Abstract
Union of Comoros: Selected Issues
Comparative Fiscal Performance1
The fiscal performance of and outlook for Comoros continues to be adversely affected by a number of systemic challenges in the areas of revenue administration and public financial management. In particular, Comoros experiences a structural imbalance between domestic resource mobilization and current spending, especially on public wages and salaries, leaving little scope for domestically-financed capital spending that is essential for spurring economic growth and social development. This fiscal imbalance is more pronounced compared to similar sub-Saharan African countries even taking into account the sizeable one-off budget grants the Comorian economy has benefited from.
A. Background
1. One of the key challenges of economic policy in sub-Saharan Africa over the last decade or more has been to create fiscal space for meeting the needs of economic and social development. The creation of fiscal space can involve any or all of increased revenue mobilization, more efficient spending, and sustainable financing, whether internal or external. As financing will eventually need to be repaid, the ultimate sources of fiscal space have to be better revenue mobilization and more efficient spending. It should, therefore, not come as a surprise that increased revenue collection and more efficient spending have been official government objective in most, if not all, sub-Saharan African countries for a long time, including Comoros.
2. The results of the analysis of various fiscal indicators this paper discusses suggest that fiscal performance of sub-Saharan countries have been decidedly mixed. Some countries have managed to substantially increase their tax revenues while others have managed to reduce their current spending, notably on wages and salaries. A few have had some success on both scores, such as Mozambique and Guinea-Bissau. Comoros’ efforts are impeded by an electricity crisis, dilapidated economic and social infrastructures, and a poor business environment, which have discouraged private sector initiative and kept foreign direct investment at bay. Taking into account the fragility of the Comorian economy and its limited capacity to pay back its loans, non-concessional loans remain inappropriate and the short-term avenues for expanding fiscal space available to the economy are limited.
B. Methodology
3. This paper assesses the main fiscal trends of the Comorian economy over the period 2005-2015 while drawing attention to some chronic structural imbalances from which the Comorian economy continues to suffer. Through conducting a detailed analysis of the various fiscal indicators for the Comorian economy, key avenues for addressing its fiscal imbalances and creating fiscal space are highlighted. In this paper, quartiles and the interquartile ranges are used to compare and contrast the trends in the main fiscal indicators of Comoros vis-a-vis similar sub-Saharan African countries.
4. In the charts to be presented, Comoros will be represented by a solid blue line, the sample median by a broken red line. The grey area represents the second and third quartiles of the distribution of the corresponding indicators for the comparator countries, as shown below.
5. The comparator group (Table 1) used in the analysis consists of 30 PRGT 2 eligible low-income, non-oil exporting countries in sub-Saharan Africa (SSA). Out of the 33 SSA PRGT eligible countries, Cameroon, the Republic of Congo, and Zimbabwe were excluded from the sample used for analysis since these countries derive a significant portion (over 20 percent) of their government revenues from oil and, as a result, do not serve as good comparators for Comoros. The sample includes both large and small economies; some have been stable for a long time while others are still fragile. Therefore, the sample group should be representative of the sub-Saharan African experience for non-oil exporting countries over the period 2005- 2015.
Sample of sub – Saharan African PRGT – Eligible Countries
Sample of sub – Saharan African PRGT – Eligible Countries
| Benin | The Gambia | Niger | Côte d’Ivoire |
|---|---|---|---|
| Burkina Faso | Guinea | Rwanda | São Tomé and Príncipe |
| Burundi | Guinea-Bissau | Sierra Leone | Senegal |
| Chad | Liberia | South Sudan | Ghana |
| Comoros | Madagascar | Tanzania | Kenya |
| Democratic Republic of the Congo | Malawi | Togo | Lesotho |
| Eritrea | Mali | Uganda | Zambia |
| Ethiopia | Mozambique | Cabo Verde |
Sample of sub – Saharan African PRGT – Eligible Countries
| Benin | The Gambia | Niger | Côte d’Ivoire |
|---|---|---|---|
| Burkina Faso | Guinea | Rwanda | São Tomé and Príncipe |
| Burundi | Guinea-Bissau | Sierra Leone | Senegal |
| Chad | Liberia | South Sudan | Ghana |
| Comoros | Madagascar | Tanzania | Kenya |
| Democratic Republic of the Congo | Malawi | Togo | Lesotho |
| Eritrea | Mali | Uganda | Zambia |
| Ethiopia | Mozambique | Cabo Verde |
C. Government Revenues
6. Total resources, both internal and external, available to the Comorian economy over the last decade have exceeded those available to most similar sub-Saharan African countries, with a particular peak in 2013 as a result of the HIPC3 Initiative (Figure 1). Even when the debt relief grant provided under the HIPIC Initiative in 2013 is excluded, the picture remains the same (Figure 2); the resources available to the Comorian economy over the last decade have generally been above average for the sample of sub-Saharan African countries.
Government Revenues and Grants
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Revenues and Grants
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Revenues and Grants
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Revenues and Grants excluding HIPC
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Revenues and Grants excluding HIPC
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Revenues and Grants excluding HIPC
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
7. However, the picture changes considerably when external project grants and other grants financing are excluded. Domestic revenue - both tax and non-tax revenue - has been mostly below the median for the country sample used (Figure 3). The only exception is 2012, when receipts from the Economic Citizenship Program (ECP)4 peaked, bringing domestic revenue up to 19 percent of GDP.
Government Domestic Revenue
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Domestic Revenue
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Domestic Revenue
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
8. Tax revenue mobilization has been weak. The tax revenue performance of Comoros, when analyzed in isolation, generally drops into the first quartile (Figure 4). In other words, three-quarters of countries in the sample analyzed generally have performed better in raising tax revenue than Comoros. Inefficient revenue administration, both at the general tax and customs administration levels, has been an important factor. At the same time, it is important to note that success in raising tax revenue relative to GDP in most sub-Saharan African countries over the last decade has been limited. Thus, Comoros is certainly not the sole country to experience difficulties in mobilizing additional tax revenue, but its performance is nevertheless well below average.
Government Tax Revenue
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Tax Revenue
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Tax Revenue
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
9. In contrast to tax revenue, Comoros has performed better than most peers when it comes to non-tax revenue (Figure 5); not only because of the proceeds from the Economic Citizenship Program (ECP) in 2012 and the sale of the second telecommunication license in 2015, but in general.
Government Non-Tax Revenue
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Non-Tax Revenue
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Non-Tax Revenue
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
D. Grants
10. The Comorian economy has benefited from sizeable one-offs budget grants. Regarding external grants, it would appear that the international community has been quite generous to Comoros over the last decade, relative to most other similar sub-Saharan African countries (Figure 6). This is true including and excluding the HIPC debt relief received in 2012-2013 (Figure 7).
Grants, excluding HIPC
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Grants, excluding HIPC
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Grants, excluding HIPC
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
11. Most of the grants that Comoros has received and continues to receive are project grants; that is grants that donors spend on the projects they are supporting in the country. The level of project grants—three to four times higher than the median for the sample — is quite striking (Figure 8). As of end-2015, the level of project grants in Comoros represented 6.1 percent of GDP while the respective average of SSA countries was about 2.3 percent of GDP.
Project Grants
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Project Grants
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Project Grants
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
12. Budget grants have generally been significantly lower than project grants and also much more volatile. The two peaks, shown in Figure 9, represent one-off budget grants from Qatar in 2010 and from Saudi Arabia in 2015. While these large grants were crucial in allowing Comoros to pay government salaries and finance other expenses, this chart underscores the danger of relying on budget grants for financing recurrent spending.
E. Government Expenditures
13. Total expenditure by the Comorian government over the last decade fall very much in the middle of the sample (Figure 10). In fact, total spending has been close the sample median for the last decade of about 23 percent of GDP.
Government Total Expenditure
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Total Expenditure
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Total Expenditure
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
14. Current spending in Comoros was above average for the sample during most of the last decade, but has converged to the median more recently (Figure 11). However, this appears to be mostly because current spending in the sample countries has generally been on the rise, whereas in Comoros it has remained broadly flat relative to GDP with the exception of a dip in 2013.
Government Current Expenditure
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Current Expenditure
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Current Expenditure
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
15. Spending on wages and salaries has been very high. For Comoros, the size of the wage bill relative to GDP has been well above average for the last ten years and remains so even though there appears to have been an upward trend in the wage bill in the sample countries in recent years (Figure 12).
Government Expenditure on Wages and Salaries
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Expenditure on Wages and Salaries
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Expenditure on Wages and Salaries
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
16. Regarding spending on goods and services, Comoros appears to be very much in line with the sub-Saharan African country average (Figure 13). Over the last decade, Comoros’ average spending on goods and services was about 3.9 percent of GDP.
Government Expenditure on Goods and Services
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Expenditure on Goods and Services
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Expenditure on Goods and Services
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
17. Total capital spending in Comoros has been broadly in line with the sub-Saharan African average (about 6.6 percent of GDP) although it has exhibited much more volatility than current spending (Figure 14).
Government Capital Expenditure
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Capital Expenditure
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Capital Expenditure
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
18. It is noticeable that, for Comoros, externally financed capital spending is above average for the sample (Figure 15). In fact, externally financed capital spending in Comoros stood at 6.3 % of GDP in 2015 while the sample median was about 4.4% of GDP end of the same year. Given that capital spending has been broadly in line with the sample average, this implies that domestically-financed capital spending has generally been much more constrained than in most of the sample countries (Figure 16); the only exception in the period when proceeds from the ECP were at their peak.
Capital Expenditure - Domestically Financed
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Capital Expenditure - Domestically Financed
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Capital Expenditure - Domestically Financed
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Capital Expenditure - Foreign Financed
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Capital Expenditure - Foreign Financed
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Capital Expenditure - Foreign Financed
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
F. Structural Fiscal Imbalance
19. A high wage bill remains a chronic challenge to the Comorian government. The wage bill in Comoros has consistently consumed more than 60 percent of domestically-generated revenue over the last decade, a much higher share than on average in other sub-Saharan African countries (Figure 17). As a result, there is very little room for spending on non-wage items such as social services and education or infrastructure projects.
Government Expenditure on Wages and Salaries
(Percent of Domestic Revenue)
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Expenditure on Wages and Salaries
(Percent of Domestic Revenue)
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Expenditure on Wages and Salaries
(Percent of Domestic Revenue)
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
20. This imbalance is even more pronounced when looked at in terms of the ratio of the wage bill to tax revenue. This ratio has typically been close to 80 percent. In this regard, Comoros is a clear outlier in the sample (Figure 18).
Government Expenditure on Wages and Salaries
(Percent of Tax Revenue)
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Expenditure on Wages and Salaries
(Percent of Tax Revenue)
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
Government Expenditure on Wages and Salaries
(Percent of Tax Revenue)
Citation: IMF Staff Country Reports 2016, 394; 10.5089/9781475562774.002.A001
G. Conclusions
21. Comoros is an outlier compared to other Sub-Saharan countries in terms of tax revenues and the weight of its wage bill. While similar in several fiscal aspects, such as government total expenditure and spending on goods and services, the level of tax revenues (in terms of GDP) is lower in Comoros than in most other countries. Moreover, the wage bill absorbs a disproportionally large share of these revenues. This creates a structural imbalance that has been growing and needs to be addressed in order to create fiscal space, necessary to finance increased capital spending, dedicate sufficient resources for social spending and build resilience against external shocks, including natural disasters.
22. Volatile, and at times very large external inflows have masked the structural fiscal imbalance. Large external inflows in the form of budgetary grants, but also the sale of passports, which have proven very volatile, have allowed the authorities to maintain overall spending, while at the same time masking the growing imbalance. These volatile external resources should be used to finance extraordinary expenses (e.g., to create buffers, execute one-off important structural projects, or address structural problems in the state enterprises) rather than for ordinary current spending. Additional sustainable domestic resources need to be mobilized and the wage bill reduced to be able to finance current expenses on a sustainable basis.
H. Data Sources
Country Authorities; WEO and IMF staff calculations.
Prepared by Mounir Bari (AFR).
IMF country members with low per-capita income levels and without durable and substantial access to international markets.
Comoros received extensive irrevocable debt relief in 2013, which resulted in a decline in nominal external debt from 40.3 percent of GDP at end-2012 to 18.5 percent at end-2013. In 2014, France unilaterally cancelled a debt of about$6.6 million Comoros owed to the French Post Office.
The ECP involved the selling of passports to foreign nationals in some Middle Eastern countries, mainly the United Arab Emirates. Revenues from the program declined steeply in 2013 following the imposition of tighter controls in response to earlier irregularities
References
IMF (2015), ‘Financial Inclusion: Can It Meet Multiple Macroeconomic Goals’, Staff Discussion Note SDN/15/17.
United Nations Sustainable Development Goals, September 2015.
Prepared by Cameron McLoughlin (AFR)
The Herfindahl index of asset concentration is calculated by summing the squares of the market share of each financial institution, and then normalizing it to lie between zero and one. A higher index value denotes that the market is moreconcentrated.
Low-income SSA countries are defined as PRGT-eligible countries in Sub-Saharan Africa, excluding oil exporters and Zimbabwe, which is an outlier with respect to financial development. Frontier SSA economies are Angola, Côte d’Ivoire, Ghana, Kenya, Mauritius, Nigeria, Rwanda, Senegal, South Africa, Tanzania, Uganda and Zambia.
The peg of the CFA franc exchange rate to the euro and the resulting lower inflation may also have contributed to lower interest rate spreads in Comoros. It is not possible to compare interest rate spreads in Comoros with those in other CFA franc zone countries due to data unavailability.
The database of the central risk bureau (Centrale des Risques et Incidences des Paiements) maintained by the central bank of Comoros is in the process of development and will in the future contain full historical data on the sectoral breakdown of lending and non-performing loans. At the current time, industry-level loan data are only available for the flow of new lending made in 2015, hence it is not a representative sample of the total stock of loans and NPLs held by financial institutions in Comoros.
Caution should be used in interpreting FSIs across institutions, as there are no common bank accounting standards in Comoros.
This acceleration related to the reclassification of a bad loan on the books of SNPSF that was made in the real estate sector.
NPLs include old discount loans of about KMF 1.3 billion to the vanilla sector that have been non-performing since the early 2000s. The central bank of Comoros is coordinating efforts to have these loans written off. An agreement signed in 2014 between interested parties stipulated that affected borrowers would repay a third of the outstanding loan amount over a three-year period, while a further third would be written-off by the banks.
Deposits of public enterprises constitute about 20 percent of total deposits at SNPSF
The Global Findex survey, conducted by the World Bank in conjunction with the Gallup World Poll and funded by the Bill & Melinda Gates foundation, provides in-depth data on how individuals save, borrow, make payments and manage risks. The survey was first conducted in 2011 and updated in 2014. Comoros was not included in the survey update.
The ‘bankable’ population is the share of the adult population with access to a formal financial account. The better-off’ and the ‘poor’ are respectively the top income quintile and the bottom income quintile of the adult population.