## EXECUTIVE SUMMARY

## Source details

**Canonical URL:** [EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/cr/2023/english/1comea2023001.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2023/english/1comea2023001.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2023/english/1comea2023001.pdf.json)

---

### Background
- Comoros: small, fragile island state (population: 850,000) with low and shock-prone growth.
- Staff-Monitored Program (SMP) in place since July 2021 to: (i) contain and recover from the COVID-19 pandemic; and (ii) start implementing reforms to overcome fragility, boost inclusive growth, and limit risks.
- First review: implementation through end-September 2021 assessed as satisfactory; three structural benchmarks rescheduled from end-December 2021 to end-February 2022.
- Second (final) review: assessed implementation of end-December 2021 and end-February 2022 quantitative targets and structural benchmarks, and overall policy implementation under the SMP.

### Recent developments and outlook
- COVID-19:
  - Cumulative recorded infections as of mid-January 2023: 8,987; deaths: 160 (out of a population of about 850,000).
  - Vaccination: Less than half of the population fully vaccinated, against a two-thirds targeted coverage.
- Growth and inflation:
  - GDP growth: estimated 2.4 percent in 2022 (up from 2.1 percent in 2021); projected 3 percent in 2023.
  - Year-on-year inflation: rose from 7.1 percent at end-2021 to 11.4 percent in mid-2022; expected to have reached around 17 percent at end-2022. Average inflation expected to decline to about 8.2 percent in 2023.
- External shocks:
  - Fallout from the war in Ukraine slowed the recovery, caused a surge in global commodity prices, and worsened macroeconomic conditions.
  - Terms of trade deteriorated by 9.4 percent in 2022.
- SOEs and administered prices:
  - Key SOEs incurred substantial losses in 2022 as administered prices were slow to adjust.
  - May 2022 price increases: gasoline 25 percent, diesel oil 44 percent, petroleum 40 percent.
  - June–October 2022: prices of ordinary rice increased by 20 percent.
  - Fiscal implications: lower fiscal revenue, higher public debt, wider financing gaps over the medium term.
- External sector and reserves:
  - Strong remittances and resumed tourism helped cushion shocks and maintain adequate foreign reserves.
  - Current account: turned positive at 0.3 percent of GDP in 2021; estimated deficit of 4.5 percent of GDP in 2022, with imports rising by more than 28 percent (y/y) in the first three quarters of 2022.
- Monetary policy:
  - Central Bank of Comoros (BCC) raised unremunerated reserve requirements from 10 percent to 12.5 percent in January 2022 and to 15 percent in July 2022.
  - BCC started liquidity absorption operations with Fund technical assistance.

### Fiscal developments and public finances
- Revenue and grants:
  - Revenue: expected to fall from 10.3 percent of GDP in 2021 to 9.6 percent in 2022.
  - External grants: declined from 6.8 percent of GDP in 2021 to 4.3 percent of GDP in 2022.
- Key fiscal figures (percent of GDP; Text Table 1):
  - Total revenue and grants: 2019 outturn 18.3; 2020 outturn 17.0; 2021 13.9.
  - Revenues: 2020 9.2; 2021 10.3; 2022 9.6.
  - Tax revenue: 2020 7.7; 2021 8.6; 2022 7.7.
  - Total expenditure: 2020 18.8; 2021 19.8; 2022 17.6.
  - Domestic primary balance: 2020 -1.4; 2021 -3.4; 2022 -1.7.
  - Overall balance (commitment basis): 2020 -0.5; 2021 -2.8; 2022 -3.7.
- Drivers:
  - SOE losses reduced fiscal revenue in 2022, reversing 2021 gains.
  - Spending declined by over 2 percent of GDP in 2022 as COVID-19-related outlays were phased out and other spending contained.
  - Persistent arrears in pension payments remain due to insufficient contributions and unavailability of previously accumulated reserves; authorities indicated no accumulated fiscal arrears on a net basis in 2022.
- Use of SDRs:
  - Full 2021 SDR allocation: SDR 17.1 million (1.4 percent of GDP) exchanged for hard currencies and deposited at the French Treasury earning around 2.5 percent per year.
  - BCC on-lent exchanged SDRs to the Treasury as a liquidity buffer; as of November 2022, the Treasury’s total deposits at the BCC stood at 51 percent of the 2021 SDR allocation.

### SMP implementation and structural reforms
- Quantitative targets and structural benchmarks:
  - Authorities met 12 out of 14 quantitative targets; substantially overperformed on the key tax revenue target.
  - Missed end-September 2021 deficit target (adjusted for higher revenue) due to spending overruns; took corrective measures and met end-December 2021 deficit target.
  - Missed end-December 2021 target on cash transfers to the poor by a small amount due to COVID-19 logistical difficulties; transfers completed in 2022.
  - Authorities met six out of eight structural benchmarks. Missed benchmarks at end-February 2022 related to (i) restructuring of SNPSF (insolvent postal bank), and (ii) anti-corruption law, both requiring more time.
  - Recent progress: revision of draft Anti-Corruption Law incorporating elements under the benchmark; significant progress towards restructuring SNPSF; authorities committed to advance remaining elements, including under a follow-on engagement with the Fund.

### Financial sector and debt risks
- Banking sector soundness (Text Table 2, in percent):
  - Regulatory Capital to Risk-Weighted Assets: 2016 21.2; 2017 22.3; 2018 27.9; 2019 25.2; 2020 8.3; 2021 8.8.
  - Non-performing Loans to Total Gross Loans: 2016 24.8; 2017 24.3; 2018 22.5; 2019 23.7; 2020 16.8; 2021 17.0 (end-June 2022 data reported as 17.0).
  - Return on Equity: 2016 -0.7; 2017 -0.5; 2018 -0.7; 2019 -7.6; 2020 -0.5; 2021 N.A.
- Banking sector vulnerabilities:
  - Aggregate banking system incurred losses for the fifth consecutive year in 2021; absent capital injections, capital adequacy deteriorated; more than two-thirds of deposit-taking institutions breach solvency requirements.
  - NPL ratio improved from 23.7 percent in 2020 to 16.8 percent in 2021 and stabilized at about 17 percent at end-June 2022, aided by the Commission on NPLs accelerating court cases.
  - Liquidity indicators mask large differences across banks; higher reserve requirements in 2022 led to breaches by some banks.
  - Credit to SOEs increased by 63.8 percent between end-December 2021 and end-June 2022; deposits of SOEs with banks decreased by 25.5 percent over the same period.
- Debt sustainability overview:
  - External and overall debt are sustainable but remain at high risk of debt distress.
  - Three of four external debt burden indicators in the DSA breach their thresholds under the baseline.
  - Non-concessional debt equivalent to 4.5 percent of GDP contracted in 2020 to build a hotel in Galawa.
  - Incorporation of BCC statutory advances, SDR on-lending to the government, and higher publicly guaranteed domestic debt of SOEs deteriorates domestic debt dynamics, though domestic debt remains modest.

### Staff views and future engagement
- Staff recommends completion of the second (final) review of the SMP; SMP implementation since the first review and overall implementation broadly satisfactory.
- Staff welcomes revenue overperformance and corrective measures to meet the end-December 2021 fiscal deficit target after missing the end-September 2021 target.
- Fallout from the war in Ukraine has set back expected fiscal gains, highlighting need for continued fiscal consolidation.
- Authorities expressed interest in a follow-on engagement under an Extended Credit Facility (ECF). Staff will support an ECF request provided: (i) a robust understanding on program goals and policies is reached; and (ii) authorities continue to implement sound and prudent policies.
- Authorities committed to continued engagement with IMF teams to advance remaining structural benchmarks and reforms.

---

### External arrears, creditor status, and loans
- External arrears: increased from US$6 million (end-December 2021) to US$7.2 million (end-December 2022).
  - Outstanding stock largely accounted for by BADEA loan: US$5.2 million.
  - Plans to repay: Kuwait Fund US$0.12 million; OPEC Fund for International Development US$0.35 million.
  - Pending debt treatment/disputes:
    - Awaiting response to request for debt cancellation from French Treasury for debt owed to Bpifrance Assurance Export: US$0.56 million (arrears started after DSSI expiration).
    - Ongoing discussions on pre-existing arrears to Exim Bank India for a power plant project in dispute: US$1.17 million.
- Planned concessional borrowing:
  - Authorities seeking three concessional loans amounting to USD 70 million, included in the baseline.

### Debt structure and projections
- End-2021 debt composition:
  - Disbursed debt to official bilateral creditors: 63 percent of public external debt.
  - Multilateral creditors: 16 percent.
  - Regional lenders: 17 percent.
  - Share of non-concessional debt: 14 percent of external debt.
- Selected Text Table 3 (million USD; % GDP):
  - Total: 2019 280.7; 2020 322.7; 2021 388.1 | % GDP: 22.9; 26.1; 29.8.
  - External: 2019 241.3; 2020 282.6; 2021 316.9 | % GDP: 20.3; 23.2; 24.7.
  - Multilateral creditors total: 2019 87.9; 2020 104.0; 2021 116.5 | % GDP: 7.4; 8.5; 9.1.
  - BADEA (o/w): 2019 28.3; 2020 28.0; 2021 28.0 | % GDP: 2.4; 2.3; 2.2.
  - Bilateral creditors total: 2019 153.4; 2020 178.6; 2021 200.3 | % GDP: 12.9; 14.7; 15.6.
  - China (o/w): 2019 66.2; 2020 91.7; 2021 113.2 | % GDP: 5.6; 7.5; 8.8.
  - Domestic: 2019 32.0; 2020 36.8; 2021 59.1 | % GDP: 2.6; 2.9; 5.1.
- Macroeconomic forecast highlights:
  - Real GDP growth: 2022 revised to 2.4 percent (from 3.8 percent pre-invasion); projected 3.0 percent in 2023; average 2024–28: 4.1 percent; long-run average 3.8 percent.
  - Inflation: average 12 percent in 2022; projected around 8.2 percent in 2023; thereafter stabilizing at around 2–2½ percent.
  - External current account deficit: estimated -4.5 percent of GDP in 2022; expected -7.3 percent in 2023 before gradual decline.
  - Fiscal: domestic primary deficit narrowed from -3.4 percent of GDP in 2021 to -1.7 percent in 2022; projected widening to -2.7 percent in 2023 due to higher investment spending.
- Financing assumptions:
  - DSA assumes prudent borrowing strategy; undisbursed parts of contracted loans disbursed per plans.
  - IDA financing projected at USD 28.7 million per year on average over next four years.
  - Baseline includes around USD 50 million from AfDB and USD 17 million from Saudi Arabia over next four years.
  - Average external loan financing 2022–2032: USD 62 million per year.
  - Average grant element of new borrowing: 54.5 percent.

### Debt Sustainability Analysis (DSA) key findings
- Country classification: medium debt carrying capacity; Composite Indicator (CI): 2.855.
- High-risk external debt thresholds (medium capacity): PV of debt-to-GDP 40 percent; PV of debt-to-exports 180 percent; debt service-to-exports 15 percent; debt service-to-revenue 18 percent.
- DSA findings:
  - Three of four external debt burden indicators breach thresholds under the baseline.
  - PV of external debt-to-GDP ratio remains below threshold but increased.
  - PV of debt-to-exports ratio breaches during 2025–27; debt service-to-exports breaches during 2025–27; debt service-to-revenue breaches during 2025–28.
- Stress tests:
  - Export shock and exchange rate depreciation have largest negative impacts.
  - Natural disaster (one-off 10 percent of GDP) could raise PV of external debt-to-GDP from 18 percent to 31 percent in the medium term; debt service-to-revenue could peak at 21 percent in 2025.
  - Contingent liabilities shock produces similar adverse effects.
- Overall public debt: projected to rise under passive scenario but remain below indicative benchmark under baseline and stress tests.
- Risks: external and overall debt sustainable but at high risk of distress; contingent on progress in revenue mobilization, no new non-concessional borrowing, and enhanced SOE oversight.

---

### Program implementation outcomes and structural benchmarks (detailed)
- End-December 2021 quantitative targets:
  - Met 6 of 7 targets; missed floor on cash transfers to the poor.
  - Tax revenue: KMF [45.7] billion (8.6 percent of GDP) vs program floor KMF 41.9 billion (7.9 percent of GDP).
  - Domestic primary deficit: KMF 18.0 billion (3.4 percent of GDP), below adjusted program ceiling KMF 19.5 billion (3.7 percent of GDP).
  - Net international reserves target met.
  - No new net domestic or external arrears nor new non-concessional debt reported during 2021.
  - Cash transfers to the poor: KMF 5.2 billion (fell short of target KMF 5.8 billion); transfer program (KMF 5.8 billion) completed in August 2022.
  - Staff note: end-2021 primary deficit target would still have been met even if cash transfers had been made on time.
- Structural benchmarks:
  - Met all three end-December 2021 benchmarks and one of three end-February 2022 benchmarks.
  - Achievements:
    - Raised number of active taxpayers (by 10 percent under SMP).
    - Created framework for reporting procurement information, including beneficial ownership information.
    - Adopted action plan for broadening the TSA to cover extrabudgetary entities, public administrative bodies, and foreign-financed projects.
    - Commissioned audit of domestic debt.
  - Missed end-February 2022 benchmarks:
    - Amendments to the 2008 anti-corruption law not met as scheduled.
    - Restructuring of postal bank SNPSF not fully met as scheduled.
  - Anti-corruption law progress:
    - Latest draft meets requirements under structural benchmark and incorporates most IMF Legal Department recommendations for an independent anti-corruption agency, disclosure rules for income and interests by top public officials, verification, and dissuasive sanctions.
    - Shortcomings remain on disclosure of beneficially owned property and publication of asset declarations; publication is criminalized in the Penal Code.
    - Authorities may include beneficial ownership disclosure in Cabinet decrees; IMF staff’s recommendations on publication of asset declarations may not suit the Comorian social context.
  - SNPSF restructuring progress:
    - Governance structure and business plan agreed; first and second tranches of capitalization costs included in 2023 budget; call for CEO and board applications issued.
    - Remaining: application for a banking license for the new bank; committee appointed; external consultants funded by AFD to assist.

---

### Policy discussions and recommended actions

### A. Addressing shocks and enhancing macroeconomic stability
- Fiscal stance and 2023 budget:
  - 2023 budget aims to support growth without overly raising debt or inflation; staff judges revenue projections optimistic and social provisions could be strengthened.
  - Budget plans to end one-time subsidies and tax exemptions introduced in 2022 (notably on rice imports) and to reintroduce sales tax on construction materials.
  - Promotes higher investment spending in 2023, mostly on concessional terms; expects World Bank aid for social assistance.
  - Staff projections under budget policies:
    - Revenue projected to slightly decline to 9.5 percent of GDP in 2023 (vs 10.5 percent of GDP assumed in the budget).
    - Domestic spending projected to expand to 12.1 percent of GDP.
    - Domestic primary deficit widening from 1.7 percent of GDP in 2022 to 2.7 percent in 2023.
    - Overall deficit increasing from 3.7 percent of GDP to 6.4 percent, reflecting expected higher project loans from development partners.
  - Staff recommendations:
    - Ensure timely implementation of WB-supported social assistance program.
    - Consider budget provisions (e.g., expenditure reallocation) to ensure assistance to the most vulnerable if WB disbursements are delayed, without incurring higher debt.
- SOE losses and administered prices:
  - May 2022 price increases brought fuel and ordinary rice prices broadly in line with current costs, stemming losses at state-owned oil and rice companies.
  - Electricity tariffs, despite a 50 percent increase, remain below costs; SONELEC transition plan to more efficient technologies may take years.
  - Authorities should examine margin to increase electricity tariffs without unduly affecting the economy.
- Debt distress and fiscal consolidation:
  - Baseline: gradual fiscal consolidation starting in 2024, reducing the deficit by about 3 .5 percent of GDP by 2027.
  - Under baseline, substantial financing gaps emerge in 2023 and public external debt rises to around 40 percent of GDP over the medium term.
  - Staff advice: greater fiscal consolidation required, underpinned by a revenue mobilization plan to reduce fiscal sustainability risks and prevent new external arrears.

### B. Monetary policy and financial sector liquidity
- Cautious approach recommended for further tightening:
  - Rationale: recent and expected price increases mainly supply-side; limited spillovers from advanced economies; tightening via reserve requirements depresses bank profitability and strains liquidity.
  - Guidance:
    - Consider further tightening only if second-round effects or large reserve outflows occur.
    - Note limited pass-through due to weak transmission mechanism.
    - Intensify banking supervision and continue developing monetary policy toolkit, including excess liquidity management (with IMF MCM technical assistance).

### C. Implementing fiscal structural reforms
- Revenue administration and tax policy:
  - Further raise number of active taxpayers.
  - Broaden use of SIGIT software; end competing taxpayer registration by VIGOR.
  - Align tax treatment of SOEs with other taxpayers and recover unpaid taxes.
- Customs administration:
  - Complete de jure transfer of management of fuel product taxes to customs.
  - Strengthen risk management; deploy internal control and decision-making information systems; finalize regulations to implement customs code.
- PFM and SOE oversight:
  - Roadmap for extending TSA adopted but reform actions lagging.
  - Efforts to strengthen SOE oversight, ensure SOE tax compliance, and align SOE wages with civil service have stalled.
- Pension system:
  - Comprehensive reforms needed; current contributions insufficient to ensure viability and replenish pension fund.

### D. Restructuring SNPSF and stabilizing financial sector
- SNPSF/Banque Postale des Comores (BPC) restructuring:
  - Business plan envisions phased development in three phases to limit fiscal risks:
    - Phase 1: limit loans to existing customers (loan limit KMF 5 million per customer).
    - Phase 2: offer credits to individual entrepreneurs; Phase 3: offer credits to small businesses (fewer than fifty employees).
    - Phases 1 and 2 each last at least 2 years; progression contingent on capitalization payments, enhanced risk management (AFD support), and profitability conditions.
  - Capitalization:
    - Government deposited KMF 1.5 billion in escrow at the BCC.
    - AFD and French Treasury committed grants; remaining part estimated at KMF 4.9 billion to be paid in equal shares over 2023-2 5, with first and second tranches in 2023.
  - Authorities intended to file application for authorization by BCC by end of 1st quarter of 2023 (MEFP ¶6); other text notes application planned by end of 2nd quarter of 2023.
- Broader banking priorities:
  - Reduce NPL problem and improve banks’ operating environment and capital position.
  - Resume Commission on NPLs meetings at least quarterly.
  - Resolve BCC Supervision Division understaffing and resume targeted onsite inspections.
  - Develop government securities market, strengthen liquidity management, and operationalize emergency liquidity assistance framework with IMF support.
  - Cut losses at banks under provisional administration or government ownership; prepare contingency plans; nationalized bank holds more than KMF 9 billion (1.7 percent of GDP) in mostly retail deposits.

---

### Transparency, governance, AML/CFT, and data
- Public procurement transparency:
  - Progress slow towards collecting and publishing procurement project information, including beneficial ownership, per circular and December 2021 roadmap.
  - Delay partly due to frequent changes in leadership at Ministry of Finance.
  - Authorities publishing some information (amounts, purposes, awarded companies) on BCC website while permanent procurement website is developed.
  - Audit of IMF emergency support (2020) being conducted by Court of Auditors; authorities intend to publish full audit report by June 2023 (MEFP ¶17).
- Governance and anti-corruption:
  - Fund support to prioritize amendments to 2008 anti-corruption law, fiscal governance, SOE financial reporting, and revenue administration.
  - Draft anti-corruption law largely meets structural benchmark but shortcomings remain on beneficial ownership disclosure and publication of asset declarations.
- AML/CFT and safeguards:
  - National risk assessment moved to 2023 (MEFP ¶19).
  - GIABA assessment onsite visit tentatively scheduled for June 2023.
  - BCC implemented most 2020 safeguards recommendations: improved external/internal audit processes, amendments to Audit Committee charter, filled Deputy Governor position, adopted IFRS as accounting framework effective December 2021.
  - Remaining recommendation on amending BCC statutes to enhance autonomy progressing slowly in discussions between French and Comorian parties.
- Data and statistical capacity:
  - Data shortcomings across key sectors continue to challenge analysis.
  - Fund provided substantial capacity building, but early 2022 departures from INSEED reduced capacity.
  - Recommendation: strengthen staffing and equipment of INSEED to lock in gains from Fund assistance.

---

### Risk Assessment Matrix — selected risks and policy responses
- Global risks:
  - Commodity price shocks: Relative Likelihood High; Time Horizon ST, MT; Impact High.
    - Policy responses: prudent energy price adjustments while protecting vulnerable; promote local food production/substitution; monitor reserves.
  - Abrupt global slowdown: Relative Likelihood Medium; Time Horizon ST; Impact Medium.
    - Policy responses: diversify supply routes; contingency plans; protect vulnerable as remittances slow.
  - Local COVID-19 outbreaks: Relative Likelihood Medium; Time Horizon ST, MT; Impact High.
    - Policy responses: speed up vaccination where possible; guidance on social distancing; draw on SDR allocation if needed.
- Domestic risks:
  - Policy slippages (delayed reforms; additional non-concessional debt): Relative Likelihood High; Impact High.
    - Policy responses: implement SMP macroeconomic and structural reforms; refrain from non-concessional debt.
  - Inter-island/social/political instability: Relative Likelihood High; Impact High.
    - Policy responses: support vulnerable populations; enhance governance and rule of law.
  - Deterioration of SOEs and ensuing government liabilities: Relative Likelihood High; Impact High.
    - Policy responses: improve SOE supervision and financial reporting.
  - Natural disasters related to climate change: Relative Likelihood Medium; Impact High.
    - Policy responses: implement adaptation strategy discussed in Country Report 20/198.

---

### Key statistical projections (selected series; as presented)
- Real GDP (annual percentage change, 2019–28 sample): 1.8, -0.2, 1.6, 2.1, 3.8, 2.4, 3.7, 3.0, 3.6, 4.1, 4.3, 4.3, 4.2.
- Consumer price index (annual average): 3.7, 0.8, 1.5, 0.0, 1.6, 12.0, 1.7, 8.2, 1.6, 2.3, 2.1, 2.0, 2.0.
- Total revenue and grants (percent of GDP): 15.8, 18.3, 17.8, 17.0, 17.7, 13.9, 16.4, 14.3, 14.7, 13.8, 15.3, 15.6, 16.0.
- Total expenditure and net lending (percent of GDP): 20.2, 18.8, 21.5, 19.8, 22.0, 17.6, 20.3, 20.7, 20.3, 18.3, 18.4, 18.5, 18.6.
- Current account balance (percent of GDP): -3.5, -1.9, -1.7, 0.3, -3.8, -4.5, -5.5, -7.3, -6.4, -6.1, -6.4, -5.4, -4.8.
- Gross international reserves (end period, US$ millions): 200.2 (2019), 292.2 (2020), 352.8 (2021), 329.3 (2022), 393.7 (2023 Est.), 308.0 (2024 First rev.).
- Public external debt (percent of GDP): 21.3, 21.7, 24.6, 25.7, 28.1, 28.2, 30.7, 31.8, 35.8, 38.8, 39.6, 40.6, 41.3.
- GDP (nominal, CF billions): 522.0, 524.9, 534.2, 534.3, 564.2, 575.8, 594.7, 619.1, 650.9, 693.5, 738.8, 785.9, 834.9.

---

*Source: EXECUTIVE SUMMARY and subsequent chapters (1comea2023001).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Background
- Comoros is a small, fragile island state (population: 850,000) with low and shock-prone growth.  
- A Staff-Monitored Program (SMP) was in place since July 2021 to: (i) contain and recover from the COVID-19 pandemic; and (ii) start implementing reforms to overcome fragility, boost inclusive growth, and limit risks.  
- The first review assessed implementation through end-September 2021 as satisfactory and rescheduled three structural benchmarks from end-December 2021 to end-February 2022.  
- This second (and final) review assessed implementation of end-December 2021 and end-February 2022 quantitative targets and structural benchmarks, as well as overall policy implementation under the SMP.

### Recent developments and outlook
- COVID-19: cumulative recorded infections as of mid-January 2023 were 8,987 and deaths 160 (out of a population of about 850,000). Less than half of the population has been fully vaccinated, against a two-thirds targeted coverage.  
- Growth and inflation:
  - GDP growth is estimated to have risen from 2.1 percent in 2021 to 2.4 percent in 2022 and is projected to remain subdued at 3 percent in 2023.  
  - Year-on-year inflation rose from 7.1 percent at end-2021 to a record 11.4 percent in mid-2022, and is expected to have reached around 17 percent at end-2022. Average inflation is expected to gradually decline to about 8.2 percent in 2023.  
- External shocks: the fallout from the war in Ukraine slowed the recovery, caused a surge in global commodity prices, and exacerbated weak macroeconomic conditions. Terms of trade deteriorated by 9.4 percent in 2022.  
- SOEs and administered prices:
  - Key SOEs incurred substantial losses in 2022 as administered prices were slow to adjust to global commodity price surges.  
  - In May 2022, the government raised prices of gasoline (25 percent), diesel oil (44 percent) and petroleum (40 percent). Between June and October 2022, prices of ordinary rice were increased by 20 percent.  
  - These developments implied lower fiscal revenue, higher public debt, and wider financing gaps over the medium term.  
- External sector and reserves:
  - Strong remittances and a resumption of tourism helped cushion the shock while maintaining an adequate level of foreign reserves.  
  - The current account: turned positive at 0.3 percent of GDP in 2021 but is estimated at a deficit of 4.5 percent of GDP in 2022, with imports rising by more than 28 percent (y/y) in the first three quarters of 2022.  
- Monetary policy: The Central Bank of Comoros (BCC) raised unremunerated reserve requirements from 10 percent to 12.5 percent in January 2022 and to 15 percent in July 2022. The BCC has started implementing liquidity absorption operations with Fund technical assistance.

### Fiscal developments and public finances
- Revenue and grants:
  - Revenue is expected to have fallen from 10.3 percent of GDP in 2021 to 9.6 percent in 2022.  
  - External grants declined from 6.8 percent of GDP in 2021 to 4.3 percent of GDP in 2022.  
- Expenditure and deficits (Text Table 1 figures, in percent of GDP):
  - Total revenue and grants: 2019 outturn 18.3; 2020 outturn 17.0; 2021 13.9.  
  - Revenues: 2020 9.2; 2021 10.3; 2022 9.6.  
  - Tax revenue: 2020 7.7; 2021 8.6; 2022 7.7.  
  - Total expenditure: 2020 18.8; 2021 19.8; 2022 17.6.  
  - Domestic primary balance: 2020 -1.4; 2021 -3.4; 2022 -1.7.  
  - Overall balance (commitment basis): 2020 -0.5; 2021 -2.8; 2022 -3.7.  
- Drivers:
  - SOE losses contributed to lower fiscal revenue in 2022, reversing gains from 2021.  
  - Spending declined by over 2 percent of GDP in 2022 as COVID-19-related outlays were phased out and other spending contained.  
  - Persistent arrears in pension payments to public sector retirees remain due to insufficient pension contributions and unavailability of previously accumulated reserves kept at the Treasury. Authorities indicated no accumulated fiscal arrears on a net basis in 2022.  
- Use of SDRs:
  - The full 2021 SDR allocation (SDR 17.1 million, 1.4 percent of GDP) was exchanged for hard currencies and deposited at the French Treasury where they earned interest of around 2.5 percent per year.  
  - More recently, the BCC on-lent the exchanged SDRs to the Treasury for use as a liquidity buffer. As of November 2022, the Treasury’s total deposits at the BCC stood at 51 percent of the 2021 SDR allocation.

### SMP implementation and structural reforms
- Quantitative targets and structural benchmarks:
  - Authorities met 12 out of 14 quantitative targets and substantially overperformed on the key tax revenue target.  
  - They missed the end-September 2021 deficit target (adjusted for higher revenue) due to spending overruns but subsequently took corrective measures and met the end-December 2021 deficit target.  
  - They missed the end-December 2021 target on cash transfers to the poor by a small amount due to COVID-19-related logistical difficulties and completed the transfers in 2022.  
  - The authorities met six out of eight structural benchmarks. The two benchmarks not met at end-February 2022 related to (i) the restructuring of SNPSF (the insolvent state-owned postal bank), and (ii) the anti-corruption law, as these proved more complex and required more time.  
  - The authorities recently completed the revision of the draft Anti-Corruption Law, incorporating all elements under the anti-corruption benchmark, and made significant progress towards restructuring SNPSF. They committed to advancing remaining elements, including under a follow-on engagement with the Fund.

### Financial sector and debt risks
- Banking sector soundness (Text Table 2 figures, in percent):
  - Regulatory Capital to Risk-Weighted Assets: 2016 21.2; 2017 22.3; 2018 27.9; 2019 25.2; 2020 8.3; 2021 8.8.  
  - Non-performing Loans to Total Gross Loans: 2016 24.8; 2017 24.3; 2018 22.5; 2019 23.7; 2020 16.8; 2021 17.0 (end-June 2022 data reported as 17.0).  
  - Return on Equity: 2016 -0.7; 2017 -0.5; 2018 -0.7; 2019 -7.6; 2020 -0.5; 2021 N.A.  
- Banking sector vulnerabilities:
  - In 2021, the aggregate banking system incurred losses for the fifth consecutive year and, absent capital injections, capital adequacy deteriorated. More than two-thirds of deposit-taking institutions are in breach of solvency requirements.  
  - NPL ratio improved from 23.7 percent in 2020 to 16.8 percent in 2021 and stabilized at about 17 percent at end-June 2022, helped by the Commission on NPLs accelerating court cases.  
  - Liquidity indicators mask large differences across banks; higher reserve requirements in 2022 led to breaches by some banks. Credit to SOEs increased by 63.8 percent between end-December 2021 and end-June 2022, while deposits of SOEs with banks decreased by 25.5 percent over the same period.  
- Debt sustainability:
  - Comoros’ external and overall debt are sustainable but remain at high risk of debt distress.  
  - Three of four external debt burden indicators in the debt sustainability analysis breach their respective thresholds under the baseline.  
  - Non-concessional debt equivalent to 4.5 percent of GDP was contracted in 2020 to build a hotel in Galawa. Incorporation into domestic debt of BCC statutory advances, SDR on-lending to the government, and higher levels of publicly guaranteed domestic debt of SOEs result in a deterioration of domestic debt dynamics, albeit with domestic debt remaining at modest levels.

### Staff views and future program engagement
- Staff recommends completion of the second (and final) review of the SMP. SMP implementation since the first review, as well as overall SMP implementation, was broadly satisfactory.  
- Staff welcomes the revenue overperformance and corrective measures taken to meet the end-December 2021 fiscal deficit target after missing that target at end-September 2021 due to spending overruns.  
- The fallout from the war in Ukraine has set back expected fiscal gains, underscoring the need for continued fiscal consolidation efforts.  
- The authorities have expressed interest in a follow-on engagement under the Extended Credit Facility (ECF). Given overall satisfactory performance under the SMP, staff will support the authorities’ request for an ECF arrangement provided that: (i) the authorities and staff reach a robust understanding on program goals and policies; and (ii) the authorities in the meantime continue to implement sound and prudent policies.  
- The authorities committed to continuing engagement with IMF country and technical assistance teams to advance remaining structural benchmarks and other structural reforms.

*Source: EXECUTIVE SUMMARY (1comea2023001).*

### 11.      With the expiration of the DSSI and tightening liquidity constraints, the authorities

### 11. With the expiration of the DSSI and tightening liquidity constraints, the authorities accumulated new external arrears in 2022

### External arrears and bilateral creditor status
- External arrears increased from US$6 million (end-December 2021) to US$7.2 million (end-December 2022).
- Outstanding stock largely accounted for by BADEA loan: US$5.2 million.
- New arrears accumulated during 2022 and authorities' stated plans:
  - Plan to repay Kuwait Fund: US$0.12 million.
  - Plan to repay OPEC Fund for International Development: US$0.35 million.
- Pending debt treatment and disputes:
  - Awaiting response to request for debt cancellation from the French Treasury for debt owed to Bpifrance Assurance Export: US$0.56 million (arrears started after expiration of the DSSI).
  - Ongoing discussions regarding pre-existing arrears to Exim Bank India for a power plant project currently in dispute: US$1.17 million.

### Outlook and risks (projections and key indicators)
- Growth and investment:
  - Growth projected to rise to 3.0 percent in 2023, driven by large investment projects including a hospital expansion, construction of the Galawa Hotel, and refurbishment of roads.
- Inflation and exchange rate:
  - Inflation expected to decline from double digits to around 2 percent by end-2023 and stay between 2-2½ percent thereafter.
  - Real effective exchange rate appreciated by 4.1 (y/y) in November 2022 as average inflation in Comoros over the prior 12 months exceeded that in trading partners by around 7 percent.
- Remittances and external sector:
  - Remittances projected to come down from earlier record pandemic levels amid lower expected growth in the Eurozone.
  - Merchandise exports projected to continue recovery in 2023; service exports expected to be bolstered by increases in visitor numbers.
  - Imports expected to see strong growth due to higher prices and start of Galawa Hotel construction before normalizing over the medium term.
- Reserves and SMP:
  - Foreign reserves projected to decline vis-à-vis the first review of the SMP.
- Risks (substantial):
  - Surge in global food and fuel prices could put food security at risk and lead to social unrest undermining recovery.
  - Renewed supply chain disruptions could add upward pressure on consumer prices.
  - Resurgence of the pandemic could hinder recovery; vaccination progress may help but vaccine effectiveness, supply sources, and cold-chain logistics are uncertain.
  - Upside: Completion of the SMP could prepare grounds for a possible ECF, potentially boosting investment and unlocking financing for projects and structural reforms.

### Program implementation — quantitative and structural benchmark outcomes
- End-December 2021 quantitative targets:
  - Met 6 of 7 targets; missed floor on cash transfers to the poor.
  - Tax revenue: KMF [45.7] billion (8.6 percent of GDP) vs program floor KMF 41.9 billion (7.9 percent of GDP).
  - Domestic primary deficit: KMF 18.0 billion (3.4 percent of GDP), below adjusted program ceiling KMF 19.5 billion (3.7 percent of GDP).
  - Net international reserves target met.
  - No new net domestic or external arrears nor new non-concessional debt reported during 2021.
  - Cash transfers to the poor: KMF 5.2 billion (fell short of target KMF 5.8 billion); transfer program (KMF 5.8 billion) completed in August 2022.
  - Staff note: end-2021 primary deficit target would still have been met even if cash transfers had been made on time.
- Structural benchmarks:
  - Met all three end-December 2021 structural benchmarks and one of three end-February 2022 benchmarks.
  - Achievements:
    - Raised number of active taxpayers.
    - Created framework for reporting procurement information, including beneficial ownership information.
    - Adopted action plan for broadening the TSA to cover transactions relating to extrabudgetary entities, public administrative bodies, and foreign-financed projects.
    - Commissioned audit of domestic debt.
  - Missed end-February 2022 benchmarks:
    - Amendments to the 2008 anti-corruption law not met as scheduled.
    - Restructuring of postal bank SNPSF not fully met as scheduled.
  - Progress on anti-corruption law:
    - Latest draft meets requirements specified under structural benchmark and incorporated most IMF Legal Department recommendations for an independent anti-corruption agency, rules on disclosure of income and interests by top public officials, verification, and dissuasive sanctions.
    - Shortcomings remain on disclosure of beneficially owned property and publication of asset declarations; publication is criminalized in the Penal Code, diminishing transparency.
    - Authorities may include beneficial ownership disclosure in Cabinet decrees; IMF staff’s exact recommendations on publication of asset declarations may not suit the Comorian social context.
  - Progress on SNPSF restructuring:
    - Most elements completed: governance structure, business plan agreed with staff, inclusion of first and second tranches of capitalization costs in 2023 budget, call for applications for CEO and board members.
    - Remaining: application for a banking license for the new bank; committee appointed to lead process; will involve external consultants funded by AFD.

### Policy discussions — A. Addressing recent shocks and enhancing macroeconomic stability
- Fiscal stance and 2023 budget:
  - 2023 budget seeks to support growth without overly raising debt or inflation, but revenue projections may be optimistic and social provisions could be strengthened.
  - Budget plans to end one-time subsidies and tax exemptions introduced in 2022 (notably on rice imports) and to reintroduce sales tax on construction materials.
  - Budget promotes higher investment spending in 2023, mostly financed on concessional terms, and contains other expenditures relying on planned World Bank aid for social assistance.
  - Staff projections under budget policies:
    - Revenue projected to slightly decline to 9.5 percent of GDP in 2023 (vs 10.5 percent of GDP assumed in the budget).
    - Domestic spending projected to expand to 12.1 percent of GDP.
    - Domestic primary deficit widening from 1.7 percent of GDP in 2022 to 2.7 percent in 2023.
    - Overall deficit increasing from 3.7 percent of GDP to 6.4 percent, reflecting expected higher project loans from development partners.
  - Staff recommendations:
    - Ensure timely implementation of WB-supported social assistance program.
    - Consider budget provisions (e.g., expenditure reallocation) to ensure assistance to the most vulnerable if WB disbursements are delayed, without incurring higher debt.
- SOE losses and administered prices:
  - May 2022 administered price increases brought fuel and ordinary rice prices broadly in line with current costs, stemming losses at state-owned oil and rice companies.
  - Authorities plan to maintain tariffs at current levels while international prices decline to return enterprises to profitability and enable debt repayment.
  - Electricity tariffs, despite a 50 percent increase, remain below costs due to inefficiency in electricity production and distribution.
  - SONELEC plans transition to more efficient technologies (mix of solar and heavy oil) but transition may take years and losses may continue in interim.
  - Authorities should examine margin to increase electricity tariffs without unduly affecting the economy.
- Debt distress and fiscal consolidation:
  - Baseline scenario: gradual fiscal consolidation starting in 2024, reducing the deficit by about 3 .5 percent of GDP by 2027.
  - Under baseline, substantial financing gaps emerge in 2023 and public external debt rises to around 40 percent of GDP over the medium term.
  - Drivers include low expected revenue, restructuring of SNPSF (estimated fiscal costs), and debt service on non-concessional borrowing.
  - Staff advice: greater fiscal consolidation required, underpinned by a revenue mobilization plan to reduce fiscal sustainability risks and prevent new external arrears.

### Policy discussions — B. Monetary policy and financial sector liquidity
- Cautious approach recommended for further tightening monetary policy given externally driven nature of crisis:
  - Rationale:
    - Recent and expected price increases mainly supply-side (higher import prices).
    - Monetary policy tightening in advanced economies likely to have modest spillovers due to limited integration into global capital markets.
    - Increases in unremunerated reserve requirements (the de facto available instrument) will further depress negative banking sector profitability and strain liquidity in weak banks.
  - Guidance:
    - Consider further tightening only in case of second-round effects of higher import prices or large reserve outflows.
    - Note limited pass-through to the economy due to weak transmission mechanism.
    - Intensify banking supervision and continue developing monetary policy toolkit, including excess liquidity management (with IMF MCM technical assistance).

### Policy discussions — C. Implementing fiscal structural reforms
- Revenue administration and tax policy objectives:
  - Further raise number of active taxpayers.
  - Broaden use of SIGIT software; end competing taxpayer registration by VIGOR.
  - Align tax administration treatment of SOEs with other taxpayers.
  - Recover unpaid taxes.
- Customs administration planned measures:
  - Complete de jure transfer of management of fuel products taxes to customs (de facto transfer already completed).
  - Strengthen risk management to focus inspections on shipments with highest compliance risks.
  - Deploy an internal control system and develop a decision-making information system.
  - Finalize regulations to implement the customs code.
- Other reforms:
  - Retraction of sales tax exemption for construction materials is welcome.
  - Capacity development support from Fund experts continues, but implementation is often slow due to capacity constraints and lack of coordination among fiscal agencies.
- Public financial management and SOE oversight:
  - Roadmap adopted for extending TSA coverage to extrabudgetary entities, public administrative bodies, and foreign-financed projects; reform actions lagging.
  - Efforts to strengthen SOE oversight, ensure SOE tax compliance, and align SOE wage compensation with civil service have stalled.
- Pension system:
  - Comprehensive reforms needed to ensure pension system viability and replenish pension fund over time; current contributions are no longer sufficient given lower relative proportion of contributors.

### Policy discussions — D. Restructuring the postal bank and stabilizing the financial sector
- SNPSF restructuring and Banque Postale des Comores (BPC):
  - Remaining element for structural benchmark: application for banking license for the new bank.
  - Business plan prepared with external consultant; envisages phased development in three phases to limit fiscal risks:
    - Phase 2: BPC to offer credits to individual entrepreneurs.
    - Phase 3: BPC to offer credits to small businesses with fewer than fifty employees (condition for AFD grants).
  - Risk management development funded by AFD grants over next two years; pre-condition for phase 2.
  - Risk-taking limited by individual credit limits during all phases.
  - Aim to appoint full-time CEO to establish and operate new bank free from political interference.
  - Capitalization:
    - Government deposited KMF 1.5 billion in an escrow account at the BCC.
    - AFD and the French Treasury committed grants towards capitalization.
    - Remaining part estimated at KMF 4.9 billion to be paid in equal shares over 2023-2 5, with first and second tranches disbursed in 2023.
  - Authorities intend to file application for authorization by BCC by end of 1st quarter of 2023 (MEFP ¶6).
- Structural benchmark status table highlights:
  - Adopt law/decree splitting SNPSF into postal and banking activities: Completed (decrees signed March 12, 2022).
  - Submit application for approval of new Postal Bank to BCC: Not completed (to be prepared with AFD-funded consultants).
  - Governance requirements and viable business plan: Completed.
  - Profiles of future managers ensuring adequate banking expertise: Completed.
- Broader banking sector priorities:
  - Reduce NPL problem and improve banks’ operating environment and capital position:
    - Commission on NPLs started accelerating court proceedings, but commission has stopped meeting; resume regular (at least quarterly) meetings.
  - Enhance banking supervision:
    - BCC delayed onsite inspections due to understaffing of Supervision Division; resolve staffing challenges urgently.
  - Enhance financial market infrastructure and BCC toolkit:
    - Foundations for a government securities market, strengthened liquidity management, and emergency liquidity assistance framework are being laid with IMF MCM assistance; continued efforts needed over medium term.
  - Reduce losses at banks under provisional administration or government ownership:
    - Two non-systemic banks placed under provisional administration in June 2020 incurred further losses in 2021 and 2022.
    - Authorities seeking investors; disposal likely to come at additional fiscal costs.
    - Nationalized bank holds more than KMF 9 billion (1.7 percent of GDP) in mostly retail deposits, constituting a fiscal risk.
    - Staff urges cutting losses and preparing contingency plans as first steps in a broader financial sector strategy.

*Source: IMF staff report chapter on Union of the Comoros (content unit 1comea2023001).*

### 23.      Progress is slow towards collecting and publishing information on public procurement

### 23.      Progress is slow towards collecting and publishing information on public procurement

### Public procurement transparency and beneficial ownership
- Progress is slow towards collecting and publishing information on public procurement projects including beneficial ownership information, in line with the circular and roadmap published in December 2021.
- Delay partly reflects frequent changes in leadership at the Ministry of Finance in recent years.
- Authorities have started to publish some information, including the amounts, purposes of the approved projects, and names of the companies awarded the contracts, on the BCC website while a permanent website dedicated to public procurement contracts is being developed.
- The audit of spending financed by IMF emergency support in 2020 is being conducted by the Court of Auditors and the authorities intend to publish the full audit report by June 2023 (MEFP ¶17).

### Governance, anti-corruption, and legal reform
- The Fund will continue to support the authorities’ capacity development needs in priority areas to strengthen governance, transparency, and anti-corruption.
- Support will prioritize:
  - the adoption of amendments to the 2008 anti-corruption law that are in line with the SMP objectives;
  - fiscal governance including public financial management;
  - SOEs’ financial reporting;
  - revenue administration to reduce vulnerability to corruption or rent seeking.
- The two benchmarks on the restructuring of the postal bank SNPSF and the anti-corruption law were not completed by end-February 2022 as scheduled; substantive progress includes completion of the draft anti-corruption law that meets the requirements under the structural benchmark.

### AML/CFT and safeguards
- Efforts to strengthen AML/CFT are progressing slowly.
- The national risk assessment planned for 2022 has been moved to 2023 (MEFP ¶19).
- Comoros’ AML/CFT frameworks are expected to undergo an assessment by GIABA this year, with onsite visit tentatively scheduled for June 2023.
- Significant progress on the implementation of the 2020 safeguards assessment recommendations:
  - BCC implemented most of the 2020 safeguards recommendations including improvements to external and internal audit processes;
  - amendments to the Audit Committee charter to enhance oversight;
  - filling of the Deputy Governor position;
  - adoption of the International Financial Reporting Standards (IFRS) as its accounting framework effective December 2021.
- Remaining recommendation on amending the BCC statutes to enhance BCC autonomy is progressing slowly and is under discussion between the French and the Comorian parties.

### Data, statistics, and capacity building
- Data shortcomings across key sectors continue to pose challenges for economic analysis.
- The Fund has provided substantial capacity building support to improve data provision in a range of areas.
- Some capacity built was lost in early 2022 due to a wave of departures of contractual employees from the national statistics institute, INSEED.
- Recommendation: authorities should take more determined action to strengthen the staffing and equipment of INSEED to make best use of Fund assistance and lock in gains in capacity.

### SMP implementation, macroeconomic impact, and fiscal outcomes
- Implementation of the SMP has been broadly satisfactory, although the fallout from the war in Ukraine has set back the expected fiscal gains.
- Quantitative and structural benchmark performance:
  - Authorities met most (12 out of 14) quantitative targets, substantially overperforming on the key tax revenue target, and successfully implemented corrective actions to address the missed target for fiscal deficit.
  - They met most (six out of eight) structural benchmarks.
- Under the SMP, authorities:
  - raised the number of active taxpayers by 10 percent;
  - adopted a roadmap to expand the coverage of the Treasury Single Account (TSA);
  - commissioned an audit of domestic arrears;
  - took steps to increase the transparency around large public procurement contracts.
- Macroeconomic outlook deterioration:
  - Expected post-COVID-19 recovery did not materialize;
  - sustained increase in global prices led to a spike in inflation, lower growth, and substantial losses by SOEs;
  - expected fiscal revenue in 2022 and projections going forward revised down to reflect lower tax payments and dividends from SOEs and slower growth recovery.
- Short-term policy responses in 2022:
  - Authorities increased administered prices of fuel products, electricity, and ordinary rice for the first time in several years to contain SOE losses.
  - Authorities intend not to extend the temporary subsidies and tax exemptions on certain staple goods introduced during 2022.
  - Staff recommends exploring mechanisms for more targeted social transfers to protect the most vulnerable population.
  - Staff urges authorities to resolve accumulated new external arrears in a timely manner.

### 2023 budget and medium-term fiscal risks
- The approved 2023 budget seeks to support the economy without overburdening debt, but revenue projections are optimistic and the budget could strengthen provisions to help the poor.
- Staff sees scope for introducing budget provisions to ensure timely social transfers in the event of delays in disbursements under the WB-supported social assistance program.
- Under the baseline, and before taking into account Comoros’ enormous development needs, substantial financing gaps pose a challenge for debt sustainability.
- Key debt projections and constraints:
  - Assuming borrowing on concessional terms to fill the financing gaps, external debt would rise to about 38 percent of GDP by 2025, about 13 percentage points of GDP higher than in 2021.
  - Non-concessional borrowing would result in debt becoming unsustainable.
  - Much of the financing needs stem from debt service on non-concessional borrowings previously contracted to finance large-scale investment projects and the cost of restructuring the SNPSF.
- Policy priorities to address debt and fiscal risks:
  - Maximize financing through grants and concessional borrowing.
  - Accelerate reforms to lift growth and strengthen fiscal revenue while lowering unproductive spending and fiscal risks.
  - Develop a coherent medium-term plan to address internal resource constraints by raising fiscal revenue, strengthening public financial management, and improving viability of SOEs.
  - Complement fiscal structural reforms with reforms in the financial sector as well as administrative and judicial institutions to strengthen governance and reduce vulnerability to corruption.

*Source: 1comea2023001 - 23.      Progress is slow towards collecting and publishing information on public procurement*

### 33.      Staff supports the completion of the second review of the SMP given overall

### Staff supports the completion of the second review of the SMP given overall performance

### Program assessment and outlook
- Staff supports completion of the second review of the SMP given overall performance and the authorities’ commitment to meeting program objectives.
- The economic reforms adopted under the SMP are described as an important step towards reducing Comoros’ fragility.
- Continued commitment to sound policies and structural reforms would strengthen prospects for engagement under a potential ECF which would unlock financial support from other development partners for a program to support higher, more diversified, and more inclusive growth.

### Real sector and inflation (selected indicators, 2019–28)
- Real GDP (annual percentage change): 1.8, -0.2, 1.6, 2.1, 3.8, 2.4, 3.7, 3.0, 3.6, 4.1, 4.3, 4.3, 4.2
- GDP deflator (annual percentage change): 4.5, 0.8, 0.3, -0.3, 1.7, 5.2, 1.7, 4.4, 1.5, 2.3, 2.1, 2.0, 2.0
- Consumer price index (annual average): 3.7, 0.8, 1.5, 0.0, 1.6, 12.0, 1.7, 8.2, 1.6, 2.3, 2.1, 2.0, 2.0
- Consumer price index (end period): 6.3, -4.8, 7.1, 17.1, 0.5, 0.6, 2.4, 2.3, 2.0, 2.0, 2.0

### Fiscal policy and public finances (selected indicators, 2019–28)
- Total revenue and grants (percent of GDP): 15.8, 18.3, 17.8, 17.0, 17.7, 13.9, 16.4, 14.3, 14.7, 13.8, 15.3, 15.6, 16.0
- Total expenditure and net lending (percent of GDP): 20.2, 18.8, 21.5, 19.8, 22.0, 17.6, 20.3, 20.7, 20.3, 18.3, 18.4, 18.5, 18.6
- Domestic primary balance (percent of GDP): -2.9, -1.4, -3.0, -3.4, -3.3, -1.7, -2.0, -2.7, -2.7, -1.4, -1.4, -1.4, -1.4
- Overall balance (cash basis, percent of GDP): -3.9, -0.8, -3.7, -2.8, -4.3, -3.7, -3.9, -6.4, -5.6, -4.4, -3.1, -2.9, -2.7
- Total revenue and grants (CF millions, consolidated government): 82,714 (2020), 95,807 (2021), 94,903 (2022), 91,049 (2023 Est.), 99,660 (2024 First rev.), 80,174 (2025 First rev.), 97,788 (2026 First rev.), 88,359 (2027 First rev.), 95,669 (2028)
- Total expenditure and net lending (CF millions, consolidated government): 105,350 (2020), 98,493 (2021), 114,848 (2022), 105,924 (2023 Est.), 123,888 (2024 First rev.), 101,510 (2025 First rev.), 120,692 (2026 First rev.), 128,128 (2027 First rev.), 132,027 (2028)

### Monetary sector and credit (selected indicators, 2019–28)
- Broad money (percent change): 5.9, 11.5, 18.0, 20.1, 5.0, 7.8, 6.5, 2.4, 0.5, 3.5, 2.4, 0.4, 3.4
- Money (annual percentage change): 3.8, 8.7, 10.2, 15.2, 3.1, 6.4, 4.7, 1.1, 0.0, 4.0, 1.1, -0.1, 3.8
- Credit to the private sector (percent change): 4.1, -2.8, 1.5, 9.7, 3.0, 15.0, 3.5, 7.5, 5.1, 6.6, 6.5, 6.4, 6.2
- Net foreign assets (percent change of beginning period broad money): 1.3, 17.1, 9.9, 7.6, 7.7, 0.5, -0.5, 0.8, 2.9, -5.0, -5.3, -2.1, -0.3

### External sector and reserves (selected indicators, 2019–28)
- Current account balance (percent of GDP): -3.5, -1.9, -1.7, 0.3, -3.8, -4.5, -5.5, -7.3, -6.4, -6.1, -6.4, -5.4, -4.8
- Exports of goods and services (percent of GDP): 11.9, 5.5, 8.6, 11.5, 10.9, 12.4, 10.9, 11.7, 11.8, 12.0, 12.3, 12.6, 13.0
- Imports of goods and services (percent of GDP): 29.8, 28.2, 30.2, 32.5, 33.6, 35.5, 33.4, 36.8, 35.5, 33.8, 33.4, 32.7, 32.5
- Gross international reserves (end period, in millions of U.S. dollars): 200.2 (2019), 292.2 (2020), 352.8 (2021), 329.3 (2022), 393.7 (2023 Est.), 308.0 (2024 First rev.), 388.5 (2025 First rev.), 312.9 (2026 First rev.), 319.2 (2027 First rev.), 286.8 (2028)
- Gross international reserves (in months of imports of goods & services): 7.0, 8.4, 9.1, 9.0, 9.5, 7.4, 9.4, 7.5, 7.7, 6.8, 6.0, 5.4, 4.8
- Gross international reserves, including fiscal gap (in millions of U.S. dollars): 200.2, 292.2, 354.6, 331.0, 406.7, 312.0, 418.8, 323.6, 336.6, 306.9, 273.4, 252.9, 242.0
- Exchange rate CF/US$ (period average): 439.4 (2019), 431.1 (2020), 415.7 (2021)

### Balance of payments (selected items, 2019–28, CF millions)
- Current account (CF millions): -18,037 (2019), -10,125 (2020), -8,850 (2021), 1,784 (2022), -21,461 (2023 Est.), -26,162 (2024 First rev.), -32,759 (2025 First rev.), -45,005 (2026 First rev.), -41,610 (2027 First rev.), -42,599 (2028)
- Exports (CF millions): 17,276 (2019), 8,924 (2020), 11,828 (2021), 14,492 (2022), 16,370 (2023 Est.), 17,365 (2024 First rev.), 17,123 (2025 First rev.), 18,970 (2026 First rev.), 20,338 (2027 First rev.), 22,127 (2028)
- Imports (f.o.b., CF millions): -105,683 (2019), -103,035 (2020), -108,259 (2021), -107,789 (2022), -129,732 (2023 Est.), -126,444 (2024 First rev.), -136,051 (2025 First rev.), -149,828 (2026 First rev.), -155,424 (2027 First rev.), -158,025 (2028)
- Of which oil (CF millions): -30,436 (2019), -30,586 (2020), -33,509 (2021), -37,101 (2022), -36,295 (2023 Est.), -50,765 (2024 First rev.), -36,806 (2025 First rev.), -48,177 (2026 First rev.), -46,713 (2027 First rev.), -46,212 (2028)
- Current transfers (net, CF millions): 72,888 (2019), 106,264 (2020), 101,563 (2021), 111,218 (2022), 101,494 (2023 Est.), 104,184 (2024 First rev.), 97,018 (2025 First rev.), 109,508 (2026 First rev.), 111,526 (2027 First rev.), 107,562 (2028)

### Public debt and memoranda
- Public external debt (percent of GDP): 21.3, 21.7, 24.6, 25.7, 28.1, 28.2, 30.7, 31.8, 35.8, 38.8, 39.6, 40.6, 41.3
- GDP (nominal, in billions of CF): 522.0, 524.9, 534.2, 534.3, 564.2, 575.8, 594.7, 619.1, 650.9, 693.5, 738.8, 785.9, 834.9
- GDP per capita (nominal, in US Dollars): 1,360, 1,357, 1,408, 1,395, 1,450, 1,291, 1,495, 1,362, 1,372, 1,372, 1,366, 1,350, 1,324

*Source: Comorian authorities; and IMF staff estimates and projections.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Global risks
- Commodity price shocks
  - Relative Likelihood: High
  - Time Horizon: ST, MT
  - Impact on Comoros: High
  - Policy Responses:
    - Implement energy price adjustments prudently while protecting the most vulnerable and monitoring foreign reserves.
    - Promote local food production and/or substitution.
- Abrupt global slowdown or recession
  - Relative Likelihood: Medium
  - Time Horizon: ST
  - Impact on Comoros: Medium
  - Policy Responses:
    - Diversify supply routes and prepare contingency plans, including measures to protect the most vulnerable as remittances slow down.
- Local Covid-19 outbreaks
  - Relative Likelihood: Medium
  - Time Horizon: ST, MT
  - Impact on Comoros: High
  - Policy Responses:
    - Speed up vaccination as much as possible given vaccine supply constraints, preferably with vaccines shown to be highly effective.
    - Provide guidance on social distancing as needed.
    - Draw on remaining SDR allocation if needed.
- De-anchoring of inflation expectations and stagflation
  - Relative Likelihood: Medium / Low
  - Time Horizon: ST, MT
  - Impact on Comoros: Low
  - Policy Responses:
    - Monitor international reserves and consumer prices.
    - In case of large and persistent reserve outflows or of second round impacts on consumer prices, consider tightening the policy stance.
- Deepening geo-economic fragmentation and geopolitical tensions
  - Relative Likelihood: High
  - Time Horizon: ST, MT
  - Impact on Comoros: Medium
  - Policy Responses:
    - Diversify supply routes and prepare contingency plans, including measures to protect the most vulnerable in case of renewed supply disruptions.
    - Advance structural reforms to enhance Comoros’ appeal as a destination for investment.

### Domestic risks
- Policy slippages (delayed structural reforms; additional non-concessional debt)
  - Relative Likelihood: High
  - Time Horizon: ST, MT
  - Impact on Comoros: High
  - Policy Responses:
    - Implement macroeconomic policies and structural reforms as described in the SMP, particularly those related to raising fiscal revenue.
    - Refrain from contracting non-concessional debt.
- Inter-island, social discontent and political instability
  - Relative Likelihood: High
  - Time Horizon: ST, MT
  - Impact on Comoros: High
  - Policy Responses:
    - Provide support to the most vulnerable.
    - Enhance governance, transparency, and the rule of law.
- Deterioration of SOEs’ financial situation and ensuing increase of government liabilities
  - Relative Likelihood: High
  - Time Horizon: ST, MT
  - Impact on Comoros: High
  - Policy Responses:
    - Improve supervision of SOEs and enhance financial reporting/data sharing by SOEs.
- Natural disasters related to climate change or other events (e.g., eruption of the Karthala volcano, hurricane, drought)
  - Relative Likelihood: Medium
  - Time Horizon: ST, MT
  - Impact on Comoros: High
  - Policy Responses:
    - Implement the adaptation strategy discussed in Country Report 20/198.

### Program implementation and policy highlights (from Letter of Intent and MEFP)
- SMP performance and structural benchmarks
  - Findings:
    - Met twelve out of fourteen quantitative targets of the SMP.
    - Met six out of eight structural benchmarks as scheduled and fulfilled key elements on SNPSF restructuring and amendments to the anti-corruption law.
  - Actions taken:
    - Strengthened spending controls after exceeding the programmed deficit ceiling at end-September 2021 to meet the fiscal deficit target at end-December 2021.
    - Completed the program (KMF 5.8 billion) of cash transfers following logistical delays.
    - Two decrees (signed March 12, 2022) separated SNPSF into postal and banking activities, set articles of association for Banque Postale des Comores (BPC), governance structure with two independent directors, audit, and a risk committee.
    - Business plan for BPC developed; first two tranches of capitalization costs included in the 2023 budget; CEO recruitment completed; committee appointed to apply for banking license with external consultant support funded by Agence Française de Développement (AFD).
    - Draft anti-corruption law incorporates most IMF staff recommendations, including an operationally independent anti-corruption agency and an asset declaration system for top officials.
- Recent economic developments and outlook
  - Findings:
    - Close to 40 percent of the population fully vaccinated (as of the MEFP text).
    - Growth projection for 2022 revised down from 3.8 to 2.4 percent.
    - Prospects for 2023 projected growth of 3 percent.
    - Public revenue fell significantly; record double-digit inflation impacted poorest households, prompting subsidies on ordinary rice and flour.
- Adjusting to global price shocks and fiscal stance
  - Measures implemented:
    - Raised domestic prices in May 2022: gasoline (25 percent), diesel oil (44 percent), petroleum (40 percent).
    - Since June, prices of ordinary rice increased by 20 percent.
    - Temporary tax exemptions on rice during August-December 2022.
    - Public enterprises contracted public-guaranteed loans; price increases expected to make SCH and ONICOR profitable from 2023; SONELEC to take longer to become profitable and a transition plan to more efficient technologies is being elaborated.
    - Coordinating with the World Bank on a social safety net program to support the most vulnerable.
  - 2023 budget and fiscal trajectory:
    - Aim for revenue to rise to about 10½ percent of GDP.
    - Domestic spending to expand to 12.1 percent of GDP.
    - Plan to end one-time subsidies and tax exemptions as commodity prices stabilize and reintroduce sales tax on construction material.
    - Aim to start gradual fiscal consolidation in 2024 driven by revenue gains and paring back pandemic-related spending; objective to bring all debt burden indicators below their higher risk thresholds by 2029.
    - Anticipate fiscal and external financing gaps starting in 2023 and lasting over the medium term; commit to avoid taking up any non-concessional borrowing over the foreseeable future.
- Monetary and external stability
  - Policy stance:
    - Proceed prudently in tightening monetary policy; monetary decisions are in line with monetary cooperation with France.
    - Monitor inflation and foreign currency reserves; consider further tightening only if second-round impacts on consumer prices or large reserve outflows occur.
    - Intensify supervision of the banking system and strengthen the monetary policy toolkit.
    - Commit to preserve external stability and monitor balance of payments developments.
- Fiscal structural reforms and PFM improvements
  - Revenue administration priorities:
    - Further raise the number of active taxpayers.
    - Strengthen the use of SIGIT software and integrate data from VIGOR.
    - Apply the same tax administration on SOEs as other taxpayers; intensify recovery of unpaid taxes.
  - Customs administration priorities:
    - Complete de jure transfer of management of fuel products taxes to customs.
    - Strengthen risk management, inspect fewer shipments based on compliance risks.
    - Deploy internal control system and develop a decision-making information system.
    - Finalize regulations needed to implement the customs code.
  - PFM measures:
    - Implement roadmap to extend the Treasury Single Account (TSA) to extrabudgetary entities, public administrative bodies, and foreign-financed projects; create a Treasury Accounting Agency as part of reforms.
    - Strengthen wage bill management and merge island payroll databases into one national database.
    - Avoid accumulation of domestic and external arrears; use findings from the audit of domestic arrears (commissioned February 2022) to inform a clearance strategy.

*Source: 1comea2023001 - Annex I. Risk Assessment Matrix*

### 14.      We will continue strengthening the oversight of SOEs. We intend to take the following

### 1comea2023001 - 14. We will continue strengthening the oversight of SOEs. We intend to take the following

### Oversight of SOEs
- Conclude performance contracts with major SOEs to ensure improved service provision quantity and quality, and to define financial targets.
- Require SOEs to prepare certified annual balance sheets and profit and loss statements.
- Seek adjustments in SOEs’ staffing levels and compensation packages where needed to align them with compensation in the civil service.
- End cross-arrears settlement between the State and the SOEs to enable greater transparency, starting with the state-owned oil company SCH.

### Strengthening the Financial Sector — diagnosis
- Banking system challenges:
  - Weak underwriting and risk management processes, often significant credit risk concentration, recurring government arrears, and shortcomings in the judicial system that inhibit attaching collateral.
  - In 2021, the banking system as a whole registered losses for the fifth consecutive year.
  - Non-performing loans (NPL) were reduced, due to the work of a commission on NPLs.
- Financial safety net is not yet fully developed; an emergency central bank liquidity assistance facility remains to be created.
- Lack of financial infrastructure inhibits interbank lending: no organized market, no readily available lending instrument and collateral (neither the government nor the central bank issue bills or bonds).
- Restructuring the postal bank SNPSF will require large fiscal resources.

### Strengthening the Financial Sector — government intentions and measures
- Improve the operating environment for banks:
  - Lower the frequency of government arrears to suppliers.
  - Further strengthen the judicial system to ensure that banks can realize pledged collateral.
  - The commission on NPLs (Ministry of Finance, Ministry of Justice, BCC) delivered recommendations; initial positive results in 2021 as the ratio of NPLs to total gross loans improved to 16.8 percent from 23.7 percent in the previous year. The commission will resume its work and hold meetings at least once a quarter.
- Strengthen supervision of the banking sector:
  - The BCC will implement targeted onsite inspections in financial institutions to assess the quality of credit portfolios.
- Strengthen the financial sector safety net:
  - Create a bank recovery and resolution framework (a law establishing such a framework was adopted in December 2020).
  - Operationalize the BCC’s emergency liquidity assistance function.
- Strengthen financial infrastructure:
  - Establish a government securities market.
  - IMF technical assistance is being received to lay the foundations for a government securities market, strengthen the BCC’s liquidity management, and create an emergency liquidity assistance framework.
- Complete the restructuring of the SNPSF into the new bank (BPC):
  - Operationalize the business plan for BPC in three phases:
    - Phase 1: limit loans to existing customers, with a limit to loans to any customer of KMF 5 million.
    - Phase 2: expand credits to new customers, including individual entrepreneurs (but no other businesses), with credit per customer limited to KMF 5 million.
    - Phase 3: provide credit to new customers, including small businesses with fewer than fifty employees, with credit per customer limited to KMF 7.5 million.
    - Phases 1 and 2 will each last at least 2 years.
    - Conditions to move from phase 1 to phase 2 include full payment of the agreed BPC full capitalization schedules in cash, establishment of improved risk management capacities with the support of AFD, and BPC profitability for at least the previous two years.
    - Conditions to move to phase 3 include establishment of improved risk management capabilities incorporating procedures for small business credit risk and BPC profitability for at least the previous two years.
    - Transition between phases subject to evaluation and authorization by the BCC.
  - Appoint management team:
    - Board of Directors appointed on October 13, 2022.
    - Aim to appoint a Managing Director within the next three months who will work full-time on the restructuring.
    - Ensure BPC management free from political interference by signing a framework relationship agreement with BPC management, which could take the form of a short performance agreement.
  - Capital injection:
    - Government deposited KMF 1.5 billion in 2022 in an escrow account at the BCC.
    - AFD contributed KMF 0.75 billion, disbursed into a sequestered account.
    - Remaining estimated capitalization costs: the State will issue debt instruments which can be registered as assets of the new bank.
    - Debt instruments will be redeemed for cash over time, first in four equal installments of KMF 1.3 billion, inclusive of annual interest, over 2023-25 (two installments in 2023), with the final redemption equal to the remaining amount in 2025.
    - AFD and the French Treasury have committed to providing grants towards the restructuring process, to be disbursed as agreed milestones are met.
    - An amount of € 2 million in budgetary aid from France has already been allocated in 2022 for the payment of maturities of the debt instruments in 2023.
    - The net remaining needs, currently estimated at KMF 4.9 billion, will be covered by the Government of the Comoros.
  - File an application for BPC authorization by the BCC by the end of the 2nd quarter of 2023.

### Strengthening Governance
- Rule of law:
  - Strengthen the judicial system to ensure property rights and enforce contracts.
  - Steps taken to strengthen judicial efficiency, including enhancing equipment, resulting in acceleration of court cases; will continue to strengthen integrity and efficiency.
- Fiscal transparency:
  - Strengthen public financial management and oversight of SOEs; enhance fiscal accounting and reporting.
  - Commit to regularly publish comprehensive information on all large public procurement projects:
    - Issued a circular on submission to a nominated procurement agency of documentation on all large public procurement contracts along with names of awarded companies and the name(s) of their beneficial owner(s).
    - Prepared a plan that sets out steps and timeline for publication of this documentation on an easily accessible website.
  - Publish by end-June 2023 the results of the audit of the spending of IMF emergency financing provided under the RCF/RFI of April 2020:
    - Asked the Court of Auditors to prepare this audit with technical assistance from the IMF.
    - Reaffirm commitment to publishing semi-annual reports on any follow-up measures taken on the basis of the audit findings for as long as follow-up measures continue.
- Anti-corruption:
  - Adopt the new anti-corruption law, which incorporates most of the IMF staff recommendations.
  - Continue working to strengthen transparency and efficiency of the asset declaration system for top officials.
- Management of the civil service:
  - Address absenteeism and recover wages that were paid to “ghost workers.”
  - Explore strengthening hiring through competition/entrance exams in all parts of the civil service (already the case at the central bank).
  - Strengthen training of civil servants by creating a school of national administration.
  - Introduce performance management.
  - Avoid election-related hiring.

### AML/CFT and Supervision
- Strengthen the effectiveness of the AML/CFT framework:
  - An evaluation by the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA) will be conducted in June 2023.
  - Preparation and publication of the national risk assessment delayed to 2023; thereafter prepare an AML/CFT law in line with Financial Action Task Force standards and adopt it.
  - In the meantime, the BCC will reach out to commercial banks to raise awareness of AML/CFT requirements and enhance risk-based supervision, including by conducting onsite inspections to assess compliance with existing AML/CFT regulations.

### Other Issues
- Central Bank (BCC) actions:
  - Continue implementing recommendations of the IMF’s 2020 safeguards assessment.
  - Adopted International Financial Reporting Standards (IFRS) as its accounting framework effective December 2021.
  - Commit to further enhance transparency of financial reporting.
  - Work to amend the BCC’s legal framework to enhance its autonomy has been delayed but remains a commitment.
- Statistical capacity:
  - Recognize economic data have serious shortcomings in almost all sectors.
  - Commit to ensuring INSEED will have sufficient human and capital resources to collect timely price data and update the national accounts.

### Debt Sustainability, Contingent Liabilities, and Recent Debt Developments
- Debt sustainability assessment:
  - Comoros external and overall debt are sustainable but remain at high risk of debt distress.
  - Assessment contingent on: (i) progress on domestic resource mobilization and gradual but sustained fiscal consolidation over the medium term, (ii) no additional non-concessional borrowing, and (iii) enhanced financial oversight of SOEs.
  - Susceptible to export and exchange rate depreciation shocks; natural disaster and contingent liabilities shocks present downside risks.
- Public debt coverage:
  - Coverage extended to include all financing from the central bank to the Treasury.
  - External debt coverage includes the entire public sector: central government external debt, central bank borrowing on behalf of the government, and government-guaranteed debt of SOEs.
  - Domestic debt includes central government, SOE’s guaranteed debt from domestic banks, and on-lending from the central bank including the IMF SDR allocation and statutory advances.
- Contingent liabilities:
  - Magnitude of the contingent liabilities shock revised up to 12.5 percent of GDP, from 8.8 previously, to reflect:
    - Preliminary outcomes of an ongoing audit pointing to a higher-than-expected level of domestic arrears.
    - Difficulties encountered by SOEs involved in importing food and oil in rolling over their trade loans following deterioration of their cash flows due to higher commodity prices.
  - Domestic arrears represent unpaid bills for goods and services and are included as contingent liabilities as the figures are still preliminary; they include arrears from the treasury to the pension system.
  - Preliminary assessment: accumulation of domestic arrears includes considerable cross debts between the state and SOEs as well as among SOEs, reflecting PFM weaknesses rather than government insolvency.
  - Government plans to elaborate a domestic arrears clearance strategy upon completion of the audit exercise.
- Recent debt developments:
  - External public debt reached 28   percent of GDP in 2022 and is expected to rise to 31.5 percent of GDP by end-2023, up from 20.3 percent of GDP prior to the pandemic.
  - Domestic public debt jumped from 2.9 in 2020 to 5.1   percent of GDP in 2022, reflecting the BCC’s on-lending of the SDR allocation and a higher take-up of commercial bank debt by the SOEs involved in food and energy supply.

*Prepared by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA).*

### 4.      Negotiations  are ongoing to finalize loans for the El Maarouf Hospital.  The authorities are

### 1comea2023001 - 4.      Negotiations  are ongoing to finalize loans for the El Maarouf Hospital.  The authorities are

### Loans, arrears, and planned borrowing
- Authorities are seeking three concessional loans amounting to USD 70 million, which are included in this baseline.
- Between end-December 2021 and end-December 2022, external arrears increased from USD 6 million to USD 7.2 million.
  - USD 5.2 million in external arrears (72 percent of the total) are owed to BADEA.
  - Authorities plan to repay shortly arrears owed to the Kuwait Fund (USD 0.12 million) and the OPEC Fund for International Development (USD 0.35 million).
  - Discussions ongoing regarding pre-existing arrears owed to Exim Bank India for a project loan in dispute (USD 1.17 million).
  - External arrears also accumulated vis-à-vis Bpifrance Assurance Export (USD 0.56 million); authorities reported they are awaiting a response to their request for debt cancellation from the French Treasury.

### Debt structure (end-2021) and composition
- At end-2021:
  - Disbursed debt owed to official bilateral creditors accounted for 63 percent of public external debt.
  - Debt to multilateral creditors: 16 percent.
  - Debt to regional lenders: 17 percent.
  - Share of non-concessional debt: 14 percent of external debt.
- Non-concessional share expected to grow as the non-concessional loan for the construction of the Galawa Hotel is disbursed.
- Text Table 3 (selected figures, million USD and % GDP as reported by authorities):
  - Total: 2019: 280.7; 2020: 322.7; 2021: 388.1 | % GDP: 22.9; 26.1; 29.8
  - External: 2019: 241.3; 2020: 282.6; 2021: 316.9 | % GDP: 20.3; 23.2; 24.7
  - Multilateral creditors total: 2019: 87.9; 2020: 104.0; 2021: 116.5 | % GDP: 7.4; 8.5; 9.1
  - BADEA (o/w): 2019: 28.3; 2020: 28.0; 2021: 28.0 | % GDP: 2.4; 2.3; 2.2
  - Bilateral creditors total: 2019: 153.4; 2020: 178.6; 2021: 200.3 | % GDP: 12.9; 14.7; 15.6
  - China (o/w): 2019: 66.2; 2020: 91.7; 2021: 113.2 | % GDP: 5.6; 7.5; 8.8
  - Domestic: 2019: 32.0; 2020: 36.8; 2021: 59.1 | % GDP: 2.6; 2.9; 5.1

### Macroeconomic forecasts and assumptions
- Growth and inflation:
  - Real GDP growth revised: 2022: 2.4 percent (down from 3.8 percent before Russia’s invasion of Ukraine).
  - Growth projected: 2023: 3.0 percent; average 2024-28: 4.1 percent driven by large investment projects (hospital expansion, hotel complex, road refurbishment).
  - Long-run average growth: 3.8 percent.
  - Average inflation: 12 percent in 2022 following higher international prices of oil and food and shipment difficulties.
  - Inflation projected: around 8.2 percent in 2023; thereafter stabilize at around 2-2½ percent reflecting the peg of the exchange rate to the Euro.
- Fiscal sector:
  - Domestic primary deficit narrowed from 3.4 percent of GDP in 2021 to 1.7 percent of GDP in 2022, supported by lower COVID-19-related spending despite SOE losses reducing revenue.
  - Primary deficit projected to widen to 2.7 percent of GDP reflecting higher investment spending during 2023-24; thereafter averaging 1.7 percent of GDP per year.
  - Projections include a fiscal financing gap starting in 2023 reflecting insufficient funding for postal bank recapitalization, increased debt service obligations, and lower revenues from key SOEs.
- External sector:
  - External current account deficit estimated to have widened to 4.5 percent of GDP in 2022; expected to widen to 7.3 percent in 2023 before gradually declining to 4.5 percent.
  - Exports of goods projected to recover to pre-pandemic levels by 2026 and improve further afterward.
  - Tourism already stronger than pre-COVID-19 levels.
  - Remittances expected to remain strong despite correction from COVID-19 levels.
  - With sustained import growth and increased interest payments from previously contracted non-concessional debt, the current account is projected to weaken over the next few years before settling at around 4½ percent of GDP over the long term.
- Historical note: During 2017-21, the average annual growth rate of remittances was 15 percent.

### Financing assumptions and borrowing strategy
- DSA assumes authorities will adopt a prudent borrowing strategy; disbursement from already contracted loans will continue in line with authorities’ plans.
- Domestic financing:
  - Drawdown of government’s deposit at the central bank during 2022-23 projected at 2.7 percent of GDP.
  - Other domestic financing captures SOEs’ short term domestic debt.
- Foreign financing:
  - Undisbursed parts of already contracted loans assumed to be disbursed over coming years.
  - IDA financing projected at USD 28.7 million per year on average over the next four years.
  - Baseline includes around USD 50 million from AfDB and USD 17 million from Saudi Arabia over the next four years.
  - Remaining fiscal gap assumed filled with borrowing on concessional terms.
  - Average external loan financing from 2022-2032: USD 62 million per year (including the fiscal financing gap) compared to USD 59 million from the previous DSA.
  - Average grant element of new borrowing: 54.5 percent (previous DSA: 43.4 percent).
- Policy reforms underpinning assumptions:
  - Performance policy actions under the sustainable development financing policy (SDFP) in 2022-2023 included a debt management law promulgated in 2023, streamlining the borrowing process, reinforcing the role of the ministry of finance, and establishing a committee to advise the minister on approval of loans and guarantees.

### Debt sustainability analysis (DSA) and stress tests
- Country classification:
  - Comoros assessed to have medium debt carrying capacity (unchanged from the 2021 DSA).
  - Composite Indicator (CI) of 2.855 based on October 2022 WEO projections and the 2021 CPIA rating.
  - High-risk external debt thresholds for medium carrying capacity countries used: PV of debt-to-GDP ratio: 40 percent; PV of debt-to-exports ratio: 180 percent; debt service-to-exports ratio: 15 percent; debt service-to-revenue ratio: 18 percent.
- Key DSA findings:
  - Three out of four external debt burden indicators breach their respective thresholds under the macroeconomic assumptions underlying this exercise.
    - PV of external debt-to-GDP ratio is still below the threshold but increased compared to the previous exercise.
    - PV of debt-to-export ratio breach persists during 2025-27 before declining below the threshold.
    - Debt service-to-exports ratio breaches during 2025-27.
    - Debt service-to-revenue ratio breaches during 2025-28.
  - Compared to the previous DSA, breaches are less pronounced because delays in project execution during 2021-22 smoothed loan disbursements and associated debt services.
- Stress test impacts:
  - Export shock and exchange rate depreciation have the largest negative impact on the debt trajectory.
    - Export shock would cause threshold breaches for three of four indicators.
    - Depreciation shock would cause breach to the debt service to revenue ratio.
  - Natural disaster scenario (Comoros qualifies): one-off natural disaster shock of 10 percent of GDP to external PPG debt-GDP ratio in the second year of the projection period.
    - Natural disaster shock may increase PV of external debt-to-GDP ratio from 18 percent to 31 percent in the medium term.
    - Debt service to revenue ratio could rise from 8 percent to peak at 21 percent in 2025.
  - Contingent liabilities shock may have a similar impact on PV of external debt-to-GDP ratio and debt service to revenue ratio.
- Total public debt:
  - Overall public debt projected to rise under the passive policy scenario but remain well below its indicative benchmark under baseline and stress tests.
  - Incorporation in domestic debt of statutory advances, SDR on-lending to the government, and higher publicly guaranteed domestic debt of SOEs result in deterioration of domestic debt dynamics relative to the last DSA.
  - Stress tests suggest export and growth shocks have the largest negative impact on the debt trajectory.
    - Growth shock may increase debt service to revenue ratio from 7 percent to peak at 63 percent in 2029.
    - Export shock may have similar impact on PV of debt-to-GDP ratio and PV of debt-to-revenue ratio.

### Risk assessment, vulnerabilities, and recommended policy actions
- Risk assessment:
  - Comoros’ external and overall debt are sustainable but remain at a high risk of external and overall debt distress.
  - Sustainability assessment grounded in limited magnitude of breaches of external debt thresholds and projected improvement of debt service metrics over the forecast horizon.
  - Mitigating factors: authorities' plans for an economic reform program to be supported by a prospective IMF Extended Credit Facility (ECF) and consistently strong remittance performance.
- Mitigating policy actions recommended:
  - Make faster progress on domestic resource mobilization and ensure gradual but sustained fiscal consolidation over the medium term.
  - Avoid additional non-concessional borrowing.
  - Enhance financial oversight of SOEs.
  - Implement reforms to boost growth.
  - Authorities have requested an ECF program to help implement these measures.

*Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1comea2023001.pdf*

### 17.      The authorities broadly shared Fund staff’s assessment, emphasizing that reducing debt

### 1comea2023001 - 17.      The authorities broadly shared Fund staff’s assessment, emphasizing that reducing debt

### Authorities' assessment and policy commitment
- The authorities broadly shared Fund staff’s assessment that reducing debt vulnerabilities is a key priority for their development agenda.
- They emphasized the significant impact of recent successive shocks on the macroeconomic picture.
- They agreed that fiscal reforms will be needed to gradually reduce risks over the medium term.
- They reiterated their commitment to engaging with staff in the context of a follow-on program from the SMP to push forward planned fiscal and other structural reforms.

### Debt vulnerability analysis and stress-test methodology
- The external DSA assumes: "All the additional financing needs generated by the shocks under the stress tests are assumed to be covered by PPG external MLT debt in the external DSA."
- Default terms of marginal debt are based on baseline 10-year projections.
- The most extreme stress test is defined as "the test that yields the highest ratio in or before 2032." The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most extreme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
- Commodity price shock magnitudes are "based on the commodity prices outlook prepared by the IMF research department."
- Tailored stress tests reported include: Combined contingent liabilities, Natural disaster; Commodity price and Market financing tests are denoted "n.a." where not applicable.
- Note on data quality: "The significant difference between ‘Prev. DSA’ and ‘Curr. DSA’ lines in the ‘Public and Private Investment Rates’ chart is predominantly due to a calculation error in the previous DSA. Specifically, foreign financed public investment was erroneously included in private investment rather than public investment, hence artificially inflating the former and deflating the latter."

### Key projections and sustainability indicators (selected)
- External debt (nominal) series (in percent of GDP): 20.3 23.2 24.7 27.9 31.5 35.1 38.0 38.7 39.5 40.3 40.5 40.7 40.8 41.0 43.5 17.5 37.6
- Change in external debt (percent of GDP): 4.5 2.9 1.4 3.2 3.7 3.6 2.9 0.7 0.8 0.8 0.2 0.2 0.2 0.1 1.6
- Identified net debt-creating flows (percent of GDP): 3.0 1.1 -1.9 3.6 5.0 4.2 4.1 4.2 3.2 2.5 2.6 2.9 2.9 2.8 2.6 1.6 3.5
- Non-interest current account deficit (percent of GDP): 3.3 1.7 -0.6 4.3 6.8 5.9 5.7 6.0 4.9 4.3 4.3 4.6 4.6 4.6 4.4 2.5 5.1
- Net current transfers (negative = inflow) (percent of GDP): -14.0 -20.2 -20.8 -18.1 -17.7 -17.1 -15.5 -14.7 -14.7 -14.8 -14.8 -14.9 -15.0 -15.0 -15.0 -16.1 -15.7
- PV of PPG external debt-to-GDP ratio (selected projection points): 16.2 18.3 19.6 20.9 22.0 22.3 22.6 23.0 23.0 23.0 23.1 23.2 23.5
- PV of PPG external debt-to-exports ratio (selected projection points): 140.7 148.1 167.6 176.6 183.7 181.6 179.8 177.2 170.9 171.5 169.3 166.9 150.7
- PPG debt service-to-exports ratio (selected projection points): 5.4 11.8 6.1 6.3 12.2 14.0 16.8 15.7 15.5 14.8 8.4 7.8 7.6 7.7 7.8
- PPG debt service-to-revenue ratio (selected projection points): 6.6 5.5 6.9 8.1 15.1 17.1 20.1 18.9 18.8 18.2 10.5 9.5 9.3 9.4 9.0
- Gross external financing need (Million of U.S. dollars): 42.0 25.1 -2.5 57.6 91.1 91.6 103.9 110.3 97.5 89.1 80.6 89.1 95.5 100.2 175.5
- Real GDP growth (in percent): 1.8 -0.2 2.1 2.4 3.0 3.6 4.1 4.3 4.3 4.2 3.8 3.8 3.8 3.8 3.8 2.5 3.7
- Government revenues (excluding grants, in percent of GDP): 9.6 12.0 10.3 9.6 9.5 9.7 10.0 10.2 10.4 10.6 10.8 11.0 11.2 11.4 13.5
- Aid flows (in Million of US dollars): 73.7 75.8 86.8 78.0 134.3 134.8 109.6 119.5 122.1 122.7 145.7 152.5 163.5 173.0 366.6
- Nominal GDP (Million of US dollars) (selected years): 1,188 1,218 1,285 1,233 1,349 1,409 1,463 1,512 1,552 1,580 1,673 1,772 1,876 1,986 3,518
- Public sector debt (percent of GDP) series (selected): 23.0 26.1 29.8 33.0 36.4 40.7 44.5 46.7 49.0 50.5 47.9 19.4 45.9
- PV of public debt-to-GDP ratio (selected projection points): 21.4 23.4 24.4 26.5 28.5 30.3 32.1 32.7 27.9
- Debt service-to-revenue and grants ratio (selected): 4.6 4.1 5.5 7.1 14.5 16.0 26.4 30.3 40.8 48.2 32.2

(Note: above series are drawn from the external and public DSA tables and charts provided in the source text.)

### Sensitivity and scenario outcomes (selected)
- Table 3 sensitivity outputs show baseline and alternative scenario outcomes for PPG external debt indicators across 2022-2032 with scenarios including:
  - A1. Key variables at their historical averages in 2022-2032
  - B1. Real GDP growth
  - B2. Primary balance
  - B3. Exports
  - B4. Other flows
  - B5. Depreciation
  - B6. Combination of B1-B5
  - C1. Combined contingent liabilities
  - C2. Natural disaster
- Thresholds reported for debt indicators include: 40 (external benchmark) and 180 (exports benchmark) depending on the indicator.
- Baseline and scenario values reported explicitly in the sensitivity table (examples):
  - Baseline row: 18 20 21 22 22 23 23 23 23 23 23 23
  - A1 row (key variables at historical averages): 18 19 19 19 18 17 16 16 15 15 ...
  - Tailored tests C1 and C2 produce higher indicator values (e.g., C1: 48 195 217 231 232 ...; C2: 48 197 218 231 233 ...).

### Policy implications and next steps (from text)
- Fiscal reforms will be needed to gradually reduce debt risks over the medium term.
- Authorities committed to engage with Fund staff on a follow-on program from the SMP to advance planned fiscal and structural reforms aimed at reducing debt vulnerabilities.

*Source: Country authorities; and staff estimates and projections as presented in the provided IMF chapter/section.*

### 2. Primary balance61214171616169888

### Table 4. Comoros: Sensitivity Analysis for Key Indicators of Public Debt, 2022-2032

### Baseline projections (selected series)
- Baseline (public debt benchmark): 55 55 55 55 55 55 55 55 55 55 55 55
- Baseline (total public debt, percent of GDP): 168 171 180 206 198 206 212 206 202 197 193
- Baseline (PV of debt-to-GDP ratio, projections 1/): 23 24 27 29 30 32 34 34 33 33 33 33
- Baseline (debt service-to-exports ratio): 7 14 16 26 30 41 50 54 52 50 48

### A. Alternative Scenarios
- A1. Key variables at their historical averages in 2022-2032 2/
  - Public debt benchmark: 23 20 21 20 20 23 23 23 23 21 19 20 0#N/A#N/A#N/A#N/A#N/A#N/A#N/A#N/A#N/A#N/A#N/A
  - Total public debt, percent of GDP: 168 138 141 142 129 140 136 131 118 107 107
  - PV of debt-to-GDP ratio (A1): 16 18 21 20 20 18 10 9 9 8 15 17 19 17 16 14 7 6 5
  - Debt service-to-exports ratio (A1): 7 15 (5) 27 17 26 53 49 56 46 40 07 11 5 9 13 26 36 42 43 43 43

- Notes on A1 variables: "Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows."

### B. Bound Tests (individual shocks)
- B1. Real GDP growth
  - Public debt benchmark: 23 25 29 31 33 35 38 38 38 38 38 38
  - Total public debt, percent of GDP: 168 174 190 220 212 222 231 226 224 221 219
  - PV of debt-to-GDP ratio (B1): 23 25 29 31 33 35 38 38 38 38 38 38
  - Debt service-to-exports ratio (B1): 7 15 19 34 38 50 59 63 60 58 56

- B2. Primary balance
  - Public debt benchmark: 23 27 32 33 34 36 38 37 37 36 36
  - Total public debt, percent of GDP: 168 192 218 238 223 229 235 228 223 217 213
  - PV of debt-to-GDP ratio (B2): 23 27 32 33 34 36 38 37 37 36 36
  - Debt service-to-exports ratio (B2): 7 15 33 54 44 50 56 58 54 52 50

- B3. Exports
  - Public debt benchmark: 23 27 33 35 36 38 40 40 39 39 39
  - Total public debt, percent of GDP: 168 188 222 251 238 246 253 245 239 233 228
  - PV of debt-to-GDP ratio (B3): 61 44 54 51 21 21 21 21 21 21 11 11
  - Debt service-to-exports ratio (B3): 7 14 16 27 31 42 51 55 52 51 49

- B4. Other flows 3/
  - Public debt benchmark: 23 27 32 34 36 38 39 39 39 38 38
  - Total public debt, percent of GDP: 168 191 217 245 233 241 247 240 234 228 224
  - PV of debt-to-GDP ratio (B4): 61 51 45 44 37 33 31 30 29 28 26 25
  - Debt service-to-exports ratio (B4): 7 14 16 27 31 41 51 55 52 50 49

- B5. Depreciation
  - Public debt benchmark: 23 27 27 28 28 29 30 29 28 27 26
  - Total public debt, percent of GDP: 168 198 191 203 188 190 193 181 173 164 157
  - PV of debt-to-GDP ratio (B5): 61 27 21 21 21 21 21 21 21 21 21 21
  - Debt service-to-exports ratio (B5): 7 16 20 33 36 46 54 55 52 50 48

- B6. Combination of B1-B5
  - Public debt benchmark: 16 18 19 23 23 21 21 21 21 15 13 13
  - Total public debt, percent of GDP: 168 181 189 202 190 194 199 192 187 183 180
  - PV of debt-to-GDP ratio (B6): 61 62 42 82 72 63 52 43 31 21 11 11
  - Debt service-to-exports ratio (B6): 7 14 16 35 34 44 51 54 51 49 48

- Notes on B tests: "Includes official and private transfers and FDI."

### C. Tailored Tests
- C1. Combined contingent liabilities
  - Public debt benchmark: 23 33 34 35 36 37 39 39 38 38 38 38
  - Total public debt, percent of GDP: 168 234 229 250 234 240 246 238 233 227 223
  - PV of debt-to-GDP ratio (C1): 23 33 34 35 36 37 39 39 38 38 38 38
  - Debt service-to-exports ratio (C1): 7 15 60 52 44 50 56 58 55 52 50

- C2. Natural disaster
  - Public debt benchmark: 23 32 33 34 35 37 39 39 38 38 38 38
  - Total public debt, percent of GDP: 168 223 221 244 230 237 243 236 232 227 223
  - PV of debt-to-GDP ratio (C2): 23 32 33 34 35 37 39 39 38 38 38 38
  - Debt service-to-exports ratio (C2): 7 15 52 49 43 50 57 59 56 53 51

- C3. Commodity price: n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
- C4. Market Financing: n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

- Thresholds and breach indicators:
  - Threshold (first table): 15 15 15 15 15 15 15 15 15 15 15 15
  - Threshold (second table): 18 18 18 18 18 18 18 18 18 18 18 18
  - Note: "1/ A bold value indicates a breach of the benchmark."

### Additional key statistics and notes (as presented)
- Debt service-to-exports ratio (heading present).
- Debt service-to-revenue ratio (heading present).
- PV of debt-to-exports ratio (heading present).
- PV of debt-to-GDP ratio (heading present).
- Projections labeled "Projections 1/" and repeated "Sources: Country authorities; and staff estimates and projections."
- Footnotes:
  - "1/ A bold value indicates a breach of the benchmark."
  - "2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP."
  - "3/ Includes official and private transfers and FDI."

*Source: Country authorities; and staff estimates and projections.*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1comea2023001.pdf_