Union Of The Comoros: First Review Under the Three–Year Arrangement Under the Extended Credit Facility and Request for a Modification of Performance Criteria and Financing Assurances Review—Informational Annex

Recent developments in the Comoros point to slow, uneven, yet significant progress in political normalization. Overall performance under the Extended Credit Facility-supported program has been broadly satisfactory. The government understands the need to continue fiscal consolidation in support of macroeconomic objectives, targeting a reduction of the domestic primary deficit. In the structural area, program focus will be on public finance management and key sectors critical to improved growth performance. Debt relief is crucial to securing medium-term external debt sustainability and for success of the program.

Abstract

Recent developments in the Comoros point to slow, uneven, yet significant progress in political normalization. Overall performance under the Extended Credit Facility-supported program has been broadly satisfactory. The government understands the need to continue fiscal consolidation in support of macroeconomic objectives, targeting a reduction of the domestic primary deficit. In the structural area, program focus will be on public finance management and key sectors critical to improved growth performance. Debt relief is crucial to securing medium-term external debt sustainability and for success of the program.

I. Comoros: Relations with the Fund

(As of April 30, 2010)

I. Membership Status: Joined September 21, 1976; Article VIII

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Latest Financial Arrangements:

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VI. Projected Obligations to Fund (SDR millions; based on existing use of resources an present holdings of SDRs):

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VII. Implementation of HIPC Initiative: Not applicable

VIII. Summary of Safeguards Assessment. An update of the August 2007 safeguards assessment of the Banque Centrale des Comores (BCC) was completed in April 2010. The safeguards assessment found that despite capacity constraints the central bank has taken steps to strengthen its safeguards framework; it recommended that efforts to implement International Financial Reporting Standards (IFRS) should be intensified and the financial controller should review data submitted to the Fund for each program test date, starting in December 2009.

IX. Implementation of Multilateral Debt Relief Initiative (MDRI): Not applicable.

X. Exchange Rate Arrangements: The currency of the Comoros is the Comorian franc, which is pegged to the Euro at €1 = CF 492. The Comoros has accepted the obligations of Article VIII, Sections 2(a), 3, and 4, and maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions.

XI. Article IV Consultation: The last Article IV consultation was concluded on December 15, 2008 (Country Report No. 09/42). Executive Directors noted that the return to political stability is allowing the authorities to address deep–rooted macroeconomic distortions and structural rigidities. Directors welcomed the authorities’ intention to implement a broad-ranging macroeconomic and structural reform program aimed at achieving fiscal sustainability, while improving the investment climate and strengthening institutions and governance. Directors recognized that Comoros’ fiscal prospects remain difficult as illustrated by sizeable financing requirements for 2009 and beyond and by unsustainable public debt levels. The next Article IV consultation with Comoros will take place in November 2010, together with the second review under the ECF arrangement.

XII. Recent Technical Assistance

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XIII. Resident Representative: None. A resident representative post established in September 1991 was closed in December 1995.

II. Comoros—Joint World Bank–IMF Work Program, 2010—11

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III. Comoros: Relations with the African Development Bank Group

A. Bank Group’s Support in Comoros

1. The African Development Bank Group (AfDB) started operations in Comoros in 1978 and has since approved thirteen operations comprising twelve projects and one study. Cumulative Bank Group commitments net of cancellation amount to UA 46.7 million as of 31 March 2010, the bulk of this financing (64%) being from the concessional window, the African Development Fund (ADF). In addition, the AfDB approved in February 2009, a UA 1.5 million emergency financing to assist in mitigating the adverse impact of the food crisis. Overall, the AfDB operations in Comoros have been directed toward supporting economic–related infrastructure, budget support and rural livelihoods. In terms of sector distribution, infrastructure sector projects received the largest share (51 percent) of the total resources committed, followed by multi–sector (30.2 percent) and agriculture (11.2 percent).

B. Strategic Orientation

2. The Bank Group re–engagement in Comoros is recent. Following the resolution of the Anjouan crisis in 2007 and the lifting of sanctions in February 2009 after clearance of its arrears with the Bank under the Bank’s Post–Conflict Countries Facility (PCCF), a two–year Interim Country Strategy Paper 2009–2010 (I–CSP) was approved in April 2009. The I–CSP is aligned to the Interim Growth Strategy and Poverty Reduction Paper (I–GSRP) prepared by the Government of Comoros (GoC). This I–CSP builds inter alia on the new strategic orientations of the Bank for increased commitment in fragile States aimed at mitigating the country’s situation of fragility and providing support to create an enabling environment for sustainable development, as well as helping Comoros to reach the completion point of the HIPC Initiative in the near future. In this respect, the Bank’s I–CSP (2009–2010) aims at: (i) improving economic management through support for institutional capacity building, and (ii) creating a better environment through improved water supply and sanitation. All the Bank’s operations are articulated around the two I–CSP pillars: (i) strengthening institutions and the macroeconomic framework, and (ii) improving water supply and sanitation. The envelope available for Comoros for the 2009–2010 period stands at UA 15.9 million, comprising the normal performance–based ADF XI allocation (UA 5,9 million) and the FSF Enhanced Support (UA 10 million). In addition, Comoros is eligible and has benefitted from several other Bank facilities, such as resources of the FSF Targeted Support Window for capacity building as well as other Trust Fund (TF) resources.

C. Lending Portfolio

3. Currently, the Bank’s ongoing portfolio in Comoros is composed of two operations, the Economic Support Reform Program (ESRP) consisting in a budget support operation and the Institutional Capacities Strengthening Project (ICSP) whose objective is to strengthen national capacities in public financial management (PFM), debt management and macroeconomic statistics. Consistent with the ICSP, a Water and Sanitation Project was approved by the Boards in December 2009. Overall, current disbursement trends remain in line with forecasts. A Country Portfolio Performance Review (CPPR) is scheduled for the second half of 2011.

D. Non Lending Activities

4. During the preparation of the I–CSP, the Bank identified a series of possible avenues for economic and sector work (ESW) chief among these was the common objective of the Comorian authorities and the Bank to pay particular attention to growth impediments and identify key sectors likely to leverage and sustain economic growth over the medium–long term in Comoros. A study on the Sources of Growth in Comoros has been launched in August 2009. The first phase consisting in a macro and sector diagnosis is currently at the completion stage. The second phase scheduled for 2011 will focus on fine tuning sector surveys and elaborating a decision–making tool targeted at policy makers with respect to investment choices and economic policy impact. Specific areas for ESWs would be further explored through consultations with Government and other development partners in the context of the preparation of the next Country Strategy Paper (CSP).

E. Summary of AfDB Current Lending Portfolio

(As of March 31, 2010)

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Source: AfDB, March 2010

F. IMF–African Development Bank Collaboration

5. Collaboration between the IMF and Africa Development Bank teams has been largely through exchanges, sharing of information and joint missions. More opportunities for collaboration would be explored.

IV. Comoros: Statistical Issues

Comoros—Statistical Issues Appendix

As of May 20, 2010

I. Assessment of Data Adequacy for Surveillance

General: Data provision has serious shortcomings that significantly hamper surveillance. The statistical database has deficiencies in all sectors largely due to inadequate staffing and funding, as well as lack of integration of island–based data.

National accounts. Shortcomings in national accounts compilation undermine accuracy and reliability of the data and impart a high degree of uncertainty to economic analysis. The absence of basic source data requires estimates of GDP to be prepared with outdated benchmarks and rely on crude assumptions and extrapolations. Due to lack of funding and staffing, there have been no survey–based national accounts since 1995, when one was prepared with UNDP assistance, and to date there has been no survey at all on manufacturing. In 2004, with the support of donors, a new population census and surveys on subsistence agriculture and households were completed; unfortunately, these surveys have neither been fully processed nor updated. A July 2006 AFR mission helped the authorities improve GDP estimates for 2001—05.

Consumer prices. The accuracy and reliability of the consumer price index (CPI), represents another key source of uncertainty. Expenditure weights are based on a survey from the late 1980s and sub–indices are compiled irregularly across the islands. Most price data are collected only for the country’s capital. CPI compilation is largely conducted by one person.

Government finance statistics. In August/September 2005 STA mission found that the public chart of accounts did not accurately record the execution of the budget and that a standardized presentation on outstanding public debt is not compiled. Classification of budgetary data is often not consistent over time or across the islands. In particular, problems arise in data on domestic arrears, external debt, and external support including its investment spending components, complicating fiscal analysis.

Monetary and financial statistics. The Central Bank of Comoros (BCC) produces adequate monetary statistics on its own accounts, for the commercial banks and the development bank active in the country, for the deposits collected by the postal administration, and for two microfinance networks. The Franc Zone arrangement has established accounting and prudential standards that prevent data disruptions. A major shortcoming is the absence of data on the large amount of Euro cash in circulation, handicapping surveillance. In June 2009 the BCC started reporting monetary and financial statistics to the IMF using Standardized Report Forms (SRFs). The current presentation and content of monetary statistics accords largely with the methodology in the IMF’s Monetary and Financial Statistics Manual.

External sector statistics. The BCC compiles balance of payments statistics along the lines of the methods recommended in IMF’s Balance of Payments Manual, 5th edition. Nevertheless, despite technical assistance and some improvements over the past few years, shortcomings in coverage and compilation continue to affect accuracy and reliability and impart uncertainty to economic analysis. A single BCC economist is responsible for compiling balance of payments statistics, precluding desirable improvements needed in coverage and data validation, particularly for trade, nonregistered trade, services, and foreign direct investment.

Income distribution data and social indicators. Some progress was made with collecting income–distribution statistics and social welfare indicators when the I–PRSP was being prepared in 2003—04. Since then, coverage has remained limited hampering the monitoring of progress towards the MDGs.

II. Data Standards and Quality

Comoros does not participate in the General  No data ROSC is available.

Data Dissemination System (GDDS).

Technical Assistance Missions in Statistics

(1986—present)

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Forthcoming technical assistance

In 2005, the authorities requested a Statistics Department (STA) multi–topic technical assistance mission with a view to a thorough revamping of the statistical system. STA is planning to provide technical assistance in the area of national accounts. A Statistics Department GDDS metadata development mission scheduled for January 2007 has been postponed at the request of the authorities. In 2010 authorities have requested urgent assistance with reviewing the methodology and practices for preparing national accounts and CPI statistics.

As regards monetary statistics, the authorities are requesting a technical assistance mission to review the SRF test data and identify possible methodological departures from the recommendations of the Monetary and Financial Statistics Manual.

Comoros: Table of Common Indicators Required for Surveillance

as of July 29, 2009

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Any reserve assets that are pledged of otherwise encumbered should be specified separately. Also, data should comprise short–term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis–a–vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); reported when there are changes (C).