IMF Finishes Second Review of Comoros Credit Facility Deal

• The IMF Executive Board completed today the second review under the Extended Credit Facility Arrangement with the Union of the Comoros. Approval of the second review enables the immediate disbursement of SDR 3.56 million (about US$ 4.68 million).
• Performance under Comoros's economic reform program continues to be broadly satisfactory, and the authorities remain committed to the economic policies and reforms underpinning the ECF-supported program.
• Reforms are beginning to bear fruit, with visible signs of macroeconomic stabilization. However, Comoros continues to face the challenges of a small, fragile island state which requires steadfast program implementation and continued support from international partners.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed today the second review under the Union of the Comoros' Extended Credit Facility (ECF) arrangement. The Executive Board's decision allows for an immediate disbursement of SDR 3.56 million (about US$ 4.68 million). The 4-year ECF arrangement was approved on June 1, 2023, with an access of SDR 32.04 million (about US$43 million).

In completing the review, the Executive Board also approved the authorities' request for a waiver of nonobservance of the continuous performance criterion on the non-accumulation of new external arrears, based on strong corrective actions taken by the authorities.

The Union of the Comoros's economic reform program supported by the ECF arrangement seeks to reduce fragility and increase economic resilience by building fiscal buffers, reducing debt vulnerabilities, and strengthening the financial sector and governance. Key policy priorities under the program include: (i) mobilizing domestic revenue through reforms to strengthen tax and customs administration and streamline tax exemptions; (ii) strengthening the financial sector including through the completion of the restructuring of the state-owned postal bank SNPSF and enhancing the Central Bank's banking supervision and resolution capacities; and (iii) strengthening governance through public financial management and anti-corruption reforms.

The authorities continue to demonstrate strong commitment to the ECF-supported program despite economic and institutional fragilities: four of five quantitative performance criteria (QPCs) were met as of end-December 2023; six of the eleven structural benchmarks (SBs) between December 2023 and May 2024 were met, while two were implemented with delays and two end-June 2024 SBs were met ahead of time.

Economic conditions have improved since the approval of the ECF-supported program. Real GDP growth is expected to remain on an upward trajectory throughout the program period, while inflation is projected to decline further in 2024 and beyond. The domestic primary balance is expected to improve, driven in part by steady improvement in domestic revenue mobilization. The external sector is stable, and gross international reserves are expected to remain above 7 months of import cover over the program period.

Following the Executive Board's discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair, issued the following statement:

"The Comorian authorities have demonstrated a continued commitment to the Extended Credit Facility-supported reform program. Economic conditions have improved since the beginning of the program, but Comoros continues to face the challenges of a small, fragile island state: significant development challenges, balance of payments needs, a high risk of debt distress, vulnerabilities in the banking system, governance and corruption vulnerabilities, and exposure to climate change risks.

"Maintaining fiscal consolidation is appropriate to reduce debt sustainability risks and will be underpinned by reforms in revenue administration and tax policy as well as normalization of public investment spending. Fiscal structural reforms are also critical for improving budget transparency, cash and debt management, and the performance and efficiency of SOEs and their oversight.

"Monetary policy has contained inflation and ensured sufficient external buffers for Comoros and the stability of the peg. Continued efforts to stabilize the financial sector, including through the restructuring of the state-owned postal bank, addressing credit quality in the banking system, and strengthening banking supervision and resolution capacities are welcome.

"The authorities have made progress in anti-corruption reforms under the ECF-supported program. The recent formation of the Anti-Corruption Chamber is a key step in the implementation of the new anti-corruption law. Other reforms, including aligning the AML/CFT framework to international standards and the publication of public procurement contracts, are noteworthy. Continued governance reforms will be critical to improve the credibility of the state and increase the confidence of international donors and investors.

"The authorities are encouraged to step up implementation efforts to ensure that all program objectives are met. The Fund continues to provide close engagement and the necessary support for capacity development, effective economic surveillance, and successful program implementation. Support from international partners continues to be important for addressing the country's large development needs and climate-related risks."

Comoros: Selected Economic Indicators (2023-26)