Press Release No. 08/192

Press Release: Statement by the IMF Staff Mission on the 2008 Article IV Consultation and Discussions on an EPCA-Supported Program for the Comoros

August 8, 2008

An International Monetary Fund (IMF) mission team, headed by Mr. Mbuyamu Matungulu, visited Moroni during July 25-August 8, 2008. The mission conducted discussions on the 2008 Article IV consultation and on a program that could be supported by the IMF under the Emergency Post-Conflict Assistance (EPCA).¹ The mission held meetings with the President of the Union, His Excellency Ahmed A. M. Sambi, the Presidents of Ngazidja, Anjouan and Moheli islands, the Union Finance and Budget Minister, Mr. Mohamed Ali Soilihi, the Governor and Deputy Governor of the Central Bank of the Comoros (BCC), Messrs. Abdoulbastoi and Chanfiou, and other senior officials of the government.

The mission also held discussions with members of the donor community, the private sector and civil society.

Mr. Mbuyamu Matungulu, IMF Mission Chief to the Union of the Comoros, made the following statement on August 8, 2008, in Moroni:

"In a precarious political environment, and in the face of deteriorating terms-of-trade, economic activity in 2007 was subdued. End-year inflation increased to 4.5 percent, mostly reflecting higher international fuel and food prices. Fiscal performance was weak, with revenues much below target and large overruns on the wage bill.

"The mission reached understandings, ad referendum, with the authorities on a set of macroeconomic and structural policies that could be supported under the EPCA over the six-month period to end-March 2009, and which might serve as a possible bridge to debt relief eligibility under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). Real GDP is projected to grow by only ½ percent in 2008, constrained by widespread fuel shortages and increasing fuel prices, which will also drive inflation higher. The authorities' efforts to improve tax and customs collections will underpin a broadening of the revenue base. The mission underscored the need to urgently rein in the large wage bill, including through a freeze on civil service recruitment and the consolidation of government ministries at the Union and island levels.

Facing a tight budgetary situation, the authorities have introduced limited measures to address rising food and fuel prices, at a fiscal cost of about 0.1 percent of GDP. They are pursuing contacts with donors to secure needed additional financial assistance, which is a pre-requisite for possible IMF Executive Board consideration of the proposed EPCA-supported program.

"Medium-term macroeconomic prospects remain challenging, especially if structural reforms are not implemented. Average, annual real GDP growth is projected at 3.2 percent during 2009-13. However, the outlook is subject to further risks of shocks to the global economy, sustained pressure on the price of key imported goods, and the risk of failure to properly address Comoros' energy needs. The mission urged the authorities to pass-through petroleum prices by introducing a flexible petroleum pricing mechanism, in line with world prices, and called for action to guarantee steady provision of petroleum products to the country.

"The mission is grateful for the very open and frank discussions with the authorities of Comoros, and for their hospitality."

¹ The IMF provides emergency assistance to help member countries in the wake of natural disasters or armed conflicts in the form of loans with grace period of 3¼ years and maturity of 5 years. For a PRGF-eligible country like the Union of the Comoros, the interest rate is subsidized down to 0.5 percent per annum based on resources contributed by member countries.