Close
IMF Executive Board Concludes 2016 Article IV Consultation with the Union of the Comoros

IMF Executive Board Concludes 2016 Article IV Consultation with the Union of the Comoros

On December, 7, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1] with The Union of the Comoros.

The Comorian economy encountered difficulties in 2015 and the first half of 2016. Growth in 2016 is estimated at 1 percent in 2015, below the annual population growth rate of 2.5 percent. An ongoing crisis in the electricity sector and slower-than expected implementation of the public investment program have been the main factors behind the growth deceleration. Inflation remained well anchored at an annual rate of about 2 percent.

Fiscal policy was challenging for most of 2015 as the impact of slowing economic growth was compounded by a deterioration of revenues, with the tax revenue-to-GDP ratio declining to 11.1 percent and continued to decline during the first months of 2016. With the public sector wage and salary bill continuing its upward trend to 9.1 percent of GDP in 2015, domestic arrears arose on wages and salaries. However, a large budget grant from Saudi Arabia in December 2015 changed the fiscal picture, allowing arrears to be cleared and resulting in an overall fiscal surplus of 2.9 percent of GDP for the year and providing sizeable financing in the first 6 months of 2016. The balance of payments improved sharply, mainly owing to imports being held back on account of the real depreciation and the large grant. At the end of the year international reserves amounted to the equivalent of more than 9 months of imports.

A new administration took office in mid-year, recognizing that accelerated reforms and urgent action on the budget were needed to establish a basis for achieving sustainable growth. As a start to addressing the problems the government adopted a set of measures to improve revenue mobilization and reduce expenditures for the remainder of 2016, including cancellation of contract of recently hired government employees. Measures were also taken to improve the supply of electricity. The government efforts are supported by a staff monitored program with the IMF.

It is projected that growth should pick up somewhat to 2 percent in 2016 and revenues are projected to increase to 12 percent of GDP. The government aims to build on these measures in 2017 and to implement further reforms to strengthen revenue administration, improve public financial management and pursue reforms in the electricity sector.

Executive Board Assessment[2]

Executive Directors noted that the Comorian economy is experiencing weak growth due to difficult challenges including electricity shortages and other infrastructure inadequacies. Poor tax revenue performance and a rising public wage bill have also led to a structural fiscal imbalance. Against this background, Directors welcomed the authorities’ commitment to implement a six‑month staff‑monitored program, which aims to stabilize the fiscal situation. Looking ahead, Directors stressed the need to forcefully address the underlying structural problems to raise economic growth and reduce poverty.

Directors emphasized the need to address the fiscal gap to create space for growth‑enhancing infrastructure investment and priority social spending. They welcomed the important revenue administration and public financial management measures the authorities have taken to rebalance the budget and minimize and eventually eliminate domestic arrears. Nonetheless, they saw a need for further reforms to enhance revenue mobilization and contain the wage bill. In particular, the procedures for budget preparation, execution, and monitoring need to be strengthened. In addition, urgent implementation of a fully effective registry of public workers remains essential for controlling the wage bill.

Directors noted that Comoros will need additional external support. They stressed, however, that borrowing to meet priority development needs should be on concessional terms only to safeguard debt sustainability. Directors encouraged the authorities to send a positive signal of prudent debt management by meeting its external debt service obligations on time and implementing a mechanism to facilitate such repayments.

Directors noted that the financial system in Comoros remains fragile. They encouraged the authorities to step up supervision of the sector and resolve the difficulties of the state‑owned postal bank. They also stressed that efforts to promote financial inclusion will be important.

Directors noted that the recent acquisition of new diesel generators is necessary to address inadequate electricity provision in the country. They encouraged the authorities to continue to work with external partners to develop a long‑term strategy for improving the capacity of the state‑owned electricity company. Directors also welcomed the arrival of a second telecommunications operator in Comoros, which will increase competition and help lower prices and improve service quality. They recommended further reforms to the business environment to catalyze additional private sector investment.

Directors encouraged the authorities to continue to improve the production of statistics and disseminate reliable economic data in a timely manner to aid policymaking.

[1]Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2]Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

Distributed by APO on behalf of International Monetary Fund (IMF).

Media files
International Monetary Fund (IMF)
Download logo

Rate this article

Author Thumbnail
Written by African Business Magazine

African Business and its award-winning team is widely respected for its editorial excellence. We provide the all important tools enabling you to maintain a critical edge in a continent that is changing the world. Our special reports profile a wide range of sectors and industries including Energy, Oil and Gas, Aviation, Agriculture to name but a few.

Related Posts

Join our mailing list

If you would like Independent, Informative and Invaluable news analysis on the African continent, delivered straight to your inbox, join our mailing list.

Help us deliver better content