Union of the Comoros
Enhanced Heavily Indebted Poor Countries (HIPC) Initiative- Decision Point Document
Author:
International Monetary Fund
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Publication Date:
01 Aug 2010
eISBN:
9781455203413
Language:
English
Keywords:
ISCR; CR; HIPC debt relief from IDA; Extended Credit Facility arrangement; World Bank's International Development Association; MDRI debt relief; Union government; Comorian authorities; debt service; debt management; reform program; Debt relief
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The assessment shows that despite challenging circumstances, Comoros has made progress on political and economic reforms under IMF-supported programs. Comorian authorities implemented a program for maintaining macroeconomic stability, reducing poverty, improving public financial management, public expenditure policy, and external debt management. The IMF and IDA authorities assessed that, on this decision point, the full delivery of Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI) debt relief and sound debt management debt relief will enable the government to better implement the economic reforms that are needed to support sustainable growth in Comoros.

Abstract

The assessment shows that despite challenging circumstances, Comoros has made progress on political and economic reforms under IMF-supported programs. Comorian authorities implemented a program for maintaining macroeconomic stability, reducing poverty, improving public financial management, public expenditure policy, and external debt management. The IMF and IDA authorities assessed that, on this decision point, the full delivery of Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI) debt relief and sound debt management debt relief will enable the government to better implement the economic reforms that are needed to support sustainable growth in Comoros.

I. Introduction

1. This paper, prepared jointly by the staffs of the IMF and IDA, presents an assessment of the eligibility of the Union of the Comoros (hereafter “Comoros”) for assistance under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative.1 The assessment is based on a joint HIPC debt relief analysis (DRA)2 conducted by staffs of International Development Association (IDA) and the International Monetary Fund (IMF) and the Comorian authorities, following data reconciliation missions to Moroni in January and April 2010. It builds on the preliminary HIPC document for Comoros discussed by the Executive Boards of the IMF and IDA on March 29 and April 8, 2010, respectively. The Directors agreed that Comoros is eligible for assistance under the HIPC Initiative and that the country could reach its decision point provided that it continued satisfactory performance under the Extended Credit Facility (ECF) arrangement and agreed on appropriate completion point triggers. Regarding the latter, Directors broadly supported the triggers outlined in the preliminary document. The main changes and additions to the preliminary HIPC document are: (i) an update on recent political and economic developments; (ii) an update of the macroeconomic framework; (iii) more specific definition of some of the floating completion point triggers in the public finance, health and education sectors; and (iv) annexes containing a Debt Sustainability Analysis (DSA) under the Debt Sustainability Framework for Low Income Countries and an assessment of debt management capacity.

2. The analysis reveals an NPV of debt-to-exports ratio of 343 percent at end- December 2009 after traditional debt relief mechanisms are applied, significantly above the HIPC Initiative threshold. Possible HIPC debt relief at end-December 2009 is estimated at US$145 million in NPV terms, with a common reduction factor of 56 percent. Assuming that the country meets its completion point triggers, including continued satisfactory performance under its donor-supported reform agenda, at the completion point Comoros would also qualify for debt relief under the Multilateral Debt Relief Initiative (MDRI), in an amount estimated at about US$52.2 million in NPV terms. Debt relief under the HIPC Initiative and the MDRI would help accelerate progress towards the Millennium Development Goals (MDGs).

3. This paper is organized as follows. Section II provides background information on Comoros’ eligibility under the HIPC Initiative, including the country’s recent progress in the political and economic areas. Section III discusses the country’s medium- to long-term macroeconomic framework and its poverty reduction strategy. Section IV summarizes the DRA and presents the magnitude of HIPC and MDRI assistance likely to accrue to the country, including through arrears clearance. Section V outlines reforms that will serve as completion point triggers. Section VI presents issues for discussion by Executive Directors.

II. Background and Eligibility for HIPC Initiative Assistance

A. Country Background and Political Developments

4. Comoros is emerging from a long period of political instability punctuated by violent transfers of presidential powers since independence in 1975. Progress in nation building and political reconciliation has been slow. In 2001, a new constitution created the Union of the Comoros, providing for each of the three islands to have its own president and parliament. This was followed by the landmark first election of a Union president in May 2006. However, a crisis emerged in June 2007 when alleged irregularities in the election of Anjouan island president, Colonel Bacar, prompted the Union government, backed by the African Union (AU) and the Arab League, to reject the results. Colonel Bacar refused to heed international calls for new elections. As a result, Union-island cooperation disintegrated, preventing IMF Board consideration of a PRGF-supported program that had been negotiated in late 2007. This adversely affected economic management, donor support, and growth.

5. In the last two years, pro-Union authorities have been elected in the hitherto separatist island of Anjouan, and amendments to the constitution have enhanced central government authority over budget and economic management. Also, in an unexpectedly bold sign of strengthening of the judiciary, on May 8, 2010, the Constitutional Court rebuked President Sambi’s attempt to extend his term beyond the initial limit of May 2010. In the same ruling, the court called for the holding of nation-wide presidential and local elections by November 2011; and agreed to an interim presidential mandate by the incumbent. Consistent with the court’s ruling, President Sambi named an interim cabinet on May 26, 2010. It is hoped these developments would ease political tensions that have been rising in recent months.

B. ECF and IDA Status

6. As they gradually overcome a long period of political instability, the Comorian authorities have put in place an ambitious medium-term economic reform program to rekindle growth and better combat poverty. In this context, they benefited from IMF support under Emergency Post-Conflict Assistance (EPCA) and the Exogenous Shocks Facility-Rapid Access Component (ESF-RAC) in 2008, and are currently supported by the Fund under the ECF. The ECF-supported program draws on Comoros’ PRSP and aims to achieve fiscal consolidation and restore external viability; promote financial sector soundness; strengthen institutions of governance; and improve the investment climate.

7. IDA’s new Interim Strategy Note (ISN) for FY 2010–12 aims to help Comoros reach the enhanced HIPC completion point by 2012.3 Approved by the Board of IDA in June 2010, the interim strategy aims to: (i) reduce social vulnerability; and (ii) build state capacity and accountability. IDA is providing a mix of knowledge products and financing instruments to support these objectives. The main instrument for the first objective is the Services Support Project (SSP), which includes a cash-for-work component financed by the Food Price Crisis Support Fund. An Emergency Global Crisis Response Project is planned for FY10 to provide support to the most vulnerable groups affected by the global economic crisis. Key interventions in support of the second objective include a planned FY10 Governance Reform Support DPO, eventually followed by a second DPO in FY12, and an Economic Governance Support TA project. In FY 2010, IDA also plans to undertake a series of public expenditure notes; as well as an analytical work program on the political economy of reforms in key sectors, to inform the institution’s overall engagement in the country.

8. Other donors and creditors are gradually resuming support to Comoros, including the African Development Bank (AfDB), the European Union (EU), and development partners of the Arab League and Gulf region. In July 2009 the Board of the AfDB approved a new Interim Country Strategy Paper (I-CSP) for 2009–10 following clearance of most of the arrears under the Post-Conflict Country Facility (PCCF) between 2007 and 2009 and the lifting of related sanctions. Under the I-CSP the AfDB assists the country in: (i) improving economic management through support for institutional capacity building; and (ii) creating a better environment through improved water supply and sanitation. In early 2010, the EU extended a US$11 million budget grant under the V-Flex Facility to help cushion the effects of exogenous shocks from the global economic crisis; EU budget support for 2010 is projected at USD$9 million. In addition to France and China, several Arab League countries, including Kuwait, Saudi Arabia, and Libya, are providing much needed budgetary and project assistance. In May 2010, the Qatari authorities disbursed a grant of EUR 20 million to clear domestic arrears.

C. Poverty and Social Issues

9. With weak economic performance and persistent political instability in recent years, poverty is widespread and the social situation remains dire. The last household survey, fielded in 2004, indicated that 37 percent of households (44.8 percent of individuals) live below the poverty line. The incidence of poverty varies across islands and is generally higher in rural areas. Comparison of 1995 and 2004 survey data shows that the overall situation seems to have improved (from 47 to 37 percent of households), albeit inequalities in per capita expenditures also increased substantially, probably due to variances in inflows of remittances which disproportionately benefited the better-off island of Ngazidja. In the absence of more recent survey data, the authorities assume the incidence of poverty to have increased since 2004, given Comoros’ recent overall weak economic performance.

Key Poverty & Social Indicators-2008

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Note: Percent of total population, unless otherwise indicated Source: World Bank, Comoros PRSP 2009

10. Nevertheless, some progress was made towards achieving several Millennium Development Goals (MDGs) through 2007. Comoros is on track to achieve 4 of 12 MDGs, and substantial progress has been made on five others (Table 1).

Table 1.

Comoros: Progress in Achieving the Millennium Development Goals

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Indicates data available for the date in time period closest to 1990 (MDG benchmark date).

Indicates data available for latest date in time period.

Source: Comoros PRGSP, 2009

D. Recent Economic Developments and Policy Track Record

11. Economic conditions in Comoros have yet to recover from the effects of persistent political instability and the recent global crises. Real GDP growth was a mere 1 percent in 2008, picking up to 1.8 percent in 2009, driven by donor-funded public works, remittances-based private sector construction, and expansion of the financial sector. With the easing of pressures on food and fuel prices since 2008, inflation is broadly under control and relatively softer energy prices have contributed to a narrowing of the external current account deficit to an estimated 7.9 percent of GDP in 2009 (11.1 percent in 2008).

12. Comoros’ overall reform performance in the last two years constitutes encouraging first steps, against a backdrop of a difficult international context, and considering the severe capacity constraints and other institutional weaknesses it faces.

13. Macroeconomic policies under the 2008/09 EPCA- and ECF-supported programs have been broadly satisfactory albeit with some fiscal slippage.

  • a. Despite weakening somewhat in recent months, revenue collection has been generally consistent with expectations, the result of initial efforts, including enhanced computerization, to improve customs and tax administration.

  • b. On the spending side, critical initiatives to improve expenditure management, especially the introduction of a new budgetary and treasury committee, have begun restoring order in spending operations, although severe difficulties persist in bringing the wage bill under control.

  • c. At end-March 2009, the EPCA target for the primary domestic budget balance (0.6 percent of GDP) was met; and the ceiling on net domestic credit to the government was observed with a substantial margin (0.5 percent of GDP).

14. Available data indicate that thirteen of sixteen quantitative performance criteria and benchmarks through end-March 2010 under the ECF were met. In particular, at end-December 2009, revenue mobilization was slightly better than programmed, and the target on net domestic credit to the government was met. However, the domestic primary budget deficit (benchmark) was exceeded by 1.0 percentage point of GDP. This reflects spending overruns on wages and on domestically-funded capital outlays, as the government effected a CF 1.7 billion (0.9 percent of GDP) capital transfer to Comoros Telecoms to help the stated-owned company meet its share of the cost of a regional under-ocean optic fiber communication cable project. In the first quarter of 2010, weakened focus on tax and customs administration resulted in the revenue target being missed by a small margin; but the target on the domestic primary fiscal deficit was met, as the authorities cut spending on goods and services and domestically funded investment.

15. Performance in the structural area under the two programs has also been broadly satisfactory. All but one of the structural indicators under the EPCA instrument were met; and under the ECF most structural benchmarks through end-March 2010 have been observed, albeit with delays in some cases. The government notably:

  • a. appointed a permanent secretary for the reform-monitoring committee;

  • b. reestablished the revenue sharing mechanism and completed comprehensive reform strategies for strengthening revenue mobilization and improving expenditure management;

  • c. prepared consolidated quarterly fiscal accounts, timely communicated to Fund staff;

  • d. maintained an automatic fuel price adjustment mechanism;

  • e. completed an audit of domestic arrears (with technical support from the EU), and a related arrears clearance strategy;

  • f. completed and submitted to Parliament in April 2010 new personnel frameworks for government ministries that are compatible with medium-term budget viability (an end-March 2010 structural benchmark);

  • g. conclusively tested computerization of civil service wage management, setting the stage for routine operation in the coming months (an end-March 2010 structural benchmark); and

  • h. adopted an IFC-approved reform strategy for the state-owned telecommunications company; and while pursuing consultations with the IFC on reform options for the hydro-carbon importing company, the authorities are taking steps to begin addressing management inefficiencies in the company—including the appointment of a new Board of Directors.

III. Macroeconomic Framework and Outlook and Poverty Reduction, Strategy

A. Macroeconomic Outlook

16. The government’s medium-term reform program, anchored in the PRSP, aims to invigorate economic growth and improve living conditions within a stable macroeconomic environment. Beyond subsistence agriculture, economic recovery is to be driven by accelerated (donor-funded) public works and increased FDI in tourism—as suspended projects are resumed. The reform agenda is focused on improving the business environment and governance to encourage investment, and expanding infrastructure to underpin private sector activity, in particular tourism, as well as support agricultural productivity and diversification. Other positive factors include the gradual improvement in world economic conditions. Following a rebound in 2009 on the back of falling import prices, the terms of trade are expected to modestly improve in the medium-term despite some firming of import prices as the global economy recovers. Growth-supporting import growth would remain relatively strong, spurred by remittances and higher FDI (Box 2).

17. Macroeconomic stability is to be supported by a prudent fiscal policy stance. Fiscal consolidation, combined with comprehensive debt relief and higher foreign aid, would create fiscal space for increased pro-growth and pro-poor spending, while preserving debt sustainability and avoiding accumulation of new arrears. Programmed fiscal adjustment is to be achieved through gradually raising revenue from just under 14 percent of GDP in 2009 to 15 percent of GDP by 2013, and keeping expenditures in check. The wage bill is projected to modestly decline in relation to GDP, after an uncontrolled expansion in the last decade. Additional spending in priority areas (health, education, infrastructure, and restructuring of state-owned banks and enterprises) will mostly be secured through domestic spending reallocations and efforts to raise external assistance to regional standards as well as by ensuring early achievement of HIPC and MDRI debt relief.

18. Monetary and exchange rate developments will continue to be governed by the exchange rate peg under the Franc Zone arrangement. This will continue to be the country’s main anchor of price stability.

19. The main risks to the medium-term outlook are political tensions between the Union and Island authorities, a slower-than-expected pace of reform implementation, and uncertainties in the pace of the global economic recovery. To mitigate these risks, the authorities need to closely adhere to their reform agenda so as to improve economic competitiveness, strengthen public finance management, preserve donor support, and enhance investor confidence. Program implementation would also benefit from more expeditious national political reconciliation.

Table 2.

Comoros: Medium- to Long-Term Macroeconomic Framework, Selected Indicators, 2009–29

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

Corresponds to the case before traditional debt relief (Table A5)

B. Poverty Reduction Strategy

20. On September 10, 2009, the government of Comoros officially adopted the country’s first full Poverty Reduction Strategy Paper (Poverty Reduction and Growth Strategy Paper, PRGSP). The document builds on the strategy laid out in the interim PRSP, which was presented to the Boards of IDA and the IMF in May 2006. For a fragile state, where a rapid succession of political upheavals has hampered policy formulation and implementation over so many years, completing a full PRSP is in and of itself a noteworthy achievement. Moreover, since the early 2000s, the PRSP framework has been instrumental in anchoring the national reconciliation process and guiding the authorities in the gradual formulation of a development vision for the country.

21. Both the I-PRSP and the full PRSP are the result of a thorough and inclusive participatory process. The process was managed by a steering committee and brought together numerous stakeholders—representatives of civil society, traditional and religious leaders, NGOs and development partners—through sectoral working groups (chaired by the relevant Secretary General in each ministry) and a series of participatory workshops held at regular intervals. An important feature of the PRSP preparation process was the involvement of island authorities through local branches of the National Planning Commission, maintained even during separatist crises.

22. The PRGSP sets an ambitious policy agenda focused on: (i) stabilizing the economy and laying the foundations for sustained and equitable growth by strengthening public finance and improving infrastructure provision; (ii) strengthening key sectors of the economy with the highest growth and poverty reduction potential: tourism, agriculture and fishing; (iii) Improving governance and social cohesion; (iv) improving human development outcomes, particularly in healthcare and education, through better social service delivery; and (v) promoting environmental sustainability and civilian security. Achieving these objectives will be challenging given the paucity of resources available from domestic or external sources as well as important capacity constraints and aid absorption bottlenecks. However, at a “Conference for development and investment” hosted by the Government of Qatar on March 9–10, 2010 bilateral partner countries pledged substantial financial assistance in support of Comoros’ development efforts. Effective mobilization could contribute to significantly alleviating the first constraint.

23. The monitoring and evaluation of the PRGSP are carried by four oversight organizations, a number of sectoral technical groups (GTS), and island-level monitoring committees (COPSED). Related activities are under the primary responsibility of the Technical Steering Committee (PRGS-TSC) operating from the National Planning Commission, and working with the Technical Secretariat for PRGS Monitoring and Evaluation and the Ministry of Finance’s Economic and Financial Reform Monitoring Committee (CREF).

IV. Debt Relief Analysis and Possible HIPC and MDRI Assistance4

A. Debt Reconciliation Status

24. The DRA below draws on data provided by the authorities and creditors for public and publicly-guaranteed external debt disbursed and outstanding as of end-2009. The reconciliation process was completed jointly by the IMF, IDA and the authorities in January and April 2010. All multilateral and 98.3 percent of bilateral and commercial debt were reconciled.5

B. Structure of External Debt

25. At end-2009, Comoros’ public and publicly guaranteed external debt was estimated at US$286.8 million (including arrears) in nominal terms. This corresponds to US$213.1 million in NPV terms. Multilateral creditors accounted for slightly over three-fourths of the total debt stock in nominal terms, with liabilities to IDA alone constituting 42.0 percent of total external debt. Other multilaterals with substantial claims on Comoros are the AfDF (13.3 percent of total external debt), BADEA (9.6 percent), IMF (3.5 percent), IsDB (3.3 percent) and IFAD (2.8 percent). OFID, EIB and AMF held claims amounting to a combined share of 2 percent of total debt. The Paris Club creditors, with France as the major creditor, accounted for 26.5 percent of nominal bilateral and commercial claims at end-2009 (6.2 percent of Comoros’ total external debt before the November 2009 Paris Club restructuring agreement). Non-Paris Club official creditors are Kuwait, Saudi Arabia, Mauritius, and United Arab Emirates, accounting for an estimated 15.0 percent of total external debt. Three commercial creditors (Banque Postale, Cotecna, and Hopitaux de Paris,) held 2.3 percent of Comoros’ total external debt outstanding at end-2009.

Table 3.

Comoros: Nominal Stocks and Net Present Value of Debt at end-2009 by Creditor Groups

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Sources: Comorian authorities; and Fund and World Bank staff estimates.

Includes arrears.

Base situation for the calculation of HIPC debt relief; assumes a stock-of-debt operation on Naples terms at end-December 2009; and comparable action by other official bilateral creditors on eligible debt (pre-cutoff and non-ODA).

Technical arrears, to be cleared at Decision Point by the European Commission.

The relief resulting from the 2007–09 arrears clearance mechanism were added back to the NPV of debt stock as of end-2009.

NPV of debt service is calculated with fixed interest rates at end-2009 in line with treatment of other creditors. In Table A8 (HIPC delivery table), the IMF calculates debt service projections based on its own interest rate projections, which leads to a small difference in the NPV calculation according to the HIPC method and its own method.

Other multilaterals include IsDB, IFAD, OFID, EIB and AMF. The Comoros has no arrears with the IsDB. The relief resulting from debt rescheduling and an interest penalty waiver (AMF) and the moratorium on debt service payments and arrears (IsDB) were added back to the NPV of debt stock as of end-2009.

Does not include the implementation of the November 2009 Paris Club agreement.

The relief resulting from the 2007 rescheduling agreements were added back to the NPV of debt stock as of end-2009.

26. As of end-2009, about one fifth of Comoros’ external debt was in arrears, but these have been deferred pending agreement on restructuring discussions with creditors.6 The stock of external arrears stood at US$54.0 million, of which US$35.8 million was owed to multilateral creditors, US$13.7 million to bilateral claimants, and US$ 4.5 million to commercial creditors. Arrears to BADEA made up the largest share of arrears to multilateral creditors at end-2009. The bulk of arrears to the AfDB Group were cleared between December 2007 and April 2009 under the Post-Conflict Country Facility (PCCF);7 a residual amount of US$3.4 million is to be cleared by the EC under the FSF when Comoros reaches the HIPC decision point, together with an amount of US$1.9 million owed to the EIB. The IsDB has agreed to a moratorium on debt service and payment of arrears until December 2010, and the AMF has rescheduled its loan on concessional terms. Comoros has contacted the remaining multilateral creditors to start negotiations to clear arrears in the context of a comprehensive resolution of the country’s debt situation under the HIPC Initiative process. Arrears to Paris Club members stood at US$12.1 million at end- October 2009; they will be cleared through bilateral arrangements, consistent with the general rescheduling agreement of November 2009. Other bilateral and commercial creditors have either agreed to defer arrears pending a treatment in the context of the HIPC Initiative process or are holding discussions with the authorities on their restructuring.

C. Possible Assistance under the HIPC Initiative

27. Comoros qualifies for debt relief under the HIPC Initiative’s “export window” based on end-2009 data. After full application of traditional debt relief mechanisms, the country’s NPV of debt is estimated at US$257.4 million at end-2009, equivalent to 343.0 percent of exports of goods and services.8

Table 4.

Comoros: HIPC Initiative Assistance Under a Proportional Burden-Sharing Approach 1, 2

(In millions of U.S. dollars, unless otherwise indicated)

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

The proportional burden sharing approach is described in “HIPC Initiative--Estimated Costs and Burden Sharing Approaches“

Includes a hypothetical stock-of-debt operation on Naples terms (end-December 2007) and comparable treatment by other official bilateral creditors.

The relief resulting from arrears clearance (AfDB), moratorium on debt service and arrears (IsDB) and debt rescheduling and interest penalty waiver (AMF) were added back to the NPV of debt stock as of end-2009 in order to credit these institutions for the debt relief already granted through these operations.

Each creditor’s NPV reduction in percent of its exposure at the reference date, end-December 2009, calculated as (A-B)/A.

Based on a three-year average of exports on the previous year (e.g., export average over 2007–2009 for NPV of debt-to-exports ratio in 2009).

28. The amount of debt relief needed to bring Comoros’ NPV of debt-to-exports ratio down to the HIPC threshold of 150 percent is estimated at US$144.8 million in end-2009 NPV terms. This implies a common reduction factor of 56 percent. Based on proportional burden sharing, multilateral creditors’ assistance would amount to US$111.2 million, and bilateral and commercial creditors’ assistance to US$33.6 million (in NPV terms). The country has already been granted some HIPC Initiative debt relief through earlier arrears clearance operations (Box 1). As of June 4, 2010, most multilateral creditors, IDA, IMF, AfDF, EIB, IFAD, BADEA and IsDB, representing 98 percent of the NPV of debt owed to multilateral creditors, have indicated their willingness to provide HIPC Initiative debt relief to Comoros. AMF and OFID have not yet committed, but communication is ongoing.

29. The illustrative scenarios below on the delivery of HIPC Initiative debt relief are based on the assumption that Comoros reaches its HIPC decision point in mid-2010 and its completion point by end-2012.

  • IDA assistance would amount to US$45 million in NPV terms. After the approval of the decision point, IDA will provide interim relief in the form of a reduction in debt service up to a maximum of 65 percent from July 2010 to June 2030. The details of IDA’s anticipated assistance are provided in Table A7.

  • IMF assistance would total US$4.27 million in NPV terms. There would be no immediate HIPC interim assistance from the IMF following the approval of the decision point by the IDA and IMF Boards. There will be no PRGT principal repayment obligations until 2014, and the PRGT interest obligations have been waived by the IMF to all low-income member countries through 2011. Possible HIPC interim assistance could be considered after 2011 (Table A8).

  • AfDB Group’s assistance would amount to US$34.6 million in NPV terms, which is almost covered by the December 2007 to April 2009 arrears clearance operations under the PCCF.9 Furthermore, the remaining technical arrears will be cleared at decision point.

  • Other multilateral creditors’ assistance would amount to US$27.3 million in NPV terms. Some creditors have rescheduled loans or canceled some arrears in 2008 and 2009, which will be credited to their HIPC relief effort, but the bulk is expected to be delivered through cancellation or concessional rescheduling of arrears and/or debt service reduction, to commence at decision or completion points (Table A9).

  • The Paris Club creditors are assumed to provide their share of HIPC debt relief through a Cologne flow operation (i.e., a 90 percent NPV reduction) after Comoros reaches its decision point, with the remaining HIPC assistance delivered through a stock of debt operation at the completion point.

  • Regarding the non-Paris Club official bilateral creditors and commercial creditors, Comoros has concluded rescheduling agreements with Kuwait and Saudi Arabia on terms at least as favorable as those agreed to with the Paris Club creditors. Debt rescheduling on terms comparable to those granted by Paris Club creditors is assumed for the other creditors.

External Arrears Clearance

Comoros has made substantial progress in reaching understandings with key creditors on arrears. Nearly one-fifth of the country’s official external debt (US$54 million) was in arrears at end-2009; Comoros has no arrears to IDA and the IMF. Most of the arrears have been or are expected to be cleared through concessional arrears clearance operations and Comoros has either reached or is negotiating understandings with creditors to that effect on terms at least comparable to those granted by Paris Club creditors where applicable. Consistent with the HIPC Initiative methodology, the grant element embedded in the arrears clearance is counted toward the creditor’s contribution to debt reduction under the HIPC Initiative.

Nearly all of the arrears to the AfDB Group were cleared between December 2007 and April 2009 under the Post-Conflict Country Facility. 69 percent of the cost was financed from the PCCF, 1 percent by Comoros, and 30 percent by bilateral donors. All donors have delivered their contribution except the European Commission (EC), which will finance the clearance of the remaining arrears at decision point.

The authorities have made progress in discussions on the clearance of arrears with other multilateral creditors. The arrears to the EIB will be cleared at the decision point, and at the completion point the remaining outstanding loan will be cancelled under the LDC initiative, provided that Comoros is still classified as an LDC. The AMF cleared arrears in March 2008. The authorities have also contacted the IsDB, OFID and BADEA to renegotiate the clearance of arrears; all three have responded favorably to the request. Moreover, the IsDB has already provided a moratorium on arrears and debt service payments until December 2010. The government is expected to clear arrears to these creditors in the context of the HIPC Initiative on terms consistent with Comoros’s limited repayment capacity.

Comoros has been accorded an exceptional debt restructuring treatment by the Paris Club. In the context of the ECF-supported in September 2009, Paris Club creditors agreed to provide an exceptional debt treatment to Comoros, beyond the standard Naples terms. Arrears on short-term debt—a senior category of debt normally not treated by the Club, but which constitutes the bulk of Comoros’ debt to the Club—were deferred and are to be repaid over eight years. Overall, the agreement treats debts amounting to US$13 million and reduces by about 80 percent the payments due by Comoros over the program period (2009–12). The agreement includes a clause further reducing debt service payments due if Comoros reaches the HIPC decision point. In addition, Saudi Arabia and Kuwait, two of Comoros’ main non-Paris Club creditors partly delivered their shares of relief through rescheduling agreements in 2007.

D. Possible Assistance under MDRI and Bilateral Debt Relief Beyond HIP

30. Upon reaching the completion point, Comoros would benefit from bilateral debt relief beyond HIPC from the Paris Club. The additional relief from the Paris Club would cancel the remaining debt, further reducing the PV of debt after completion point by about US$2 million.

31. In addition, Comoros would qualify for MDRI debt relief from IDA and the AfDF. The country has no debt eligible for MDRI relief from the IMF. The MDRI debt relief provided by IDA and the AfDB Group would cover all outstanding debt disbursed prior to end-December 2003 and end-December 2004, respectively, and still outstanding at the two institutions’ implementation dates.10

32. Preliminary estimates indicate that MDRI debt relief could amount to US$52.2 million in NPV terms, assuming that Comoros reaches the completion point in December 2012. Of this amount, US$29.8 million would be provided by IDA and US$22.4 million by the AfDB Group.

33. Finally, the EIB will cancel all remaining outstanding debt under the LDC initiative, provided that Comoros is still classified as an LDC. This would amount to $0.36 million in PV terms.

E. Impact of Debt Relief and Sensitivity Analysis

34. Traditional debt relief together with unconditional delivery of HIPC Initiative assistance would drive down Comoros’ NPV of debt-to-exports ratio from 343.0 percent as of end-December 2009 to approximately 142.7 percent by 2012 (Table A5). With MDRI and LDC initiative relief added, the NPV would fall further to 86.5 percent of exports of goods and services in 2012, as a result of cancellation of debt to IDA, the AfDF and the EIB. Additional relief from bilateral creditors would lower the NPV of debt to exports to 86.0 percent.

35. The NPV of debt is projected to decline further over the long term. With both HIPC and MDRI debt relief, the NPV of debt would continue to decline to 80.2 percent of exports of goods and services by 2029, reflecting projected growth in exports and the authorities’ prudent borrowing policy. Debt service would average about 3.9 percent of revenues or 4.0 percent of exports during 2009–19 and 3.4 percent of revenues and 4.0 percent of exports during 2020–29.

36. In a lower-exports alternative scenario, the debt burden initially exceeds the HIPC Initiative threshold before returning below the benchmark during 2020–29. Under an alternative scenario with permanently lower growth, Comoros’ external public debt would remain below the HIPC Initiative threshold through 2029. In the first alternative scenario (Table A6), exports of goods and services are assumed to be lower by about 30 percent in dollar terms by 2027 relative to the baseline. In this case, the NPV of debt would decline over the long term, reaching 68.6 percent of revenues by 2029 (125.9 percent of exports of goods and services, 12.1 percent of GDP). Debt service would average some 5.6 percent of revenues and 6.6 percent of exports of goods and services during 2009–2019. The second scenario assumes a weakening of the average annual growth rate from 3.8 percent to 1.5 percent throughout 2009–29. In this case, the NPV of debt would decline over the long term, reaching 121.8 percent of revenues by 2029 (107.7 percent of exports of goods and services, 18.6 percent of GDP). Debt service would average some 6.4 percent of revenues and 6.1 percent of exports of goods and services during 2009–19.

37. The sensitivity analysis indicates that Comoros’ ability to service external debt after HIPC relief is very vulnerable to external and growth shocks. The achievement of a robust external debt position is also heavily influenced by the composition and terms of external assistance; under the DRA the bulk of external assistance is assumed to be grants and the remaining borrowing to be on very concessional terms throughout the projection period. The small export base (including tourism) constrains the amount of debt that Comoros will be able to service in the medium and long term, especially if public expenditure is to give priority to achieving the MDGs. The analysis underscores the importance of a sustained domestic reform effort to support the development of exportable production and services, notably tourism, and to secure external assistance heavily weighted toward grants.

Key Macroeconomic Assumptions Underlying the DRA

Key medium- to long-term macroeconomic assumptions used in the baseline DRA scenario include:

Annual real GDP growth: averages 3.8 percent over the projection period (FY 2010–29).

CPI inflation: is projected to decline from 7.4 percent in 2008 to about 3 percent over the longer-term horizon.

Real exchange rate and terms of trade: After a modest appreciation in 2008–09, the real effective exchange rate is projected to remain broadly stable throughout the latter part of the projection period; the terms of trade would recover from the 2008 deterioration, and moderately improve thereafter.

Remittances: on average, remittances are projected to converge to the historical norm of 14.5 percent of GDP during 2013–29, from almost 20 percent of GDP in 2009, following unusually strong growth in 2008.

External current account deficit (excluding official grants): is projected to narrow from an annual average of 11 percent of GDP during 2010–16 to about 7 percent of GDP over the reminder of the projection period, with the improvement mostly stemming from moderating food and consumer products imports in the long run—reflecting progress in import substitution. Goods exports are projected to grow slower than nominal GDP, on account of stagnating prices. However, the growth rate of nonfactor services exports (tourism) would be stronger than that of nominal GDP. Accordingly, goods and non factor services exports are projected to remain broadly stable in relation to GDP.

Government balance: The primary balance (total revenue and grants less noninterest expenditure) is projected to improve from a deficit of 2.6 percent of GDP in 2009, and to move into surplus beginning in 2015, as revenue collection improves and more efforts are made to maintain spending under control.

External assistance, scaling up, and concessionality: The framework assumes that up to 2012 external assistance will be mostly in the form of grants, averaging about 7 percent of GDP. Over the long-term (2012–29), further assistance will be available on concessional terms and mostly in grants, including from IDA and AfDB. Loans from sources other than IDA, IMF and AfDB are assumed to be provided under IDA terms (with a grant element of 50 percent) until 2015, after which the grant element is projected to gradually decline to 30 percent.

Domestic borrowing: The scenario assumes no new medium- to long-term domestic borrowing beyond central bank’s short-term cash advances to the treasury.

V. Decision and Floating Completion Points

A. Triggers for the Floating Completion Point

38. IMF and IDA staffs have reached understandings with the authorities on completion point triggers, summarized in Box 3. In addition to the standard triggers on PRSP implementation and macroeconomic stability, Comoros’ completion point triggers include policy measures aimed at improving public financial management and governance; strengthening the social sectors; supporting growth; and improving debt management. Public financial management and governance triggers would advance ongoing efforts to improve overall budget management, notably by instituting better expenditure control mechanisms and procurement practices.12 They are also intimately linked to the political reconciliation process, as consolidated budgetary reporting, the development of an integrated automated public financial management system and the revision of the personnel frameworks all imply a significant degree of cooperation and trust between the Union and island executives. The triggers relating to the social sectors and to structural reforms are intended to improve key health and education outcomes, and to enhance the competitiveness and growth potential of the economy.

Triggers for the Floating Completion Point11

PRSP

  • Satisfactory implementation for at least one year of the full PRSP, as evidenced by an Annual Progress Report submitted by the government to IDA and the IMF.

Macroeconomic stability

  • Maintenance of macroeconomic stability as evidenced by satisfactory implementation of the ECF-supported program.

Public financial management and governance

  • Regularly produce detailed quarterly budget execution reports for a period of at least 12 months prior to reaching the completion point.

  • Adopt the terms of reference for a feasibility study for a comprehensive computerized public financial management system, including an estimate of the cost and a timetable for the installation of the proposed system.

  • Adopt by law a public procurement code consistent with relevant COMESA norms and develop related implementing regulations; and successfully implement the new code prior to the country’s attainment of the HIPC Initiative completion point;

  • Adopt a revised set of organic frameworks (organigram and staffing plans), consistent with the 2009 constitutional amendments, for all ministries.

  • Government approval and submission to Parliament of a draft law establishing the constitutionally-mandated Chamber of Accounts for external control of budget operations.

Structural reform

  • Officially adopt reform strategies to strengthen management of Comores Télécoms (telecommunications), Société Comorienne des Hydrocarbures (oil import and storage), and MAMWE (electricity); and issue calls for expressions of interest to identify a strategic partner for at least one of the three companies

Social sectors

Education: Strengthen efforts towards achieving MDG 2; the authorities will:

  • Construct and equip 210 primary school classrooms following agreed standards (22 on Moheli, 126 on Anjouan, and 62 on Ngazidja).

  • Construct 100 separated latrines for improved hygiene and promotion of girls’ participation.

  • Provide 300,000 textbooks and 25, 000 school kits (including basic school supplies) for vulnerable children.

Health: Strengthen efforts towards achieving MDGs 4 and 6; the authorities will:

  • Conduct a national measles vaccination campaign for children 9–47 months to achieve 90–percent coverage nationwide (and thus consolidate progress in reducing infant mortality).

  • Carry out a national survey on risk factors for non communicable diseases to guide the development of a national strategy to reduce the growing burden of noncommunicable diseases.

Debt Management

  • Improve public debt management systems, particularly adopting effective debt management software.

  • Produce detailed annual reports on external and domestic debt no later than six months after year end, including data on existing stocks, new loans, and debt service due and paid. At least one such report should be available prior to Comoros reaching the HIPC completion point.

  • Amend the 2003 decree (décret N°03–62/PR) establishing the debt management office to refocus its mandate and activities, consistent with the office’s capacity limitations.

39. IDA and IMF staffs will work together to monitor the completion point triggers, with each institution leading on areas of primary competence, while also incorporating contributions of staff from the other institution. IMF staff will take the lead in monitoring macroeconomic stability. IDA staff will focus on progress in the implementation of the PRSP and on sector-related triggers, including those pertaining to PFM and service delivery, and to tracking of pro-poor expenditures financed with HIPC Initiative assistance. IDA and IMF staffs will jointly monitor structural reforms and progress in improving external debt management.

B. Monitoring Public Spending Following Provision of HIPC Assistance

40. The government is committed to ensuring that assistance under the HIPC Initiative is used to enhance poverty related spending. Securing the effective use of debt relief assistance for poverty reduction and, more generally, the capacity to implement and monitor a shift in the composition of expenditure toward poverty-related objectives is a key element of the HIPC Initiative. The authorities will continue their ongoing efforts to strengthen the programming, management and control of public expenditures, and to improve service delivery in key sectors. Within this framework, technical assistance from IDA, IMF, AfDB and other donors is greatly needed; it will be important to establish adequate budget management capacity.

41. While Comoros does not have a budget classification by program or a fully functional budget classification, there are mechanisms in place that can be used to adequately monitor the use of resources made available by the HIPC Initiative. Existing budget and accounting classifications allow for monitoring of budget allocations and expenditures following two dimensions: (i) administrative (ministries and islands authorities) including development projects; and (ii) economic (expenditure types). The budget is also presented in the annexes of the budget law following a functional classification with broad categories (such as education and health), which is prepared using estimates from the administrative classification. Also, in the absence of a program budget, projects can be individually coded within the administrative classification to allow recording and reporting on project expenditures.

42. The use of resources made available by the HIPC Initiative prior to the completion point will be monitored at the entity (e.g., ministries, public institutions, and executing agencies) and project levels. Entities, which are already coded in the budget classification, will be identified according to their core mandate in relation to poverty reduction. The same process will be followed to identify individual projects in areas which contribute to poverty reduction as defined in the PRSP. A key challenge will be to put in place mechanisms to record expenditures according to their destinations, which could allow for monitoring of both budget allocations and expenditures for entities and projects identified as contributing to poverty reduction.

43. The government intends to use HIPC related savings to fund activities identified in the PRSP. The resources from HIPC Initiative assistance would mostly be allocated to health and education; while other areas, such as major infrastructure programs, would be financed with resources from other external resources (Box 4). The poverty-related programs and projects to be financed with interim assistance support have been included in the FY2010 budget and would need to be included in subsequent budgets. Going ahead, the planned introduction of an effective procurement code will strengthen and modernize the public procurement system, promoting transparency and competition in line with international best practices.

Medium-Term Expenditure Priorities

Education

  • Increase primary and secondary school completion rates.

  • Reduce illiteracy prevalence.

Health

  • Increase health personnel and financial means available to major health facilities.

  • Improve availability of drugs, other materials, and vaccines, with a view to reducing prevalence of major endemic diseases: tuberculosis, malaria as well as improving mother and child health.

Agriculture and food security

  • Expand income generating activities at the community level, including those that increase food production and/or facilitate the supply of food products to markets and the population.

  • Expand availability of quality services to producers—advice, agricultural education and training, and research and development for improving the supply of agricultural inputs.

Infrastructure

  • Expand supply of, and hence access to, electricity and telephone, through expeditious reform of public utilities.

  • Expand and improve port and road infrastructure.

VI. Issues for Discussion

44. This paper assesses whether Comoros qualifies for assistance under the Enhanced HIPC Initiative. Executive Directors’ views and guidance are sought on the following issues:

  • Qualification and decision point: Do Directors agree that Comoros qualifies for assistance under the HIPC Initiative and do they approve the decision point?

  • Amount and delivery of assistance: In order to reduce the NPV of debt to the threshold of 150 percent of exports of goods and services, the total amount of assistance under the Enhanced HIPC Initiative is estimated at US$144.8 million in NPV terms. Under proportional burden sharing, US$45 million in NPV terms would be provided by IDA; and assistance from the IMF would amount to US$4.27 million in NPV terms. Do Directors agree that IDA should provide interim assistance between the decision and completion points, in line with existing guidelines?

  • Floating completion point: Do Directors agree that the HIPC floating completion point will be reached when the triggers in Box 3 have been met? Debt relief will be provided unconditionally only when the completion point triggers have been met and satisfactory assurances of other creditors’ participation under the enhanced HIPC Initiative for Comoros have been received.

Figure 1a.
Figure 1a.

Comoros: Composition of Stock of External Debt at End-2009 by Creditor Group

(Nominal stock: $287 million)

Citation: IMF Staff Country Reports 2010, 242; 10.5089/9781455203413.002.A001

Figure 1b.
Figure 1b.

Comoros: Potential Costs of the HIPC Initiative by Creditor

Citation: IMF Staff Country Reports 2010, 242; 10.5089/9781455203413.002.A001

Sources: Comorian authorities and staff estimates.
Figure 2.
Figure 2.

Comoros: External Debt Sustainability Indicators, 2009–29

Citation: IMF Staff Country Reports 2010, 242; 10.5089/9781455203413.002.A001

Sources: Comorian authorities and staff estimates.1/ Assumes full delivery of estimated HIPC initiative debt relief from July 20102/ Assumes HIPC and MDRI delivery at completion point.
Figure 3.
Figure 3.

Comoros: Sensitivity Analysis, 2009–29

After unconditional delivery of enhanced HIPC assistance

Citation: IMF Staff Country Reports 2010, 242; 10.5089/9781455203413.002.A001

Sources: Comorian authorities and staff estimates.

Table A1.

Comoros: Discount and Exchange Rate Assumptions as of end-December 2009

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Sources: OECD; and IMF, International Financial Statistics.

The discount rates used are the average commercial interest reference rates over the six-month period prior to end-December 2009, i.e., the end of the period for which actual debt and export data are available.

The exchange rates are expressed as national currency per U.S. dollar at end-December 2009.

The IsDB, AfDB Group and AMF use the Islamic dinar (ISD), African currency unit (UAC) and Arab accounting dinar (AAD) respectively, which are all linked to the SDR (ISD 1=UAC 1=AAD 1/3=SDR 1) and use the same discount rate as the SDR.

Table A2.

Comoros: Nominal Stock and Net Present Value of Debt as of December 31, 2009, by Creditor Groups

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Sources: Comorian authorities; and Fund and World Bank staff estimates.

Includes arrears.

Includes a hypothetical stock-of-debt operation on Naples terms at end-2009 and at least comparable action by other official bilateral and commercial creditors on eligible debt (pre-cutoff and non-ODA).

Technical arrears, to be cleared at Decision Point by the European Commission.

The relief resulting from the 2007–09 arrears clearance mechanism were added back to the NPV of debt stock as of end-2009.

NPV of debt service is calculated with fixed interest rates at end-2009 in line with treatment of other creditors. In Table A8 (HIPC delivery table), the IMF calcula service projections based on its own interest rate projections, which leads to a small difference in the NPV calculation according to the HIPC method and its own method.

The relief resulting from the October 2009 moratorium on debt service payments and arrears were added back to the NPV of debt stock as of end-2009.

The relief resulting from the March 2008 rescheduling and interest penalty waiver were added back to the NPV of debt stock as of end-2009.

Does not include the implementation of the November 2009 Paris Club agreement.

The relief resulting from the 2007 rescheduling agreements were added back to the NPV of debt stock as of end-2009.

Table A3.

Comoros: External Debt Service, 2010–29

(In millions of U.S. dollars, unless otherwise indicated)

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Sources: Comorian authorities and staff estimates and projections.

All debt indicators refer to public and publicly guaranteed (PPG) debt and are defined after rescheduling, unless otherwise indicated. Fiscal year ends in December.

Includes only principal and interest due on debt outstanding as of the reference date (12/31/2009) and does not include projected penalty interest on arrears.

Includes the impact of hypothetical arrears clearance operation by AfDB Group, BADEA, IFAD, OFID, EIB and AMF.

Assumes a hypothetical stock of debt operation on Naples terms and comparable treatment from other bilateral creditors.

Bilateral and commercial creditors are assumed to provide a Cologne flow rescheduling on eligible debt during the interim period and a Cologne stock of debt operation at the completion point (end December 2012). Multilateral creditors are assumed to provide HIPC debt relief as of the decision point, except for IsDB, IFAD, BADEA, OFID, which are assumed to provide relief at the completion point.

The reduction is measured as the difference between the projected debt service after full use of traditional debt relief and debt service after the application of HIPC relief.

MDRI assistance applies to IDA and ADF (Comoros has no MDRI-eligible debt to the IMF) and starts after the assumed completion point (December 2012). This scenario also includes debt cancellation at completion point by the EIB under the LDC Initiative, assuming Comoros is still classified as an LDC. Assumes that MDRI has no impact on Comoros’s new borrowing over the projection period.

Paris Club creditors deliver, under bilateral initiatives, additional debt relief beyond the HIPC Initiative at the competion point detailed on Table A9.

As defined in IMF, Balance of Payments Manual, 5th edition, 1993. Refers to current year exports.

Revenues are defined as central government revenues, excluding grants.

Table A4.

Comoros: Net Present Value of External Debt 2009–29

(In millions of U.S. dollars, unless otherwise indicated)

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Sources: Comorian authorities and staff estimates and projections.

Includes the impact of arrears clearance operations by the AfDB Group in 2007 (actual) and BADEA, IFAD, AMF, OFID and EIB (hypothetical) as well as loan rescheduling agreements with the IsDB (2009) and AMF (2008). Also includes the relief resulting from the 2007 rescheduling agreements added back to the 2009 NPV of debt stock (Kuwait and Saudi Arabia).

In terms of simple historical three-year average of exports of goods and nonfactor services.

Assumes interim relief under the enhanced HIPC Initiative from July 2010 to December 2012.

Assumes full delivery of estimated HIPC initiative debt relief from July 2010

MDRI assistance applies to the World Bank and the AfDB Group, and starts after the assumed completion point (December 2012). This scenario also includes debt cancellation at completion point by the EIB under the LDC Initiative, assuming Comoros is still classified as an LDC.

For the AfDB Group, the actual NPV of debt after unconditional delivery of HIPC assistance is smaller than the number shown in this table, which is the NPV of debt required to bring the total NPV of debt down to 150 percent of exports (similarly for the EIB), because the amount of arrears clearance pledged by the AfDB Group and the EIB will reduce their debt by more than the common reduction factor.

Paris Club creditors deliver, under bilateral initiatives, additional debt relief beyond the HIPC Initiative at the competion point detailed on Table A9.

Table A5.

Comoros: External Debt Indicators, 2009–29 1

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Sources: Comorian authorities and staff estimates and projections.

All debt indicators refer to public and publicly guaranteed (PPG) debt at end-December 2009.

Exports are defined as in IMF, Balance of Payments Manual, 5th edition, 1993.

Based on a three-year average of exports on the previous year (e.g., export average over 2007–2009 for NPV of debt-to-exports ratio in 2009).

Revenue is defined as central government revenue, excluding grants.

Shows the external debt situation after the full use of traditional debt-relief mechanisms, and assuming at least comparable treatment from official bilateral creditors.

Includes the impact of arrears clearance operations by the AfDB Group in 2007 (actual) and BADEA, IFAD, OFID and EIB (hypothetical) as well as loan rescheduling agreements with the IsDB (2009) and AMF (2008).

Also includes the relief resulting from the 2007 rescheduling agreements added back to the 2009 NPV of debt stock (Kuwait and Saudi Arabia).

Assumes interim relief under the enhanced HIPC Initiative from July 2010 to December 2012 and full delivery of assistance in December 2012.

Assumes full delivery of estimated HIPC initiative debt relief as of July 2010.

MDRI assistance applies to IDA and ADF (Comoros has no MDRI-eligible debt to the IMF) and starts after the assumed completion point (December 2012). This scenario also includes debt cancellation at completion point by the EIB under the LDC Initiative, assuming Comoros is still classified as an LDC. Assumes that MDRI has no impact on Comoros’s new borrowing over the projection period.

Table A6.

Comoros: Sensitivity Analysis, 2009–29 1

After unconditional delivery of enhanced HIPC assistance

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Sources: Comorian authorities and staff estimates and projections.

All debt indicators refer to public and publicly guaranteed (PPG) debt and are defined after HIPC debt relief assumed delivered unconditionally as of July 2010.

The macroeconomic projections for the baseline scenario are described in Section III.

As defined in IMF, Balance of Payments Manual, 5th edition, 1993.

Based on a three-year average of exports on the previous year (e.g., export average over 2007–2009 for NPV of debt-to-exports ratio in 2009).

Revenue is defined as central government revenue, excluding grants.

Assumes a lower export level of 30 percent.

Assumes a lower growth of 1.5 percent.

Table A7.

Comoros: Possible Delivery of World Bank Group’s Assistance under the Enhanced HIPC Initiative, 2010–44 1

(In millions of U.S. dollars, unless otherwise indicated)

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Source: IDA staff estimates.

Principal and interest due to IDA correspond to prorated projections on disbursed and outstanding debt as of end-December 2009, converted to U.S. dollar.

Enhanced HIPC assistance from June 2010 to December 2012.

Stock of debt and debt service denominated in SDRs are converted into U.S. dollar by applying the end-2009 exchange rate.

Stock of debt outstanding on January 1, 2013.

Debt disbursed as of December 31, 2003 and still outstanding at the December 31, 2012.

HIPC relief is assumed to proportionally reduce repayments of principal and charges on IDA credits disbursed as of end-December 2003 and still outstanding as of December 31, 2012.

Based on debt disbursed and outstanding as of end-2009.

Based on debt disbursed and outstanding as of end-2003.

For SDR denominated credits, debt relief under the MDRI is estimated as debt service on SDR denominated credits minus USD-based HIPC debt relief on these credits. HIPC debt relief is converted into SDR equivalent amounts, from July 2009 onwards, by applying the IDA15 foreign exchange reference rate of 1.524480 U.S. dollars per SDR. For USD denominated credits, debt relief under the MDRI is estimated as debt service on USD denominated credits minus USD-based HIPC debt relief on these credits. The resulting MDRI debt relief amounts are converted into SDR equivalent amounts by applying the IDA15 foreign exchange reference rate.

Table A8.

Comoros: Possible Delivery of IMF Assistance Under the Enhanced HIPC Initiative 2010–19 1

(In millions of U.S. dollars, unless otherwise indicated)

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Source: Fund staff estimates and projections.

Total IMF assistance under the enhanced HIPC Initiative is US$4.270 million in NPV terms calculated on the basis of data available at the decision point, excluding interest earned on Comoros’ Umbrella account and on committed but undisbursed amounts as described in footnote 6.

Estimated hypothetical delivery of HIPC assistance on flow basis in the absence of MDRI decision.

Forthcoming obligations estimated based on schedules in effect as of April 30, 2010. Interest obligations do not include net SDR charges and assessments.

Effective January 7, 2010 interest charges on concessional loans are waived through 12/31/11. The Fund will review interest rates for all concessional facilities in late 2011 and every two years there after. After 2011, projected interest charges are based on 0.25 percent per annum for the ECF credit outstanding.

As there would be no principal or interest obligations due though 2011, it is projected that a HIPC interim assistance will be deposited into Comoros’ Umbrella account in June 2012 to cover 100 percent of eligible PRGT interest due to the Fund in June and December 2012.

The remaining IMF’s grant HIPC assistance is assumed to be disbursed into member’s account at the completion point in December 2012, which is reflected in the calculation of interest.

Estimated interest earnings on: (a) amounts held in Comoros’ Umbrella Account; and (b) up to the completion point, amounts committed but not yet disbursed. The projected interest earnings are estimated based on assumed interest rates which are gradually rising to 4.5 percent in 2015 and beyond; actual interest earnings may be higher or lower.

Comoros does not have MDRI-eligible credit outstanding to the IMF.

Table A9.

Comoros: Status of Creditor Participation Under the Enhanced HIPC Initiative

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Sources: Comorian authorities; and Bank-Fund staff estimates.
Table A10.

Paris Club Creditors’ Delivery of Debt Relief under Bilateral Initiatives

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Source: Paris Club Secretariat.

Columns (1) to (7) describe the additional debt relief provided following a specific methodology under bilateral initiatives and need to be read as a whole for each creditor. In column (1), “HIPCs” stands for eligible countries effectively qualifying for the HIPC process. A “100 percent” mention in the table indicates that the debt relief provided under the enhanced HIPC Initiative framework will be topped up to 100 percent through a bilateral initiative.

Australia: post-cutoff date non-ODA relief to apply to debts incurred before a date to be finalized; timing details for both flow and stock relief are to be finalized.

Canada: including Bangladesh. Canada has granted a moratorium of debt service as of January 2001 on all debt disbursed before end-March 1999 for 13 out of 17 HIPCs with debt service due to Canada. Eligible countries are Benin, Bolivia, Cameroon, Dem. Rep. of Congo, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Rwanda, Senegal, Tanzania, and Zambia. 100% cancellation will be granted at completion point. As of July 2004, Canada has provided completion point stock of debt cancellation for Benin, Bolivia, Guyana, Senegal, and Tanzania.

100 percent of ODA claims have already been cancelled on HIPCs, with the exception of Myanmar’s debt to Canada.

Denmark provides 100 percent cancellation of ODA loans and non-ODA credits contracted and disbursed before September 27, 1999.

France: cancellation of 100 percent of debt service on pre-cutoff date commercial claims on the government as they fall due starting at decision point. Once countries have reached completion point, debt relief on ODA claims on the government will go to a special account and will be used for specific development projects.

Finland: no post-Cutoff date claims

Italy: cancellation of 100 percent of all debts (pre- and post-cutoff date, ODA and non-ODA) incurred before June 20, 1999 (the Cologne Summit). At decision point, cancellation of the related amounts falling due in the interim period. At completion point, cancellation of the stock of remaining debt.

The Netherlands: 100 percent ODA (pre- and post-cutoff date debt will be cancelled at decision point); for non-ODA: in some particular cases (Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Mali, Mozambique, Nicaragua, Rwanda, Tanzania, Uganda and Zambia), the Netherlands will write off 100 percent of the consolidated amounts on the flow at decision point; all other HIPCs will receive interim relief up to 90 percent reduction of the consolidated amounts. At completion point, all HIPCs will receive 100 per cent cancellation of the remaining stock of the pre-cutoff date debt.

Norway has cancelled all ODA claims.

Due to the current World Bank/IMF methodology for recalculating debt reduction needs at HIPC completion point, Norway has postponed the decisions on whether or not to grant 100% debt reduction until after HIPCs’ completion point.

Russia has no ODA claims

Sweden has no ODA claims.

Switzerland has cancelled all ODA claims.

In some particular cases (Central African Republic, Liberia, Republic of Congo, Sierra Leone, Togo), Switzerland will write off 100 percent of the remaining debt stock at completion point; all other HIPCs will receive debt relief according to Paris Club terms.

United Kingdom: “beyond 100 percent” full write-off of all debts of HIPCs as of their decision points, and reimbursement at decision point of any debt service paid before the decision point.

United States: 100 percent post-cutoff date non-ODA treated on debt assumed prior to June 20, 1999 (the Cologne Summit).

Table A11.

HIPC Initiative: Status of Country Cases Considered Under the Initiative, January 27, 2010

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Sources: IMF and World Bank Board decisions, completion point documents, decision point documents, preliminary HIPC documents, and staff calculations.

Assistance levels are at countries’ respective decision or completion points, as applicable.

In percent of the net present value of debt at the decision or completion point (as applicable), after the full use of traditional debt-relief mechanisms.

Equivalent to SDR 2181.98 million at an SDR/USD exchange rate of 0.640563, as of January 27,

Annex I. Comoros: Debt Management Capacity

Debt management is shared between the debt management office (DMO),1 and the national debt committee.2 The DMO, which is part of the Ministry of Finances, will work under the Treasury3 supervision starting in 2011 according to the new organic law. Its mission is to define the government policy for debt accumulation and servicing. The DMO is responsible for the management of public debt, debt of state-owned enterprises and publicly guaranteed debt, and for preparing analytical reports for the Minister of Finance and the Budget. It is also in charge of making debt service projections, preparing invoices and sending them to the treasury, which authorizes the central bank to transfer amounts of debt service due to creditors.

The mission of the national committee is to ensure the coordination of the debt policy and management of public debt with fiscal and monetary policy and to execute the debt management strategy. The minister of finance is the only government member who is allowed to sign new loan agreements, while the national committee only gives advice.

Coordination with international institutions on debt issues is shared with another unit, the CREF.4 This department’s mission is to coordinate implementation and monitoring of economic and financial reforms. In particular, it negotiates programs with the IMF, collects and compiles and analyzes economic, financial and fiscal data from the federal and island finance offices, the central bank and other ministries. Meanwhile, the DMO5 coordinates all activities with respect to debt and debt rescheduling with the IMF, World Bank, Paris Club and bilateral creditors.

In theory, the DMO consists of a director, an officer for external debt service, an officer for domestic debt service, a statistician, an information analyst and an accountant. The minimum qualification of the staff is a master’s degree. The staff seems reasonably knowledgeable. In practice however, the DMO is understaffed with only two full-time and one part-time staff and no director.

Loan disbursement projections are currently generated by the National Planning Commission,6 but the DMO expects to be able to generate these projections in the future, when the debt management software, CS-DRMS2000+, is installed in early 2011 with assistance by the AfDB. Until then, data on the debt stock and debt projections will continue to be kept in an Excel spreadsheet file.

The DMO is a member of a debt management capacity building project by the BCEAO/BEAC,7 which receives assistance from Pôle Dette8 in the areas of building a strategy for debt reduction, a financial strategy, financial programming, and putting in place a legal framework in line with international standards. Currently however, Comoros does not have a formal debt strategy; instead the country seems to give priority to payments to the largest multilateral creditors, while endeavoring to secure agreements to prevent accumulation of arrears to the smaller creditors. The DMO uses Debt-Pro for analyzing debt and for creating debt sustainability and debt relief simulations.

The DMO has no regular official publications, but it publishes a table with debt service of the current year and the debt stock of the previous year, and frequently informs the Vice- President and Finance Minister of developments in the debt stock. The department sporadically publishes articles on debt in the written press. It communicates with creditors primarily via internet.

Unfortunately, due to the lack of debt management capacity in terms of staffing, training, and software, the DMO has not been proactive so far in debt management. Its analytical capacity would need to be reinforced especially when beginning the HIPC Initiative process. The DMO could improve its debt management capacity by making more use of debt management database software; and the government is planning to install such software with associated training with the support of the AfDB. It could also increase the number of staff, provide more training for them, and produce more frequent publications on the country’s debt outlook.

Annex II. Joint IMF/World Bank Debt Sustainability Analysis 20101

Comoros is in debt distress. The debt sustainability analysis (DSA) shows that Comoros is in debt distress and would remain so under the baseline scenario for most of the projection period.2 In the alternative scenario, which for illustrative purposes assumes a hypothetical access to HIPC decision point in mid-2010 and HIPC completion point and MDRI debt relief within the next two years, debt would become manageable.

A. Introduction

1. This DSA is based on the Debt Sustainability Framework (DSF) for Low-Income Countries. The DSA presents the projected path of Comoros’ external and public sector debt burden indicators, and assesses the country’s future sustainability of debt. Methodologically, the DSA differs from the HIPC Debt Relief Analysis (DRA) in the decision point document in that it compares the evolution over the projection period of debt-burden indicators against policy-dependent indicative thresholds. In contrast, under the HIPC DRA, the historical debt burden indicators are compared to uniform thresholds in order to evaluate eligibility and calculate the amount of debt relief that the country qualifies for under the HIPC initiative. Moreover, the DSA uses uniform discount rate and exchange rate projections; and same-year exports to calculate debt ratios, whereas the HIPC DRA uses currency-specific discount rates, base year exchange rates, and three-year average exports.

2. The last fully elaborated DSA for Comoros, which was prepared in 2008, and the 2009 update assessed the country as being in debt distress. At that time Comoros was accumulating arrears to external creditors and the relevant debt indicators in NPV terms breached the indicative thresholds. Compared to the 2009 assessment, the DSA results presented below show more favorable dynamics of debt indicators in the medium term, reflecting improved macroeconomic performance, as well as arrears clearance operations, HIPC initiative interim debt relief, debt relief granted under the November 2009 Paris Club agreement, and the assumption of relief on comparable terms by other creditors.

B. Baseline Scenario

3. The baseline macroeconomic assumptions for the present DSA are consistent with the long-term macroeconomic projections underlying the ECF arrangement and the HIPC DRA. Sustained by a gradual improvement in the external environment, steady inflows of remittances and FDI, notably in tourism, as well as enhanced financial intermediation, economic activity is expected to rebound in the medium term. The upward revision from the previous growth projections for the period 2010–12 reflects mostly a better growth outcome for 2009 when credit to the private sector expanded significantly following the entry of two new banks and aggressive bank lending. The better-than-initially anticipated growth performance in 2009 was also driven by a surge in construction activity. GDP growth is assumed to accelerate further to around 4 percent in the long run as the prospects for improving terms of trade trigger additional investment in the agricultural sector, which together with improvements in economic infrastructure would enhance competitiveness and facilitate exports.

4. After accelerating to above 7 percent in 2008, inflation fell to 2.1 percent in 2009 (y-o-y) contained by easing food and energy costs. Pressures on domestic prices are expected to remain subdued in the coming years. A long-term projection of 3 percent annual change in the CPI is compatible with the fixed exchange rate regime under the Franc Zone arrangement, which provides an important anchor of price stability.

5. A key assumption underlying the DSA is a steady strengthening of the fiscal policy position consistent with the ECF-supported program. Under the latter, the domestic primary deficit is projected at 1.5 percent of GDP in 2010 (2.6 percent of GDP in 2009). Fiscal consolidation is expected to continue in the medium term, allowing the achievement of a positive primary fiscal balance by 2015.

6. The current account deficit is projected to deteriorate slightly in 2010–11, driven by strong growth-supporting imports. Over the long run, the current account (including official grants), would gradually converge to about -4.6 percent of GDP by 2030 (–7.9 percent of GDP in 2009) as food and consumer goods imports slacken. As a share of GDP, goods imports are projected to revert to long-run historical averages (20–25 percent of GDP) reflecting the impact of terms of trade improvements and import substitution in agriculture and manufacturing. Exports of goods are projected to grow in volume terms in line with real GDP; they would however decline in relation to nominal GDP as a result of stagnating prices. The growth rate of nonfactor services exports (tourism) would slightly exceed that of nominal GDP. Remittances, which constitute a major source of external financing, are projected to remain robust, although increasing at more moderate rates. The improved outlook for FDI compared to prospects under the previous macroeconomic framework mostly reflects the resumption of projects in tourism and other pledges made at the March 2010 Arab League conference on development and investment in Comoros. Official capital transfers (investment grants) will continue to be an important source of external financing for Comoros.

7. The baseline scenario for the DSA takes account of recent arrears clearance operations,3 and debt relief granted under the November 2009 Paris Club agreement together with assumed relief on comparable terms by other official bilateral and commercial creditors, as well as delivery of interim of IMF and IDA HIPC assistance starting in mid-2010 up to end-2012.4 Consistent with the DSF guidelines, the baseline does not include the delivery of HIPC, MDRI and bilateral or multilateral beyond-HIPC assistance. The evolution of Comoros debt indicators which incorporate the full impact of the HIPC Initiative and MDRI debt relief is presented as an alternative scenario.

C. Debt Sustainability Analysis

External debt sustainability

8. Under the baseline scenario, the NPV of debt-to-exports ratio breaches the indicative threshold during the projections period (Table 1a, Figure 1). While remittances are a significant source of external financing for Comoros, including them in the DSA would not alter the assessment that Comoros is in debt distress because of the existing external arrears and protracted breaches of the debt ratio thresholds. However, once the arrears are cleared, remittances would likely play an important role in determining the country’s debt rating. The ratios of NPV of debt-to-GDP and to- revenue remain close to or slightly above the respective thresholds in the medium term and steadily decline thereafter. Overall, there is an improvement in the projected paths of the debt burden indicators from the previous DSA, especially in initial years. The improvement largely derives from the new debt service schedule consistent with the assumptions of the baseline scenario, and to a smaller extent from changes in the underlying macroeconomic framework. The debt service ratios are below the indicative thresholds and remain so throughout the projections horizon. The differences in the baseline debt indicators presented in the HIPC DRA and the LIC DSA can be explained both by differences in the methodology and in the underlying assumptions about debt service. In particular, HIPC DRA and LIC DSA use different denominators (three-year historical moving average versus current year) and discount rates, and recent arrears clearance and rescheduling operations are added back into the base of the HIPC DRA debt stock. Also, the LIC DSA takes into account the Paris Club debt relief granted in November, which went beyond the traditional terms used in the HIPC DRA. Overall, about 80 percent of the difference in the NPV of debt-to-exports ratios is due to the debt numerator and the remaining 20 percent is attributable to the different export values in the denominator. The drop in the debt ratios in 2010 in the LIC DSA reflects attainment of the decision point and the assumption that debt relief on terms comparable to the Paris Club treatment is granted by non-Paris Club official creditors and commercial creditors.

Table 1a.

External Debt Sustainability Framework, Baseline Scenario, 2007–2030 1/

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are derived over the past 7 years.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Figure 1.
Figure 1.

Comoros: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2010-2030 1/

Citation: IMF Staff Country Reports 2010, 242; 10.5089/9781455203413.002.A001

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in 2020. In figure b. it corresponds to a One-time depreciation shock; in c. to a Non-debt flows shock; in d. to a One-time depreciation shock; in e. to a Non-debt flows shock and in figure f. to a One-time depreciation shock

9. Bound tests indicate that Comoros’ external debt outlook is subject to significant vulnerabilities (Table 1b, Figure 1). Sensitivity analysis based on standardized tests suggests that in case of adverse temporary shocks the external debt indicators for Comoros would deteriorate considerably. In the scenario, which in the first two years assumes one standard deviation below the historical average of non-debt flows (including FDI and current transfers), the NPV of debt-to-exports ratio increases to almost 300 percent and stays significantly above the indicative threshold for the rest of the projections period. This highlights the unsustainable nature of the country’s debt situation and its strong dependence on external non-debt financing. Similarly, in the scenario that assumes a one-time 30 percent nominal depreciation of the national currency, the NPV of debt-to GDP and NPV of debt-to-revenue ratios breach the corresponding thresholds for a prolonged period of time. Shocks tend to have a lesser effect on the debt service ratios, in part owing to the high degree of concessionality of new loans. The historical scenario, which assesses the evolution of the debt ratios under the assumption that key variables are at their historical averages, implies a more pronounced improvement in the debt burden indicators in the initial years.5 This pattern is largely explained by the lower current account deficit in earlier years as compared to the one prevailing in 2009 and in the medium-term balance of payments projections.

Table 1b.

Comoros: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2010-2030

(In percent)

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Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

10. The alternative country-specific scenario, which assumes additional delivery of debt relief at completion point, indicates a marked improvement in Comoros’ external debt outlook. Under this scenario, the NPV of debt-to-exports ratio still exceeds the 100 percent indicative threshold but the debt burden is at a much more manageable level compared to the baseline. The ratios of NPV of debt to GDP and to revenue fall comfortably below the respective thresholds and remain in sustainable ranges. This underscores the importance of debt relief under the HIPC Initiative and MDRI in securing external debt sustainability for Comoros.

Public Sector Debt Sustainability

11. When domestic public debt is included in the analysis, the debt burden indicators deteriorate only slightly (Table 2a, Figure 2). In the baseline scenario, the debt-to-GDP ratio and the debt-to-revenue ratio steadily decline over time, driven largely by the dynamics of the external public debt.

Table 2a.

Comoros: Public Sector Debt Sustainability Framework, Baseline Scenario, 2007–2030

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.

Covers general government gross debt.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are derived over the past 7 years.

Figure 2.
Figure 2.

Comoros: Indicators of Public Debt Under Alternative Scenarios, 2010–2030 1/

Citation: IMF Staff Country Reports 2010, 242; 10.5089/9781455203413.002.A001

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in 2020.2/ Revenues are defined inclusive of grants.

12. Sensitivity analysis suggests that public debt dynamics are vulnerable to adverse shocks (Table 2b, Figure 2). Lower long-run economic growth would have a noticeable effect on key debt burden ratios. When historical averages are used for GDP growth and the primary budget balance, the debt indicators deteriorate markedly, thereby confirming the need for both stronger growth and steady fiscal consolidation as outlined in the ECF-supported program.

Table 2b.

Comoros: Sensitivity Analysis for Key Indicators of Public Debt 2010–2030

article image
Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

D. Conclusion

13. The low-income country debt sustainability analysis shows that Comoros is in debt distress and is likely to remain so under the baseline scenario for a prolonged time period. Full delivery of HIPC debt relief and MDRI will significantly improve the country’s external debt situation. These conclusions are consistent with the results from the 2009 DSA update.

14. Alternative scenarios and stress tests highlight the vulnerability of Comoros to negative shocks. Besides comprehensive debt relief, maintaining sustainable levels of indebtedness would require steady implementation of growth-enhancing economic policies, including fiscal prudence, as well as prudent debt management, as evidenced by the results from the public DSA.
1

“Enhanced HIPC Initiative” is hereafter referred to as “HIPC Initiative.”

2

Also known as HIPC-DSA (Debt Sustainability Analysis).

3

Comoros is currently an IDA-only country with nominal per capita GNI of about US$ 750 in 2009 (using the World Bank’s Atlas methodology). The country is PRGT-eligible and is on the list of ring-fenced countries grandfathered by the IMF Board in October 2006 (Decision No. 13797 (06/88).

4

The DRA presented in the paper is based on the HIPC Initiative’s methodology.

5

The un-reconciled 1.7 percent of bilateral and commercial debt is due to Banque Postale, representing 0.4 percent of the total debt.

6

In line with the method agreed with multilateral development banks, any concessional rescheduling of arrears done by multilateral creditors in the context of the HIPC Initiative would be counted as part of their contribution to debt relief under the HIPC Initiative (see the attachment to “HIPC Debt Initiative: The Chairman’s Summary of the Multilateral Development Banks’ Meeting”, March 6, 1998, IDA/SecM98–90).

7

This has been renamed into Fragile States Facility (FSF) with the same terms and conditions.

8

Remittances are not included in the HIPC DRA.

9

The PCCF provides partial funding for arrears clearance operation to countries which: (i) demonstrate respect for the AfDB Group’s preferred creditor status; and (ii) are eligible for HIPC debt relief, but not yet reached the decision point under the Initiative.

10

IDA MDRI debt relief would be on debt outstanding as of the end of the quarter in which the completion point will be reached; MDRI from AfDF will be delivered at the completion point.

11

The first two triggers (PRSP implementation and satisfactory macroeconomic performance) are requirements for reaching the completion point under the IMF PRGT-HIPC Trust Instrument.

12

Not requiring a specific length of track record for public procurement implementation before the HIPC completion point appears justified given Comoros’ weak domestic capacity in that area. Even with donor support, government approval of the new code and the strengthening of relevant services would likely take at least two years; the significant investment limits the likelihood that the gains made would not be preserved.

1

Established by decree (décret N°03–62/PR) in 2003 as the Direction Nationale de la Dette (DND).

2

Established by decree (Décret N°08–27/PR), consisting of the minister of finance, minister of external affairs, planning minister, director general of the budget, director of the DMO, and others.

3

Direction Générale du Trésor.

4

Established by decree (décret N°07–018/PR) in 2007, Cellule des Réformes Économiques et Financières.

5

Art 9, Arrêté N° 03–005/MFBECEIP/CAB.

6

Commissariat Général au Plan.

7

The Central Bank of West African States (BCEAO) and the Bank of Central African States (BEAC).

8

Pôle-Dette is the regional debt management training unit for Central Africa and Western Africa, which runs the debt management capacity building project created by the training centers of the BCEAO and the BEAC.

1

This DSA has been prepared jointly by the World Bank and Fund staffs using the Debt Sustainability Framework (DSF) for Low Income Countries approved by the Executive Boards of the IMF and IDA. The fiscal year covers the period from January to December.

2

See “Debt Sustainability in Low-Income Countries: Proposal for an Operational Framework and Policy Implications” (http://www.imf.org/external/np/pdr/sustain/2004/020304.htm and IDA/SECM2004/0035, 2/3/04), “Debt Sustainability in Low-Income Countries: Further Considerations on an Operational Framework and Policy Implications” (http://www.imf.org/external/np/pdr/sustain/2004/091004.htm and www.worldbank.org, 9/10/04), and “Staff Guidance Note on the Application of the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries” (http://www.imf.org/external/pp/longres.aspx?id=4419). Comoros is classified as a “weak performer” based on the quality of its policies and institutions as measured by the World Bank’s Country Policy and Institutional Assessment (CPIA) average score for the period 2006–2008. The corresponding indicative thresholds are 30 percent for the NPV of debt-to-GDP ratio, 100 percent for the NPV of debt-to-exports ratio, 200 percent for the NPV of debt-to-revenue ratio, 15 percent for the debt service-to-exports ratio, and 25 percent for the debt service-to-revenue ratio.

3

The bulk of arrears to the AfDF were cleared between December 2007 and April 2009 and Comoros has engaged in negotiations with the remaining creditors to clear arrears as part of the HIPC Initiative process.

4

Paris Club debt relief is assumed to be topped up to standard Cologne terms at the decision point. For those multilateral creditors for which debt service is not being paid and have not previously rescheduled, it is assumed that outstanding arrears and current debt service falling due is deferred to end-2012. After 2012, it is assumed that Comoros will resume paying debt service falling due, while the stock of existing arrears is considered to be deferred/under discussion pending resolution and is left outstanding.

5

In the sensitivity analysis calculations, the historical averages have been computed for the recent 7–year period as opposed to the 10–year period set as default in the DSA template. This change has been made to exclude observations, which due to data reporting problems, introduce a considerable upward bias in the historical current account balance.

1

The IDA Executive Board met on June 29, 2010; the IMF Executive Board met on June 21, 2010.

2

There are no principal and interest obligations falling due to the IMF through 2011.

3

There will be no IMF MDRI debt relief as Comoros had no outstanding debt to the Fund at end-2004.

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Cover IMF Staff Country Reports
Union of the Comoros: Enhanced Heavily Indebted Poor Countries (HIPC) Initiative- Decision Point Document
Author:
International Monetary Fund
Volume/Issue:
Volume 2010: Issue 242
Publisher:
International Monetary Fund
ISBN:
9781455203413
ISSN:
1934-7685
Pages:
55
DOI:
https://doi.org/10.5089/9781455203413.002
  • Figure 1a.
    View in gallery
    Figure 1a.

    Comoros: Composition of Stock of External Debt at End-2009 by Creditor Group

    (Nominal stock: $287 million)

  • Figure 1b.
    View in gallery
    Figure 1b.

    Comoros: Potential Costs of the HIPC Initiative by Creditor

  • Figure 2.
    View in gallery
    Figure 2.

    Comoros: External Debt Sustainability Indicators, 2009–29

  • Figure 3.
    View in gallery
    Figure 3.

    Comoros: Sensitivity Analysis, 2009–29

    After unconditional delivery of enhanced HIPC assistance

  • Figure 1.
    View in gallery
    Figure 1.

    Comoros: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2010-2030 1/

  • Figure 2.
    View in gallery
    Figure 2.

    Comoros: Indicators of Public Debt Under Alternative Scenarios, 2010–2030 1/

Figure 1a.

Comoros: Composition of Stock of External Debt at End-2009 by Creditor Group

(Nominal stock: $287 million)
Figure 1b.

Comoros: Potential Costs of the HIPC Initiative by Creditor
Figure 2.

Comoros: External Debt Sustainability Indicators, 2009–29
Figure 3.

Comoros: Sensitivity Analysis, 2009–29

After unconditional delivery of enhanced HIPC assistance
Figure 1.

Comoros: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2010-2030 1/
Figure 2.

Comoros: Indicators of Public Debt Under Alternative Scenarios, 2010–2030 1/