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Union of the Comoros: 2019 Article IV Consultation-Staff Report; Press Release; IMF Country Report No. 20/198; March 2, 2020PDF File

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06/18/2020 | 10:32am EDT

IMF Country Report No. 20/198

UNION OF THE COMOROS

2019 ARTICLE IV CONSULTATION-STAFF REPORT;

June 2020

PRESS RELEASE

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.

Selected Issues

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: publications@imf.org Web: http://www.imf.org

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

© 2020 International Monetary Fund

UNION OF THE COMOROS

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.

EXECUTIVE SUMMARY

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.

Approved By

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.

CONTENTS

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

STAFF APPRAISAL______________________________________________________________________________19

FIGURES

1. Key Indicators _________________________________________________________________________________ 21

2. Cross-Country Comparisons __________________________________________________________________ 22

TABLES

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

2

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

ANNEXES

  • 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

3

BACKGROUND

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.

2.

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.

3.

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

  • Institutional fragility:

    • o Political instability. For many years, there have been tensions between the three islands, contributing to numerous coups or coup attempts. Tensions lessened in the early 2000s thanks to rotation of the presidency but re-intensified following a 2018 constitutional reform that allowed President Assoumani to be reelected in 2019.

    • o Weak governance and institutions. Weaknesses exist in rule of law, regulatory framework, fiscal governance, and anti-corruption and AML/CFT measures. These challenges undermine inclusive growth. For example, a weak judicial system struggles to enforce contracts, deterring investment.

    • o Weak policy implementation capacity, due in part to civil service hiring and promotion practices insufficiently focused on merit (another governance challenge). Results include weak outcomes in many areas of government activity, including persistently low fiscal revenue.

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.

4

INTERNATIONAL MONETARY FUND

Disclaimer

IMF - International Monetary Fund published this content on 18 June 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 June 2020 14:31:02 UTC

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