Union of the Comoros: 2010 Article IV Consultation and Second Review Under the Extended Credit Facility, Request for a Modification of a Performance Criterion, and Financing Assurances Review—Informational Annex

The policies in a challenging political and economic environment are discussed in this study. The importance of reforms to enhance the budget process, tax administration, and expenditure control is encouraged. A higher growth path will require far-reaching structural reforms to bolster Comoros's competitiveness and increase the economy’s ability to intermediate remittances and aid inflows. The need to improve the business environment and the management of public utilities is explained in detail.

Abstract

The policies in a challenging political and economic environment are discussed in this study. The importance of reforms to enhance the budget process, tax administration, and expenditure control is encouraged. A higher growth path will require far-reaching structural reforms to bolster Comoros's competitiveness and increase the economy’s ability to intermediate remittances and aid inflows. The need to improve the business environment and the management of public utilities is explained in detail.

I. Comoros: Relations with the Fund

(As of October 31, 2010)

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

II. General Resources Account:

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III. SDR Department:

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IV. outstanding Purchases and Loans:

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V. Latest Financial Arrangements:

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

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VII. Implementation of HIPC Initiative: Enhanced framework

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

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

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

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

XII. Recent Technical Assistance

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

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

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III. Comoros: Relations with the African Development Bank Group

A. Bank Group’s Support in Comoros

1. The African Development Bank Group (AfDB) started operations in Comoros in 1978 and has since approved thirteen operations comprising twelve projects and one study. Cumulative Bank Group commitments net of cancellation amount to UA 46.7 million as of 31 March 2010, the bulk of this financing (64%) being from the concessional window, the African Development Fund (ADF). In addition, the AfDB approved a UA 1.5 million emergency financing to assist in mitigating the adverse impact of the food crisis in February 2009, plus a UA 0.6 million grant under the Institutional Capacity Building Project (ICBP) in November 2010. Overall, the AfDB operations in Comoros have been directed toward supporting economic-related infrastructure, budget support and rural livelihoods. In terms of sector distribution, infrastructure sector projects received the largest share (51 percent) of the total resources committed, followed by multi-sector (30.2 percent, comprising operations in governance, economic and financial reform) and agriculture (11.2 percent).

B. Strategic Orientation

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

C. Lending Portfolio

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

D. Non Lending Activities

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

E. Summary of AfDB Current Lending Portfolio

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Source: AfDB, 2010

F. IMF-African Development Bank Collaboration

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

IV. Comoros: Statistical Issues

Comoros—Statistical Issues Appendix As of November 18, 2010

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Technical Assistance Missions in Statistics (1986–present)

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Forthcoming technical assistance

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

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

Comoros: Table of Common Indicators Required for Surveillance as of October 31, 2010

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

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

Foreign, domestic bank, and domestic nonbank financing.

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

Including currency and maturity composition.

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

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

Union of the Comoros: 2010 Article IV Consultation and Second Review Under the Extended Credit Facility, Request for Modification of a Performance Criterion, and Financing Assurances Review-Staff Report; Staff Statement and Supplement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Comoros.
Author: International Monetary Fund