## 1. Status of SDGs, 2023

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---

### Executive summary and key aggregate figures
- Comoros committed to achieving the Sustainable Development Goals (SDGs) but progress limited; 2023 SDGs ranking: 154 out of 166 (lowest among small developing states).
- Cost to achieve SDG outcomes of high-performing peers by 2030: about 18.8 percent of 2030 GDP per year.
- If SDGs were pursued on a slower timeline to 2040, additional annual cost estimated between 5.7 and 7.6 percent of GDP per year depending on policy scenario.
- ECF program commitments, with focus on enhancing domestic revenue mobilization, identified as key to creating fiscal space to restore debt sustainability and accelerate SDG achievement.

### Context and baseline indicators
- SDG progress: limited progress in 60 percent of the SDGs; 26.7 percent showing a decline.
- Life expectancy: 67.4 years (Context); 67 years (Health section).
- Access to improved water sources: 25 percent of population lacks access; no progress since 2007.
- Poverty headcount ratio at $3.65/day (2017 PPP): 36 percent.
- Education impacts: Cyclone Kenneth (2019) destroyed or partially destroyed 38 percent of classrooms; COVID-19 school closures led to significant drops in enrollment for pre-primary and primary levels.

### Costing methodology and peer group
- Two-model approach: a costing model and a financing model to estimate costs of reaching selected SDGs by 2030 and identify cost drivers.
- Peer group: best performers among small developing states (SDS) used as comparators because per capita costs of public goods are higher in small countries.
- Comparative SDS averages cited: education 9.8 percent of GDP and health 7.2 percent of GDP, compared to world average education 6.5 percent and health 6.9 percent.

### Sectoral findings and additional costs (2030)
- Education:
  - Current public education spending: 3.8 percent of GDP.
  - Household contribution to education spending: 33.5 percent (Comoros) versus 33.9 percent (SDS average).
  - Student-to-teacher ratio: 15.6 (Comoros) versus 18.6 (high-performing SDS average).
  - Teacher wages: 1.8 of GDP per capita in Comoros (about half of SDS average).
  - Capital spending on education: 36 percent of the average SDS composition.
  - Additional spending needs to achieve SDG4 by 2030: about 4.2 percent of 2030 GDP.
  - Cost-mitigating factors:
    - Maintaining current student-to-teacher ratio avoids additional hiring; keeping current ratio would have raised additional financing by 0.4 percent of GDP (current favorable ratio may reflect “ghost workers”).
    - Demographic dividend: lower proportion of children requiring enrollment yields a saving of 0.5 percent of GDP.

- Health:
  - Life expectancy rose by five years between 2000 and 2019 but remains below 80 years (green threshold); reported as 67 years.
  - Private share of total health spending: 66.4 percent.
  - Health spending pattern aligns with SDS average, but doctor per 1000 habitants ratio among lowest in sample.
  - Major infrastructure driver: construction of El Maarouf national hospital.
  - Additional spending needs to reach higher SDG performance: about 4.3 percent of 2030 GDP.
  - Human resource targets implied: number of doctors should be increased tenfold; other medical personnel should be tripled.
  - Potential wage limitation: doctors’ wages could be limited to 7.3 instead of 9.6 percent of per capita GDP as in high performers.
  - Productivity concerns: World Bank report notes very low productivity (public facility health professional sees fewer than 2 patients a day; private sector about 4 patients a day).

- Electricity and energy (SDG7):
  - Installed generation capacity: approximately 44 MW.
  - Per capita energy consumption: 0.2 ton of oil equivalent per capita.
  - Electricity cost: 0.30 US$/kWh.
  - Distribution losses: exceeding 50 percent.
  - Cost recovery: roughly one-third of invoiced energy bills recuperated.
  - Renewable potential for solar and wind is embryonic.
  - Recent solar additions: two private independent solar stations added 5 MW but have very high operating costs due to inadequate technology.
  - Additional cost to achieve SDG7 by 2030: 3.7 percent of GDP per year.
  - SDG7 targets assumed: expand electricity access from 86.7 percent to 100 percent and raise average consumption per user from 88.3 kWh to 1,463.9 kWh.
  - Ongoing project: Comoros Solar Energy Access (CSEA) project: ambition to add 9MWc solar and 19MWc storage; total cost USD 40 million, half grant and half IDA-term loan.

- Roads:
  - Current rural access: 24.3 percent.
  - Target: increase rural access to 75 percent by 2030 requires investing 4.7 percent of GDP every year to build about 838 additional kilometers of all-weather roads.

- Water and sanitation (SDG6):
  - Universal access to drinking water: 15 percent; no improvement since 2012.
  - Access to sanitation facilities: almost non-existent.
  - Vulnerabilities: storm episodes and rising sea levels causing saline intrusion and turbidity.
  - Investment need: 1.92 percent of GDP every year from now to 2030 for safely managed water and sanitation for all.
  - Ongoing support: UNDP project budget approx. USD 60.75 million in grants; expected direct beneficiaries around 470,000 residents and 800,000 projected to benefit from enhanced governance.

- Aggregate sectoral additional expenditures by 2030 (% of GDP):
  - Education: 4.2
  - Health: 4.3
  - Road: 4.7
  - Water and Sanitation: 1.9
  - Electricity: 3.7
  - Total: 18.8

- Assessment: 18.8 percent of GDP per year described as out of reach given limited resources and debt sustainability considerations.

### Financing framework, scenarios, and timelines
- SDG financing tool: macroeconomically consistent dynamic setting with projections up to 2053 and a production function linking spending on human and physical capital to output.
- Two scenarios analyzed:
  - Non-program scenario (SMP completion assumptions):
    - Gradual fiscal consolidation starting in 2024 reducing the deficit by about 3.5 percent of GDP by 2027.
    - Substantial financing gaps emerge in 2023; public external debt rises to around 40 percent of GDP over the medium term.
    - Under this scenario Comoros would not reach the SDGs by 2053; alternate outcome: could achieve SDGs by 2040 with additional annual spending of 7.6 percent of GDP per year.
  - ECF scenario (active program with revenue measures):
    - Assumes progressively higher tax revenue by 0.3 percent of GDP each year during 2023-43, increasing from 8.6 percent in 2023 to 14.6 in 2043.
    - Revenue measures include phasing out tax exemptions (starting with sales tax exemption for construction materials), enhancing large and medium taxpayer units, expanding taxpayer base by 10 percent within large and medium taxpayer offices, and strengthening Customs risk management and procedures.
    - Under this scenario it would still be impossible to reach the SDGs before 2053; cost to achieve SDGs by 2040 declines to 5.7 percent of GDP per year.
- Financing composition:
  - Overall financing gap under ECF-consistent scenario expected to be largely filled by grants and concessional financing to achieve SDGs by 2040 while maintaining debt sustainability.
  - Private investment scenario: assumes additional private investment of 2 percent of GDP enabled by high remittance inflows and higher GDP per capita.
  - Remittances: 21.5 percent of GDP in 2022.

### Sectoral financing prospects and partner support
- Education:
  - Historically mobilized around 1.4 percent of GDP annually in grants.
  - June 2023 local education partners (AFD, UNICEF, World Bank, Dubai Care) committed to help achieve SDG4; expected financing in grants similar to past.
- Health:
  - Partner financing before COVID-19: 0.6 percent of GDP; rose to 1.7 percent in 2020 and 3.4 percent in 2021.
  - Continued support expected from UN agencies, World Bank, and AFD; remaining additional costs (besides ongoing El Maarouf Hospital disbursements) expected to be financed by grants.
- Road:
  - Grant financing limited at 0.3 percent of GDP per year; benefits from concessional loans mainly from AfDB and Saudi Arabia.
  - Expected to rely on small additional concessional loans and private sector contributions; diaspora remittances noted as significant (remittance around 21.5 percent of GDP in 2022).
- Water and sanitation:
  - UNDP project USD 60.75 million in grants to strengthen climate-resilient water supply infrastructure and governance.
- Energy:
  - CSEA: USD 40 million total cost, half grant and half IDA-term loan.
  - UNDEP geothermal project expected to be fully funded by grants from donors including EU, AFD, and the Fonds d’Energie Durable pour l’Afrique.

### Policy implications and sectoral priorities
- Enhance domestic revenue mobilization as a key pillar of the ECF program to create fiscal space for SDG investments while restoring debt sustainability.
- Improve sector efficiency and productivity to mitigate financing needs:
  - Education: verify and remove “ghost workers,” improve teacher wage structure, and increase capital spending for infrastructure (bathrooms, electricity, drinking water, boundary walls).
  - Health: raise productivity of health staff, expand domestic high-quality services to reduce health spending abroad, and prioritize scaling up numbers of doctors and other medical personnel efficiently.
  - Electricity: reduce distribution losses, improve bill collection for cost recovery, invest in appropriate renewable technologies to lower operating costs, and strengthen maintenance and operations to utilize existing capacity.
- Develop a comprehensive energy sector strategy with international experts to achieve SDG07 “Affordable and clean energy” given high technical complexity.
- Engage international partners to mobilize grant financing for priority areas given fragile context and elevated debt risks.

---

### Trade policy, WTO accession, and trade-tax revenue implications

### WTO accession status and process
- WTO membership context: 164 WTO members; 24 in accession process.
- Comoros accession timeline:
  - Process started February 2007.
  - Working Party established October 9, 2007.
  - First formal meeting: December 2, 2016.
  - Most recent formal meeting: October 5, 2023.
- Remaining multilateral elements: equivalence and sanitary agreements, veterinary legislative acts, and draft regulations affecting trade in goods.
- Bilateral negotiations: tariff schedule largely concluded; terms of access for foreign services under discussion.
- IMF support via FAD and AFRITAC South covers customs valuation, risk management, post-clearance audit, control of excise regimes, and aligns with WTO accession where relevant.

### ODCs, revenue impact, and elasticity estimation
- Other Duties and Charges (ODCs) in Comoros: around 3.5 percent on most imported goods.
- ODCs could total KMF 3.7 billion (USD 8 million) each year in government revenues.
- ODC composition and maximum rate for an unregistered importer:
  - Regional Cooperation Tax (TCR): 1 percent.
  - 1 percent tax for CCIA and warehouse maintenance.
  - Import trade tax (patente d’importation, PI): 1 percent for importers with a tax identification number and 10 percent for those without.
  - Advance tax payment (AI): 1 percent deductible from corporate tax.
  - Maximum ODC rate for an importer without a tax identification: 14 percent.
- Gravity model empirical finding for small states:
  - A 1 percentage reduction of tariffs would increase import volume by 1.03 percent.
- Applying elasticity to Comoros’ ODC elimination yields:
  - Estimated short-term revenue loss: KMF 1.7 billion (USD 3.7 million), equal to 0.3 percent of 2023 GDP and 3.86 percent of tax revenue.
- Sensitivity:
  - Revenue loss negatively correlated with import demand elasticity.
  - Revenue loss is zero when import demand elasticity = -3.82; beyond that, increased imports outweigh tariff revenue loss.

### Revenue replacement prospects and empirical evidence
- Literature mixed on trade tax replacement with domestic tax revenue.
- Empirical analysis using a sample of 16 small developing states (1990–2022) with fixed-effects and system-GMM finds:
  - No robust evidence that trade taxes would be replaced with domestic tax revenue for SDS.
  - Estimated coefficients on control variables show expected signs (GDP per capita growth and control of corruption positive; agriculture share negative; inflation, FDI, remittances, trade openness mixed).
- Implications for Comoros:
  - Difficulty mobilizing domestic revenue to offset potential losses from ODC abolition.
  - Transition period post-accession allows gradual reduction of ODCs; a revenue replacement policy should be decided and legislated in advance.

### Policy options to offset trade-tax losses (summary)
- Strengthen tax revenue administration:
  - Human resources, administrative reforms, digitalization, simplification, and enforcement to mitigate informality and tax fraud.
- Remove tax exemptions and increase domestic direct taxes:
  - Limit and replace unjustified exemptions; consider increasing direct taxes with mechanisms like final withholding at source and presumptive income tax for small businesses.
- Use indirect taxes and consider VAT adoption:
  - Immediate: raise excise duties on alcohol, tobacco, drugs, luxury products and widen tax bases.
  - Longer term: consider VAT adoption but note complexity and prerequisites (single tax identifier, robust IT, VAT management structure).
- Macroeconomic and governance foundations:
  - Sound macroeconomic stability and strong public governance needed to underpin revenue reforms.

---

### SCH (state oil and gas company) financial position, subsidies, and reform recommendations

### Fiscal relevance and trends
- SCH losses estimated at 2.5 percent of GDP in 2022.
- Fiscal costs from tax subsidies (including TIPP exemptions) and underpricing up to 3.2 percent of GDP in 2022.
- SCH was largest SOE revenue contributor in 2020: nearly 19 percent of domestic revenue.
- Energy import costs:
  - Average annual cost roughly KMF 23 billion in recent years; in 2022 energy import cost rose to KMF 49 billion (nearly one-third of value of all imports).
  - Volume of oil and gas imports increased by roughly 24.5 percent between 2018 and 2023.
  - Imports rose +14 percent in 2022 vs 2021 and +11.5 percent in 2023 vs 2022.

### SCH tax and non-tax revenue (selected figures in KMF)
- Total SCH tax revenue:
  - 2020: 8,220,485,703
  - 2021: 8,798,996,235
  - 2022: 7,271,004,562
  - 2023: First half: 3,944,024,728
- Domestic oil and gas tax (TIPP):
  - 2020: 7,166,370,067
  - 2021: 6,024,906,600
  - 2022: 6,077,607,730
  - 2023: First half: 3,909,440,250
- Corporate tax (IS):
  - 2020: 981,400,000
  - 2021: 2,700,000,000
  - 2022: 1,116,049,583
  - 2023: First half: 6,860,359
- SCH nontax revenue (dividend):
  - 2020: 931,000,000
  - 2021: -
  - 2022: 611,548,145
- Total SCH tax and nontax revenue:
  - 2020: 9,151,485,703
  - 2021: 8,798,996,235
  - 2022: 7,882,552,707
  - 2023: First half: 3,944,024,728
- SCH tax revenue as % of total tax revenue:
  - 2020: 20.34
  - 2021: 19.26
  - 2022: 16.39
  - 2023: First half: 8.00
- Total SCH revenue as % of total domestic revenue:
  - 2020: 18.85
  - 2021: 16.00
  - 2022: 13.99
  - 2023: First half: 6.56
- National aggregates for reference (KMF):
  - Tax revenue: 2020: 40,411,000,000; 2021: 45,695,000,000; 2022: 44,357,000,000; 2023: 49,321,000,000
  - Nontax revenue: 2020: 8,127,000,000; 2021: 9,288,000,000; 2022: 11,970,000,000; 2023: 10,782,000,000
  - Total domestic revenue: 2020: 48,538,000,000; 2021: 54,983,000,000; 2022: 56,327,000,000; 2023: 60,103,000,000

### Pricing, margins, and subsidies (2022)
- SCH losses in 2022: KMF 14.5 billion (2.5 percent of GDP).
- Product concentration of 2022 losses:
  - Diesel sold to SONELEC losses: KMF 6.5 billion (45 percent of total losses).
  - Household kerosene losses: KMF 4.65 billion (32 percent of total losses).
  - These two products represent 77 percent of SCH losses.
- Fuel subsidies (after-tax, including TIPP in cost price) in 2022: KMF 14.5 billion (2.5 percent of GDP).
  - Roughly 45 percent of subsidy (KMF 6.52 billion) benefited SONELEC directly.
  - Tax subsidies from de facto TIPP exemption: government foregoes revenue close to 1 percent of GDP.
  - Forgoing TIPP on diesel sold to SONELEC causes government to lose from 51 percent to over 60 percent of TIPP collected yearly, on average slightly more than 8 percent of annual tax revenue.
  - In 2022, tax subsidies on fuel delivered to SONELEC totaled close to KMF 3.8 billion, or 8.6 percent of tax revenue (0.8 percent of GDP).
- SCH balance-sheet (end-2022):
  - Receivables covered roughly 40 percent of liabilities.
  - Liabilities represented roughly 56 percent of SCH total sales.
  - Liabilities composition (% of total debt / % of total sales): financial institutions 46 / 26; tax liability 33 / 18; dividend liability 21 / 12.
  - Over 85 percent of SCH receivables held with SONELEC.

### Linkages with SONELEC and quasi-fiscal deficit
- SONELEC features:
  - Annual electricity production approximately 125,000 MWH.
  - Addition of solar independent producers: two contributing 3 million GWH each on Grande Comore; total 12 million GWH expected by 2024 on Grande Comore; similar projects in Anjouan; Mohéli covered by 1 million GWH.
  - SONELEC negative annual earnings: -KMF 2.2 billion in 2021 (17 percent of total sales) and -KMF 3.3 billion in 2022 (22 percent of total sales).
  - Electricity rate increase on June 6, 2022: from 132 KMF/KWH to 198 KMF/KWH (still below production cost roughly 350 KMF/KWH).
  - SONELEC receives multiple favorable treatments (investment support, operating subsidy, tax-free fuel, reduced consumption tax rate 3 percent vs 10 percent, exemptions).
- Quasi-fiscal deficit (QFD) for electricity:
  - Previously 4.1 percent of GDP; worsened to 4.6 percent of GDP in 2021 and 5.2 percent of GDP in 2022.

### Short-term recommendations to reduce SCH cash flow pressures
- Develop a credible plan to clear SONELEC debt to SCH (largest share of SCH receivables).
- Negotiate a credible plan to clear SCH’s tax and dividend liabilities to the government (represented 56 percent of SCH debt end-2022).
- Raise price of diesel fuel sold by SCH to SONELEC (product receives double subsidy: tax-free and below CIF price).
- End fuel advances to gas stations that create cash flow pressures.
- End improper deduction practices and ensure SCH pays full taxes and dividends to the Treasury before those amounts are allocated elsewhere.
- Ensure reported revenue in the budget reflects SCH profitability under tax law; secure tax collection, improve accounting, and strengthen TIPP traceability to the Treasury.

### Governance, transparency, and medium-term reform sequencing
- Governance and transparency:
  - Reinstate a functioning board of directors with independent directors; produce audited financial statements in accordance with OHADA standards; begin publishing SCH financial statements including government subsidies.
  - Modernize law governing public corporations; proposed law approved interministerially and awaiting legislative approval.
- Medium-term subsidies reform sequencing:
  - In-depth subsidy incidence analysis before price reforms, involving INSEED.
  - Consult stakeholders (SONELEC, transport unions, consumer associations) to build consensus.
  - Phase reforms gradually, implement during stable international periods, and precede reforms with public outreach and mitigation measures for vulnerable households.
  - Improve SCH service quality prior to reforms and depoliticize price setting via an independent office and a transparent price adjustment mechanism.
- Medium-term recommendation regarding SONELEC:
  - Reform diesel supply mechanism so burden does not fall solely on SCH.

---

### Fiscal transparency, budget process, and public participation

### Current status and shortcomings
- Comoros scores below global average and below most peers in fiscal transparency; public participation low (global average for public participation in 2021 was 14).
- Informal efforts exist (public-private dialogue, AGID partnership with Chamber of Commerce, joint customs committee) but mandated mechanisms (e.g., Budget Orientation Debate under LOFE) have not been implemented.
- Legal/technical gaps:
  - Article 48 of LOFE mandates an economic programming document with macroeconomic projections and sensitivity analyses; these are not produced.
  - Budget proposals lack LOFE-mandated annexes.
  - No comprehensive macro-fiscal model despite World Bank training.
- Reporting and debt management:
  - Ministry of Finance produces quarterly and annual budget execution reports, but currently accessible only within the Ministry.
  - Debt reporting and management assessed as inadequate by World Bank; debt database outdated; insufficient coordination and delays in debt information.

### Short-term recommendations
- Revise presentation of budget proposal and enacted budget law to include:
  - Clarity on expenditures and revenues at level two of GFS classification.
  - Information on deficit financing, current debt stock, and special accounts.
- Improve tracking and reporting on budget execution:
  - Appoint and empower a legally mandated committee to track budget execution and produce timely reports; house committee at the Treasury.
  - Address TOFE production shortcomings linked to Treasury function weaknesses and accounting gaps.

### Medium- to long-term reforms
- Gradually publish budget process documents required by LOFE: annual executive budget proposal, enacted budget law, in-year execution report, annual budget execution report, and SAI report on annual financial report.
- Improve budget documentation content:
  - Quantify tax expenditures; provide medium-term fiscal forecasts; present detailed implications of major policy initiatives; strengthen macro assumptions and forecasting capacity.
  - Establish or procure an integrated macroeconomic forecasting model and a medium-term expenditure framework; link to the Budget Orientation Debate.
  - Integrate special reports on SOEs and extra-budgetary entities.
- Advance public participation:
  - Pilot mechanisms for public involvement in budget formulation and implementation.
  - Partner with civil society organizations representing vulnerable communities.
  - Allow public and civil society testimony during Union Assembly hearings on the budget proposal.
  - Enable the Accounts Section of the Supreme Court to establish formal mechanisms for public contribution to audit programs.

### Implementation support and capacity needs
- Partners providing support include the IMF and Afritac South; IMF Afritac South identified 61 actions under 19 axes for LOFE implementation, with few actions funded.
- UNICEF partnered on the 2023 citizen budget and facilitated civil society participation.
- Remaining needs: capacity-building, technical assistance, adaptation of the SYMBA information system to support transition to program budget by 2028 and integration with GISE for salary management.

*Source: “1. Status of SDGs, 2023” (COSTING AND FINANCING OF SOCIAL DEVELOPMENT GOALS IN COMOROS; IMF staff excerpts).*

### 1. Status of SDGs, 2023 _____________________________________________________________________ 5

### 1. Status of SDGs, 2023

### Executive summary
- Comoros is committed to achieving the Sustainable Development Goals (SDGs), but progress has been limited; in the 2023 SDGs ranking Comoros stands at 154 out of 166 and is the lowest ranked among small developing states.  
- The cost to achieve the SDG outcomes of high-performing peers is about 18.8 percent of 2030 GDP.  
- If the authorities tried to achieve the SDGs by 2040, the additional annual cost is estimated between 5.7 and 7.6 percent of GDP per year depending on the policy scenario.  
- Ongoing commitments under the ECF program, with a focus on enhancing domestic revenue mobilization, are identified as key to creating fiscal space to both restore debt sustainability and accelerate SDG achievement.

### Context and baseline indicators
- SDG progress: limited progress in 60 percent of the SDGs; 26.7 percent showing a decline.  
- Life expectancy: 67.4 years (noted in Context); also referenced as 67 years (noted in Health).  
- Access to improved water sources: 25 percent of the population lacks access, with no progress since 2007.  
- Poverty headcount ratio: 36 percent (poverty headcount ratio at $3.65/day (2017 PPP, percent)).  
- Education impacts: Cyclone Kenneth (2019) destroyed or partially destroyed 38 percent of the country's classrooms; school closures during COVID-19 led to significant drops in enrollment for pre-primary and primary levels.

### Costing methodology and peer group
- Methodology: uses two models—a costing model and a financing model—to illustrate costs of reaching selected SDGs by 2030 and to highlight cost drivers.  
- Peer group: Best performers among small developing states (SDS) are used as comparators because per capita costs of public goods are higher in small countries.  
- Comparative SDS averages: education 9.8 and health 7.2 percent of GDP, compared to the world average of 6.5 and 6,9 percent.

### Education: findings and additional costs
- Current public education spending in Comoros: 3.8 percent of GDP.  
- Household contribution to education spending: 33.5 percent (Comoros) versus 33.9 percent (SDS average).  
- Student-to-teacher ratio: 15.6 (Comoros) versus 18.6 (high-performing SDS average).  
- Teacher wages: 1.8 of the GDP per capita in Comoros (about half of the SDS average).  
- Capital spending on education: 36 percent of the average SDS composition.  
- Additional spending needs to achieve SDG4 (education) by 2030: about 4.2 percent of 2030 GDP.  
- Cost-mitigating factors identified:
  - Aligning the current favorable student-to-teacher ratio to the SDS average would not require hiring more teachers; keeping the current ratio would have raised the additional financing by 0.4 percent of GDP (the current favorable ratio may reflect “ghost workers”).
  - Demographic dividend: a lower proportion of children requiring enrollment translates into a saving of 0.5 percent of GDP.

### Health: findings and additional costs
- Life expectancy improvement: rose by five years between 2000 and 2019 but remains below the green threshold of 80 years (reported at 67 years in health section).  
- Private share of total health spending: 66.4 percent.  
- Health spending pattern: aligns with the SDS average, but the ratio of doctors per 1000 habitants is among the lowest in the sample. A high share of private spending is driven by health spending abroad due to shortage of high-quality domestic services.  
- Major infrastructure driver: construction of the El Maarouf national hospital.  
- Additional spending needs in health care to reach higher SDG performance: about 4.3 percent of 2030 GDP.  
- Human resource targets implied by costing:
  - Number of doctors should be increased tenfold.  
  - Number of other medical personnel should be tripled from current levels.  
- Potential wage limitation: doctors’ wages could be limited to 7.3 instead of 9.6 percent of per capita GDP as in high performers (noted as a cost-mitigating factor).  
- Productivity concerns: a World Bank report notes very low productivity of health staff (e.g., public facility health professional sees fewer than 2 patients a day; private sector about 4 patients a day).

### Electricity and energy sector: findings and constraints
- Installed generation capacity: approximately 44 MW.  
- Per capita energy consumption: 0.2 ton of oil equivalent per capita.  
- Electricity cost: 0.30 US$/kWh (among the highest in Africa).  
- Distribution losses: exceeding 50 percent (the highest metrics on the continent).  
- Cost recovery: roughly one-third of invoiced energy bills are recuperated.  
- Renewable energy: potential for solar and wind exists but utilization remains embryonic.  
- Recent solar additions: two private independent solar stations added 5 MW to total capacity but have very high operating costs due to inadequate technology.  
- Structural challenges: insularity and small market size impede economies of scale; operational limitations and inadequate maintenance hamper utilization of installed capacity.

### Key aggregate cost figures and timelines
- Cost to achieve high-performing peers’ SDG outcomes by 2030: about 18.8 percent of 2030 GDP.  
- Alternative pace: achieving SDGs by 2040 would imply additional annual costs between 5.7 and 7.6 percent of GDP per year depending on policy scenario.  
- Sectoral additional needs by 2030 (reported):
  - Education: 4.2 percent of 2030 GDP.  
  - Health: 4.3 percent of 2030 GDP.

### Policy implications and priorities
- Enhance domestic revenue mobilization as a key pillar of the ECF program to create fiscal space for SDG investments while restoring debt sustainability.  
- Address sector-specific efficiency and productivity issues to mitigate financing needs:
  - Education: verify and remove “ghost workers,” improve teacher wage structure and increase capital spending for infrastructure (bathrooms, electricity, drinking water, boundary walls).  
  - Health: raise productivity of health staff and expand domestic high-quality services to reduce reliance on health spending abroad; prioritize scaling up numbers of doctors and other medical personnel efficiently.  
  - Electricity: reduce distribution losses, improve bill collection to raise cost recovery, invest in appropriate renewable technologies to lower operating costs, and strengthen maintenance and operations to utilize existing capacity.  
- Use fiscal space generated by reforms under the ECF program to both accelerate SDG achievement and maintain macro-fiscal sustainability.

*Source: “1. Status of SDGs, 2023” (COSTING AND FINANCING OF SOCIAL DEVELOPMENT GOALS IN COMOROS).*

### 13.      To achieve SDG7 by 2030, the associated cost is estimated at 3.7 percent of GDP per

### 1comea2024002 - 13.      To achieve SDG7 by 2030, the associated cost is estimated at 3.7 percent of GDP per

### Energy (SDG7) — costs and technical assumptions
- To achieve SDG7 by 2030 the associated cost is estimated at 3.7 percent of GDP per year.
- This estimate reflects:
  - expanding electricity access from the current 86.7 percent to 100 percent of the population;
  - elevating average electricity consumption per user from 88.3 kWh to 1,463.9 kWh (aligning with the average consumption of the sample group).
- Investment cost assumptions:
  - investment costs per kW include generation, transmission, and distribution and correspond to the investment cost of the ongoing solar energy project of World Bank's; additional costs factor in cost of solar energy.
- Ongoing and planned projects:
  - Comoros Solar Energy Access (CSEA) project: ambition to add 9MWc of solar energy and a 19MWc storage mechanism; total cost USD 40 million, with half of the funding provided as a grant and the other half as a loan on IDA terms.
  - MWc is defined as the peak capacity measure for solar photovoltaic technology.

### Roads — gaps, targets, and investment needs
- Current conditions:
  - Road network limited in coverage and quality; paved roads concentrated in urban areas; rural access low.
  - Current rural access: 24.3 percent.
- Target and cost:
  - Increase rural access to 75 percent by 2030 would require investing the equivalent of 4.7 percent of GDP every year from now to 2030 to build about 838 additional kilometers of all-weather roads (more than doubling the current network).
- Economic rationale:
  - Rehabilitation/extension of national road network expected to support development of tourism and fishing sectors.

### Water and sanitation (SDG6) — current status and costs
- Current access:
  - Universal access to drinking water very low at 15 percent; access has not improved since 2012.
  - Access to sanitation facilities is almost non-existent.
- Vulnerabilities:
  - Water scarcity exacerbated by stormy episodes and rising sea levels, causing saline intrusion and turbidity after storms.
- Investment need:
  - To provide safely managed water and sanitation for all would require investing the equivalent of 1.92 percent of GDP every year from now to 2030.
- Ongoing/planned support:
  - UNDP project with a budget of approximately USD 60.75 million as grants financing aiming to bolster climate-resilient water supplies; expected direct beneficiaries around 470,000 residents and 800,000 projected to benefit from enhanced governance.

### Total SDG costing and feasibility
- Aggregate additional expenditures to achieve human capital and infrastructure SDG outcomes of high-performing peers by 2030: 18.8 percent of GDP per year.
- Table of summary additional expenditures by 2030 (% of GDP):
  - Education: 4.2
  - Health: 4.3
  - Road: 4.7
  - Water and Sanitation: 1.9
  - Electricity: 3.7
  - Total: 18.8
- Assessment:
  - This level of spending is described as out of reach given Comoros’ limited resources and debt sustainability considerations.

### Financing framework and scenarios (SDG financing tool)
- Tool characteristics:
  - The SDG financing tool evaluates financing needs in a macroeconomically consistent dynamic setting, with projections up to 2053 and a production function linking spending on human and physical capital to output.
- Two scenarios analyzed:
  - Non-program scenario (SMP completion assumptions):
    - Gradual fiscal consolidation starting in 2024 reducing the deficit by about 3.5 percent of GDP by 2027.
    - Substantial financing gaps emerge in 2023; public external debt rises to around 40 percent of GDP over the medium term.
    - Under this scenario Comoros would not be expected to reach the SDGs by 2053; alternate outcome: could achieve SDGs by 2040 with additional annual spending of 7.6 percent of GDP per year.
  - ECF scenario (active program with revenue measures):
    - Assumes progressively higher tax revenue by 0.3 percent of GDP each year during 2023-43, increasing from 8.6 percent in 2023 to 14.6 in 2043.
    - Revenue measures include phasing out tax exemptions (starting with sales tax exemption for construction materials), enhancing large and medium taxpayer units, expanding taxpayer base by 10 percent within large and medium taxpayer offices, and strengthening Customs risk management and procedures.
    - Under this scenario it would still be impossible to reach the SDGs before 2053; cost to achieve the SDGs by 2040 declines to 5.7 percent of GDP per year.

### Remaining financing gap and sectoral financing prospects
- Overall financing gap under ECF-consistent scenario expected to be largely filled by grants and concessional financing to achieve SDGs by 2040 while maintaining debt sustainability.
- Sector-specific financing notes:
  - Education:
    - Historically mobilized around 1.4 percent of GDP annually in grants.
    - Recent local education partners (June 2023 group including AFD, UNICEF, World Bank, Dubai Care) committed to help achieve SDG4; expected financing to be in the form of grants similar to the past.
  - Health:
    - Partner financing before COVID-19 was 0.6 percent of GDP; rose to 1.7 percent in 2020 and 3.4 percent in 2021.
    - Continued support expected from UN agencies, World Bank, and AFD; remaining additional costs (besides ongoing El Maarouf Hospital disbursements) expected to be financed by grants.
  - Road:
    - Grant financing limited at 0.3 percent of GDP per year; benefits from concessional loans mainly from AfDB and Saudi Arabia.
    - Expected to rely on small additional concessional loans and private sector contributions; diaspora remittances noted as significant (remittance around 21.5 percent of GDP in 2022) and anecdotal importance of diaspora involvement in village infrastructure.
  - Water and sanitation:
    - UNDP project (USD 60.75 million in grants) expected to strengthen climate-resilient water supply infrastructure and governance (see beneficiaries above).
  - Energy:
    - CSEA: USD 40 million total cost, half grant and half IDA-term loan (project ambition 9MWc solar and 19MWc storage).
    - UNDEP developing geothermal project expected to be fully funded by grants from donors including EU, AFD, and the Fonds d’Energie Durable pour l’Afrique.

### Role of private investment, remittances, and domestic efforts
- Private investment scenario:
  - Alternative scenario assumes additional private investment of 2 percent of GDP, enabled by high remittance inflows and higher GDP per capita.
- Remittances:
  - Remittances estimated at 21.5 percent of GDP in 2022.
- Domestic policy actions needed:
  - Significant scope for improvements in public spending efficiency; fiscal space from reforms should be directed to SDG sectors.
  - Private investments, especially in villages, could help achieve SDGs.

### Policy recommendations (priorities)
- Enhance efficiency in delivering public services:
  - Tackle ghost employees and absenteeism, particularly in education and health, to mitigate costs.
- Develop a comprehensive energy sector strategy:
  - To achieve SDG07 “Affordable and clean energy”, the strategy should be developed with international experts and partners given high technical complexity including contract negotiation and planning.
- Prioritize domestic policies that create fiscal space:
  - Under the ECF-supported program this includes sound macroeconomic management, domestic revenue mobilization, and responsible financing strategies.
- Engage closely with international partners:
  - Mobilize budget support and project financing for priority areas; given fragile context and elevated debt risks, grant financing is the more appropriate form of support.

*International Monetary Fund — Union of the Comoros (excerpt from IMF country material provided).*

### 5.      This paper evaluates the potential impact on trade tax revenue in Comoros in the

### This paper evaluates the potential impact on trade tax revenue in Comoros

### Overview of WTO accession and Comorian progress
- WTO membership and accession context:
  - The WTO currently has 164 member countries and 24 more are in the accession process, including Comoros.
  - 36 countries have acceded since the founding of the WTO in 1995, with the time taken varying from two years and ten months to 15 years and five months.
  - The accession process begins with a country-specific Working Party, moves through multilateral and bilateral negotiations (concurrently), and culminates in adoption of a draft working party report, a draft goods schedule, and a draft services schedule, before a vote at the annual Ministerial Conference (needing a two-thirds majority of members).
- Least Developed Countries (LDC) provisions:
  - Comoros is one of eight LDCs currently in the process of accession.
  - The Marrakesh Agreement (Article XI) states LDCs will only be required to undertake commitments and concessions to the extent consistent with their individual development, financial and trade needs or their administrative and institutional capabilities.
- Comoros timeline and status:
  - Accession process started in February 2007.
  - Working Party established on October 9, 2007.
  - First formal meeting: December 2, 2016.
  - Most recent formal meeting: October 5, 2023.
  - Multilateral negotiations focus on domestic legislative reforms; bilateral negotiations focus on market access rules for goods and services.
- Next steps and outstanding elements:
  - Remaining multilateral elements include: (i) adoption of the principle of equivalence agreements and sanitary agreements, transparency, zoning and compartmentalization; (ii) adoption of laws: Veterinary Sanitary Police Act, draft decree on veterinary sanitary police, draft law on veterinary public health; and (iii) draft regulations on policies affecting trade in goods.
  - On the bilateral side, tariff schedule largely concluded, but terms of access for foreign services remain under discussion.
- Capacity development and technical assistance:
  - A round table to solicit technical assistance was held on January 13, 2022.
  - IMF support organized through the Fiscal Affairs Department (FAD) and AFRITAC South (AFS) covers customs valuation, risk management, post-clearance audit, legislation for customs code implementation, control of excise regimes, and aligns with WTO accession requirements where relevant.
  - Engagement under the Extended Credit Facility (ECF) provides a framework for strengthening revenue administration and tax policymaking capacities.

### Advantages and challenges of WTO accession for Comoros
- Potential benefits:
  - Access to foreign markets under WTO rules: non-discrimination, “Most Favored Nation” treatment.
  - Predictable rules-based system reducing private sector risk and potentially promoting investment.
  - Access to dispute settlement mechanisms.
  - Support for improving legal and institutional frameworks for trade, increasing transparency and efficiency.
  - Protection against unfair competition (e.g., limits on export subsidies).
- Limited direct market access gains due to existing preferences:
  - As an LDC, Comoros benefits from unilateral preferential access: EU “Everything But Arms” (EBA); US African Growth and Opportunities Act (AGOA); China duty-free treatment for LDCs; Korea preferential tariff for LDCs.
  - Comoros is integrating into the African Continental Free Trade Area and COMESA, which expand tariff-free export potential even without WTO membership.
- Main challenge for revenue: elimination of “Other Duties and Charges” (ODCs)
  - ODCs in Comoros amount to around 3.5 percent on most imported goods.
  - ODCs could total KMF 3.7 billion (USD 8 million) each year in government revenues.
  - Composition of ODCs:
    - Regional Cooperation Tax (TCR) of 1 percent (earmarked for regional and international institution contributions).
    - 1 percent tax on all products except ordinary rice and petroleum to support the Chamber of Commerce, Industry and Agriculture (CCIA) and maintenance of warehouses/depots for imports.
    - Import trade tax (patente d’importation, PI) at 1 percent for importers with a tax identification number and 10 percent for those without.
    - Advance tax payment (AI) of 1 percent that registered taxpayers could deduct from corporate taxes at year-end.
  - Maximum ODC rate for an importer without a tax identification would be 14 percent.

### Estimation of import demand elasticity (method and results)
- Empirical strategy:
  - Uses a standard gravity model (Tinbergen 1962; Anderson 1979; Anderson and van Wincoop 2003; Baier and Bergstrand 2009) with importer and exporter multilateral resistance terms (MRTs).
  - Estimation uses OLS on bilateral trade flows from 1990 to 2021.
  - Control variables include bilateral tariff, distance (between most populated cities), common official language dummy, importer and exporter GDP, and importer, exporter, and time dummies.
  - Data sources: CEPII gravity database (Conte et al., 2021) and ESCAP-World Bank trade cost database.
- Empirical findings:
  - All control variables show expected signs: GDP positively associated with trade flows; distance negatively associated; common language positive; bilateral tariff significant and negative.
  - Key coefficient: import demand elasticity to changes in tariffs for small states:
    - A 1 percentage reduction of tariffs in small states (ODCs in the case of Comoros) would increase import volume by 1.03 percent.
  - Applying this elasticity to Comoros’ ODC elimination yields:
    - Estimated revenue loss of around KMF 1.7 billion (or 0.3 percent of 2023 GDP and 3.86 percent of tax revenue).
    - Empirical analysis points to a potential loss of roughly 3.86 percent of tax revenue, or KMF 1.7 billion (USD 3.7 million), in the short-term once the potential for increased import volumes is integrated.
  - Long-run caveat: revenue losses are expected to be visible in the short-term but could be lower in the long run to reflect structural changes and associated benefits.

### Sensitivity analysis and scenarios
- Sensitivity of revenue loss to import demand elasticity:
  - Revenue loss is negatively correlated with the import demand elasticity (higher elasticity → lower revenue loss).
  - The revenue loss is zero when import demand elasticity is equal to -3.82.
  - Beyond elasticity = -3.82, the increase in imports due to lower tariffs outweighs tariff revenue loss and results in higher overall revenue collection.
- Visualization:
  - Table 1 and Figure 4 (referenced) present gravity model estimates and overall revenue loss across various import demand elasticity assumptions.

### Revenue replacement following trade liberalization (empirical approach)
- Literature context:
  - Evidence on trade tax replacement with domestic tax revenue is mixed (Baunsgaard and Keen, 2005; Keen and Mansour, 2010).
- Empirical specification and sample:
  - Uses a sample of 16 small developing states which are WTO members over the period 1990-2022.
  - Estimated equation regresses domestic tax revenue (DTit) on trade tax revenue (TTit, expressed in percent of GDP) and a vector of control variables (Xit).
  - Estimators used: fixed-effects and system-GMM.
  - The coefficient on trade tax is expected to be negative, implying that trade tax is replaced by domestic tax revenue.
  - Country and year dummies are included.

### Key statistics and summary findings
- WTO and accession:
  - 164 WTO members; 24 in accession process.
  - 36 accessions since 1995; accession durations ranged from two years and ten months to 15 years and five months.
- Comoros accession timeline:
  - Started February 2007; Working Party established October 9, 2007; first formal meeting December 2, 2016; most recent formal meeting October 5, 2023.
- ODCs and revenue:
  - ODCs ≈ 3.5 percent on most imported goods.
  - Potential ODC revenue: KMF 3.7 billion (USD 8 million) per year.
  - Short-term estimated revenue loss from ODC elimination: KMF 1.7 billion (USD 3.7 million), equal to 0.3 percent of 2023 GDP and 3.86 percent of tax revenue.
  - Import demand response: 1 percentage point tariff reduction → 1.03 percent increase in import volume (for small states).
  - Revenue loss neutral point at import demand elasticity = -3.82.
- Empirical samples and periods:
  - Gravity model estimation: 1990–2021.
  - Revenue replacement analysis: sample of 16 small developing states, 1990–2022.

*Source: IMF Staff (excerpt from the provided content).*

### 23.      The econometric results for SDS show no robust evidence that trade taxes would be

### 1comea2024002 - 23.      The econometric results for SDS show no robust evidence that trade taxes would be

### Econometric results and interpretation
- The econometric results for SDS show no robust evidence that trade taxes would be replaced with domestic tax revenue.
- Estimated coefficients of control variables show expected signs:
  - GDP per capita growth and control of corruption: expected to positively correlate with tax revenue because strong economic growth enlarges the tax base and improves tax revenue collection.
  - Share of agriculture to GDP: expected to be negatively associated with revenue because agriculture is harder to tax, particularly in developing countries where the agriculture sector is informal.
  - Inflation rate, FDI inflows, remittances received, and degree of trade openness: can positively or negatively affect tax revenue.

### Implications for Comoros
- Results point to possible difficulty for Comoros in mobilizing domestic revenue to offset potential losses in trade tax revenue following trade liberalization.
- The experience of other small states highlights the importance of developing a strategy for alternative sources of revenue that would need to be implemented alongside accession efforts.
- The authorities have a transition period following WTO accession that will allow for a gradual reduction of ODCs.
- It is important that a policy approach to replace revenue losses from abolition of ODCs be decided upon and legislation enacted to implement any agreed new tax policy approach in advance of WTO accession.

### Policy options and concluding remarks — summary of recommended measures
- Overarching conclusion: With careful planning, Comoros may benefit from trade liberalization while also achieving higher domestic revenue. Three main policy options could be designed to boost tax revenue collection.

- Strengthen tax revenue administration:
  - Strengthen human resources in charge of monitoring.
  - Initiate administrative reforms including digitalization and simplification of procedures to improve tax compliance.
  - Enhanced revenue administration capacity is a prerequisite for other tax reforms as it mitigates informality and tax fraud.

- Remove tax exemptions and increase domestic direct taxes:
  - Immediate steps: (i) limit tax exemptions by setting clear criteria to provide tax benefits and remove unjustified tax benefits; (ii) replace some exemptions with cost-based incentives such as accelerated capital cost allowances and investment tax credits.
  - Consider increasing direct taxes as a medium-term policy option.
  - Note limitations: difficulties in identifying taxpayers and enforcing personal income tax; propose sound tax policy design such as final withholding at source and a simple presumptive income tax regime for small unincorporated businesses, coupled with sufficient political will.

- Use indirect taxes and consider VAT adoption:
  - Immediate: introduce and/or increase excise duties on certain low-tax and non-taxed products (alcohol, tobacco, drugs, luxury products), and widen and develop new tax bases.
  - Longer term: consider adoption of a VAT system.
  - VAT advantages: deductibility and capacity to ensure greater economic neutrality.
  - VAT challenges: significantly more complex than trade tax; susceptible to fraud if not underpinned by very strong administration capacity.
  - Prerequisites for effective VAT: development of a single tax identifier system, clear identification of the structure in charge of managing the VAT system (VAT collection and VAT refund), upgraded tax codes, and a robust IT system supported by the capacity to employ it.

- Macroeconomic and governance foundations:
  - Any revenue replacement strategy requires sound macroeconomic and governance policies.
  - Macroeconomic stability supported by prudent fiscal and monetary policies ensures strong economic activity that generates taxes.
  - A strong public governance framework would improve transparency and effectiveness of tax spending and increase citizens’ willingness to pay taxes.

### State oil and gas company (SCH) — key findings and fiscal relevance
- Context and immediate fiscal impact:
  - SCH losses are estimated at 2.5 percent of GDP in 2022.
  - Fiscal costs from tax subsidies (including exemption from the domestic oil and gas tax, TIPP) combined with subsidies from the underpricing of oil and gas products totalled up to 3.2 percent of GDP in 2022.
  - SCH’s share in government revenue has steadily declined in recent years.

- Role and activities of SCH:
  - SCH holds a monopoly on the import of petroleum products in Comoros and distributes diesel fuel to SONELEC, gasoline, diesel, and kerosene to private service stations, supplies government and aviation fuels, and has recent domestic gas production.
  - Petroleum storage capacity represents roughly 45 days’ consumption, requiring on average six to eight petroleum shipments per year.
  - The bulk of imported diesel fuel is absorbed by SONELEC (54 percent).
  - 88 percent of all imported kerosene is channeled to domestic use.
  - Of over 100 million liters of oil and gas imported annually on average during the last five years:
    - diesel delivered to SONELEC: 20 percent
    - household kerosene: 25 percent
    - diesel fuel for transport: 24 percent
    - gasoline: 20 percent
    - jet fuel: 3 percent
  - SONELEC purchases of diesel fuel rose from 28.4 million liters in 2021 to an anticipated 35.6 million liters in 2023 (an increase of more than 25 percent).

- Trends in imports and costs:
  - Volume of oil and gas imports estimated to have increased by roughly 24.5 percent between 2018 and 2023.
  - Imports observed in 2022 and anticipated in 2023 increased successively since 2021: +14 percent in 2022 compared to 2021, and +11.5 percent in 2023 relative to 2022.
  - Cost of oil and gas imports nearly doubled between 2018 and 2022.
  - Average annual cost roughly KMF 23 billion in recent years; in 2022 the cost of energy imports increased to 49 billion, representing nearly one-third the value of all imports.
  - Energy supplies have been financed by drawings from the Islamic Trade Finance Corporation (ITFC); with the spike in Brent price, ITFC funds no longer suffice and SCH must supplement financing with other sources (equity, bank loans).

- SCH contribution to government revenue (selected figures and shares):
  - SCH was the largest contributor of public revenue among SOEs, accounting for nearly 19 percent of domestic revenue in 2020.
  - TIPP (Taxe Intérieure des Produits Pétroliers) is the largest component of SCH contributions; assessed on all products except diesel sold to SONELEC, household kerosene, and jet fuel.
    - TIPP represented 87 percent or more of the tax revenue SCH transferred to the Treasury, or close to 18 percent of total tax revenue in 2020.
  - Corporate profits tax (IS) rate: fixed at 35 percent; SCH paid up to 78 percent of the total IS paid by all SOEs in 2021.
  - Wages and salaries tax (IGR): IGR liability represented up to 17 percent of total IGR at all SOEs in 2021.
  - Dividends: SCH shares 50 percent of realized profits with the government; dividends paid by SCH represented up to 47 percent of total dividends paid to the government by all SOEs in 2020.

- Recent fiscal deterioration and tabled figures:
  - Total SCH tax revenue in KMF:
    - 2020: 8,220,485,703
    - 2021: 8,798,996,235
    - 2022: 7,271,004,562
    - 2023: First half: 3,944,024,728
  - Domestic oil and gas tax (TIPP) in KMF:
    - 2020: 7,166,370,067
    - 2021: 6,024,906,600
    - 2022: 6,077,607,730
    - 2023: First half: 3,909,440,250
  - Wages and salaries tax (IGR) in KMF:
    - 2020: 72,715,636
    - 2021: 74,089,635
    - 2022: 77,347,249
    - 2023: First half: 27,724,119
  - Corporate tax (IS) in KMF:
    - 2020: 981,400,000
    - 2021: 2,700,000,000
    - 2022: 1,116,049,583
    - 2023: First half: 6,860,359
  - SCH nontax revenue for the government (dividend), in KMF:
    - 2020: 931,000,000
    - 2021: -
    - 2022: 611,548,145
  - Total SCH tax and nontax revenue in KMF:
    - 2020: 9,151,485,703
    - 2021: 8,798,996,235
    - 2022: 7,882,552,707
    - 2023: First half: 3,944,024,728
  - SCH tax revenue as % of total tax revenue:
    - 2020: 20.34
    - 2021: 19.26
    - 2022: 16.39
    - 2023: First half: 8.00
  - Total SCH revenue as % total domestic revenue:
    - 2020: 18.85
    - 2021: 16.00
    - 2022: 13.99
    - 2023: First half: 6.56
  - For reference, in KMF (national aggregates):
    - Tax revenue: 2020: 40,411,000,000; 2021: 45,695,000,000; 2022: 44,357,000,000; 2023: 49,321,000,000
    - Nontax revenue: 2020: 8,127,000,000; 2021: 9,288,000,000; 2022: 11,970,000,000; 2023: 10,782,000,000
    - Total domestic revenue: 2020: 48,538,000,000; 2021: 54,983,000,000; 2022: 56,327,000,000; 2023: 60,103,000,000

- Drivers of SCH revenue decline:
  - Decline driven by: (i) overall increase of domestic public revenue (+16 percent between 2020 and 2022) and (ii) significant decline of IS, confirming financial difficulties at SCH.
  - The 2024 budget law provides for IS in the amount of roughly KMF 2.7 billion, but this represents repayment of a tax liability from previous years.

### SCH governance and policy recommendations (short- and medium-term)
- Urgent measures needed to stabilize SCH’s financial position, secure government revenue, and ensure good governance practices for SCH.
- Short-term: urgent fiscal consolidation measures and focus on good international practices in SCH governance.
- Medium-term: plan to revise subsidy policy in the energy sector.
- Paper proposes short- and medium-term recommendations for effective reform of subsidies in the energy sector (details of specific measures are described across Sections E–H of the source).

*Source: IMF Staff.*

### 9. Moreover, the amount of taxes paid does not necessarily reflect SCH activities. For

### 1comea2024002 - 9. Moreover, the amount of taxes paid does not necessarily reflect SCH activities. For

### Tax reporting and TIPP measurement
- TIPP collections do not consistently reflect SCH activities; TIPP did not vary significantly between 2021 and 2022 despite large import increases (+24 percent for gasoline and +16 percent for diesel for transport).
- IS paid in 2022: KMF 1.1 billion; SCH losses in 2022: KMF 14.5 billion. The IS paid in 2022 likely included prepayments based on the 2021 tax situation.
- Table 4 (TIPP in KMF Billions according to Different Sources, 2022) reports: 6.01, 14.9, 8.2 (different institutional records), demonstrating substantial variation and the need for the government to secure this tax revenue.

### Pricing structure and pricing administration
- Simplified structure of selling prices per liter:
  - a) CIF price
  - b) TIPP
  - c) SCH operating cost
  - d) Cost price = (a) + (b) + (c)
  - e) Price charged by SCH to service stations (selling price) = set by the government
  - f) SCH margin = (e) - (d)
  - g) Service stations' margin = set by the government
  - h) Final price charged by service stations = (e) + (g)
- The government sets SCH sales prices to private service stations, SONELEC, and aviation transport, and also sets final consumer prices for service stations and SONELEC.
- Prices imposed by the government may be above or below cost price, producing either surcharge or subsidy for end consumers.

### Price adjustments and international price pass-through
- Selling prices remained unchanged from 2016 to June 2022; authorities substantially raised certain product prices in June 2022 in response to the rise of the Brent price.
- Representative selling prices and TIPP (KMF per liter):
  - Selling price before June 2022: Gasoline 575; Diesel - Tourism 430; Diesel - SONELEC 315; Household kerosene 245; Jet 400.
  - Selling price after June 2022: Gasoline 725; Diesel - Tourism 630; Diesel - SONELEC 315; Household kerosene 345; Jet 700.
  - TIPP values shown include 230, 115, 230, 115, 230, 115 (as reported in the price table).
- June 2022 adjustments would have captured:
  - Δ(selling price)/Δ(CIF price): Gasoline 41%, Diesel - Tourism 47%, Diesel - SONELEC 0%, Household kerosene 47%, Jet A 187%.
  - Δ(selling price)/Δ(cost price): Gasoline 90%, Diesel - Tourism 83%, Diesel - SONELEC 0%, Household kerosene 60%, Jet A 110%.
- Selling price adjustments did not fully reflect international price changes; adjustments had a greater impact on cost-price changes than on CIF-price changes because taxes in cost price changed little or not at all.

### SCH margins, losses, and product-specific analysis
- Price relationships (summary):
  - Until 2021, except household kerosene, CIF and cost prices were on average below selling prices.
  - In 2022, the adjusted selling prices covered CIF price for gasoline and diesel for transport but not necessarily cost price.
  - June 2022 increases for jet fuel covered cost price; the June 2022 increase for household kerosene was insufficient to cover CIF price.
  - Selling price of diesel delivered to SONELEC was not increased in 2022 despite sharp cost-price increases.
- Margins and margins as % of GDP:
  - 2020: SCH margins roughly KMF 7.9 billion (1.5 percent of GDP).
  - 2021: SCH net margin roughly KMF 1.8 billion (0.3 percent of GDP).
  - 2022: SCH losses totaled KMF 14.5 billion (2.5 percent of GDP); all margins negative except jet fuel.
- Product concentration of losses in 2022:
  - Diesel sold to SONELEC losses: KMF 6.5 billion (45 percent of total losses).
  - Household kerosene losses: KMF 4.65 billion (32 percent of total losses).
  - These two products alone represent 77 percent of SCH losses.
- If TIPP were excluded from cost price, the 2022 costs would represent roughly KMF 6 billion (1 percent of GDP).

### Fuel subsidies: definitions, magnitude, and distribution
- Definition: Total fuel subsidy = sum over products k of ∆P(k) * V(k), where ∆P(k) = selling price minus cost price; subsidy is "after-tax" if cost price includes TIPP and "pre-tax" if cost price excludes TIPP.
- Subsidies from underpricing (after-tax) in 2022: KMF 14.5 billion (2.5 percent of GDP).
  - Roughly 45 percent of the subsidy (KMF 6.52 billion) benefited SONELEC directly.
  - 32 percent concerned underpricing of household kerosene (KMF 4.65 billion).
- Tax subsidies from de facto TIPP exemption:
  - By foregoing TIPP on diesel sold to SONELEC and on household kerosene, government foregoes revenue equivalent to close to 1 percent of GDP.
  - Forgoing TIPP on diesel fuel sold to SONELEC causes government to lose from 51 percent to over 60 percent of TIPP collected each year, representing on average slightly more than 8 percent of annual tax revenue.
  - In 2022, tax subsidies on fuel delivered to SONELEC totaled close to KMF 3.8 billion, or 8.6 percent of tax revenue (0.8 percent of GDP).
- Distributional incidence:
  - Evidence from SSA indicates the richest households benefit disproportionately: richest may spend 27 times more on gasoline than poorest (Q5/Q1 ratio).
  - Approximately 45 percent of fuel subsidies benefit the top 20 percent of income brackets; bottom 40 percent receive about 20 percent of subsidies.
  - Kerosene subsidies also appear to benefit lucrative activities (e.g., fishing boats) exempt from taxes.

### SCH financial position and linkages with SONELEC
- SCH balance-sheet indicators (end-2022):
  - SCH receivables covered only roughly 40 percent of its liabilities at end-2022.
  - Liabilities represented roughly 56 percent of SCH total sales at end-2022.
  - Composition of liabilities (as % of total debt / as % of total sales reported in table):
    - Liabilities to financial institutions: 46 / 26
    - Tax liability: 33 / 18
    - Dividend liability (prior dividends not paid to government): 21 / 12
- Most SCH receivables (over 85 percent) are held with SONELEC, weakening SCH due to SONELEC's quasi-fiscal deficits.
- SONELEC overview (selected figures and features):
  - Annual electricity production approximately 125,000 MWH.
  - Addition of solar independent producers: two contributing 3 million GWH each on Grande Comore; project for 6 million GWH; total 12 million GWH expected by 2024 on Grande Comore; similar projects in Anjouan; Mohéli covered by 1 million GWH.
  - SONELEC negative annual earnings: -KMF 2.2 billion in 2021 (17 percent of total sales) and -KMF 3.3 billion in 2022 (22 percent of total sales).
  - Electricity rate increase on June 6, 2022: from 132 KMF/KWH to 198 KMF/KWH (still below production cost roughly 350 KMF/KWH).
  - SONELEC direct subsidies and favorable treatments include: investments support, operating subsidy, tax-free fuel (TIPP), reduced consumption tax rate (3 percent vs 10 percent), exemption from customs taxes and duties, possible fuel price below CIF cost to SONELEC, and minimal corporate tax payments.
- Quasi-fiscal deficit (QFD) measurement for electricity captures tariff subsidies, non-collection, and distribution losses; Comoros had high QFD levels (previously 4.1 percent of GDP), worsening to 4.6 percent of GDP in 2021 and 5.2 percent of GDP in 2022 (as reported).

*Source: 1comea2024002 - 9. Moreover, the amount of taxes paid does not necessarily reflect SCH activities. For*

### 24. The recommendations for short-term reforms aim to help reduce SCH cash flow

### 24. The recommendations for short-term reforms aim to help reduce SCH cash flow pressures:

### Short-term recommendations to reduce SCH cash flow pressures
- Develop a credible plan to clear the SONELEC debt to SCH. This will significantly ease SCH cash flow pressures, given that the SONELEC debt accounts for the largest share of SCH receivables.
- Negotiate a credible plan to clear SCH’s tax and dividend liabilities to the government. These debts represented 56 percent of SCH debt at end-2022.
- Raise the price of diesel fuel sold by SCH to SONELEC. This product receives a double subsidy: (i) tax-free prices, and (ii) prices below the CIF prices.
- Put an end to fuel advances. SCH sometimes advances fuel to gas stations, to be paid after the products are sold, often creating cash flow pressures. Consumers are often injured by these conflicts because they must wait for the conflict to be resolved before they are able to buy fuel.
- Put an end to improper practices based on the use of deductions. SCH directly deducts the amount of corporate tax and dividends from earnings by posting them to a third-party account. SCH also pays the army a portion of the TIPP collected for maintenance payments (instead of remitting it to the Treasury account at the central bank), in addition to providing the army with fuel as payment in kind.
- Require SCH to pay the full amount owed for taxes and dividends to the Treasury before the government allocates those amounts to other expenditure items.

### Management, tax collections, and budget treatment
- The revenue expected from SCH and provided in the budget should reflect its profitability as determined under tax law. Revenue should no longer be dictated by government cash flow pressures but by the company's financial statements.
- Payments of corporate taxes (KMF 1.16 billion) and dividends (KMF 0.611 billion) in 2022 do not reflect the significant losses posted by SCH (roughly KMF 14.5 billion).
- Forcing SCH to pay more than it should undermines its financial health and thus its capacity to pay more taxes in the future.
- The collection of tax revenues should be secured, accounting improved, and the traceability of TIPP payments to the Treasury strengthened (see paragraph 10 which shows significant discrepancies between customs, TOFE and SCH figures).

### Short-term governance and transparency improvements for SCH
- Ensure that the board of directors meets on a regular basis. The boards of directors of public companies, including at SCH, were dissolved in 2016. Although SCH’s governance had been centralized at the Ministry of Finance, its management is currently handled by one managing director and his staff.
  - SCH should hold regular meetings of a board of directors that includes independent directors.
  - SCH should produce audited financial statements in accordance with international (OHADA) standards.
- Modernize the law governing public corporations. A proposed law was approved during an interministerial meeting of the ministers in charge of public corporations, and is expected to be presented to the legislature for approval.
- Begin publishing the SCH financial statements, including the government subsidies, to promote transparency and help improve the company's performance.

### Medium-term recommendations: reforming subsidies and sequencing reforms
- An in-depth analysis of subsidies should precede price reforms. A rigorous distributional incidence analysis will facilitate evaluation of costs, procedures for distribution, and the impacts of eliminating subsidies.
  - Such a study would identify the principal beneficiaries of the subsidy for household kerosene.
  - Involvement of the National Institute for Statistics and Economic and Demographic Studies (INSEED) in such an analysis should be beneficial.
- Consult stakeholders (SONELEC, road transport union, consumer associations, etc.) to help create a consensus in favor of subsidy reforms.
- Stakeholders should agree on a credible timetable for phases of the reform:
  i. Adopt a gradual approach in implementing reforms, allowing SONELEC to adapt and formulate measures to compensate the most vulnerable households.
  ii. Implement reforms during periods of stability in the international economy, allowing adaptation in an environment relatively free of shocks.
- Precede reforms with a public outreach campaign:
  i. Provide information to justify price increases and reveal the magnitude of SCH losses on sales of diesel fuel to SONELEC and the taxes forgone by the government.
  ii. Present credible, tangible mitigation measures for vulnerable groups affected by higher transport tariffs and related costs.
- Improve SCH service quality (reduce queues, invest in storage tanks, and resolve fuel quality complaints) before seeking public consensus on reform of fuel subsidies.
- Develop measures to promote the longevity of reforms:
  i. Monitor and disseminate information on the use of the savings resulting from reduced subsidies.
  ii. Depoliticize the price setting process by creating an independent office to administer energy prices.
  iii. Establish a transparent and systematic price adjustment mechanism.

### Medium-term recommendation regarding SONELEC
- Reform the diesel supply system/mechanism of SONELEC so that the burden does not fall solely on the SCH.

*Source: 1comea2024002 - 24. The recommendations for short-term reforms aim to help reduce SCH cash flow pressures*

### 5. Comoros lags behind most of its peer counterparts in terms of fiscal transparency

### 5. Comoros lags behind most of its peer counterparts in terms of fiscal transparency

### Fiscal transparency and public participation: current status and limitations
- Comoros scores below the global average and below most peer countries in fiscal transparency (Figure 2).
- Peers referenced: Sao Tome and Principe, Timor-Leste, Solomon Islands, Tonga, Samoa, Fiji, Cabo Verde, and Seychelles.
- The IBP indicator used to assess fiscal transparency relies on perception; questionnaire reviews involve independent experts and government representatives, introducing subjectivity into results.
- Public participation score context:
  - The scale for public participation ranges from 0 to 100, with higher scores indicating higher levels of public engagement.
  - The global average for public participation in 2021 was 14.
  - Comoros records a low score for public participation compared to peer countries.

### Developments and shortfalls in public engagement
- Ongoing but informal efforts to involve NGO/CSO in the fiscal process include:
  - The recent organization of a public-private dialogue.
  - Establishment of a formal partnership between the tax administration (AGID) and the Chamber of Commerce, as well as other unions.
  - Creation of a joint committee consisting of customs officials and operators to enhance dialogue and relationships.
- Institutional mechanisms not functioning or not implemented:
  - The LOFE provides for public participation through the Budget Orientation Debate, but such debate has never been organized.
  - The Budget Orientation Debate is described as a platform where the government presents the economic outlook, priorities, and proposed budget strategy before legislative approval; its absence weakens transparency and public engagement.

### Budget preparation, macro-fiscal analysis, and documentation gaps
- Legal and technical shortfalls:
  - Article 48 of the LOFE mandates production of an economic programming document including macroeconomic projections for the budget year and the subsequent two fiscal years and macro-fiscal sensitivity analyses; these are not being produced.
  - Absence of a comprehensive macro-fiscal model in Comoros despite training provided by the World Bank.
  - Budget proposals submitted to the National Assembly lack annexes mandated by the LOFE.
- World Bank assessment:
  - The World Bank's 2022 Public Expenditure Review (PER) highlights the need to enhance the government's budget law documentation.
  - The only documents provided with the budget proposal include: an explanatory memorandum, a budget presentation note, annex tables on revenue and expenditure forecasts, and macroeconomic assumptions including estimates of economic growth, inflation, and the projected budget deficit i.e., primary balance and the overall balance based on authorization. Details on financing are not provided.

### Budget monitoring, debt reporting, and capacity constraints
- Reporting practices and limitations:
  - The Ministry of Finance produces quarterly budget execution reports and annual reports, currently accessible within the Ministry only.
  - Documents on debt stock and payment arrears are required attachments to the budget proposal by the LOFE but are not generated in practice due to capacity constraints and lack of coordination.
- World Bank debt management evaluations:
  - The World Bank evaluates the country's debt management as inadequate, with significant delays in information availability within the Debt Unit of the Ministry of Finance.
  - The Public Debt Reports Heatmap indicates Comoros should improve in: debt data accessibility, instrument coverage, sectoral coverage, information on recent contractual loans, periodicity, time range, debt management strategy, annual borrowing plan, and other debt statistics/contingent liabilities.
- Institutional weaknesses:
  - Debt management does not exercise central oversight over borrowings contracted by the government due to insufficient capacities and lack of coordination among parties involved in debt negotiations.
  - The debt database remains outdated, a consequence of recurring external arrears and frequent renegotiations of debt contracts.

### Recommendations: short-term actions
- Revise presentation of the budget proposal and enacted budget law to include currently missing basic information:
  - Clarity on expenditures and revenues at level two of the GFS classification.
  - Information regarding deficit financing.
  - The debt stock for the current fiscal year.
  - Information about special accounts.
- Improve tracking and reporting on budget execution:
  - Appoint and empower a committee clearly tasked with tracking budget execution and producing a timely report; committee should be legally empowered to collect information from various agencies within a specified timeframe and housed at the Treasury.
  - Address shortcomings in TOFE production linked to Treasury function weaknesses, absence of the General Directorate of the Treasury, and accounting system gaps.

### Recommendations: medium- to long-term reforms
- Gradually publish documents supporting the budget process:
  - Publish annual executive budget proposal, enacted budget law, in-year execution report, annual budget execution report, and the Supreme Audit Institution (SAI) report on the annual financial report, as required by LOFE but currently not published.
  - Improve coordination between the GDB and the department managing the Ministry's website; consider establishing a dedicated open budget platform.
- Enhance budget documentation content:
  - Quantification of tax expenditures.
  - Documents outlining medium-term fiscal forecasts.
  - Comprehensive presentations on implications of new policy initiatives and significant public investments.
  - More well-founded and detailed macroeconomic assumptions and development of macro forecasting capacity.
  - Establish or procure an integrated macroeconomic forecasting model for a medium-term fiscal framework and a medium-term expenditure framework in support of multi-year budget and economic programming (linked to the Budget Orientation Debate as per LOFE).
  - Integrate special reports on State-Owned Enterprises (SOEs) and extra-budgetary entities.
- Advance public participation in PFM:
  - Pilot mechanisms to involve the public in budget formulation and implementation.
  - Partner with civil society organizations representing vulnerable and underrepresented communities to enhance inclusion.
  - The Union Assembly should allow public and civil society testimony during hearings on the budget proposal; organizing the Budget Orientation Debate would facilitate this.
  - The Accounts Section of the Supreme Court should establish formal mechanisms for public contribution to the audit program and participation in relevant audit investigations.

### Implementation support, funding gaps, and technical assistance
- Partners and support:
  - Several partners, including the IMF, are providing support to the GDB for budget program reform and fiscal transparency.
  - IMF Afritac South carried out a technical assistance mission that pinpointed 61 actions grouped under 19 axes related to implementation of the amended LOFE; only a few actions have garnered funding.
  - UNICEF partnered with the General Directorate of Budget in crafting the 2023 citizen budget and facilitated participation of the Citizen Initiative on Budget Transparency in 2023 budget review conferences.
- Remaining needs:
  - Further activities required include capacity-building, technical assistance, and adaptation of the information system.
  - The GDB requires further financial backing from development partners to implement comprehensive PFM reforms.
  - Adapting the current SYMBA information system will enable modification to facilitate the transition to the program budget scheduled for 2028 and integration with other information systems such as GISE for salary management purposes.

*Source: 1comea2024002 - 5. Comoros lags behind most of its peer counterparts in terms of fiscal transparency (IMF).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1comea2024002.pdf_