Union of the Comoros: Fifth Review Under the Three-Year Arrangement Under the Extended Credit Facility and Request for Modification of a Performance Criterion—Informational Annex

The Fifth Review under the Extended Credit Facility (ECF) Arrangement for the Union of the Comoros discusses macroeconomic policies and developments of the country. The performance under the ECF-supported program through end-December has been satisfactory. All performance criteria and indicative targets for end-December 2012 have been met, with wide margins in some cases. Macroeconomic developments have been consistent with expectations under the ECF arrangement. IMF staff has proposed modifications to the structural benchmarks, and recommends completion of the fifth review under the ECF arrangement.

Abstract

The Fifth Review under the Extended Credit Facility (ECF) Arrangement for the Union of the Comoros discusses macroeconomic policies and developments of the country. The performance under the ECF-supported program through end-December has been satisfactory. All performance criteria and indicative targets for end-December 2012 have been met, with wide margins in some cases. Macroeconomic developments have been consistent with expectations under the ECF arrangement. IMF staff has proposed modifications to the structural benchmarks, and recommends completion of the fifth review under the ECF arrangement.

Relations with the Fund

(As of March 31, 2013)

Membership Status: Joined September 21, 1976 Article VIII

General Resources Account:

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SDR Department:

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Outstanding Purchases and Loans:

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Latest Financial Arrangements:

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

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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 notably recommends the routine timely publication of the full set of the Central Bank’s financial statements, and the review by the financial controller of data submitted to the Fund for each program test date, starting in December 2009. The BCC has published its audited financial statements for 2010 and 2011. The audit of the 2012 financial statements is in progress,

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

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.

Article IV Consultation: The last Article IV consultation was concluded on December 17, 2011 (Country Report No. 13/32). Directors commended the Comorian authorities for their strong implementation of reforms under the ECF arrangement and for reaching the completion point under the enhanced HIPC Initiative. Welcoming the improved fiscal performance, they encouraged the authorities to continue strengthening mobilization and to keep spending in line with public resources mobilization capacity. They underscored the need for budget discipline and reliance on grants and highly concessional loans, as Comoros will remain at high risk of debt distress owing notably to a narrow export base. Directors commended the authorities for rekindling their structural reforms agenda to invigorate growth, accelerate poverty reduction, and reduce vulnerability to external shocks.

Recent Technical Assistance

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Resident Representative: A resident representative post was (re)established in May 2012. The current resident representative is Mr. Rene Fievet. In the 2000s, the IMF’s field operations in the country were managed by the resident office in Madagascar.

Joint World Bank-IMF Work Program, 2013

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Relations with the African Development Bank Group

A. Bank Group’s Support in Comoros

1. The African Development Bank Group (AfDB) started its operations in Comoros in 1977 and has since then approved seventeen (17) operations and one (1) economic and sector work (ESW). Cumulative Bank Group commitments net of cancellation amounted to UA 60.88 million as of March 2013. These operations targeted the public sector and were mainly financed from ADF resources (84.1 percent). One (1) port infrastructure project was financed through the ADB window for a net UA 9.67 million representing 15.9 percent of total net commitments. In addition, the AfDB approved three (3) emergency operations to assist in mitigating the adverse impact of the food crisis in 2008 (UA 1.5 million) and support victims of floods in 2009 and most recently in 2012 ((UA 1.28 million). In 2009, Comoros was among the first Bank’s Regional Member Countries (RMCs) to benefit from a UA 2.5 million support from the Fragile States Facility (FSF) targeted at capacity building, namely for PRSP finalization, training of civil servants, revision of the fiscal code, fiscal reorganization, preparation of the Public Finances Management (PFM) strategy and action plan and capacity building to the Planning Commission (CGP) and to the Water and Sanitation Department. A UA 0.6 million additional grant was also allocated to the Institutional Capacity Strengthening Project (ICBP) in November 2010. Overall, AfDB operations in Comoros have been mainly directed toward supporting economic-related infrastructure, support to public finances and improvement of rural livelihoods. They have primarily concerned transport (39 percent), multi-sector (28 percent), water and sanitation (16 percent), agriculture (11 percent) and education (6 percent).

B. Strategic Orientation

2. The Bank Group concretely re-engaged in Comoros in 2010 following the resolution of the Anjouan crisis and the lifting of sanctions in February 2009 after clearance of its arrears with the Bank. A two-year Interim Country Strategy Paper (I-CSP) 2009-2010 focusing on economic and financial governance and water and sanitation was approved in April 2009. In December 2011, the Board of the AfDB approved a new Country Strategy Paper (CSP) for 2011-2015 based on a single pillar focusing on the energy sector in support of economic diversification. The new CSP draws on the Growth and Poverty Reduction Strategy Paper for 2010-2014 and spans over two ADF cycles -ADF 12 and ADF 13. Under ADF 12, the indicative country allocation will amount to UA 15.6 million, including UA 10 million from the Fragile States Facility (FSF). These resources will primarily aim to finance (i) an energy sector project (UA 13.6 million) and (ii) a budget support operation (UA 2 million) whose main objective will be to leverage the level of available domestic resources and assist the country in reaching HIPC Completion Point by end 2012. It will also provide Comoros with additional resources to support economic and social development and manage transition during the post-HIPC phase.

3. As of March 31, 2013, the Bank’s ongoing portfolio in Comoros funded under ADF 12 resources amounts to UA 18.5 million comprising three operations: (i) the Institutional Capacities Strengthening Project (ICSP) whose objective is to strengthen national capacities in PFM, debt management and macroeconomic statistics and (ii) the Drinking Water and Sanitation Project (DWSP) and (iii) the Energy Sector and Financial and Economic Governance Support Project. A comprehensive Energy Sector Support Project will be implemented during the second semester of 2013 with co-financing from the World Bank and Qatar. A Country Portfolio Performance Review (CPPR) will be conducted in mid-2013.

C. Non Lending Activities

4. Along with other developing partners, the AfDB aims to provide Comoros’s authorities with policy advice and decision tools on key strategic directions with the objective of leveraging and sustaining economic growth over the medium-long term. In this respect, the first phase of a study on the sources of growth in Comoros was completed in December 2010 and provided a series of preliminary key recommendations on ways of boosting growth and improving the economic and business climate. The new CSP 2011-2015 includes a series of economic and sector works (ESW) covering strategic themes such as inclusive growth, competitiveness, trades and employment as well as private sector and value chains analysis in key sectors such as fisheries, agribusiness, and tourism.

D. Summary of AfDB Current Lending Portfolio

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Source: AfDB, 2013

E. 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 will be explored.

Statistical Issues

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Table of Common Indicators Required for Surveillance As of April 8, 2013

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Any reserve assets that are pledged or 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).