An International Monetary Fund (IMF) staff mission led by Mr. Mbuyamu Matungulu visited the Union of the Comoros from March 19-April 2, 2011 to conduct discussions for the third review of performance under the country’s economic program supported by the Extended Credit Facility (ECF)¹. The mission met HE Ahmed Abdallah Mohamed Sambi, President of the Union of Comoros, and Mr. Dhoinine Ikililou, the President-elect. It held discussions with Finance Minister Mohamed Bacar Dossar and other members of the Cabinet of the Union; the Deputy Governor of the Central Bank of the Comoros; members of parliament as well as representatives of the private sector, civil society, and the donor community. At the conclusion of the mission, Mr. Matungulu, IMF Mission Chief for Comoros, issued the following statement in Moroni:

“Economic performance was generally good through end-December 2010. Economic growth is estimated to have increased slightly to 2.1 percent, from 1.8 percent in 2009, reflecting sharply increased budget support and somewhat higher exports. Inflation rose slightly, mostly due to increased import prices for petroleum products and food, but remained in below 7 percent. The external current account deficit remained stable at 8.6 percent of gross domestic product (GDP) in 2010 compared to 2009 as higher imports were offset by improvements in grants and exports. Gross international reserves fell slightly to the equivalent of 6.3 months of imports.

“Nevertheless, the long election and transition period appears to have weakened the focus on reforms. Besides an erosion of recent improvements in managing the wage bill, this has caused an accumulation of payments arrears, as well as delays in the reform of public enterprises. While the authorities met their revenue target and made some gains in budget consolidation in 2010, Treasury management has weakened as salary payments were suspended in November and several months of wage arrears have been accumulated.

“Without an urgent change in wage policy, the wage bill could reach 11 percent of GDP in 2011, absorbing 76 percent of government revenue, exceeding Comoros’ budgetary capacity. To ensure that Comoros economic program remains on track, it will be critical to address this issue and bring the wage bill in line with the country’s medium-term payment capacity. To that end, the mission discussed corrective actions to address the slippages. These include urgent measures to address the excessive wage bill, clear accumulated domestic payments arrears, and rekindle the civil service and public enterprise reform programs. The discussions will resume shortly, and the mission looks forward to early agreement to allow prompt consideration of the third ECF review by the IMF Executive Board, which is critical to maintaining Comoros on track toward obtaining comprehensive debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative.

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

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¹ The Extended Credit Facility (ECF) has replaced the Poverty Reduction and Growth Facility (PRGF) as the Fund’s main tool for medium-term financial support to low-income countries by providing a higher level of access to financing, more concessional terms, enhanced flexibility in program design, and more focused, streamlined conditionality. Financing under the ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities every two years.