Agriculture, including fishing and forestry, is a mainstay of the economy. Major exports are coffee, vanilla (Madagascar is the world's largest producer and exporter of vanilla), sugarcane, cloves, cocoa, rice, cassava (tapioca), beans, bananas, peanuts and livestock products. Vanilla has historically been of particular importance, and when in 1985 Coca-cola switched to New Coke which involved less vanilla, Madagascar's economy took a marked downturn, but returned to previous levels after the return of Coke Classic.

Structural reforms began in the late 1980s, initially under pressure from international financial institutions, notably the World Bank. An initial privatization program (1988-1993) and the development of an export processing zone (EPZ) regime in the early 1990s were key milestones in this effort. A period of significant stagnation from 1991-96 was followed by 5 years of solid economic growth and accelerating foreign investment, driven by a second wave of privatizations and EPZ development. Although structural reforms advanced, governance remained weak and perceived corruption in Madagascar was extremely high. During the period of solid growth from 1997 to 2001, poverty levels remained stubbornly high, especially in rural areas. A six-month political crisis triggered by a dispute over the outcome of the presidential elections held in December 2001 virtually halted economic activity in much of the country in the first half of 2002. Real GDP dropped 12.7% for the year 2002, inflows of foreign investment dropped sharply, and the crisis tarnished Madagascar's budding reputation as an AGOA standout and a promising place to invest. After the crisis, the economy rebounded with GDP growth of over 10% in 2003. Currency depreciation and rising inflation in 2004 have hampered economic performance, but growth for the year reached 5.3%, with inflation reaching around 25% at the end of the year. In 2005 inflation was brought under control by tight monetary policy of raising the Taux Directeur (central bank rate) to 16% and tightening reserve requirements for banks. Thus growth was expected to reach around 6.5% in 2005.