effects of the war in Ukraine, the IMF has encouraged the government to create and strengthen fiscal space to allow for much- needed social spending, including on social safety nets.163 More recent initiatives to support the development of climate risk financing and risk insurance for the agriculture sector in Madagascar are part of a broader effort to enhance the resilience of the sector to climate-related shocks, with support from private insurers (discussed further in Section 5.1.2). Among these is the Adaptation of Agricultural Value Chains to Climate Change (PrAda 2) project, a joint effort between the German Federal Ministry for Economic Cooperation and Development (BMZ), the European Union (EU), and the Malagasy government. The project aims to improve the resilience of smallholder farmers to climate change by providing them with climate- adapted seeds, training in sustainable agricultural practices, and access to index-based risk insurance. The latter provides payouts to smallholder farmers when certain climate-related thresholds, such as low rainfall or extreme temperatures, are exceeded. When appropriately structured and subsidized to mitigate high access costs, index insurance can help farmers better manage climate-related shocks, protecting their livelihoods and investments in the event of a failed agricultural season, and allowing for faster recovery. The compensation received prevents farmers from having to adopt negative coping strategies, ensures access to basic needs and services, and allows them to reinvest in their agricultural activities. The IMF has also recognized the importance of climate risk financing and insurance for Madagascar’s agriculture sector. In a recent report, the IMF highlighted the need for the country to develop a comprehensive strategy for managing climate-related risks, including the use of climate risk insurance and other risk management tools. The report emphasized that climate risk insurance can help farmers and agricultural businesses manage the financial impacts of climate-related shocks, thereby reducing poverty and improving food security.164 3.5.2. Proactively addressing the health impacts of climate change Climate change will exacerbate existing health issues, affecting health outcomes and the health system, and disproportionately affecting vulnerable populations. Notably, nutrition, vector-borne diseases, waterborne diseases, and zoonoses165 will be exacerbated by changes in temperature and precipitation patterns (see Background Note on Human Capital). Factors contributing to climate vulnerability often parallel broader health determinants, but climate change has the potential to exacerbate health disparities, particularly among marginalized groups like the poor, rural communities, residents of informal urban settlements, women, children, the elderly, those with pre- existing health conditions, and displaced populations. Madagascar ’s rural communities, children under five, women, and impoverished populations are already at heightened risk. The spatial variation in health outcomes resulting from intensified climate hazards underscores the urgency of this issue, as some regions —such as Antananarivo and the southern Ambovombe-Androy district—face distinct health risks due to flooding, landslides, drought-induced malnourishment, and compromised access to safe water. While temperatures are projected to continue to rise, near- and mid-term (2030s and 2050s) projections show that only coastal areas will experience extreme daytime heat conditions; however, most of the country will experience warmer nights. This can increase risks for heat-related morbidity and mortality, mainly due to cardiovascular or respiratory diseases. 162 ASPIRE database - www.worldbank.org/aspire. 163 Staff Report for the 2022 Article IV Consultation, February 15, 2023. 164 IMF. 2023. Food Insecurity and Climate Shocks in Madagascar, June 2023. https://www.imf.org/en/Publications/selected-issues- papers/Issues/2023/06/05/Food-Insecurity-and-Climate-Shocks-in-Madagascar-Republic-of-Madagascar-534103. 165 According to the WHO, a zoonosis is any disease or infection that is naturally transmissible from vertebrate animals to humans. 38 Overall, the health system lacks the financing and technical capacities to enhance climate resilience in health service provision. With one of the lowest COVID-19 vaccination rates, Madagascar faces heightened risks of outbreaks and related morbidity and mortality, affecting service delivery, particularly in immunization and family planning. Furthermore, existing challenges such as supply chain constraints for medical products, a shortage of health care workers, and limited resource allocation, are exacerbated by climate-related hazards, with rural areas experiencing pronounced disparities in facilities, services, affordability, and quality of care. Activities focusing on preparedness and climate-resiliency systems are not included in Madagascar ’s National Adaptation Plan, and performance and progress monitoring is lagging. The PNA outlines two strategic public health priorities: improving the health sector’s capacity to address climate-related adverse effects and increasing the population’s capacity in the face of climate and climate-related health risks.166 The sectoral plan aims to strengthen the technical, institutional, and organizational capacities of the health sector in the face of climate change. However, most of the activities being implemented relate to surveillance and the integration of information systems, are not fully financed, and are dependent on external financing mechanisms. Progress is minimal on research into climate and health-related risks, capacity assessment, monitoring and evaluation, preparedness for climate-related hazards, and coordination and management of programs. The Ministry of Health’s Environmental Health Department is charged with climate change and health, and is also responsible for implementing the National Adaptation Action Plan for the Health Sector. It has focused mostly on implementing activities related to capacity building, information systems, and emergency response. However, there is limited integration of climate adaptation activities in other departments within the ministry, constraining integration of these activities into the health system. Regarding information systems, the department has developed a climate and health bulletin and the 3-2-1 SMS system for climate and health, while for emergency responses they have focused their efforts on coordinating and mobilizing key public and private stakeholders during emergencies. The Ministry of Health does not have a budget line for climate-related activities, including emergency preparedness and other adaptation measures, and depends on donors. The National Adaptation Action Plan for Climate Change and the Health Sector estimates costs of US$3.7 million for implementing the key strategies for the health sector in the face of climate change. From that budget, 38 percent is being directed to capacity building (US$1.4 million), followed by 23 percent to implementing integrated monitoring of the environmental health (US$850,000), and 18 percent to emergency response. 3.5.3. Educating for climate change: Investing in Madagascar’s future Immediate climate-related risks to the education sector include direct damage to school infrastructure and learning materials from cyclones (Figure 3.9Error! Reference source not found.). The delivery of education in Madagascar is often affected by extreme weather because a considerable number of schools are in high-risk areas. Madagascar is at a crossroads of cyclones that destroy school buildings faster than it can rebuild them. When the impacts of extreme weather such as strong winds, flooding from heavy rain, and landslides cause direct damage to school infrastructure they worsen the existing problem of insufficient school facilities and overcrowded classrooms. In addition, inadequate design and poor construction quality make school buildings highly vulnerable to the combined effects of climate shocks. For example, in 2023, Cyclones Cheneso and Freddy damaged a total of 1,692 education buildings and destroyed over 1,655 classrooms; more than 169,000 children were affected.167 Even when schools remain open and accessible, temperature and rain variability often reduce students’ school attendance168 as rainfall and flooding can disrupt journeys to school or damage school infrastructure. Overall, learning stalls as a result of temporary or prolonged closures of school and reduced learning time. These disruptions to the education 166 Republic of Madagascar. 2021. Plan National d’Adaptation Au Changement Climatique (PNA) Madagascar [National Adaptation Plan of Madagascar]. Antananarivo: Ministry of Environment and Sustainable Development. https://unfccc.int/documents/488094. 167 Ministere de l’Education Nationale. 2023. Cheneso & Freddy : Rapport des Degats [Cheneso & Freddy: Damage Report]. 24 February 2023. 168 Randell, H., and C. Gray. 2016. Climate Variability and Educational Attainment: Evidence from Rural Ethiopia. http://dx.doi.org/10.1016/j.gloenvcha.2016.09.006. 39 system can have important long-term effects on Madagascar’s human capital, including on overall productivity and ultimately GDP. This disruption exacerbates the existing disconnect between the school calendar and the agricultural and weather seasons. For example, access to school during the rainy season is difficult for both children and rural teachers who have farming tasks, and for rural teachers who often farm themselves, and is a leading cause of student and teacher absenteeism. To reduce risks of learning loss, the school calendar should be adapted to reflect the farming season. The education sector can contribute to climate resilience both by building climate-smart education infrastructure and providing skills relevant to trigger and harness the benefits of the green transition. Compared with non-green jobs, green occupations require a stronger intensity of high-level cognitive skills. 169 An equitable transition to a carbon neutral economy, as envisioned in this CCDR, will require strengthening the foundational skills of disadvantaged children, and changing school curricula and skills training programs to improve students ’ ability to compete for jobs or find decent work in a more carbon neutral economy. Furthermore, increasing investment in education would generate significant co-benefits in terms of private sector development and could be a key factor for gender empowerment, as the private sector will require new skilled workers for the green jobs of the future in adaptation and mitigation sectors. In this regard, it is key to ensure that Madagascar’s universities and training courses are ready to equip youth with these skills through a focus on science, technology, engineering, and mathematics (STEM) as this will play a key role in Madagascar’s competitiveness, sustainable development, and poverty eradication. FIGURE 3.9. MID- AND LONG-TERM CONSEQUENCES OF CLIMATE IMPACTS ON THE EDUCATION SECTOR Source: Adapted from World Bank Group. 2020. The COVID-19 Pandemic: Shocks to Education and Policy Responses 169 Consoli, D., G. Marin, A. Marzucchi, and F. Vona. 2016. "Do Green Jobs Differ from Non-green Jobs in Terms of Skills and Human Capital?� Research Policy 45 (5): 1046–1060. 40 5. Whole of-Economy and Poverty Impacts of Climate Change Madagascar’s macro-fiscal projections often overlook the risks from climate-related shocks, resulting in ad hoc, crisis-driven policy responses.170 To address the economic challenges highlighted in the previous chapters, such as sluggish growth and persistent poverty, it is essential to prioritize climate resilience and align it with the country’s development goals. This chapter delves into how climate change and related impacts could affect Madagascar’s economy, poverty, and inequality, stressing the need for fiscal reforms for a climate-resilient future. 4.1. Estimating Future Macroeconomic Impacts of Climate Change 4.1.1. How severe climate shocks affect Madagascar’s economy Madagascar’s economic progress has faced significant setbacks due to increasingly frequent and severe climate shocks, such as storms, floods, and droughts, affecting substantial portions of the population over the past few decades. As shown in Figure 4.1, these extreme climate events, defined as those affecting at least 0.5 percent of the population, have more than tripled in frequency from the 1970s to 2020. Additionally, GDP growth between 1968 and 2021 has shown significant fluctuations, with notable downturns often aligning with periods of political instability, economic policy adjustments, and global crises like the COVID-19 pandemic—periods that also coincided with extreme climate events. Climate disturbances have a significant impact on Madagascar’s economic stability, leading to extended periods of weak or negative growth. Madagascar’s economy faces a heightened risk of stagnation as severe climate shocks occur more frequently. Simulations using a basic Markov model illustrate a strong link between the likelihood of extreme weather events and the likelihood of weakened economic growth (Figure 4.1). The analysis reveals Madagascar’s economic fragility in the face of climate change. FIGURE 4.1. MADAGASCAR’S GDP GROWTH RATE AND CLIMATE SHOCK DATA, 1960-2021 Source: Original figure based on data from Emergency Events Database (EM-DAT). 170 Cerra et al. 2022. Republic of Madagascar: Technical Assistance Report - Climate Macroeconomic Assessment Program. 41 4.1.2. Modeling Madagascar’s economy under different climate and policy scenarios A climate change macro-fiscal model (CC-MFMOD) was used to examine the implications of future climate change for Madagascar’s growth, and the potential benefits of both structural reforms and adaptation investments. 171 Three policy scenarios which assume no further climate change were modeled (Figure 4.2): (1) Constrained Growth (CG), or business as usual (BAU); (2) Structural Reforms (SR), with broad reforms aimed at economic development that integrate some aspects of climate action, for example, climate-smart and decentralized fiscal management, a climate-sensitive investment law and mining codes, and reforms emphasizing renewable energy generation;172 and (3) Climate Resilience (CR), a comprehensive approach that combines structural reforms and targeted adaptation measures across sectors. FIGURE 4.2. APPROACH TO POLICY SCENARIOS AND ADAPTATION 1. Constrained Growth (CG) | Business as Usual (BAU) - Without Adaptation CG scenario: Lack of resources, limited structural transformation & adaptation investment. 2. Structural Reforms (SR) | Structural Reforms – With Some Adaptation Co-benefits SR scenario: reforms including market competition, responsible private sector investments, and corporate governance in key sectors such as telecoms, mining, and energy will result in higher growth and structural transformation, with resulting climate resilience co-benefits. 3. Climate Resilience (CR) | Structural Reforms - With Targeted Climate Action CR scenario: Same as SR scenario, but additional investments in proactive climate adaptation interventions are undertaken. The three economic policy scenarios were combined with climate scenarios for 2020 to 2050. The climate scenarios, which are in line with those used in the latest national government projections, were combined into two categories173 based on the future they envision: hotter and drier (pessimistic, high emissions), versus warm and wetter (optimistic, medium emissions). Future climate impacts were estimated using nine measurable damage channels at sub-national level (rainfed crops, erosion, livestock, fisheries, labor productivity, inland flooding, sea level rise, cyclones, and tourism), each appropriately aggregated and mapped to the macroeconomic model, MFMOD and grouped into four types of damage:174 (1) damage to sector productivity: rainfed crops, erosion crops, livestock, and fisheries; (2) damage to labor productivity from heat; (3) damage to capital stock through inland flooding, sea level rise, and cyclones; (4) impacts on export demand, i.e. tourism. Damages are averaged yearly based on the expected return of the event over a time period. However, as using this approach results in damages from 171 This section should be considered with an understanding that all models have limitations due to the inputs they rely on and the assumptions they incorporate. The macro modeling results primarily capture the immediate impacts of climate change on capital stock and productivity, but they do not account for long-term dynamics or cascading effects such as migration and social unrest. The model also overlooks the compound impacts of successive extreme events and interactions with other non-climate shocks like economic crises and political instability. Furthermore, it may not accurately reflect the diverse regional impacts of climate change, and the channels modeled represent only a subset of all climate change impacts, many of which may not be quantifiable. Therefore, together with these caveats, the results should be seen as lower-bound estimates only. 172 The package of structural reforms is aligned with the Madagascar Equitable and Resilient Growth Development Policy Operation (MERG DPO), with a pronounced emphasis on macro-fiscal reforms complemented by climate resilience initiatives, such as a specialized climate- resilient public investment management system, as well as reforms to critical sectors such as mining, energy, and telecommunications. See: World Bank. 2023. “Madagascar Receives $100 Million for Reforms to Help Unleash Drivers of Equitable and Resilient Growth.� Press release, June 9. https://www.worldbank.org/en/news/press-release/2023/06/09/madagascar-afe-receives-100-million-for-reforms-to-help- unleash-drivers-of-equitable-and-resilient-growth. 173 Industrial Economics (IEc) used a combination of climate models to eliminate bias introduced by using single climate models. 174 After consolidating these results on a national scale, CC-MFMOD can help gauge the broader economic ramifications, from labor dynamics to capital allocation. 42 extreme events being muted, a separate analysis also estimated damage from extreme storm events. Adaptation measures cover seven of the nine channels and offer some protection against climate damage, though do not provide 100 percent protection (see Table 4.1). The assumption is that government covers the investment costs of adaptation through higher public debt, while households bear the operational costs. The model indicates that under business as usual (the Constrained Growth scenario), GDP could fall by 5.8 percent by 2050 relative to the CG baseline,175 severely affecting sectors such as tourism and agriculture, as well as labor productivity (Figure 4.3). In the optimistic (warm/wet) CG climate scenario, GDP in 2050 would drop by 4.4 percent, and by 5.8 percent in the pessimistic (hot/dry) climate scenario. In the SR scenario, under the optimistic and pessimistic climate scenarios, the declines in GDP in 2050 are respectively 3.9 percent and 5.1 percent, indicating some climate benefits from structural reforms (Figure 4.3B). However, the GDP damage can be further reduced to 1.7 percent and 2.8 percent with adaptation investments, as demonstrated in the CR scenario, illustrating the benefit of early targeted climate adaptation actions (Figure 4.3C). Reductions in tourism and agricultural outputs (which together account for about 35 percent of GDP) and cyclone impacts are key factors in both sets of climate scenarios; in the pessimistic ones, heat impacts on labor productivity also stand out (Figure 4.6). These GDP impacts are based on an annual average loss approach and should be viewed as conservative estimates. Stochastic modeling using CC- MFMod under the RCP8.5 climate scenario indicates that Madagascar could face more severe economic repercussions from climatic shocks. In the most extreme case, where 1-in-100-year hurricanes become more frequent, impact could be so significant as to reduce GDP by 16 percent by 2050. FIGURE 4.3. GDP LOSSES FROM CLIMATE CHANGE UNDER DIFFERENT ECONOMIC POLICY AND CLIMATE SCENARIOS, 2030-2050 Note: GDP under climate scenarios (optimistic and pessimistic) as percent deviation from counterpart baseline scenario (CG, SR, and CR, without additional climate change), all damage channels combined Source: World Bank staff estimates using the Madagascar CC-MFMOD. The cumulative impact on Madagascar’s GDP of climate shocks and missed economic opportunities from 2020 to 2050 could reach US$23.7 billion in the CG scenario, but structural reforms and adaptation combined (CR scenario) could help avoid most of these losses (Figure 4.4 and Figure 4.5). Most of the projected losses—about US$20 billion by 2050—would occur due to the missed economic opportunities presented by structural reforms, such as diversifying the economy beyond primary agriculture toward the services sector and increasing infrastructure investment. Projected climate change would increase the cumulative losses by another US$3-4 billion, depending on the climate scenario. The modeling shows that structural reforms (SR scenario) would keep the climate-related losses at US$3-4 billion thanks to climate adaptation co-benefits, a smaller loss in relative terms given the higher 175 In a hotter and drier pessimistic climate scenario where no climate action is taken globally. 43 baseline GDP level of this scenario. Combining the structural reforms with adaptation investments to boost climate resilience (CR scenario) would reduce the cumulative losses to US$1.4-2.2 billion (Figure 4.5). FIGURE 4.4. MADAGASCAR’S GDP UNDER DIFFERENT CLIMATE AND MACROECONOMIC POLICY ASSUMPTIONS, 2020-2050 Source: World Bank staff estimates using the CC-MFMOD. FIGURE 4.5. CUMULATIVE GDP LOSSES FROM 2020-2050 (US$, BILLIONS 2020) UNDER THREE SCENARIOS COMPARED TO THE STRUCTURAL REFORM BASELINE WITH NO FURTHER CLIMATE CHANGE Constrained Growth (CG) Structural Reforms (SR) Climate Resilience (CR) 23.8 23.7 4.5 4.1 2.5 2.2 23.6 4.0 3.5 3.1 2.0 23.4 3.0 1.4 23.2 1.5 2.5 23.0 22.9 2.0 1.0 1.5 22.8 1.0 0.5 22.6 0.5 22.4 0.0 0.0 Optimistic/Wet Pessimistic/Dry Optimistic/Wet Pessimistic/Dry Optimistic/Wet Pessimistic/Dry Source: World Bank staff estimates using the CC-MFMOD. Note: Graphs show the cumulative differences between the top line and the dotted lines representing pessimistic/dry scenarios in Figure 4.4. The modeling shows that both structural reforms and adaptation strategies help to mitigate the effects of climate change across the nine impact channels considered. For example, structural reforms reduce the size of the 44 agriculture sector and increase the mechanization rate within the sector. These factors decrease the share of outdoor agriculture workers and therefore mitigate the impacts of heat on labor productivity. This effect is shown in Figure 4.6, where the impact of heat reduces GDP by 0.7 percent in the CG scenario, compared to 0.5 percent in the SR scenario (dry/hot climate scenario in both cases). For seven of the nine channels (listed in Table 4.1), the CR scenario models adaptation measures to further reduce the impacts of climate change. However, the investment costs and protection benefits of these measures differ for each channel, and none of the adaptation measures provide 100 percent protection against future climates (see Table 4.1 for the cost and benefit of these adaptation measures). For example, adapting buildings through better connected roofs and foundations is relatively low cost compared to the protection benefits obtained. Cyclone damage in CR with adaptation measures is 0.4 percent of GDP compared to 2.4 percent in SR without adaptation measures. Some adaptation measures, such as building new infrastructure at higher elevations or adopting conservation agriculture practices, are assumed to be cost-neutral. However, air- conditioning as an adaptation measure for heat impacts on labor productivity has a relatively low benefits-to-cost ratio. The investment and installation costs, along with higher energy costs, cancel out most of the benefits of increasing productivity. FIGURE 4.6. CLIMATE CHANGE IMPACTS ON GDP BY DAMAGE CHANNEL, 2050 Constrained Growth (CG) Structural Reforms (SR) Climate Resilience (CR) 0.0 -0.4 0.0 0.0 -0.7 -0.5 -0.2 % differences from baseline without % differences from baseline without % differences from baseline without -0.5 -1.0 -1.0 -0.5 -0.4 -0.3 further climate change further climate change further climate change -2.0 -0.6 -0.6 -2.0 -1.0 -0.4 -1.2 -1.1 -3.0 -0.6 -2.2 -1.9 -3.0 -4.0 -0.2 -2.7 -2.0 -1.1 -5.0 -4.0 -2.4 -6.0 -5.0 -0.4 -7.0 -3.0 -6.0 Optimistic/Wet Pessimistic/Dry Optimistic/Wet Pessimistic/Dry Optimistic/Wet Pessimistic/Dry Productivity (heat) Crops (rainfed) Crops (erosion) Livestocks Fisheries Inland flooding SLR and storm surge Tourism Cyclone Source: Industrial Economics estimates; World Bank staff estimates using the CC-MFMOD. Note: GDP under climate scenarios (pessimistic/optimistic), as percent deviation from counterpart (baseline, without climate change) Further analysis using input-output models has exposed substantial climate vulnerabilities across various sectors, both directly and indirectly through sectoral interconnections. Significant vulnerabilities were found in sectors such as agriculture, fishing, mining, manufacturing (not primary sectors), recycling, construction, and services (including commerce, maintenance and repairs, and hospitality). The findings indicate that the output from these sectors decreases more significantly as climate shocks become more frequent.176 These sectors are also identified as crucial drivers of growth for Madagascar, as outlined in Chapter 1. Notably, although mining accounts for only 6 percent of GDP, it accounted for about 36 percent of Madagascar’s average growth from 2012 to 2021. In stark contrast, although agriculture, fishing, and livestock combined account for about 25 percent of GDP in 2020, these sectors 176Input-output analyses also reveal that the job multipliers in certain sectors, such as other manufacturing, utilities, commerce, transport, and other services, exhibit greater sensitivity to climate shocks than other sectors. 45 and their contribution to GDP have declined overall rather than grown. This is largely due to their heightened exposure to climate change and the persistently low levels of investment in these sectors. Climate change impacts on Madagascar’s economic growth will also affect the country’s fiscal balance; while also true of the costs of adaptation, these will pay off over time through benefits for GDP (Table 4.1). By 2050, in the CG scenario, the fiscal balance is projected to decline by 0.5 or 0.6 percentage points of GDP, depending on the climate scenario (optimistic versus pessimistic). In the CR scenario, GDP impacts of climate shocks are smaller, but combined with higher public spending on adaptation measures, they result in a fiscal balance decline of 0.7 or 0.9 percentage points of GDP, depending on the climate scenario. Madagascar’s debt is expected to increase in all three scenarios as disaster response, reconstruction needs, and adaptation measures are assumed to be financed through borrowing, but also depends on whetheradagascar can also rely on international assistance including humanitarian aid and support with disaster relief. TABLE 4.1. MODELLED ADAPTATION COSTS VS. CLIMATE RESILIENCE BENEFITS IN MADAGASCAR Channel Adaptation measure Adaptation costs (annual Reduced shocks in 2050 due considered average)a to greater resilienceb,c Heat stress Increase in Air US$32.9 million CAPEX From 5.6% loss in labor conditioning coverage US$144.7 million OPEX productivity to 2.8% (agriculture), 0.9% to 0.4% (industry), and 1.4% to 0.9% (services) or approximately US$98 million Rainfed crops Increase irrigation and US$5.7 million CAPEX From 7.4% loss to 5% in crop adopt heat-tolerant crop US$1.4 million OPEX yields or approximately US$41 varieties million Soil erosion Conservation agriculture No additional cost for adopting No change under hot/dry practices (such as conservation agriculture practices scenario but in the wet/warm minimum tillage and crop scenario reduces crop yield residue as mulch) loss from 1.8% to gains in crop yield of 0.5% or approximately US$0.3 million Livestock Importing feed and US$0.06 million CAPEX From 11.9% loss in livestock installing heat abatement US$6.3 million OPEX yield to 5.9% or approximately measures (fans or forced US$33 million ventilation) Cyclone Improve roof connection 0.15% of capital stock CAPEX From 0.7% of capital stock anchor and foundation No OPEX damage to 0.15% or connection anchor bolts approximately US$148 million and stiffeners. GDP equivalent Inland flood All new capital is built Assumed cost neutral (all new From 0.034% of capital under design standards capital is already built under a damage to 0.023% or based on the historical 20- design standard based on the approximately US$3 million year flood by catchment historical 20-year flood by catchment). Sea level rise New infrastructure is built Assumed cost neutral (new From 0.005% of capital at a higher elevation infrastructure that is already part damage to 0.004% or of the baseline is built at a higher approximately US$0.3 million elevation, relative to historical mean sea level). Source: Industrial Economics. Note: All numbers are in 2021 real US$ unless otherwise stated. a. CAPEX = capital cost; OPEX = operating expenses. 46 b. Reduced shocks are the reduced damages in 2050 brought about by the adaptation measure, compared to the damage in 2050 without adaptation under the combined hot/dry scenario. The reduced damages in 2050 are chosen to represent the biggest benefit in the time horizon of the scenario. c. The US$ reduced shocks GDP equivalent are estimated using the Cobb-Douglas production function using shocks to labor, capital and productivity information in no adaptation and adaptation cases as inputs. It is based on the Structural Reform baseline. 4.2. Poverty and Inequality in a Changing Climate Multidimensional poverty in Madagascar is expected to worsen with climate change. Without structural reforms and adaptation, climate change will not only slow GDP growth, but will also keep poverty levels high, perpetuating a pattern of disproportionate impacts on the most vulnerable people. Climate impacts can act as threat multipliers, exacerbating existing vulnerabilities and deepening socioeconomic inequalities. The modeling shows that in the pessimistic CG scenario (hot/dry), by 2050 the national poverty rate might be at least 3.4 percentage points higher than in a no-climate-change scenario. This could mean 1.68 million additional people living in poverty and a persistently high poverty rate of about 77 percent by 2050 (up from 75.2 percent in 2022). In the more optimistic CG scenario (warm/wet), the poverty rate would be at least 3 percentage points higher than without climate change, with 1.5 million additional people in poverty (Figure 4.7). 177 With no further action, the most socially and economically disadvantaged segments of Malagasy society will likely continue to be disproportionately affected and to see their exclusion deepen. Deepened social exclusion is significant because it undermines people’s resilience and adaptive capacity and constrains their pathways back out of poverty. Spatial modeling suggests that deepened social exclusion through climate impacts will be concentrated in the south, making it even harder for people there to break out of the cycle of crisis and poverty (Figure 4.8).178 FIGURE 4.7. POVERTY IMPACTS AT THE NATIONAL LEVEL Panel A: Poverty headcount by scenario Panel B: Number of additional poor by scenario 4.0 1,800,000 the baseline under no climate change, in ppts) poverty respect to no climate change scenario Poverty Headcount Increase (Devations from 3.5 1,600,000 Number of additional inhabitants under 3.0 1,400,000 2.5 1,200,000 2.0 1,000,000 1.5 800,000 1.0 600,000 0.5 400,000 0.0 200,000 2030 2040 2050 - 2030 2040 2050 Combined Pessimistic CG Combined Optimistic CG Pessimistic CG Optimistic CG Combined Pessimistic SR Combined Optimistic SR Source: Industrial Economics. Note: Panel A shows the deviation in the headcount poverty rate for each baseline scenario with climate change (for example, CG or SR) from the same baseline scenario under no climate change assumptions. “Combined� means that we combined the macro model estimation with the distributional changes in labor heat stress, crop yield loss, and livestock productivity loss channels to conduct the poverty and inequality impacts. 177 The poverty results presented in this section are conservative as our tools for measuring the poverty impacts of climate change are limited. The results should therefore be viewed with caution. 178 See Ballon, P. & O. Alburqueque (2023). Measuring Social Exclusion in Madagascar: A Multidimensional Approach. 47 FIGURE 4.8. SPATIAL DISTRIBUTION OF MULTI-DIMENSIONAL EXCLUSION OVERLAID WITH SPATIAL DISTRIBUTION OF CLIMATE RISKS PANEL A PANEL B PANEL C Source: Original figure for this CCDR. Note: Climate impacts will lead to deepened social exclusion. A subnational analysis of multidimensional exclusion and climate risks shows the intrinsic positive association between heightened exposure to climate risks (Panel A) and higher social exclusion (Panel B). Panel A presents projections under the SSP3-7.0 emissions scenario of anomalies in consecutive dry days (periods with less than 1 mm of daily precipitation). Panel B presents a multidimensional exclusion index (0 to 1) that measures exclusion across four dimensions—economic inclusion, resilience, social cohesion, and process legitimacy—using microdata from the Enquête Permanente auprès des Ménages 2021-2022 (Permanent Household Survey 2021-2022)179. Panel C presents a bivariate map combining the information from Panels A and B, where regions are categorized based on quartiles of both variables. In this panel, darker shades represent higher levels of social exclusion, and climate dryness. Climate change impacts on the agriculture sector have particularly significant implications for poverty. Poverty rates are especially high in rural areas of Madagascar, where many people are subsistence farmers and climate shocks are already taking a heavy toll on households (Section 3.1). In both the pessimistic and optimist CG scenarios, the agriculture sector’s value added is projected to decrease by between 11 and 14 percent relative to the baseline no climate change scenario, while in the industry and service sectors, output could decrease by 5 to 6 percent (Figure 4.9). Considering that the service sector employs approximately one-quarter of the total workforce, a decline in its value added by 2050 compared to the baseline scenario would affect the well-being of families associated with this sector in urban areas. This, in turn, may contribute to a slowdown in the pace of poverty reduction. 179Enquête Permanente auprès des Ménages 2021-2022, Institut National de la Statistique (INSTAT), Madagascar, March 2024. https://www.instat.mg/documents/upload/main/INSTAT_Epm21-22_06-2024.pdf 48 FIGURE 4.9. IMPACTS ON VALUE ADDED BY SECTOR Agriculture Industry Services 2022 2030 2040 2050 2022 2030 2040 2050 2022 2030 2040 2050 1 Deviations from the baseline under no -1 -3 climate change -5 -7 -9 -11 -13 -15 Combined Pessimistic CG Combined Optimistic CG Combined Pessimistic SR Combined Optimistic SR Source: Industrial Economics. Note: The figure shows the deviation in the value added for each sector in the baseline scenario with climate change (for example, CG or SR) from the same baseline scenario under no climate change. Climate change is also projected to increase income inequality, as measured by an increase in the Gini coefficient. Inequality is projected to increase, although not by much, across the two scenario combinations (CG and SR). The modeling shows that in the pessimistic CG policy scenario, the Gini coefficient increases by 0.1 points by 2040 relative to the baseline (no climate change) and by 0.23 points by 2050 (Figure 4.10). Growth in inequality is driven by an increase in the gap between workers in agriculture and other sectors. In fact, while per capita consumption for the bottom three income deciles is expected to decrease compared to the no-climate-change scenario by 8 percent by 2050, consumption by the top two deciles is projected to decline by about 7 percent. This pro-poor bias is mostly due to the fact that the poor are more likely to derive their income from agriculture, which is expected to be hit harder. FIGURE 4.10. INEQUALITY IMPACTS 0.25 Gini Coefficient Increase (Devations from the baseline under no climate change, in 0.20 0.15 0.10 ppts) 0.05 0.00 2030 2040 2050 Combined Pessimistic CG Combined Optimistic CG Combined Pessimistic SR Combined Optimistic SR Source: Industrial Economics. Note: On the 2050 line, the red diamond is not visible because it is superimposed by the orange circle as they are at the same level. Climate change will also significantly impact urban poverty. Under the pessimistic CG scenario, the poverty rate in urban areas will increase by at least 4 percentage points by 2050, up from a 3 percentage-point increase by 2040. This is higher than for the optimistic scenario, where the urban poverty rate will increase by around 2.5 and 3.3 percentage points by 2040 and 2050, respectively. In rural areas, where the vast majority of the population already 49 lives in poverty, climate change will increase the poverty rate under both the optimistic and pessimistic CG scenarios by 2.9 and 3.2 percentage points by 2040 and 2050, respectively (Figure 4.11). FIGURE 4.11. POVERTY IMPACTS ON RURAL AND URBAN AREAS 4.5 from the baseline under no climate change, 4.0 Poverty Headcount Increase (devations 3.5 3.0 2.5 2.0 1.5 in ppts) 1.0 0.5 0.0 2030 2040 2050 2030 2040 2050 Urban Rural Combined Pessimistic CG Combined Optimistic CG Combined Pessimistic SR Combined Optimistic SR Source: Industrial Economics. 50 6. Financing Madagascar’s Climate Transition In its second Nationally Determined Contribution (NDC2), Madagascar estimates the cost of adapting to climate change at US$7.3 billion over 2022-2030 (Figure 5.1).180 This revises Madagascar’s total climate financing needs in its first NDC downwards, from US$42.1 billion—including US$28.7 billion for adaptation—to US$ 24.4 billion for the period 2022-2030. Under NDC2, the government estimates that US$700 to US$900 million of the funds needed to 2030 would come from domestic public resources (3 to 4 percent of the total anticipated cost). The remaining US$2.9 billion per year are to be raised from other sources—$23.7 billion in total by 2030. FIGURE 5.1. CLIMATE FINANCE NEEDS BY AREA, 2022-2030 A new cost estimate was developed for this CCDR based (US$, BILLIONS) on the sectoral analysis and the recommended priority actions. This estimates the total cost of priority climate- resilient development actions at close to US$7.5 billion by 2050 (Table 6.1 in Chapter 6). It is important to stress that this estimate cannot be compared directly with the NDC2 figures, as the NDC2 is far more comprehensive. Instead, the US$7.5 billion should be viewed as the most urgent adaptation investments needed by Madagascar to protect its people and safeguard its key productive sectors in the face of intensifying climate change impacts. See Box 4 for further discussion and analysis of the funding needs. While the funding needs projected are substantial, Madagascar can chart a course for financing its transition toward climate resilience and low-carbon growth. Each Source: Adapted from Madagascar’s Second Intended dollar allocated today will generate co-benefits in the form Nationally Determined Contribution, 2024. of socioeconomic benefits, sustainable ecosystems, and a resilient national infrastructure capable of withstanding the adversities brought by climate change in the coming decades. The crux of this transition does not merely lie in identifying the required investments, but in sourcing and channeling these funds effectively. Madagascar stands at a juncture where traditional sources of financing might fall short, demanding innovative financial mechanisms and a heightened level of international cooperation. This chapter outlines how this might be achieved. 6.1. Key Sources of Climate Finance for Madagascar The vast majority of Madagascar’s current climate finance comes from external public sources. Multilateral development finance institutions, including the World Bank, are the main providers of the country’s climate finance, injecting 55 percent of the funds, or US$194 million in 2022. Despite the NDC2’s overwhelming prioritization of adaptation, the finance provided to date has been more balanced: 54 percent for adaptation and 46 percent for mitigation. Sector-wise, energy has absorbed the lion’s share of Madagascar’s climate finance (45 percent); followed by agriculture, forests, and other land use (AFOLU); infrastructure; transport; and water. Cross-sectoral projects have received 28 percent. The sections below examine potential sources of finance going forward, including yet-to-be tapped opportunities. Current climate finance investments predominantly target infrastructure (energy systems, water management, transport, and waste management, which together represent around 44% of climate investments). Funding these long-term investments going forward requires de-risking by the public sector through grants or equity to attract more private capital, as well as subsidized funding and financial market development for risk transfer, sharing, and 180 Republic of Madagascar. 2022. Deuxième Contribution Determinée Au Niveau National de La République de Madagascar; Republic of Madagascar. 2016. [Madagascar’s Second Intended Nationally Determined Contribution]. 51 dissemination. Special emphasis should also be given to projects in fisheries, agriculture, forestry, and other land uses, which currently attract about 16% of climate investments. Incentivization mechanisms, such as preferential taxes and streamlined, simplified procedures, could help develop bankable projects. Additionally, insurance products, such as micro and index-based products, could provide comfort to the financial sector and attract funding to these climate- vulnerable sectors. BOX 4. CLOSING MADAGASCAR’S CLIMATE FINANCE GAP The climate finance needed by Madagascar to ensure climate-resilient development is estimated at close to US$7.5 billion by 2050. This estimate is based on the sectoral analysis and the identification of the most urgent priority actions to protect the population and safeguard key productive sectors against rising climate change impacts. This estimate cannot be directly compared with the NDC2 investments, which are far more comprehensive, at US$24.4 billion. Climate finance inflows from the MDBs have steadily increased since 2015, reaching US$385 million in 2022. With financing needs of US$433 million per year until 2030, and US$205 million per year between 2031 and 2050 to implement urgent priority investments, Madagascar seems on the right track to meet these needs. Several potential funding sources could be mobilized to fill the gap (Figure 5.3): • Phasing out fuel subsidies by 75 percent could bring in US$375 million per year (based on 2023 fuel subsidies). • Developing carbon markets progressively could bring up to US$44 million per year by 2030. • Mobilizing up to 10% of banks’ lending portfolios to finance mitigation and adaptation investments by de-risking their investments could add up to US$360 million by 2030. • Finally, based on historical trends, it appears reasonable to assume that MDBs will renew at least 30% of their 2019-2022 investments until 2050 (Figure 5.2). Phasing out fossil fuel subsidies, for instance, could help Madagascar finance its unconditional NDC2 commitments, fund its Disaster Risk Financing (DRF) mechanism, or assist in de-risking financial sector investments. FIGURE 5.2. HISTORICAL CLIMATE FINANCE NEEDS FIGURE 5.3. FINANCING URGENT INVESTMENTS IDENTIFIED IN THE CCDR Climate finance gap reduced in the periods 2023-2030 and 2040-50 if CCDR recommendations are implemented (US$ million) 34 137 240 240 433 44 44 11 28 … 275 375 375 375 375 205 263 99 99 2028 2023 2024 2025 2026 2027 2029 2030 2040 2050 (433) (205) (550) Potential climate finance source - Progressive investment of 10% of banks' portfolio on de- risked investments by 2030 Potential climate finance source - Carbon markets revenues Potential climate finance source -Progressive removal of 75% of 2023 fossil fuel subsidies Potential climate finance source - Climate funding from MDBs (80% of the average trend 2019-2022 for 2023, 30% from 2024 onwards) Climate finance needs - CCDR assessment of urgent priority investment needs for climate resilience across priority sectors (2023-2050) Annual Funding gap with no climate action (Business as Usual) Source: World Bank analysis for this CCDR report and data from EIB. 2022. Joint report of MDBs Climate Finance 52 5.1.1. Insurance and risk management products Insurance and risk management products are emerging in Madagascar, but the potential benefits of their widespread deployment are yet to be studied. Several pilots have been launched; for instance, in 2020, the World Food Programme launched an area-yield index insurance program for smallholder farmers in nine localities in the south of Madagascar. 181 The Deutsche Gesellschaft fur Internationale Zusammenarbeit (German Agency for International Cooperation, GIZ) has also funded an insurance pilot with the insurance company ARO in southern Madagascar, to serve groundnut producers. 182 A nationwide rollout of such products could help farmers better withstand climate shocks. A study is needed to determine whether the current regulatory framework allows parametric microinsurance and whether the insurance sector, dominated by state-owned companies, would develop the offer. There is also a need to de-risk investments in clean energy and other sectors in Madagascar. Banks in Madagascar are already financing some renewable energy projects, but projects are often rejected as they are not seen as solid and there are concerns about having JIRAMA as the sole off-taker. Risk-sharing products (on a portfolio or individual name basis) could help, but they are unlikely to unlock significant financing volumes for the sector. There also needs to be a coordinated effort among the key actors, including government, to unlock financing for larger-scale, private sector-led projects, which the banks would be more inclined to support. Bank support for the tourism sector is limited, too, as the majority of the sector remains small and with weak financial fundamentals. Banks mostly finance hotels belonging to large international franchises, developed by strong sponsors. For investments in ecotourism to take off, a concerted approach needs to be taken to develop the infrastructure needed to support tourism growth in high-potential areas. Overall, to further encourage financial institutions to increase lending to targeted climate sectors, it is essential to make pools of subsidized funding available. 5.1.2. Voluntary carbon markets Madagascar has potential to raise funding on carbon markets, including through REDD+ initiatives, to support forest protection and restoration. Madagascar’s current commitment to enhance 270,000 ha of forests by planting native species, in addition to existing REDD+ initiatives (potential absorption of 40 Mt CO 2e 183), could allow the country to absorb around 44 Mt CO2e per year. Based on the conservative price of the latest carbon transaction in the country, this could represent US$44 million per year, and between US$286 million and US$1.4 billion by 2030.184 One option would be to support efforts by large mining companies looking to improve their sustainability by funding large-scale reforestation and forest restoration activities. Potential collaboration with the dominant quasi-private forest plantation concession in Madagascar, Fanalamanga Society, could expand its afforestation and restoration of degraded forests within its existing 200,000 ha concessions in central Madagascar and produce wood products, biofuels, and emission reduction credits to sell to carbon markets. All initiatives for reforestation and prevention of deforestation and land degradation need to work in partnership with the local communities that currently rely on the land. Excluding them from economic engagement with protected areas and not providing them with alternatives to deforestation for expanding agricultural land and accessing biomass for domestic energy use risks damaging their already precarious economic position and reinforcing their climate vulnerabilities. 181 InsuResilience Global Partnership. 2021. “WFP Madagascar: Supporting Integrated & Inclusive Social Protection System.� PreventionWeb, July 13. https://www.preventionweb.net/news/wfp-madagascar-support-integrated-and-inclusive-social-protection-system. Insurance policies were provided to 3,500 farmers during the 2020–2021 agricultural season to cover them against the effects of drought and insect pests. A severe drought during the long-rain season triggered a compensation payment of US$350,000 for insured farmers. 182 For an overview, see https://issuu.com/afc-agriculture_finance/docs/afc_worldwide_2023_en/s/25557348. 183 Demaze. 2014. L’enrôlement de Madagascar dans la REDD+ : domestiquer une opportunité internationale [Madagascar’s enrollment in REDD+: domesticating an international opportunity], UQAM, May 2014. https://www.erudit.org/en/journals/vertigo/2014-v14-n1- vertigo01649/1027970ar.pdf 184 Calculations based on IMF estimates of carbon absorption potential of forest enhancement (4 Mt CO e/year), on the potential of REDD+ 2 initiatives (40–45 Mt CO2e), and a conservative price range of $1–5/tCO2e for carbon credits issued in Madagascar. 53 Several constraints prevent Madagascar from accessing climate finance from forest carbon markets. Decree 2021- 1113 of October 20, 2021, which regulates access to the forest carbon market, provides a comprehensive framework for carbon forestry in Madagascar, and the country nationalized its forestry carbon markets in January 2022. However, the current regulation does not encourage 185 conservation projects led by private companies and nonprofits that issue carbon credits, and prevents new ones from being set up. Ensuring transparency in carbon credit issuance is critical; the government could set up a proper regulatory framework for renewable energy carbon credits issuance,186 connecting the national registry to a global one such as the Climate Action Data Trust. 187 Another limiting factor is the difficulty of establishing emission reference levels in the forestry sector, which require significant historical data. Finally, estimates of carbon revenues should clearly consider the duration of the carbon credit generation period because investors need several years to recover their initial investment. There is also a pressing need to intensify blue carbon financing in Madagascar. Effective financing pathways for the country should primarily enable funding for community-led projects aimed at habitat conservation, sustainable livelihoods, and carbon emission reduction. The success of instruments to finance NbS and blue carbon ecosystems depends on the investment stage and investors’ expectations (risk-adjusted returns, impact, and ability to monetize ecosystem services). Existing guidelines for blue finance include the EU sustainable finance taxonomy, Green Bond Principles, Green Loan Principles, and IFC’s Guidelines for Blue Finance. Financing sources for blue carbon can include: • Creating standalone blue carbon assets through voluntary carbon markets and results-based financial strategies, similar to what has been done for REDD+. • Integrating ‘blue’ elements like mangrove forests and floodplains into traditional ‘gray’ infrastructure such as sea walls and breakwaters. By doing so, sectors like shipping and ports, aquaculture, and tourism can significantly reduce their carbon footprint. This makes the investment more resilient and enhances the underlying asset’s value. • Engaging with insurers, who are increasingly aware of how investments in coastal wetland restoration can mitigate property damage during storms. • Issuing green and blue bonds. Both corporations and governments are increasingly issuing green and, more recently, blue bonds that focus on nature conservation, restoration, and sustainable use. These are particularly prevalent in regions with rich natural capital and ecosystems.188 5.1.3. Innovative climate finance solutions Authorities should develop debt capital markets and, as a second step, a green, social and sustainable (GSS) issuance framework, which are key to raising the funding required to implement the NDC2. Financial markets are currently almost nonexistent, not framed by any regulation or supervised, and have mainly been used by the government for debt issuance. A few companies have issued bonds through private placements, but the conditions required for a liquid corporate bond market, such as a sufficient number of suitable issuers and a large investor base, are not yet in place. Capacity building for financial market players, as currently provided by IFC in Madagascar, is also essential to ensure the adoption of best market practices. Maturing this market is a prerequisite for preparing 185 The carbon market decree of 2021 mentions that all emission reductions generated in Madagascar are government owned and there are no articles that stipulate the role of the private sector and how they can invest in the Madagascar forestry carbon market. The 2023 decree on the “Compte d’Affectation Spéciale� (CAS or Special Account) determines that all emission reduction funds need to go through the CAS, which requires a lengthy administrative process before the release of payments; both aspects represent disincentives to the private sector. 186 See https://www.trackingstandard.org. 187 See https://climateactiondata.org; and Torras Vives, G. 2023. “Why Data Infrastructure Is Key for a Transparent Carbon Market.� World Bank. Development and a Changing Climate (blog), March 7. https://blogs.worldbank.org/climatechange/why-data-infrastructure-key- transparent-carbon-market. 188 IFC. 2023. Blue Finance at IFC: https://www.ifc.org/content/dam/ifc/doc/2023/blue-finance-at-ifc-ifc-2023.pdf. 54 for the issuance and exchange of climate finance instruments such as green and blue bonds, and to allow local long- term investors (pension funds, insurance companies) to participate. Debt-for-nature swaps (DfNS) do not look like an appropriate instrument for Madagascar in the current context. There is renewed interest in DfNS to address both debt sustainability and nature conservation, with recent examples in Ecuador, Gabon (2023), Belize and Barbados (2022). Through DfNS, creditors provide debt relief in exchange for the government taking action to protect nature. The highest impact is in the size of debt relief compared to the initial debt burden. These deals are complex and costly, however, and the size and structure of Madagascar’s public debt may limit the effectiveness of a DfNS. First, the total debt-to-GDP ratio is moderate—53 percent—and Madagascar is not at high risk of debt distress.189 Second, about 60 percent the external debt is held by creditors that are unlikely to enter into this instrument (the multilaterals benefitting from preferred creditor status). 6.2. Fiscal Policy and Reforms to Support Climate-Resilient Growth Madagascar needs to adopt significant reforms to set the country on track for climate-resilient growth, starting with integrating climate change into development planning and public finance management (PFM). Mainstreaming climate change in PFM should be a top priority, in conjunction with the broader climate governance reforms outlined in Chapter 3. The government needs to develop mechanisms and information systems to mainstream climate action within existing plans, projects, and annual budgets based on climate change projections; establish a typology of climate change-related sectoral activities to support robust monitoring and tracking of the climate change budget when formulating sectoral budgets; systematically track spending on climate action; and mainstream climate risk assessment in public investments. Madagascar will need adequate capacity building, financial resources, and tools for mainstreaming climate change within sectoral and subnational government and in state-owned enterprises. Key issues to address include the following: • Climate-smart budgeting. Climate issues are only minimally considered in budget preparation and execution, except for externally funded projects. Budget measures do not require any assessment of their climate impact. There are no specific tags for climate-related expenditures in the budget documents, which makes it difficult to identify and analyze climate-relevant expenditures. Climate considerations are not explicitly or systematically considered in internal or external audits or internal controls. • Climate-smart public investment management. The Public Investment Management (PIM) regulations, which govern the processes across the public investment cycle, were updated in 2023 to mandate using climate-resilient risk as a selection criterion. Currently, only projects mostly financed by external sources are subject to climate impact assessments and effective implementation of the projects financed by domestic resources has not occurred yet. The various entities involved in PIM at the Ministry of Finance and Presidency levels also lack expertise on climate change mainstreaming. • Green public procurement (GPP). Green procurement can be an important driver of innovation. By demanding greener products, works, and services, the government helps decarbonize its own operations add creates incentives for the market to invest in and develop greener products and processes in construction, transport, mining, tourism, and other sectors. GPP is important for delivering climate-resilient infrastructure. Madagascar already requires new buildings to be resistant to natural hazards (Decree n°2019-1957), including in tenders and technical specifications in public bidding documents (Decree n°001- MEF/ARMP/2023). However, the mandate only covers DRM and insurance (against cyclones, flooding, fires, and so on), rather than proactive efforts to address climate change more broadly. 189 IMF. 2023. IMF Country Report no. 23/117 for the Republic of Madagascar. March 2023. 55 • Climate finance. Madagascar remains dependent on external financing to support climate investments. Externally funded projects account for most public investments (68 percent of the investment budget 190). Lack of knowledge of the international climate finance landscape limits the country ’s potential to access that finance. Improving knowledge at this level is therefore a major challenge. The adoption of measures to facilitate risk assessment of the policy environment can also leverage private sector finance, including establishing a fiduciary unit under the Ministry of Finance to coordinate management and mobilization of climate funds across sectors, as well as training and capacity building. The Malagasy government should prepare a national strategy on climate finance that specifies how implementation of NDC2 will be financed. The current lack of transparency and predictability is discouraging investment and development initiatives in Madagascar. 191 The absence of government leadership has discouraged the financial sector from wanting to build a pipeline of green investable projects. The national strategy should prioritize and coordinate policies and activities with clear milestones and a timeline to track progress against targets and build accountability. 192 Making it public would send a strong signal of political commitment to the climate agenda. Madagascar will need to strike a careful balance between public and private financing. Public financing, while crucial, might be constrained by Madagascar’s broader developmental priorities and fiscal landscape. Hence, inviting and facilitating private sector investments becomes imperative. Engaging the private sector can not only fill the financing gaps but can also introduce efficiencies, innovations, and technological advances (Box 5). However, private investors need tangible returns and an enabling environment. By ensuring fiscal incentives, risk-mitigating instruments, clear regulatory frameworks, and a stable political environment, Madagascar can transform its objectives into attractive investment opportunities. Reducing fossil fuel imports and/or eliminating fossil fuels subsidies would allow Madagascar to free up part of its budget to directly finance or de-risk investments for the private sector. Inefficient fossil fuel subsidies, which mostly favor the wealthiest segment of the population 193 —those who consume the most electricity (produced through fuel-powered generators) and fuel for transportation —could be redirected to finance climate investments that benefit the entire population. These investments could include infrastructure projects or disaster risk finance mechanisms. According to the IMF, fossil fuel subsidies represented US$500 million in 2023 in Madagascar.194 As the share of renewable energies in the energy mix grows, Madagascar could also reduce fossil fuel imports, which are also estimated at US$500 million,195 thereby easing the pressure on JIRAMA’s finances. Environmental taxes and water pricing can serve a dual purpose: generating revenue and encouraging sustainable practices. For instance, a carbon tax can disincentivize carbon-intensive activities, pushing industries toward greener alternatives. Simultaneously, revenues from such taxes can be funneled back into climate investments. Water holds immense value, for instance. Proper water valuation can lead to its judicious use, ensuring long-term availability and sustainability. Financial instruments that recognize and reflect the true value of water resources can usher in sustainable agricultural and industrial practices. 190 IMF. 2022. CMAP. 191 IMF. 2023. “Republic of Madagascar: 2022 Article IV Consultation, Third Review Under The Extended Credit Facility Arrangement, and Requests for A Waiver of Nonobservance of Performance Criteria and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Republic of Madagascar.� 192 This strategy should include a vision on how best to use the collaborative approaches of the Paris Agreement under its Article 6 provisions, especially those based on the market, to clarify the eligible activities for generating emission reductions as well as conditions and restrictions for carbon trading. With the ambition of its NDC commitments, Madagascar may also consider (a) relying on results-based climate finance, which is not related to carbon markets; (b) biodiversity crediting, an emerging financing source that would combine very well with the current efforts on biodiversity protection; and (c) voluntary carbon trading. 193 World Bank. 2019. Madagascar Economic Update. https://documents1.worldbank.org/curated/fr/358341557156959636/pdf/Madagascar- Economic-Update-Managing-Fuel-Pricing.pdf 194 IMF. 2023. Fossil Fuel Subsidies Data: 2023 Update. https://www.elibrary.imf.org/view/journals/001/2023/169/article-A001-en.xml. 195 World Bank WITS Platform, wits.worldbank.org. 56 Considering the financial sector’s limited capacities to finance renewable energy infrastructure, particularly off grid, the authorities have a crucial role in providing green fiscal incentives and de-risking instruments, such as first- loss coverage and partial credit guarantees, to boost the credit profile of infrastructure projects. An option would be to create a green window in the partial portfolio credit guarantee offered by the Solidis fund,196 which should build on the support offered by the Agence Française de Developpement through its SUNREF program. The technical assistance provided to banks and businesses by Solidis to support them in identifying investment opportunities and structuring projects could also be expanded to potential benefiters of the Solidis green finance window. BOX 5. CLIMATE TRANSITION INVESTMENT OPPORTUNITIES FOR THE PRIVATE SECTOR Some of the climate change activities identified in this CCDR pave the way for increased private sector investment. Key entry points include the following: 1. Renewable energy projects. Private sector mini-grid development with nonthermal energy sources (for example, mini-hydro and decentralized solar photovoltaic) could help to electrify Madagascar more quickly and at a lower cost than trying to expand the existing grid. However, approvals and implementation of a new electricity law, a grid code, a revision of the PPP Law, and dispatch centers are necessary to realize the utility scale of renewable energy power generation. Current electricity and PPP laws have some inconsistencies in awarding independent power producers.197 2. Energy efficiency initiatives. With energy efficiency being the most powerful and economical way to reduce industrial carbon footprints, companies should consider implementing energy management programs and smart investments in upgrading outdated machinery. Companies can leverage smart grid digital technologies to optimize energy distribution and improve grid management and resilience. Companies can also provide financing for energy efficiency projects in key economic sectors (for example, clothing, mining, tourism), buildings, and transportation, helping to reduce energy consumption and carbon emissions. Updating the sector legal framework by adding fiscal incentives for companies to invest in energy efficiency and renewable energy would strengthen the industry’s competitive edge and help alleviate pressure on the state-owned utility. The recent example of the EDGE (Excellence in Design for Greater Efficiencies)198 certification for the Ivato International Airport, a first in the world, is setting an example of how to better manage natural resources, helping to reduce its carbon footprint and control costs. 3. Carbon markets and trading. Participating in carbon markets by trading carbon credits or investing in emission reduction projects can provide financial incentives for businesses while contributing to emission reduction goals. Madagascar recently received US$8.8 million in carbon credits for reducing 1.76 million tons of carbon emissions in 2020, becoming the third country in Africa (after Mozambique and Ghana) to be paid by the World Bank for reducing emissions from deforestation and forest degradation—commonly known as REDD+.199 Such incentive mechanisms provide opportunities for the private sector to further support and engage directly in scaling up similar conservation initiatives. See Section 5.1.3 above for more on carbon markets. 4. Eco-tourism and conservation. Developing eco-friendly and climate-informed tourism projects and conservation initiatives can promote environmental sustainability and protect natural resources. Recent World Bank analysis 200 has indicated that, given its pristine beaches, islands, and coral reefs, Madagascar has a comparative advantage in the region for the development of luxury marine/nautical tourism development, if the appropriate regulatory frameworks and infrastructure can be put in place. The following key actions to enhance the private investment climate for blue-ecotourism and fishery in Madagascar are discussed in the Madagascar CPSD and CEA, and include (1) public investment in non-toll roads; (2) liberalization of air and rail transport to increase competition; (3) government promotions to encourage private investment in and operation of agrologistics to ease the aggregation of production and reduce transport cost, for example, storage facilities, cold chain; (4) transparent and fair legal and regulatory enforcement (for example, licensing procedures) in the aquaculture subsector; (5) finalization of the legal framework 196 https://www.solidis.org/en/bank-guarantee/. 197 The Madagascar Country Private Sector Diagnostic (WBG, December 2021) provides more details on specific policy reform recommendations aimed at increasing private sector participation in renewable energy generation. The report can be downloaded at https://www.ifc.org/en/insights-reports/2021/cpsd-madagascar 198 https://edgebuildings.com/about/about-edge/ 199 World Bank. 2023. “Madagascar Receives $8.8 Million for Forest Carbon Credits that will Further Protect the Remaining Forests and Communities�. Press release. https://www.worldbank.org/en/news/press-release/2023/12/04/madagascar-afe-receives-8-8-million-for-forest- carbon-credits 200 Conducted through the World Bank Integrated Growth Poles and Corridor SOP-2 (P164536). 57 for tourism concessions in protected areas to allow private companies and investors to develop blue- and nature-based tourism, infrastructure both to access marine sites and to mitigate human use of fragile sites, as well as development of a solid standardized tourism concession contracting system in protected areas and for marine tourism; (6) training in hospitality skillsets and implementation of sanitation and sanitary and phytosanitary measures and circular economy concepts, which could be opportunities to formalize the informal economy; and (7) the establishment and enforcement of a clear overarching regulatory framework to reduce uncertainties in investment and doing business; ensure fair benefits and cost sharing with local communities and other stakeholders, with special attention to gender and other unfair discriminations; and mechanisms to support losers in the economic transitions (for example, using increased tax revenues from blue tourism to support reskilling and alternative livelihoods for charcoal producers). 5. Agriculture index insurance. Index insurance has the potential to increase insurance penetration in low-income rural areas, service smallholder farmers, and pay out benefits based on a predetermined index (such as rainfall or temperature), without requiring the traditional services of insurance claims assessors. Thus, increasing the penetration of index insurance could de-risk agricultural production and investments, increasing farmers’ access to other financial products such as credit. This topic is discussed in Section 5.1.1 above. Dedicated funding is also required for disaster response and prevention. Madagascar has made important progress in putting in place prearranged financing for disaster response, starting with the establishment of a National Contingency Fund (FNC) for disasters, through Decree 2022-1344 adopted in November 2022. This fund, managed by BNGRC, will allocate resources to sector ministries/agencies and decentralized local entities to respond to disasters, in line with their contingency plans.201 For 2023, the FNC received a budget allocation of MGA two billion (about US$420,000). However, considering the level of risk, it is imperative to mobilize significantly larger resources. The FNC is not fully operational either, pending adoption of the procedures manual which recommends the establishment of a Treasury Special Assignment Account (Compte d’affectation Spéciale du Trésor , CAST) to allow a transparent sourcing and execution process based on clearly defined eligible and ineligible expenses and facilitate internal and external resource pooling. In practice, due to limited resources compounded by a persistent cash management issue, the Ministry of Finance regularly resorts to budget reallocations and adjustments throughout the fiscal year using “décrets d’avance�202 to mostly cover immediate relief expenses incurred in the aftermath of a natural hazards. Although preventive structural adaptations can substantially reduce cyclone damage, the need for effective post- cyclone reconstruction funding remains urgent. A sensitivity analysis was used to assess various funding methods, correlating reconstruction needs with disaster-related GDP impacts. Interestingly, an increase in value added tax (VAT) emerges as the top funding option, followed closely by private insurance and public contingency funds. The World Bank-financed Madagascar Equitable and Resilience Growth Development Policy Operation is already supporting key reforms, but more can be done to advance climate objectives. 6.3. Managing Climate-related Financial Risks The financial sector in Madagascar is underdeveloped and dominated by banks . The Madagascar Central Bank (Banky Foiben’i Madagasikara, BFM) reported in its latest Financial Stability Report (2018) that banks held 78.3 percent of the total assets in the sector.203 However, they only provided credit to the private sector equivalent to 18.7 percent of GDP 204 in 2022—well below the 35.8 percent average for Sub-Saharan Africa in 2020. The microfinance sector also plays a significant role in a country where 90 percent of the population is financially 201 The establishment of the fund was supported by a World Bank’s Disaster Risk Management Development Policy Financing with a catastrophe deferred disaster drawdown option (CAT DDO) (USD 50 million) (P167941). 202 Décrets d’avance� allow the government to open credits to finance urgent expenditure. Usually, the cumulative amount of these credits cannot exceed 1% of the credits opened by the finance law of the year and cannot affect the budgetary balance defined by the finance law. 203 Banky Foiben’i Madagasikara. 2018. Rapport Sur La Stabilité Financière – 2018 [Financial Stability Report – 2018]. https://www.banky- foibe.mg/admin/wp-content/uploads/2020/03/RSF2018d%C3%A9f_avec-couverture.pdf. 204 World Bank data: Domestic credit to private sector (% of GDP) - Madagascar, Sub-Saharan Africa https://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS?locations=MG-ZG. 58 excluded. Microfinance institutions (MFIs) provide access to finance for about one-quarter of the population through cash loans (60 percent), investment loans (23 percent), and housing loans (10 percent). Climate shocks create risks for banks, particularly through impacts on infrastructure and buildings, but the sector focuses mainly on corporate clients and has yet to be affected significantly. However, some projects or clients they finance may have been affected or constrained in their operations by damage to transport infrastructure. Although sectoral and geographical data on credit exposures are not available, banks and insurance companies seem to have limited exposure to vulnerable sectors such as agriculture, probably due to their low penetration of this sector. Overall, agricultural financing by banks is almost exclusively concentrated on exporters of cash crops. MFIs are more exposed but have developed products that limit their risk and, in general, are better placed to serve the sector. For example, half of MFIs’ agricultural loans are postharvest loans for village cooperative storage (grenier commun villageois), to enable farmers to hold off on selling their crops until food prices rise. There is potential for MFIs to offer other climate-friendly nonfinancial services. The Financial Institutions Group at the World Bank has been doing a lot of work on leasing agricultural equipment, a service that currently has limited availability in the market. A green asset leasing product for the agriculture sector could be a good approach to develop. Madagascar’s financial sector also has relatively low exposure to climate transition risks—but they do exist. Some banks’ main exposure is through fossil fuels importers, many of which are clients of JIRAMA, the national utility company.205 The most significant transition risk for the financial sector probably arises from its exposure to mining activities. Metals and mineral products dominate Madagascar’s exports, with nickel and cobalt alone accounting for almost 31 percent in 2022 (US$1.1 billion).206 Several of these minerals are needed for the clean energy transition, but their extraction is polluting. Both legal concessions and artisanal mining already affect natural habitats and biodiversity, and their expansion could have dramatic consequences. BFM is at an early stage of identifying and managing climate-related and environmental financial risks and has not yet integrated these risks into its own governance and operations. Capacity building is needed to enable it to better incorporate these risks into banking supervisory practices. BFM should consider applying for membership of networks such as the Network for Greening the Financial System (NGFS) and the Sustainable Banking and Finance Network (SBFN) to gain expertise and raise awareness within the financial sector. Nevertheless, BFM is aware of the potential impact of climate-related risks on its operations and has, for instance, acknowledged that physical risks such as cyclones can have a material impact on inflation and thus on monetary policy. 207 BFM should also build a robust data collection process to monitor climate risks and formulate its supervisory response, which could include creating a national green finance taxonomy. While data on the sectoral distribution of credit exposure is already collected by BFM, it is not granular enough to assess institutions ’ exposure to physical and transition climate risks. BFM also does not collect data on the geographic distribution of credit, which is essential to understand institutions’ exposure to climate hazards. Once this data is available, BFM could conduct a climate risk assessment to better quantify climate risks in the financial sector, 208 identify climate risk drivers and their transmission channels, and potentially conduct climate stress tests. If the evaluation reveals some significant risks, BFM could develop specific supervisory guidance, as already done in other African countries. 205 Indirect credit exposures to JIRAMA might represent an important credit risk for financial institutions. Banks are not only exposed to businesses importing fuel for JIRAMA, but also through their holding of government debt (16 percent of banks’ and 19 percent of insurers’ total assets in 2018), which is likely to be affected by the frequent need for transfers from the government to rebalance JIRAMA’s financial position (US$600 million between 2016 and 2021). With the implementation of the New Energy Policy 2015-2030, which aims to develop hydropower and reduce fossil fuel use, credit pressure on banks financing fossil fuel importers might grow, but this may create opportunities for the banking sector to diversify their portfolios. 206 BFM. 2023. Rapport Annuel 2022 [Annual Report 2022]. Antananarivo: Madagascar Central Bank (Banky Foiben’i Madagasikara). https://www.banky-foibe.mg/admin/wp-content/uploads/2023/10/Rapport-Annuel-2022-BFM.pdf. 207 Inflation is triggered by the impact of cyclones on rice production, which represents 18 percent of the Consumer Price Index in Madagascar. 208 For transition risks, several financial authorities have used the climate policy relevant sectors (CPRS) classification which classifies economic activities by climate transition risk based on a standardized categorization of sectors. 59 7. Recommendations Multiple priority interventions emerge from the Madagascar CCDR to set the country on a path to climate-resilient development and low-carbon growth. The CCDR recommends near- and medium-to-long-term climate-resilience investments and reforms across Madagascar’s five priority climate-sensitive development sectors. The combined cost of these actions is estimated at nearly US$7.5 billion by 2050. 209 Given Madagascar’s constrained macro - economic and fiscal context, further prioritization of interventions was conducted for this CCDR to identify the most immediate interventions to implement in the next 3–5 years, with total costs estimated at US$3.37 billion by 2030. These prioritized investments and policy reforms offer a blueprint for urgent action by the Government of Madagascar to achieve climate-resilient growth. Table 6.1 provides a summary of recommendations, including costings and quantifiable targets. 60 TABLE 6.1. PRIORITY INVESTMENTS AND POLICY ACTIONS EMERGING FROM THE CCDR Recommended Priority Actions and Targets Estimated Type of By By By Prerequisites for Investment Costs Intervention 2026 2030 2050 Climate-Resilient Sector Pathways (Priority Area 1) Aligns with the IMF’s Resilience and Sustainability Facility (RSF) Reform Area 2: Enhance adaptation to climate change and strengthen resilience against natural disasters; Reform Area 3: Support efforts to curb the growth of GHG emissions; and Reform Area 4: Reinforce the protection of forests and biodiversity Promoting increased adoption of Climate-smart US$130 million Political economy: agriculture technologies and practices • Enhance partnership and provide business opportunities with local 1. Improve irrigation performance, especially in US$46 million X manufacturers to produce necessary drought-prone areas by increasing the infrastructure, mainly drip lines and percentage of irrigated cultivated land through solar panels. small-scale, water-efficient irrigation and water • Improve land tenure security. catchment systems. • Farmer training and extension Target: 12,500 farmers by 2030. X support. 2. Scale up provision of improved (i.e., higher yielding, drought- and flood-tolerant) seeds and Political will: X crop varieties to farmers and local breeders • Whole-of-government and sector Target: Average yield gains of 15–40 percent by Investment objectives prioritizing climate-resilient US$37.4 million 2030; 30 percent more farmers using improved backed by development. seeds by 2050. policy reforms Financial incentives: 3. Effective soil/crop nutrition management through tailored extension. • Establish decentralized variety testing US$17 million X Target: Income of 360,000 farmers increased by networks. 20 percent. • Support decentralized seed production of well-performing varieties by local 4. Reduce postharvest losses and distress sales seed producer groups, especially in Target: 15-20 percent reduction in postharvest X ‘Grand Sud’. US$6.1 million losses and distress sales. • Farmer training and extension 5. Improve market access and enhanced product support. value for farmers Target: 2500 cooperatives/225,000 farmers with US$23.5 million improved market access by 2030 Supporting Sustainable & Integrated Landscape Political economy: Management (ILM) Investments • Improve regulatory framework for US$480 backed by X community-based natural resources 6. Support integrated watershed restoration and land million policy management. management actions by setting up a green belt in reforms • Promote institutional mechanisms to the ‘Grand Sud’ to combat desertification and facilitate coordination of ILM. 61 Recommended Priority Actions and Targets Estimated Type of By By By Prerequisites for Investment Costs Intervention 2026 2030 2050 improve forest conservation and management of • Enhance local plant production to provide protected areas. quality local nurseries. 7. Target: Increase the surface areas under forest • Secure land tenure status and regulation of cover with indigenous species by 150,000 ha per protected areas. year  • Develop a sustainable logging strategy/plan. Improving Coastal and Blue Economy investments 8. Promote sustainable blue tourism through participatory, public-private approaches to management of coastal and marine attractions. 9. Target: National Maritime Spatial Planning Investments Policy: Coordinated planning across relevant Document, including coastal tourism potential US$70 backed by public/private sector actors for the viable X X realization, to be completed by 2027 million Policy promotion of Madagascar as a destination reforms for coastal/nature-based tourism 10. Develop nature-based tourism promotion and promote private sector investments in coastal/nature tourism. 11. Target: 100% private sector adoption of adaptive practices and product diversification. Expanding Hydropower and Clean Energy Regulatory: Adoption of new legislation Investments • Adopt legal texts for the 12. Enhance hybridization of JIRAMA’s isolated centers; backed by US$250 X selection/prioritization of generation develop solar power plants.* million policy projects  Target: 100% adoption and implementation of reforms • Reinforce planning unit in line ministry to LCDP by 2030 ensure LCDP implementation Regulatory: 13. Develop priority hydro projects selected under the Investments • Restructure JIRAMA. LCDP, set up a watershed protection program, • Regulate mining and agriculture activities expand and reinforce grids, and finalize the US$1,800 backed by X in watershed.   interconnection of the existing grids.* million policy • Adopt legal texts related to Target: Development of 4 priority hydroelectric reforms selection/prioritization of transmission plants selected under the LCDP by 2050 projects. Scaling Up Urban Resilience Investments Policy: backed by • Urban land reform 14. Upgrade climate-resilient municipal infrastructure US$165 policy and X • Improve sector coordination to align Target: 40 cities with risk-informed land-use plans million structural infrastructure investment with land use and investments in the next 5 years reforms plans 62 Recommended Priority Actions and Targets Estimated Type of By By By Prerequisites for Investment Costs Intervention 2026 2030 2050 • Strengthen institutional capacity to support the rollout of regional facilities · • Capital investments to support resilient urban infrastructure systems • Capital investments to support resilient 15. Invest in Nature-based Solutions to mitigate hazard US$460 urban infrastructure systems risks and impacts and produce more resilient Investments X municipal services. million • New regulations introducing performance- Target: 6 climate-resilient cities by 2040 based climate financing Improving Climate Risk Management 16. Enhance national capacities for climate and disaster risk management across the board, strengthening training and knowledge of climate risks and risk Policy: Coordinated planning across sectors awareness across society. Investments • Implement soft measures such as Target: Creating a fully risk-aware society by 2030 US$194.5 backed by improved risk knowledge and weather X million capacity forecasting capacities. 17. Bridge gaps in early warning action, delivery of building • Strengthen capabilities and procedures for effective hydrometeorological services, EWS, and EWS, preparedness, and response. disaster preparedness and response. Target: Operational EWS services by 2030 delivering multi-hazard early warnings to inform early action at local level Building Climate-resilient, Multimodal Transport Systems 18. Maintain national roads in good condition. Target: 60% of national roads in good condition by US$1,250 X 2030, compared to the baseline of 10% million 19. Rehabilitate and upgrade national roads and the Infrastructure challenges: Improve transport northern railway line to functional and climate- Investments resilient design standards, and establish a climate- infrastructure conditions and connectivity risk-informed transport asset management system.* US$1,100 Target: 100% by 2030 million X 20. Develop multimodal connectivity via climate-smart US$1,350 investments in railways, waterways, ports, and million airports. 63 Recommended Priority Actions and Targets Estimated Type of By By By Prerequisites for Investment Costs Intervention 2026 2030 2050 Target: Implementation of the long-term national X plan for multimodal transport sector, 100% by 2050 Boosting Human Capital 21. Operationalize social registry with climate data X Finance: (social protection). Mobilize required scaled financing Target: 100% operational nation-wide social registry with climate data by 2027 US$250 Investments Political economy: Address social and 22. Increase support to household resilience to shocks million backed by regional disparities Target: adaptive social safety net programs scaled policy up to reach 3.1 million more people by 2030 reforms X Institutional and Policy Readiness to Face Climate Crisis (Priority Area 2) Aligns with RSF Reform Area 1: Reinforce governance and mainstream the climate agenda into PFM/PIM processes, and Reform Area 2: Enhance adaptation to climate change and strengthen resilience against natural disasters 23. Champion political ownership of climate risks for policy planning Target: 100% of new/updated sectoral policies include climate risks and investment needs by 2026 Policy & Political will: Whole-of-government and — institutional X X sector objectives prioritizing climate-resilient 24. Strengthen knowledge of climate-related risks and reforms development risk awareness Target: climate-related risks data reporting and tracking framework for adaptation mandatory by 2030 25. Improve climate mainstreaming in public investment management (PIM) and coordination of various government directorates with a mandate Policy & Policy: High-level coordinated planning on climate action. — institutional X across relevant sectors Target: Implement revised governance framework reforms for improved coordination of climate change in Madagascar by 2026 Climate Finance and Private Sector Mobilization (Priority Area 3) Aligns with RSF Reform Area 5: Mobilize climate finance 64 Recommended Priority Actions and Targets Estimated Type of By By By Prerequisites for Investment Costs Intervention 2026 2030 2050 26. Design a clear national strategy for climate finance mobilization with the support of relevant partners Policy: High-level political championing and Policy to fund NAP and NDC2 implementation. X coordinated planning across relevant sectors reforms Target: Establishment of a Public Climate — Contingency Fund and VAT adjustments by 2026 27. Address roadblocks to the development of financial markets. Policy Financial: Incentives for private sector X Target: climate risk assessments for financial and — reforms participation banking institutions by BFM by 2026 28. Define a regulatory framework for REC origination, Policy: High-level political championing and registration, and issuance* Policy X coordinated planning across relevant sectors Target: Regulatory framework for REC connected to — reforms a global framework in place by 2030 TOTAL Investment Costs: Priority Actions • By 2030: US$3.37 billion US$3.37 US$4.12 billion • Between 2030 and 2050: US$4.12 billion billion • Total, 2024-2050: US$7.49 billion Note: There is no costing for Priority Area 2 and Priority Area 3 actions because they are policy and institutional reforms backing Priority Area 1 actions. *Actions 7,8,14 and 19 are supported by the Madagascar Equitable and Resilient Growth DPO 65 66