Decentralization faces many constraints in poor countries like Madagascar, however many positive lessons can be drawn from the Madagascar case which point to the potentials of the decentralization process.. As has happened in many other developing countries, particularly in Africa, Madagascar's decentralization process has seen reversals, uncertainties and lack of clarity all along. This explains why Madagascar, despite the experience with decentralization, remains a highly centralized country with only about 3-4 per cent of expenditures spent below the center and with very few prerogatives decentralized to the local level. Decentralization in Madagascar identifies some of the constraints, such as the structural centralization of public finances, weak capacity at the local level and inappropriate institutional frameworks. It argues that a lot can be gained from simplifying administrative arrangements and fiscal relationships. These recommendations are based on a detailed empirical analysis of more than 300 local governments' budgets and also applies a methodology for measuring local financing needs (local financing gap).