Press Release No. 10/409

Press Release No. 10/409
November 1, 2010

An International Monetary Fund (IMF) staff mission led by Mr. Mbuyamu Matungulu visited the Union of Comoros during October 16-30, 2010, to conduct discussions for the 2010 Article IV consultation and second review of performance under the Extended Credit Facility (ECF)¹. The mission held discussions with Mr. Mohamed Bacar Dossar, Minister of Finance, Budget, and Investment, and other members of the Cabinet of the Union; and met with Mr. Bourhane Hamidou, Speaker of Parliament; Mr. Mzé Abdou Mohamed Chanfiou, the Vice Governor of the Central Bank of the Comoros; and representatives of island entities, civil society and the donor community.

At the conclusion of the mission, Mr. Matungulu, IMF Mission Chief for the Comoros, issued the following statement on October 30 in Moroni:

“Economic growth is expected to increase to 2.1 percent in 2010, up from an annual average of 1.4 percent during 2008–09, thanks to an exceptionally large donor-supported increase in aggregate demand, and to remittances-based private sector construction. After a surge in mid-year, inflation should decline to around 3 percent at year-end, anchored by Comoros’ membership of the Franc zone. In the external sector, the current account deficit is expected to widen to 10.2 percent of gross domestic product (GDP) from 9 percent of GDP in 2009, driven by higher aid-funded imports. Overall, the mission assesses that the program targets for June 2010 were met.

“However, fiscal performance deteriorated in the third quarter despite commendable improvements in wage expenditures control, because of shortfalls in assessed income taxes and budget support under the program, as well as delays in implementing key revenue measures. In the run-up to the December presidential elections, continued good macroeconomic performance will require steadfast implementation of corrective measures to which the authorities have committed, including early collection of outstanding tax arrears and stronger efforts to meet conditionality for the release of pending external assistance. Provided these steps are taken, the domestic primary budget deficit is projected to decline to 1.6 percent of GDP in 2010, down from 2.6 percent of GDP last year.

“In the structural area, the government has finalized preparations for the introduction of computer-generated pay slips for the civil service. Effective implementation in the coming weeks will further enhance control of wage payments. Preparations for reform of the telephone (Comores Telecoms), hydrocarbons-importing (SCH), and electricity (MA-MWE) companies are continuing. The mission urged timely implementation of related measures, to which end the authorities will soon enlist medium-term technical assistance from the International Finance Corporation (IFC).

“The mission and authorities discussed key program objectives and policies for 2011. These include real GDP growth of 2.5 percent, possibly with increased foreign direct investment in tourism and inter-island transportation. Higher donor assistance would support somewhat larger spending for education and health; and the domestic primary budget deficit is projected at 1.3 percent of GDP. A fiscal financing gap estimated at 2.2 percent of GDP would be covered by development partners, including the IMF, assuming continuing satisfactory performance under the IMF-supported reform agenda. To strengthen revenue mobilization, the authorities will notably establish an Executive Board for the Directorate General Taxes and operate new Large Taxpayer Unit offices in Anjouan and Moheli as from the first quarter of 2011.

“The authorities should take decisive steps to sustain the improving medium-term macroeconomic prospects for Comoros. The mission urged close adherence to the fiscal consolidation program, acceleration of structural reforms to enhance control over wages, and improvements in the efficiency of public utilities. Accordingly, with the 2011 budget, the authorities intend to introduce new civil service personnel frameworks that are compatible with medium-term budget viability. Also, they plan to issue calls for bids to enlist private sector involvement in the management of Comores Telecoms, SCH, and MA-MWE in 2011. Moreover, with technical assistance from the IFC, the government has initiated preparations for ambitious reforms to improve the business environment and begin removing long-standing structural impediments to growth.

“The mission reached broad understandings with the authorities, subject to Board approval, on an economic program for 2011 that could form the basis for completing the second review under the ECF arrangement. IMF Executive Board consideration could take place in mid-December, following implementation of critical measures to keep the 2010 fiscal program and structural reform agenda on track.

“The mission is grateful for the very open and frank discussions with the authorities of Comoros, and for their hospitality.”

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¹ The Extended Credit Facility (ECF) has replaced the Poverty Reduction and Growth Facility (PRGF) as the Fund’s main tool for medium-term financial support to low-income countries by providing a higher level of access to financing, more concessional terms, enhanced flexibility in program design, and more focused, streamlined conditionality. Financing under the ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities every two years.