Union of the Comoros: Selected Issues and Statistical Appendix
Author: International Monetary Fund
Publication Date:
13 Aug 2004
eISBN:
9781451809077
Language:
English
Keywords:
ISCR; CR; government; island government; trade regimes of the Comoros; constitution; U.S. dollar; central bank; balance of payments; current account; net profit; Remittances
Download PDF (429 KB)

This Selected Issues paper analyzes the decentralization of government in the Union of the Comoros and its economic management functions foreseen under the constitution. The paper examines the special challenge of combining a civil service reform needed to increase the efficiency of the civil service with the decentralization of the civil service foreseen under the new constitution. It discusses developments in a number of civil service indicators that are often used to analyze the government wage bill and employment in relation to economic and fiscal objectives.

Abstract

This Selected Issues paper analyzes the decentralization of government in the Union of the Comoros and its economic management functions foreseen under the constitution. The paper examines the special challenge of combining a civil service reform needed to increase the efficiency of the civil service with the decentralization of the civil service foreseen under the new constitution. It discusses developments in a number of civil service indicators that are often used to analyze the government wage bill and employment in relation to economic and fiscal objectives.

V. External Sector Developments and Policies20

A. Introduction

104. The Comoros is a small open island economy, with a ratio of exports and imports-to-GDP of almost 50 percent (see Figure V.1). Exports are dominated by three commodities—vanilla, cloves, and ylang-ylang21—which accounted for over 95 percent of total exports in 2003. With a limited manufacturing base and high dependence on imported food, the country has consistently run a substantial trade deficit.

Figure V.1.
Figure V.1.

Comoros: Trade in Goods and Services, 1993-2003

(as percent of GDP)

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Source: IMF, International Financial Statistics.

105. The Comoros is a member of the French franc zone. Since the introduction of a common currency in the European Union in 2002, it has maintained a fixed exchange rate vis-à-vis the euro at the rate of EUR 1 = CF 492. The peg provides an anchor for financial stability as the country builds its new institutions. While the competitiveness gains achieved from the devaluation in 1994 have been largely maintained, limited progress has been made in achieving macroeconomic stability and improving basic infrastructures and the business climate. Together with political uncertainty and the small size of the domestic market, this has limited financial development and affected competitiveness and private foreign investment—the latter is virtually nonexistent. Trade policy remains highly restrictive as a result of high tariffs and duties on imports, which are the main source of public revenue.

106. The vulnerability of the Comoros is reflected in the dependence on external transfers in its current account transactions. Official and private transfers accounted for almost 50 percent of total external receipts over the last decade (Figure V.2). By 2003, official and private transfers still accounted for almost 40 percent of total external receipts, despite the strong growth of export values as a result of sharp increases in their prices.22 Another indication of the country’s vulnerability is the large external debt and external payments arrears accumulated. Notwithstanding the reversal of the current account deficit in the last few years, the economy of the Comoros in general—and the balance of payments in particular—remains highly fragile, given its dependence on transfers and the high concentration of exports in a few commodities with international prices subject to considerable volatility. This highlights the importance of diversifying the sources of production and foreign exchange earnings.

Figure V.2.
Figure V.2.

Comoros: Transfers as a Percentage of Total External Receipts, 1993-2003

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Source: IMF, International Financial Statistics.

B. Balance of Payments Developments23

107. The most notable development in the balance of payments in the last decade has been the significant improvement in the current account balance. It has been driven by improvements in the trade balance and the increase in recorded private transfers. The current account balance, including official transfers, moved from a deficit of almost 16 percent of GDP in 1997 to a surplus of 2 percent in 2001 despite a significant reduction in official transfers (Figure V.3). However, since 2002, the current account balance has turned negative again, as a result mainly of the increase in imports and reduction in net private transfers.24

Figure V.3.
Figure V.3.

Comoros: Current Account Developments, 1993–2003

(as percent of GDP)

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Sources: Comorian authorities; and staff estimates.

108. The key factors behind the improvement in the trade balance were the increase in the terms of trade and the sluggish growth of imports. The improvement in the terms of trade (Figure V.4) was a result mainly of large increases in the country’s main commodity export prices while the low growth of imports was related to the slow real GDP growth since the outbreak of political instability in 1997. The services balance was in deficit throughout the period covered, as receipts from tourism were more than offset by freight, insurance, and other imported services associated with the country’s dependence on imports and technical assistance.

Figure V.4.
Figure V.4.

Comoros: Terms of Trade, 1993-2003

(1990=100)

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Source: IMF, International Financial Statistics.

109. The capital and financial account made a positive contribution to the balance of payments in the last decade, driven mainly by official capital transfers and concessional borrowing (Figure V.5). However, foreign direct investment (FDI) was very low and portfolio flows were virtually nonexistent. The continued positive contribution of the capital and financial account, together with the improvement in the current account balance after 1997, resulted in a positive overall balance of payments between 2000 and 2002. It also contributed substantially to the increase in the level of international reserves from 6 months of imports in 1998 to over 11 months in 2003 (Figure V.6). Despite the increase in reserves, the authorities continued to accumulate external payments arrears, as the increase mainly reflected private transactions, including remittances, while the fiscal situation remained tight (Figure V.7).

Figure V.5.
Figure V.5.

Comoros: Evolution of Balance of Payments, 1993-2003

(as percent of GDP)

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Source: IMF, International Financial Statistics.
Figure V.6.
Figure V.6.

Comoros: Reserves in Months of Imports, 1993-2003

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Source: IMF, International Financial Statistics.
Figure V.7.
Figure V.7.

Comoros: Change in External Arrears, 1993-2003

(In millions of U.S. dollars)

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Source: IMF, International Financial Statistics.

C. Key Determinants of the Balance of Payments

Trade

Imports

110. Imports are dominated by basic food products, key commodities, and investment goods in support of economic activity. Rice, meat, petroleum, cement, iron, and steel represent approximately half of total imports. France, South Africa, Pakistan, and Kenya are the main suppliers to the Comoros.

111. The value of imports increased only moderately, so that their share in GDP declined during the last decade (Figure V.8). In 1994, import prices and values reached their highest level following the devaluation of the Comorian franc at the beginning of the year. This outcome is in line with the expected “J-curve” effect of devaluations, which predicts an initial increase in import values caused by the rise in import prices, followed by a reduction in import volumes as price increases start to reduce demand. However, in the Comoros, this demand effect was muted because of the limited price elasticity of import demand, given the narrow local resource base and the small manufacturing sector.25

Figure V.8.
Figure V.8.

Comoros: Imports, 1993-2003

(1990=100)

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Source: IMF, International Financial Statistics.
Exports

112. Exports are highly concentrated in vanilla, cloves, and ylang-ylang.26 Vanilla represents almost 80 percent of total exports, and the three products together account for almost 98 percent of exports in 2003 (Figure V.9). While the dominance of these commodities in total exports appeared to fall in the period of low international commodity prices in the mid-1990s, the increase in nontraditional exports was very limited in absolute terms. As soon as prices recovered in the late 1990s, the shares of the key export products returned to their earlier levels despite a reduction in export volumes (Figure V.10).

Figure V.9.
Figure V.9.

Comoros: Export Concentration, 1993-2003

(Exports of key commodities as a percent of total value of exports)

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Source: IMF, International Financial Statistics.
Figure V.10.
Figure V.10.

Comoros: Exports, 1993-2003

(1990=100)

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Source: IMF, International Financial Statistics.

113. The Comoros failed to gain market share in world markets (Table V.1) despite high international prices of its key commodity exports as a result of problems in the countries that are the biggest producers of these products.27 The fact that volumes of exports of key commodities from the Comoros have remained stagnant—and even decreased in the case of vanilla—during the recent period of high international prices (Table V.2) raises concerns about factors constraining the supply of these commodities. The draft Interim Poverty Reduction Strategy Paper (I-PRSP) identifies poor access to technology and the absence of credit facilities appropriately adapted to the specific needs of producers of these crops, as well as the volatility of international prices, as key constraints on faster growth. The latter may have been particularly important because all of the Comoros’s major export products have a long gestation period before production comes onstream—about two years for vanilla and five years for cloves and ylang-ylang. In addition, the slow reaction of the authorities in adjusting producer prices for vanilla in a context of rapidly increasing world market prices could have distorted incentives. If prices remain relatively high for an extended period28 and if these structural rigidities are addressed, a more forceful supply response should be expected.

Table V.1.

Market Shares of the Comoros in World Markets and in Main Destination Countries, 1995-2002

(In percent of total imports into the market)

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Source: IMF, International Financial Statistics; United Nations Comtrade database.

Data on market shares by country were not available for 2001 and 2002.

Based on data on total world imports in the United Nations’ Comtrade database and data on total exports of key commodities from the Comoros reported by the authorities to the Fund.

Based on data in Comtrade. There are some discrepancies between the detail of exports from the Comoros by country of destination in the UN database and total exports reported to the Fund.

Table V.2.

Comoros: Exports of Key Commodities, 1993-2003

(Values in millions of U.S. dollars; prices in Comorian francs per kilogram; volumes in metric tons)

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Source: IMF, International Financial Statistics.
Competitiveness

114. The competitiveness gains achieved with the devaluation of the Comorian franc in 1994 were largely maintained throughout the 1990s. However, since 2000 the tendency has been toward real appreciation—by end-2003 the real effective exchange rate (REER) was almost 20 percent higher than at end-2000—reflecting both the nominal appreciation of the euro and an increase in the consumer price index in the Comoros relative to its trading partners (Figure V.11). Nevertheless, with a high concentration of exports on a few key commodities, the REER and external demand have not been key determining factors for export volumes,29 as other factors, such as supply constraints and natural conditions affecting crops, have been more important.

Figure V.11.
Figure V.11.

Comoros: Real and Nominal Effective Exchange Rates, 1993 - 2003

(Index, 1995=100)

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Source: IMF, Information Notice System.

115. Production costs, and in particular labor costs, are relatively high in the Comoros. This may explain why exports outside the three key commodities are very limited. Salaries in the Comoros are higher relative to GDP per capita—Purchasing Power Parity (PPP) adjusted to reflect differences in cost of living—than in its neighboring competitor countries (Table V.3). Utilities like water and electricity are also produced at comparatively high cost,30 and frequent power outages result in an important disruption of production and trade. Structural factors that negatively affect the competitiveness of the Comoros also arise from its geographic location and characteristics befitting a small island country. In particular, its remoteness and insularity result in high transportation costs.31 Limited institutional capacity is another common feature of small states. Indivisibilities in the provision of public services with fixed costs that need to be supported by a small population result in higher per capita costs of public services. A narrow resource base and small domestic market also hinder economic diversification and limit capacity in the private sector.32

Table V.3.

Labor Costs in the Comoros and Neighboring Countries

(Annual 2000 data in U.S. dollars, unless otherwise indicated)

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IMF staff, based on wage bill and number of civil servants.

UN Industrial Development Organization, and IMF staff calculations.

116. A specific factor affecting the competitiveness of exports is the introduction of a 5 percent export tax on vanilla, cloves, and ylang-ylang. The tax was introduced in 2000 as a temporary measure following the sharp increase in international prices of these commodities. In addition, a specific duty of CF 3,232 per kilogram is charged on exports of vanilla. While the rise in international prices should allow for a significant increase in profitability for the sector despite the introduction of export taxes, it would be preferable to replace this tax by domestic taxes, so as to achieve the fiscal objectives without discriminating against trade. This would be especially advisable because of the slow reaction of production to prices and the prospect of a reversal at some point of the current historically high international prices.

Remittances

117. With an estimated 150,000 to 200,000 people of Comorian origin living abroad, the Comoros is a particularly striking example of the more general trend in developing countries toward greater reliance on remittances as a key source of foreign exchange. This trend has been the result of the increase in emigration from developing to industrial countries during the last two decades.33 It has also been fostered by the elimination of exchange restrictions as part of the financial liberalization process of the 1990s. In 2001, remittances were, next to FDI, the second-largest source of external funding for developing countries as a whole, and the principal source for low-income developing countries, ahead of official transfers. The Comoros ranks high in international comparisons of remittances. It is in the top fifteen countries in terms of remittances received per capita (Figure V.12), and in the top four in terms of remittances in relation to GDP, exports, and growth of remittances (Figure V.13).34

Figure V.12.
Figure V.12.

Comoros and Other Countries: Remitances per capita, 2001

(In U.S. dollars)

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Source: World Bank staff.
Figure V.13.
Figure V.13.

Comoros and Other Countries: Remittances in Relation to GDP, 2001

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Source: World Bank staff.

118. A key feature of remittances is that they tend to be the most stable source of development finance. Contrary to private capital flows, which often have a procyclical nature, remittances intended for consumption tend to increase in times of economic hardship in the recipient country, and even those transfers destined for investment are less likely to follow the sharp withdrawals of private capital because of the inherent home bias in these investment flows. Remittances augment the recipients’ income and expenditure and have a positive impact on demand in the recipient economy through the multiplier effect. They also increase the recipient country’s foreign exchange reserves, providing the hard currency required to import products, including inputs into production, that are not available domestically. This is particularly important in small states, like the Comoros, with limited domestic production bases.

119. The supply-side effect of remittances on longer-term economic growth depends on the extent to which these resources are destined to finance productive investments. While in middle-income countries remittances are often invested by their recipients, especially in countries with sound economic policies, the literature on remittances shows that an overwhelming proportion of remittances to low-income countries are spent on consumption, and that most remittances destined for investment in these countries are spent on housing. A recent IMF working paper35 finds that remittances have a countercyclical nature and help mitigate periods of economic hardship. At the same time, however, they have a negative impact on GDP growth over the longer term as a result of moral hazard problems, as recipients of transfers use remittances as a substitute for labor income and reduce their work effort. The moral hazard effect can also operate at the government level, as the availability of remittances reduces demand for effective government services, and the foreign exchange provided by the diaspora prevents exchange rates and domestic economic policies from adjusting to appropriate levels and emphasis. Other studies36 focus on Dutch diseasetype effects of inflows of remittances, with the increased domestic demand produced by remittances leading to a revaluation of the real exchange rate as a result of increases in prices of nontradables and a reduction in competitiveness.37 A counterargument could claim that, especially in low-income countries, the positive effects of remittances on consumption and human capital improve welfare, health, and education levels.

120. The Comoros is a typical case of remittances being mostly spent on consumption and housing. A cultural particularity is that a considerable part of these expenditures are undertaken in connection with grand mariage ceremonies,38 which are an important sign of social status. These expenditures have been an important element of domestic demand and growth in recent years, representing at times more than 10 percent of GDP. Remittances also play an important role in poverty reduction by meeting basic needs for food, shelter, health, and education in the poorest families; the difference in the incidence of poverty between islands can to some extent be explained by differences in the volumes of remittances received, with Grande Comore receiving 91 percent of the total in 1991. As regards the effects on longer-term growth, while moral hazard and Dutch-disease type effects of remittances could help perpetuate the relatively high-cost production structure in the economy, remittances could have a positive effect on the economy’s growth potential if a larger proportion of these were used for investment purposes, including to enhance human capital. This is already happening to a certain extent at the village level, where communityrun projects to build schools, health posts, and other physical infrastructure are partly financed by remittances. An additional challenge going forward will be to ensure that the availability of remittances does not slow the needed improvement in public services and investment in infrastructures. At the same time, there is some uncertainty about the extent to which the current high levels of remittances can be maintained as the third generation of immigrants, with weaker ties to their country of origin, gradually becomes the largest income-earning group in the Comorian diaspora.

Official transfers and aid dependency

121. As in most small, low-income countries, foreign aid is an important component of the external sector in the Comoros. In the second half of the 1990s, official transfers fell significantly in the context of domestic political instability and greater international selectivity in choosing aid recipients.39 It is expected that foreign aid will resume once the political situation and macroeconomic management have improved in the context of the power-sharing agreement reached by Comorian political parties in December 2003 under the auspices of the African Union.

Figure V.14.
Figure V.14.

Comoros: Official Transfers, 1993-2003

(as percent of GDP)

Citation: IMF Staff Country Reports 2004, 233; 10.5089/9781451809077.002.A005

Source: IMF, International Financial Statistics.
Table V.4.

Aid Dependency Indicators, 1996 and 2001

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IMF staff estimates based on balance of payments data. Data may underestimate aid dependency for the Comoros as BOP data may not include all technical assistance, whereas data from World Development Indicators, based on information received from donors include technical assistance.

The Gambia, a small state with a per capita income similar to the Comoros, provides a more meaningful comparison than the average of sub-Saharan and low-income countries.

World Bank, World Development Indicators, 2003. Data include grants by official agencies and multilateral institutions, and loans made on concessional terms.

Diversification and vulnerability

122. Diversification away from commodity-based export specialization remains a difficult challenge for most of sub-Saharan Africa.40 Poor infrastructures, lack of skills, and incomplete reforms to reduce transaction costs and improve local business conditions have generally hindered the development of nontraditional exports. Even with the trend toward macroeconomic and trade reforms in the last few years, getting ports and other utilities to work efficiently and reducing corruption requires behavioral changes that will take time.

123. The limited success in diversifying toward nontraditional exports in Africa raises questions about the desirability of dedicating resources to diversification efforts in sectors where the economy does not have a comparative advantage in the medium term. A more desirable course of action could be to build on the sectors that already exist in the economy and pursue what can be termed vertical diversification. Another alternative is market diversification, which entails expanding the number of markets in which a country’s products or services are offered to reduce the vulnerability associated with a high geographical concentration of exports.41

124. In the case of the Comoros, the World Bank has identified the country’s potential to exploit its agricultural potential with nearby export markets. It is planning to undertake a rural sector review to evaluate structural constraints—including fiscal/tariff regimes, agricultural services delivery systems, and land tenure arrangements—and develop alternative financing mechanisms to increase agricultural production. In addition, the Comoros, like other small island economies, has access to large ocean areas within its exclusive economic zones and is in principle able to develop its own fishing industry. However, fishing remains an underdeveloped sector in the Comoros because the lack of modern equipment and financing for investment prevents the establishment of this sector as an industrial undertaking with modern processing and storage facilities. Instead, there is only local fishing, and the country remains a net importer of fish despite the large fish resources in its territorial waters.42

125. Tourism is another option for diversification of island economies like the Comoros. However, recent developments in this sector have not been encouraging.43 Occupation rates dropped to 50 percent in 2000 from 70 percent in 1998 and 1999, suggesting that structural factors need to be addressed to make the Comoros a more attractive tourist destination before expanding tourist facilities. These structural factors include the need to achieve political stability; improve infrastructures and public services, including in the electricity and health sectors; and establish more regular transportation links.44

126. Diversification of asset ownership through investments abroad is also an option for countries with large export earnings from a few key commodities. The high level of foreign reserves and of reserves in the banking system suggests that some scope would exist for this approach to diversify the income stream to the island when the possibility of domestic diversification of production appears to be limited. However, to pursue this option as a structural policy would require some assurances that the needed imports can be financed on a sustainable basis. As the current account balance has only registered small surpluses in the last few years of exceptionally high international prices for its key export commodities, and as the fiscal situation remains dire, with large fiscal deficits and the continued accumulation of important payments arrears, these assurances are not yet forthcoming.

D. External Debt

127. The external debt of the Comoros is not sustainable and has resulted in a continued accumulation of external payments arrears. The nominal stock of debt increased by almost US$45 million after the 2002 Article IV consultation—from US$234.9 million at end-200145 to US$281.2 million at end-2003—and the stock of arrears rose from US$91 million to US$100.8 million over the same period. The main drivers behind the increase were the disbursement of new loans, mainly from the International Development Agency (IDA), and the revaluation effect caused by the depreciation of the U.S. dollar visàvis the SDR, which is the main currency of denomination of the country’s external debt.46

128. The Comoros is current on debt service payments to the International Monetary Fund, the IDA, and the International Fund for Agricultural Development. However, the country has accumulated large arrears to regional institutions—the African Development Bank and Fund (AfDB/F), the Arab Bank for Economic Development in Africa (BADEA), the Organization of Petroleum Exporting Countries (OPEC), and the Islamic Development Bank (IsDB)—and with its bilateral creditors (Kuwait, Saudi Arabia, the United Arab Emirates, China, and France) (Table V.5). Most recently, the Comoros has serviced debt owed to the OPEC and the IsDB, but it continues to accumulate arrears to other regional and bilateral creditors.

Table V.5.

Comoros: Debt by Creditor at End-2003

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129. A preliminary and limited update of the debt sustainability analysis (DSA) carried out in 2001 with end-2000 data shows that the net present value (NPV) of external debt in U.S. dollar terms increased from US$169.6 million at end-200047 to US$214.6 million at end-2003. This reflects mainly reflecting the disbursement of new loans, the depreciation of the U.S. dollar, and the decline in the discount rate. This caused a substantial increase in the NPV of debt-to-exports ratio from a projected 305 percent at the time of the DSA in 2001 to 503.1 percent in the latest update for end-2003. On the other hand, the ratio of NPV of debt to revenue was lower than projected—420 percent, compared with a 545 percent projection—owing to the appreciation of the Comorian franc vis-à-vis the U.S. dollar and the SDR. Going forward, the NPV of debt-to-exports ratio is expected to remain well above the 150 percent threshold commonly used to define the upper limit of debt sustainability. The NPV of debt-to-revenue ratio, however, is expected to continue to improve and fall below the 250 percent ratio commonly used to define sustainability under the fiscal criterion.48

E. Exchange and Trade Regimes and Policies

Exchange regime

130. The Comoros is a member of the French franc zone. After a 33 percent devaluation in January 1994 in connection with the devaluation of the CFA franc, the Comorian franc was pegged to the French franc at the rate of FF1 = CF75.49 Since January 1999, the date of the introduction of the euro, the Comorian franc has been pegged to this currency at the rate of EUR 1 = CF 492. Exchange rates between the Comorian franc and other currencies are derived from the rate for each currency vis-à-vis the euro in the Paris exchange market.

131. On June 1, 1996, the Comoros accepted the obligations of Article VIII, Sections 2, 3, and 4 of the Fund’s Articles of Agreement. The exchange system has generally remained free of restrictions on current payments. Transactions with countries in the franc zone—France, Monaco, and member states of the West African Economic and Monetary Union and of the Central African Economic and Monetary Community, whose central banks are linked to the French Treasury by an operations account—are free of capital controls, with the exception of transactions relating to gold.

132. The Minister of Finance and Budget has sole authority in exchange control matters but has delegated certain of these powers to the Central Bank of the Comoros (BCC) and to authorized banks. The ministry supervises borrowing and lending abroad, inward direct investment, and all outward investment. Capital transfers to countries outside the French franc zone require exchange control approval, but capital receipts from these countries are permitted freely. Repatriation of dividends and other earnings from nonresidents’ direct investments is authorized and guaranteed under the investment code. There are controls on export and imports of banknotes in excess of CF 500,000. Foreign exchange accounts can be held by residents and nonresidents, but prior approval is required. All import and export transactions in excess of CF 500,000 are subject to a domiciliation requirement with authorized banks. Proceeds from exports to foreign countries must be repatriated within 30 days of the expiration of the commercial contract, and they must be sold immediately after repatriation to an authorized bank.

Trade regime and participation in regional organizations

133. The Comoros is not a member of the World Trade Organization (WTO). In 2001, the last date of the assessment, it scored an 8 on the Fund’s 10-point trade restrictiveness index (with 10 being the most restrictive). A single ad valorem import tax with three nonzero bands of 20, 30, and 40 percent was introduced in 1997 to simplify the prior multiple tariff system.

134. In addition to the three tariff bands, there are high special rates for imports of tobacco and alcohol. In January 2002, the coverage of the existing tariff bands was expanded with the conversion of most remaining specific import duties to ad valorem rates—specific duties were maintained for cattle, meat, rice, cars, and petroleum products (Table V.6). In addition, there are a few other small fees and charges: an administrative fee of 5 percent,50 a statistical fee of 1 percent, a withholding tax of 1 percent that serves as a prepayment of domestic income taxes and professional licenses due from importers, and a surcharge of 1 percent to finance the Chamber of Commerce. The ratio of total taxes on international trade to the value of imports provides an indication of the total tax burden on imports. This ratio fell from 35 percent in 1997 to 27 percent in 1998 after the introduction of the three-tariff-band system. While the ratio fell further to 24.6 percent in 2000, it increased again to almost 27 percent in 2002.51

Table V.6.

Comoros: Taxes on International Trade

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Source: Comorian authorities.

135. The country’s key commodity exports have also been taxed in periods of high international prices. Since 2000, exports of vanilla, cloves, and ylang-ylang have been subject to an export tax of 5 percent, and an additional surcharge of 1 percent was introduced in 2003. Exports of vanilla attract an additional specific duty of CF 3,232 per kilogram. Before 2000, there was only a tax on exports of ylang-ylang, at a rate of 11.6 percent—a tax of 20 percent on exports of vanilla had been eliminated in 1997 when international prices reached their minimum level of the last decade.

136. No quantitative restrictions or licensing requirements for imports or other nontariff barriers are reported. State monopolies exist for imports of petroleum and lowgrade rice.

137. At the time of the mission, tariff regimes in Anjouan and the other islands were different. Anjouan did not follow the introduction of surtaxes on commodity exports and on imports of rice, tobacco, alcohol, and automobiles, effective July 2003. Discussions are under way to harmonize the system again for all islands of the Comoros.

138. The Comoros is a member of the Common Market for Eastern and Southern Africa (COMESA). 52 The country is not a participating member of COMESA’s Free Trade Area (FTA) which was launched in October 2000 by nine of COMESA’s member countries. Although it has indicated its intention to follow trade policies that are in line with the FTA—starting with the application of an 80 percent tariff reduction on imports from these countries—the Comoros does not currently provide any preferential access to the FTA’s member countries. Accession to the FTA will require the complete elimination of tariffs on intraregional trade, but the authorities have indicated that they need to carefully review the feasibility of reducing tariffs—even on regional trade, which is of only limited importance—as these currently account for about 60 percent of all government revenues. The COMESA Treaty also provides for the establishment of a customs union by end-2004. This will require the establishment of a common tariff nomenclature (CTN), a common customs valuation system, common external tariffs, a harmonized trade policy, and a common administrative structure with common customs procedures and legislation. The Comoros has also indicated its intention to join the customs union. The envisaged common external tariffs for the customs union—0 percent for capital goods and raw materials, 10 percent on semiprocessed goods, and 25 percent on finished goods—would represent a further considerable reduction from the current three tariff bands of 20, 30, and 40 percent in the Comoros, and additional studies to assess the feasibility of these reductions will likely be necessary.53

139. The Comoros also participates in the Regional Integration Facilitation Forum (RIFF). The Riff which is a framework for harmonizing policies to facilitate a market-driven concept of regional integration in eastern and southern Africa and Indian Ocean countries. The RIFF comprises 14 participating countries54 in the region, and its development was supported by four cosponsors: the Fund, the World Bank, the European Union, and the AfDB. The key elements of the initiative are liberalizing foreign exchange systems and trade, strengthening domestic financial markets, and liberalizing investment procedures. As envisaged under the RIFF, the Comoros has set up a Technical Working Group comprising representatives of the public and private sectors, to identify and report on the main impediments to cross-border activities and suggest a program of action at the national level.

140. The Comoros is also a member of the Indian Ocean Commission (IOC). The IOC’s primary objective is to promote trade between member states55 and to develop cooperation in fishing, tourism, and environmental matters. The role of the IOC has been overshadowed in recent years by the growing importance of COMESA. A proposal to provide IOC member countries with preferential access through an 80 percent tariff reduction on imports from these countries was recently turned down.

Table 1.

Comoros: Gross Domestic Product by Sector at Current Market Prices, 1997-2002

(In millions of Comorian francs)

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Sources: Directorate of Statistics; and Fund staff estimates.

Including import duties and taxes.

REB = real estate business, and STE = services to enterprises.

Table 2.

Comoros: Gross Domestic Product by Sector at 1990 Constant Prices, 1997-2002

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Sources: Directorate of Statistics; and Fund staff estimates.

Including import duties and taxes.

REB = real estate business, and STE = services to enterprises.

Table 3.

Comoros: Source and Use of Resources at Current Market Prices, 1997-2002

(In millions of Comorian francs)

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Sources: Directorate of Statistics; and Fund staff estimates.
Table 4.

Comoros: Source and Use of Resources at 1990 Constant Prices, 1997-2002

(In millions of Comorian francs)

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Sources: Directorate of Statistics; and Fund staff estimates.
Table 5.

Comoros: Food Crop Production, 1997-2002

(In metric tons, unless otherwise indicated)

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Source: Directorate of Agriculture, Ministry of Agricultural Production, Marine Resources, and Environment.
Table 6.

Comoros: Livestock, 1997-2002

(In numbers of head)

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Source: Directorate of Breeding, Ministry of Agricultural Production, Marine Resources, and Environment.
Table 7.

Comoros: Production of Meat, Fish, and Dairy Products, 1997-2002

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Source: Directorate of Breeding, Ministry of Agricultural Production, Marine Resources, and Environment.
Table 8.

Comoros: Export Crop Production, 1997-2002

(In metric tons, unless otherwise indicated)

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Sources: Comorian Office of Vanilla; and Directorate of Projects, Ministry of Agricultural Production, Marine Resources, and Environment.

In 2000, includes only the production of Grande Comore and Mohéli.

Conversion rate for ylang-ylang: 1:53 essence-to-flowers ratio.

Table 9.

Comoros: Prices of Export Crops, 1997-2002

(In Comorian francs per kilogram)

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Sources: Comorian Office of Vanilla; and General Directorate of Customs.

The yield from 5 kilograms of green vanilla is about 1 kilogram of dried vanilla.

Floor prices.

Table 10.

Comoros: Cost Structure of Vanilla Exports, 1997-2002

(In Comorian francs per kilogram of dried vanilla) 1/

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Sources: Comorian Office of Vanilla; and General Directorate of Customs.

The yield from 5 kilograms of green vanilla is about 1 kilogram of dried vanilla.

Equivalent dried vanilla.

From 1992 on, includes contributions to the Fonds de Solidarité Vanille.

Table 11.

Comoros: Production and Consumption of Electricity, 1997-2002

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Source: Electricity and Water Company (CEE).

The difference between production and consumption reflects power losses and fraud.

In 1997, strong disruptions at establishment level (long and frequent power cuts) prevented the production of data on consumption.

Table 12.

Comoros: Indicators of Tourism Activity, 1997-2002

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Source: General Directorate of Tourism, Ministry of Transportation and Tourism.

No official data have been provided by the Galawa Hotel.

Bahrain, Kuwait, Qatar, Saudi Arabie, and the United Arab Emirates.

Includes the Ylang-Ylang, Coelacanthe, and Al Amal hotels.

The Sun Resorts Group includes the Galawa, Maloudja, and Itsandra hotels.

Includes the Kartala, and, since 1986, the Relais de Singali hotels.

Table 13.

Comoros: Indicators of Population, Employment, and Education, 1997-2002

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Source: Directorate of Statistics; Ministry of Health, Social Affairs, and Education.

For education, the 1999 data correspond to school-year 1998/99. The data for 1999/2000 and 2000/01 are not available.

Includes the training school for teachers.

Table 14.

Comoros: Consumer Price Index, 1995-99 1/

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Sources: Directorate of Statistics; and Fund staff estimates.

For Moroni only.

Imports from the members of the Cooperation Council for the Arab States of the Gulf in 1995.

Sharp increase in spice prices in 1995.

Introduction of generic medicines in 1995.

Table 15.

Comoros: Consumer Price Index, 1999-2002 1/

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Source: Directorate of Statistics.

Consumer price index prior to 2000 non different basis because of change in the consumption basket in 2000.