Short answer: no, wein standard French you couldn't say "J'y lève un verre !" for the last sentence, but yes "J'y lève un verre !" could be understood as "Je lève un verre ici" (though not very idiomatic).
In this sentence, à does not indicate location, it's a "complément d'objet indirect". Just like in English we don't say "I make a toast in Madagascar". Out of context it could be both, but if what you mean is "I make a toast to Madagascar" then à is not a location marker.
That means it wouldn't be replaced by "y". Following preposition rules, it would be:
Je lui lève un verre !
But it's really not idiomatic. If you didn't want to repeat you'd say something like:
J'adore Madagascar ! Je lève un verre en son honneur !
Note that you can also say:
Je lui porte un toast !