Financial Crime World

The Economic Challenges Facing Comoros

Background

The Union of Comoros is an island nation located off the coast of East Africa, with a population of approximately 850,000 people. Despite its picturesque location, the country has been facing significant economic challenges.

Key Economic Challenges

  • Low Economic Growth: The country’s economy has struggled to grow, with annual GDP growth averaging below 3% over the past decade.
  • Poverty: Over 35% of the population lives in poverty, and the country ranks last among small developing states in terms of progress towards achieving the Sustainable Development Goals (SDGs).
  • Natural Disaster Risks: Comoros is vulnerable to natural disasters, including tropical cyclones, sea level rise, and volcanic activity.
  • Implementation Challenges: The authorities have made uneven progress in implementing 2020 Article IV recommendations, with some areas showing improvement but others remaining stagnant.

Positive Developments

  • Economic Recovery: Economic activity has picked up, with real GDP growth estimated to be 2.6% in 2022.
  • Inflation and Credit Growth Cooling: Inflation has declined from 20.6% in December 2022 to 1.0% in September 2023, while domestic credit growth has decelerated from 29.8% in January to 15.4% in September.
  • Tax Revenue Increase: Tax revenue has risen by 33% in the first half of the year, driven by increases in excises and taxes on goods and services.

Central Bank Response

The Central Bank of Comoros (BCC) has taken steps to address liquidity surpluses at larger banks through regular liquidity absorption operations with technical assistance from the IMF. The BCC has also lowered the reserve requirement ratio from 15% to 12.5%, reflecting declining inflation and credit growth.

International Reserves

International reserves have declined due to a substantial increase in imports, primarily driven by heightened demand for food and oil. Exports grew by only 4%, largely from cloves, while remittances fell by 7%. The delay in disbursement of project grants and loans also contributed to the decline in foreign reserves.

IMF Support

The IMF has approved a four-year arrangement under the Extended Credit Facility (ECF) to support economic recovery and secure medium-term macroeconomic stability and debt sustainability based on a credible fiscal consolidation plan and structural reforms.