IMF Country Report No. 20/198
UNION OF THE COMOROS
2019 ARTICLE IV CONSULTATION-STAFF REPORT;
Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2019 Article IV consultation with Union of the Comoros, the following documents have been released and are included in this package:
• The Staff Report prepared by a staff team of the IMF for the Executive Board's consideration on lapse of time basis on March 18, following discussions that ended on December 20, 2019, with the officials of Union of the Comoros on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on March 2, 2020.
• An Informational Annex prepared by the IMF staff.
• A Supplementary Information.
• The Press Release.
The document listed below will be separately released.
The IMF's transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities' policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
PO Box 92780 • Washington, D.C. 20090
Telephone: (202) 623-7430 • Fax: (202) 623-7201 E-mail: firstname.lastname@example.org Web: http://www.imf.org
Price: $18.00 per printed copy
International Monetary Fund
© 2020 International Monetary Fund
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION
March 2, 2020
Disclaimer. This report was prepared by a staff team of the IMF for the Executive Board's consideration on March 18, 2020. It reflects discussions with the Union of the Comoros' authorities during December 11-20, 2019 and is based on information available as of March 2, 2020. It focuses on Comoros' near and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in Comoros and globally.
Context. Economic developments over the past two years have been challenging due mainly to adverse impacts of political uncertainty (constitutional referendum in mid-2018 and elections in early 2019) and Cyclone Kenneth (April 2019), notwithstanding the provision of Fund emergency financial support following the cyclone.
Outlook and risks. Under baseline projections, growth is expected to rebound in 2020 but remain moderate over the medium term. The outlook comprises several downside risks. Near-term risks include risk of a growth decline (from inter-island tensions, weaker global growth, or natural disasters); fiscal stress (from volatility in revenue and credit constraints); and financial sector stress. Medium to longer terms risks include risk of external debt distress (assessed as "moderate" for now but buffers are shrinking).
Focus on fragility. Building on recent analytical work at the Fund, the report casts Comoros as suffering from pronounced fragility arising from two interlocking vicious circles. Institutional fragility manifests in tensions between the islands and weak governance resulting in a weak civil service and a weak judicial system, among other things. Economic fragility manifests in severe constraints on domestic resources and pronounced vulnerability to shocks.
Policy discussions. The authorities broadly agreed with staff advice on the key elements of a medium-term strategy to overcome fragility, boost inclusive growth, and contain risks.
David Owen and Yan Sun
Discussions took place in Moroni during December 11-20, 2019. The IMF staff team included Mr. H. Weisfeld (head), Mr. M. Benlamine, Mr. O. Melhado, Ms. R. Randall (all AFR), Mr. I. Ahamada (local economist), Mr. T. Bayle (MCM), and Mr. Y. De Santis (FAD). Mr. J. Diaz-Sanchez (World Bank) accompanied the team, and Mr. M. Sidi Bouna (OED) participated in the final days of the mission. The team met with President Assoumani and held discussions with Minister of Finance and Budget Chayhane, Central Bank Governor Imani, Secretary General of the Ministry of Finance and Budget Ahamada, Permanent Secretary of the Economic and Financial Reform Unit Oubeidi and other senior government officials, as well as representatives of the private sector and development partners. Ms. F. Aliu and Ms. A. Waribe assisted in the preparation of this report.
BACKGROUND __________________________________________________________________________________ 4
RECENT ECONOMIC DEVELOPMENTS __________________________________________________________ 5
OUTLOOK AND RISKS___________________________________________________________________________ 6
POLICY DISCUSSIONS ___________________________________________________________________________ 8
A. Addressing Institutional Fragility_______________________________________________________________ 9
B. Addressing Economic Fragility ________________________________________________________________ 11
C. Other Issues___________________________________________________________________________________ 18
1. Key Indicators _________________________________________________________________________________ 21
2. Cross-Country Comparisons __________________________________________________________________ 22
1. Selected Economic and Financial Indicators, 2016-25 (Baseline Scenario) ___________________ 23
2a. Consolidated Government Financial Operations, 2016-25 (in millions of Comorian francs) __ 24
2b. Consolidated Government Financial Operations, 2016-25 (in percent of GDP) ______________ 25
3. Monetary Survey, 2016-25 (in millions of Comorian francs) _________________________________ 26
4a. Balance of Payments, 2016-25 (in millions of Comorian francs)______________________________ 27
4b. Balance of Payments, 2016-25 (in percent of GDP) __________________________________________ 28
INTERNATIONAL MONETARY FUND
5. Selected Economic and Financial Indicators, 2016-25________________________________________ 29
6a. Consolidated Government Financial Operations, 2016-25 ___________________________________ 30
6b. Consolidated Government Financial Operations, 2016-25 ___________________________________ 31
7. Monetary Survey, 2016-25___________________________________________________________________ 32
8a. Balance of Payments, 2016-25 (in milliions of Comorian francs) _____________________________ 33
8b. Balance of Payments 2016-25 (in percent of GDP)___________________________________________ 34
I. Social Spending and Social Outcomes in Comoros__________________________________________ 35
II. Revision of the National Accounts __________________________________________________________ 39
III. Risk Assessment Matrix _____________________________________________________________________ 41
IV. Debt Sustainability Assessment _____________________________________________________________ 43
V. External Stability Assessment _______________________________________________________________ 64
VI. Status of Key Recommendations of the 2018 Article IV Consultation _______________________ 69
VII. Status of Commitments in the Authorities' July 2019 Letter of Intent _______________________ 72
VIII. Capacity Development Strategy_____________________________________________________________ 74
INTERNATIONAL MONETARY FUND
1. The authorities have had several policy successes in recent years. They have strengthened electricity provision; opened the telecommunications sector; reduced customs exemptions; created a Treasury Single Account (TSA); and started computerizing management of wage and customs data.
Comoros also benefits from two important structural advantages:
• Large remittances inflows (15 percent of GDP) support external stability and boost living standards. Using a poverty line of U.S.$3.2 per day (appropriate for Comoros as a lower middle-income country, LMIC), 38 percent of the population are poor (compared to an average 67 percent in SSA and 44 percent in LMICs).
• Violence and crime are low.
Building on these successes and advantages, the authorities hope to transform
Comoros into a dynamic emerging market over the next decade by strengthening human capital, infrastructure, governance, and reducing the scope for corruption. The authorities have been seeking aid and foreign direct investment in support of their strategy.
4. Pronounced fragility arising from the presence of two interlocking vicious circles puts realization of these hopes at risk, however.1
1 The concept of fragility as the presence of two interlocking vicious circles was developed by Chami, Coppo, Espinoza and Montiel (forthcoming), "Macroeconomic Policy Issues in Fragile States: A Framework", in Chami, Espinoza and Montiel (eds), Macroeconomic Policy in Fragile States. Oxford: Oxford University Press.
INTERNATIONAL MONETARY FUND