Press Release No. 12/386

Press Release No. 12/386
October 9, 2012

An International Monetary Fund (IMF) staff mission visited the Union of Comoros from September 22 to October 6, 2012, to conduct discussions on the Article IV Consultation for 2012, the fourth review of performance under the Extended Credit Facility (ECF) program¹, and to finalize preparations for reaching the Heavily Indebted Poor Country (HIPC) initiative completion point. The mission met with HE Dr. Ikililou Dhoinine, the President of the Union; and held discussions with the Vice-President and Finance Minister; the Governor of the Central Bank of the Comoros; the Head of the Planning Commission; as well as representatives of the press and private sector, civil society, and the donor community.

At the conclusion of the mission, Mr. Mbuyamu Matungulu, the IMF mission chief for the Union of the Comoros, issued the following statement today in Moroni:

“Macroeconomic developments are broadly favorable in 2012. Real GDP growth is projected to strengthen further to 2.5 percent, mainly driven by activity in construction and public works, as well as in food crop agriculture. The economy continues benefiting from sustained donor support, foreign direct investment, and resilient remittances. Despite increased price pressures in mid-year following floods that destroyed part of the domestic food harvest, end-year inflation should be contained at 5 percent thanks to relatively stable world energy and food prices. Notwithstanding a moderate deterioration in the terms of trade, the external current account deficit is projected to significantly narrow to 6.9 percent of GDP in 2012 from 9 percent of GDP in 2011, reflecting a surge in public transfers, including under the economic citizenship program. As a result, gross international reserves would likely increase to a comfortable level equivalent to 7.2 months of imports.

“Progress in budget consolidation continues, with the authorities poised to exceed their 2012 revenue target, and the wage bill under tighter control following the 2011 census of the civil service. Excluding a windfall in economic citizenship receipts, estimated at 3.1 percent of GDP, the domestic primary budget deficit is projected to narrow to 0.9 percent of GDP in 2012, compared with a program objective of 1.1 percent of GDP and an outturn of 1.4 percent of GDP in 2011.

“Implementation of the structural reform agenda was broadly satisfactory. All but one structural benchmarks for the period through end-September were observed. In particular, parliament approved legislation on a new, functionally better integrated, General Administration of Taxes; and the government cleaned up the civil service payroll list consistent with the findings of the 2011 census. Also, with technical assistance from the World Bank and African Development Bank, the government finalized a feasibility study on the establishment of an integrated computerized public finance information management system. However, the implementation of new and leaner civil service personnel frameworks recently approved by parliament, which was set to begin at end-September, was postponed to early 2013 as the authorities address various related technical challenges.

“With technical assistance from the World Bank and IFC, the government has updated its reform strategies for the public utilities. Consistent with these, they have issued a call for bids to enlist external expertise in the management of the power company (MA-MWE); and approved a social plan for Comores Telecom. This clears the way for the long-awaited issuance of a call for bids from potential investors. In the financial sector, the authorities are soon to finalize the restructuring of Comoros Development Bank into a full-fledged private commercial banking institution. Efforts to reform the state-owned National Postal and Financial Services Company (SNPSF) are focused on preparing a strategy to separate the postal and banking functions, with the latter being ceded to a significant foreign partner.

“Reflecting ongoing reforms in public financial management and in the financial and public utility sectors, medium-term macroeconomic prospects are favorable. In the fiscal area, the reforms are helping to consolidate the viability of public finances and to create room for increased expenditures in infrastructure and other poverty reducing areas; improvements in public utility efficiency would strengthen the business and investment environment, setting the economy on a course of sustained strong growth. The government expressed its determination to fast-track these reforms, aiming in 2013 to secure effective private sector involvement in the management of Comores Telecom and to bring about substantive changes in the management of MA-MWE and the state-owned oil-import company (SCH).

“Assuming continued rigorous implementation of the reform agenda, real GDP growth could accelerate to 3 ½ percent in 2013, and the primary fiscal deficit could be contained at 0.9 percent of GDP; with government revenue at about 15 percent of GDP. Risks to the outlook include a further weakening of global economic conditions and delays in implementing the agreed macroeconomic and structural reforms.

“In collaboration with World Bank staff, the mission reviewed progress in implementing the HIPC Initiative completion point triggers. These include policy measures to advance macroeconomic stability; improve public financial management and governance; strengthen health and education; support growth; and improve debt management. Broadly satisfactory performance would be achieved when the call for bids from potential Comores Telecom investors is issued in the coming weeks. This would facilitate reaching to the HIPC Initiative completion point and permit full delivery of related debt relief from creditors.

“The mission reached broad agreement ad referendum with the authorities on an economic program for 2013 that could form the basis for completing the fourth review under the Extended Credit Facility (ECF) arrangement, and permit Comoros to reach the HIPC completion point. The agreement will be reviewed by IMF management, before being presented to the IMF Executive Board for consideration.

“The mission is grateful for the very open and frank discussions with the authorities of

Comoros, and for their hospitality.”

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.