Journal Issue

Union of the Comoros: Staff Report for the 2014 Article IV Consultation

International Monetary Fund. African Dept.
Published Date:
February 2015
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1. Country Context. Comoros is a small, poor, and fragile-three island state with limited natural resources and connectivity to the rest of the world. Political instability and fractious inter-island relations marked the country during the first decades after independence from France in the mid-1970s with more than 20 coups or coup attempts taking place. Economic performance was poor during this period with per capita GDP stagnant or declining (Text Figure 1). A semblance of political stability and economic turnaround has been in place following the adoption of a new constitution in 2009 that sought to clarify the respective roles and responsibilities of the Union and the three autonomous islands. However, coordination challenges between the Union government and the islands remain, resulting in weak delivery of public services. Moreover, the private sector exhibits limited dynamism in an unfavorable business environment. During the 2009–13 ECF arrangement, the secular decline in per capita GDP was arrested and some progress was achieved in consolidating macroeconomic stability and advancing structural reforms that enabled Comoros to attain the completion point under the HIPC Initiative in December 2012.

Text Figure 1.Real GDP Per Capita, 2000–2012

(2005 US dollars)

2. Traction. Progress on structural reforms since the 2012 Article IV consultation has generally been disappointing (Annex I). While the authorities’ post-HIPC reform program emphasized advances on revenue administration (RA), public financial management (PFM), state enterprises, and the business environment, progress across all these areas has been lacking reflecting limited implementation capacity. With two rounds of parliamentary elections in January and February 2015 and presidential elections in late 2015 or early 2016, there is a risk that the authorities’ room for maneuver on needed reforms could be further diminished in the immediate future.

Recent Economic Developments

3. Macroeconomic Performance in 2013 and 2014.

  • Real GDP Growth was an estimated 3.5 percent in 2013, the highest growth rate in almost a decade, supported by relatively buoyant activity in the construction and services sectors. (Figure 1 and Table 1). For 2014, economic growth is projected to slow to 3.3 percent because of the adverse effects of slower-than-expected implementation of public investment and frequent electricity interruptions, although performance in agriculture is reported to have been favorable.

  • Twelve-month CPI inflation was 3.5 percent at end-2013 but had eased to 0.1 percent by October 2014, reflecting subdued increases in food prices and fuel and transportation costs, as well as, in recent months, weak demand due to delays in public sector salary payments.

  • Exports (mainly of cloves, vanilla, and ylang-ylang) are estimated to have grown strongly in volume terms in 2013, albeit from a very low base, but prices were low (Table 2). With imports growing strongly, the trade deficit widened somewhat. Remittances continued to increase, partly offsetting the effect of the higher imports on the current account deficit, which is estimated at 11.3 percent of GDP. For 2014, exports (other than re-exports) appear set to decline, reflecting stock building in the context of low world market prices for the main export crops. Imports also seem likely to decline, reflecting in part the slow implementation of the public investment program, while remittances have continued to increase, reaching a record level of 26.4 percent of GDP. On balance, the current account deficit is projected to narrow to 7.4 percent of GDP.

4. Fiscal Outturn for 2013 and 2014.

  • Fiscal developments in 2013 were strongly affected by the spending of significant amounts of proceeds from the Economic Citizenship Program (ECP)1 that had accrued in government accounts at the central bank in 2012 (Table 3).2 Despite only a modest increase in tax revenue, of 0.3 percentage points of GDP to 12.1 percent, and a decline in non-tax revenue of 3.2 percentage points of GDP, mainly as a result of a sharp contraction in the ECP receipts, the government was able to raise domestically-financed capital spending to 3.4 percent of GDP by drawing on the ECP deposits. The overall balance (cash basis, net of debt relief) went from a surplus of 1.6 percent of GDP in 2012 to a deficit of 1.3 percent. Arrears of about €225,000 were incurred on a rescheduled loan with an official bilateral creditor in late December 2013.3

  • Implementation of the 2014 budget was challenging. The fiscal situation during the first three-quarters of 2014 was tight, especially after mid-year, when resources were inadequate to meet the higher wage bill resulting from a sizeable un-budgeted increase in teacher salaries approved in March. Preliminary figures indicate that for the year as a whole, revenues will be slightly higher than projected, whereas primary current spending could be almost 20 percent higher-than-planned, almost fully matched by a corresponding shortfall in domestically-financed capital spending. Also, public sector salaries for July were not paid until mid-September and those for August not until late October as funds were diverted to pay for un-budgeted election costs and expenses related to the hosting of the summit of the Indian Ocean Islands Commission. Moreover, the government was unable to pay announced subsidies to the electric utility, exacerbating an already difficult electricity situation, and incurred arrears on a rescheduled commercial loan of about US$1 million. During the first three-quarters of 2014, the execution rate for the foreign-financed public investment program was only 67 percent, and no significant pickup was expected in the fourth quarter.

5. Monetary Developments.

  • Net credit to the economy grew by 21 percent in 2013, reflecting the drawdown of ECP proceeds by the government and a substantial increase in private sector credit (Table 4). The credit expansion was largely offset by a decline in net foreign assets, mainly of the central bank, and broad money expanded by just 2.8 percent. Mirroring, the decline in the net foreign assets of the central bank, international reserves shrank substantially in 2013, to 5.4 months imports by year-end.

  • The Pattern of monetary developments during the first three-quarters of 2014 was similar to that of 2013, with a further drawdown of government deposits. However, with the central bank’s net foreign assets stable, reflecting the stronger balance of payments position, the pace of broad money growth picked up somewhat.

6. Social Developments.

  • The most recent data on poverty—from 2004—suggest that poverty is pervasive but the paucity of data makes a comprehensive assessment of progress in poverty reduction impossible.4 There is some evidence of improvement in social indicators (primary education, child mortality, maternal health) in recent years (Table 5).

Outlook and Risks

7. Outlook for 2015. Economic growth is expected to strengthen to 3.5 percent in 2015, despite continuing headwinds from the situation in the electricity sector and a tight fiscal situation, supported by an acceleration in the pace of implementation of foreign-financed public investment and lower fuel prices. The impact on the economy of lower international fuel prices is uncertain, in part as oil imports are purchased by the state oil importing company through long-term contracts and due to uncertainty as to the extent to which lower oil prices will be passed on to consumers. The positive impact of lower fuel prices on the current account deficit is expected to be more than offset by higher investment-related imports with the deficit widening to 11 percent of GDP. Inflation is expected to be well contained, at 2 percent over the course of the year.

8. Medium-Term Outlook. Staff’s baseline assumption is that real GDP growth will average about 4 percent per annum over the medium term supported by the expansion of agriculture, tourism, and fisheries as well as a large, mostly foreign-financed, public investment program (mostly for construction).5 Inflation is projected to be contained at around 2.5 percent per year by the peg to the euro under the monetary cooperation agreement with France. With remittances and foreign-financed investment spending expected to remain strong, import growth is expected to exceed export growth. The current account deficit is projected to average close to 11 percent of GDP and be financed mainly by project grants but also by some foreign direct investment and modest recourse to concessional borrowing. Reserves are projected to stabilize around five months of prospective imports of goods and services.

9. Risks. The principal channels through which the international economy affects Comoros are remittances, international food and fuel prices, donor aid, foreign direct investment (mainly from the Middle East), and exports (Annex II). Remittances, mainly from the diaspora in France, have remained resilient, and even rising, in the face of the global slowdown in recent years. The impact of a drop in remittance inflows on growth would be relatively muted by the fact that only a small share of remittances is spent on productive activities in Comoros (see paragraph 22), however, consumption and welfare would be adversely affected. The outlook for international food and fuel prices, especially the latter, is generally benign. Moreover, despite the slower-than-expected rate of implementation of the public investment program in 2014, there are no signs that donors are pulling back from Comoros. Foreign direct investment and exports, while important drivers of growth, are starting from a small base. On balance, it is staff’s view that a protracted period of slower growth in advanced economies and/or continued turmoil in the Middle East would have only a limited impact on economic growth in Comoros. Comoros is also highly vulnerable to natural disasters, including volcanic eruptions and earthquakes, and flooding resulting from cyclones in the southwestern Indian Ocean, a vulnerability that is expected to intensify as a result of climate change.

10. Debt Sustainability Analysis. The revised DSA—which, unlike the previous DSA, takes remittances fully into account—calls for an upgrading of Comoros’ risk of debt distress rating to moderate from high (DSA Supplement). There are no breaches of debt burden and debt service thresholds in the baseline scenario and only a moderate breach of one threshold in the standard alternative scenario and stress tests. Customized scenarios that incorporate lower remittances or substantially higher external borrowing than in the baseline underscore continuing debt vulnerabilities. Moreover, Comoros has incurred some arrears on its rescheduling agreements under the HIPC Initiative. The authorities welcomed the proposed upgrading of the risk of debt distress classification. Staff urged the authorities to address the underlying debt management weaknesses reflected in the incurrence of external arrears, notably by strengthening coordination between the Debt Department and the Treasury, and to continue to limit external borrowing to loans on concessional terms.

Macroeconomic Policies and Structural Reforms

A. Introduction

11. Key Challenges. Comoros’ key challenges are:

  • In the short-term, to bring the fiscal situation under control in order to avoid the incurrence of domestic and external arrears, while arresting the depletion of government deposits at the central bank and easing the pressure on international reserves.

  • Over the medium-term, to address the underlying sources of fragility by creating fiscal space, accelerating inclusive growth, employment generation, and poverty reduction while simultaneously strengthening resilience against external shocks, including natural disasters.

B. Short-Term Fiscal Policy

12. The Budget for 2015.6 In discussing the fiscal outlook for the remainder of 2014, the authorities and staff agreed that the most urgent task was to prioritize spending so that arrears on public sector wages and salaries and external loan payments could be eliminated by year-end, while maintaining a modest deposit buffer at the central bank. For 2015, staff argued that bringing spending into line with available resources was key to gaining control of the fiscal situation. In this connection, staff indicated that the authorities’ initial budget proposal for 2015 was based on excessively optimistic projections of tax revenue (an increase of about 30 percent in nominal terms) without any clearly identified measures. As a result, the proposed spending plans needed to be scaled back. To align revenue and spending, staff recommended that the authorities take immediate steps to strengthen revenue mobilization by (i) freezing/rationalizing exemptions, and enforcing compliance, particularly for excise taxes and custom duties, (ii) maintaining the wage bill constant relative to GDP despite significant pressures for higher wages and hiring, (iii) scaling back spending on goods and services, and (iv) delaying domestically-financed capital spending. The authorities acknowledged the need for the 2015 budget to be based on realistic revenue projections and for spending plans to be aligned to those projections as recourse to domestic financing would be limited to a small amount of statutory advances from the central bank.7 The revised 2015 budget proposal, presented in the wake of the mission, fully reflects these understandings (Text Table 1). The authorities noted that they are working with the island administrations to ensure greater control over the wage bill. Tax revenue is projected to increase to 12.6 percent of GDP, reflecting more limited use of tax exemptions and continued efforts to improve revenue administration. Primary current spending is projected to decline by 0.6 percentage points of GDP, to 13.8 percent, primarily by restraining spending on goods and services. The scope for domestically-financed capital spending is severely circumscribed at only 1.3 percent of GDP.

Text Table 1.Key Fiscal Figures for 2014 and 2015(percent of GDP)
Total revenue and grants23.524.2
of which: Tax revenue12.012.6
Total exenditure and net lending23.825.3
Current spending15.715.3
of which: Wages and Salaries8.48.4
Captial spending8.010.0
of which: Domestically-financed investment1.31.3
Change in arrears
Overall balance (cash basis)-0.6-1.0
Financing, net0.61.0
Domestic financing1.7
External financing 1/-1.11.1
Source: Comorian authorities; staff estimates

The external financing in 2015 is from an already contracted loan from the EXIM Bank of India.

Source: Comorian authorities; staff estimates

The external financing in 2015 is from an already contracted loan from the EXIM Bank of India.

13. New ECP. The authorities indicated that they were optimistic that a new ECP program with Kuwait would be agreed. Staff argued that any such highly volatile revenues should be budgeted prudently and ring-fenced to create a buffer for external shocks and for priority investment projects. Such resources could also possibly be used to fund the essential costs of one-off restructuring/recapitalization of public enterprises. Staff urged the introduction of strong safeguards to prevent the misuse of the program for illegitimate purposes and to ensure its sustainability. The authorities generally concurred with these principles.

C. Medium-Term Fiscal Reforms

14. Medium-Term Fiscal Stance. Public service delivery and public investment in Comoros are severely hampered by a lack of resources and inappropriate spending prioritization: (i) the tax revenue-to-GDP ratio (about 12 percent) is low by any standard (Figure 2); (ii) donors (World Bank, AfDB, France, EU, some Gulf countries) provide substantial project financing but negligible budget support; and (iii) primary current spending exceeds all tax revenue, leaving little space for domestically-financed capital spending. Staff noted that, as for the 2015 budget, with limited recourse possible to domestic financing,8 fiscal policy should aim for a budget stance that reflected identified resources, including concessional external financing. This implies a modest overall deficit throughout the medium-term, consistent with debt sustainability. In this context staff underscored the imperative of mobilizing additional domestic revenue to increase fiscal space in support of development. Moreover, staff emphasized the need to enhance transparency and accountability in the recording of government revenue and expenditure by bringing all government transactions on budget. This could serve to lessen distrust between the Union and island governments.

15. Revenue Administration. Staff noted that gaps in revenue administration, together with a myriad of statutory and ad hoc exemptions created significant revenue leakage. While progress has been made in a number of areas, including in designing an integrated tax directorate and modernizing the customs code, the agenda of unfinished business is daunting. Cognizant of capacity limitations in this area, staff urged the authorities to quickly implement the quick-win revenue administration measures listed in Text Table 2 that have been identified by FAD TA as critical first steps. The authorities welcomed the focused list of revenue administration measures and committed to implementing them as soon as possible, taking a number of steps in this direction following the mission. While an analytical study undertaken by staff as part of the Article IV consultation pointed to significant potential for mobilizing additional domestic revenue (Annex III), staff cautioned that it will take time to realize this potential and that the medium-term tax revenue target should, therefore, be realistic.

Text Table 2.Quick-Win Revenue Administration Reforms
1. Strengthen the monitoring of the tax returns, including of public enterprises, and expand the list of large taxpayers;
2. Project and monitor revenue (customs and tax administration) on a monthly basis;
3. Reactivate the mixed brigade of customs and tax administration officials with the aim of improving tax compliance, through cross checks of import and turnover data;
4. Strengthen control and monitoring of temporary deferrals of payments of customs duties; and
5. Freeze the granting of any new customs and tax exemptions and strengthen the monitoring of exemptions already in place.

16. Public Financial Management. As with revenue administration, staff observed that Comorian public financial management systems were beset by weaknesses, including in regard to budgeting, budget execution, and cash management. Staff urged the authorities to accelerate the implementation of the reform program developed with technical assistance from FAD and AFRITAC South. With capacity limitations in mind, staff indicated that the measures listed in Text Table 3 were critical and that they should be implemented quickly. Staff also noted that, in view of the high wage bill, civil service reform also needed to be high on the agenda (with input from the World Bank).

Text Table 3.Quick-Win Public Financial Management Reforms
1. Ensure that all revenue and expenditure transactions on behalf of the government are captured in the budget and treasury accounts.;
2. Gradually restore normal financial flows (payments for goods and services and of taxes and subsidies) between government and public enterprises and eliminate the use of offsets;
3. Project and monitor budget execution on a quarterly basis through detailed revenue and expenditure reports;
4. Assign a treasury committee to project and monitor a treasury cash flow plan on a weekly basis;
5. Enforce a ceiling of five percent for the expenditures executed under the exceptional treasury budgetary procedure;
6. Control the government wage bill, enforcing a ceiling for each of the Union and the three islands; and
7. Put into place a single treasury account for the Union and the autonomous islands.

D. Monetary and Exchange Rate Policy

17. Exchange Rate Peg. The authorities place great stock in Comoros’ monetary cooperation agreement with France, which parallels the agreements underpinning the CFA zones in West Africa. The monetary cooperation agreement provides an anchor for the monetary policy of the central bank (Banque centrale des Comores) through a peg of the Comorian Franc to the euro (at KMF 490 per Euro). The agreement requires the central bank to maintain international reserves equal to at least 20 percent of base money, although for Comoros this level has typically been close to or in excess of 100 percent. Reserve requirements are the central bank’s main instrument but have been non-binding for an extended period as the commercial banks have maintained excess reserves. Staff concurred that the monetary cooperation agreement has served Comoros well and should continue to do so going forward.

E. Policies for Growth

18. Structural Obstacles to Growth. Like many other small island states, Comoros faces growth challenges associated with its small size and geographic isolation (Text Table 4). The narrow resource base and small domestic market make it difficult for Comoros to diversify its economy and take advantage of economies of scale. With weak international connectivity and high transport fees, the costs of imports and intermediate goods are high, hampering competitiveness. The domestic market is further fragmented by difficult relations and limited transport and communication links between the islands, and overall infrastructure, including in energy and telecommunications, is in need of improvement. In the discussions, staff remained cognizant of the fragile relations among the islands and the limited capacity for implementing comprehensive and far reaching reforms by focusing on realistic policy measures and reforms.

Text Table 4:Selected Small Island Country Comparisons (2013)
ComorosSao Tomé and PrincipeCabo VerdeSamoaFiji
(Annual percentage change)
Real GDP Growth3.
Inflation (end-period)
(Percent of GDP)
Current Account Balance-11.3-20.3-1.9-2.3-18.5
Tax Revenue12.115.317.624.523.3
Capital Expenditure9.820.39.815.71.3
of which: domestically-financed3.41.7
Official Transfers7.68.32.412.20.2
Private Transfers26.47.510.922.53.1
External Debt (PV)18.585.398.961.825.1
(2014 rank)
Human Development Index159.0142.0123.0106.088.0
Sources: Government Authorities and IMF estimates
Sources: Government Authorities and IMF estimates

19. New Poverty Reduction Strategy. The authorities outlined their new poverty reduction strategy for 2015-19 (Stratégie de Croissance Accélérée et de Développement Durable, SCA2D)9 that is in the final stages of preparation. As with its predecessor, the main themes of the new strategy are to (i) achieve economic stability and inclusive growth; (ii) promote sectors with high growth potential (tourism, fisheries, agriculture); (iii) strengthen governance and social cohesion; and; (iv) enhance human development. Staff concurred that these themes remained appropriate but noted that it was critical for the new strategy to be based on realistic macroeconomic assumptions that reflected the severity of the challenges ahead, including in mobilizing adequate domestic and external financing in support of public and private investment. Staff also expressed disappointment that the strategy did not contain a robust discussion of private sector development that addressed the identified drawbacks and obstacles in the Comorian business environment. The authorities acknowledged this shortcoming but responded that the SCA2D would be a living document that would be updated as circumstances warranted, with a chapter on private sector development to be added in 2015. They also indicated that they planned to organize a donor conference in 2015 to seek additional funding.

20. External Stability and Competitiveness Assessment. Standard models suggest that at end-2013 the real effective exchange rate was moderately overvalued but, given the large real depreciation of the Comorian Franc during 2014 as the US dollar strengthened against the euro, this has been corrected and the Comorian Franc is now broadly in line with fundamentals (Annex IV). The authorities noted this assessment and stressed their commitment to the existing exchange rate peg against the euro, a view staff supported. Staff pointed out that survey-based indicators point to competitiveness issues related to poor infrastructure and institutional and governance deficiencies that affect the quality of the business environment. Thus, Comoros ranks low on the list of the World Bank’s Doing Business Indicators (159th of 189 countries). Comoros ranks particularly poorly in the areas of starting a business, enforcing contracts, and government effectiveness. Comoros performs similarly poorly on comparative governance and corruption indicators. The authorities felt that progress in these areas had been made, especially by putting in place updated legislation, but they acknowledged that this had not yet resulted in improvements in the rankings and that it is important to ensure the consistent application of the new laws.

21. Growth-Enhancing Structural Reforms. Staff argued that Comoros needed to be especially ambitious in pursuing growth-enhancing structural reforms. In particular, staff encouraged the authorities to take advantage of assistance provided by the IFC to strengthen the business environment, not least in regard to the ease of establishing a business and the enforcement of contracts. Staff also maintained that, while a lack of resources constrains investment, progress could be made by prioritizing the highest return infrastructure investments and restructuring public utilities to ensure they are able to provide their services reliably and cost effectively. Action was particularly urgent in the field of energy where both the main electrical utility (MAMWE) and the fuel importing company (SCH) face severe difficulties.10 Staff pointed out that the electricity shortages and recurrent blackouts represented significant obstacles to growth. The authorities acknowledged the acute problems in the electricity and fuel sectors. They indicated that they were committed to working closely with the World Bank and African Development Bank, both of which already have approved projects to help restructure and strengthen the electricity sector. They also confirmed that the Ministry of Finance had opened a revolving line of credit of $20 million with the Islamic Development Bank to ensure the availability of the financing for fuel imports.11 Staff cautioned that this credit line needed to be carefully handled. Staff also argued that the introduction of competition in the telecommunications sector through the privatization of the state-owned telecommunications company and/or the issuance of an additional license to bring down costs and improve service was long overdue. The authorities acknowledged that there had been unfortunate delays in the process but indicated that preparations for launching a bidding process for a second telecommunications license were well under way.

22. Remittances and Growth. Staff pointed out that few, if any, countries enjoy as large, remittance inflows in relative terms as Comoros. Yet, only a small share of these inflows is directed toward productive activity. Staff noted that, as shown in recent surveys of the diaspora, a more attractive business environment could help channel a greater share of remittances into productive activities, thereby enhancing their contribution to growth (Box 1). The authorities expressed confidence that remittances would remain high and agreed that it would be desirable that a larger share flow into productive investments rather than be spent on consumption and imports.

Box 1Remittances and Growth Nexus1

Remittances flows in Comoros have increased sharply in recent years. Remittances accounted for about 26 percent of GDP in 2012 and 2013, making Comoros among the top 20 among sub-Saharan countries and small islands (Figure 1). Remittance receipts significantly exceed receipts from the export of goods and services (15 percent of GDP)(Figure 2). Their resilience to the recent global downturn and their persistence has made them potentially a source of private investment funding for Comoros in a context of limited domestic resources and volatile external financing.

Remittances mainly flow through informal channels. The funds transferred are often collected through a migrant savings association. Most expatriate Comorians reside in France, mainly in Marseille and Paris, but also in Mayotte. Most of the funds come from people in low-skill jobs and French social security, which partly explains the resilience of the transfers.

Despite their relative high level, remittances have failed to translate into productive investment and growth (Figure 3). Contrary to some high remittances-receiving countries (e.g., Moldova, Tajikistan) where remittances have substantially contributed to boosting productive capacities and reducing unemployment, remittances in Comoros mostly finance imports.2 A disproportionately high share of these flows is used to finance consumption—70 percent to 90 percent—as part of “grands marriages”, crowding out savings to finance productive investment.3 However, remittances most likely help in improving the recipients’ standard of living and their resilience to shocks by sustaining their consumption levels and providing them with a greater access to medications.

This inability of remittances to translate into growth and employment-creating activities mainly reflects a poor business environment and market failures. Inadequate infrastructure in key sectors—electricity, water and roads—along with marked weaknesses of the legal system undermine the overall quality of the business environment in Comoros. In addition to these distortions, financial sector intermediation is shallow and non-competitive. In this context transfer services are costly compared to peers, impeding migrants to transfer significant amounts needed to undertake costly investments.

The authorities have sought to identify and resolve the bottlenecks of growth-creating remittances. In June 2013, a diaspora conference, co-chaired by the World Bank, was organized by the authorities in France in a bid to identify and lift the constraints impeding migrants from engaging in productive activities. The diaspora identifies the quality of the business environment particularly the reliability of the judiciary system and the high costs of transfers as the biggest obstacles to investment in Comoros. Initiatives in strengthening the legal system, improving competition in the banking system and access to investment opportunities need to be taken swiftly. The recent Hamboda real estate project is a good start but needs to be carried out effectively to provide strong and consistently good signals towards this objective. The French Cooperation Agency has also provided advice to the authorities in order to establish appropriate conditions for the diaspora to create income generating activities.

1 This box was prepared by Ibrahim Ahamada and Ahmat Jidoud.2 Though underestimated, from 2009 to June 2014, only 16 businesses financed directly by diaspora funds have been listed at the National Agency for Investment Promotion (ANPI), corresponding to 5.4 billion and creating about 312 jobs.3 Da Cruz, Fengler and Schwartzman, “Remittances to Comoros: Volume, Trends and Implications”, World Bank African Region Working Paper Series No. 75, October 2004.

Figure 1:Remittances in % of GDP, 2012

Figure 2:Sources of financing, 2013 (% of GDP)

Figure 3:Growth-Remittances nexus in Comoros

F. Financial Sector Stability Assessment

23. Financial System. The Comorian financial system is underdeveloped and shallow. Total assets of the financial system were only 54 percent of GDP in 2013. The system is dominated by bank and micro-finance deposit taking institutions while other aspects of the financial sector—insurance, pensions, and capital markets—are almost non-existent. Four foreign-owned banks and the state-owned postal bank (SNPSF) account for about two-thirds of total financial system assets and three micro-finance institutions for the remaining third. Private sector credit growth has been brisk, but from a low base and credit has been extended mostly for consumption rather than investment. While the banking system held considerable excess reserves at end-2013, these had declined by end-June 2014. Access to banking services is low, with 22 percent of adults with an account at a formal institution in 2011 compared to 40 percent in Mozambique and 80 percent in Mauritius. Although the coverage of the banking services has expanded in recent years, it remains narrow with the number of commercial banks branches per 100,000 adults at 1.9 and the number of bank accounts per 1,000 adults at 92 in 2013.

24. Financial Sector Soundness. The financial system is fragile. While available indicators suggest that the financial system is generally sound (Table 6), albeit with one large public institution facing difficulties, these indicators need to be interpreted with caution. Reported non-performing loans (NPLs) stood at 18 percent of total loans at end-June 2014, unchanged from end-2013 but up from 17 percent at end-2012.12 Provisioning for non-performing loans was high, at close to 70 percent. However, different accounting standards across financial institutions and difficulties in assessing the credit risk of borrowers due to the lack of reliable financial statements make it difficult to firmly assess the financial soundness of the sector. Moreover, the central bank hasn’t conducted any on-site examinations during 2013–14 due to limited resources and the rudimentary nature of the off-site monitoring framework. Staff encouraged the central bank to continue to strengthen banking supervision, including risk-based supervision, in line with MCM advice, and welcomed recent steps by the central bank to clean up a number of old non-performing loans related to problems in the vanilla sector dating back to the early 2000s.

25. SNPSF. Staff expressed concern about the postal SNPSF, the largest deposit-taker in the country,13 which was beset by management problems and in need of re-capitalization and restructuring. Some temporary measures aimed at greater control by the central bank of the SNPSF’s lending operations continue to be applied. Staff urged the Ministry of Finance and the central bank to closely monitor developments in the postal bank and to come up with a viable plan, with technical assistance from MCM, for resolving the problems of the SNPSF.

Other Issues

26. Data Adequacy. Economic data in Comoros have serious shortcomings and deficiencies in all sectors that hamper surveillance and policy design. The authorities indicated that progress was being made in strengthening data collection, particularly concerning the rebasing of the national accounts and the CPI and the production of balance of payments data but that it was held back by capacity and resource limitations. Staff noted, however, that fiscal data was only available with a delay and lacked comprehensiveness. Moreover, balance of payments data were incomplete and of poor quality, while capacity constraints have prevented the compilation of international investment position data. Staff urged the authorities to continue to work with international organizations, including the IMF, to improve statistics and to make adequate allocations to the new statistical agency despite the tight fiscal situation. The authorities agreed with the need to adequately fund statistical agencies and indicated that surveys that would allow the compilation of new household income, consumption, employment, and poverty data were nearing completion.

Staff Aprraisal

27. Macroeconomic policy implementation and economic performance have improved since the adoption of the new constitution in 2009. However, much remains to be done to accelerate inclusive growth through continued focus on policies that emphasize macroeconomic stability and enhance the competitiveness of the economy, including through improvements in infrastructure, and structural reforms to improve the business environment.

28. The key near term challenge is to maintain fiscal stability. In 2014, government revenue has been inadequate to meet the higher wage bill resulting from the increase in teacher salaries in March and other previously unbudgeted expenditures, including on the administration of elections. The government must strive to find a better balance between available resources and expenditures so that it can avoid the incurrence of arrears.

29. For the medium term, the key task is to strengthen domestic revenue mobilization to create fiscal space to strengthen public service provision. Revenue collection is well below potential and well below the levels of similar small island economies. In this regard, the authorities need to focus their efforts on strengthening revenue administration through more effective management of the large tax payer list and strengthened efforts to enforce tax compliance. More judicious use should also be made of exemptions than has been the case.

30. Public financial management is also in need of strengthening, particularly through the implementation of effective cash management and greater fiscal transparency. Better cash management should help limit the incurrence of arrears. For the sake of building trust among stakeholders, including the autonomous island governments, it is important that all transactions on behalf of the government, whether for revenue or spending, should be reflected in the budget.

31. The government’s decision to revise the draft 2015 budget to include more realistic expectations of resource availability is a welcome step toward enhancing the credibility of the budget as a guide to resource allocation. Efforts to strengthen revenue mobilization are bound to take time to yield results. With the scope for financing constrained, current spending, particularly on wages and salaries, the largest component of expenditure from domestic resources, needs to be carefully controlled.

32. The financial sector is fragile and problems at the postal bank remain a concern. The authorities should continue to implement the temporary measures to keep the situation at the bank from worsening and should work with the Fund to develop a resolution strategy.

33. Urgent action is needed to improve energy supply reliability. Frequent blackouts and overall shortages of electricity are a significant constraint on growth. The government should work closely with the World Bank and the African Development Bank to fashion a long-term solution to the energy supply problem.

34. The new poverty reduction strategy under preparation appropriately focuses on accelerating inclusive growth and human development. The strategy should include a strong private sector development component aimed at improving the attractiveness of Comorian economy as an investment and tourist destination. Following depreciation in 2014, the real effective exchange rate is broadly in line with fundamentals.

35. Lack of quality and timely economic data makes assessment of economic performance and the formulation of economic projections and policies difficult. The authorities are urged to make adequate allocations to the new statistical agency and continue to strive for improvements in data quality and frequency despite the challenging budgetary environment. Rebasing the national accounts and the CPI and improving the comprehensiveness and timeliness of fiscal and balance of payments data are particularly urgent.

36. It is expected that the next Article IV consultation be held on the standard 12-month cycle.

Figure 1.Key Indicators of the Comorian Economy

Sources: Comorian authorities; and IMF staff estimates and projections.

Figure 2.Cross Country Comparison

Sources: Comorian authorities; and IMF staff estimates and projections.

Table 1.Comoros: Selected Economic and Financial Indicators, 2011–18
(Annual percentage change, unless otherwise indicated)
National income and prices
Real GDP2.
GDP deflator4.
Consumer price index (annual averages)
Consumer price index (end period)
Money and credit
Net foreign assets17.216.5-9.80.6-
Domestic credit4.97.621.
Credit to the private sector8.922.412.67.617.414.613.013.7
Broad money9.616.
Velocity (GDP/end-year broad money)
External sector
Exports, f.o.b.16.4-19.0-3.1-
Imports, f.o.b.
Export volume-24.3-28.125.6-
Import volume-6.912.17.52.710.
Terms of trade3.12.6-
(In percent of GDP, unless otherwise indicated)
Investment and savings
Gross national savings-
Government budget
Total revenue and grants23.628.541.523.524.224.425.025.7
Tax Revenue10.911.812.112.012.613.113.814.4
Total grants17.
Total expenditure22.025.124.623.825.326.326.927.5
Current expenditure16.618.414.815.715.315.215.315.3
Capital expenditure5.
Domestic primary balance1.63.0-1.4-
Change in arrears-3.4-0.7-0.9-
External (Interest)-0.8-0.10.0-
Overall balance (cash basis)-1.92.515.5-0.6-1.0-1.9-1.8-1.8
Excluding grants-9.4-6.7-10.6-9.5-10.1-10.6-10.5-10.5
Foreign (net)-0.2-1.1-17.0-
Domestic (net)0.5-
Errors and omissions-0.20.0-
Financing gap0.
External sector
Exports of goods and services16.214.914.914.514.514.414.314.2
Imports of goods and services50.253.957.250.953.251.750.449.9
Current account balance-11.3-8.3-11.3-7.4-11.0-10.8-10.5-10.9
Excl. official and private transfers-34.1-39.7-42.1-36.5-38.8-37.3-36.2-35.8
External debt, in percent of GDP 244.940.718.517.417.518.519.420.3
External debt, in percent of exports of goods and services 2275.5271.8123.7121.1120.9128.1135.0142.7
External debt service (in percent of exports of goods and services)
Overall balance of payments (in millions of U.S. dollars)-25.5-5.8-32.50.0-
Official grants and loans (percent of GDP)
Gross international reserves (end of period)
In millions of U.S. dollars170.1191.1168.0170.2166.8174.6185.1194.2
In months of imports of goods & services6.
Real effective exchange rate (2000=100)100.295.599.098.4
Exchange rate CF/US$ (period average)353.6382.7370.4363.0
Memorandum items:
GDP (nominal, in bilions of CF)216.0228.2243.6260.1277.6297.3318.3340.9
GDP per capita (nominal, in US Dollars)8608158739239489911,0391,087
Education and health expenditure (in bilions of CF)14.816.818.3
Sources: Comorian authorities; and IMF staff estimates and projections.

Includes interim HIPC assistance (2010-12) and debt relief under HIPC and MDRI.

External debt ratios after full HIPC, MDRI and beyond HIPC relief from end-2012.

Sources: Comorian authorities; and IMF staff estimates and projections.

Includes interim HIPC assistance (2010-12) and debt relief under HIPC and MDRI.

External debt ratios after full HIPC, MDRI and beyond HIPC relief from end-2012.

Table 2.Comoros: Balance of Payments, 2011–18(Millions of Comorian francs, unless otherwise indicated)
Current account-24,307-18,900-27,565-19,133-30,491-32,058-33,336-37,212
Goods and services-73,308-89,059-102,810-94,800-107,479-110,773-114,892-121,631
Trade balance-61,686-76,126-78,714-73,905-77,350-83,972-88,827-94,457
Of which: Vanilla3505521,4131,2621,3941,5231,6311,746
Imports (f.o.b.)-70,594-83,341-85,704-80,424-84,487-91,641-97,029-103,231
of which oil-22,190-25,519-26,244-28,309-25,259-26,461-27,264-28,052
Services (net)-11,622-12,933-24,096-20,895-30,129-26,800-26,065-27,174
Income (net)-344-1,502187-241-165-251-321-412
Of which: Interest on rescheduled obligations-91-148-15-302-219-251-282-316
Current transfers (net)49,34471,66175,05875,90877,15278,96581,87784,830
Of which: HIPC and MDRI assistance1982056,73800000
Capital and financial account16,63512,40717,07119,14828,99135,05837,43640,712
Capital account11,01911,47656,49817,47120,45521,90223,45325,115
Capital transfers11,01911,47656,49817,47120,45521,90223,45325,115
Transfer of fixed assets10,2919,69615,64317,47120,45521,90223,45325,115
HIPC assistance7291,78040,85500000
Financial account5,615931-39,4271,6778,53613,15613,98215,597
Direct investment8,1713,9733,5045,2025,5535,9466,6857,840
Net portfolio and other investment-2,556-3,042-42,931-3,5262,9847,2107,2977,757
Of which: Indian loan disbursements00003,6623,6433,6134,163
Private sector (net)186-149-1,462-36324650257-269
Banks, net-3,093-2,060-5,759-321-364-80-282-892
Errors and omissions2,55819,148-1,54400000
Overall balance-6,45612,655-12,03815-1,5003,0004,1003,500
NFA of central bank (increase -)-4,793-13,04411,92901,500-3,000-4,100-3,500
Foreign assets-6,050-12,90110,62401,500-3,000-4,100-3,500
Foreign liabilities1,257-1431,30500000
Of which: Net IMF Credit881831,7610-58-742-918-1,270
Net change in arrears5,132171109-2,4230000
Clearance of deferred arrears and debt service
Exceptional financing5,80821802,4070000
Arrears restructuring and deferral5,0140000000
Current maturities restructuring and deferral79421802,4070000
Financing gap00000000
Memorandum items:
Current account (percentage of GDP)-11.3-8.3-11.3-7.4-11.0-10.8-10.5-10.9
Excluding transfers-34.1-39.7-42.1-36.5-38.8-37.3-36.2-35.8
Exports of goods and services (percentage of GDP)16.214.914.914.514.514.414.314.2
Imports of goods and services (percentage of GDP)50.253.957.250.953.251.750.449.9
Gross international reserves (millions of U.S. dollars)170.1191.1168.0170.2166.8174.6185.1194.2
In months of imports of goods and services6.
Nominal GDP (CF millions)216,039228,189243,606260,123277,627297,278.1318,329.4340,880.8
Nominal GDP (millions of U.S. dollars)611596658717758816.1881.2949.8
Sources: Comorian authorities, and IMF staff estimates and projections.
Sources: Comorian authorities, and IMF staff estimates and projections.
Table 3A.Comoros: Consolidated Government Financial Operations, 2011–18(In millions of Comorian francs, cumulative, unless otherwise indicated)
Total revenue and grants50,90765,130101,09361,12967,26772,58179,73687,582
Tax revenues23,52026,84929,53631,32434,97739,07643,85849,163
Direct and indirect taxes 112,41217,60024,20225,91529,02132,36336,39640,841
Taxes on international trade and transactions 111,1089,2505,3345,4095,9566,7137,4638,321
Nontax revenues11,27317,2878,1806,6547,1927,7018,2468,830
External grants16,11420,99463,37623,15025,09825,80427,63129,589
Budgetary assistance5304,0912,5671,000000
Projects (incl. techn.assist.)15,13519,00818,43020,58424,09825,80427,63129,589
HIPC and MDRI assistance9261,98540,85500000
Total expenditure and net lending47,79357,80361,30561,83470,11178,15785,54093,866
Current expenditure35,78541,89836,10140,92842,46545,32648,54952,002
Primary current expenditures29,95931,60432,85637,33138,40840,96543,86646,973
Wages and salaries18,40918,27818,58221,86623,33724,98926,75928,654
Goods and services7,6628,9329,04710,7069,68110,36611,10011,887
Transfers and pensions3,8894,3945,2274,7595,3905,6096,0076,432
Interest payments952977457484413459505555
External debt743780238302219251282316
Before rescheduling652631
On restructured obligations91148
Domestic debt209198220182194208223239
Foreign-financed project maintenance2,6362,8601,2261,1751,3751,4731,5771,689
Technical assistance2,2386,4571,5611,9382,2682,4292,6012,785
Capital expenditure11,70815,44423,90420,90627,64632,83136,99141,865
Domestically financed investment1,4175,7478,2613,4353,5302,9744,8896,745
Foreign-financed investment10,2919,69615,64317,47124,11629,85732,10235,120
Net lending3004611,30000000
Domestic primary balance 23,4176,785-3,401-2,7872312,8383,3504,275
Overall balance (commitment basis)3,1147,32839,788-705-2,843-5,576-5,804-6,285
Excluding grants-13,000-13,666-23,588-23,855-27,942-31,380-33,435-35,874
Change in net arrears-7,281-1,544-2,122-9180000
External arrears-1,662-17124-3900000
Domestic arrears-5,619-1,372-2,146-5280000
Overall balance (cash basis)-4,1675,78437,666-1,623-2,843-5,576-5,804-6,285
Excluding grants-20,280-15,210-25,710-24,773-27,942-31,380-33,435-35,874
Special adjustment 33,900-300000000
Errors and omissions (+ = underfinancing)-419874-18300000
Foreign (net)-404-2,504-41,384-2,7882,9606,5607,0408,026
Drawings, PIP (identified)315003,6627,9558,64910,005
Change in net arrears (principal)-3,470084-2,0330000
Exceptional financing5,80821802,4070000
Domestic (net)1,089-3,8543,9024,411-116-984-1,237-1,741
Bank financing1,089-3,8543,9024,411-116-984-1,237-1,741
Central bank2,260-4,3983,7584,411-116-984-1,237-1,741
Of which: IMF (net)881831,7610-116-1,484-1,837-2,541
Of which: HIPC assistance0-1,012000000
Commercial banks-1,17154414400000
Financing gap (+ = underfinancing)00000000
Memorandum items:
GDP (nominal)216,039228,189243,606260,123277,627297,278318,329340,881
Wages in percentage of revenues52.941.449.357.655.353.451.449.4
Sources: Comoros Ministry of Finance; and IMF staff estimates.

Since January 1, 2013, revenues collected at customs are classified according to their nature rather than the institution collecting them. The new classification system produced a change in the composition of tax revenues.

Domestic revenue less current primary expenditure and domestically financed capital expenditure.

2010 revenues received in early 2011; and 2012 revenues received in early 2013.

Sources: Comoros Ministry of Finance; and IMF staff estimates.

Since January 1, 2013, revenues collected at customs are classified according to their nature rather than the institution collecting them. The new classification system produced a change in the composition of tax revenues.

Domestic revenue less current primary expenditure and domestically financed capital expenditure.

2010 revenues received in early 2011; and 2012 revenues received in early 2013.

Table 3B.Comoros: Consolidated Government Financial Operations, 2011–18(In percent of GDP, unless otherwise indicated)
Total revenue and grants23.628.541.523.524.224.425.025.7
Tax revenues10.911.812.112.012.613.113.814.4
Direct and indirect taxes
Taxes on international trade and transactions
Nontax revenues5.
External grants7.
Budgetary assistance0.
Projects (incl. techn.assist.)
HIPC and MDRI assistance0.40.916.
Total expenditure and net lending22.125.325.223.825.326.326.927.5
Current expenditure16.618.414.815.715.315.215.315.3
Primary current expenditures13.913.813.514.413.813.813.813.8
Wages and salaries8.
Goods and services3.
Transfers and pensions1.
Interest payments0.
External debt0.
Domestic debt0.
Foreign-financed project maintenance1.
Technical assistance1.
Capital expenditure5.
Domestically financed investment0.
Foreign-financed investment4.
Net lending0.
Domestic primary balance 21.63.0-1.4-
Overall balance (commitment basis)
Excluding grants-6.0-6.0-9.7-9.2-10.1-10.6-10.5-10.5
Change in net arrears-3.4-0.7-0.9-
External arrears-0.8-0.10.0-
Domestic arrears-2.6-0.6-0.9-
Overall balance (cash basis)-1.92.515.5-0.6-1.0-1.9-1.8-1.8
Excluding grants-9.4-6.7-10.6-9.5-10.1-10.6-10.5-10.5
Special adjustment 31.8-
Errors and omissions (+ = underfinancing)-
Foreign (net)-0.2-1.1-17.0-
Drawings, PIP (identified)
Change in net arrears (principal)-
Exceptional financing2.
Arrears restructuring and deferral2.
Current maturities restructuring and deferral0.
Domestic (net)0.5-
Bank financing0.5-
Central bank1.0-
Of which: IMF (net)
Of which: HIPC assistance0.0-
Commercial banks-
Financing gap (+ = underfinancing)
Memorandum items:
GDP (nominal)216,039228,189243,606260,123277,627297,278318,329340,881
Wages in percentage of revenues52.941.449.357.655.353.451.449.4
Sources: Comoros Ministry of Finance; and IMF staff estimates.

Since January 1, 2013, revenues collected at customs are classified according to their nature rather than the institution collecting them. The new classification system produced a change in the composition of tax revenues.

Domestic revenue less current primary expenditure and domestically financed capital expenditure.

2010 revenues received in early 2011; and 2012 revenues received in early 2013.

Sources: Comoros Ministry of Finance; and IMF staff estimates.

Since January 1, 2013, revenues collected at customs are classified according to their nature rather than the institution collecting them. The new classification system produced a change in the composition of tax revenues.

Domestic revenue less current primary expenditure and domestically financed capital expenditure.

2010 revenues received in early 2011; and 2012 revenues received in early 2013.

Table 3C.Comoros: Consolidated Government Financial Operations, 2014(In millions of Comorian francs, cumulative, unless otherwise indicated)
Total revenue and grants15,70516,31330,83131,17644,60243,93661,129
Tax revenues8,2876,93414,44814,69221,43622,02731,324
Direct and indirect taxes6,7466,00411,36712,35216,81417,97025,915
Taxes on international trade and transactions1,5419293,0812,3404,6224,0575,409
Nontax revenues1,7541,7773,7683,7594,8874,9916,654
External grants5,6657,60312,61512,72518,28016,91923,150
Budgetary assistance001,2851,3951,2851,3952,567
Projects (incl. techn.assist.)5,6657,60311,33011,33016,69515,52320,584
Total expenditure and net lending19,00717,89238,42032,31056,50446,20361,834
Current expenditure9,0778,32218,56120,19126,71528,19040,928
Primary current expenditures8,0598,10516,50718,26223,63427,81137,331
Wages and salaries5,0315,07810,06310,74815,09416,39921,866
Goods and services2,2882,2704,5765,3166,0988,03010,706
Transfers and pensions7407561,8682,1982,4423,3824,759
Interest payments161131511215588293484
External debt11678231103347135302
Domestic debt4653110112165158182
Foreign-financed project maintenance32311647647970111,175
Technical assistance533741,0661,0661,600741,938
Capital expenditure9,9309,57019,85912,11929,78918,01420,906
Domestically financed investment2,0602,0534,1192,5026,1972,5763,435
Foreign-financed investment7,6727,51715,3449,61723,01515,43817,471
Net lending0000000
Domestic primary balance 1-78-1,448-2,410-2,313-3,490-3,369-2,787
Overall balance (commitment basis)-3,301-1,578-7,589-1,133-11,902-2,267-705
Excluding grants-8,966-9,182-20,204-13,858-30,181-19,186-23,855
Change in net arrears-522-494-1,044-558-1,566-528-918
External arrears000000-390
Domestic arrears-522-494-1,044-558-1,566-528-528
Overall balance (cash basis)-3,824-2,550-8,634-1,650-13,468-1,043-1,623
Excluding grants-9,488-10,153-21,248-14,375-31,747-17,961-24,773
Foreign (net)2,631-715,347-2508,062-345-2,788
Drawings, PIP (identified)2,86305,72708,59000
Exceptional financing (arrears and deferred debt restructu0000002,407
Change in net arrears (principal)-84262-84184-84149-2,033
Domestic (net)1,2182,7803,3132,0014,5301,5354,411
Bank financing1,2182,7803,3132,0014,5301,5354,411
Central bank1,2182,7573,3131,9554,5301,4764,411
Commercial banks0230460590
Errors and omissions/Financing gap (+ = underfinancing)-25-159-26-102876-1470
Memorandum items:
GDP (nominal)261,027260,123261,027260,123261,027260,123260,123
Wages in percentage of revenues50.158.355.258.357.360.757.6
Sources: Comoros Ministry of Finance; and IMF staff estimates.

Domestic revenue less current primary expenditure and domestically financed capital expenditure.

Sources: Comoros Ministry of Finance; and IMF staff estimates.

Domestic revenue less current primary expenditure and domestically financed capital expenditure.

Table 4.Comoros: Monetary Survey, 2011–18(In Millions of Comorian francs)
Net foreign assets62,73756,56756,88856,03958,54562,14265,864
Central bank assets72,76162,13662,13660,92363,34966,66469,494
Central bank liabilities-10,589-11,894-11,894-11,894-11,894-11,894-11,894
Commercial banks assets5,52410,78711,28711,83712,11012,59213,484
Commercial banks liabilities-4,959-4,463-4,641-4,827-5,020-5,221-5,221
Net domestic assets24,63633,29538,97146,27151,00755,16859,756
Domestic credit49,32659,69568,62678,28685,57992,508100,093
Net credit to government 11,6045,50110,55910,3277,8584,785503
Of which: Treasury6,12010,01214,29614,06411,5968,5234,241
Bank financing1,6045,50110,55910,3277,8584,785503
Claims on government13,77915,78715,66215,54614,06112,2259,684
HIPC and MDRI assistance-12,175-10,287-5,103-5,219-6,203-7,440-9,181
Claims on public enterprises512986986986986986986
Claims on other financial institutions-4-10-10-10-10-10-10
Claims on private sector47,02652,96756,99366,88676,64886,64998,516
Other items net-24,690-26,400-28,581-30,942-33,499-36,266-39,263
Broad money87,37389,86295,860102,310109,552117,309125,620
Currency in circulation21,75521,74025,50727,22429,15131,21533,426
Demand deposits34,74735,13835,16737,53340,19043,03646,085
(in percent of beginning period broad money):
Net foreign assets11.8-7.10.4-
Net domestic assets4.
Domestic credit4.611.99.910.
Net credit to government-
Credit to public enterprises-
Credit to private sector11.46.84.510.
Other items (net)-0.4-2.0-2.4-2.5-2.5-2.5-2.6
Broad money16.
Velocity (GDP/end-year broad money)
Credit to private sector (percent change)22.412.67.617.414.613.013.7
Sources: Central Bank of Comoros; and IMF staff estimates and projections

Includes net credit to government entities other than public treasury.

Sources: Central Bank of Comoros; and IMF staff estimates and projections

Includes net credit to government entities other than public treasury.

Table 5.Millenium Development Goals Progress
1. Eradicate extreme poverty and hunger
1.1 Proportion of population below $1.25 (PPP) per day,
1.2 Poverty gap ratio at $1.25 a day (PPP),
2. Achieveve universal primary education
2.2 Proportion of pupils starting grade 1 who reach last grade of primary71.379.8n.a
2.3 Literacy rate of 15-24 year-olds,
3. Promote gender equality and women empowerment
3.1 Ratio of girls to boys in primary, secondary and tertiary education0.830.920.9
3.3 Proportion of seats held by women in national parliament, percentagen.a33
4. Reduce child mortality
4.1 Under-five mortality rate per 1,000 live births95.787.277.6
4.2 Infant mortality rate (0-1 year) per 1,000 live births69.263.857.7
4.3 Proportion of 1 year-old children immunized against measles, percentage767685
5. Improve maternal health
5.1 Maternal mortality ratio per 100,000 live births
5.2 Proportion of births attended by skilled health personnel,
5.3 Contraceptive prevalence
5.5 Antenatal care coverage (at least one visit)75n.a92.1
6. Combat HIV/AIDS, malaria and other diseases
6.5 Proportion of population with advanced HIV infection with access to antiretroviral drugs
6.6 Incidence and death rates associated with malaria, per 100,000
6.9 Incidence, prevalence and death rates associated with tuberculosis, per 100,000 population666562
6.10 Proportion of tuberculosis cases detected and cured under directly observed treatment short co425949
7. Ensure environmental sustainability
7.1 Proportion of land area covered by forest, percentage
7.2 Carbon dioxide emissions, total, per capita and per $1 GDP (PPP)103125n.a
7.3 Consumption of ozone-depleting substances1.20.10.1
7.6 Proportion of terrestrial and marine areas protected,
8. Develop a global partnership for development
8.1 Debt relief committed under HIPC and MDRI Initiatives, cumulative million US$ in end-2009 NPV terms
Debt relief committed under HIPC initiative, cumulative million US$ in end-2009 NPV terms157
Debt relief delivered in full under MDRI initiative, cumulative million US$ in end-2009 NPV terms56
Table 6:Financial Soundness Indicators for the Banking Sector(percent unless otherwise indicated)
2011201220132014 1
Capital Adequacy:
Regulatory capital to risk-weighted assets36282627
Asset quality:
Nonperforming loans to total gross loans15171818
Nonperforming loans net of provisions to capital20232536
Earnings and profitability:
Net income/average assets (ROA)5452n.a.n.a.
Net income/average capital (ROE)340392n.a.n.a.
Liquid assets to total assets41425051
Liquid assets/short-term liabilities15219611694
Liquid assets/total deposits56534841
Excess reserves/broad money91552
Exposure to FX risk:
Foreign exchange liabilities/total liabilities0000
Source: Central Bank of Comoros and IMF staff

Up to June

Source: Central Bank of Comoros and IMF staff

Up to June

Annex I. Status of 2012 Article IV Main Recommendations
1. Revenue AdministrationEstablish the new General Tax Administration (AGID) to increase efficiency in tax administration.The AGID has been created but is not yet operational as it has experienced operational issues at the island level.
Establish an operational electronic network between the country’s four major customs offices.The four customs offices are now connected
2. Public Financial ManagementImplement a medium-term macro framework for the period 2014-2017 to increase budget management, improve the quality of expenditure and enhance medium term budget and macroeconomic viability.FAD and AFS have helped in establishing an updated PFM strategy for 2014-2016 addressing the weaknesses identified in the 2007 PEFA evaluation.
Implement a comprehensive automated PFM management system to improve monitoring of expenditures and overall budget execution.Progress on actual implementation has been slow and monitoring of budget execution remains weak.
3. State Owned Enterprises
Comores telecom/telecom sectorPrivatization of the company by end 2013 and issuance of a second mobile license to open competitionComores telecom has not been privatized but the government plans to issue a second license
Société Comorienne des Hydrocarbures (SCH)Define a reform strategy of the company and enhance the flexibility of domestic fuel pricing policies to ensure reliability of supply of petroleum products and limit budgetary pressures from subsidies.A reform strategy of the company is yet to be defined but the supply of petroleum products has improved recently through the signing of a credit line with the Islamic Development Bank.
MaMWE (Electricity company)Implement a privatization plan of the company to ensure reliable electricity supply and limit budgetary pressures from subsidies.The reform strategy supported by the World Bank and the AfDB does not include privatization. Instead, it focuses on improving the operational and financial management of the company.
4. Business EnvironmentImplement business friendly policies to support growth and enhance investors’ interest in Comoros through structural reforms that boost competitiveness and export diversification.While supportive legislation has been put in place, actual implementation has deteriorated. Comoros fell three places in the World Bank’s doing business ranking between 2014 and 2015.
Adherence to stability oriented fiscal and reserve management policies and to increased investment in infrastructure and education.Limited fiscal revenues make fiscal management difficult and constrain public investment in infrastructure. Construction of schools and hospitals is supported by bilateral donors.
5. Financial and Banking SectorModernize the banking supervision and regulation to address weaknesses in the legal system that make enforcement of rulings against loan defaulters costly and slow.The BCC has implemented new prudential and regulation rules (centrale des risques and on site controls) to strengthen its monitoring on banking activity to curb the expansion of NPLs
Source: Comorian Authorities and IMF Staff.
Source: Comorian Authorities and IMF Staff.
Annex II. Risk Assessment Matrix (RAM)1
Nature/Source of ThreatLikelihoodExpected Impact on EconomyStaff Advice on Policy Responses
External Risks
Decline in remittancesLowReduction in consumption, investment, and imports. Somewhat lower economic growth and fiscal revenue. Pressure on reserves.Enhance competiveness of economy. Strengthen revenue mobilization.
Decline in donor support
Fiscal pressures in donor countries reduce availability of project grants.LowAdverse impact on growth and provision of social services.Strengthen revenue mobilization and prioritize spending in support of domestic investment and social support.
Protracted period of slower growth in advanced and emerging economies:
• Advanced economies:

Lower-than-anticipated potential growth and persistently low inflation due to a failure to fully address legacies of the financial crisis, leading to secular stagnation.
HighMarginal adverse impact on remittances, exports, and FDI. Marginal implications for growth and fiscal revenue.Enhance competiveness of economy. Strengthen revenue mobilization and re-prioritize spending.
• Emerging markets:

maturing of the cycle, misallocation of investment, and incomplete structural reforms leading to prolonged slower growth.
HighMarginal adverse impact on remittances, exports, and FDI. Marginal implications for growth and fiscal revenue.Enhance competiveness of economy. Strengthen revenue mobilization and reprioritize spending.
Heightened geopolitical risks in the Middle East, leading to a sharp rise in oil prices, with negative spillovers to the global economy.MediumIncrease the cost of oil imports. Fuel-related subsidies could destabilize the fiscal stance. Lower project grants.Seek lower cost arrangements for fuel imports. Continue restructuring of energy sector. Strengthen revenue mobilization and reprioritize spending.
Domestic Risks
Political developments
Policy slippages ahead of parliamentary elections in late 2014 and presidential elections in 2015.MediumIncreased fiscal spending. Delays in implementation of reforms.Contain election related spending. Avoid delays in implementation of reforms.
Ebola spreadLowMarginal and temporary impact on growth and revenue.Cover cost of Ebola preparedness by temporarily restraining other current and capital spending,
Natural disastersMediumPotentially large economic impact.Limited options for mitigation.

The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding this baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff’s views on the source of risks and overall level of concerns as of the time of discussions with the authorities.

The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding this baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff’s views on the source of risks and overall level of concerns as of the time of discussions with the authorities.

Annex III. Assessing the Potential of Tax Revenues in Comoros1

This note explores the challenges facing Comoros in mobilizing sufficient tax revenue to finance its outstanding development needs. With a tax to GDP ratio as low as 12 percent in GDP, Comoros appears to lag well behind all comparable countries. Weak institutional capacity, excessive exemptions, low tax compliance along with hard-to-tax sectors (agriculture and small businesses) are at the core of this lackluster fiscal performance. However, eliminating these distortions through implementation of revenue administration reforms (including a reduction in the use of exemptions) has the potential to raise Comoros’ tax revenue to up 19.2 percent of GDP.

A. Background

1. Comoros, a Union of three semi-autonomous islands, is in a fragile state and has been subject to a long political instability. While Comoros attained the completion point under the HIPC Initiative in late 2012, the country has fallen short in generating sufficient resources to finance the public investment needed to generate a sustained and inclusive growth and curb poverty—around 44.8 percent of the population over the last two decades. 2 Real GDP growth was poor and well below peers (Figure 1). Tax revenues performance has remained low over the recent years amid pressing development challenges. Tax revenues, at 12 percent of GDP in 2012, are low by any standards. Current expenditure, particularly the wage bill, absorb the bulk of tax revenues (up to 55 percent), crowding out productive spending. In the face of such binding development challenges, greatly strengthening revenue collection would significantly improve fiscal space for pro-poor spending and infrastructure investment, in order to lay the foundations for strong and inclusive growth while also strengthening resilience against external shocks.

Figure 1.Fiscal Indicators and Cross Country Comparisons

Source: Comorian authorities and IMF database

2. This note reviews assesses the potential level of revenues that Comoros could mobilize given its structural characteristics–income level, openness, economic structure, institutions, and government policies. Using a reduced form model based on a panel of SSA countries, the potential total revenues-to-GDP ratio for Comoros is estimated at 20.3 percent with 19.2 percent accrued to tax revenues. This suggests that there is a potential for Comoros to raise its tax revenue-to-GDP, on average, by some 8.7 percentage points of GDP compared to actual average collection of 10.5 percent of GDP over 1990-2010. Moreover, the empirical results suggest that the actual low revenue mobilization reflects both the weaknesses of the fundamentals and distorting policies.

B. Historical Performance

4. Comoros registers one of the lowest fiscal performances in terms of tax revenue-to-GDP ratios across all standards. Over the past two decades, the ratio of tax revenue-to-GDP has averaged a disappointing 10.5 percent. This is 3 percentage points below the SSA average of 13.5 percent over the same period, (see Table 1). Moreover, Comoros compares unfavorably with respect to the fragile states countries (11.4 percent) and non resource rich countries (14 percent). A further comparison with small island countries points to the same conclusion, as Comoros had the lowest tax to GDP ratio (see Table 2 and Figure 1) in recent years. Over recent years, higher than average non-tax revenues, owing to large receipts from the Economic Citizenship Program (ECP), have seemingly diluted the tax effort.3 ECP receipts accounted for more than 6 percent of GDP in 2012, generating an overall fiscal surplus (cash basis, net of debt relief) of 1.6 percent of GDP.

Table 1:Revenue to GDP ratios: Selected SSA Groupings (1990-2010)
Total RevenueTaxNon tax
Fragile States13.811.42.4
Small Islands20.315.84.5
Non resource rich countries16.914.02.9
Source: IMF database
Source: IMF database
Table 2:Tax revenue across Small Island Economies
Tax revenue in 2012
Antigua and Barbuda18.8
Cabo Verde17.9
Sao Tome y Principe14.0
Trinidad and Tobogo29.9
Source: IMF database
Source: IMF database

5. Over the period under review, there have been ups and downs in revenue performance. In the 1990s, the tax-to-GDP ratio averaged about 10.9 percent before rising to 11.7 percent during 2001–2010; and it recently increased to 11.8 percent in 2012 (see Figure 1). The relatively poor revenue performance in the 1990s underscores the political instability in the country, with 2 coups (1989 and 1995) and separatists’ rebellions in Anjouan and Moheli in 1997. The 2000s display more significant swings as tax revenue-to-GDP ratio increased from 10.2 percent in 2000 to 15.7 percent in 2005, reflecting the relative political stability gained after the adoption of a new constitution in 2001. However revenue fell by 3 percentage points in 2007 partly reflecting disruptions on Anjouan island and sanctions imposed by both the African Union and the Union of Comoros on the island.

6. The composition of revenues has evolved with the tax base shifting from trade duties toward more taxes on income and profits and taxes on goods and services. While the ratio of taxes on international trade to GDP accounted for 4/5 of total tax revenue over 1990–2000 (8.2 percent of GDP), it was only 5.3 percent over 2001–2013 (see Table 3). The decline reflects the extent of customs exemptions but also the reduction of trade tariffs as Comoros integrates more to the COMESA region. Over the same period, the share of domestic taxes on goods and services has moderately increased, up from 1.4 percent in 1990s to 3.6 percent over 2001–2013. Tax from income and profits remained relatively stable but shows some substantial increase during 2005-06. Despite extensive TA in revenue and custom administration and public financial management progress in mobilizing more tax revenues has been limited. Tax revenues increased by only 1.3 percentage points between 2009 and 2013, to 12.1 percent.

Table 3:Revenue to GDP Ratio in Comoros
Total Revenue and Grants
Income and profit1.
Goods and Services1.
International Trade8.
Non Tax2.
Source: IMF database

Period corresponding to the IMF program under an ECF arrangement

Source: IMF database

Period corresponding to the IMF program under an ECF arrangement

C. Assessing the Potential of Tax Revenues

7. Econometric methodology: In assessing the revenue potential for Comoros, two complementary approaches have been used in order to relieve serious data limitations and inconsistencies. A reduced form approach is applied, which consists of estimating an empirical model based on panel data. Taking an SSA sample4 as the reference, the potential revenue for Comoros is estimated as the fitted value of revenue from the reduced-form model in which actual revenue-to-GDP is regressed on a set of country characteristics, including GDP per capita, the composition of the economy, the degree of openness, the ratio of public debt to GDP and other institutional factors. This approach is applied for taxes on goods and services and income tax but also for non-tax revenues. Formally, the estimated model is given by:

The potential for international trade taxes is estimated as the actual ratio of international trade taxes plus 30 percent of the actual collection. This ad hoc assumption is motivated by considerable anecdotal evidence of tax leakage combined with data limitations on international trade tax collection.5 Thus, potential tax revenues are obtained by adding up the potential for income taxes, taxes on goods and services, and international trade taxes. Total potential revenues are then obtained adding potential non-tax revenues to potential tax revenues. Finally, the tax effort is derived as the ratio of actual revenues to potential revenues.

8. Based on this approach, the empirical results point to substantial potential tax revenues in Comoros. On average, the potential revenue that Comoros could mobilize amounts to 20.3 percent of GDP, of which 19.2 percent accrued to tax revenue. The corresponding tax effort index is 0.5. With the actual ratio of 10.5 percent of GDP, Comoros could raise its tax revenue-to-GDP, on average, by about 8.7 percentage points. Looking at the different subcomponents of revenue shows that Comoros should focus on minimizing the leakages in collecting taxes on goods and services, which account for the bulk of the identified tax gap.

9. Broadly, Comoros’ tax effort is rather small relative to small island and SSA countries. For the first group, the revenue effort index is 0.8 while the index is 1 for SSA countries suggesting Comoros relative poor performance—an index of 0.6—requires sound policy and administration reforms along with broader economic reforms intended to diversify the economy.

Table 4:Econometric estimation results
VariablesTotal revenueTax revenuesIncome and profitGoods and ServicesInternational tradeNon Tax revenues
Income (log of GDP per capita)2.748***1.842**0.9190.2710.520**1.769***
Agriculture share1-0.168***-0.153***-0.043***-0.034***-0.027**-0.054**
Official development Assistance1-0.005-0.006-0.003-0.011**0.0010.005
Freedom House Index2-1.806-1.639*0.070-0.259-1.334**0.671
Small island Dummy-1.232-1.091-1.1283.9621.114-1.400
Number of code343636363634
Standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1

Pourcentage of GDP

Index ranging from 1 (most free) to 7 (least free).

Standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1

Pourcentage of GDP

Index ranging from 1 (most free) to 7 (least free).

Table 5:Revenue to GDP Ratio in Comoros
ActualPotentialGapTax effort
Income and profit1.82.6-0.80.7
Goods and Services1.36.9-5.60.2
International Trade7.49.7-2.30.8
Non Tax2.
Small IslandsRevenue20.126.0-5.90.8
Income and profit3.54.5-1.00.8
Goods and Services6.18.7-2.60.7
International Trade6.
Non Tax4.54.9-0.40.9
Income and profit4.45.1-0.70.9
Goods and Services4.55.4-0.90.8
International Trade4.
Non Tax3.74.0-0.30.9
Source: Staff estimation based on IMF database
Source: Staff estimation based on IMF database
Annex IV. External Balance Assessment1

Comoros’ current account balance relative to GDP is expected to improve in 2014 mostly on account of lower imports and larger remittance inflows. It is projected to weaken slightly over the medium term, mainly reflecting a modest reduction in remittances relative to GDP, the import cover of international reserves remaining broadly adequate. Standard empirical model suggest that the real exchange rate was moderately overvalued at end-2013 but these results are subject to considerable uncertainty related to data limitations and volatility of economic variables in a fragile state. Moreover, the recent real depreciation of the Comorian Franc suggests that the estimates of overvaluation may be exaggerated. Survey-based indicators underscore the need to implement structural reforms to remove the inefficiencies and distortions that undermine the competitiveness of the economy.

A. Balance of Payments

1. Comoros’ external position is vulnerable owing mainly to the country’s narrow export base and heavy reliance on remittances to fund imports. The current account deficit is projected at 7.4 percent of GDP in 2014, down from 11.3 percent in 2013, mostly on account of lower imports and larger remittance inflows (Figure 1). For 2015, the current account deficit is projected to widen again to 11 percent of GDP, despite lower oil prices, mainly on account of a rise in investment related imports. Beyond 2015, the current account deficit is projected to average close to 11 percent.

Figure 1:Current Account and its Financing

2. Comoros’ real effective exchange rate depreciated by more than 10 percent from end-2013 through October 2014, largely owing to the depreciation of the euro against dollar. The longstanding peg of the Comorian Franc to the euro, 2 and subdued inflation, mean that movements in the real effective exchange rate tend to be dominated by movements in the US dollar-euro exchange rate (Figure 2)

Figure 2:Nominal and Real Effective Exchange Rates

B. Reserves Adequacy3

3. Official reserves appear to be adequate to withstand external shocks over the medium term. Reserves reached a historical peak of KMF 72.7 billion (US$190 million) in 2012 owing to strong remittances and substantial ECP receipts. They declined to KMF 62.1 billion (US$168 million) at the end-2013 and are projected to remain flat in 2014. Reserve coverage remains adequate at 5 months of imports, 24 percent of GDP, and 64 percent of broad money in 2014.

C. Price Competitiveness

4. The Comorian Franc is estimated to be moderately overvalued using standard analytical methods.4 While external stability assessments are particularly difficult to benchmark for fragile countries like Comoros with severe data limitations, this conclusion is based on a comprehensive approach using a variety of assessment methods (CGER-like): (i) the macroeconomic balance (MB); (ii) the equilibrium real exchange rate (ERER); and (iii) the external sustainability (ES), further complemented with the purchasing power parity (PPP) approach. The CGER-like approaches suggest that the real effective exchange rate is moderately overvalued, with the misalignment ranging from 5 percent to 22 percent in the short term and from 6 percent to 15 percent in the medium term, while the PPP approach signals an undervaluation of about 10 percent in the short term and 7 percent in the medium term. Results are summarized in Table 1.

Table 1:Comoros: Quantitative Exchange Rate Assessment
Current AccountREER misalignment2
(in % of GDP)CA Elasticity1
Macroeconomic Balance-3.9-11.3-8.1-10.3-0.34221.66.4
Equilibrium Real Effective Exchange Rate5.05.7
External Sustainability-6.5-11.3-5.2-10.3-0.34214.214.8
Purshasing Power Parity-9.5-7.3
Source: IMF staff estimates.

CA elasticity is computed assuming export and import elasticities of 0.8 and -1.18 respectively (Tokarik (2010)).

In percentage, “+” = overvaluation.

Source: IMF staff estimates.

CA elasticity is computed assuming export and import elasticities of 0.8 and -1.18 respectively (Tokarik (2010)).

In percentage, “+” = overvaluation.

5. The macroeconomic balance approach calculates exchange rate under – or overvaluation by measuring the adjustment needed for the real exchange rate to close the gap between the projected medium-term CA balance at the prevailing real effective exchange rate and a CA norm. The latter is defined as the CA that is consistent with sustainable medium-term macroeconomic fundamentals and is estimated through a regression model including the fiscal balance, output growth, real income, oil balance, demographics, trade openness, relative productivity, aid and remittances. The estimated current account norm is a deficit of 8.1 percent of GDP, while the projected medium-term current account deficit is 11.9 percent of GDP, suggesting that a depreciation of 22 percent would be required to close the gap between the underlying and the CA account norm, using an elasticity of the CA with to the exchange rate of -0.342.

6. The REER approach is a reduced-form regression model in which the degree misalignment is measured by the percentage deviation of the exchange rate from its equilibrium value. The medium-term equilibrium value of the REER is estimated in a regression relating the REER to medium term fundamentals including the NFA position, relative productivity differentials between tradable and non-tradable sectors, terms of trade, government consumption but also aid and remittances for countries like Comoros. The results suggest a mild overvaluation of about 5 percent in 2013 and 5.7 percent in 2018.

7. The ES approach works in the same way as the MB approach. The degree of exchange rate misalignment is measured by how much the exchange rate needs to adjust to close the gap between the projected CA position—with no change in the exchange rate path—and the CA norm. The later is calculated as the CA balance that stabilizes the NFA position. Following the literature, this value is calibrated to the most recent NFA position observed of 14.8 percent of GDP in 2013 implying a CA norm (deficit) of 6.5 percent of GDP. The results suggest that the Comorian Franc is overvalued by 14 percent.

8. The PPP approach relies on the assumption that nominal exchange rates are related to national price levels, and changes in the former should be in line with changes in relative price levels. The results using this approach indicate that the Comorian Franc is slightly undervalued, by 9.5 percent in the short term and by 7.3 percent in the medium term. However, the deviations of the exchange rate from medium-term fundamentals are not significantly different from zero.

D. Structural Competitiveness

9. Non-price and survey-based indicators underline important competiveness and structural issues.

  • Comoros’ export base has deteriorated over time, with the trade deficit widening and export shares declining relative to peers. In the medium term, exports are expected to remain sluggish, reflecting structural inefficiencies and domestic distortions impeding private sector development and competitiveness (See Figure 3).

  • The World Bank’s 2015 doing business indicators show that the overall quality of the business environment is poor (Figure 4) and lags well behind peers (Figure 5) as Comoros ranks 159th of 189 countries, down three places since 2014. Comoros underperforms notably in the areas of starting a business, getting credit, enforcing contracts, paying taxes and resolving insolvency, underscoring the need to accelerate structural reforms in these areas.

Figure 3:Comoros’ Export Market Share

Source: Authorities and IMF Estimates

Figure 4:Comoros-Doing Business Indicators, Ranks

Source: World Bank Doing Business Report, 2015

Figure 5:Distance to Frontier Indicators: Comoros and SSA countries, 2015

The ECP involves the selling of passports to foreign nationals in some Middle Eastern countries, mainly the United Arab Emirates. Revenues from the program declined steeply in 2013 following the imposition of tighter controls in response to earlier irregularities.

The 2013 fiscal accounts also reflect the recording of debt relief under the HIPC Initiative and the MDRI amounting to 16.8 percent of GDP.

These arrears were settled in March 2014.

Surveys are being completed that should allow an assessment of the current poverty situation.

With an annual population growth rate of about 3 percent, the projected growth in per capita terms is modest. Construction of roads, schools, and hospitals, mostly financed by bilateral foreign grants, account for a large part of the investment program.

Fiscal policy is premised on a consolidated budget for the Union and the three islands, based on constitutionally mandated rules for revenue allocation. There are, however, clear difficulties in revenue collection and sharing, with the islands reluctant to hand over locally-collected revenue to the Union. Moreover, the Union faces difficulties in controlling spending, particularly on wages and salaries, as the island governments are in charge of hiring decisions.

The monetary cooperation agreement with France limits central bank financing of government operations by placing a ceiling of statutory advances to no more than 20 percent of the average of tax revenues for the previous three years.

In addition to the constraint on statutory advances, a recent MCM TA mission found that it would likely take several years before a Treasury-bill market could be developed.

Strategy for Accelerated Growth and Sustained Development

Over the summer and into the fall, the capital Moroni faced recurrent blackouts because of either equipment breakdowns or fuel shortages caused by the inability of SCH to finance fuel imports. Other parts of Grand Comore and the other islands have been in the dark for extended periods.

Drawings under the credit line carry an annual interest rate of 6.1 percent and are to be repaid in equal monthly installments in the three months period immediately following each drawing.

The stock of non-performing loans includes old discount loans of KMF 1.3 billion to the vanilla sector that have non-performing since the early 2000s. The central bank is coordinating efforts to have these loans written off.

All public sector salaries require deposit in the SNPSF.

This note was prepared by Ahmat Jidoud.

World Bank website: Due to data limitations, this number is for 2004 and the most recent available figures on poverty statistics.

The ECP refers to a 2008 arrangement whereby the government sells passports to certain foreigners under bilateral agreement with certain countries.

The model is estimated over the period 1990-2010 on the following countries: Benin, Botswana, Burkina Faso, Burundi, Cabo Verde, Central African Republic, Chad, Comoros, Republic of Congo, Equatorial Guinea, Eritrea, Ethiopia, Gabon, The Gambia, Guinea Bissau, Guinea, Cote d’Ivoire, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, Sao Tome and Principe, Seychelles, Senegal, Sierra Leone, Swaziland, Tanzania, Togo, Uganda, Zambia and Zimbabwe,

To illustrate the point, as of June 2014, customs’ exemptions were as high as actually collected tax revenues at around 2.03 billion KMF.

This note was prepared by Ahmat Jidoud and Graham Campbell (AFR).

The Comorian Franc is fixed against the Euro at a value of KMF 490 per euro under the monetary policy agreement with France.

Under the monetary cooperation agreement with France, the central bank has unlimited access to a credit line at the French Treasury. The agreement requires the central bank to hold reserves of at least 20 percent of broad money.

The EBA-lite methodology could not be applied because of data limitations.

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