Economic Update: Challenges and Recent Developments in Comoros

Economic Challenges

High Poverty Rates and Limited Progress towards SDGs

Comoros faces significant economic challenges, including high poverty rates (35% of the population live in poverty) and limited progress towards achieving the Sustainable Development Goals (SDGs). The country’s average annual growth rate has been low at 3% over the past decade.

Vulnerability to Natural Disaster Risks

The country is vulnerable to natural disaster risks, including climate change, tropical cyclones, sea level rise, and volcanic activity. This poses a significant threat to the country’s economic stability and development prospects.

Implementation of Article IV Recommendations

While some progress has been made in broadening the tax base and improving budget realism, implementation of other recommendations has been uneven. The Central Bank of Comoros is strengthening banking supervision, but faces challenges due to limited resources, chronic understaffing, and frequent staff rotations.

Recent Economic Developments

Rebound in Domestic Activity Drives Real GDP Growth

Real GDP growth is estimated to have picked up in 2022, driven by a rebound in domestic activity. This is a positive development for the country’s economy.

Inflation Declines Sharply

Inflation has declined from 20.6% in December 2022 to 1.0% in September 2023, indicating a significant improvement in price stability.

Deceleration in Domestic Credit Growth

Domestic credit growth has decelerated, with the private sector experiencing slower growth. This may indicate a reduction in borrowing by households and businesses.

Central Bank of Comoros Lowers Reserve Requirement Ratio

The Central Bank of Comoros lowered the reserve requirement ratio from 15% to 12.5% in October, which is expected to increase liquidity in the banking system.

Tax Revenue and SOEs

Increase in Tax Revenue Driven by Excises and Taxes on Goods and Services

Tax revenue rose by 33% in the first half of the year, driven by increases in excises and taxes on goods and services.

Stabilizing Commodity Prices Reduce Losses at Key State-Owned Enterprises

Stabilizing commodity prices have reduced losses at key state-owned enterprises (SOEs), although their financial situations remain worrisome.

External Sector

Decline in International Reserves Due to Increased Imports

International reserves declined in the first half of the year due to a substantial increase in imports, fueled by heightened demand for food and oil.

Remittances Fall by 7% from High Base

Remittances fell by 7% from a high base, possibly due to increased remittances through informal channels as inbound travels by the diaspora normalize.

Conclusion

Comoros faces significant economic challenges that require sustained efforts to address vulnerabilities in the banking sector, reduce corruption risks, and improve public sector governance and transparency.