Public Information Notice: IMF Concludes Article IV Consultation with Comoros

September 5, 2000

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On July 12, 2000, the Executive Board concluded the Article IV consultation with Comoros.1


After a two-year suspension, Article IV consultation discussions with Comoros have now resumed. Article IV consultations could not be held in 1998-1999 because of disruptions in government services and continuing political turmoil, including the conflict with the separatist movement on the island of Anjouan. While the latter conflict has not yet been resolved and Anjouan remains outside the control of the Federal Government, government services are now again functioning normally.

Reflecting this unstable political environment, as well as fiscal problems and increasing competition in export markets, the economy continued to contract in 1998-1999. Real GDP is estimated to have declined by 0.5 percent in 1998 and 1.4 percent in 1999, although living standards in the Grande Comore were partly protected by increasing transfers from the Comorian community living overseas. The Comoros is a member of the French Franc Zone and under its fixed exchange rate regime inflation was kept at 3-4 percent per year in 1998-1999.

Although the fiscal situation improved in 1999 following a sharp deterioration in 1998, it remained fundamentally weak, especially because of the high ratio of expenditure on wages and salaries to domestic revenues (53 percent in 1999). The deficit after grants declined from 4.2 percent of GDP in 1998 to 0.7 percent of GDP in 1999, largely because of a fall in foreign-financed capital expenditure; the deficits in 1998 and 1999 were mainly financed by a further accumulation of arrears on wages and foreign interest, and Comoros also incurred further large arrears on repayment of foreign debt. Nevertheless, the government was able to clear debt service arrears to the World Bank, which resumed lending operations in early 2000.

Reflecting the decline in economic activity, broad money and credit to the economy increased by only about 4 percent during the last two years. On January 1, 2000, the Central Bank of the Comoros introduced a flexible interest rate policy, linking rates for the single commercial bank to those prevailing in the Euro zone.

The current balance of payments account (including grants) improved from a deficit of 6 percent of GDP in 1997 to virtual balance in 1999 as a result of a 37 percent increase in private transfers from the Comorian community living abroad, which more than offset a sharp decline in official grants following the suspension of donor assistance. Gross official reserves decreased from 6.6 months of imports of goods and nonfactor services in 1997 to 6.1 months at end-1999.

Executive Board Assessment

Executive Directors noted with concern that the Comoros’ economic performance had continued to deteriorate and that future prospects are still clouded by the political crisis with the separatist movement on Anjouan. Although a deteriorating external environment had played a role in the economic decline, Directors also noted the weaknesses in the implementation of macroeconomic and structural policies. They therefore welcomed the authorities’ recent measures to raise the government revenues, and to strengthen economic management, but stressed that more significant efforts are needed to stabilize the fiscal position and to make progress in privatizing the state-owned corporations.

Directors noted that some progress had been made in strengthening tax administration. However, they stressed that further measures were needed in this area, including a reduction of tax exemptions. They emphasized that efforts to reduce the work force in recent years had not been successful, and that unless the overstaffing problem was addressed, the fiscal situation would remain fragile. They observed that, while a reduction in staffing levels was the best long-term solution to lower the wage bill, a reduction in wages—or at least a freeze, coupled with more regular salary payment—would help ease the tension in the short run. They welcomed the authorities’ readiness to take actions along this line. Directors also stressed the importance of strengthening fiscal management and monitoring.

Directors welcomed the settlement of arrears to the World Bank, and the ensuing resumption of the Bank’s project activities in the Comoros. In the face of mounting arrears in debt service payments, they urged the authorities to initiate a dialogue with their multilateral and bilateral creditors. They considered that greater efforts to mobilize domestic resources and significant external support, including debt rescheduling, would be needed to settle all remaining arrears.

Directors emphasized that, given the exchange rate regime, which has served the country well, the return to sustained growth would require determined implementation of structural policy reforms aimed at improving efficiency and competitiveness. To that end, the authorities were urged to accelerate the privatization program, and to strengthen competition through further gradual trade liberalization and appropriate modifications of the regulatory and legal framework, including the commercial and labor codes. Directors considered that a reinforcement of the rural credit networks within the regulatory framework of the banking sector could play a key role in channeling savings into productive investments.

Directors observed that the statistical database remains very weak. They recommended that the authorities give a high priority to improving the collection and methodology of core macroeconomic statistics to enhance macroeconomic monitoring. In view of Comoros’ limited resources capacity, Directors encouraged the authorities to request the needed technical assistance.

Comoros: Selected Economic Indicators

  1995 1996 1997 1998 1999 2000

  (Annual percentage change , unless otherwise indicated)
National accounts and prices            
Real GDP at market prices -3.9 -.01 0.5 -0.5 -1.4 0.5
Consumer price index (annual average) 8.0 2.0 3.0 3.5 3.5 4.5
Money and credit            
Domestic credit 17.5 -17.4 8.3 19.6 -1.9 20
Broad money -3.7 12.2 0.1 -3.6 8.1 4.0
External trade (in terms of Comorian Francs)            
Exports f.o.b. -5.7 -42.5 7.9 0.9 40.5 -7.7
Imports f.o.b. 7.4 -6.2 12.2 -11.1 6.8 4.8
  (In percent of GDP)
Public finance            
Revenues 14.3 13.3 15.1 11.9 13.7 15.5
Expenditures 34.0 28.5 27.2 24.1 22.1 23.7
Overall balance (including grants; commitment basis) -7.9 -6.3 -2.4 -4.2 -.07 -2.4
External sector            
Current account balance -9.6 -9.4 -9.4 2.7 0.1 -2.8
Total external debt outstanding (excluding arrears) 94.4 98.1 94.3 94.5 98.0 95.4
Gross international reserves (in months of imports of goods and nonfactor services 5.1 6.5 5.5 5.7 6.1 4.5

Sources: Data provided by the Comorian authorities; and IMF staff estimates and projections.

1 Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. In this PIN, the main features of the Board’s discussion are described.


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