Union of Comoros: Request for a Staff-Monitored Program-Press Release; and Staff Report
International Monetary Fund. African Dept.
IMF Staff Country Reports
Comoros is a small, fragile island state (population: 850,000) with persistently low and shock-prone growth. The last Article IV Consultation (completed in early 2020) assessed Comoros' fragility as arising from two vicious circles: economic fragility manifests in low fiscal revenue, insufficient government investment in human and physical capital, and pronounced vulnerability to shocks; while institutional fragility manifests in governance challenges, low government implementation capacity,
... a weak judicial system. The circles feed into each other, undermining economic performance and stability. Overcoming fragility requires breaking both circles. Impact of COVID: Following the damage wrought by Cyclone Kenneth in 2019, the COVID pandemic dealt Comoros another setback through two waves in 2020 and early 2021. Officially reported infections and casualties have remained low (4,035 infections, 147 deaths as of mid-August 2021), but the economy is estimated to have contracted by 0.5 percent of GDP in 2020 (against pre-COVID growth projections of 4.4 percent) due to pandemic-related disruptions and much lower visitor arrivals. The Fund provided emergency financial support under the RCF/RFI in 2020, as it had done after Cyclone Kenneth in 2019. Short-term outlook: Growth prospects for 2021 remain muted, given slow progress in vaccinations. The possibility of a new wave of infections, including due to the Delta variant, is a significant risk. The World Bank (WB) intends to provide financing for vaccination needs over 2021-23. Structural BoP needs and Fund support: Although official reserves are not currently low, Comoros has a protracted BoP problem due to a need to raise investment in human and physical capital to achieve higher and more inclusive growth, and ultimately convergence with more developed countries. Fiscal and associated BoP financing needs are expected to open up starting in 2022 owing in part to difficulties in SOEs and debt service obligations from recent non-concessional borrowing. Comoros could thus benefit from a potential ECF arrangement that could start in 2022 to move to a higher growth path and help fill associated financing gaps. In case of a third wave of COVID infections, financing needs could arise even earlier and exceed currently projected levels.