## _cr04233

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---

### Key macroeconomic and national account indicators
- Area: 2,230 square kilometers
- Population, 2003 estimate: 571,890
- Population, 1997-2001 average annual growth: 2.7 percent
- GNI per capita, World Bank Atlas method, 2001 estimate: US$380
- National accounts (In millions of Comorian francs):
  - GDP at current market prices: 95,303 (1998); 102,782 (1999); 108,850 (2000); 121,003 (2001); 128,980 (2002); 140,887 (2003 Est. 1/)
  - GDP at constant (1990) market prices: 73,488 (1998); 74,902 (1999); 76,696 (2000); 78,485 (2001); 80,310 (2002); 81,993 (2003 Est. 1/)
    - (annual percentage change): 1.2 (1998); 1.9 (1999); 2.4 (2000); 2.3 (2001); 2.3 (2002); 2.1 (2003 Est. 1/)
- Shares (In percent of GDP at current market prices):
  - Gross domestic expenditure: 125.9 (1998); 123.7 (1999); 117.3 (2000); 115.7 (2001); 115.5 (2002); 114.5 (2003 Est. 1/)
    - Consumption: 107.9 (1998); 108.8 (1999); 104.2 (2000); 103.9 (2001); 103.3 (2002); 102.9 (2003 Est. 1/)
    - Investment: 18.0 (1998); 15.0 (1999); 13.1 (2000); 11.8 (2001); 12.2 (2002); 11.6 (2003 Est. 1/)
  - Net exports (goods and services): -22.7 (1998); -20.7 (1999); -14.5 (2000); -13.2 (2001); -13.6 (2002); -12.7 (2003 Est. 1/)
  - Gross national savings: 9.5 (1998); 8.5 (1999); 11.4 (2000); 13.6 (2001); 9.9 (2002); 7.2 (2003 Est. 1/)

### Prices, exchange rates, and terms of trade
- Consumer price index (annual average): 1.2 (1998); 1.1 (1999); 4.6 (2000); 5.9 (2001); 3.3 (2002); 4.5 (2003 Est. 1/)
- Terms of trade (- deterioration): -15.3 (1998); 91.0 (1999); 71.6 (2000); -10.6 (2001); 61.4 (2002); 1.4 (2003 Est. 1/)
- Exchange rate (CF per U.S. dollar; period average): 442.5 (1998); 461.8 (1999); 534.0 (2000); 549.3 (2001); 521.1 (2002); 437.6 (2003 Est. 1/)
- Nominal effective exchange rate (-depreciation; end of period): 1.6 (1998); -3.4 (1999); -1.4 (2000); 1.4 (2001); 3.2 (2002); 0.9 (2003 Est. 1/)
- Real effective exchange rate (-depreciation; end of period): 3.5 (1998); -1.7 (1999); -5.7 (2000); 6.8 (2001); 1.8 (2002); 10.5 (2003 Est. 1/)

### Central government finance (In millions of Comorian francs)
- Total revenue: 10,865 (1998); 12,079 (1999); 11,017 (2000); 16,904 (2001); 21,521 (2002); 22,335 (2003 Est. 1/)
- Grants: 6,947 (1998); 6,806 (1999); 4,539 (2000); 5,332 (2001); 5,408 (2002); 3,147 (2003 Est. 1/)
- Total expenditure and net lending: 24,229 (1998); 19,174 (1999); 17,220 (2000); 26,592 (2001); 33,473 (2002); 31,161 (2003 Est. 1/)
  - Current expenditure: 13,648 (1998); 14,138 (1999); 13,493 (2000); 21,256 (2001); 24,172 (2002); 22,769 (2003 Est. 1/)
  - Capital expenditure and net lending: 7,390 (1998); 5,531 (1999); 4,121 (2000); 5,337 (2001); 7,528 (2002); 7,578 (2003 Est. 1/)
- Overall balance on a commitment basis:
  - Excluding grants: -13,364 (1998); -7,095 (1999); -6,202 (2000); -9,689 (2001); -11,952 (2002); -8,826 (2003 Est. 1/)
  - Including grants: -6,417 (1998); -289 (1999); -1,663 (2000); -4,357 (2001); -6,544 (2002); -5,679 (2003 Est. 1/)
- Overall balance on a cash basis (including grants): -3,740 (1998); 336 (1999); 301 (2000); -2,614 (2001); -5,575 (2002); -3,453 (2003 Est. 1/)

### Money, credit, and financial indicators
- Domestic credit (annual change in percent of beginning of period broad money stock): 11.2 (1998); -2.6 (1999); 3.1 (2000); -3.3 (2001); 4.5 (2002); 2.2 (2003 Est. 1/)
  - Government (net): 8.8 (1998); -0.1 (1999); -1.8 (2000); -2.6 (2001); 1.3 (2002); -1.3 (2003 Est. 1/)
  - Private sector: 3.8 (1998); -3.4 (1999); 6.4 (2000); -0.8 (2001); 3.1 (2002); 3.5 (2003 Est. 1/)
- Broad money (including foreign currency deposits): -6.6 (1998); 7.0 (1999); 14.5 (2000); 47.4 (2001); 9.4 (2002); -0.4 (2003 Est. 1/)

### Balance of payments and external sector (In millions of U.S. dollars unless specified)
- Current account balance (excluding official transfers): -22.2 (1998); -17.6 (1999); -5.5 (2000); -0.5 (2001); -12.4 (2002); -17.5 (2003 Est. 1/)
- Current account balance (including official transfers): -18.2 (1998); -14.3 (1999); -3.5 (2000); 4.0 (2001); -5.7 (2002); -14.1 (2003 Est. 1/)
  - Exports, f.o.b.: 5.9 (1998); 9.1 (1999); 13.6 (2000); 16.6 (2001); 22.4 (2002); 31.6 (2003 Est. 1/)
  - Imports, f.o.b.: -42.3 (1998); -43.3 (1999); -37.3 (2000); -39.8 (2001); -49.1 (2002); -58.4 (2003 Est. 1/)
  - Services (net): -12.4 (1998); -11.8 (1999); -5.9 (2000); -5.8 (2001); -7.0 (2002); -14.1 (2003 Est. 1/)
  - Current transfers (net): 31.0 (1998); 31.6 (1999); 25.7 (2000); 30.7 (2001); 28.0 (2002); 27.5 (2003 Est. 1/)
- Gross official international reserves (end of period, U.S. dollars): 37.5 (1998); 39.6 (1999); 43.1 (2000); 63.5 (2001); 74.4 (2002); 86.5 (2003 Est. 1/)
  - In months of imports of goods and services: 6.0 (1998); 6.3 (1999); 8.6 (2000); 11.9 (2001); 11.8 (2002); 11.1 (2003 Est. 1/)
- External debt (stock of external debt end of period in percent of GDP): 126.3 (1998); 117.3 (1999); 111.7 (2000); 100.5 (2001); 91.9 (2002); 77.8 (2003 Est. 1/)

### Institutional and policy context — decentralization and transition (selected)
- Decentralization context:
  - New constitution approved December 2001 with 77 percent majority.
  - Three islands populations: 350,000 (Ngazidja/Grande Comore), 240,000 (Anjouan), 40,000 (Mohéli); Mayotte held by France.
  - Constitution devolved wide-ranging powers to island governments, including financial autonomy; by-laws to define arrangements had not been agreed.
- Political/security provisions in Agreement on Transitional Arrangements in the Comoros (ATAC, December 2003):
  - Legislative elections to be held by end-April 2004.
  - National Police to be placed at the disposition of the island governments.
  - African Union delegation led mediation; civilian and military observers from the African Union to be deployed.
- Fiscal provisions of ATAC:
  - Union government to issue 2004 budgets for the Union and the islands by decree by end-2003.
  - Unified and independent customs authority comprising four Comorians and three international experts.
  - Tax and nontax revenues from most sources (remaining 10 percent earmarked directly for island governments) to be deposited in a central bank account and divided among governments in previously-agreed shares.
  - Onetime transfer to Ngazidja to finance 2003 arrears-funded budget.
  - Special donor trust fund to channel aid for the transition; multidonor trust fund established with donors including the World Bank, UNDP, France, the EU, South Africa, and Mauritius.
  - Some donor funding pledged toward the €1.5 million agreed for Ngazidja (against the €2.4 million requested).

### Harmonization Committee agreed measures (seven key areas)
- Revised budget for first half of 2004 incorporated revised shares for revenue allocation and centralization of salary administration for Union, Ngazidja, and Mohéli during transition.
- Seven-bank-account system established for shared revenue sources: a central account, one for each government, and separate accounts for wages and debt service; daily procedures for automatic transfers agreed.
- Budget execution procedures and guidelines: circulation of detailed budgets and monthly cash plans; commitments not to incur new arrears, to engage new staff, or to raise salaries; improved monitoring mechanisms.
- Special allocation agreed for Ngazidja: €1.5 million agreed vs €2.4 million requested.
- Supervision and harmonization of customs authority; harmonization of customs procedures between Union and Anjouan completed; tariff harmonization planned for end-April.
- Delegation to a technical committee to strengthen statistics dissemination and prepare for an eventual staff-monitored program with the Fund.
- Harmonized staffing levels and salaries for senior levels of new island administrations and terms of reference for a civil service study.

### Agreed budget framework (January–June 2004) — (In billions of Comorian francs)
- Total revenue: Union 3.6; Ngazidja 2.0; Anjouan 2.7; Mohéli 0.6; Total 9.6
- Earmarked for debt service: Union 0.0; Ngazidja 0.0; Anjouan 0.0; Mohéli 0.0; Total 0.8
- Shared sources: Union 3.6; Ngazidja 1.5; Anjouan 2.4; Mohéli 0.6; Total 8.0
- Dedicated sources: Union 0.0; Ngazidja 0.5; Anjouan 0.3; Mohéli 0.03; Total 0.8
- Total expenditure: Union 3.6; Ngazidja 2.0; Anjouan 2.6; Mohéli 0.6; Total 9.6
- Wages and salaries: Union 2.1; Ngazidja 1.3; Anjouan 1.9; Mohéli 0.4; Total 5.7
- Goods, services, and transfers: Union 1.5; Ngazidja 0.7; Anjouan 0.7; Mohéli 0.2; Total 3.1
- External debt service: Union 0.8; Ngazidja 0.0; Anjouan 0.0; Mohéli 0.0; Total 0.8
- Note: Each budget is a priori balanced; no domestic financing envisaged; foreign assistance through the multidonor trust fund excluded.

### Key unresolved issues and risks in decentralization
- Many critical functions, including provision of basic services, remain unresolved.
- Tentative competency assignments: primary and secondary education designated an island competency; higher education designated national; first university inaugurated February 2004.
- Some transitional arrangements likely to be reopened after transition (e.g., unified customs administration, unified salary administration).
- Donor funding shortfalls: difference between €1.5 million agreed and €2.4 million requested for Ngazidja.
- Need to build local revenue capacity and civil service depth; risk of administrative duplication and resource dissipation.

### Civil service reform: structure, indicators, and recommendations
- Civil service indicators (2002 data unless noted):
  - Wage bill as percent of GDP: 8.3 (Comoros) versus 5.7 (Low-Income Countries).
  - Wage bill as percent of total government spending: 30.0 (Comoros) versus 22.6 (Low-Income Countries).
  - Wage bill as percent of domestic revenue: 46.9 (Comoros).
  - Public employment as percent of population: 1.1 percent (Comoros) versus 6.1 percent (Low-Income Countries)1.
  - Average public sector wage as percent of GDP per capita: 716 (Comoros) versus 570 (Low-Income Countries).
- Structure and trends (2001–2003):
  - Ngazidja and Mohéli (August 2001): total paid civil servants 3,643 (Ngazidja 3,097; Mohéli 488); over 49 percent in Education; about 11.5 percent in Health; 7.5 percent in Finance.
  - Anjouan civil servants rose from 1,864 (1997) to 3,156 (2002) and declined to 3,046 in 2003 after elimination of "ghost employees"; distribution in 2001: 63 percent in Education; 6 percent in Health; 5 percent in Finance.
- World Bank and FAD recommendations:
  - Establish unique computerized database for civil servants; base budgetary administration on positions rather than organizational structure.
  - Consider a single body of civil service for the country with allocation of staff according to needs and mechanisms to identify surpluses and shortages.
  - Federal Civil Service Commission at Union level with no administrative power and island Ministries of Civil Service with autonomous administrative power.
  - Maintain right to free movement of civil servants across administrations; redundancy arrangements suggested (e.g., two-month period to find another employer; redundancy payments).
- FAD conclusion: abandoning centralized civil service would be premature given complexities; careful sequencing and safeguards recommended.

### Financial sector developments — structure and issues
- Financial sector structure and indicators:
  - Central bank: Banque Centrale des Comores (BCC).
  - Single commercial bank: Banque pour l’Industrie et le Commerce—Comores (BIC-C).
  - Development bank: Banque de Développement des Comores (BDC).
  - Two networks of microfinance institutions: the Mecks and the Sanduks.
  - National Savings Fund: Caisse Nationale d’Epargne (CNE) affiliated with SNPT.
  - Total assets including central bank: CF 74,000 million or US$142 million in 2002.
  - Banks claims on private sector in 2002: about 8 percent of GDP.
- BIC-C key figures (1998–2002, In millions of Comorian francs):
  - Assets: 14,435; 15,705; 17,529; 22,730; 25,665
  - Foreign assets: 2,374; 3,966; 3,009; 4,864; 3,182
  - Treasury and interbank deposits: 5,656; 7,255; 7,997; 13,440; 15,644
  - Credits: 8,404; 7,987; 7,879; 7,255; 8,071
  - Nonperforming loans (NPLs): 1,117; 1,588; 1,798; 1,954; 2,029
  - NPLs / credits (In percent): 13.3; 19.9; 22.8; 26.9; 25.1
  - Provisions: 688; 945; 1,185; 1,400; 1,466
  - Provisions / NPLs (In percent): 61.6; 59.5; 65.9; 71.6; 72.2
  - Net NPLs: 429; 643; 613; 554; 563
  - Deposits of clients: 11,319; 11,783; 12,406; 16,757; 19,311
  - Capital: 2,395; 2,113; 2,246; 2,225; 2,234
  - Net profit: 0; 310; 74; 279; 247
  - Credits / deposits (in percent): 74; 68; 64; 43; 42
- Findings and risks (BIC-C):
  - Lending decreased by 5 percent over the period covered.
  - NPLs rose from 13.3 percent (1998) to 25.1 percent (2002).
  - Coverage of NPLs by provisions rose from 61.6 percent (1998) to 72.2 percent (2002).
  - Recommendation: central bank to conduct a full audit of BIC-C accounts (Fund/MFD expert).
- Development Bank (BDC) issues:
  - BDC stopped lending since 1997 and focused on loan recovery; deterioration due to secession attempt (1998), financial mismanagement, and governance problems.
  - NPLs (1998–2002): 790; 1,072; 1,324; 1,284; 1,078
  - Provisions: 294; 777; 726; 697; 665
  - Net NPLs: 496; 295; 598; 587; 413
  - Capital: 1,491; 1,186; 1,254; 1,274; 1,278
  - Trial license for one year to restart lending; in-depth auditing recommended before new activities.
- Microfinance (Mecks and Sanduk):
  - Introduced in 1997; by 2002 microfinance institutions had market shares close to 20 percent of deposits and loans.
  - Regulatory gap: not yet covered by formal prudential regulations and central bank supervision; draft law ready but not issued.
  - Central bank capacity and technical assistance required to supervise microfinance networks.
- National Savings Fund (CNE) proposal:
  - Authorities proposed transforming CNE into a commercial bank to introduce competition; BCC has not approved plans due to concerns over skills and separation of accounts.
  - IMF/MFD expert recommendations for proposed institution: obligatory reserves 30 percent; liquidity ratio 65 percent; solvability ratio 10 percent.
- Central Bank (BCC) financials and governance (1998–2002, In millions of Comorian francs):
  - Assets: 20,782; 22,364; 27,104; 39,730; 43,444
  - Foreign Assets: 16,581; 18,294; 22,956; 35,833; 38,796
  - Credit to government: 3,806; 3,814; 3,858; 3,654; 3,930
  - Banks’ deposits: 3,744; 4,667; 6,116; 11,287; 0
  - Government deposits: 542; 518; 508; 712; 582
  - Foreign liabilities: 1,184; 1,171; 957; 1,394; 397
  - Foreign liabilities/total assets (in percent): 5.7; 5.2; 3.5; 3.5; 0.9
- BCC concerns and recommendations:
  - Article 4 defines multiple objectives without clear prioritization; best practice suggests single or clearly prioritized objective.
  - Statutory and operational autonomy weakened by governance arrangements: Board composition (four Comorian, four French), appointment and dismissal provisions, and Article 4 requiring pursuit of objectives within government economic policy framework.
  - Article 17 limits loans to the Treasury to 20 percent of average annual government revenues (last three years).
  - Recommendation: clarify primary objective and strengthen safeguards of central bank independence; upgrade prudential regulation and supervision; promulgate draft law on supervision of microfinance institutions.

### External sector, trade, and competitiveness
- External structure and vulnerabilities:
  - Exports and imports ratio to GDP almost 50 percent.
  - Exports dominated by vanilla, cloves, and ylang-ylang, which accounted for over 95 percent of total exports in 2003.
  - High dependence on imported food and substantial trade deficit historically.
  - Official and private transfers accounted for almost 50 percent of total external receipts over the last decade and almost 40 percent by 2003.
- Export performance and supply constraints:
  - Export volumes stagnant despite large increases in commodity prices; vanilla volume (1993–2003) series shows fluctuations and decreases (e.g., 288 (1993) to 98 (2003) metric tons).
  - Vanilla price (CF/kg, 1993–2003): 16,667; 21,179; 15,085; 11,325; 6,819; 8,015; 9,973; 25,818; 45,000; 58,929; 110,000.
  - Cloves and ylang-ylang price and volume series provided; supply constraints (crop gestation: vanilla ~2 years; cloves and ylang-ylang ~5 years) limit quick supply response.
- Competitiveness and costs:
  - Real effective exchange rate appreciated by almost 20 percent from end-2000 to end-2003.
  - High production costs: electricity about US$0.20 per kilowatt-hour in the Comoros vs US$0.08 in Mauritius.
  - High transport costs: insurance and freight to merchandise imports ratio 22 percent vs median 14 percent for developing countries.
  - Salaries relative to GDP per capita higher than competitors (selected ratios reported).
- Trade regime and tariffs:
  - Not a WTO member; trade restrictiveness index scored 8 (2001).
  - Single import tax bands introduced in 1997: 20 percent, 30 percent, 40 percent.
  - Additional administrative and statistical fees and surtaxes exist; state monopolies for imports of petroleum and low-grade rice.
  - Export taxes on key commodities since 2000: 5 percent (plus additional 1 percent surtax introduced July 2003); vanilla specific duty CF 3,232 per kilogram.
  - Inter-island tariff divergence noted (Anjouan differences); harmonization under transition planned.
- Regional integration:
  - Member of COMESA but not participating in COMESA FTA; indicated intention to follow FTA-aligned policies though fiscal implications noted (tariff revenues currently account for about 60 percent of government revenues).
  - RIFF participation and IOC membership described; preparatory steps for customs union highlighted (move to HS 1996/2002; migrate customs valuation to GATT valuation code).
- Remittances and aid:
  - Diaspora estimated 150,000 to 200,000 people; remittances exceeded US$30 million annually, or some 15 percent of GDP in 2001.
  - Remittances concentrated, sometimes funding large social expenditures (e.g., grand mariage ceremonies >10 percent of GDP).
  - Aid per capita: US$49 (1996); US$20 (2001). Aid as percent of GNI: 12 (1996); 7 (2001).

### Export composition and debt sustainability (selected figures)
- Principal exports (value, volume, unit value examples):
  - Vanilla value (In millions of Comorian francs): 1,119 (1997); 1,058 (1998); 1,835 (1999); 4,105 (2000); 5,400 (2001); 7,189 (2002)
  - Vanilla volume (metric tons): 164 (1997); 132 (1998); 184 (1999); 159 (2000); 120 (2001); 122 (2002)
  - Vanilla unit value (CF/kg): 6,819 (1997); 8,015 (1998); 9,973 (1999); 25,818 (2000); 45,000 (2001); 58,929 (2002)
- External debt and DSA update (end-2003, U.S. dollars):
  - Total nominal debt stock: 281.2 (Millions of U.S. dollars); Of which arrears: 100.8; NPV of Debt: 214.6 (Millions of U.S. dollars)
  - Multilateral nominal: 227.1; arrears: 57.1; NPV: 162.3
    - IDA nominal: 110.1; arrears: 0.0; NPV: 64.8
    - AfDB Group nominal: 65.1; arrears: 27.9; NPV: 52.1
  - Bilateral nominal: 54.2; arrears: 43.7; NPV: 52.3
    - Kuwait nominal: 21.1; arrears: 14.4; NPV: 19.7
    - Saudi Arabia nominal: 15.6; arrears: 15.6; NPV: 15.6
  - Commercial nominal: 7.7; arrears: 7.7; NPV: 7.7
- DSA highlights:
  - NPV of external debt increased from US$169.6 million (end-2000) to US$214.6 million (end-2003).
  - NPV of debt-to-exports ratio increased to 503.1 percent (end-2003); expected to remain well above the 150 percent threshold.
  - NPV of debt-to-revenue ratio improved to 420 percent (end-2003), lower than projected 545 percent, and expected to fall below the 250 percent sustainability threshold under the fiscal criterion.

### Findings, policy recommendations, and risks (extracted)
- Governance and decentralization:
  - Decentralization has weakened coherent macroeconomic management; resolving intergovernmental arrangements is critical for restoring confidence and improving economic outlook.
  - Recommendation: strike balance between political autonomy and coherent, financially sound macroeconomic policies; pursue practical arrangements to exploit economies of scale (e.g., central administration of services where efficient).
- Fiscal management:
  - Harmonization Committee technical agreements (bank account system, budget execution procedures, customs harmonization, statistics, staffing harmonization) represent substantial progress; donor funding shortfalls and unresolved competency assignments are key risks.
  - Recommendation: implement agreed budget execution and revenue-sharing mechanisms; ensure donor trust fund disbursement to support transition.
- Civil service:
  - Wage bill large: 8.3 percent of GDP (Comoros) vs 5.7 percent (Low-Income Countries); wage bill equals 46.9 percent of domestic revenue.
  - Recommendation: combine civil service reform with decentralization to maintain fiscally sustainable wage bill; consider single civil service body and computerized personnel database; match positions to budgetary allocations.
- Financial sector:
  - Prudential and supervisory framework needs upgrading; microfinance integration into supervision urgent.
  - Recommendation: promulgate draft law to bring microfinance under BCC supervision; audit BIC-C and BDC; postpone Postal Bank/CNE transformation until capacity and separation of accounts assured.
  - BCC governance: clarify primary objective and strengthen independence safeguards; adhere to limits on government advances (Article 17: loans to the Treasury must not exceed 20 percent of average annual revenues of government during the last three budget years).
- External sector and diversification:
  - Heavy export concentration and supply constraints limit ability to take advantage of high commodity prices.
  - Recommendation: pursue vertical and market diversification options, rural sector review, fisheries development, and tourism improvements conditional on political stability and infrastructure upgrades.
  - Trade policy: consider replacing export taxes with domestic taxes to avoid trade discrimination and support export incentives.
- Remittances and aid:
  - Remittances large and countercyclical (remittances >15 percent of GDP in 2001); important for poverty reduction but carry potential Dutch disease and moral hazard risks.
  - Recommendation: policies to channel remittances into productive investments and improve financial intermediation to mobilize savings.
- Debt and sustainability:
  - External debt not sustainable; arrears accumulated across creditors.
  - Recommendation: comprehensive approach to restore debt sustainability, including improved fiscal management, arrears clearance, and engagement with creditors and donors.

*Prepared by Wayne Camard; sources: Comorian authorities; and IMF and World Bank staff estimates.*

### 1.  Gross Domestic Product by Sector at Current Market Prices, 1997-2002 ..................73

### 1.  Gross Domestic Product by Sector at Current Market Prices, 1997-2002 ..................73

### Summary of key macroeconomic and national account indicators
- Area: 2,230 square kilometers
- Population, 2003 estimate: 571,890
- Population, 1997-2001 average annual growth: 2.7 percent
- GNI per capita, World Bank Atlas method, 2001 estimate: US$380
- National accounts (In millions of Comorian francs, unless otherwise specified):
  - GDP at current market prices: 95,303 (1998); 102,782 (1999); 108,850 (2000); 121,003 (2001); 128,980 (2002); 140,887 (2003 Est. 1/)
  - GDP at constant (1990) market prices: 73,488 (1998); 74,902 (1999); 76,696 (2000); 78,485 (2001); 80,310 (2002); 81,993 (2003 Est. 1/)
    - (annual percentage change): 1.2 (1998); 1.9 (1999); 2.4 (2000); 2.3 (2001); 2.3 (2002); 2.1 (2003 Est. 1/)
- Shares (In percent of GDP at current market prices):
  - Gross domestic expenditure: 125.9 (1998); 123.7 (1999); 117.3 (2000); 115.7 (2001); 115.5 (2002); 114.5 (2003 Est. 1/)
    - Consumption: 107.9 (1998); 108.8 (1999); 104.2 (2000); 103.9 (2001); 103.3 (2002); 102.9 (2003 Est. 1/)
    - Investment: 18.0 (1998); 15.0 (1999); 13.1 (2000); 11.8 (2001); 12.2 (2002); 11.6 (2003 Est. 1/)
  - Net exports (goods and services): -22.7 (1998); -20.7 (1999); -14.5 (2000); -13.2 (2001); -13.6 (2002); -12.7 (2003 Est. 1/)
  - Gross national savings: 9.5 (1998); 8.5 (1999); 11.4 (2000); 13.6 (2001); 9.9 (2002); 7.2 (2003 Est. 1/)

### Prices, exchange rates, and terms of trade
- Consumer price index (annual average): 1.2 (1998); 1.1 (1999); 4.6 (2000); 5.9 (2001); 3.3 (2002); 4.5 (2003 Est. 1/)
- Terms of trade (- deterioration): -15.3 (1998); 91.0 (1999); 71.6 (2000); -10.6 (2001); 61.4 (2002); 1.4 (2003 Est. 1/)
- Exchange rate (in Comorian francs per U.S. dollar; period average): 442.5 (1998); 461.8 (1999); 534.0 (2000); 549.3 (2001); 521.1 (2002); 437.6 (2003 Est. 1/)
- Nominal effective exchange rate (-depreciation; end of period): 1.6 (1998); -3.4 (1999); -1.4 (2000); 1.4 (2001); 3.2 (2002); 0.9 (2003 Est. 1/)
- Real effective exchange rate (-depreciation; end of period): 3.5 (1998); -1.7 (1999); -5.7 (2000); 6.8 (2001); 1.8 (2002); 10.5 (2003 Est. 1/)

### Central government finance (In millions of Comorian francs, unless otherwise specified)
- Total revenue: 10,865 (1998); 12,079 (1999); 11,017 (2000); 16,904 (2001); 21,521 (2002); 22,335 (2003 Est. 1/)
- Grants: 6,947 (1998); 6,806 (1999); 4,539 (2000); 5,332 (2001); 5,408 (2002); 3,147 (2003 Est. 1/)
- Total expenditure and net lending: 24,229 (1998); 19,174 (1999); 17,220 (2000); 26,592 (2001); 33,473 (2002); 31,161 (2003 Est. 1/)
  - Current expenditure: 13,648 (1998); 14,138 (1999); 13,493 (2000); 21,256 (2001); 24,172 (2002); 22,769 (2003 Est. 1/)
  - Capital expenditure and net lending: 7,390 (1998); 5,531 (1999); 4,121 (2000); 5,337 (2001); 7,528 (2002); 7,578 (2003 Est. 1/)
- Overall balance on a commitment basis:
  - Excluding grants: -13,364 (1998); -7,095 (1999); -6,202 (2000); -9,689 (2001); -11,952 (2002); -8,826 (2003 Est. 1/)
  - Including grants: -6,417 (1998); -289 (1999); -1,663 (2000); -4,357 (2001); -6,544 (2002); -5,679 (2003 Est. 1/)
- Overall balance on a cash basis:
  - Excluding grants: -10,687 (1998); -6,471 (1999); -4,238 (2000); -7,946 (2001); -10,983 (2002); -6,600 (2003 Est. 1/)
  - Including grants: -3,740 (1998); 336 (1999); 301 (2000); -2,614 (2001); -5,575 (2002); -3,453 (2003 Est. 1/)
- Overall balance on a commitment basis (in percent of GDP):
  - Excluding grants: -14.0 (1998); -6.9 (1999); -5.7 (2000); -8.0 (2001); -9.3 (2002); -6.3 (2003 Est. 1/)
  - Including grants: -6.7 (1998); -0.3 (1999); -1.5 (2000); -3.6 (2001); -5.1 (2002); -4.0 (2003 Est. 1/)

### Money, credit, and financial indicators
- Domestic credit (annual change in percent of beginning of period broad money stock): 11.2 (1998); -2.6 (1999); 3.1 (2000); -3.3 (2001); 4.5 (2002); 2.2 (2003 Est. 1/)
  - Government (net): 8.8 (1998); -0.1 (1999); -1.8 (2000); -2.6 (2001); 1.3 (2002); -1.3 (2003 Est. 1/)
  - Private sector: 3.8 (1998); -3.4 (1999); 6.4 (2000); -0.8 (2001); 3.1 (2002); 3.5 (2003 Est. 1/)
- Broad money (including foreign currency deposits): -6.6 (1998); 7.0 (1999); 14.5 (2000); 47.4 (2001); 9.4 (2002); -0.4 (2003 Est. 1/)

### Balance of payments and external sector (In millions of U.S. dollars, unless otherwise specified)
- Current account balance (excluding official transfers): -22.2 (1998); -17.6 (1999); -5.5 (2000); -0.5 (2001); -12.4 (2002); -17.5 (2003 Est. 1/)
- Current account balance (including official transfers): -18.2 (1998); -14.3 (1999); -3.5 (2000); 4.0 (2001); -5.7 (2002); -14.1 (2003 Est. 1/)
  - Exports, f.o.b.: 5.9 (1998); 9.1 (1999); 13.6 (2000); 16.6 (2001); 22.4 (2002); 31.6 (2003 Est. 1/)
  - Imports, f.o.b.: -42.3 (1998); -43.3 (1999); -37.3 (2000); -39.8 (2001); -49.1 (2002); -58.4 (2003 Est. 1/)
    - Trade balance: -36.4 (1998); -34.3 (1999); -23.7 (2000); -23.2 (2001); -26.7 (2002); -26.8 (2003 Est. 1/)
  - Services (net): -12.4 (1998); -11.8 (1999); -5.9 (2000); -5.8 (2001); -7.0 (2002); -14.1 (2003 Est. 1/)
  - Income (net): -0.4 (1998); 0.2 (1999); 0.3 (2000); 2.2 (2001); 0.0 (2002); -0.8 (2003 Est. 1/)
  - Current transfers (net): 31.0 (1998); 31.6 (1999); 25.7 (2000); 30.7 (2001); 28.0 (2002); 27.5 (2003 Est. 1/)
- Capital and financial account (net): 5.0 (1998); 8.7 (1999); 6.3 (2000); 12.8 (2001); 12.0 (2002); 7.3 (2003 Est. 1/)
  - Capital account (net): 11.7 (1998); 11.4 (1999); 6.5 (2000); 5.2 (2001); 3.7 (2002); 3.8 (2003 Est. 1/)
  - Financial account (net): -7.0 (1998); -9.9 (1999); -2.6 (2000); 2.6 (2001); 11.9 (2002); 7.3 (2003 Est. 1/)
- Overall balance: -13.2 (1998); -5.6 (1999); 2.8 (2000); 16.8 (2001); 6.3 (2002); -6.8 (2003 Est. 1/)
- Current account balance (in percent of GDP):
  - Excluding official transfers: -10.3 (1998); -7.9 (1999); -2.7 (2000); -0.2 (2001); -5.0 (2002); -5.4 (2003 Est. 1/)
  - Including official transfers: -2.5 (1998); -0.9 (1999); 1.5 (2000); 4.2 (2001); -0.8 (2002); -3.2 (2003 Est. 1/)
- Gross official international reserves (end of period):
  - In millions of U.S. dollars: 37.5 (1998); 39.6 (1999); 43.1 (2000); 63.5 (2001); 74.4 (2002); 86.5 (2003 Est. 1/)
  - In months of imports of goods and services: 6.0 (1998); 6.3 (1999); 8.6 (2000); 11.9 (2001); 11.8 (2002); 11.1 (2003 Est. 1/)
- External debt:
  - Stock of external debt (end of period) (in percent of GDP): 126.3 (1998); 117.3 (1999); 111.7 (2000); 100.5 (2001); 91.9 (2002); 77.8 (2003 Est. 1/)
  - Scheduled external debt service (in percent of exports of goods and services) (three-year average used): 45.5 (1998); 38.0 (1999); 30.6 (2000); 27.5 (2001); 13.8 (2002); 13.5 (2003 Est. 1/)

### Institutional and policy context (extracts from the Selected Issues paper)
- The selected issues paper addresses four topics in the context of the 2004 Article IV consultation: (i) the decentralization of government and its economic management functions foreseen under the constitution; (ii) civil service reform in the context of decentralization; (ii) financial sector developments, including prudential issues; and (iv) external sector developments and policies.
- Decentralization is identified as the most important and at times highly contentious issue since approval of the new constitution in December 2001. The constitution gives wide-ranging but ill-defined powers to the islands, including financial autonomy; by-laws to define arrangements were expected but agreement between Union and island governments had not been reached.
- The difficult relationship between governments has significantly weakened economic management and the pursuit of coherent macroeconomic policies and structural reforms. A solution is critical for restoring confidence and improving the economic outlook, including on poverty reduction.
- The paper emphasizes the need to strike an appropriate balance between political decisions to grant autonomy and the need for coherent and financially sound macroeconomic policies, given the country's limited human and financial resources and low level of development.
- Decentralization background:
  - In December 2001, a new constitution was approved by voters with a 77 percent majority.
  - The three islands that make up the Comoros are noted as having populations of 350,000 (Ngazidja/Grande Comore), 240,000 (Anjouan), and 40,000 (Mohéli); a fourth island, Mayotte, is held by France.
  - The constitution’s principal feature was radical devolution to island governments led by their own elected presidents; legislative by-laws to define competencies were to be enacted by the Union Assembly but some key decisions were deferred.
  - An agreement on transitional arrangements was reached in December 2003 (Accord sur les dispositions transitoires aux Comores, Moroni, January 20, 2003).

*Prepared by Wayne Camard; sources: Comorian authorities; and IMF and World Bank staff estimates.*

### 14.      These workshops included participation by the four governments. They made

### _cr04233 - 14.      These workshops included participation by the four governments. They made

### Transition agreement and political/security provisions
- December 2002: Fund staff prepared a consolidated budget for 2003 that was initially agreed among the governments but was never implemented because the implied transfer of responsibility and staff was not considered acceptable by the Union government.
- August 2003: Meeting in Pretoria attempted to reach agreement on transitional arrangements; agreements reached quickly broke down when the Union President questioned the agreed revenue-sharing formula.
- December 2003: Meeting in Moroni produced an Agreement on Transitional Arrangements in the Comoros (ATAC) signed by all four Comorian presidents and representatives of the international community.
- Political/security provisions of the ATAC:
  - Legislative elections to be held by end-April 2004.
  - The National Police to be placed at the disposition of the island governments.
- Observers and mediation:
  - Delegation from the African Union led by South African President Mbeki mediated.
  - Presence of Malagasy Prime Minister Sylla, Mauritian Prime Minister Berenger, Abdou Diouf, the French Minister of Cooperation, Secretary-General of the Indian Ocean Commission, and other international representatives.
  - Both civilian and military observers from the African Union to be deployed throughout the transition period.

### Fiscal provisions and donor support
- Fiscal provisions of the ATAC:
  - Union government to issue 2004 budgets for the Union and the islands by decree by the end of 2003.
  - A unified and independent customs authority, comprising four Comorians and three international experts, to oversee the work of customs.
  - Tax and nontax revenues from most sources (the remaining 10 percent being directly earmarked for the use of the island governments) to be deposited in a central bank account, to be divided among the governments in the previously-agreed shares.
  - A onetime transfer to be made to Ngazidja to finance its hitherto arrears-funded 2003 budget.
  - A special donor trust fund to be established to channel aid resources for the transition.
- Donor group and trust fund:
  - A multidonor trust fund established by donors including the World Bank, UNDP, France, the EU, South Africa, and Mauritius in support of implementation of the transition agreement.
  - Some donor funding has been pledged toward the €1.5 million agreed for Ngazidja (against the €2.4 million that had been requested), and the balance is being sought.
- The agreement calls on the international community to provide technical assistance and to disburse promised funds; the World Bank and the Fund were explicitly mentioned.

### Implementation arrangements and committee roles
- Committees established under ATAC:
  - An Implementation Committee chaired by the AU (delegated to South Africa) to oversee implementation. Designated members include the Union and three island governments, other countries in the region, and international organizations, including the IMF.
  - A Harmonization Committee to oversee the budget process and the macroeconomic data on which it is based, as well as the implementation of the agreement on customs. The committee was given authority to adjust revenue shares assigned to each of the four governments in line with agreed spending authority.
- Participation notes:
  - Fund and World Bank staffs declined to participate in Implementation Committee meetings due to the political nature of deliberations; Fund staff participated as an observer in Harmonization Committee meetings.
- Implementation Committee activity:
  - Initially mandated to meet every two weeks but met somewhat less often.
  - Principal contributions: interpret ATAC text; recognize measures taken by parties and external partners; encourage timely measures, sometimes through delegation of individual members.
- Harmonization Committee operationalization:
  - Chaired by former Prime Minister and Minister of Finance of Senegal, Mr. A. L. Loum.
  - Met almost continuously from January 26 until March 2, with the attendance of Fund staff until February 4.
  - Submitted agreements for endorsement by the Implementation Committee in seven key areas (see next subsection).

### Harmonization Committee agreed measures (seven key areas)
- Promulgation of a revised budget for the first half of 2004 for the Union and island governments (Table II.1). The budget:
  - Incorporated revised shares for revenue allocation based on centralization of salary administration for the Union, Ngazidja, and Mohéli governments during the transition.
  - Resolved dispute over competencies and revenue by further adjusting revised revenue shares for Ngazidja and Mohéli by a fixed percentage of revenues to cover salary payments effected on their behalf by the Union government.
- Establishment of a system of seven bank accounts for shared revenue sources, and daily procedures for directing the flow of revenues to meet the agreement’s provision for an “automatic” transfer of funds: a central account, one for each government, and separate accounts for wages and debt service.
- Establishment of procedures and guidelines for budget execution across governments, including:
  - Circulation of detailed budgets and monthly cash plans.
  - Commitments not to incur new arrears, to engage new staff, or to raise salaries.
  - Improved monitoring mechanisms.
- Agreement on principles and amount of the special allocation for Ngazidja to cover 2003 arrears (see €1.5 million agreed vs €2.4 million requested).
- Supervision of the establishment of the unified customs authority, including harmonization between the Union and Anjouan of customs procedures (completed) and of tariff rates (planned for end-April).
- Delegation to a technical committee to strengthen the collection and transparent dissemination of statistics among parties, to monitor the transition and prepare for an eventual staff-monitored program with the Fund; Fund and Bank staff contributed to initial stages.
- Harmonized staffing levels and salaries for senior levels of new island administrations and establishment of terms of reference for a civil service study called for by the transition agreement to focus on dividing staff between union and island governments.

### Agreed budget framework (January–June 2004) — Table II.1 (In billions of Comorian francs)
- Total revenue:
  - Union: 3.6
  - Ngazidja: 2.0
  - Anjouan: 2.7
  - Mohéli: 0.6
  - Total: 9.6
- Earmarked for debt service:
  - Union: 0.0
  - Ngazidja: 0.0
  - Anjouan: 0.0
  - Mohéli: 0.0
  - Total: 0.8
- Shared sources:
  - Union: 3.6
  - Ngazidja: 1.5
  - Anjouan: 2.4
  - Mohéli: 0.6
  - Total: 8.0
- Dedicated sources:
  - Union: 0.0
  - Ngazidja: 0.5
  - Anjouan: 0.3
  - Mohéli: 0.03
  - Total: 0.8
- Total expenditure:
  - Union: 3.6
  - Ngazidja: 2.0
  - Anjouan: 2.6
  - Mohéli: 0.6
  - Total: 9.6
- Wages and salaries:
  - Union: 2.1
  - Ngazidja: 1.3
  - Anjouan: 1.9
  - Mohéli: 0.4
  - Total: 5.7
- Goods, services, and transfers:
  - Union: 1.5
  - Ngazidja: 0.7
  - Anjouan: 0.7
  - Mohéli: 0.2
  - Total: 3.1
- External debt service:
  - Union: 0.8
  - Ngazidja: 0.0
  - Anjouan: 0.0
  - Mohéli: 0.0
  - Total: 0.8
- Note: Each budget is a priori balanced, as no domestic financing is envisaged, and foreign assistance channeled through the multidonor trust fund has been excluded from the budget framework.
- Source line in the table: Source: Harmonization Committee.

### Key unresolved issues and risks in decentralization
- Many critical questions remain unresolved; most functions, including provision of basic services (dominant share of public expenditure and employment), remain for final resolution.
- Tentative agreements exist (e.g., primary and secondary education designated an island competency; higher education designated a national function). The country’s first university was formally inaugurated in February 2004.
- Some transitional arrangements (e.g., unified customs administration between the Union and Anjouan; unified salary administration between the Union and Grande Comore) are likely to be reopened after the transition.
- Expected continued uncertainty on the ground for some time, with many issues deferred to committees or to final resolution by the Union Assembly after elections.

### Literature findings and implications for the Comoros
- The Comorian constitution’s allocation of centralized public goods and decentralized services aligns with foundational public economics arguments (Tiebout 1956; Stigler 1957; Musgrave 1959).
- Potential loss of scale efficiencies is a concern at the island scale; literature notes mixed implications for small jurisdictions.
- Fiscal illusion risk: reliance on central grants/transfers can incentivize subnational overprovision of services and perennial negotiations for more grants.
- Evidence on decentralization:
  - Political decentralization shows clearer benefits for accountability and outcomes than fiscal decentralization; caution is warranted in designing fiscal mechanisms to support decentralization in the Comoros.
  - Coordination failures in intergovernmental fiscal relations can create a deficit bias in decentralized decision making.
- Practical implementation prerequisites highlighted in the literature (Smoke; Brosio; Ter-Minassian; Ebel and Yilmaz) relevant to the Comoros include:
  - Adequate legislative and institutional enabling environment.
  - Assignment of appropriate functions to subnational governments.
  - Assignment of appropriate own-resource revenues to subnational governments (own revenue should match expenditure for accountability where practical).
  - Establishment of an effective intergovernmental transfer system.
  - Adequate access to development capital.
  - Attention to local revenue capacity, responsiveness of local revenues to changing needs, and legal authority to levy sufficient taxes.
  - Concerns about limited civil service depth and uneven capacity across governments; risk that new island administrations may face acute resource and staffing shortages (Mohéli highlighted as a particular concern).

### Summary assessment
- The ATAC and Harmonization Committee agreements represent substantial technical progress on fiscal management and transitional arrangements, despite high mistrust among governments and doubts about smooth installation of a national legislature.
- Successful implementation of technical agreements (bank account system, budget execution procedures, customs harmonization, statistical systems, staffing harmonization) would nonetheless be substantial progress given existing constraints.
- Ongoing challenges: unresolved competency assignments, potential reopening of transitional centralizations, donor funding shortfalls (e.g., difference between €1.5 million agreed and €2.4 million requested), and the need to build local revenue capacity and civil service depth.

*Source: Harmonization Committee.*

### 33.      Political instability has been a major factor in the decline in the Comoros’ per

### 33.      Political instability has been a major factor in the decline in the Comoros’ per

### Political context and opportunity
- Political instability contributed to the decline in per capita income from over US$600 in the early 1990s to around US$500 at present.
- The new constitution, with a high degree of political devolution, offers an opportunity to focus on economic challenges posed by rising poverty.
- The constitution clearly provides for monetary affairs to be managed at the central level.

### Risks from decentralization and administrative duplication
- It will be important that scarce resources not be dissipated in the establishment of additional levels of administration with redundant functions.
- There is no reason why political devolution must be accompanied by the duplication of administrative structures at the island level of functions already performed at the Union level.
- The civil service in the Comoros is already large, yet it is short of appropriately trained staff.
- The small size of the country and the even smaller size of the islands imposes restrictions on decentralization.

### Proposed governance principle to exploit economies of scale
- Island governments should, to the extent practical, delegate the administration of their policies to a central service not necessarily controlled by the central government, in order to:
  - exploit economies of scale,
  - minimize duplication and overlap,
  - make efficient use of scarce skills.
- A related feature of a central civil service would be the right of all Comorians to work in whichever administration could make best use of their skills.

### Fiscal administration: revenue and expenditure management
- Tax collection
  - Under the transition, a unified customs administration is collecting customs revenue for the benefit of all, with participation on the Customs Management Board of all three islands and the Union government.
  - This approach could be extended to the entire tax system because administration and collection of taxes earmarked for the islands and those destined to be shared are inextricably intertwined.
  - There has been a working agreement between the Tax Department of the Union and that of Ngazidja to work together on the collection of taxes during the transition, whereby each officer will be allowed to pursue his or her duties without regard to where the moneys collected eventually go.
- Expenditure side
  - The Civil Service Administration (fonction publique) is paying salaries to civil servants of the Union, Ngazidja, and Mohéli governments during the transition—mainly through computerized transfers to staff bank accounts—with information on payments made shared with each government.
  - Integrating Anjouanese staff into the same system could potentially yield economies.
- Conditions for acceptability
  - For collective administration to be acceptable, changes in macroeconomic policy formulation will be required.
  - In the past, the Union government has responded to fiscal pressures by delaying salary payments; payments are believed to have been made on a discriminatory basis (e.g., civil servants on Grande Comore get paid first, and those on the other islands only later).
- Central bank advances
  - The provision for statutory advances to the government from the central bank is used ostensibly to smooth intrayear fluctuations in revenue.
  - The limit on these advances is determined as a function of average annual revenue.
  - Over the medium term, the government should return to compliance with the loan condition that stipulates that all such loans be repaid by the end of each year to avoid new arrears on government payments as a financing item.

### Civil service reform under decentralization (overview)
- Objective: combine civil service reform to increase efficiency with decentralization requirements while maintaining a fiscally sustainable wage bill.
- Process to date:
  - World Bank consultant assisted authorities with an assessment of the civil service legal and institutional framework and recommended streamlining.
  - An IMF Fiscal Affairs Department (FAD) mission prepared a comprehensive report in 2002 on decentralization options and civil service format.
  - Two Paris meetings (October-November 2002 and May 2003) made progress on delineation of competencies, but the Union and island governments have yet to agree on the number of civil servants to be assigned to each government.
- Risk: the 2001 constitution could lead to hiring additional civil servants and to overlap and duplication of functions because it delegates wide-ranging autonomy to the islands.

### Civil service indicators and findings
- FAD civil service indicator categories: (i) the wage bill, (ii) public employment, and (iii) wage levels.
- Specific indicators suggested include:
  - Wage bill as a share of GDP; wage bill as a share of total spending; wage bill compared with operations and maintenance spending; wage bill as a share of domestic revenue.
  - Public employment as a percentage of the population; as a percentage of total employment; as a percentage of private sector employment; share of low-skilled employees.
  - Average public sector wages as a share of comparator private sector wages; average public sector wage as a share of GDP per capita; compression ratios.
- Comoros relative indicators (Table III.1, 2002 data unless otherwise noted):
  - Wage bill as a percent of GDP: 8.3 (Comoros) versus 5.7 (Low-Income Countries).
  - Wage bill as a percent of total government spending: 30.0 (Comoros) versus 22.6 (Low-Income Countries).
  - Wage bill as a percent of domestic revenue: 46.9 (Comoros).
  - Public employment as a percent of the population: 1.1 percent (Comoros) versus 6.1 percent (Low-Income Countries)1.
  - Average public sector wage as a percent of GDP per capita: 716 (Comoros) versus 570 (Low-Income Countries).
  - Sources: For the Comoros, data provided by the authorities, and Fund staff estimates for 2002. For low-income countries, estimates for 1990-2001 are provided in “Guidance Note on Wages and Employment in the Civil Service,” FAD, November 24, 2003.
- Interpretation
  - At 8.3 percent of GDP, the wage bill in the Comoros is relatively large compared with other low-income countries (5.7 percent) even before decentralization.
  - The central government wage bill is estimated to constitute 30 percent of government expenditures, more than seven percentage points higher than in other low-income countries.
  - The wage bill accounts for almost one-half of domestic revenues, even though public sector employees represent only 1.1 percent of the population.
  - Relative to the average citizen, civil servants in the Comoros enjoy a much higher standard of living than is the case in other low-income countries (average public sector wage as a share of GDP per capita: 716 versus 570).

### Structure and trends in civil service employment (2001–2003)
- Ngazidja and Mohéli (August 2001)
  - Total paid civil servants on Ngazidja and Mohéli: 3,643.
  - Ngazidja: 3,097 (equivalent to 1.1 percent of its population).
  - Mohéli: 488 (equivalent to 1.5 percent of its population).
  - Distribution by ministry (Ngazidja and Mohéli combined):
    - over 49 percent in Education,
    - about 11.5 percent in Health,
    - 7.5 percent in Finance,
    - the remaining one-third in other ministries.
- Anjouan
  - Number of civil servants increased about 50 percent from 1,864 in 1997 to a peak of 3,156 in 2002 (Figure III.1).
  - Increase partly due to civil servants leaving Ngazidja after 1997 because they felt discriminated or threatened; share of civil servants in Anjouan population rose from 0.8 percent to 1.1 percent.
  - Distribution by ministry (2001):
    - 63 percent in Education,
    - 6 percent in Health,
    - 5 percent in Finance,
    - the remaining one-fourth in other ministries.
  - In 2003, Anjouan civil servants declined to 3046 as a result of the elimination of “ghost employees.”
  - Source: Anjouan authorities.

### Administrative and legislative implementation needs
- Line ministries must be made to function as efficiently as possible, requiring very clear delineation of competencies.
- Upcoming legislation (to be taken up by the Union Assembly) may not be sufficiently detailed to cover all questions; in that event, cooperation among various governments will be critical.
- Recent experience demonstrates an enormous capacity to work together during the transition; sustaining that spirit of cooperation will be essential for implementation of the new constitution and its laws.

*Italic: Source — IMF country report content provided in the supplied PDF excerpt.*

### 51.      While the data on the number of civil servants cited above are informative, it

### _cr04233 - 51.      While the data on the number of civil servants cited above are informative, it

### Civil service data and immediate needs
- The current number of civil servants must be established with precision; more detailed information is needed on employees working for the Union and island governments before judging reform and implementing a decentralized system.
- Since the publication of the World Bank consultant report on civil service in the Comoros, more civil servants have been hired by the various island governments; at this stage, their number is not known.
- In Anjouan, authorities introduced some measures to consolidate the civil service in 2003.
- Authorities should take a census of civil servants in Anjouan and evaluate salary arrears to civil servants who were already employed in July 1997 and have remained in the civil service.

### General proposals for civil service reform (World Bank consultant, based on 2001 situation)
- Reform of administrative and financial management
  - Responsibility for paying civil servant salaries would be turned over from the Ministry of Civil Service to the treasury to improve treasury control over salary payments.
  - Establish a unique computerized database for civil servants; administrative monitoring and control to be maintained based on information entered into this database.
- Implementation of budgetary administration of civil service
  - Base budgetary administration on positions rather than organizational structure to match civil servants with available budgetary positions and improve budgetary management.
  - Classify all civil servants by positions and qualifications; list all budgetary positions as available, reserved, or allocated.
  - Use an integrated computerized system to match vacant positions with qualifications of civil servants.
- Rehabilitation of administration of civil service
  - Implement an automated and simplified administration system allowing administrative, budgetary, and financial management of civil servants; in Anjouan, the system could mirror the rehabilitated system in Ngazidja.
  - Consolidation to begin with departure of contractuals hired since 1997.

### Civil service management under decentralization (World Bank recommendations)
- Constitutional premise: greater autonomy for islands adopted December 2001, but Article 7 of the Union constitution implies all civil servants in the Union should be subject to the same civil service law and compensated based on the same regulation in all parts of the Union.
- Risks highlighted:
  - Shortage of qualified personnel could lead to competition between different governments, disequilibrium in human resources, and wage increases to attract scarce qualified personnel.
- Suggested institutional structure
  - Federal Civil Service Commission (Conseil Supérieur de la Fonction Publique) at Union level with no administrative power; personnel from island governments and human resource technicians.
    - Responsibilities would include:
      - organization of national examinations to select the most qualified people,
      - maintenance of regulations to ensure their homogeneous application, and
      - authentication of academic degrees to ensure their legality.
  - Ministry of Civil Service of each island with autonomous administrative power.
    - Responsibilities would include:
      - administration of civil servants,
      - definition and monitoring of the professional training policy for civil servants, and
      - implementation and monitoring of the budget for the civil service.

### FAD technical assistance (2002) recommendations and key issues
- Recommends a single body of civil service for the country.
- Key issues to determine appropriate degree of decentralization in a small, resource-constrained country:
  - people’s right to free movement,
  - efficient allocation of civil servants between the islands and the Union, and
  - administration of surpluses and shortages of civil servants.
- Right to free movement
  - Civil servants should have the right to work for any government regardless of island of origin to enable efficient use of limited qualified personnel.
- Allocation and matching mechanisms
  - Clearly separate tasks of Union and island governments based on well-defined competencies.
  - Employ civil servants in line with their skills; associate civil servants with the appropriate Union or island administration.
  - Use decentralization to identify surpluses and shortages: each island takes an inventory of existing civil servants; compare identified needs after decentralization with current numbers and skills to identify surpluses/shortages.
  - Surplus civil servants listed by qualifications could be offered to other administrations; surplus civil servants given a period (e.g., two months) to find another employer outside government; those unable to do so would leave their jobs and receive a small compensation in the form of redundancy payments.
- Conclusion of FAD report: abandoning centralized civil service would be premature and probably inopportune given complexities of free movement, allocation between Union and islands, and identification of surpluses/shortages; greater island autonomy may complicate personnel management decisions.

### Paris meetings — delineation of competencies
- Representatives agreed broadly on delineation of competencies between Union and islands but have not chosen the number and characteristics of civil servants to execute specific tasks.
- Two competency areas agreed:
  - Exclusive competencies of the Union would include:
    - Citizenship.
    - Monetary policy, including the management of international reserves, and determination of the bank rate and exchange rate.
    - International relations (Union in charge; consultation with islands on texts related to island competencies).
  - Shared competencies would include:
    - Primary and secondary education: islands principal competency, except Union defines national primary and secondary education policy, evaluates that policy, and establishes related programs.
    - Health services: islands primary competency; health policies defined by the Union in collaboration with the islands.
    - Energy policy, postal services and telecommunication, transportation, and environmental policy: shared competencies.
- Shared competency model: Union forms national policy; islands implement and manage daily operations.

### Summary and conclusions (Civil service reform and decentralization)
- As Comoros moves to a decentralized government system, authorities must combine civil service reform to increase efficiency with decentralization objectives while maintaining a fiscally sustainable wage bill.
- World Bank consultant and FAD mission recommendations can assist in delineating competencies and minimizing overlap and duplication.
- Design and administration of policies by a coordinated national process would be important for establishing an efficient civil service under decentralization.
- FAD recommendation: civil servants be part of a single body of civil service and be allocated according to needs of each administration to identify surpluses and shortages and prevent competition between Union and island governments.

---

### Financial sector developments (selected points)
- Background and monetary arrangement
  - At independence in 1975, the financial sector comprised the central bank, one commercial bank, and one credit agency; Law n o 69-1161 of 1966 referenced.
  - A law defining statutes of the central Bank of Comoros established in 1979; Comorian Franc participated in the “Franc Zone” at a fixed exchange rate.
  - In 1980, a law gave the central bank power to supervise banks and regulate activities of banks and financial institutions.
  - Since 2002, Comorian franc linked to the euro; European Union must be consulted regarding any change to existing agreement including any change in exchange rate parity.
  - Membership in the Franc zone provided a firm monetary anchor, enhanced credibility of monetary policy, removed exchange rate uncertainty, and imposed a degree of fiscal discipline.
- Remittances and external transfers
  - People of Comorian origin living abroad number between 150,000 to 200,000.
  - Over the last couple of years, remitted more than US$30 million annually, or some 15 percent of GDP in 2001.
- Structure of financial sector (institutions)
  - Central bank: Banque Centrale des Comores (BCC).
  - Single commercial bank: Banque pour l’Industrie et le Commerce—Comores (BIC-C).
  - Development bank: Banque de Développement des Comores (BDC).
  - Two networks of micro-finance institutions: the Mecks and the Sanduks.
  - National Savings Fund: Caisse Nationale d’Epargne, affiliated with government-owned Postal and Telecommunication Company (SNPT).
- General indicators and comparative metrics
  - Total assets including the central bank amounted to CF 74,000 million or US$142 million in 2002.
  - Comparison: Mauritius assets reached US$6.4 billions; Seychelles US$1.4 billions.
  - Monetization (broad money to GDP): in 2001, monetization ratio increased to 27 percent from an average of 20 percent during 1991–2000; this development was due to exceptional circumstances and is likely to be reversed over the next couple of years.
    - Footnote: sharp increase in broad money in 2001 mainly resulted from conversion of formerly uncounted cash holdings of French francs ahead of introduction of the Euro at the beginning of 2002.
  - Financial intermediation indicators:
    - Banks claims on the private sector in 2002: about 8 percent of GDP in the Comoros, compared with 20 percent in Sub-Saharan Africa and the Seychelles, and more than 45 percent in Mauritius.
  - Currency in circulation remains a significant form of payment; degree of monetization and bank intermediation has lagged behind regional peers.

*Source: _cr04233 - 51.      While the data on the number of civil servants cited above are informative, it*

### 75.      The domestic savings ratio has traditionally been low in Comoros compared

### The domestic savings ratio, financial sector structure, and central bank role in Comoros

### Domestic savings and macro drivers
- The domestic savings ratio was negative for a large part of the period 1991-2002 in Comoros and displayed a considerably higher degree of volatility than in partner countries.
- The low savings ratio is explained by the high level of remittances the country receives from the Comorian diaspora.
- The swings in the savings ratio may be due to uncertainties about economic growth and political stability.
- The increase during 1998–2002 is likely to have been influenced by the creation of microfinance institutions which channeled savings of rural areas into the official financial sector.

### Absence of securities markets and government financing practices
- There are no primary or secondary markets for government or private commercial debt in the Comoros.
- Government financing has mostly taken the form of direct credit from the BCC and BIC-C, or consisted of an accumulation of foreign and domestic arrears rather than the issuance of treasury bills or bonds.
- The central bank does not issue certificates of deposits or bills; instead it has imposed required reserves to reduce active liquidity.

### Market structure and shares of financial institutions (1998-2002)
- Deposits (collected resources) market shares:
  - BIC-C: 80, 79, 77, 75, 73 (for 1998, 1999, 2000, 2001, 2002 respectively)
  - BDC: 11, 9, 9, 5, 3
  - National Savings Fund: ... ... ... 5 5
  - Meck: ... ... ... 8 11
  - Sanduk: ... ... ... 7 8
- Credits to the economy market shares:
  - BIC-C: 70, 74, 72, 71, 71 (for 1998–2002)
  - BDC: 22, 19, 17, 14, 9
  - National Savings Fund: ... ... ... 3 2
  - Meck: ... ... ... 5 10
  - Sanduk: ... ... ... 7 8

### Banque pour l’Industrie et le Commerce—Comores (BIC-C)
- The BIC-C is the only full-fledged commercial bank in the Comoros; created in 1982; five branches (three in Ngazidjia, one in Moheli, one in Anjouan); part of the BNP-Paribas group since 1990.
- Market concentration: BIC-C’s deposit market share declined from 80 percent to 73 percent over the past five years (1998-2002); its share of credits has remained broadly unchanged.
- Microfinance institutions grew to close to 20 percent market share of deposits and loans by 2002.

Key financial figures for BIC-C (1998–2002) (In millions of Comorian francs unless otherwise indicated):
- Assets: 14,435; 15,705; 17,529; 22,730; 25,665
- Of which: foreign assets: 2,374; 3,966; 3,009; 4,864; 3,182
- Treasury and interbank deposits: 5,656; 7,255; 7,997; 13,440; 15,644
- Credits: 8,404; 7,987; 7,879; 7,255; 8,071
- Nonperforming loans (NPLs): 1,117; 1,588; 1,798; 1,954; 2,029
- NPLs / credits (In percent): 13.3; 19.9; 22.8; 26.9; 25.1
- Provisions: 688; 945; 1,185; 1,400; 1,466
- Provisions / NPLs (In percent): 61.6; 59.5; 65.9; 71.6; 72.2
- Net NPLs: 429; 643; 613; 554; 563
- Deposits of clients: 11,319; 11,783; 12,406; 16,757; 19,311
- Capital: 2,395; 2,113; 2,246; 2,225; 2,234
- Net profit: 0; 310; 74; 279; 247
- Credits / deposits (in percent): 74; 68; 64; 43; 42

Findings and risks:
- Lending decreased by 5 percent during the last five years (period covered).
- Rise in political tensions and uncertainties likely weakened economic performance and contributed to lending decline.
- NPLs increased from 13.3 percent of total credits in 1998 to 25 percent in 2002 (Table IV.2 and Figure IV.6).
- Coverage of NPLs by loan loss provisions improved from 61.6 percent in 1998 to 72.3 percent in 2002.
- Recommendation: a Fund/MFD expert recommended the central bank conduct a full audit of BIC-C accounts.

### The Development Bank of the Comoros (BDC)
- Created in 1981 to replace the Société de Crédit pour le Développement des Comores.
- Resources derive from credit lines by international institutions and donors; capital now held by the BCC and the Agence Française de Développement (AFD).
- Share in overall lending declined, but its share in long term credit generally exceeded 90 percent.
- Loans cover industry, tourism, agriculture and handicraft.

Key financial figures for BDC (1998–2002) (In millions of Comorian francs):
- Assets: (values presented in table with formatting issues) — Assets entries include 4,021 and 3,206 for later years.
- Cash and interbanking deposits / Credits / Other entries: 325; 2,923; 522; 1,997; 3,210; 630; 1,736; 3,171; 848; 1,431; 3,038; 1,067; 1,065 (table format presents these figures across cells)
- Non-performing loans (NPLs): 790; 1,072; 1,324; 1,284; 1,078
- Provisions: 294; 777; 726; 697; 665
- Net NPLs: 496; 295; 598; 587; 413
- Foreign liabilities: 1,696; 1,437; 1,278; 1,051; 884
- Capital: 1,491; 1,186; 1,254; 1,274; 1,278

Findings and causes of deterioration:
- Financial situation deteriorated sharply during the 1990s; since 1997 BDC stopped lending and concentrated on recovery of outstanding loans.
- Deterioration worsened in 1998 with attempted secession of Anjouan: several tourism and hotel project portfolios became unrecoverable; many loans to civil servants of Anjouan origin defaulted when the central government stopped paying their salaries in 1998.
- Other causes: financial mismanagement, poor skills levels, governance problems.
- Recent efforts at loan recovery and increases in provisions contributed to decreases in NPLs between 2000 and 2002 and increases in provisions/NPLs ratio.
- Privatization attempts failed due to lack of investor interest and absence of audited accounts.
- A trial license for one year to restart lending was granted; an in depth analysis and auditing of BDC accounts are considered necessary before launching new activities.

### National Savings Fund (CNE) and proposed transformation
- Caisse Nationale d’Epargne (CNE) is the financial arm of the government-owned SNPT; created in 1992.
- Principal objective: mobilize domestic savings; allowed to lend to its clients but has essentially suspended lending activities due to high rate of nonperforming loans.
- Authorities proposed transforming the CNE into a commercial bank to eliminate quasi-monopoly of BIC-C, attract more savings, and introduce more competition.
- Concerns about feasibility: poor level of skills at the CNE, especially regarding new financial activities.
- BCC requested Fund technical assistance; an IMF/MFD expert recommended:
  - obligatory reserves of 30 percent,
  - a liquidity ratio of 65 percent,
  - a solvability ratio of 10 percent.
- Expert also urged strict separation of accounts and activities of the proposed new institution from those of the SNPT to avoid SNPT using CNE resources for telecom investments at non-market conditions.
- The BCC has so far not approved the government’s plans.

### Microfinance institutions (Mecks and Sanduk)
- Introduced in 1997 with assistance from the French government and international organizations.
- Sanduk financed by Caisse Française de Développement (CFD); Mecks financed by the Comorian government and the International Fund for Agricultural Development.
- The Mecks and Sanduks accept deposits and specialize in credits to small– and medium–sized enterprises.
- By the end of the first year of operations: created 39 funds across islands, collected more than FC 360 millions in savings, and distributed FC 320 millions in credits.
- By 2002 microfinance institutions had market shares close to 20 percent of deposits and loans.
- Current regulatory and supervisory gaps:
  - Microfinance networks are not yet covered by formal prudential regulations and supervision by the central bank.
  - A law draft for their inclusion is ready but not yet issued by the government.
  - Central bank will need technical assistance and increased human resources to supervise them effectively.
  - Mecks and Sanduks need modernization: better and broader computerization, reinforced internal audits, strengthened loan evaluation.

### Central Bank of the Comoros (BCC): role, objectives, and independence
- BCC law established in 1978 and amended in 1987; describes BCC as a public institution with capital CF500 million held in equal shares by the French and Comorian governments.
- Table IV.4 — Financial situation of the BCC (1998–2002) (In millions of Comorian francs):
  - Assets: 20,782; 22,364; 27,104; 39,730; 43,444
  - Of which: Foreign Assets: 16,581; 18,294; 22,956; 35,833; 38,796
  - Credit to government: 3,806; 3,814; 3,858; 3,654; 3,930
  - Credit to commercial banks: 0; 0; 0; 0; 0
  - Banks’ deposits: 3,744; 4,667; 6,116; 11,287; 0
  - Government deposits: 542; 518; 508; 712; 582
  - Foreign liabilities: 1,184; 1,171; 957; 1,394; 397
  - Foreign liabilities/total assets (in percent): 5.7; 5.2; 3.5; 3.5; 0.9

Objectives and concerns:
- Article 4 of the BCC law broadly defines objectives (formulate monetary and credit policies, supervise and control banking activities, monitor implementation of exchange regulations) leaving the primary objective unclear.
- The vagueness entails risks of pursuing multiple objectives without prioritization, potentially undermining credibility and effectiveness, diluting accountability and complicating coordination with fiscal policy.
- Best practices call for a single objective (e.g., control of inflation or safeguarding the value of the national currency) or clearly prioritized objectives if multiple are pursued.

Independence and governance issues:
- Statutory autonomy concerns:
  - Board of Directors: eight members, four designated by Comorian government and four by French government (Article 34).
  - Board members appointed for a renewable period of four years (Article 35) and can be dismissed by the authority which nominated them with no requirement to justify dismissal or procedure specified.
  - Governor appointed by the President for a renewable period of five years following recommendation of the Finance Minister on proposal by the Board (Article 40); Vice-Governor nominated by the Board for four years; Vice-Governor position typically held by a French national.
  - No clarification in BCC law regarding possible dismissal procedures or protections from political influence; duties broadly defined without specified accountability.
- Operational autonomy concerns:
  - Article 4 stipulates central bank objectives must be pursued within the framework of the government’s economic policies, which could imply subordination in case of conflict.
  - Best practices recommend a formal separation from government/fiscal policy and clearly defined provisions for resolving conflicts; such provisions do not exist in the Comoros.

*Source: Comorian authorities; and staff estimates.*

### 95.      The independence of the BCC is further weakened by the scope of the Finance

### _cr04233 - 95.      The independence of the BCC is further weakened by the scope of the Finance

### Central bank independence and fiscal financing limits
- The Finance Minister may demand a review of any Board decision under Article 34, which can exert substantial pressure on the Board even if it does not change decisions.
- Article 16 limits the central bank’s ability to finance government deficits, so such pressure "can not affect credit to the government."
- Article 17: "the sum of all loans to the Treasury (direct loans or government bonds) must not exceed 20 percent of the average annual revenues of the government during the last three budget years."
- This 20 percent cap "sharply curtails the scope of government to seek continued and large of deficit financing from the BCC."

### Franc zone membership and exchange rate regime
- Membership in the Franc zone provides additional assurances of prudent monetary policies and limits government interference.
- The monetary cooperation agreement with France:
  - fixes exchange rate policy (narrow constraints on BCC monetary policy);
  - requires the BCC to hold at least 65 percent of its foreign reserves at the French Treasury;
  - establishes a foreign exchange account called "compte d’opérations" at the French Treasury;
  - includes French administration members on the BCC Board and the nomination of a French Vice-Governor.
- The Comoros has maintained a fixed exchange rate vis-à-vis the euro at the rate of "EUR 1 = CF 492."

### Monetary policy instruments and liquidity conditions
- Legal discounting/repos under the BCC:
  - Article 11: discount or repo to banks against eligible commercial paper;
  - Article 12: bank certificates;
  - Article 13: other guaranteed debt certificates;
  - publicly guaranteed debentures and obligations subscribed by the Comorian treasury running for a period of a maximum of four years.
- The BCC has established required reserves ratios and may set minimum interest rates on deposits and lending of financial institutions.
- Official interest rates have been modified only rarely; interest rates set by the central bank are typically indexed to the interbank rates of the Euro zone.
- The BCC discount rate serves as a penalty rate when the required reserves ratio is not respected.
- Finding: "Given the high level of liquidity in the economy, the BCC’s monetary policy instruments have been blunt for most of the time." Excess liquidity appears structural and "is not likely to change soon."

### Prudential regulation and supervisory framework
- Banking law n o 80-07 introduced prudential regulation in 1980; amended in 2000 by three circulars:
  - Circular n o 12/2000/COB: instruction to provide regular information on accounting situations to the BCC;
  - Circular n o 13/2000/COB: definition of equity in the balance sheets of banks and financial institutions;
  - Circular n o 14/2000/COB: definition of the solvability ratio of banks and financial institutions.
- A draft circular on nonperforming loans (recently issued) defines nonperforming loan as: (i) loans for which more than three months have passed since the last debt service payment; (ii) loans for which the financial situation of the borrower leads to the conclusion of a high risk of default; and (iii) loans for which a judicial conflict exists between the financial institution and the borrower.

### Supervisory priorities and recommendations
- "Prudential regulation and supervision needs to be upgraded" because of domestic developments (notably microfinance) and international standards.
- Urgent recommendation: promulgate the draft law on supervision of microfinance institutions to give supervisory authority to the Central Bank, thereby providing a sound and enforceable legal framework and diminishing risks to depositors.
- Strengthen internal control and governance of microfinance institutions; require "strong and skilled management" and "transparent accounting systems that meet international standards."
- Ongoing supervisory attention required for the Development Bank (BDC): limited license for a trial period of one year was granted, but "substantial concerns" about financial soundness and management remain; "any non-traditional financial activity remain prohibited."
- Recommendation: the government's plan to create a Postal Bank or to broaden the financial activities of the CNE and SNPT networks "requires substantial further study." Key risks noted:
  - low level of skills in CNE and SNPT;
  - need for strict separation of financial transactions between the CNE (or envisaged Postal Bank) and the SNPT;
  - until issues are resolved and BCC supervision is unreservedly established, "it would be imprudent to advance with the government’s plans."

### External sector: structure and vulnerabilities (Introduction)
- The Comoros is "a small open island economy, with a ratio of exports and imports-to-GDP of almost 50 percent."
- Exports dominated by vanilla, cloves, and ylang-ylang, which "accounted for over 95 percent of total exports in 2003."
- The country has a limited manufacturing base, high dependence on imported food, and a substantial trade deficit historically.
- Trade policy remains highly restrictive due to high tariffs and duties, which are "the main source of public revenue."
- The Comoros is highly dependent on external transfers: official and private transfers "accounted for almost 50 percent of total external receipts over the last decade" and "still accounted for almost 40 percent of total external receipts" by 2003.
- Large external debt and external payments arrears have accumulated; diversification of production and foreign exchange earnings is emphasized.

### Balance of payments developments and indicators
- Current account balance evolution:
  - Moved "from a deficit of almost 16 percent of GDP in 1997 to a surplus of 2 percent in 2001" (including official transfers).
  - Since 2002 the current account turned negative again due mainly to increased imports and reduction in net private transfers.
- Terms of trade improvement was a key factor in trade balance improvement; export price increases of main commodities were central.
- Capital and financial account: positive contribution driven mainly by official capital transfers and concessional borrowing; FDI was "very low" and portfolio flows "virtually nonexistent."
- International reserves rose from "6 months of imports in 1998 to over 11 months in 2003."
- Despite reserve increases, authorities continued to accumulate external payments arrears because the reserve increase "mainly reflected private transactions, including remittances, while the fiscal situation remained tight."
- Data quality caveat: "The high and volatile level of errors and omissions (9 percent of GDP in 1997) indicates that significant data problems hinder the economic analysis of the balance of payments."

### Trade composition and trends
- Imports:
  - Dominated by basic food products, key commodities, and investment goods; "Rice, meat, petroleum, cement, iron, and steel represent approximately half of total imports."
  - Main suppliers: France, South Africa, Pakistan, and Kenya.
  - Import values increased only moderately; share in GDP declined during the last decade. After the 1994 devaluation import prices and values peaked consistent with a "J-curve" effect, but demand response was muted due to limited price elasticity.
- Exports:
  - Highly concentrated in vanilla, cloves, and ylang-ylang.
  - "Vanilla represents almost 80 percent of total exports, and the three products together account for almost 98 percent of exports in 2003."
  - Nontraditional exports remained limited in absolute terms; as commodity prices recovered in the late 1990s, shares of key export products returned to earlier levels despite reductions in export volumes.

*Italic line: Source: IMF staff report content unit _cr04233 - 95.*

### 113.     The Comoros failed to gain market share in world markets (Table V.1) despite

### _cr04233 - 113.     The Comoros failed to gain market share in world markets (Table V.1) despite

### Export performance and supply constraints
- Despite high international prices of key commodities (vanilla, cloves, ylang-ylang), export volumes from the Comoros remained stagnant—and decreased in the case of vanilla—raising concerns about supply-side constraints.
- Factors identified in the draft Interim Poverty Reduction Strategy Paper (I-PRSP) as constraints:
  - poor access to technology;
  - absence of credit facilities appropriately adapted to producers of these crops;
  - volatility of international prices.
- Crop gestation periods limit quick supply responses:
  - vanilla: about two years;
  - cloves and ylang-ylang: about five years.
- Slow adjustment of producer prices for vanilla by authorities during rapidly increasing world prices likely distorted incentives.
- If prices remain relatively high for an extended period and structural rigidities are addressed, a more forceful supply response should be expected.
- Footnotes on recent price drivers:
  - Prices of vanilla and cloves have multiplied by a factor of almost ten in the last few years.
  - Increase in vanilla price related to reduced export capacity of Madagascar after cyclone in 2000.
  - Rise in cloves price since 1999 related to falling production in Indonesia because of droughts.

### Export market shares and key statistics (Table V.1 and Table V.2)
- Market shares of the Comoros in world markets for vanilla (percent of total imports into the market), by year:
  - World: 1995: 4.1; 1996: 3.1; 1997: 3.4; 1998: 3.0; 1999: 5.7; 2000: 8.2; 2001: 4.1; 2002: 4.1.
  - (Country-level series reported with gaps for 2001 and 2002; data on market shares by country were not available for 2001 and 2002.)
- Cloves world market shares (percent of total imports into the market), by year:
  - World: 1995: 3.4; 1996: 4.8; 1997: 1.2; 1998: 5.2; 1999: 5.1; 2000: 1.7; 2001: 2.2; 2002: 3.2.
- Comoros exports of key commodities, 1993–2003 (values in millions of U.S. dollars; prices in Comorian francs per kilogram; volumes in metric tons):
  - Vanilla:
    - Value (1993–2003): 16.9; 6.6; 6.2; 2.7; 2.6; 2.4; 4.0; 7.7; 9.8; 13.8; 24.5.
    - Price (CF/kg, 1993–2003): 16,667; 21,179; 15,085; 11,325; 6,819; 8,015; 9,973; 25,818; 45,000; 58,929; 110,000.
    - Volume (metric tons, 1993–2003): 288; 131; 154; 91; 164; 132; 184; 159; 120; 122; 98.
  - Cloves:
    - Value (1993–2003): 0.9; 1.1; 0.4; 0.5; 0.8; 0.4; 2.5; 3.8; 4.4; 5.4; 4.7.
    - Price (CF/kg, 1993–2003): 171; 164; 276; 255; 227; 249; 1,130; 1,293; 2,200; 1,307; 800.
    - Volume (metric tons, 1993–2003): 1,566; 2,755; 483; 822; 1,583; 722; 1,042; 1,556; 1,106; 2,149; 2,579.
  - Ylang-ylang:
    - Value (1993–2003): 2.8; 2.0; 2.3; 1.7; 1.6; 1.3; 1.2; 1.7; 1.8; 2.6; 1.6.
    - Price (CF/kg, 1993–2003): 21,044; 18,107; 19,700; 18,160; 16,884; 14,195; 14,075; 22,175; 24,975; 19,305; 12,500.
    - Volume (metric tons, 1993–2003): (blanks for early years); 38; 45; 43; 36; 42; 41; 40; 40; 70; 56.

### Competitiveness and cost structure
- Real effective exchange rate (REER) developments:
  - Competitiveness gains from the 1994 devaluation largely maintained through the 1990s.
  - Since 2000 trend toward real appreciation; by end-2003 the REER was almost 20 percent higher than at end-2000.
  - Appreciation reflected both nominal appreciation of the euro and an increase in the consumer price index in the Comoros relative to trading partners.
  - With export concentration on a few commodities, REER and external demand have not been key determinants of export volumes; supply constraints and natural conditions are more important.
- Production costs:
  - Salaries in the Comoros are higher relative to GDP per capita (PPP adjusted) than in neighboring competitors (Table V.3):
    - Comoros: Average Salary (Public sector) 2,950; (Manufacturing sector) 1,600; GDP per capita (PPP adjusted) 1,588; Ratio of Average Salary to GDP per capita: Public sector 186; Manufacturing sector 101.
    - Madagascar: Average Salary (Public) 1,172; (Manufacturing) 696; GDP per capita 840; Ratios: Public 140; Manufacturing 83.
    - Mauritius: Average Salary (Public) 4,800; (Manufacturing) 3,252; GDP per capita 10,017; Ratios: Public 48; Manufacturing 32.
  - Utilities produced at comparatively high cost: electricity about US$0.20 per kilowatt-hour in the Comoros, compared with US$0.08 in Mauritius.
  - High transportation and logistics costs: ratio of insurance and freight to merchandise imports of 22 percent in the Comoros, compared with a median value of 14 percent for all developing countries.
  - Structural disadvantages: remoteness, insularity, small population leading to indivisibilities in public service provision, narrow resource base, small domestic market, and limited institutional capacity.
- Trade taxes and distortions:
  - Introduction in 2000 of a 5 percent export tax on vanilla, cloves, and ylang-ylang (temporary measure following sharp international price increases).
  - In addition, a specific duty of CF 3,232 per kilogram is charged on exports of vanilla.
  - Recommendation: replace export tax with domestic taxes to achieve fiscal objectives without discriminating against trade, particularly given slow production response and the prospect of price reversals.

### Remittances: magnitude, uses, and effects
- Diaspora and significance:
  - Estimated 150,000 to 200,000 people of Comorian origin living abroad.
  - The Comoros ranks in the top fifteen countries in terms of remittances received per capita (Figure V.12) and in the top four in terms of remittances in relation to GDP, exports, and growth of remittances (Figure V.13).
- Economic roles of remittances:
  - Tend to be the most stable source of development finance; remittances intended for consumption tend to increase in times of economic hardship.
  - Remittances augment recipient income and expenditure, have a multiplier effect on demand, and increase foreign exchange reserves to finance imports, including production inputs.
- Potential long-term effects and trade-offs:
  - Empirical literature notes remittances are often spent on consumption and housing in low-income countries; a large share in Comoros is spent on consumption and housing, including expenditures related to grand mariage ceremonies, which at times represent more than 10 percent of GDP.
  - Some studies (Chami, Fullenkamp, and Jahjah (2003)) find remittances have a countercyclical nature and help mitigate economic hardship but may negatively impact GDP growth long-term via moral hazard (reduced labor supply) and government-level effects (reduced demand for effective services, exchange rate and policy distortions).
  - Other studies highlight potential Dutch disease–type effects from remittance inflows raising prices of nontraded goods and reducing competitiveness.
  - Offsetting view: in low-income countries remittances can improve welfare, health, and education, and at village level remittances already finance community projects (schools, health posts, infrastructure).
- Distributional and sustainability concerns:
  - Remittances play an important role in poverty reduction by meeting basic needs; differences in remittance volumes help explain incidence of poverty across islands (Grande Comore received 91 percent of total remittances in 1991).
  - Uncertainty about long-term maintenance of current high remittance levels as the third generation of immigrants, with weaker ties to origin country, becomes the largest income-earning group in the Comorian diaspora.

### Official transfers, aid dependency, and recent trends
- Aid and official transfers have been important for the Comoros external sector.
- Trends and magnitudes:
  - In the mid-1990s official transfers represented 16 percent of GDP.
  - By 2001 official transfers represented no more than 4 percent of GDP.
  - Aid per capita: 1996: US$49; 2001: US$20.
  - Comparative context (aid per capita mid-1990s and 2001): small states average US$31 (mid-1990s); sub-Saharan Africa average US$28 (mid-1990s); all low-income countries average US$11 (mid-1990s).
- Table V.4 aid-dependency indicators (Comoros and comparators):
  - Comoros:
    - Aid per capita (U.S. dollars): 1996: 49; 2001: 20.
    - Aid as percent of GNI: 1996: 12; 2001: 7.
    - Aid as percent of gross capital formation: 1996: 88; 2001: 72.
    - Aid as percent of imports of goods and services: 1996: 26; 2001: 18.
  - The Gambia (comparison): Aid per capita 1996: 32; 2001: 38. Aid as percent of GNI 1996: 10; 2001: 13. Aid as percent of gross capital formation 1996: 44; 2001: 73. Aid as percent of imports 1996: 12; 2001: 14.
  - Sub-Saharan Africa and Low Income Countries (World Bank, World Development Indicators, 2003) provided comparator aggregates.
- Outlook:
  - Official transfers fell significantly in the late 1990s due to domestic political instability and greater international selectivity in aid.
  - It is expected that foreign aid will resume once political situation and macroeconomic management improve in the context of the power-sharing agreement reached by Comorian political parties in December 2003 under the auspices of the African Union.

*Source: IMF staff report (extract provided).*

### 122.     Diversification away from commodity-based export specialization remains a

### _cr04233 - 122.     Diversification away from commodity-based export specialization remains a

### Diversification: challenges, options, and sectoral notes
- Principal finding: "Diversification away from commodity-based export specialization remains a difficult challenge for most of sub-Saharan Africa." Key impediments listed:
  - "Poor infrastructures, lack of skills, and incomplete reforms to reduce transaction costs and improve local business conditions."
  - "Getting ports and other utilities to work efficiently and reducing corruption requires behavioral changes that will take time."
- Regional export composition and manufacturing capacity (quoted findings):
  - "The average share of primary products in total exports of the region fell only from 97 percent in the 1966-70 period to 86 percent in 1996-2000."
  - "In manufacturing, only 9 out of 41 African countries for which data are available had a share of total exports exceeding 25 percent."
- Strategic alternatives to premature sectoral diversification:
  - Vertical diversification: "build on the sectors that already exist in the economy and pursue what can be termed vertical diversification."
  - Market diversification: "expand the number of markets in which a country’s products or services are offered to reduce the vulnerability associated with a high geographical concentration of exports."
- Comoros-specific sectoral potential and constraints:
  - Agriculture:
    - World Bank finding: "potential to exploit its agricultural potential with nearby export markets."
    - Planned action: "undertake a rural sector review to evaluate structural constraints—including fiscal/tariff regimes, agricultural services delivery systems, and land tenure arrangements—and develop alternative financing mechanisms to increase agricultural production."
  - Fisheries:
    - Natural endowment: "access to large ocean areas within its exclusive economic zones."
    - Current constraint: "fishing remains an underdeveloped sector ... lack of modern equipment and financing for investment prevents the establishment of this sector as an industrial undertaking with modern processing and storage facilities."
    - Outcome: "there is only local fishing, and the country remains a net importer of fish despite the large fish resources in its territorial waters."
  - Tourism:
    - Recent performance: "Occupation rates dropped to 50 percent in 2000 from 70 percent in 1998 and 1999."
    - Structural requirements before expansion: "achieve political stability; improve infrastructures and public services, including in the electricity and health sectors; and establish more regular transportation links."
    - Operational constraint example: "Direct connections with South Africa and Dubai were suspended after the country’s international airport failed to meet tightened international security regulations."
  - Asset diversification abroad:
    - Rationale: "Diversification of asset ownership through investments abroad is also an option ... The high level of foreign reserves and of reserves in the banking system suggests that some scope would exist for this approach."
    - Constraint: "to pursue this option as a structural policy would require some assurances that the needed imports can be financed on a sustainable basis."
    - Fiscal/external position caveat: "the current account balance has only registered small surpluses in the last few years of exceptionally high international prices for its key export commodities, and as the fiscal situation remains dire, with large fiscal deficits and the continued accumulation of important payments arrears, these assurances are not yet forthcoming."

### External debt: stocks, arrears, and DSA update
- Overall assessment: "The external debt of the Comoros is not sustainable and has resulted in a continued accumulation of external payments arrears."
- Nominal stock and arrears movement:
  - "The nominal stock of debt increased by almost US$45 million after the 2002 Article IV consultation—from US$234.9 million at end-2001 to US$281.2 million at end-2003—and the stock of arrears rose from US$91 million to US$100.8 million over the same period."
  - Drivers of increase: "disbursement of new loans, mainly from the International Development Agency (IDA), and the revaluation effect caused by the depreciation of the U.S. dollar vis-à-vis the SDR."
- Creditor servicing and arrears profile:
  - Current on debt service to: "the International Monetary Fund, the IDA, and the International Fund for Agricultural Development."
  - Accumulated arrears to: "the African Development Bank and Fund (AfDB/F), the Arab Bank for Economic Development in Africa (BADEA), the Organization of Petroleum Exporting Countries (OPEC), and the Islamic Development Bank (IsDB)—and with its bilateral creditors (Kuwait, Saudi Arabia, the United Arab Emirates, China, and France)."
  - Note: "Most recently, the Comoros has serviced debt owed to the OPEC and the IsDB, but it continues to accumulate arrears to other regional and bilateral creditors."
- Debt sustainability analysis (DSA) update (preliminary, limited):
  - NPV changes:
    - "NPV of external debt in U.S. dollar terms increased from US$169.6 million at end-2000 to US$214.6 million at end-2003."
    - Causes: "disbursement of new loans, the depreciation of the U.S. dollar, and the decline in the discount rate."
  - Key ratios:
    - "NPV of debt-to-exports ratio ... increased ... from a projected 305 percent at the time of the DSA in 2001 to 503.1 percent in the latest update for end-2003."
    - "Ratio of NPV of debt to revenue was lower than projected—420 percent, compared with a 545 percent projection—owing to the appreciation of the Comorian franc vis-à-vis the U.S. dollar and the SDR."
    - Outlook: "the NPV of debt-to-exports ratio is expected to remain well above the 150 percent threshold commonly used to define the upper limit of debt sustainability. The NPV of debt-to-revenue ratio, however, is expected to continue to improve and fall below the 250 percent ratio commonly used to define sustainability under the fiscal criterion."
- Table V.5 key figures (Comoros: Debt by Creditor at End-2003) — selected items:
  - Total nominal debt stock: "281.2" (Millions of U.S. dollars); Of which: arrears "100.8"; NPV of Debt "214.6" (Millions of U.S. dollars).
  - Multilateral: nominal "227.1"; arrears "57.1"; NPV "162.3".
    - IMF: nominal "0.2"; arrears "0.0"; NPV "0.2".
    - IDA: nominal "110.1"; arrears "0.0"; NPV "64.8".
    - AfDB Group: nominal "65.1"; arrears "27.9"; NPV "52.1".
      - Of which: AfDB nominal "45.7"; arrears "8.4"; NPV "32.6".
    - Other multilaterals nominal "51.6"; arrears "29.2"; NPV "45.3".
      - BADEA "25.6" nominal; arrears "25.6"; NPV "25.6".
      - OPEC "3.5" nominal; arrears "3.5"; NPV "3.5".
      - EU/EIB "1.9" nominal; arrears "0.0"; NPV "1.4".
      - IFAD "8.5" nominal; arrears "0.0"; NPV "4.4".
      - IsDB "12.0" nominal; arrears "0.0"; NPV "10.4".
  - Bilateral: nominal "54.2"; arrears "43.7"; NPV "52.3".
    - Paris Club / France: nominal "4.6"; arrears "1.9"; NPV "4.3".
    - Other official bilateral nominal "41.9"; arrears "34.1"; NPV "40.3".
      - Kuwait nominal "21.1"; arrears "14.4"; NPV "19.7".
      - Saudi Arabia nominal "15.6"; arrears "15.6"; NPV "15.6".
      - United Arab Emirates nominal "1.1"; arrears "1.1"; NPV "1.1".
      - China nominal "4.0"; arrears "3.0"; NPV "3.8".
  - Commercial: nominal "7.7"; arrears "7.7"; NPV "7.7".
- Footnotes and adjustments:
  - Upward revision note: "Information received since the last Article IV consultation has led to an upward revision of US$7.7 million in the stock of nominal debt and arrears at end-2001, where the former represents postal debt to France that was not included earlier."
  - Exchange-rate effect: "Despite the increase in external debt in U.S. dollar terms, the exchange rate effect has benefited the country, as debt service has fallen in terms of the domestic currency with the appreciation of the euro—to which the Comorian franc is pegged—vis-à-vis the U.S. dollar and the SDR over the same period."
  - Additional NPV revision: "Information received since the last Article IV consultation has led to an upward revision of US$7.7 million in the NPV of debt at end-2000."

### Exchange regime, trade regime, and tariff structure
- Exchange regime:
  - Membership: "The Comoros is a member of the French franc zone."
  - Peg history: "After a 33 percent devaluation in January 1994 ... the Comorian franc was pegged to the French franc at the rate of FF 1 = CF 75."
  - Since January 1999 peg: "the Comorian franc has been pegged to this currency at the rate of EUR 1 = CF 492."
  - Rate derivation: "Exchange rates between the Comorian franc and other currencies are derived from the rate for each currency vis-à-vis the euro in the Paris exchange market."
  - Article VIII status: "On June 1, 1996, the Comoros accepted the obligations of Article VIII, Sections 2, 3, and 4 of the Fund’s Articles of Agreement. The exchange system has generally remained free of restrictions on current payments."
  - Exchange control authority and rules:
    - "The Minister of Finance and Budget has sole authority in exchange control matters but has delegated certain of these powers to the Central Bank of the Comoros (BCC) and to authorized banks."
    - "Capital transfers to countries outside the French franc zone require exchange control approval, but capital receipts from these countries are permitted freely."
    - "There are controls on export and imports of banknotes in excess of CF 500,000."
    - "Foreign exchange accounts can be held by residents and nonresidents, but prior approval is required."
    - "All import and export transactions in excess of CF 500,000 are subject to a domiciliation requirement with authorized banks."
    - "Proceeds from exports to foreign countries must be repatriated within 30 days of the expiration of the commercial contract, and they must be sold immediately after repatriation to an authorized bank."
- Trade regime and tariffs:
  - WTO status and trade restrictiveness: "The Comoros is not a member of the World Trade Organization (WTO). In 2001, the last date of the assessment, it scored an 8 on the Fund’s 10-point trade restrictiveness index (with 10 being the most restrictive)."
  - Single import tax structure introduced in 1997: "a single ad valorem import tax with three nonzero bands of 20, 30, and 40 percent was introduced in 1997 to simplify the prior multiple tariff system."
  - Additional fees and charges:
    - "an administrative fee of 5 percent, a statistical fee of 1 percent, a withholding tax of 1 percent ... and a surcharge of 1 percent to finance the Chamber of Commerce."
  - Taxes-on-imports ratio: "This ratio fell from 35 percent in 1997 to 27 percent in 1998 ... fell further to 24.6 percent in 2000, it increased again to almost 27 percent in 2002."
  - Export taxation on key commodities:
    - "Since 2000, exports of vanilla, cloves, and ylang-ylang have been subject to an export tax of 5 percent, and an additional surcharge of 1 percent was introduced in 2003."
    - "Exports of vanilla attract an additional specific duty of CF 3,232 per kilogram."
    - Historical note: "Before 2000, there was only a tax on exports of ylang-ylang, at a rate of 11.6 percent—a tax of 20 percent on exports of vanilla had been eliminated in 1997 when international prices reached their minimum level of the last decade."
  - Non-tariff measures and monopolies:
    - "No quantitative restrictions or licensing requirements for imports or other nontariff barriers are reported."
    - "State monopolies exist for imports of petroleum and low-grade rice."
  - Inter-island tariff divergence: "At the time of the mission, tariff regimes in Anjouan and the other islands were different. Anjouan did not follow the introduction of surtaxes on commodity exports and on imports of rice, tobacco, alcohol, and automobiles, effective July 2003. Discussions are under way to harmonize the system again for all islands of the Comoros."
- Table V.6: Rates and specific duties applied (selected entries preserved exactly)
  - Single import tax (three bands):
    - 20 percent: "Milk, sugar, cattle, pharmaceutical products, and automobiles for public transport"
    - 30 percent: "Iron, steel, cement, and cars"
    - 40 percent: "Fish, vegetables, fruit, coffee, grains, chemicals, plastics, textiles, clothes, wood and furniture, aluminum, lead, zinc, perfumes, jewelry, art, and arms"
  - Special rates:
    - "180 percent + 20 percent surtax introduced in July 2003 — Tobacco"
    - "200 percent + 20 percent surtax introduced in July 2003 — Wine and beer"
    - "250 percent + 20 percent surtax introduced in July 2003 — Spirits"
  - Specific duties:
    - "CF 8,250, CF 2,500 per unit — Cattle"
    - "CF 50, CF 70 per kg. — Meat"
    - "CF 60, CF 100 per kg + CF 50 surtax introduced in July 2003 — Rice"
    - "CF 750,000 - CF 1,000,000 per unit (increased in July 2003) — Automobiles"
    - "CF 230 per liter (CF 211 reduced rate for ships, planes and diplomats) — Petrol"
    - "CF 115 per liter (CF 95 reduced rate for ships, planes and diplomats) — Fuel"
  - Export taxes:
    - "5 percent + 1 percent surtax introduced in July 2003 — Vanilla, cloves, and ylang-ylang"
    - "CF 3,232 per kg. — Vanilla"
- Regional integration:
  - COMESA membership and FTA status:
    - "The Comoros is a member of the Common Market for Eastern and Southern Africa (COMESA)."
    - "The country is not a participating member of COMESA’s Free Trade Area (FTA) ... although it has indicated its intention to follow trade policies that are in line with the FTA—starting with the application of an 80 percent tariff reduction on imports from these countries—the Comoros does not currently provide any preferential access to the FTA’s member countries."
    - Fiscal constraint: "these currently account for about 60 percent of all government revenues."
  - Customs union implications:
    - COMESA customs-union requirements: "establishment of a common tariff nomenclature (CTN), a common customs valuation system, common external tariffs, a harmonized trade policy, and a common administrative structure with common customs procedures and legislation."
    - Envisaged common external tariffs (COMESA customs union): "0 percent for capital goods and raw materials, 10 percent on semiprocessed goods, and 25 percent on finished goods."
    - Policy implication: "would represent a further considerable reduction from the current three tariff bands of 20, 30, and 40 percent in the Comoros, and additional studies to assess the feasibility of these reductions will likely be necessary."

*Italic: IMF staff report content as supplied in the source PDF.*

### 139.     The Comoros also participates in the Regional Integration Facilitation Forum

### _cr04233 - 139.     The Comoros also participates in the Regional Integration Facilitation Forum

### Regional Integration Facilitation Forum (RIFF)
- The Riff is a framework for harmonizing policies to facilitate a market-driven concept of regional integration in eastern and southern Africa and Indian Ocean countries.
- The RIFF comprises 14 participating countries 54 in the region.
- The development of the RIFF was supported by four cosponsors: the Fund, the World Bank, the European Union, and the AfDB.
- Key elements of the initiative:
  - liberalizing foreign exchange systems and trade
  - strengthening domestic financial markets
  - liberalizing investment procedures
- As envisaged under the RIFF, the Comoros has set up a Technical Working Group comprising representatives of the public and private sectors to identify and report on the main impediments to cross-border activities and suggest a program of action at the national level.

- Footnote 52 (member-country list as presented):
  - Member countries are Angola, Burundi, the Comoros, Democratic Republic of the Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe.
- Footnote 54 (RIFF participating countries list as presented):
  - Member countries are Burundi, the Comoros, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe.

### Preparations toward a regional customs union
- The Comoros would need to implement a number of other changes as part of preparations toward a regional customs union, including:
  - moving from the Harmonized System (HS) 1992 to HS 1996 or HS 2002 as a step toward the adoption of a CTN
  - migrating the customs valuation method from a Brussels definition of value system to the General Agreement on Tariffs and Trade (GATT) valuation code

### Indian Ocean Commission (IOC)
- The Comoros is a member of the Indian Ocean Commission (IOC).
- The IOC’s primary objective is to promote trade between member states 55 and to develop cooperation in fishing, tourism, and environmental matters.
- The role of the IOC has been overshadowed in recent years by the growing importance of COMESA.
- A proposal to provide IOC member countries with preferential access through an 80 percent tariff reduction on imports from these countries was recently turned down.

- Footnote 55 (IOC membership as presented):
  - Madagascar, Mauritius, Seychelles, and France (representing Réunion) are the other members of the organization.

*Source: _cr04233 - 139.     The Comoros also participates in the Regional Integration Facilitation Forum*

### References

### _cr04233 - References

### References cited
- Berezin, Peter, Ali Salehizadeh, and Elcior Santana, 2002, “The Challenge of Diversification in the Caribbean,” IMF Working Paper 02/196 (Washington: International Monetary Fund).
- Bonaglia, Federico, and Kiichiro Fukasaku, 2003, “Export Diversification in Low-Income Countries: An International Challenge After Doha,” OECD Technical Paper No. 209 (Paris: OECD Development Center).
- Bourdet, Yves, and Hans Falck, 2003, “Emigrants’ Remittances and Dutch Disease in Cape Verde,” Lund University Department of Economics Working Paper 2003:11 (Lund, Sweden: Lund University).
- Chami, Ralph, Connel Fullenkamp, and Samir Jahjah, 2003, “Are Immigrant Remittance Flows a Source of Capital for Development?” IMF Working Paper 03/189 (Washington: International Monetary Fund).
- Commonwealth Secretariat/World Bank Joint Task Force on Small States, 2000, Small States: Meeting Challenges in the Global Economy (London and Washington: Commonwealth Secretariat and World Bank).
- Da Cruz, Vicente, Wolfgang Fengler, Adam Schwartzman, 2004, “Remittances in Comoros” (unpublished; Washington: World Bank).
- Economist Intelligence Unit, 2003, Country Profile: Comoros (London: Economist Intelligence Unit).
- Kapur, Devesh, and John McHale, 2003, “Migration’s New Payoff,” Foreign Policy November/December (Washington: Carnegie Endowment for International Peace).
- World Bank, 2003, “Workers’ Remittances: An Important and Stable Source of External Development Finance,” Chapter 7 in Global Development Finance I: Analysis and Statistical Appendix (Washington: World Bank).

### Key macroeconomic and sectoral statistics (selected)
- GDP at market prices (current market prices, In millions of Comorian francs):
  - 1997: 92,835
  - 1998: 95,303
  - 1999: 102,782
  - 2000: 108,850
  - 2001: 121,003
  - 2002: 128,980
- GDP at market prices (1990 constant prices, In millions of Comorian francs):
  - 1997: 72,651
  - 1998: 73,488
  - 1999: 74,902
  - 2000: 76,696
  - 2001: 78,485
  - 2002: 80,310
- Agriculture, livestock, fishing, and forestry (current market prices, In millions of Comorian francs):
  - 1997: 37,962; 1998: 38,971; 1999: 42,029; 2000: 44,511; 2001: 49,480; 2002: 53,000
- GDP annual percentage change (GDP at 1990 constant prices):
  - 1997: 4.2
  - 1998: 1.2
  - 1999: 1.9
  - 2000: 2.4
  - 2001: 2.3
  - 2002: 2.3

### Resource use and demand (selected)
- Source and use of resources (current market prices, In millions of Comorian francs):
  - Public consumption: 1997: 16,360; 1998: 14,971; 1999: 15,072; 2000: 14,495; 2001: 19,719; 2002: 20,538
  - Private consumption: 1997: 84,862; 1998: 84,817; 1999: 93,615; 2000: 95,891; 2001: 102,963; 2002: 110,195
  - Gross fixed capital formation: 1997: 12,414; 1998: 14,048; 1999: 12,256; 2000: 11,257; 2001: 11,263; 2002: 13,300
  - Exports of goods and services: 1997: 16,845; 1998: 11,394; 1999: 13,576; 2000: 16,382; 2001: 19,236; 2002: 21,983
  - Imports of goods and services: 1997: -39,946; 1998: -32,990; 1999: -34,857; 2000: -32,175; 2001: -35,179; 2002: -39,536

### Agriculture, food, and export crops (selected production and prices)
- Food crop production (metric tons, selected items):
  - Paddy: 1997: 2,965; 1998: 2,960; 1999: 2,960; 2000: 2,955; 2001: 2,945; 2002: 2,934
  - Bananas: 1997: 58,026; 1998: 59,070; 1999: 60,130; 2000: 61,210; 2001: 60,003; 2002: 60,891
  - Cassava: 1997: 50,396; 1998: 51,100; 1999: 51,820; 2000: 52,540; 2001: 54,128; 2002: 54,876
- Export crop production (metric tons, selected items):
  - Vanilla (green): 1997: 815; 1998: 943; 1999: 600; 2000: 685; 2001: 700; 2002: 540
  - Cloves: 1997: 1,965; 1998: 2,010; 1999: 3,210; 2000: 3,884; 2001: 2,725; 2002: 2,869
  - Ylang-ylang flowers (units): 1997: 2,491; 1998: 3,551; 1999: 2,650; 2000: 525; 2001: 1,974; 2002: 1,827
- Prices of export crops (Comorian francs per kilogram, selected series):
  - Vanilla export price, f.o.b. (dried vanilla): 1997: 6,819; 1998: 8,015; 1999: 9,973; 2000: 25,818; 2001: 45,000; 2002: 58,929
  - Ylang-ylang export price, f.o.b. (essence): 1997: 16,884; 1998: 14,195; 1999: 14,075; 2000: 22,175; 2001: 24,975; 2002: 19,305
  - Cloves export price, f.o.b.: 1997: 227; 1998: 249; 1999: 1,130; 2000: 1,293; 2001: 2,200; 2002: 1,307

### Fiscal sector (selected consolidated government figures, In millions of Comorian francs)
- Total revenue and grants:
  - 1997: 21,011; 1998: 17,812; 1999: 18,885; 2000: 15,557; 2001: 19,913; 2002: 22,433
- Total expenditure and net lending:
  - 1997: 23,076; 1998: 21,038; 1999: 19,669; 2000: 17,614; 2001: 20,755; 2002: 29,181
- Overall balance (payment order):
  - 1997: -2,065; 1998: -3,226; 1999: -784; 2000: -2,057; 2001: -6,842; 2002: -6,748
- Total revenue (tax and nontax):
  - 1997: 12,828; 1998: 10,865; 1999: 12,079; 2000: 11,018; 2001: 13,913; 2002: 16,660
- Tax revenue (selected totals and components):
  - Tax revenue total: 1997: 11,968; 1998: 9,277; 1999: 10,509; 2000: 9,724; 2001: 11,711; 2002: 13,575
  - Taxes on international trade (1997–2002): 1997: 9,434; 1998: 6,481; 1999: 6,852; 2000: 6,367; 2001: 8,065; 2002: 8,815
  - Taxes on income and profits (1997–2002): 1997: 1,436; 1998: 1,598; 1999: 2,084; 2000: 1,895; 2001: 1,437; 2002: 2,903

### Public sector wages, staffing, and public enterprises (selected)
- Total wage bill (aggregate totals in tables):
  - Government wage bill (total, Table 22): 1997 total: 6,821; 1998: 5,947; 1999: 5,454; 2000: 4,934; 2002: 5,014 (In Comorian francs)
- Staffing levels (total civil servants paid by Ministry of Civil Service):
  - 1998: 5,784; 1999: 6,140; 2000: 5,809; 2001: 3,866; 2002: 3,653
- Public enterprises (selected net surplus/loss from Table 23, In millions of Comorian francs):
  - SCH (Comorian Hydrocarbons Company) surplus/loss:
    - 1997: -303; 1998: 638; 1999: 343; 2000: -79; 2001: 958; 2002: 647
  - ONICOR (National Rice Imports and Marketing Office) surplus/loss:
    - 2000: 72; 2001: 94; 2002: 121
  - Airport Hahaya (AIMPSI) surplus/loss:
    - 1997: 261; 1998: 204; 1999: 195; 2000: 180; 2001: 175; 2002: 136
  - SNPT (Post and Telecommunications Office) surplus/loss:
    - 1997: 1,348; 1998: 1,375; 1999: 1,803; 2000: 2,102

### Monetary and banking sector (selected, end of period, In millions of Comorian francs)
- Monetary aggregates (Table 25):
  - Net foreign assets: 1997: 18,765; 1998: 17,737; 1999: 19,890; 2000: 22,813; 2001: 36,019; 2002: 39,324
  - Net domestic assets: 1997: -391; 1998: -579; 1999: -1,529; 2000: -1,794; 2001: -5,036; 2002: -5,431
  - Broad money: 1997: 18,374; 1998: 17,158; 1999: 18,361; 2000: 21,019; 2001: 30,983; 2002: 33,893
  - Money (M1): 1997: 10,603; 1998: 10,175; 1999: 11,662; 2000: 14,115; 2001: 22,937; 2002: 25,305
- Central Bank (Table 26, selected):
  - Foreign assets (end of period): 1997: 18,298; 1998: 16,581; 1999: 18,295; 2000: 23,017; 2001: 34,879; 2002: 38,796
  - Reserve money: 1997: 10,454; 1998: 9,323; 1999: 11,104; 2000: 13,980; 2001: 23,851; 2002: 28,340
- Bank for Industry and Commerce (Table 27, selected):
  - Reserves: 1997: 4,024; 1998: 3,511; 1999: 3,796; 2000: 5,257; 2001: 8,806; 2002: 12,547
  - Claims on private sector: 1997: 8,032; 1998: 8,682; 1999: 8,142; 2000: 9,315; 2001: 9,151; 2002: 10,114
- Structure of interest rates (end of period, percent):
  - Central bank claims on government: 1997: 4.8; 1998: 4.8; 1999: 3.7; 2000: 3.7; 2001: 3.7; 2002: 4.6
  - Discount rate: 1997: 7.0; 1998: 7.0; 1999: 5.9; 2000: 5.9; 2001: 5.9; 2002: 4.6
  - Commercial bank lending rate (two-tier where reported): 1997: 11.0/18.0; 1998: 11.0/18.0; 1999: 9.0/15.0; 2000: 9.0/15.0; 2001: 9.0/15.0; 2002: 9.0/15.0

### External sector and balance of payments (selected)
- Balance of payments (In millions of Comorian francs, Table 29):
  - Trade balance: 1997: -18,446; 1998: -16,099; 1999: -15,823; 2000: -12,647; 2001: -12,731; 2002: -13,920
  - Exports, f.o.b.: 1997: 2,630; 1998: 2,632; 1999: 4,181; 2000: 7,263; 2001: 9,144; 2002: 11,662
  - Imports, f.o.b.: 1997: -21,077; 1998: -18,731; 1999: -20,004; 2000: -19,910; 2001: -21,875; 2002: -25,582
  - Private transfers (net): 1997: 0; 1998: 11,946; 1999: 13,039; 2000: 12,680; 2001: 14,430; 2002: 11,098
  - Current account (excluding official transfers): 1997: -22,999; 1998: -9,813; 1999: -8,149; 2000: -2,935; 2001: -277; 2002: -6,467
  - Current account (including official transfers): 1997: -14,637; 1998: -2,408; 1999: -934; 2000: 1,604; 2001: 5,054; 2002: -1,059
  - Overall balance: 1997: -5,674; 1998: -5,857; 1999: -2,708; 2000: 1,141; 2001: 9,231; 2002: 3,276
- Balance of payments (In millions of U.S. dollars, Table 30, selected):
  - Trade balance: 1997: -42.1; 1998: -36.4; 1999: -34.3; 2000: -23.7; 2001: -23.2; 2002: -26.7
  - Exports, f.o.b. (U.S.$): 1997: 6.0; 1998: 5.9; 1999: 9.1; 2000: 13.6; 2001: 16.6; 2002: 22.4
  - Imports, f.o.b. (U.S.$): 1997: -48.1; 1998: -42.3; 1999: -43.3; 2000: -37.3; 2001: -39.8; 2002: -49.1
- Principal exports, f.o.b. (value, volume, unit value; Table 31, selected)
  - Vanilla value (In millions of Comorian francs): 1997: 1,119; 1998: 1,058; 1999: 1,835; 2000: 4,105; 2001: 5,400; 2002: 7,189
  - Vanilla volume (metric tons): 1997: 164; 1998: 132; 1999: 184; 2000: 159; 2001: 120; 2002: 122
  - Vanilla unit value (Comorian francs per kilogram): 1997: 6,819; 1998: 8,015; 1999: 9,973; 2000: 25,818; 2001: 45,000; 2002: 58,929

### External debt and debt service (selected, In millions of U.S. dollars)
- External debt outstanding by creditors (Table 34):
  - Multilateral loans total: 1997: 131.5; 1998: 134.2; 1999: 123.9; 2000: 120.8; 2001: 183.3; 2002: 140.5
  - Bilateral loans total: 1997: 28.0; 1998: 27.1; 1999: 21.1; 2000: 20.1; 2001: 42.8; 2002: 29.1
  - Total (disbursed, outstanding, and not yet due): 1997: 159.5; 1998: 161.3; 1999: 145.0; 2000: 140.9; 2001: 143.9; 2002: 169.6
  - Stock of debt: 1997: 199.1; 1998: 210.0; 1999: 197.0; 2000: 224.6; 2001: 227.2; 2002: 241.2
- External debt-service payments (Table 36):
  - Total debt service due (In millions of U.S. dollars): 1997: 11.78; 1998: 10.97; 1999: 11.83; 2000: 7.73; 2001: 6.27; 2002: 6.22
  - Principal due: 1997: 9.5; 1998: 8.79; 1999: 9.7; 2000: 5.44; 2001: 4.19; 2002: 4.08
  - Interest due: 1997: 2.26; 1998: 2.18; 1999: 2.12; 2000: 2.29; 2001: 2.08; 2002: 2.14
- External debt arrears (Table 35, In millions of U.S. dollars):
  - Total arrears: 1997: 39.7; 1998: 48.7; 1999: 52.0; 2000: 83.7; 2001: 83.3; 2002: 71.2

### Prices, inflation, and cost-of-living (selected)
- Consumer price index (Index, 1999=100; Table 15, selected totals):
  - Total index: 1999: 100.0; 2000: 104.6; 2001: 112.1; 2002: 115.8
  - Memorandum: Consumer price index (annual percentage change) 1999: 4.6; 2000: 5.9; 2001: 3.3
- Prices of essential goods (Table 16, selected retail prices in Comorian francs per unit):
  - Rice retail price (kilogram): 1997: 235; 1998: 250; 1999: 250; 2000: 250; 2001: 250; 2002: 260
  - Cement retail price (metric tons): 1997: 70,100; 1998: 70,000; 1999: 75,000; 2000: 70,000; 2001: 75,000; 2002: 79,500
  - Regular gasoline (liters): 1997: 360; 1998: 360; 1999: 390; 2000: 390; 2001: -450; 2002: 450

### Trade composition and geographic distribution (selected)
- Geographical distribution of exports (percent of total, Table 33, selected):
  - European Union: 1997: 52.3; 1998: 68.7; 1999: 43.5; 2000: 50.3; 2001: 52.5; 2002: 52.6
    - France (share of exports): 1997: 42.5; 1998: 54.7; 1999: 29.1; 2000: 38.6; 2001: 47.6; 2002: 38.7
  - United States (share of exports): 1997: 19.3; 1998: 5.4; 1999: 3.8; 2000: 19.9; 2001: 31.1; 2002: 28.1
- Geographical distribution of imports (percent of total, Table 33, selected):
  - European Union: 1997: 42.4; 1998: 44.8; 1999: 45.8; 2000: 44.3; 2001: 46.5; 2002: 37.7
    - France (share of imports): 1997: 34.9; 1998: 36.1; 1999: 37.6; 2000: 36.6; 2001: 42.5; 2002: 30.1
  - Asia (share of imports): 1997: 30.8; 1998: 30.7; 1999: 21.4; 2000: 28.0; 2001: 22.8; 2002: 20.1

*Source: _cr04233 - References (IMF staff and Comorian official data as presented in the source PDF).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04233.pdf_