Public Information Notice: IMF Concludes Article IV Consultation with Comoros
IMF News, September 5, 2000
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- Published: September 5, 2000
Background
- Article IV consultations with Comoros resumed after a two-year suspension; consultations could not be held in 1998-1999 because of disruptions in government services and continuing political turmoil, including the conflict with the separatist movement on the island of Anjouan.
- On July 12, 2000, the Executive Board concluded the Article IV consultation with Comoros.
- While the conflict with Anjouan had not been resolved and Anjouan remained outside the control of the Federal Government, government services were reported to be functioning normally.
- The Comoros is a member of the French Franc Zone and under its fixed exchange rate regime inflation was kept at 3-4 percent per year in 1998-1999.
Economic performance and recent developments
- Real GDP: estimated declines of 0.5 percent in 1998 and 1.4 percent in 1999.
- Living standards in Grande Comore were partly protected by increasing transfers from the Comorian community living overseas.
- Fiscal situation:
- High ratio of expenditure on wages and salaries to domestic revenues: 53 percent in 1999.
- Deficit after grants declined from 4.2 percent of GDP in 1998 to 0.7 percent of GDP in 1999, largely because of a fall in foreign-financed capital expenditure.
- Deficits in 1998 and 1999 were mainly financed by accumulation of arrears on wages and foreign interest; Comoros also incurred further large arrears on repayment of foreign debt.
- Government cleared debt service arrears to the World Bank, enabling the World Bank to resume lending operations in early 2000.
- Monetary and financial:
- Broad money and credit to the economy increased by only about 4 percent during the last two years (refers to the 1998-1999 period).
- On January 1, 2000, the Central Bank of the Comoros introduced a flexible interest rate policy, linking rates for the single commercial bank to those prevailing in the Euro zone.
- External sector:
- Current balance of payments (including grants) improved from a deficit of 6 percent of GDP in 1997 to virtual balance in 1999, driven by a 37 percent increase in private transfers from the Comorian community abroad which more than offset a sharp decline in official grants.
- Gross official reserves decreased from 6.6 months of imports of goods and nonfactor services in 1997 to 6.1 months at end-1999.
Executive Board Assessment — key findings
- Directors expressed concern that economic performance continued to deteriorate and that prospects remained clouded by the political crisis with the separatist movement on Anjouan.
- Contributing factors to the decline included a deteriorating external environment and weaknesses in the implementation of macroeconomic and structural policies.
- Directors welcomed recent measures by the authorities to raise government revenues and strengthen economic management but stressed that more significant efforts were needed to:
- Stabilize the fiscal position.
- Make progress in privatizing state-owned corporations.
- Tax administration:
- Some progress in strengthening tax administration noted.
- Further measures needed, including reduction of tax exemptions.
- Public employment and wages:
- Efforts to reduce the workforce in recent years had not been successful; overstaffing must be addressed to remove fiscal fragility.
- Reduction in staffing levels is the best long-term solution; in the short run a reduction in wages—or at least a freeze, coupled with more regular salary payment—would help ease tensions.
- Directors welcomed the authorities’ readiness to take actions along this line.
- Debt and arrears:
- Welcome for settlement of arrears to the World Bank and resumption of Bank projects.
- Urged authorities to initiate dialogue with multilateral and bilateral creditors in the face of mounting arrears in debt service payments.
- Considered greater efforts to mobilize domestic resources and significant external support, including debt rescheduling, would be needed to settle all remaining arrears.
- Structural reforms and competitiveness:
- Given the exchange rate regime, return to sustained growth requires determined implementation of structural reforms to improve efficiency and competitiveness.
- Authorities urged to accelerate privatization, strengthen competition via further gradual trade liberalization, and modify regulatory and legal framework including commercial and labor codes.
- Reinforcement of rural credit networks within the regulatory framework of the banking sector could help channel savings into productive investments.
- Statistics and technical assistance:
- Statistical database remains very weak.
- Authorities recommended to give high priority to improving collection and methodology of core macroeconomic statistics.
- Directors encouraged Comoros to request needed technical assistance given limited resources and capacity.
Policy recommendations and priorities
- Stabilize the fiscal position through:
- Continued revenue strengthening and tighter fiscal management.
- Addressing overstaffing in the public sector; consider wage freeze or reduction combined with more regular salary payments.
- Strengthening fiscal management and monitoring.
- Improve tax administration, including reduction of tax exemptions.
- Engage creditors to address arrears and seek debt rescheduling where necessary.
- Accelerate privatization of state-owned enterprises and promote competition through trade liberalization and legal/regulatory reforms (commercial and labor codes).
- Strengthen rural credit networks within banking-sector regulatory framework to support productive investment.
- Prioritize improvement of statistical systems and request technical assistance to enhance macroeconomic monitoring.
Comoros: Selected Economic Indicators (as presented)
(Annual percentage change, unless otherwise indicated)
- Real GDP at market prices: 1995 -3.9; 1996 -.01; 1997 0.5; 1998 -0.5; 1999 -1.4; 2000 Proj.
- Consumer price index (annual average): 1995 8.0; 1996 2.0; 1997 3.0; 1998 3.5; 1999 4.5
- Domestic credit (money and credit): 1995 17.5; 1996 -17.4; 1997 8.3; 1998 19.6; 1999 -1.9; 2000 20
- Broad money: 1995 -3.7; 1996 12.2; 1997 0.1; 1998 -3.6; 1999 8.1; 2000 4.0
- Exports f.o.b. (in terms of Comorian Francs): 1995 -5.7; 1996 -42.5; 1997 7.9; 1998 0.9; 1999 40.5; 2000 -7.7
- Imports f.o.b. (in terms of Comorian Francs): 1995 7.4; 1996 -6.2; 1997 -11.1; 1998 6.8; 1999 4.8
(In percent of GDP)
- Revenues: 1995 14.3; 1996 13.3; 1997 15.1; 1998 11.9; 1999 13.7; 2000 15.5
- Expenditures: 1995 34.0; 1996 28.5; 1997 27.2; 1998 24.1; 1999 22.1; 2000 23.7
- Overall balance (including grants; commitment basis): 1995 -7.9; 1996 -6.3; 1997 -2.4; 1998 -4.2; 1999 -.07
- Current account balance: 1995 -9.6; 1996 -9.4; 1997 2.7; 1998 -2.8; 1999 (not shown); 2000 (not shown)
- Total external debt outstanding (excluding arrears): 1995 94.4; 1996 98.1; 1997 94.3; 1998 94.5; 1999 98.0; 2000 95.4
- Gross international reserves (in months of imports of goods and nonfactor services): 1995 5.1; 1996 6.5; 1997 5.5; 1998 5.7; 1999 6.1
Source: Public Information Notice, IMF, September 5, 2000.