IMF Executive Board Concludes 2012 Article IV Consultation with Comoros

Public Information Notice (PIN) No. 13/03
January 15, 2013

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 December 17, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Comoros.1

Background

Over the last two years, and despite a challenging external environment, economic activity in the Union of Comoros has gained momentum. Real gross domestic product (GDP) increased by 2.2 percent in 2011, underpinned by favorable conditions in the agriculture sector, sustained activity in the construction and public works, and a rebound in foreign direct investment. Preliminary information points to a further strengthening of economic conditions in 2012, with real growth rising to 2.5 percent on account of robust agricultural exports, resilient remittances from expatriates, and increased external financial support. The depreciation of the euro against the dollar and lingering upward pressures on international commodity prices slowed the expected fall in inflation, which is likely to have reached 5 percent at end-2012. Thanks to a solid performance of exports of cloves and buoyant official transfers, the external current account deficit declined to 6.9 percent of GDP in 2012 from 9.0 percent in 2011.

Against this background, the authorities have made steady progress in fiscal consolidation. Following departures from some program targets at end-December 2010 and end-June 2011, performance improved significantly after the new government introduced corrective revenue and spending measures, including the reversal of a prohibitive 2010 public sector wage increase and stepped-up tax arrears recovery efforts. As a result, the domestic primary budget deficit was limited at 1.4 percent of GDP (excluding one-off nontax receipts); and all wage arrears accumulated in the earlier months of 2011 were cleared by end-year. On the structural front, several long-delayed measures were implemented, namely the completion of the census of the civil service, parliamentary approval of legislation on new ministry personnel frameworks, and intensification of technical discussions on reform of the public utilities with World Bank staff and other development partners. On November 27, 2012, the authorities issued a call for bids from potential investors for the state-owned telecommunication company, following approval of a social plan in October.

Over the medium term, economic growth is expected to rise to an annual average of 4 percent, underpinned by increased and more reliable availability of electricity; investment in infrastructure and tourism; and improvements in the business environment. Inflation should remain subdued, consistent with Comoros’ membership in the Franc zone. By 2015, the authorities aim to bring the domestic primary fiscal balance to equilibrium, including by rising government revenue to about 15 percent of GDP and containing wage payments at 7 percent of GDP. Comoros’ external debt position is expected to improve significantly in the period following the delivery of broad debt relief under the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief (MDRI) initiatives. However, in light of the country’s narrow export base, large development needs, and high vulnerability to exogenous shocks, it is critical that the government’s fiscal financing needs--including for pro-growth and pro-poor programs--continue to be met mostly with grants, and that new borrowing is contracted on concessional terms for the foreseeable future. This requires close adherence to reforms under the Extended Credit Facility (ECF) and Poverty Reduction Strategy Paper. Risks to the outlook include Comoros’ dependence on remittances, aid, and foreign direct investment inflows. Price shocks on key import commodities, notably oil and food, could also depress growth and unsettle external and fiscal balances. Risks related to a delay in the reform of state-owned enterprises have receded over the past year, reflecting strengthened program ownership.

Executive Board Assessment

Executive Directors commended the authorities for their strong implementation of reforms under the ECF arrangement and for reaching the completion point under the enhanced HIPC Initiative. They looked forward to continued strong commitment to the program.

Directors welcomed the improved fiscal performance during 2012. They encouraged the authorities to continue strengthening revenue mobilization and to keep spending in line with public resource mobilization capacity, particularly with respect to the wage bill. In this regard, priorities remain the establishment of the new General Administration of Taxes; the prompt implementation of new ministry personnel frameworks; and a close adherence to the automated wages management system. Directors welcomed the development of new frameworks for improving governance in the public sector and encouraged their steadfast implementation.

Directors noted that, while debt sustainability will improve following the HIPC Initiative completion point, Comoros will remain at high risk of debt distress owing notably to a narrow export base. Therefore, they underscored the need for budget discipline and reliance on grants and highly concessional loans in meeting the country’s financing needs.

Directors commended the authorities for rekindling their structural reform agenda to invigorate growth, accelerate poverty reduction, and reduce vulnerability to external shocks. They called for the rapid enlisting of reputable strategic partners in the management of the state-owned telecommunications (Comores Telecom) and electricity (MA MWE) companies, and a more efficient operation of the oil importing parastatal (SCH). Streamlining administrative requirements to starting a company and developing reliable contract-enforcement mechanisms would help to improve the business environment.

Directors underlined the importance of continued implementation of the 2010 safeguards assessment recommendations and further strengthening banking supervision. Priorities are the timely publication of the central bank’s financial statements, an early finalization of the new banking law, and the establishment of the envisaged credit bureau.

Directors were encouraged by Comoros’ broadly favorable growth and poverty reduction prospects in the post HIPC/MDRI era. They noted that improved data on poverty is needed to inform progress toward the Millennium Development Goals. Rigorous policy implementation and steady donor support will be required to secure tangible gains in living standards.


Comoros: Selected Economic and Financial Indicators, 2009-17
 
  2009 2010   2012   2013 2014 2015 2016 2017
        Prog 3rd Review Proj. Projections        
 
  (Annual percentage change, unless otherwise indicated)  

National income and prices

                   

Real GDP

1.8 2.1 2.2 2.5 2.5 3.5 4.0 4.0 4.0 4.0

GDP deflator

4.6 4.4 4.7 3.2 2.9 3.1 3.2 3.2 3.3 3.2

Consumer price index (annual averages)

4.8 3.9 6.8 5.6 6.0 4.3 3.4 3.3 3.3 3.1

Consumer price index (end period)

2.2 6.6 7.0 4.3 5.0 3.6 3.2 3.4 3.2 3.1
                     

Money and credit

                   

Net foreign assets

9.7 4.2 17.2 -1.5 12.0 10.5 8.3 10.5 10.0 9.6

Domestic credit

35.3 17.8 4.9 13.0 4.2 17.2 11.6 5.7 5.7 9.4

Net credit to government (treasury)

13.4 -7.5 12.3 22.2 -18.5 43.4 11.2 -17.1 -24.7 -6.5

Broad money

13.3 19.4 9.6 1.0 5.5 2.4 7.7 7.6 7.4 7.4

Velocity (GDP/end-year broad money)

3.3 2.9 2.9 3.0 2.9 3.0 3.0 3.0 3.0 3.0
                     

External sector

                   

Exports, f.o.b.

116.7 15.0 16.4 5.8 5.9 6.6 8.5 8.5 8.4 4.7

Imports, f.o.b.

1.6 9.7 7.2 5.8 7.8 1.8 2.6 2.5 6.2 3.3

Export volume

54.1 -0.7 -24.7 2.5 2.5 1.6 3.3 3.3 3.1 4.6

Import volume

11.3 0.4 -7.1 -0.8 0.6 2.6 3.4 3.0 6.7 3.3

Terms of trade

12.5 -1.1 5.0 -1.8 -1.7 3.8 3.6 3.2 3.1 1.2
  (In percent of GDP, unless otherwise indicated)  

Investment and savings

                   

Investment

12.4 15.4 14.9 17.9 18.4 19.1 19.9 20.4 21.2 21.8

Public

4.7 5.7 5.4 7.9 8.3 8.6 8.9 8.9 9.2 9.2

Private

7.7 9.7 9.5 10.0 10.1 10.6 11.0 11.5 12.0 12.5

Gross national savings

4.6 9.7 5.9 7.6 11.5 13.1 11.3 12.7 13.8 14.9

Public

3.8 11.6 8.7 6.8 13.4 8.7 5.5 5.7 6.0 5.9

Private

0.8 -1.9 -2.8 0.8 -1.9 4.4 5.8 7.0 7.9 9.0
                     

Government budget

                   

Total revenue and grants

23.6 29.2 23.6 25.3 28.4 49.2 24.0 24.2 24.4 24.6

Domestic Revenue 1

13.9 14.3 16.1 14.0 18.2 14.5 14.8 15.2 15.4 15.6

Total grants 2

9.7 14.9 7.5 11.4 10.2 34.7 9.2 9.0 9.0 9.0

Total expenditure

22.8 22.1 22.0 24.5 25.4 24.9 25.0 24.8 24.8 24.7

Current expenditure

18.1 16.4 16.6 16.6 17.1 16.3 16.1 15.9 15.6 15.4

Domestic primary balance 1

-2.6 -1.6 1.6 -1.1 2.2 -0.9 -0.5 0.0 0.3 0.6

Change in arrears

0.2 -6.2 -3.4 -0.5 -0.7 -0.9 -0.8 -0.7 -0.7 -0.5

External interest

-0.1 -2.0 -0.8 0.0 -0.1 0.0 0.0 0.0 0.0 0.0

Domestic

0.4 -4.2 -2.6 -0.5 -0.6 -0.9 -0.8 -0.7 -0.7 -0.5

Overall balance (cash basis)

0.8 0.9 -1.9 0.1 1.9 23.4 -1.8 -1.4 -1.1 -0.6

Excluding grants

-8.9 -14.0 -9.4 -11.2 -8.3 -11.2 -11.0 -10.4 -10.1 -9.6

Financing

-0.7 1.1 0.3 -0.1 -1.9 -21.3 0.6 -0.9 -1.0 -0.3

Foreign (net)

-1.3 1.4 -0.2 -1.1 -1.1 -22.8 0.1 -0.1 -0.2 -0.2

Domestic (net)

0.6 -0.4 0.5 1.0 -0.8 1.4 0.5 -0.8 -0.9 -0.2

Errors and omissions 3

-0.2 -1.9 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Financing gap

0.0 0.0 0.0 0.0 0.0 -2.1 1.2 2.2 2.1 0.9

Financing gap, excluding UFR

0.9 0.5 0.4 0.8 0.8 -1.3 1.1 2.0 1.8 0.5

External sector

                   

Exports of goods and services

14.5 15.7 16.2 15.7 16.8 17.1 17.5 17.9 18.2 18.0

Imports of goods and services

47.7 49.9 50.2 51.6 52.0 49.8 47.8 45.9 45.3 43.9

Current account balance

-7.8 -5.7 -9.0 -10.4 -6.9 -6.0 -8.6 -7.7 -7.4 -6.9

Excl. official and private transfers

-33.3 -34.6 -34.0 -36.1 -35.4 -32.7 -30.4 -28.2 -27.1 -25.7

External debt, PV in percent of GDP 4

46.2 38.9 33.1 31.8 10.0 11.8 13.1 14.3 15.2 15.8

External debt, PV in percent of exports of goods and services 4

329.7 248.6 203.9 202.7 58.0 68.9 74.9 80.2 83.6 87.5

External debt service (in percent of exports of goods and services) 4

13.5 11.4 10.0 6.3 4.7 0.3 1.2 2.1 2.6 2.8

Overall balance of payments (in millions of U.S. dollars)

12.3 -44.3 -11.0 -5.8 -5.8 2.6 5.9 3.1 3.6 13.5

Official grants and loans (percent of GDP)

9.7 15.1 7.5 11.4 10.2 34.9 9.4 9.2 9.2 9.2

Gross international reserves (end of period)

                   

In millions of U.S. dollars

146.0 144.2 170.1 158.0 187.5 194.5 207.0 223.1 239.2 255.9

In months of imports of goods & services

6.8 6.4 6.7 6.2 7.2 7.7 7.9 8.3 8.5 8.7

Real effective exchange rate (2000=100)

103.9 97.7 97.9 ... ... ... ... ... ... ...

Exchange rate CF/US$ (period average)

353.2 370.8 353.6 ... ... ... ... ... ... ...

Memorandum items:

                   

GDP (nominal, in billions of CF)

189.5 201.8 216.0 228.3 227.8 243.3 261.1 280.0 300.8 322.9
 

Sources: Comorian authorities; and IMF staff estimates and projections.

1 Revenue for 2011-12 includes exceptional "economic citizenship program" receipts (about 3 percent of GDP each year).

2 Includes interim HIPC assistance (2010-12) and expected debt relief under HIPC and MDRI upon completion point at end-2012.

3 Data for 2010 and 2011 reflect 2010 revenues collected in early 2011.

4 External debt ratios after full HIPC, MDRI and beyond HIPC relief from end-2012. Ratios from LIC-DSA (Appendix II - Table 1a) produced with a different methodology than those from HIPC-DRA (Appendix II - Paragraph 1).


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. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.



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