Union of the Comoros
Third Review Under the Three-Year Arrangement Under the Extended Credit Facility, Requests for Waiver of Nonobservance of a Performance Criterion, Modification of a Performance Criterion, Extension of the Arrangement, Rephasing of Disbursements, and Financing Assurances Review

Comoros remains in debt distress, pending the achievement of the completion point under the Highly Indebted Poor Country (HIPC) Initiative. The outlook for 2012 is broadly consistent with expectations under the Extended Credit Facility (ECF) arrangement. The IMF Executive Board has approved a three-year ECF arrangement to support Comoros’ medium-term economic recovery efforts. The government has continued pursuing a prudent external debt management policy. Achievement of the government’s fiscal objectives requires close adherence to the fiscal program to enhance the efficiency of tax and customs administration and to expand the tax base.

Abstract

Comoros remains in debt distress, pending the achievement of the completion point under the Highly Indebted Poor Country (HIPC) Initiative. The outlook for 2012 is broadly consistent with expectations under the Extended Credit Facility (ECF) arrangement. The IMF Executive Board has approved a three-year ECF arrangement to support Comoros’ medium-term economic recovery efforts. The government has continued pursuing a prudent external debt management policy. Achievement of the government’s fiscal objectives requires close adherence to the fiscal program to enhance the efficiency of tax and customs administration and to expand the tax base.

I. Recent Developments: Economic Growth Has Yet to Fully Benefit From Improving Political Conditions

1. The political context has improved and program ownership increased markedly during the last year. Presidential elections were peacefully held in December 2010, capping two years of bold political reforms that have enhanced inter-island cohesion in policymaking and budget management. The new president assumed office in May 2011, and has shown unprecedented commitment to IMF-supported policies.

2. Macroeconomic performance in 2011 was mixed (Text Figure 1, Table 1 and Figure 1). Despite strong rain-fed agricultural production and a rebound in foreign direct investment (FDI), real GDP growth is estimated at just 2.2 percent (2.0 percent in 2009–10); and with world fuel and food prices increasing, year-on-year inflation rose slightly to 7 percent by December. While international reserves remained at a comfortable equivalent of 6.4 months of imports of goods and services, the external current account deficit widened significantly as a result of the higher commodity prices and FDI-related imports. Nevertheless, the fiscal outturn was somewhat better than anticipated thanks to restrained wage spending after the reversal of a prohibitive 2010 public sector pay raise and to exceptionally strong one-off nontax receipts1.

Text Figure 1.
Text Figure 1.

Comoros: Selected Economic and Financial Indicators, 2011.

Citation: IMF Staff Country Reports 2013, 038; 10.5089/9781616354589.002.A001

Source: Comorian authorities; and IMF estimates.1 2011 revenue estimate includes "economic citizenship program" receipts of about 3 percent of GDP.
Table 1.

Comoros: Selected Economic and Financial Indicators, 2009–16

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

Revenue for 2011 includes exceptional "economic citizenship program" receipts (about 3 percent of GDP).

Data for 2010 and 2011 reflect 2010 revenues collected in early 2011.

External debt ratios before traditional debt-relief.

Based on October 2011 review mission.

Figure 1.
Figure 1.

Comoros: Macroeconomic developments and projections, 2003–2015

Citation: IMF Staff Country Reports 2013, 038; 10.5089/9781616354589.002.A001

II. Program Performance in 2010 and Early 2011

3. In September 2009, the IMF Board approved a three-year ECF arrangement to support Comoros’ medium-term economic recovery efforts. The reform agenda promotes strong sustained growth to achieve deeper gains in poverty alleviation and faster progress toward the MDGs. Key policies to strengthen economic competitiveness are geared to (i) achieving gains in fiscal consolidation while protecting spending for the social sectors, and restoring external viability; (ii) deepening financial intermediation; (iii) improving the efficiency of the public utilities; (iv) strengthening institutions and improving governance; and (v) improving the investment climate.

4. Program performance weakened substantially in the run-up to and aftermath of the December 2010 presidential elections (MEFP, Tables 1 and 2). From late 2010, a sizeable public sector pay raise and lower-than-programmed domestic tax collection weighed heavily on fiscal developments; and the structural reform agenda, including restructuring of the public utilities, stalled. Two performance criteria were missed. Specifically, the end-December 2010 performance criterion for net reduction of domestic payments arrears was missed by 0.5 percent of GDP as the government, facing an unsustainable wage bill, suspended all wage payments in a bid to renegotiate the pay raise granted in October 2010. Moreover, the zero-ceiling on the accumulation of external debt service arrears was exceeded by 0.02 percent of GDP due to weaknesses in external debt management.2 Nearly all programmed structural reform measures were delayed. As a result, Board discussion of the third and fourth reviews, originally planned for 2011, was delayed.

Table 2A.

Comoros: Consolidated Government Financial Operations, 2009–16

(In millions of Comorian francs, cumulative, unless otherwise indicated)

article image
Sources: Comoros Ministry of Finance; and IMF staff estimates.

Revenue for 2011 includes exceptional "economic citizenship program" receipts (about 3 percent of GDP).

Starting with the third ECF review, program projections incorporate all identified budget support and anticipated net UFR, with zero net fiscal financing gaps.

Quantitative performance criteria and benchmarks on net accumulation of domestic arrears exclude float (nil in projections).

2010 revenues received in early 2011.

For 2009 includes further deferral of arrears to the HIPC decision point, following which these arrears are assumed to be cleared through restructuring or further deferral.

Net of HIPC interim assistance from mid-2010 to 2012.

Table 2B.

Comoros: Consolidated Government Financial Operations, 2009–16

(In percentage of GDP, unless otherwise indicated)

article image
Sources: Comoros Ministry of Finance; and IMF staff estimates.

Revenue for 2011 includes exceptional "economic citizenship program" receipts (about 3 percent of GDP).

Starting with the third ECF review, program projections incorporate all identified budget support and anticipated net UFR, with zero net fiscal financing gaps.

Quantitative performance criteria and benchmarks on net accumulation of domestic arrears exclude float (nil in projections).

2010 revenues received in early 2011.

For 2009 includes further deferral of arrears to the HIPC decision point, following which these arrears are assumed to be cleared through restructuring or further deferral.

Net of HIPC interim assistance from mid-2010 to 2012.

Based on October 2011 review mission.

Table 2C.

Comoros: Consolidated Government Financial Operations, 2010–12

(In millions of Comorian francs, cumulative, unless otherwise indicated)

article image
Sources: Comoros Ministry of Finance; and IMF staff estimates.

Revenue for 2011 includes exceptional "economic citizenship program" receipts (about 3 percent of GDP).

Starting with the third ECF review, program projections incorporate all identified budget support and anticipated net UFR, with zero net fiscal financing gaps.

Quantitative performance criteria and benchmarks on net accumulation of domestic arrears exclude float (nil in projections).

2010 revenues received in early 2011.

Net of HIPC interim assistance from mid-2010 to 2012.