Journal Issue

IMF Executive Board Concludes 2014 Article IV Consultation with the Union of Comoros

International Monetary Fund. African Dept.
Published Date:
February 2015
  • ShareShare
Show Summary Details

On February 4, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the 2014 Article IV consultation1 with the Union of Comoros.

Comoros is a small, low-income 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. Political stability and economic turnaround have been in place following the adoption of a new constitution in 2009. Under the 2009–13 Extended Credit Facility (ECF) arrangement the secular decline in per capita GDP slowed. Additionally, authorities made progress in consolidating macroeconomic stability and advancing structural reforms that enabled Comoros to complete the Heavily Indebted Poor Countries (HIPC) Initiative in December 2012.

Economic growth was 3.5 percent in 2013 but is estimated to have eased to 3.3 percent in 2014, adversely affected by electricity disruptions and slower-than-expected implementation of the public investment program. Inflation has remained subdued in the low single digits. The current account deficit is projected to narrow to 7.4 percent of GDP in 2014 from 11.3 percent in 2013, reflecting a contraction in imports that resulted from lower imports of investment goods and lower fuel import prices, as well as higher remittances.

Economic growth is expected to firm to 3.5 percent in 2015, despite continuing headwinds from 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. For the medium term, staff’s baseline assumption is that economic growth will average around 4 percent per annum, provided that reforms are implemented.

Implementation of the 2014 budget was challenging, particularly after mid-year. While revenues were broadly on target, resources were inadequate to meet the higher-than-budgeted wage bill resulting from an increase in teacher salaries and previously un-budgeted expenditures. Domestically-financed investment spending was severely constrained and temporary arrears were incurred on salaries and external debt.

The key short-term challenge is to find a better balance between available resources and expenditures so that arrears can be avoided. Spending plans need to be based on realistic expectations of the resources likely to be available. The 2015 budget is premised on this principle, but the scope for domestically-financed investment is inadequate, as obligatory spending on wages and salaries and debt service absorb most of domestic revenue.

For the medium term, the key challenges are to create fiscal space for infrastructure investment and social spending, accelerate inclusive growth and employment generation, and reduce poverty. The authorities need to focus their efforts on strengthening revenue administration and public financial management to expand fiscal space and improve transparency. Weaknesses in the business environment, including inadequate infrastructure, especially in the energy sector, and difficulties in contract enforcement represent important challenges.

Based on the external low income country debt sustainability analysis, IMF and World Bank staff have re-assessed Comoros’ risk of debt distress as moderate rather than high, which was the case in the previous DSA update completed in December 2013. The full inclusion of remittances in the analysis is the main reason for the improved debt sustainability outlook.

Executive Board Assessment2

Executive Directors welcomed Comoros’s improved policy implementation and economic performance in recent years. However, Directors noted that significant challenges remain—including high poverty, inadequate infrastructure, and vulnerabilities characteristic of small island economies. Prudent macroeconomic policies and stepped-up reform efforts are needed to bolster resilience, enhance competitiveness, and foster inclusive growth.

Directors saw achieving fiscal stability as a key near-term objective. Regretting the incurrence of domestic arrears in 2014, they encouraged the authorities to strike a better balance between available resources and expenditures. In this regard, Directors welcomed the government’s decision to base the 2015 budget on more realistic assumptions, and advised both enhanced prioritization and restraint, including containment of the wage bill.

Directors called for efforts to strengthen revenue mobilization and public financial management, and encouraged the authorities to implement quick-win reforms in both areas. They noted that revenue collection trails that of peer economies, and recommended strengthening administration through more effective management of the large tax payer list, better enforcement of compliance, and streamlining exemptions. Strengthening public financial management would help to limit the incurrence of arrears, enhance fiscal transparency and credibility of the budget, and create space for infrastructure investment and priority social spending. Directors noted the improvement in Comoros’s debt distress rating, and encouraged the authorities to continue to rely on grants and concessional financing.

Directors cautioned against excessive reliance on the potentially volatile proceeds from a new Economic Citizenship Program, and advised allocating these resources to investment projects, restructuring public enterprises, and strengthening external buffers. Strong safeguards are also needed to help prevent misuse of the program.

Directors stressed the need to develop the financial sector, and strengthen the central bank’s regulatory and supervisory oversight, including through risk-based supervision. They called for the development, with Fund technical assistance, of a resolution strategy to accelerate the recapitalization and restructuring of the Postal Bank.

Directors encouraged the authorities to expedite the pace of structural reforms in order to boost external competitiveness and growth prospects. Efforts are needed to strengthen the business climate through the removal of key supply-side constraints in the electricity, telecommunications, and financial sectors. Directors welcomed the progress in preparing a new Poverty Reduction Strategy, while calling for a strong private sector development component aimed at improving the attractiveness of the Comorian economy.

Directors encouraged the authorities to improve data quality and timeliness by prioritizing allocations to the new statistical agency and working with technical assistance providers.

Directors agreed that assistance from development partners is critical, given Comoros’s limited capacity to undertake complex reforms. They acknowledged the role that a new Fund arrangement could play in supporting the authorities’ reform efforts taking into account the small states’ challenges that Comoros is facing, and looked forward to early engagement on this issue.

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.

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and the summary is transmitted to the country’s authorities. An explanation o any qualifiers used in summing up can be found here:

Other Resources Citing This Publication