Press Release No. 23/457

IMF Executive Board Completes the First Review Under the Extended Credit Facility Arrangement and Concludes the 2023 Article IV Consultation with the Union of the Comoros

December 15, 2023

• The IMF Executive Board today completed the first review under the Extended Credit Facility Arrangement and the 2023 Article IV Consultation with the Union of the Comoros. Approval of the first review enables the immediate disbursement of SDR 3.56 million (about US$4.77 million).
• Performance under Comoros’s economic reform program has been broadly satisfactory, despite a challenging context and the authorities remain committed to the ECF Arrangement.
• Policy priorities under the program aim to preserve medium-term fiscal and debt sustainability, improve public financial management by monitoring fiscal risks from SOEs, enhance financial sector stability through strengthening supervision and resolution capacities, and improve the governance architecture.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed today the First review under the Union of the Comoros’s Extended Credit Facility (ECF) arrangement. The Executive Board’s decision allows for an immediate disbursement of SDR 3.56 million (about US$4.77 million). The 4-year ECF arrangement was approved on June 1, 2023, with access of SDR 32.04 million (about US$43 million).

In completing the first review, the Executive Board also approved the authorities’ request for a waiver for nonobservance of the end-June 2023 performance criteria on the ceiling on the accumulation of new domestic payments arrears and continuous performance criterion on the ceiling on new external arrears.

The Union of the Comoros’s economic reform program supported by the ECF arrangement seeks to reduce fragility and increase economic resilience by building fiscal buffers, reducing debt vulnerabilities, and strengthening the financial sector and governance. Key policy priorities under the program include: (i) mobilizing domestic revenue supported by reforms to strengthen tax and customs administration and streamline tax exemptions; (ii) completing the restructuring of the state-owned postal bank SNPSF and enhancing the Central Bank’s banking supervision and resolution capacities; and (iii) strengthening governance through public financial management and anti-corruption reforms.

The authorities’ commitment to the ECF-supported program remains strong and program performance has been satisfactory, despite a challenging external environment. Seven of eight structural benchmarks (SBs) were met as of end-October 2023; and four of six quantitative performance criteria (QPCs) for end-June 2023 were observed.

The Executive Board also concluded the 2023 Article IV consultation [1] with the Union of the Comoros.

Signs of economic recovery are visible, supported by a rebound in tourism and ongoing public investment projects. Inflation has declined, in line with normalization in international oil and food prices. The fiscal outturn in the first half of 2023 has been better than expected thanks in part to strong revenue mobilization efforts. The current account deficit is projected to deteriorate over the short term on account of strong import demand and elevated international fuel and food prices, while international reserves remain adequate. However, risks to the outlook remain elevated due to the fragile domestic context and global uncertainty. Dependence on imports, remittances, and foreign aid means the economy remains highly vulnerable to external shocks.

Following the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director and acting Chair, issued the following statement:

“The Comorian authorities’ commitment to macroeconomic stability and the broadly satisfactory performance under the ECF arrangement are commendable. Economic recovery has strengthened, although substantial risks remain due to the elevated global uncertainty and Comoros’s fragility and capacity constraints. The authorities are focused on measures to strengthen resilience, reduce fragility, and promote inclusive private sector-led growth.

“Continued fiscal consolidation, including through improved domestic revenue mobilization, will gradually reduce financing needs and create the fiscal space necessary for the considerable social and investment spending priorities. Promptly addressing the bottlenecks in fiscal reform implementation, which are largely rooted in Comoros’ weak public financial management system is critical. Important measures include prioritizing improvements in the budget process, addressing external arrears and completing the audit exercise on domestic arrears, and improving the performance and oversight of state-owned enterprises.

“The focus on strengthening the monetary policy toolkit is welcome and the fixed exchange rate regime has provided an effective anchor for monetary policy and ensured sufficient external buffers for Comoros. Monetary policy should maintain its focus on safeguarding the peg and ensure price stability. Efforts by the Central Bank of Comoros to address credit quality in the banking sector while strengthening supervision and resolution capacities are important. Measures to align the AML/CFT framework with international standards are necessary.

‘The authorities are committed to reforms to strengthen institutions and reduce fragility. Implementing the anti-corruption law, adopted in June, would be an important step. The law has strengthened the frameworks for asset declaration and the Anti-Corruption Chamber. Over the medium term, reforms to enhance public sector governance and transparency will help to improve the business environment and attract greater private sector investment. These reforms will also boost the credibility of the state, strengthen the population’s willingness to pay taxes, and increase the confidence of international donors and investors.

“Sound program implementation would help to ensure economic resilience and support social and developmental objectives. Comoros’ program will continue to be complemented by capacity development support, including in strengthening statistical capacity for effective economic surveillance as well as policy analysis and implementation.”

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They welcomed the broadly satisfactory performance under the ECF arrangement and the authorities’ commitment to the reform agenda. While noting the positive outlook, Directors cautioned that risks remain high, given elevated global uncertainty and Comoros’s fragility and capacity constraints . They underscored that continued strong policy implementation is essential to strengthen resilience, reduce fragility, and promote inclusive private sector-led growth. Directors highlighted the critical role of well-prioritized capacity development support from the Fund and other development partners.

Directors welcomed the strong fiscal performance, particularly on domestic revenue mobilization. Noting the high risk of debt distress, they recommended further fiscal consolidation to build fiscal buffers and secure debt sustainability. Fiscal reforms in revenue administration and tax policy, budget execution and reporting, and cash management are important. Directors also encouraged efforts to enhance the performance and oversight of state-owned enterprises to reduce fiscal risks. While urging the authorities to accelerate efforts to address existing arrears, Directors stressed the need to develop a sound debt monitoring system to avoid new arrears. Progress on Sustainable Development Goals is critical and will require prioritization of social and infrastructure spending.

Directors welcomed the focus on strengthening the monetary policy toolkit and highlighted that the fixed exchange rate regime has served as an effective anchor for monetary policy. Noting the continued fragility of the financial sector, Directors underscored the need to improve banking supervision, address high NPLs, and proceed cautiously to complete the restructuring of the systemic postal bank. They emphasized the importance of implementing the banking resolution framework and welcomed ongoing work to upgrade prudential regulations, in line with international standards. Directors encouraged measures to strengthen the effectiveness of the AML/CFT framework , including to support greater transparency.

Directors welcomed the focus on structural reforms to strengthen institutions and reduce fragility. They called for progress on implementing the anti-corruption law, including establishing the Anti-Corruption Chamber. They welcomed Comoros’ progress towards the WTO accession, highlighting the potential benefits for trade. Noting the significant vulnerability to climate change, Directors welcomed the authorities’ commitment to prioritize adaptation and mitigation efforts. Improving data collection and dissemination is essential to enable better policymaking.

It is expected that the next Article IV Consultation with the Union of the Comoros will be held in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.