Press Release No. 09/315

Press Release No. 09/315
September 21, 2009

The Executive Board of the International Monetary Fund (IMF) today approved a three-year, SDR 13.57 million (about US$21.5 million) arrangement under the Poverty Reduction and Growth Facility (PRGF) for the Union of the Comoros to support the authorities’ economic program aimed at promoting sustained strong growth to achieve deeper gains in poverty alleviation and faster progress towards the Millennium Development Goals (MDGs). The decision will enable the Comoros to draw the equivalent of SDR 4.23 million (about US$6.70 million) from the IMF immediately.

At the conclusion of the Executive Board’s discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, made the following statement:

“ Comoros’ performance under the EPCA-supported program was satisfactory, despite the difficult domestic and external circumstances. The authorities’ have recently adopted a medium-term reform agenda aimed at boosting private-sector led growth to enhance the effectiveness of their poverty reduction strategy. In this context, the government has introduced far-reaching institutional reforms that should, inter alia, strengthen cohesion in budget management and economic policy making.

“ Comoros’ reform agenda seeks to consolidate recent gains in macroeconomic stability and promote the development of a business-friendly economic environment, which would create jobs and reduce poverty. An important focus will be on strengthening the fiscal position through implementation of strong revenue measures and better control of the wage bill. In this context, the authorities are adhering to the inter-island revenue-sharing mechanism; and Parliament has approved a stability-oriented supplementary budget for 2009 that is consistent with the fiscal program under the program. Achieving the 2009 fiscal targets will provide confidence regarding government determination to improve public expenditure management and put the budget on a sustainable path.

“ To strengthen debt sustainability, the authorities will limit their fiscal deficits to levels that can be covered by identified external assistance, mostly in form of grants. They will also ensure steadfast implementation of reforms, which is essential to securing HIPC and MDRI debt relief.

“ The authorities are determined to stay the course with efforts to tackle structural impediments to growth. With support from donors, they are finalizing reform strategies for the state-owned telecommunications (Comores Telecom), hydrocarbons (SCH), and electricity (MA-MWE) companies. The authorities are also maintaining a flexible-pricing mechanism for fuel products to make energy supply more reliable. Efforts to enhance the efficiency of the public administration and set optimal staffing levels for the civil service will also feature prominently in the structural reform agenda. Other reforms seek to streamline business licensing requirements, enhance investor protection, strengthen the judiciary, and promote financial intermediation and financial sector soundness”, added Mr. Kato.

ANNEX

Recent Economic Developments

Despite disturbances pertaining to a difficult domestic and international context, real GDP growth is estimated at an average 1 percent in 2008-09, one-half percentage point more than in 2007. The economy is benefiting from strong food production stimulated by favorable weather and relatively sustained construction and public works activity backed by donor support and financial inflows from migrants. Inflation rose to 7.4 percent year-on-year in 2008, owing to the high cost of fuel and transportation, but it has fallen sharply and should drop to 2.3 percent in 2009, reflecting reduced pressures on oil and food prices.

On the fiscal front, government revenues have registered a modest upturn, reaching the equivalent of 13.5 percent of GDP as an annual average since 2008. At the same time, personnel expenditures are increasingly better controlled, although they continue to weigh heavily on the budget. The deficit on the domestic primary budget balance should narrow to 1.6 percent of GDP in 2009, compared to 2.7 percent in 2008.

The external current account deficit (including transfers) has risen to an average 9.7 percent of GDP in 2008-09, compared to 6.7 percent of GDP in 2007. Export growth is subdued given persistently low world prices for Comoros’ export commodities; while imports, including construction materials and used vehicles, supported by transfers of funds from emigrants (equivalent to 25 percent of GDP in 2008), remain robust.

Program Summary

The government’s medium-term macroeconomic program supported by the PRGF is designed to help reduce poverty and accelerate progress towards the MDGs. It draws from Comoros’ Poverty Reduction and Growth Strategy, which focuses on the following strategic areas: laying the ground for sustainable economic development; stimulating private sector activities; developing the agricultural sector; strengthening governance, the judiciary, and security; and enhancing human capital.

The program seeks to achieve the following medium-term macroeconomic objectives:

• An annual real GDP growth of 3-4 percent by 2012;

• Inflation contained at 3 percent in the context of the euro-pegged exchange regime;

• An external current account deficit of 10 percent of GDP by 2012;

• A primary fiscal deficit of 0.8 percent of GDP in 2012, from a projected 1.6 percent of GDP in 2009.

To achieve these objectives, the authorities’ proram will notably focus on:

• Increasing public investment by an estimated 1.7 percentage points of GDP over the program period;

• Raising domestic revenue to the equivalent of at least 14 percent of GDP in 2012, with tax revenues reaching a projected 12½ percent of GDP;

• Reforming the civil service and personnel management to help contain the wage bill and free increased resources for growth-supporting outlays in the priority sectors;

• Restructuring public enterprises in the energy and telecommunication sectors, with support from donors.

	2007	2008	2009	2010	2011	2012
		Prel.			Prog.
	(Annual percentage change, unless otherwise indicated)
National income and prices
Real GDP	0.5	1.0	1.0	1.5	2.5	3.5
Consumer price index (average)	4.5	4.8	4.9	2.1	2.2	2.7
Real effective exchange rate (2000=100)	129	135	...	...	...	...
Terms of trade	-20.4	-39.4	38.5	-6.0	-2.4	0.7
Money and credit
Net foreign assets	7.3	-6.7	1.0	0.9	0.9	1.3
Domestic credit	11.8	41.7	7.9	8.5	11.1	12.7
Credit to government	2.3	78.5	3.9	-4.5	-2.8	-9.2
Broad money	8.6	11.0	4.8	5.8	4.8	6.7
	(Percent of GDP, unless otherwise indicated)
Investment and savings
Investment	11.2	14.3	13.8	15.6	16.6	17.4
Gross national savings	4.5	3.0	5.8	5.1	6.1	7.2
Government budget
Domestic Revenue	12.7	13.1	13.8	13.6	13.9	14.3
Total grants	7.6	10.4	6.9	6.1	6.3	6.5
Total expenditure	22.3	26.0	22.3	22.1	22.3	22.4
Domestic primary balance	-2.2	-2.7	-1.6	-1.5	-1.2	-0.8
Overall balance (cash basis)	-3.4	-2.3	-2.3	-2.7	-2.5	-2.2
Excluding grants	-11.0	-12.7	-9.2	-8.8	-8.7	-8.6
External sector
Current account balance	-6.7	-11.3	-8.0	-10.4	-10.4	-10.3
Excl. official and private transfers	-26.5	-33.5	-29.1	-29.1	-29.1	-28.7
NPV of external debt to exports of goods and services	249	254	230	216	202	183
Sources: Comorian authorities; and IMF staff estimates and projections.

The Comoros: Selected Economic and Financial Indicators, 2007-12     2007 2008 2009 2010 2011 2012     Prel.     Prog.       (Annual percentage change, unless otherwise indicated) National income and prices             Real GDP 0.5 1.0 1.0 1.5 2.5 3.5 Consumer price index (average) 4.5 4.8 4.9 2.1 2.2 2.7 Real effective exchange rate (2000=100) 129 135 ... ... ... ... Terms of trade -20.4 -39.4 38.5 -6.0 -2.4 0.7 Money and credit             Net foreign assets 7.3 -6.7 1.0 0.9 0.9 1.3 Domestic credit 11.8 41.7 7.9 8.5 11.1 12.7 Credit to government 2.3 78.5 3.9 -4.5 -2.8 -9.2 Broad money 8.6 11.0 4.8 5.8 4.8 6.7   (Percent of GDP, unless otherwise indicated) Investment and savings             Investment 11.2 14.3 13.8 15.6 16.6 17.4 Gross national savings 4.5 3.0 5.8 5.1 6.1 7.2 Government budget             Domestic Revenue 12.7 13.1 13.8 13.6 13.9 14.3 Total grants 7.6 10.4 6.9 6.1 6.3 6.5 Total expenditure 22.3 26.0 22.3 22.1 22.3 22.4 Domestic primary balance -2.2 -2.7 -1.6 -1.5 -1.2 -0.8 Overall balance (cash basis) -3.4 -2.3 -2.3 -2.7 -2.5 -2.2 Excluding grants -11.0 -12.7 -9.2 -8.8 -8.7 -8.6 External sector             Current account balance -6.7 -11.3 -8.0 -10.4 -10.4 -10.3 Excl. official and private transfers -26.5 -33.5 -29.1 -29.1 -29.1 -28.7 NPV of external debt to exports of goods and services 249 254 230 216 202 183   Sources: Comorian authorities; and IMF staff estimates and projections.