AFRICAN DEVELOPMENT BANK GROUP

ENERGY SECTOR REFORM AND FINANCIAL GOVERNANCE

SUPPORT PROGRAMME

(PARSEGF)

UNION OF THE COMOROS

APPRAISAL REPORT

NOVEMBER 2012

OSGE DEPARTMENT

Translated Document

Appraisal Team Sector Director: Mr. Isaac Lobe Ndoumbe, Director, OSGE

Regional Director: Mr. S. KONE, Officer-In-Charge, OREB

Sector Manager: Mr. Jacob Mukete, Manager, OSGE.2

Team Leader: Mr. M. MALLBERG, Chief Macro-Economist, EAR/OSGE.2

TABLE OF CONTENTS

I. PROPOSAL ............................................................................................................................ 1

II. Country and Programme Context ........................................................................................ 2

2.1 Recent Political, Economic and Social developments, Constraints, Challenges and

Prospects .............................................................................................................................. 2

2.2 General Development Strategy and Medium-Term Reform Priorities ............................... 5

2.3. Bank Group Portfolio Situation in the Comoros ................................................................. 6

III. RATIONALE, KEY ELEMENTS OF PROGRAMME DESIGN AND SUSTAINABILITY ..................... 6

3.1 Links to the CSP, Assessment of Country Preparedness and Underlying Analytical

Elements .............................................................................................................................. 6

3.2 Collaboration and Coordination with Other Development Partners ................................... 8

3.4 Links with the Bank’s On-going Operations ....................................................................... 9

3.5 Bank Comparative Advantage and Value-added .............................................................. 10

3.6 Application of Good Practice Principles concerning Conditionality ................................ 10

3.7 Application of ADB Policy on Non-Concessional Lending ............................................. 10

IV. PROPOSED PROGRAMME AND EXPECTED RESULTS ............................................................. 10

4.1 Programme Goal and Objectives ....................................................................................... 10

4.2 Pillars, Specific Objectives and Expected Results ............................................................ 11

4.3 Financing Requirements and Financing Arrangements .................................................... 15

4.4 Programme Beneficiaries .................................................................................................. 16

4.5 Poverty and Social Impact, including Gender ................................................................... 16

4.6 Climate Change and the Environment ............................................................................... 16

V. IMPLEMENTATION, MONITORING AND EVALUATION .......................................................... 17

5.1 Implementation Arrangements .......................................................................................... 17

5.2 Monitoring and Evaluation Arrangements ........................................................................ 18

VI. LEGAL DOCUMENTS AND LEGAL AUTHORITY .................................................................... 18

6.1 Legal Document ................................................................................................................ 18

6.2 Conditions Precedent to Bank Group Intervention ........................................................... 18

6.3 Compliance with Bank Group Policies ............................................................................. 19

VII. RISK MANAGEMENT ........................................................................................................... 20

VIII. RECOMMENDATIONS .......................................................................................................... 20

Tables

Table 1: Results-based Logical Framework Matrix ix

Table 2: Key Macroeconomic Indicators 3

Table 3: Conditions for Programmatic Support Operations (PSO) 7

Table 4: Lessons Learnt from Previous Operations and Reflected in

PARSEGF Design 9

Table 5: Financial Requirements 15

Annexes Annex 1: PARSEGF Letter of Development Policy 6

Annex 2: PARSEGF Measures Matrix 3

Annex 3: IMF-Country Relations 4

Annex 4: Recent Trends of the Key Social, Macroeconomic and Financial Indicators 1

Technical Annexes (TAs)

Technical Annex 1: Comparative Socio-economic Indicators

Technical Annex 2: Consolidated Financial Operations of Government Services

Technical Annex 3: Detailed Fiduciary Risk Analysis

Technical Annex 4: Procurement System Analysis

Technical Annex 5: Summary of 2007 PEFA Notes

Technical Annex 6: Energy Sector Status

Technical Annex 7: Public Spending on Health and Education in 2009-2012

Technical Annex 8: Main Achievements in MDG Implementation

Technical Annex 9: PAREGF: Expected and Actual Achievements

Technical Annex 10: Overview of Governance, and Business Environment Indicators

Technical Annex 11: Summary of the Gender Profile in the Comoros

Technical Annex 12: Country Policy and Institutional Assessment (CPIA)

Technical Annex 13: Status of Attainment of the HIPC Completion Point

Technical Annex 14: List of Reference Documents

Technical Annex 15: Map of the Union of the Comoros

ii

CURRENCY EQUIVALENTS

(September 2012)

UA 1 = USD 1.52

UA 1 = EUR 1.21

UA 1 = KMF 593.75

FISCAL YEAR

1st January – 31st December

PROGRAMME SCHEDULE – KEY STAGES

Stages Schedule

Approval of Concept Note by OpsCom August 2012

Programme Aproval by the Board December 2012

Programme Effectiveness December 2012

Disbursement of 1st Tranche December 2012

Disbursement of 2nd Tranche June 2013

Programme Completion December 2013

iii

ACRONYMS AND ABBREVIATIONS

ADB African Development Bank

ADF African Development Fund

AGID General Authority for Taxation and Lands

APLACO External Aid Planning and Coordination Support

ARMP Public Procurement Regulatory Authority

BCC Central Bank of the Comoros

CEMAC Central African Economic and Monetary Community

CM Council of Ministers

CMP Public Procurement Code

COMESA Common Market for Eastern and Southern Africa

CPIA Country Policy and Institutional Assessment

CREF Permanent Technical Unit for Monitoring of Economic and Financial

Reforms

CSP Country Strategy Paper

DGI General Directorate of Taxation

DNCMP General Directorate for Public Procurement Control

DSA Debt Sustainability Analysis

ECF Extended Credit Facility

EDA Electricité d’Anjouan

FDI Foreign direct investment

FSF Fragile States Facility

GDP Gross Domestic Product

GPRS Growth and Poverty Reduction Strategy

GUC Government of the Union of the Comoros

HDI Human Development Index

HIPCI Heavily Indebted Poor Countries Initiative

ICBP Institutional Capacity Building Project

IHS Integrated Household Survey

IMF International Monetary Fund

KMF Comorian Franc

KWH Kilowatts/hour

LOFE Law on State Financial Operations

MA-MWE Water and Electricity Company of the Comoros

MDG Millennium Development Goals

MDRI Multilateral Debt Relief Initiative

NEP National Energy Policy

NPV

PARAF

Net present value

Financial Administrations Strengthening Support Programme

PAREGF Economic Reform and Financial Governance Support Programme

PARSEGF Energy Sector Reform and Financial Governance Support Programme

PEFA Public Expenditure and Financial Accountability

PFM Public finance management

PFM-RS Public Finance Management Reform Strategy

PSO Programmatic Support Operations

SCH Hydrocarbons Corporation of the Comoros

iv

SGEG Support to Good Economic Governance

TA Technical Annex

TAP Triennial Action Plan

TFP Technical and Financial Partners

UA Unit of Account

UNDP United Nations Development Programme

USD US Dollar

WAEMU West African Economic and Monetary Union

v

GRANT INFORMATION SHEET

BENEFICIARY INFORMATION

Donee Union of the Comoros

Executing Agency Permanent Technical Unit for Monitoring of

Economic and Financial Reforms (CREF)

Programme Title

Energy Sector Reform and Financial

Governance Support Programme

(PARSEGF)

GRANT CONDITIONS

Modalities ADF Grant with resources from the Fragile

States Facility (FSF)

Amount UA 2 million

Number of Tranches

2 tranches of UA 1 million each to be

disbursed in 2012 and 2013 respectively,

following fulfilment by the donee of the

preliminary conditions specific to each

tranche.

PARALLEL FINANCING OF THE PROGRAMME

World Bank (2012) USD 5 million

vi

PROGRAMME EXECUTIVE SUMMARY

Programme Overview Programme Title: Energy Sector Reform and Financial Governance Support Programme

(PARSEGF)

Geographical scope: National

Duration of Implementation: 2012-2013

Program Cost: UA 2 million as FSF grant

Programme Type: General budget support programme

Context and Rationale The Union of the Comoros is gradually emerging from a fragile context. Nevertheless, some

progress has been made that needs to be consolidated in order to mitigate all the aspects of this

fragility: economic, institutional and financial. Accordingly, this programme is aimed at supporting

the efforts of the Comorian Government to create the conditions for inclusive and sustainable growth

through the development of the energy sector, whose inefficiency remains the key stumbling block

for the country’s economy. PARSEGF seeks to provide reform support aimed at improving energy

sector performance and development, especially in the electricity sub-sector. This energy sector

support will be accompanied by measures to improve public finance management and thus build the

Government’s capacity to manage this sector. Moreover, PARSEGF is aligned on the Bank’s 2011-

2015 country strategy and intends to build on the achievements of the Economic Reform and

Financial Governance Support Programme (PAREGF), completed in 2010. The budget support

entailed by the proposed operation is in synergy with the World Bank support and will enable the

Government to finance the priority actions set forth in its development strategy, in order to build a

more effective energy sector, thereby creating the right conditions for sustainable diversification of

the economy. The programme also falls in line with the Heavily Indebted Poor Countries Initiative

(HIPCI). Indeed, the reforms supported by PARSEGF complement and dovetail with the HIPCI

measures. All these measures will help to consolidate the role of the State and and increase the

buoyancy of the economy – two factors crucial to the country’s gradual emergence from its

precarious context.

Programme Outputs The main expected output of the programme is the improved performance and development of the

energy sector. This will be attained by: (a) conducting and adopting an organizational and strategic

audit of the EDA; (b) finalising and adopting an organizational and strategic audit of MA-MWE; (c)

restoring the smooth functioning of the organs of State-owned electricity companies, mainly by

clarifying and specifying the roles of the various organs, establishing and operationalising the

Boards of Directors of MA-MWE, streamlining and simplifying the procedures for appointing the

managers of this company and ensuring the exercise of supervisory authority; (d) adopting and

implementing a general plan to reorganize the commercial activities of MA-MWE; (e) optimally

preparing and adopting, both in terms of form and content, an action plan for implementation of the

relevant recommendations ensuing from the organisational and strategic audits of MA-MWE and

EDA; and (f) adopting a long-term national energy policy. Furthermore, the programme will

contribute to better public finance management that will allow for improved State management of

the energy sector through: (a) effective operationalisation of AGID, which will haveexclusive

responsibility for administration of all the taxes covered by the General Tax Code; (b) capacity-

building for the Joint Taxation-Customs Brigade; (c) operationalisation of ARMP, DNCMP and the

Procurement Units of various ministries; (d) publication of tender invitations and contract award

notification on the CREF website; and (e) preparation and adoption of a targeted,simple debt

management strategy.

the Bank’s comparative

advantage and value-added

The Bank is the key stakeholder of the Comoros’ economic and financial governance reform . Since

TFP operations resumed in the Comoros in 2009, the Bank has successfully implemented PAREGF,

which enabled the country to initiate major reforms for its economic and social development, thus

helping to restorethe State’s capacity to fulfil its primary duties. Besides, the Bank’s main value-

added in this operation resides in reform support initiatives aimed at improving energy sector

performance as well as strengthening PFM. This combination will boost the development of the

energy sector whose weakness is one of the major constraints to diversification of the Comorian

economy.

Institutional development and

knowledge accumulation

The Programme will contribute to institutional development and knowledge accumulation within the

energy sector support mechanism and with regard to PFM. The lessons to be learned from

implementation of the measures adopted will help strengthen the Bank’s approach to the different

aspects of energy sector development and the modernization of public finance management.

Recommendations The Boards are invited to consider and approve the UA 2 (two) million budget support programme

in favour of the Union of the Comoros, divided into two tranches of UA 1 (one) million each for

2012 and 2013 respectively, in accordance with the conditions set out in this report.

vii

Table 1: Results-based Logical Framework Matrix

Country and Programme Title: Comoros: Energy Sector Reform and Financial Governance Support Programme (PARSEGF) Programme goal: Contribute, through energy sector development, to the creation of conditions conducive to robust economic growth that will ensure the country's

gradual emergence from its fragile situation.

Results Chain Performance Indicators

Means of

Verification Risks / Mitigative

Measures Indicators (including ISCs) Baseline Situation Target

IMP

AC

T

Impact:

Diversification of the economy and inclusive and sustainable

growth

GDP growth rate 2% in 2011 4% in 2014 and 2015

Data from the Ministry of

Finance and the

IMF

Data from the

Ministry of Finance and the

IMF

General Risks

-R1: Political instability

-R2: Vulnerability of the

economy to external shocks

Mitigative Measures

-M1: The new

institutional architecture

will help to prevent jurisdictional conflicts and

political tensions at the

helm of the State

-M2: Continuation of reforms under the

programme supported by

the ECF and other TFPs as well as promotion of

productive activities in

growth sectors such as

agriculture, fisheries and

tourism will enable the

economy to withstand with exogenous shocks.

Operational Risks

-R3: Insufficient

institutional and technical capacities for reform

implementation

-R4: Fiduciary risk

-R5: Risk of non-sustainability of reforms -R6: Risk of opposition

Mitigative measures: -M3: Many institutional

support projects supported by TFPs, including the

ICBP supported by the

ADB, the ABGE supported by the World

Bank, APLACO financed

by the EU, PARAF financed by French

Cooperation services all

seek to build the institutional capacity of

services responsible for

reform implementation.

Private investment rate (% of GDP) 9.6% of GDP in 2011

11% and 11.4% of

GDP in 2014 and

2015

Percentage of the population living below the poverty line

(%) 44.8% in 2004 27.3% in 2015

EF

EC

TS

Impact:

Energy

sector

more efficient

and

developed

Imp. 1:

Energy sector

restructured

The billing rate and bill

payment rates of MA-MWE 2011: Billing rate of

55% and bill payment

rate of 58%.

2013: Billing rate

of 70% and bill

payment rate of 80%.

Imp. 2: State’s fiscal

space is expanded to

support energy sector

development

Tax revenue/GDP ratio 10.9% of GDP in 2011 Min. 13% in 2013 % of public contracts awarded

through an open bidding

process and in accordance with the Public Procurement

Code

Information not

available Min. 70% in 2013

NPV of external debt-to-exports ratio

239% in 2011 86% max in 2013

OU

TC

OM

ES

COMPONENT I - IMPROVEMENT OF ENERGY SECTOR PERFORMANCE AND DEVELOPMENT I.1-Improvement of Energy Sector Performance and Governance

Prepare, adopt (in CM) and

implement a general plan to

reorganize MA-MWE’s commercial activities

General plan to reorganize

MA-MWE’s commercial

activities is prepared and adopted in 2012

No general plan to reorganize MA-MWE’s

commercial activities

The Plan is

prepared and adopted in 2012

and implemented

in 2013

True copy of the

plan and minutes

of the CM that adopted it.

Prepare and adopt (in CM) a

long-term national energy policy (NEP)

National Energy Policy No National Energy

Policy

The NEP is finalized and

adopted (in CM) in

2013.

Minutes of the

CM meeting

Conduct and adopt (in CM)

the organizational and strategic audit of EDA

Organisational and strategic

audit report of EDA approved in CM

No organizational and

strategic audit report of EDA

The report is finalized and

adopted (in CM) in

2013.

Minutes of the

CM meeting

Finalise and adopt (in CM) the organizational and

strategic audit of MA-MWE

Organisational and strategic

audit report of MA-MWE approved in CM

No organizational and

strategic audit of MA-MWE

The report is finalized and

adopted (in CM) in

2012.

Minutes of the

CM meeting

Prepare and adopt (in CM), under satisfactory conditions,

an action plan for

implementation of the recommendations of the

organizational and strategic

audits of MA-MWE and EDA

Action plans for

implementation of recommendations of MA-

MWE and EDA audits

No action plans

An action plan is available in 2013

Copy of action plan

Operationalise the organs of the state-owned electricity

corporations (MA-MWE and

EDA)

Text appointing the members

of the Board of Directors (BD) and minutes Board

meetings

No BD.

BD set up and operational with a

minimum of 2

meetings held in 2013

Text appointing

BD members and

meeting minutes.

viii

I.2. Consolidation of public finance management

-M4: Consolidation of

internal control through

creation of the Directorate

for Financial Control and the setting-up of the Audit

Bench for External

Control will make it possible to mitigate the

fiduciary risk.

-M5: The HIPCI process

has catalysed reform and

PARSEGF seeks to help in consolidating the

outputs of these reforms.

Debt reduction through the HIPCI, increased tax

revenue and the control of

public spending will help to mitigate this risk of

non-sustainability of

reforms. Emphasis is laid on consolidating current

reforms and on reforms

that have been designed and taken ownership of by

the authorities.

-M6: Opposition to

reforms is mitigated by

laying emphasis on transparency in order to

promote a perception of

equity in the distribution of resources between the

Union and the islands.

Improved internal coordination as well as

continuous dialogue that

is coordinated with the authorities and TFPs also

helps to mitigate this risk.

Operationalise the General

Administration for Taxation and Lands (AGID)

Decrees defining the status,

organisation, powers and fucntioning of AGID

No taxation authority that is unified,

hierarchical and

operational

Adoption of the Decree on AGID

in 2012 and

provision of financial, material

and human means

in 2013

True copy of the Decree and 1

progress report

of AGID

Build the capacity of the

Taxation-Customs Mixed

Brigade (BMID)

BMID trained and provided with equipment

BMID hardly trained and lacking equipment

BMID trained and

provided with

equipment in 2013

Copy of training reports and

record of

acceptance reports

Operationalize the Public Procurement Regulatory

Authority (ARMP), the

National Directorate for Public Procurement Control

(DNCMP) and the

Procurement Units of ministries

Appoint officials and post

staff to the ARMP and the

DNCMP; production of quarterly progress reports by

the ARMP and the DNCMP

in 2013

ARMP and DNCMP are not operational

Appoint officials

and post staff to

the ARMP and the DNCMP;

production of

quarterly progress reports by the

ARMP and the

DNCMP in 2013

True copies of 3

ARMP quarterly

reports and 3 DNCMP

quarterly progress

reports for 2013

Publish tender invitations and contract award notices on the

CREF website from January

2013

Publication of tender

invitations and contract award notices

No publication

Tender invitations and contract award

noticespublished on

the CREF website

True copy of instruction for

publication on

CREF website and screenshot of

the CREF

website

Prepare and adopt (in CM) a

targeted and simple strategy

for debt management

Targeted and simple debt

management strategy No strategy Strategy prepared

and adopted (in

CM) in 2013

True copy of the

strategy and of

minutes of the

CM meeting that

adopted it.

A

C

T

I

V

I

T

I

E

S

- Signature of grant

agreement - Opening of a special

account at the BCC

- Implementation of reforms

- Implementation reports

- Completion report

Resources

FSF: UA 2 million World Bank: USD 5 million

PROPOSAL AND RECOMMENDATION OF THE AFRICAN DEVELOPMENT BANK

BANK GROUP MANAGEMENT TO THE BOARDS OF DIRECTORS OF THE

AFRICAN DEVELOPMENT BANK AND THE AFRICAN DEVELOPMENT FUND,

CONCERNING THE AWARD OF A GRANT TO THE UNION OF THE COMOROS TO

FINANCE PARSEGF

I. PROPOSAL

1.1 Management submits the following proposal and recommendations concerning the

award, to the Union of the Comoros, of an UA 2 million grant, from the FSF Pillar I window, to

finance the Energy Sector Reform and Financial Governance Support Programme (PARSEGF)

over a period of two fiscal years (2012 to 2013). The Union of the Comoros fulfills the FSF

eligibility conditions and is consequently considered to be a fragile State. This is the second

Bank general budget support (GBS) operation in favor of the Comoros, being proposed in

response to a request from the Government of the Union of the Comoros (GUC) dated 21 August

2012. The programme appraisal was conducted in September 2012. Programme design took into

consideration the principles of good practice with respect to FSF conditionalities and operational

guidelines. This second operation seeks to support reforms aimed at improving the performance

and development of the energy sector, whose current inefficiency, especially in the electricity

sub-sector, is a major obstacle to economic expansion and diversification in the Comoros.

Furthermore, energy sector support will be accompanied by measures aimed at improving public

finance management in order to create conditions conducive to energy sector development and

also build on the achievements of the Economic Reform and Financial Governance Support

Programme (PAREGF).

1.2 PARSEGF, which is described in the Letter of Development Policy (Annex 1), is

aligned on the Growth and Poverty Reduction Strategy (GPRS) adopted in September 2009 for

the 2010-2014 period. The GPRS is the reference framework for the country’s economic

development policy. PARSEGF is also consistent with: (i) the 2011-2015 CSP; (ii) the Bank’s

2013-2022 long-term strategy; (iii) the Bank’s strategic guidelines and Governance Action Plan

(GAP) for 2008-2012; and (iv) the governance pillar of the Bank’s medium-term strategy (2008-

2012).

1.3 The programme’s development objective is to contribute, through energy sector

development, to creating conditions conducive to the robust economic growth that will ensure the

country's gradual emergence from its fragile situation. Its specific operational objective is to

improve energy sector performance and development through reforms aimed at restructuring and

consolidating energy sector governance as well as public financial management (PFM). The

expected outputs of the programme are: a more efficient energy sector creating the right

conditions for inclusive and sustainable growth that is based on equity and can ensure the

country’s gradual emergence from its current fragile situation.

2

II. Country and Programme Context

2.1 Recent Political, Economic and Social developments, Constraints, Challenges and

Prospects

2.1.1 After a decade of political upheaval fueled by the separatist aspirations of the three

islands 1of the Union of the Comoros, the country has enjoyed a period of relative political

stability over the last few years. After the last separatist crisis caused by the island of Anjouan

was resolved in 2008, the new constitution adopted in 2009 defined a precise framework for

decentralisation and autonomy for the islands. Later on, and thanks to African Union support,

presidential elections deemed free and fair were organised in December 2010.2 These elections

have brought a new president to power and ushered in relative political stability conducive to the

implementation of profound structural reforms to enable the country's gradual and sustainable

emergence from its fragile situation.

2.1.2 Despite the progress made, the Comoros remains a fragile country. Its economy is

characterized by limited diversification, a predominant public sector, a poorly developed private

sector, an inefficient energy sector and poor governance. Furthermore, despite the major

structural reforms implemented, especially in public finance management, the governance and

institutional management of the State are not strong enough to ensure the country’s sustainable

emergence from its fragile situation. The State’s weak financial capacity, which stems from

limited revenue, poor control of public spending and a high debt level, partly explains its

deficiency and inability to provide basic services, especially in the energy sector.

2.1.3 Economic growth in the Comoros has not been strong enough to generate a

substantial improvement in the people’s living standards. During the 2008-2011 period, the

Comorian economy averaged a GDP real growth rate of only 1.92%, whereas the population

growth rate remained structurally higher at 2%. In 2011, real GDP growth, of which

approximately 50% is traditionally generated by agriculture and fisheries, was estimated at 2.2%

compared to 2.1% in 2010. This very slight economic recovery stems from: (i) a good crop

season; (ii) a surge in remittances from abroad that sparked a revival in private construction; and

(iii) a surge in foreign direct investments (FDI).

2.1.4 Inflation has remained high due to an unfavourable international environment. In

spite of the discipline imposed by the Franc Zone to which the Union of the Comoros belongs,

inflation rose to 5.25% during the 2008-2011 period, due mainly to the rise in world prices of

energy products and imported food staples. In 2011 alone, inflation was estimated at 6.8%

(annual average).

1 These three islands are: Grande Comore, Anjouan and Mohéli. 2 The next elections will be held in 2016.

3

2.1.5 The public finance situation has slightly improved thanks to reforms initiated by

the GUC. Over the 2009-2011 period, public revenue (net of grants) though remaining low, grew

by 15.8% on average (13.9% of GDP in 2009, 16.1% in 2011) due mainly to better organisation

of tax administration and more efficient collaboration between taxation and customs services.

This increase, for the most part, stems from implementation of the 2010-2019 Public Finance

Management Reform Strategy (PFM-RS) and the 2010-2012 Triennial Action Plan (TAP) that

seeks to improve the transparency and efficiency of the PFM system. In 2011, the domestic

primary deficit slumped to 1.4% of GDP (net of one-off tax revenue), compared to 7% in 2010.

However, the external current account deficit expanded from 5.4% of GDP in 2010 to 9% in

2011, due to: (i) an increase in FDI-financed imports; (ii) a rise in the price of imported food and

petroleum products; and (iii) the decline in budget support from donors due to the international

financial crisis.

2.1.6 Debt sustainability analysis (DSA) shows that the Comoros is still experiencing a

debt overhang.3 End-2012 projections indicate that the net present value (NPV) of the external

debt contracted and guaranteed by the State represents 86% of goods and services exports. This

high debt level severely constrains the State's capacity to provide essential basic services and

finance social sectors as well as strategic and priority investments, even in the energy sector. In

July 2010, the Comoros reached the Decision Point of the Heavily Indebted Poor Countries

Initiative (HIPCI) which gives entitlement to initial interim debt relief of USD 48.4 million. The

country is currently moving towards complete debt relief under the HIPCI and the Multilateral

Debt Relief Initiative (MDRI). After attainment of the completion point, as expected in

December 2012 (see Technical Annex (TA) 13), debt cancellation could, in the medium term,

contribute in releasing additional resources to initiate programmes that target poverty reduction

and the social sectors.

2.1.7 Medium-term macroeconomic prospects are relatively positive. Real GDP growth

could reach 2.5% in 2012 and further rise to 3.5% in 2013 to reach 4% by 2014. Such

performance would stem from: (i) the strong performance of subsistence agriculture; (ii) a slight

increase in foreign direct

investment; and (iii) an

increase in the resumption

of technical and financial

support from the major

development partners.

Inflation (in annual

average terms) will

decline by at least one

percentage point in 2012

(6%) compared to 2011

(6.8%), owing to a drop in

3 IMF, Country Reports No. EBS/12/71, May 2012, Table 1.

Table 2: Key Macroeconomic Indicators

2011 2012 2013 2014 2015

Real GDP growth (%) 2.2 2.5 3.5 4.0 4.0

Inflation in % (annual average)

6.8 6.0 4.3 3.4 3.3

Balance of payments current account as % of GDP -9.0 -6.9 -7.3 -8.6 -7.7

Gross official reserves (in months of import cover) 6.4 7.2 7.4 7.3 7.3

Expenditure (as % of GDP) 22 25.4 25.1 25.2 25

Wage bill (% of GDP) 8.5 8.00 7.6 7.3 7.00 Revenue, including grants (% of GDP) 23.6 28.4 25.3 24.0 24.2

Tax revenue (% of GDP) 10.9 11.8 12.2 12.6 13

Official grants and loans (% of GDP) 7.5 10.2 10.9 9.2 9.0

Source: Comorian Authorities/IMF, October 2012.

4

import price levels. A sustained increase in public revenue and greater discipline in spending

should lead to a reduction of the domestic primary budget deficit net of non-recurring economic

citizenship revenue4 in 2013 (-0.9% of GDP) and 2014 (-0.5% of GDP). These positive prospects

would result from more rigorous monitoring of revenue collection, the reinforcement of fiscal

and customs services as well as better control of spending. However, the increase in imports, the

limited volume of exports and the rise in external aid should inflate the external current account

deficit (including grants as well as private and official transfers) to 7.3% of GDP in 2013.

2.1.8 The Union of the Comoros’ performance in the area of governance has remained

relatively stable. All the six5 governance indicators published by the World Bank for the

Comoros are at traditionally low levels. This situation stems from the long period of political

conflicts that have weakened the State. In 2010, the country was ranked in the 1st – 34th

percentile, recording its best score in "Voice and Accountability" and its worst score in

"Government Effectiveness". In 2011, such public administration weaknesses were also reflected

in the governance score of the Bank's Country Policy and Institutional Assessment (CPIA) which

was approximately 2, with the poorest rating in "Quality of Public Administration" (see TA 12).

2.1.9 The Comorian private sector is poorly developed and faces several obstacles. The

economy is dominated by the public sector within which the country’s main strategic companies

operate. Besides, there are several obstacles to the private sector development, such as: (i) the

lack of skilled labour; (ii) statutory and administrative provisions that do not sufficiently support

the business environment; and (iii) inadequate infrastructure, especially in the energy sector, that

limits its competitiveness and contribution to economic growth. In 2010 and 2011, private

investment accounted for only 9.7% and 9.5% of GDP respectively. The country is ranked 157th

out of 183 countries in the 2012 Doing Business (DB) report (TA 10).

2.1.10 Poverty persists in the Comoros. Its Human Development Index (HDI) was only 0.433

in 2011,6 ranking the country 163

th out of 187 countries in the world. Furthermore, according to

the 2004 Integrated Household Survey (IHS), which is currently the most recent survey

conducted, poverty7 affects 44.8% of the population, especially the youth. About 30.4% of

women live below the poverty line compared to 38.6% of men. Indeed, compared to men, women

who account for 47% of the unemployed and head 40.2% of households, receive far more family

assistance, especially from the diaspora. As concerns attainment of the Millennium Development

Goals (MDGs), progress remains slow and is hampered by the lack of investments, especially in

the energy sector. As is the case for the majority of fragile countries, it is not likely that the

Comoros will achieve the MDGs by 2015 (see TA 7 and 8).

4 These earnings are revenue from a programme relating to the Law on Economic Citizenship voted by the Parliament of the Union on 27

December 2008. The law confers Comorian nationality (against payment of KMF 1 million, or approximately USD 3000) to any non-

Comorian project developer who invests in the Comoros. 5 Voice and Accountability, Political Stability, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption. 6 UNDP, 2011 Human Development Report "Sustainability and Equity: A Better Future for All". 7 The poverty threshold retained in 2004 was USD 700 per capita per year, or approximately EUR 580 and KMF 285,144.

5

2.1.11 Several challenges, including energy sector development, need to be tackled to set

the Comorian economy on the path to robust, inclusive and sustainable growth. Under

GPRS 2010-2014, one of the most pressing challenges to be tackled by the Comorian economy,

apart from the need to continue with PFM system reform, is that of boosting the performance and

development of the energy sector, whose inefficiency is one of the major handicaps to economic

diversification. Indeed, the Comorian energy sector is plagued by serious shortcomings,

especially regarding electricity supply. More precisely, the two State-owned companies in the

electricity sub-sector, namely: (i) MA-MWE, which manages electricity and water in Grand

Comore and Mohéli; and (ii) the Anjouan electricity corporation (EDA) which manages

electricity in Anjouan, are unable to supply sufficient electricity to cover the needs of households

and businesses. This situation partly stems from the lack of maintenance and repair of the electric

power grid. For instance, in the capital, Moroni, electricity is available for only about 8 hours a

day. Rural areas have only approximately 5 hours of electricity every 4 days. Furthermore, the

electricity access rate is approximately 60% in Grande Comore, 50% in Anjouan and only 10% in

Mohéli. Although these rates may appear high when considered globally, they mask many

discrepancies. Indeed, access to electricity is, for the most part, reserved for the affluent segments

of the population.

2.1.12 The electricity supply problem is compounded by that of its cost. The Comoros have the

highest electricity consumption rates in the region (a KWH costs approximately USD 0.421).

This is partly due to the very high cost of petroleum products8 needed to fire the country’s

thermal power stations.9

2.1.13 Furthermore, the two State-owned corporations in the electricity sub-sector are beset by

problems relating to governance, internal management and fraud which severely undermine their

financial and institutional situation and adversely affect their performance. Consequently, this

sub-sector is in a very precarious state and unable to contribute to boosting private sector

development and diversifying the national economy, two actions that are crucial to the country’s

gradual emergence from its fragile context.

2.2 General Development Strategy and Medium-Term Reform Priorities

2.2.1 The general development framework of the Union of the Comoros is defined by the

2010-2014 GPRS. This strategy is the fruit of a long consultative and participatory process

between the Government, civil society, the private sector and donors (including the Bank). The

GPRS, which contributes to the promotion of macroeconomic and budget stability, has two major

objectives, namely: (i) robust economic growth; and (ii) a sustainable reduction of poverty and

inequality. To achieve these objectives, it focuses on six strategic pillars, namely: (i) stabilise the

economy and lay the foundation for accelerated and sustainable growth that is based on equity;

(ii) strengthen the growth bearing sectors by focusing on institutional reinforcement and

increased participation of economic operators; (iii) reinforce governance and social cohesion; (iv)

8 These costs are defined by long-term contracts to the detriment of the Comorian Government. 9 Most of the electricity produced in the Comoros comes from thermal plants powered by generating sets.

6

improve the health status of the population; (v) develop education and vocational training with a

view to building human capital; and (iv) promote environmental sustainability and national

security.

2.3 Bank Group Portfolio Situation in the Comoros

2.3.1. As at 1 September 2012, the Bank’s portfolio in the Comoros had 3 on-going

operations for a total of UA 15.87 million. In terms of commitments, the Bank’s operations in

the Comoros are 63.11% in the water and sanitation sector and 36.89% in the multi-sector

(economic and financial governance). The portfolio’s disbursement rate is 24.2% and its overall

performance score is 2.09 over 3. Furthermore, potential problem projects and at-risk

commitments represent 33.33% and 63.11% of the portfolio respectively. A portfolio

improvement plan is being implemented to address this situation (see Annex 4 of CSP 2011-

2015).

III. RATIONALE, KEY ELEMENTS OF PROGRAMME DESIGN AND SUSTAINABILITY

3.1 Links to the CSP, Assessment of Country Preparedness and Underlying Analytical

Elements

3.1.1. Links to the CSP: PARSEGF is aligned on the first three pillars of GPRS 2010-2014

cited in Paragraph 2.2.1. It is also consistent with the single 2011-2015 CSP pillar entitled

"Energy Sector Development to Boost Economic Diversification" and provides for intervention

in the electricity sub-sector through an investment project and budget support. Under this pillar,

the CSP also provides for the extension of Bank support to the GUC in its efforts to improve

economic governance, mainly through structural reform and consolidation of public finance

management.

3.1.2. The implementation of PARSEGF will contribute to attainment of the CSP objective by

supporting structural reforms relating to energy and public finance. The planned PFM reforms

will help to improve the State’s budget margins, and consequently its capacity to provide

essential basic services to the population in general and to the energy sector in particular.

3.1.3. Links to Bank Group Strategies. The proposed programme is also aligned on the

Bank's long-term strategy (2013-2022) which seeks to "improve the quality of growth through the

support provided to Africa for the achievement of more inclusive growth and to ensure its

transition to greener growth". Indeed, energy sector development targeted by this programme will

benefit the entire Comorian population and will be achieved taking into account natural resource

preservation concerns, by adopting a long-term national energy policy that also covers

environmental questions. This programme is consistent with the Governance Action Plan (GAP

2008-2012) which also focuses on public finance management. PARSEGF is also aligned on the

Bank’s Energy Sector Policy.

7

3.1.4. Assessment of Country Preparedness and Conformity to the Bank’s Safeguards

Policy. As indicated in the table below, Comoros meets the main eligibility criteria for a general

budget support operation.

Table 3: Conditions for Programmatic Support Operations (PSO)

Prerequisites Comments Government

commitment to

poverty reduction

The GUC’s commitment to sustainable poverty reduction was given concrete expression through the

adoption, in September 2009, and implementation of a growth and poverty reduction strategy for 2010-

2014. The GPRS was prepared with the active participation of all national stakeholders and in

consultation with TFPs. Its two main objectives are: (i) robust economic growth; and (ii) the reduction of

poverty and inequality. Its implementation is on-going, although the results recorded fall short of initial

estimates. It is regularly monitored by the Government using indicators that are specific to each strategic

pillar as well as periodic reviews. Macroeconomic

stability The macroeconomic situation has gradually improved since cooperation resumed with donors. With the

conclusion of a programme with the IMF in 2009, under the Extended Credit Facility (ECF), the

Government has resolutely embarked on reforms. This programme made it possible to define a viable

macroeconomic and financial framework for 2010-2012. The 3rd ECF review of June 2012 highlighted

the major structural macroeconomic improvements achieved. However, to ensure the attainment of all set

objectives, the programme was extended to December 2013. The 4th ECF review conducted in September

2012 was conclusive and should lead to the attainment of the HIPCI completion point in December 2012.

Fiduciary Risk

Assessment The 2007 PEFA Report and the IMF public finance management assessment report of November 2011

revealed a certain number of deficiencies in procurement, budget management and the internal and

external control of State transactions. To address these problems, a series of recommendations were made

and a 2010-2019 reform strategy prepared (with Bank support) and adopted. Several measures under this

strategy have been implemented, mainly with the support of the Institutional Capacity-Building Project

(ICBP) financed by the Bank; or are being implemented, as is the case of the public procurement system

reform. The latter aspect will be supported under PARSEGF. Besides, a fiduciary risk management

framework was prepared and the Bank will monitor the mitigative measures for identified risks. Political stability When the separatist crisis concerning the island of Anjouan ended in 1997, the adoption of the 2001

Constitution established an institutional framework in which each island has its own president, ministers

and parliament, with the national presidency held in turn by elected officials from each of the islands. On

account of the administrative and financial bottlenecks that this system entailed, and the numerous

jurisdictional conflicts, a constitutional referendum was organised in May 2009. This change gave rise to

a new institutional framework in which the presidency of the Union has remained rotational, but each

island is administered by a governor, assisted by a limited number of commissioners and an assembly

also comprising a limited number of councillors. After the departure of President Ahmed Sambi, a native

of the island of Anjouan, who had attempted to extend his mandate, presidential elections were organized

on 27 December 2010 with African Union support. These elections, which were deemed free and fair,

were won by Ikililou Dhoinine, a native of the island of Mohéli. Since then, the formation of the new

government has been a factor of political stabilization and emergence from fragility, although certain

inter-island conflicts persist. Harmonisation Collaboration among the donors operating in the Comoros has not yet been institutionalised through a

formal framework. The UNDP informally coordinates the action of various donors. Nevertheless, there

has been a solid partnership between donors and the Government since the establishment of the strategic

committee for the coordination of development aid in 2009.

3.1.5. Studies and Analytical Bases: Several studies conducted (see TA 14) by the

Government, the Bank and other TFPs have been factored into the design of this programme. In

the energy sector, they include: (i) the electrical power and petroleum products policy of the

Union of the Comoros (May 2012); (ii) the preliminary work on a Comoros energy sector

strategy (May 2012); and (iii) preliminary report on the organizational and strategic audit of MA-

MWE conducted with Bank assistance (September 2012). As regards public finance

management, the programme has drawn from: (i) the 2010-2019 Public Finance Management

Reform Strategy and its 2010-2012 Three- year Action Plan; (ii) the last PEFA report (2007); and

(iii) a debt management study (June 2012). Several other studies and surveys have also been

8

factored into programme design, such as: (i) a preliminary diagnosis of growth sources in the

Comoros (2010); (ii) the integrated household survey (2004); (iii) the gender profile of the Union

of the Comoros prepared by the Bank (2009); and (iv) the assessment of ADB assistance to

fragile States (2012). The main recommendations of these studies pointed to: (i) the need to

address the electricity supply constraints that hamper private investment development and

economic diversification. (ii) the need to support energy sector rehabilitation measures through

PFM reforms aimed at building the State’s capacity and increasing its fiscal space to enable it

finance reforms and strategic investments, especially in the energy sector.

3.2 Collaboration and Coordination with Other Development Partners

3.2.1 The Comoros Government collaborates actively with development partners.10

There

has been a sound partnership between donors and the Government of the Comoros since

cooperation with TFPs resumed in 2009. Presidential Decree No. 09-062/PR of 23 May 2009

provides for the setting up of a strategic committee to coordinate development aid. This organ is

operational and functions under the responsibility of the General Commissariat for Planning.

Nevertheless, collaboration among the donors operating in the country has not been

institutionalized through a formal agreement and UNDP informally coordinates the development

partners’ activities with a view to harmonizing the various interventions in the country. The TFP

focus areas can be summed up as follows: (i) governance /public finance: ADB, World Bank,

IMF and EU; (ii) transport: EU and China; (iii) social sectors: World Bank, United Nations, EU,

IsDB, France, Japan; (iv) agriculture and fisheries: France and Japan; (v) water and sanitation:

ADB and France; and (vi) energy: ADB, World Bank and EU.

3.2.2 This operation has been designed in close consultation with other TFPs. During the

formulation of PARSEGF, several donors were met with and consulted, especially: (i) the World

Bank as regards energy sector restructuring11

and PFM improvement;12

(ii) the European Union

for aspects related to energy sector reform; and (iii) the IMF on the macroeconomic framework.

PARSEGF also takes into account the reform programme implemented under the HIPCI and

which also includes PFM reforms.

3.3 Results and Lessons Learnt from Similar Operations Previously conducted

3.3.1 Lessons learnt from similar previous operations: In 2009, when collaboration resumed

between donors and the Comoros, the Bank financed a budget support operation (PAREGF) over

the 2009-2010 period. This programme, which has been completed, sought to: (i) improve PFM;

and (ii) streamline the reform implementation process. Although it yielded mixed results,13

PAREGF laid the foundation for gradual consolidation of State capacity, which PARSEGF

10 Over the last two years, the Comoros have also received financial assistance from Gulf countries like Qatar. 11 World Bank budget support, which is being prepared, will also target the energy sector. 12 The World Bank currently operates in PFM through an institutional support project titled Support to Economic Good Governance (ABGE)

and the preparation of budget support. 13 PAREGF Completion Report (ADF/BD/IF/2011/163).

9

intends to pursue. The table below presents the lessons learnt from PAREGF and the extent to

which they were factored into the design of PARSEGF.

Table 4

Lessons Learnt from Previous Operations and Reflected in PARSEGF Design Main Lessons Learnt from PAREGF Reflected in PACIRSA

The objectives of PAREGF were too ambitious and its

design did not sufficiently take into account the

timeframe for implementation of reforms.

PARSEGF objectives are targeted, realistic and take

into account the institutional capacity of the Comorian

Government, and especially that of CREF which will

monitor reform implementation. Budget support operations in fragile States are serious

dialogue mechanisms that make it possible to orient

corporate reform dynamically towards areas deemed to

be crucial to poverty reduction and the generation of

robust and inclusive growth.

PARSEGF aligns with this approach by supporting the

Government in its efforts to restructure the energy

sector and improve PFM, two crucial factors for

generating robust growth that benefits the entire

population of the Comoros. Institutional support implemented in parallel with

budget support is a powerful lever because it makes it

possible to build the technical and operational

capacities of national services responsible for reform

implementation.

The Bank’s ongoing institutional support activities

(ICBP) contribute to capacity-building for the

departments and agencies responsible for PFM

implementation under PARSEGF (all see § 3.4).

3.3.2. Progress Made under Previous Bank Support: Although several of the objectives were

not attained, PAREGF contributed to the achievement of some results that boosted PFM

transparency and efficiency. These include: (i) the preparation and adoption of a Public Finance

Reform Management Strategy and its first TAP; (ii) initiation of the public procurement code

revision process; (iii) the adoption of a decree regulating public spending; and (iv) the adoption

of a decree establishing the nomenclature for State expenditure supporting documents.

3.4 Links with the Bank’s On-going Operations

3.4.1 There is great complementarity between PARSEGF and two on-going operations.

The Bank is currently financing the ICBP, an institutional support project that is underway. This

project, started in 2009, seeks to build technical and operational capacity in the areas of revenue

collection, public procurement transparency and debt management. Several departments

responsible for these aspects, such as the General Directorate for Taxation (DGI), are also

responsible for implementing reforms adopted under the "strengthening public finance

management" pillar of PARSEGF. The success of the reforms scheduled under this programme

will help to speed up ICBP execution by contributing to the improvement of the PFM

institutional framework, a necessary condition for the country’s gradual emergence from its

fragile situation. Furthermore, the USD 20.5 million investment that is being prepared by the

Bank's Energy Department to rehabilitate the electrical power grid will benefit from reforms

supported by PARSEGF. Indeed, the improvement of the electricity sub-sector performance and

development supported by PARSEGF will help to create an environment that is reorganized and

conducive to the success of the future investment project.

10

3.5 Bank Comparative Advantage and Value-added

3.5.1 The Bank is a key actor in economic and financial governance reform in the

Comoros. Since TFP operations resumed in the Comoros in 2009, the Bank has successfully

implemented PAREGF, which enabled the country to initiate major reforms to ensure its

economic and social development, thus helping to rebuild the State’s capacity to fulfil its basic

duties. Besides, the Bank’s main value-added in this operation resides in the support to reforms

aimed at both improving energy sector performance and strengthening PFM. This combination

will contribute to the development of the energy sector whose weakness is one of the major

constraints to the diversification of the Comorian economy

3.6 Application of Good Practice Principles concerning Conditionality

3.6.1 The good practice principles on conditionality have been applied for the

Programme. PARSEGF respects the principle of ownership. Indeed, this programme has been

designed in consultation with the Government and focusses particularly on: (i) its electrical

energy and petroleum products policy; and (ii) its PFM reform strategy. Moreover, it seeks to

support the implementation of GPRS 2010-2014 which was prepared with civil society and

private sector participation. The programme design is based on consultations with stakeholders

from the energy sector, civil society and private sector organisations during meetings at

programme preparation and appraisal stages. The conditions precedent to disbursement of the

first tranche essentially relate to reforms aimed at making a substantial contribution to: (i)

improving energy sector performance and development; and (ii) consolidating PFM. In addition,

PARSEGF is aligned on the country’s budget cycle and it was announced in 2011, thus enabling

the Government to include it in its budget estimates for 2012 and 2013.

3.7 Application of the ADB Policy on Non-Concessional Lending

3.7.1 The principles governing the Bank’s policy on non-concessional debt are applied under

PARSEGF. The Union of the Comoros is only eligible for financing from the ADF window.

Besides, under the Extended Credit Facility (ECF) concluded in September 2009 with the IMF,

and which will end in 2013, no non-concessional loan may be contracted. Hence, this programme

which ends in 2013 and whose financing instrument is a grant, has taken into account the Bank's

policy on non-concessional debt, adopted in 2008 and revised in 2010, as well as IMF

requirements.

IV PROPOSED PROGRAMME AND EXPECTED RESULTS

4.1 Programme Goal and Objectives

4.1.1 The programme’s development objective is to contribute, through energy sector

restructuring and reform measures, to the creation of conditions for robust growth that can enable

the Union of the Comoros to emerge gradually from its fragile situation. Its specific objective is

to improve the governance and performance of the energy sector to make it more efficient and

able to sustain the country’s economic development. To create the conditions for attainment of

11

the specific objective, the programme also seeks to encourage the State to consolidate and step up

public finance management reforms. The reforms planned in this area will help to increase the

State’s efficiency and capacity to provide essential basic services to the population and the

business community, particularly in the energy sector.

4.2 Pillars, Specific Objectives and Expected Results

4.2.1 PARSEGF comprises a single component, namely "improvement of the

performance and development of the energy sector". This component has two pillars, namely:

(i) improvement of energy sector performance and governance; and (i) consolidation of public

finance management. The operational objective of the first pillar is to, through specific and

targeted reform measures, improve energy sector performance and governance, and build the

sector’s capacity to support the diversification and development of the economy. The idea is to

improve the management of the sector and eliminate the constraints that hamper its functioning in

order to improve electricity supply and create the conditions conducive to the development of

economic activity.

4.2.2 The objective of the second pillar is to help the Comorian Government to pursue and

step up PFM reforms, by implementing the relevant strategy adopted by the GUC for the 2010-

2019 period. The justification for this pillar is the need to ease the enormous pressure that the

electricity sub-sector exerts on public finance as a result of its poor performance and inefficiency,

which considerably constrains the fiscal space that would allow for efficient State management of

this sector. In light of the above, the PFM reforms planned under PARSEGF will make it possible

to build on the achievements of PAREGF and also create substantial fiscal space through

efficient revenue collection, greater public procurement transparency and efficiency, and better

debt management. This will make it possible to ease the pressure that the energy bill exerts on

public finance and create optimal conditions for the implementation of priority strategic

investments to improve electricity sub-sector performance. The combined energy sector and

public finance reforms should thus help to eliminate one the major obstacles plaguing the

economic environment and create the conditions for more sustainable and more inclusive

development.

Component I: Improvement of Energy Sector Performance and Development

Pillar 1: Improvement of Energy Sector Performance and Governance

4.2.3 Observations and Challenges (see TA 6): Erratic electricity supply in the Comoros is a

major source of vulnerability and a major constraint to the country’s socio-economic

development. In recent years, the situation has steadily deteriorated, mainly with severe

dysfunctioning and frequent power cuts that hamper economic activity. The situation is

particularly critical in Grand Comore and the island of Mohéli, which are supplied by MA-MWE.

For instance, in the capital, Moroni, programmed power cuts last for 6 hours a week while non-

programmed cuts are increasingly frequent. In Anjouan, which is supplied by EDA, electricity is

available for 10 hours a day, but to a relatively limited number of clients.

4.2.4 The limited supply of electricity translates into high factor costs for small and medium-

sized enterprises, the frequent shut-down of production units and considerable vulnerability for

12

most of the companies. It also increases the vulnerability of the poorest segments of the

population in terms of living conditions (health, education, food, etc.), since access to electricity

is reserved in priority for the affluent members of the population. This situation also increases the

State’s fiscal vulnerability since the electricity sub-sector represents a growing burden on public

finance. For example, in 2011 State subsidies to the electricity sub-sector, especially MA-MWE,

amounted to over KMF 7 billion (USD 18.7 million).

4.2.5 Several recent studies have confirmed that the installed capacity in the Comoros is

sufficient to cover the country’s electric power needs. For example, MA-MWE has a production

capacity of 29 MW compared to demand of 11 MW. The erratic electricity supply stems from

other factors which include: (i) the absence of a real national sector policy and strategy; (ii) poor

governance of the two State-owned electricity companies (non-functioning of the corporate

organs, the lack of supervisory control, uncoordinated appointment of main managers, and

political interference in their day-to-day management) which prevents rigorous management; (iii)

the extremely weak financial situation of the two electricity sub-sector companies which are

heavily dependent on State subsidies to stay operational and plagued by overstaffing, low billing

and collection rates due to significant fraud, and inability to secure a regular supply of gasoil for

the generator sets; (iv) lack of maintenance of equipment and obsolescence of the power grid that

has led to major technical losses. On account of these weaknesses and situations, the two

electricity sub-sector companies suffer enormous operational losses. Consequently, there is an

urgent and crucial need for short-term and long-term reforms as well as priority investments in

the sub-sector to improve its performance. This will help to eliminate the sector constraints

hampering the competitiveness of the Comorian economy and boost the value-added and jobs,

thus contributing to sustainable and inclusive economic growth.

4.2.6 Hence, the priorities are as follows: (i) restructure the electricity sub-sector and increase

the country’s electricity coverage so as to serve a greater number of people; (ii) rationalize the

operating and financial situations of sub-sector companies to make them more reliable and

efficient so that they can ultimately attract private investment; (iii) improve the governance and

management of these companies (see TA 6); and (iv) ease the high sub-sector costs that constrain

public finance. With respect to these objectives, it is particularly important, in the short term, to

reorganize the finances of MA-MWE and EDA and implement reforms to improve their

governance and the functioning of their management organs. The envisaged measures will make

it possible to improve the performance of these two companies, thereby raising the bill collection

and billing rates.

4.2.7 Recent Government Actions: The GUC, which considers the availability of electricity

as highly crucial to economic stability and the consolidation of social peace, is determined to

initiate priority reforms and investments to revive the sub-sector. In that regard, it has already

taken the following measures: (i) the institution of an anti-fraud plan at EDA in 2011; (ii) the

preparation of a study on MA-MWE rates in 2011; (iii) launching of an organizational and

strategic audit of MA-MWE; and (iv) the adoption of an electric energy and petroleum products

policy in 2012. Under this policy, the GUC has confirmed its commitment to engage in in-depth

reform of the electricity and petroleum products sub-sector by restructuring the companies

operating this sub-sector and analysing the various options that can be envisaged to ensure

13

reliable electricity supply in the long-term. However, these measures, though encouraging, are

still insufficient. The GUC is aware of the need to move beyond these measures to improve the

situation in the short term, and also achieve more sustainable results.

4.2.8 Programme Measures: To accompany the GUC in its efforts to improve electricity

sub-sector performance, PARSEGF will support the following measures: (i) conduct and

adoption of an organizational and strategic audit of the EDA; (ii) finalisation and adoption of the

organizational and strategic audit of MA-MWE; (iii) restoration of the smooth functioning of the

social organs of State-owned electricity companies, mainly by clarifying and specifying the roles

of the various organs, establishing and operationalizing the boards of directors of MA-MWE and

EDA, streamlining and simplifying the procedures for appointing the managers of these

companies; (iv) adoption and implementation of a global plan to reorganize the commercial

activities of MA-MWE, which is certainly a short-term measure, but one that is crucial to the

rapid restoration of corporation’s financial viability; (v) preparation and adoption, with

satisfactory form and content, of an action plan for the implementation of the recommendations

that will emerge from the organisational and strategic audits of MA-MWE and EDA; and (vi)

adoption of a long-term national energy policy that includes conservation of the environment.

4.2.9 Expected Outcomes: The implementation of PARSEGF-supported reforms should

contribute to the following results: (i) MA-MWE's billing rate rises from 55% for 2011 to 70% in

2013; (ii) MA-MWE's bill collection rate rises from 58% for 2011 to 80% in 2013.

Implementation of the recommendations of the organizational and strategic audits, whose

preparation and adoption are supported by the programme, should ultimately result in: (i) the

recasting and updating of legislative and regulatory instruments governing the electricity sub-

sector and the restructuring of companies in that sub-sector; and (ii) modification of system of

supervision of sub-sector companies, the effective conduct of such supervision and modernisation

of the sub-sector's governance. It is equally expected that under this plan, the GUC will be able to

determine the strategic orientations concerning the sub-sector companies and institutions.

Pillar 2: Consolidation of Public Finance Management

4.2.10 Under this pillar, PARSEGF will support reforms aimed at consolidating public finance

management in order to create fiscal space that can enable the State to better fulfil its obligations,

especially within the energy sector. Hence, the supported reforms have three objectives, namely:

(i) increased internal revenue collection; (ii) greater efficiency and transparency in public

procurement; and (iii) improved debt management.

Observations and Challenges

4.2.11 Electricity sub-sector subsidies represent almost 10% of the State’s operating budget.

While encouraging the Comorian Government to implement reforms in order to gradually restore

the financial autonomy of electricity sub-sector companies and reduce their excessive dependence

on the State, there is need to carry on with efforts aimed at boosting revenue collection capacity,

promoting greater transparency and efficiency in public procurements and ensuring better debt

management. This will enable the State to not only consolidate the progress made in public

14

finance management under PAREGF, but also to be able to address the requirements of

restructuring, revival and development of the electricity sub-sector.

4.2.12 The efforts made by the Government in recent years have led to an increase in domestic

revenue levels from 13.9% of GDP in 2009 to 16.1% in 2011. The sustained positive customs and

non-tax receipts under the economic citizenship programme constitute one of the factors that

account for the improvement in public revenue from 2009 to 2011. However, compared to the

Seychelles and Cape Verde, over the same period, the volume of public revenue in the Comoros

remains low at 14.5% of GDP, compared to 35% and 22% respectively for these two countries.

The factors that account for this low public revenue level in 2009-2011 are many and partly relate

to the institutional and technical weakness of financial administrations and a low tax compliance

rate.

4.2.13 As regards public procurement, the new Public Procurements Code (CMP), promulgated

in February 2012 to promote transparency in State transactions and expenditure control, is not yet

operational because of delays in setting up ARMP, the DNCMP and the various procurement

units of the different ministries. As concerns debt management, the likely achievement of full

debt relief under the HIPCI and MDRI at the end of 2012 will favourably impact external debt.

Nevertheless, the Comoros’ debt level will remain close (86% of GDP) to the 100% threshold, in

terms of the NPV of external debt-to-exports ratio.

Recent Government Actions

4.2.14 In a bid to increase revenue while rationalizing and modernizing the tax legislation, the

GUC embarked on a series of major reforms concerning taxation services, with the adoption, in

2009, of the 2010-2019 Public Finance Management Reform Strategy. The measures taken by the

Government within this framework include: (i) the adoption of a new General Tax Code and a

taxpayers’ charter; (ii) the application of an ad valorem tax by the Customs Services from 2011;

and (iii) the unification of taxation services through the establishment of the General Authority

for Taxation and Lands (AGID). However, AGID, which is an essential pillar in the

reinforcement of taxation administration, is still not yet operational because of delays in

constituting its Board of Directors.

4.2.15 Cognizant of the need to create fiscal space to so as to sustain growth, the GUC took a

certain number of measures under PFM-RS to improve on public procurement efficiency and

transparency as well as debt management. These are: (i) the adoption of the law on the new

Public Procurements Code on 4 February 2010 along with the various enabling decrees; and (ii)

the installation of debt management software at the Debt Department. However, these measures

are paltry compared to the significant challenges posed.

Programme Measures

4.2.16 As concerns domestic revenue collection, the programme firstly targets the effective

operationalization of AGID which will be exclusively responsible for the administration of all

taxes covered by the General Tax Code. This measure will help to enhance the transparency of

the revenue chain and strengthen compliance with revenue allocation rules. In the same domain,

PARSEGF also seeks to build the capacity of the Joint Taxation-Customs Brigade set up in 2009.

15

4.2.17 Secondly, the programme will support GUC efforts to raise public procurement

efficiency and transparency through the following measures: (i) operationalization of ARMP,

DNCMP and the Procurement Units of various ministries; and (ii) publication of tender

invitations and contract award notices on the CREF website. Regarding debt management, in

order to maintain a prudent borrowing policy, the programme supports the preparation and

adoption of a targeted and simple debt management strategy.

Expected Results

4.2.18 An improved public revenue level is the primary result targeted by all the measures

supported by the programme under this pillar. Hence, the programme projects an increase of over

two percentage points in the tax ratio from 2011 (10.9% of GDP) to 2013 (13% of GDP). The

programme will also entail an improvement in public procurement efficiency and transparency.

Indeed, PARSEGF envisions a minimum of 70% of public contracts awarded through an open

bidding process and in accordance with the public procurement code. As regards the

improvement of debt management, PARSEGF will specifically help to improve the net present

value of the debt-to-exports ratio from 239% in 2011 to 86% in 2013. Together, these results will

enable the State to avoid cash-flow problems, but also fulfil its essential duties without any

difficulties, bolster its legitimacy and guarantee gradual emergence from its fragile situation.

4.2.19 The improvement of PFM is also expected to have a positive effect on the energy

sector. The improvement of revenue collection and of public procurement transparency and

efficiency as well as debt management will enable the State to create fiscal space for energy

sector investments. Furthermore, the implementation of public procurement reforms will have a

positive impact on the energy sector since the State-owned companies in the sector will have to

apply the new public procurements code and thus benefit from the resulting expenditure savings.

4.3 Financing Requirements and Financing Arrangements

4.3.1 The current budget support operation is an

integral part of the external financing sources that

should contribute to the financing of the deficit (net

of grants) for 2012 and 2013, which stands at 7.9%

and 11.5% of GDP respectively. The overall

budgetary balance (cash basis, including grants)

should be at equilibrium during these two years.

Indeed, the State’s net financial requirement will be

fully covered by support from partners in the Gulf, as

well as the IMF, ADB and World Bank. In the event

of a shortfall in revenue or grants, the Government

intends to take appropriate offsetting measures that

include: (i) the deceleration of expenditure on staple

goods and services and capital goods; and (ii) more

vigorous recovery of tax arrears.

Table 5: Financial Requirements

2012 2013

% of GDP

Total revenue and grants 28.4 25.3

Total own revenue (net of grants) 18.2 14.5

Tax revenue 11.8 12.2

Non-tax revenue 6.4 2.3

Grants 10.2 10.9

Total expenditure and net loans 25.6 25.1

Current expenditure 17.1 16.6

Capital expenditure and net loans 8.5 8.6

Deficit (commitment basis, net of grants) -7.4 -10.6

Net variation in arrears -0.5 -0.9

Deficit (cash basis) -7.9 -11.5

Total financing 7.9 11.5

Domestic financing 1.1 1.4

Net external financing 6.8 10.1

Amortization -1.2 -1.0

Budget support (in grants) 1.1 1

Project support/ other grants and transfers 6.9 9.1

Financing Gap (-)/Excess (+) 0.0 0.0

Source: Government of the Comoros and IMF Report

16

4.4 Programme Beneficiaries

4.4.1 The people of the Comoros will be the primary beneficiaries of the programme. The

direct beneficiaries will be the Comoros population, in general, which will experience an

improvement in living conditions thanks to the improved functioning of the energy sector.

Furthermore, through PARSEGF, the people of the Comoros will benefit from a more transparent

PFM system and an improved supply of social services to the poorest segments of the population.

For private sector stakeholders in particular, better management of the energy sector will make it

possible to conduct activities in accordance with the norms. The other beneficiaries of the

programme will be: (i) the two State-owned electricity sub-sector companies which will

experience an improvement in performance; and (ii) government services which will benefit from

technical and operational capacity-building.

4.5 Poverty and Social Impact, including Gender

4.5.1 The PARSEGF Reforms will create conditions conducive to sustainable poverty

reduction and an improvement of living conditions for the people of the Comoros. Indeed, the

majority of health centres today do not have the resources to procure individual power generators

and consequently cannot operate regularly and adequately. This situation adversely affects their

capacity to sterilize equipment, handle night deliveries and store vaccines. Hence, greater access

to electricity will help to improve the quality of services provided in the health centres.

Furthermore, coupled with increased domestic revenue collection and more cautious debt

management, better control of public procurement could lead to increased revenue for the GUC

and raise social sector allocations, which still remain low. Hence, although there are no gender-

specific reforms under PARSEGF, this programme is expected to have a positive social impact

on gender, particularly on the education of girls in rural areas as well as improved healthcare for

mothers (see TA 7, 8 and 11).

4.6 Climate Change and the Environment

4.6.1 Recent studies14

have shown that the Comoros is very vulnerable to climate change. For

example, the country is exposed to the growing number of cyclones whose violence is aggravated

by rising ocean levels, droughts and floods. Climate change has an impact on health, food

security, economic activity, water resources and infrastructure. The PARSEGF intervention

pillars do not in any way contribute to climate deterioration. On the contrary, an efficient energy

sector that addresses environmental concerns will help the people to cope with the negative

effects of climate change. Besides, better PFM will provide the GUC with the financial means to

combat natural disasters more efficiently. PARSEGF has been classified under category III, in

accordance with the Bank’s environmental and social impact assessment.

14 Indian Ocean Commission: Report on Vulnerability to Climate Change: Qualitative Assessment, March 2011.

17

V. IMPLEMENTATION, MONITORING AND EVALUATION

5.1 Implementation Arrangements

5.1.1 Institutional Framework of Implementation: Donor-supported reform programmes

are managed on a daily basis by the Permanent Unit for Monitoring of Economic and Financial

Reforms (CREF) within the Union of the Comoros Vice-Presidency responsible for Finance.

This unit, which managed PAREGF, is currently monitoring the IMF’s ECF programme and will

ensure successful execution of budget support financed by the World Bank this year. With

respect to PARSEGF, this Unit will be specifically responsible for coordinating technical

work/studies with the administrative entities responsible for reform implementation, and transmit

implementation reports to the Bank, following their approval by the competent authorities.

5.1.2 Disbursements: The proposed programme will be financed with a grant of UA 2 million

from ADF XII resources under Pillar I of the FSF. It will be implemented over 2012 and 2013.

The grant will be disbursed in two tranches of UA 1 million each in 2012 and UA 1 million in

2013, respectively, in accordance with the budget estimates agreed upon with the GUC and the

IMF. Disbursement of these tranches will be conditional on fulfilment of the preliminary

conditions presented in Paragraph 6.2. A special account will be opened at the Central Bank of

the Comoros (BCC) as was done under PAREGF. This account will be used solely to receive

grant resources. Furthermore, the Vice-Presidency in charge of Finance shall transmit to the Bank

written confirmation attesting the receipt of funds in the special account. Later on, grant

resources will be transferred from this special account to the general Treasury account opened in

the BCC. In accordance with the agreement signed between the BCC and the State, the BCC shall

charge no fees for this operation. The exchange rate applied will be the rate applicable on the date

of fund transfer.

5.1.3 Procurement: The grant shall be awarded as general budget support. The fiduciary risk

management framework was prepared during the mission and the Bank will monitor the

implementation of mitigative measures for these risks (see TA 4). Hence, it appears that the new

legislative and regulatory framework is generally consistent with the international standards and

best practices relating to procurement. However, there is still need to supplement c this regulatory

framework, operationalize the institutional system and build the capacities of parties in the

procurement chain. These are indeed measures whose implementation is scheduled under

PARSEGF which will support public procurement reform.

5.1.4 Financial Management and Audit: The modalities for financial management and the

auditing of PARSEGF resource application were assessed to determine the financial risk and the

ensuing analysis is presented in TA 3. PARSEGF resources will be used within the public

expenditure circuit and in accordance with national regulations governing public finance. The

Vice-Presidency in charge of Finance will be responsible for the administrative, financial and

accounting management of PARSEGF resources. The external audit of the expenditure of these

funds will be part of the external control exercised by the Audit Bench of the Supreme Court and

through the study of budget execution reports and budget review draft laws for FY2012 and

FY2013, which will be produced within the periods specified under the relevant national

18

regulations. The results of the audit conducted by the Audit Bench will be transmitted to the

Bank. Furthermore, (i) an audit of financial flows will be conducted annually by an independent

firm according to terms of reference approved by the Bank; and (ii) missions will be conducted

by the Bank department responsible for fiduciary risk, to assist the GUC in hedging financial

management risks.

5.2 Monitoring and Evaluation Arrangements

5.2.1 CREF will conduct daily monitoring-evaluation of PARSEGF following the matrix of

measures which constitutes the performance assessment framework of the programme. CREF has

already implemented PAREGF, and therefore has the requisite capacity to provide the

coordination necessary for successful implementation of the programme. Furthermore,

coordination with other donors operating in the areas of energy and public finance management,

namely the World Bank and the IMF, will also be ensured through regular exchanges on reform

implementation, close consultations and joint supervision.

VI. LEGAL DOCUMENTS AND LEGAL AUTHORITY

6.1 Legal Document

6.1.1 The legal document to be used for this programme is the Grant Agreement. The parties

to this agreement are the ADF and the Republic of the Union of the Comoros.

6.2 Conditions Precedent to Bank Group Intervention

6.2.1 Grant Effectiveness: The Grant Protocol will become effective on its date of signature

by the Republic of the Union of the Comoros and the ADF.

6.2.2 Conditions precedent to disbursement of the two tranches: Maintenance of a stable

macroeconomic framework as determined by IMF assessments and analyses.

6.2.3 Conditions precedent to disbursement of the first tranche of UA 1 million: Disbursement of the first tranche will be subject to fulfilment of the following preliminary

conditions:

Condition 1: Provide evidence of the opening of a special foreign exchange

account at the Central Bank of the Comoros, exclusively to receive the grant

resources for PARSEGF. Evidence Required: The original letter from the Central

Bank of the Comoros containing the account information;

Condition 2: Provide evidence that the general plan for reorganization of the

commercial activities of MA-MWE has been adopted by the Council of Ministers.

Evidence Required: Letter transmitting the true copy of the general plan for

reorganization of the commercial activities of MA-MWE and the true copy of the

minutes of the Council of Ministers meeting adopting the said plan;

19

Condition 3: Provide evidence of the operationalization of the corporate organs of

MA-MWE . Evidence Required: True copy of the texts appointing the Board

members of MA-MWE;

Condition 4: Provide evidence of the operationalization of the Public Procurement

Regulatory Agency (ARMP) and the National Directorate for Public Procurement

Control (DNCMP). Evidence Required: True copies of the texts appointing the

Managers of the Public Procurement Regulatory Agency (ARMP) and the

National Directorate for Public Procurement Control (DNCMP).

6.2.4 Conditions precedent to disbursement of the second tranche of UA 1 million: Disbursement of the second tranche will be subject to fulfilment of the following preliminary

conditions:

Condition 1: Provide evidence of the adoption of the National Energy Policy by

the Council of Ministers. Evidence Required: True copy of the National Energy

Policy adopted by the Council of Ministers and true copy of the Council of

Ministers' minutes on adoption of the said National Energy Policy.

Condition 2: Provide evidence of the publication of tender invitations and public

contract award notices on the CREF website from 1 January 2013 to 30 April

2013. Evidence Required: True copy of instruction by the competent authority

concerning publication on CREF website and CREF website screenshots showing

visible posting of public contract awards for the period from 1 January 2013 to 30

April 2013.

6.3 Compliance with Bank Group Policies

6.3.1 This programme is in conformity with the applicable policies and guidelines, in

particular: (i) Bank policy on programmatic support operations; (ii) 2011-2015 Country Strategy

Paper of the Union of the Comoros; (iii) the Bank Group’s Strategy on Enhanced Engagement in

Fragile States; and (iv) FSF Operational Guidelines.

20

VII. RISK MANAGEMENT

Risks Level of probability Mitigative Measures

Political instability Moderate

The new institutional architecture that emerged from the 2009

referendum law, with Governors rather than Presidents heading the

islands, will make it possible to avoid jurisdictional conflicts and

political tension at the helm of State. Continuous dialogue between the

authorities and TFPs, including the African Union, will continue to

play an important role in ensuring political stability.

Insufficient institutional and

technical capacity to successfully

implement the reforms set out in the

Programme.

Moderate

Many institutional support projects supported by TFPs, including the

ICBP supported by the ADB, the ABGE supported by the World Bank

and APLACO financed by the EU are aimed at building the

institutional capacity of departments and agencies responsible for

reform implementation. Vulnerability of the Comorian

economy to external shocks considering the narrow domestic

market, limited diversification of the

production base and, consequently, a

limited range of exports for the

international market.

Moderate

Continuation of reforms within the framework of the programme

supported by the ECF and other TFPs as well as promotion of

productive activities in growth sectors such as agriculture, fisheries

and tourism will enable the economy to cope with exogenous shocks.

Risk of non-sustainability of

reforms Moderate

The HIPCI process has been catalytic in bringing about reforms and

PARSEGF seeks to help consolidate these achievements. Debt

reduction through the HIPCI, increased tax revenue and the control of

public procurement will help to mitigate this risk of non-sustainability

of reforms.

Risk of opposition to reforms Moderate

Opposition to reforms is mitigated by the emphasis laid on

transparency, in order to promote the perception of equitable resource

distribution between the Union and the islands. Improved internal

coordination as well as continuous and coordinated dialogue between

the authorities and TFPs helps to mitigate this risk.

Fiduciary risk for the project High

The institutional support currently being implemented, PARSEGF, of

the IMF’s ECF and the World Bank budget support back up reforms

aimed at mitigating fiduciary risk, including the reinforcement of

internal control through the establishment of the General Directorate

for Financial control and the setting-up of the Audit Bench to improve

external control. Operationalization of the new public procurements

code will make it possible to improve public procurement

transparency. The operationalization of the new Law on State

Financial operations (LOFE) will also help to improve fiduciary

management in the country.

VIII. RECOMMENDATIONS

8.1 In light of the foregoing, it is recommended that the Board of Directors approve a grant

on FSF resources in the amount of UA 2 million, awarded to the Republic of the Union of the

Comoros to finance the implementation of the said programme, subject to the conditions set out

in this report.

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PARSEGF Letter of Development Policy

UNION OF THE COMOROS:

---------------------------------

VICE-PRESIDENCY, IN CHARGE OF THE MINISTRY

OF FINANCE, ECONOMY, BUDGET,

INVESTMENT AND EXTERNAL TRADE

AND IN CHARGE OF PRIVATISATION

-----------------------------------

The Vice President

No. 12- /VP-MFEBICEP/CAB Moroni,

To

Dr. Donald KABERUKA

President of the African Development Bank (ADB)

Tunis

Subject : Letter of Development Policy

Mr. President,

1. After the decade-long political and institutional crisis that led to a significant reduction

of in per capita income, the deterioration of basic social services, the decline in access to

electricity and a net reduction in institutional capacity, the Union of the Comoros found peace

again following the end of the rebellion on the island of Anjouan in 2008, the effective

restoration of State authority on the island and the resumption of cooperation among the islands.

This new-found peace has made it possible to renew relations with the international financial

community and thus create the conditions for continued implementation of the Development

Programme based on the Growth and Poverty Reduction Strategy finalised in 2009 at the end of a

participatory process. This programme, which today constitutes the reference framework for

economic and social development in the Comoros, covers the 2010-2014 period. It focuses on 6

(six) strategic pillars that include: (i) stabilising the economy and laying the foundation for

accelerated and sustainable growth based on equity (Pillar 1); (ii) strengthening growth sectors by

laying emphasis on institutional building and increased participation of private economic

operators (Pillar 2); and (iii) reinforcing governance and social cohesion (Pillar 3).

2. This Letter of Development Policy sums up the progress made by the Comoros in

economic and social development in recent years within the framework of the Government

programme. It then describes the reform policies that the Government intends to pursue in the

medium term. The measures and objectives of the programme are consistent with the 2010-2014

Growth and Poverty Reduction Strategy Paper (GPRSP 2010-2014). Through this letter, the

Government of the Union of the Comoros is requesting the Bank’s assistance to support the

implementation of its Electricity and Petroleum Products Policy adopted in May 2012; its 2010-

2019 Ten-year Public Finance Management Reform Strategy (DSR-GFP, 2010-2019); and, above

all, its 2010-2012 Priority Action Plan (PAP 2010-2012), to reduce poverty in accordance with

GPRS 2010-2014.

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I. RECENT ECONOMIC AND SOCIAL TRENDS

1.1 After suffering the structural effects of the political and institutional crisis, economic

activity in the Union of the Comoros is evolving in a fairly positive context, despite a difficult

international environment characterised by the public debt crisis. The real GDP growth rate was

2.2% in 2011, compared to 2.1% in 2010 and is projected to rise to 2.5% in 2012 and 3.5% in

2013. Despite the rise in the price of food and energy products, compounded by the rise in the

value of the dollar, the average annual inflation rate was estimated at 6.8% in 2011, compared to

3.9% in 2010. On a year-on-year basis, the increase is considerably less pronounced, with a price

index variation of +1.6% between December 2010 and December 2011.

1.2. To lay the foundation for sustainable economic growth and mitigate the devastating

effects of the difficult economic situation on the purchasing power of households as well as the

impact of the spike in world food and energy prices, the Government is pushing on with its

commitment to implement the reforms scheduled in the Extended Credit Facility (ECF)

Programme concluded with the International Monetary Fund and under the Heavily Indebted

Poor Countries Initiative (HIPCI) whose completion point should be attained in December 2012.

A review of the ECF Programme in June 2012 recognised the efforts deployed by the

Government to consolidate the budget and boost structural reforms through the following actions:

(i) cancellation of the excessive salary increase granted in 2010; (ii) stricter monitoring of the

settlement of domestic payments arrears and external debt servicing payments, mainly by

reinforcing joint monitoring of the debt service payment schedule by the Directorate for the

Treasury, the Public Debt Directorate of the Ministry of Finance, and the Central Bank of the

Comoros. This review noted that there was better economic growth in 2011 compared to 2010

that was sustained by solid agricultural production and a gradual resumption of foreign direct

investments (FDI).

A. Macroeconomic and Financial Framework

1.3. Growth: The Comorian economy, primarily based on cash-crop farming focused on only

3 products (vanilla, cloves, ylang-ylang) registered an average growth rate of 2.3% over the last

three years, which is an improvement over the previous 2006-2008 period when the estimated

average rate was approximately 1%. This slight improvement in economic performance stems

from: (i) an abundant harvest; (ii) domestic demand sustained by an increase in external

resources, mainly remittances from abroad; (iii) a steady rise in credits to the private sector; (iv)

the gradual resumption of foreign direct investments (FDI); and (v) the containment of inflation

at approximately 3% on average.

1.4. With respect to public finance, the execution of State financial operations in 2011 was

characterised by an improvement in the main budget balances thanks to a rise in domestic

(mainly non-tax) revenue which skyrocketed by 75.4%, despite an increase in primary current

expenditure. On account of the strong performance in customs revenue due to the rise in the value

of imports, tax revenue increased by 4.8% in 2011 compared to 2010, recording KMF 23.5

billion compared to 22.4 billion, with the tax burden maintained at 11.4% of GDP.

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1.5. With regard to monetary aspects, the monetary expansion observed in recent years

continued in 2011 at a less sustained growth rate of 9.6% compared to 19.4% in 2010. This

expansion is mainly attributable to the increase in net external assets (+16.1%), since domestic

credit grew by only 4.2% after a surge of 17.6% in 2010.

After the sharp increase of 17.6% registered in 2010, domestic credit grew by only 4.3%, thus

placing the outstanding debt at KMF 45.5 billion in December 2011, compared to KMF 43.7

billion in December 2010. Credits to the economy fuelled this growth, raising the amount to

KMF 39.8 billion compared to KMF 38 billion in December 2010.

1.6 With respect to external accounts, the current account deficit deteriorated, expanding to

14.1% of GDP in 2011 compared to 9.8% in 2010. This trend resulted mainly from the widening

of the trade deficit (KMF 68.1 billion in 2011 against KMF 60.3 billion in 2010), that could not

be offset by the increased surplus in current transfers over the same period (+2.9%). The value of

exports grew by 16% to KMF 8.9 billion in 2011, compared to KMF 7.7 billion in 2010. This

trend was driven essentially by clove exports which enjoyed sustained external demand and good

export prices. The value of imports grew by 13% compared to 2010. This increase mainly

concerned food products, building materials and petroleum products.

1.7. Lastly, the external public debt stock, (including arrears) stood at KMF 93.646 billion at

the end of December 2011, compared to KMF 98.409 billion in December 2010, representing an

8% decline compared to the end of 2011. This decrease reflects the relief obtained from external

creditors under the HIPC Initiative as well as efforts initiated by the Government to ensure timely

settlement of current and future debt servicing payments.

B. Structural Context

1.8. The success of the reforms initiated, especially those scheduled under the programme

with the IMF, calls for continuation of the efforts deployed to ensure respect of the budget

balance. Hence, the role of the Budget Committee must be maintained to guarantee more efficient

monitoring of budget execution. A national debt committee was set up to improve public debt

programming and management. The Economic and Financial Reforms Unit (CREF) coordinates

and monitors public finance management reforms and serves as the budget committee secretariat.

The institutional framework set up to ensure more rational public finance management has

currently made it possible to achieve better results in terms of revenue and expenditure control.

This has led to regular payment of civil servant salaries using the GISE software.

C. Social Context

1.9. The social context in the Comoros remains characterised by the prevalence of urban and

rural poverty. Indeed, for the various islands, the population living below the poverty threshold,

evaluated at KMF 285,144 KMF per capita and per year, stood at 38.4% in Anjouan, 37.8% in

Mohéli and 35.3% in Grande Comores in 2004. Monetary policy is higher in rural areas (41.1%

of inhabitants) than in urban areas (26.7%) according to the 2004 Integrated Household Survey.

Although these statistics are dated, they provide insight into the poverty situation when

interpreted against the overall socioeconomic condition of the people. This trend does not portend

any significant change and most of the social indicators will remain at a generally low level.

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However, several measures have been taken all over the national territory to improve the health

status of the people, increase access to education and promote national cohesion. Hence, the

proportion of malaria cases to general consultations dropped from 50% in 2004 to 36% in 2011.

Despite the high morbidity rate, the mortality rate is significantly lower thanks to available and

free treatment for simple malaria cases and the mass malaria treatment campaign organised in

Mohéli between 2008 and 2010. The pre-school enrolment ratio was evaluated at 16% in 2011,

representing a significant increase of 10.9 points within one year (5.1% in 2010). The national

primary school completion rate rose by five points in 2011 (62%) compared to 2010 (57%).

II. THE GOVERNMENT’S 2010-2013 REFORM PROGRAMME

A. Preamble

2.1. Within the framework of the 2010-2014 Growth and Poverty Reduction Strategy (GPRS

2010-2014), the Government opted for a development model based on a mixed approach that

targets sectors with a high concentration of poor, in order to generate a direct and rapid increase

in their incomes, as well as medium-term development of new growth sectors whose benefits can

be redistributed through equitable and incentive-driven taxation and public spending.

2.2. The results of the preliminary diagnosis of growth sources in the Comoros conducted in

2010 with Bank support are consistent with the development model recommended in GPRS

2010-2014. This diagnosis showed that economic and social development in the Comoros is

conditional on: (i) an improvement in the performance and development of the electricity sub-

sector; (ii) rapid revival of investments in the key sectors and sub-sectors of agriculture, fisheries

and tourism as well as greater diversification of the economy (processing of agricultural and

fishery products); (iii) reduction of the weight of the State within the economy and promotion of

private initiative; and (iv) improvement of governance, better management of the economy and

allocation of available resources. These four complementary objectives are directly or indirectly

targeted in the context of the new 2011-2015 country strategy prepared by the Bank in

consultation with the Comorian Government. The sole pillar under this strategy is development

of the energy sector to support economic diversification.

2.3. Hence, the Energy Sector Reform and Financial Governance Support Programme

(PARSEGF) seeks to support reforms aimed at improving energy sector performance and

development, especially in the electricity sub-sector. This energy sector support will be

accompanied by measures that seek to improve public finance management and thus build the

State’s capacity to manage this sector.

B. Improvement of Energy Sector Performance and Development

2.4. PARSEGF’s sole component entitled "improving the performance and development of the

energy sector" is subdivided into two pillars, namely: (i) improving energy sector performance

and governance; and (ii) strengthening public finance management. The operational objective of

the first pillar is to use specific and targeted reform measures to improve energy sector

performance and governance, and thus build the sector’s capacity to support the diversification

and development of the economy. The objective of the second pillar is to help the Comorian

Government to continue with and expand PFM reforms, by implementing the relevant strategy

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adopted by the GUC for the 2010-2019 period. The rationale for this pillar is the enormous

pressure that the electricity sub-sector exerts on public finance as a result of its poor performance

and inefficiency. This significantly limits the space that the State could have to ensure efficient

public finance management.

B1. Pillar 1: Improvement of Energy Sector Performance and Governance

2.4. To revive the energy sector and eliminate the major constraint resulting from

dysfunctions within this sector and which undermine the competitiveness of the Comorian

economy, the following priority challenges remain to be addressed: (i) profoundly restructure the

sector; (ii) expand the country’s electricity coverage; (iii) reduce the national energy bill; (iv)

streamline the financial situation of sector companies; and (v) strengthen sector governance.

2.6. To address these challenges, PARSEGF seeks to improve electricity sub-sector

performance through the following measures: (i) conduct of the organizational and strategic audit

of the EDA; (ii) finalisation of the organizational and strategic audit of MA-MWE; (iii)

restoration of the smooth functioning of the organs of the public electricity corporations,

especially by clarifying and specifying the roles of the various organs, establishing and

operationalizing the boards of directors of MA-MWE and EDA, as well as streamlining and

simplifying the procedures for appointing the managers of these companies; (iv) adoption and

implementation of a global plan to reorganize the commercial activities of MA-MWE which is

certainly a short-term measure, but one that is crucial to MA-MWE’s rapid return to financial

viability; (v) optimal preparation and adoption, in terms of form and content, of an action plan for

implementation of the relevant recommendations that will ensue from the organisational and

strategic audits of MA-MWE and EDA; and (vi) adoption of a long-term national energy policy.

2.7. The implementation of PARSEGF-supported reforms should contribute to the following

results: (i) MA-MWE's billing rate is expected to rise from 55% in 2011 to 70% in 2013; and (ii)

MA-MWE's bill collection rate will rise from 58% in 2011 to 80% in 2013. Implementation of

the recommendations of organizational and strategic audits, whose preparation and adoption are

supported by the programme, should ultimately result in: (i) the review and update of legislative

and regulatory instruments governing the electricity sub-sector and restructuring of companies in

that sub-sector; (ii) revision of the format for supervision of sub-sector companies, effective

conduct of such supervision and modernisation of the sub-sector's governance.

B2. Pillar 2: Consolidation of Public Finance Management

2.8. While implementing the necessary reforms that will gradually remedy the electricity

sub-sector situation and reduce its excessive dependence on the State, there is a fundamental need

to support efforts aimed at boosting revenue collection capacity, increasing public procurement

transparency and efficiency and promoting better debt management. This will enable the State to

consolidate the progress made in public finance management under PAREGF and give it greater

capacity to address the restructuring, recovery and development requirements of the electricity

sub-sector.

2.9. As concerns domestic revenue collection, the programme firstly targets the effective

operationalization of the General Authority for Taxation and Lands (AGID) which will be

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exclusively responsible for administration of taxes covered by the General Tax Code. This

measure will enhance the transparency of the revenue chain and strengthen compliance with

revenue allocation rules. In the same vein, PARSEGF seeks to build the capacity of the Joint

Taxation-Customs Brigade set up in 2009.

2.10. Secondly, in order to support Government efforts to improve public procurement efficiency

and transparency, the programme targets the following measures: (i) operationalization of the

Public Procurement Regulatory Authority (ARMP), the National Directorate for Public

Procurement Control (DNCMP) and the Procurement Units of the various ministries; and (ii)

publication of tender invitations and contract award announcements on CREF’s website. As

concerns debt management, the programme supports the preparation and adoption of a targeted

and simple debt management strategy so as to maintain a prudent borrowing policy.

2.11. In terms of results, the programme projects an increase of over two percentage points in

the tax ratio from 2011(10.9% of GDP) to 2013 (13% of GDP). The programme will also bring

about an improvement in public procurement efficiency and transparency. Indeed, PARSEGF

envisages a minimum of 70% of public contracts awarded through a bidding process that is open

and in accordance with the public procurement code. As regards debt management, PARSEGF

will specifically help to improve the net present value of the debt-to-exports ratio from 239% in

2011 to 86% in 2013. Together, these results will enable the State to avoid cash-flow problems,

while fulfilling its essential duties without any difficulties, and consolidate its legitimacy and

guarantee its gradual emergence from its fragile situation.

2.12. The improvement of PFM is also expected to have a positive effect on the energy sector.

The improvement in revenue collection, greater public procurement transparency and efficiency

and better debt management will enable the State to create the space needed for energy sector

investments.

III. MONITORING OF THE REFORM PROGRAMME

3.1 PARSEGF will be managed by the Vice-Presidency in charge of the Ministry of Finance

and monitored on a daily basis by the Permanent Economic and Financial Reform Monitoring

Unit (CREF). This institutional framework will be facilitated by a mechanism set up to

coordinate development assistance and whose on-going operationalization will be supported

through the establishment in the very near future of an electronic platform. This aid coordination

mechanism will be composed of: (i) a strategic committee which is the Council of Ministers,

expanded to represent all the partners and chaired by the Head of State, and which meets once a

year; (ii) a technical committee whose membership comprises all the Secretaries-General of key

ministries, chaired by the Secretary-General of the Government; and (iii) sector technical groups

chaired by the secretaries-general of the ministries concerned.

Please accept, Mr. President, the assurances of my highest consideration.

MOHAMED ALI SOILIH

Annex 2

Page 1/3

PARSEGF Measures Matrix

OBJECTIVES 2012 MEASURES 2013 MEASURES TARGETED OUTPUT

INDICATORS

KEY IMPACT

INDICATORS DATA SOURCE

COMPONENT I - IMPROVEMENT OF ENERGY SECTOR PERFORMANCE AND DEVELOPMENT

PILLAR 1:

IMPROVEMENT OF

ENERGY SECTOR

PERFORMANCE

AND GOVERNANCE

1.1. Finalise the National

Energy Policy

2.1. Adopt the national

energy policy at the Council

of Ministers

The national energy policy

is finalized and adopted by

the Council of Ministers

Billing rate of MA-

MWE

2011 benchmark:

55%

2013 target: 70%

Bill payment rate of

MA-MWE

2011 benchmark:

58%

2013 target: 80%

Letter from the MFEBICE

transmitting a true copy of the

minutes of the CM meeting

adopting the national energy

policy

1.2. Conduct and adopt the

organizational and

strategic audit of MA-

MWE and EDA

2.2. Prepare an action plan

based on recommendations

of the organizational and

strategic audit of MA-MWE

and EDA, and have it

adopted by the CM.

Implement the said action

plan

The organizational and

strategic audit of MA-

MWE and EDA is

prepared and an action

plan is adopted by the CM

and implemented.

Letters from the MFEBICE

transmitting a true copy of the

audit reports of MA-MWE and

EDA and the implementation

reports of the said audits

1.3. Prepare and adopt (in

CM) a general plan for the

reorganization of the

commercial activities of

MA-MWE

2.3. Implement the general

plan for the reorganization

of MA-MWE’s commercial

activities

The general plan for the

reorganization of MA-

MWE’s commercial

activities

is adopted and

implemented

Letters from MFEBICE

transmitting a true copy of the

general plan for reorganization

of MA-MWE’s commercial

activities;

Letters from MFEBICE

transmitting true copies of two

monitoring and implementation

reports of the general plan for the

reorganisation of MA-MWE’s

commercial services;

1.4. Appoint members to

the Board of Directors of

MA-MWE

2.4. Operationalize the

Board of Directors of MA-

MWE

Text appointing members

to the Board of Directors

(BD) and meeting minutes

of the said Boards

The Board of

Directors is

established and

operational as

evident in the

holding of regular

meetings.

Letter from MFEBICE

transmitting a true copy of the

decision appointing Board

members and minutes of two

meetings held in 2013.

Annex 2

Page 2/3

OBJECTIVES 2012 MEASURES 2013 MEASURES TARGETED OUTPUT

INDICATORS

KEY IMPACT

INDICATORS DATA SOURCE

PILLAR 2:

CONSOLIDATION

OF PUBLIC

FINANCE

MANAGEMENT

1.5. Promulgate the

Presidential Decree

defining the organisation,

powers and functioning of

the General Authority for

Taxation and Lands

Presidential Decree

defining the organisation,

powers and functioning of

AGID promulgated

Tax revenue- to-

GDP ratio

2011 benchmark:

10.9 % of GDP.

2013 target: 13 % of

GDP.

PEFA PI-13: (2007

benchmark: D+,

2013 target: C+)

PEFA PI-14: (2007

benchmark: D+,

2013 target: C+)

PEFA PI-15: (2007

benchmark: D, 2013

target: B)

Letter from the Ministry of

Finance, Economy, Budget,

Investment and External Trade in

charge of Privatisation

(MFEBICE) transmitting the true

copy of the Presidential Decree

defining the organisation,

powers and functioning of

AGID.

1.6. Sign Ministerial Order

to implement Presidential

Decrees defining the

organisation, powers,

functioning and status of

AGID

2.5. Operationalize the

General Authority for

Taxation and Lands (AGID)

Ministerial Order to

implement Presidential

Decrees defining the

organisation, powers,

functioning and status of

AGID is signed;

Minutes of three

consecutive meetings of

the AGID Board of

Directors

Letter from MFEBICE

transmitting a true copy of a

Ministerial Order to implement

the Presidential Decrees defining

the organisation, powers,

functioning and status of AGID

Transmission of minutes of three

consecutive meetings of the

AGID Board of Directors

2.6. Revise and ensure

adoption of the customs

tariff code by the CM

Customs tariff code

revised and adopted by

CM

Letter from MFEBICE

transmitting a true copy of the

revised customs tariff code and

minutes of its adoption meeting.

2.7. Build the capacity of the

Joint Taxation-Customs

Brigade (BMID)

Taxation-Customs Joint

Brigade trained and

provided with new IT

equipment

Letter from MFEBICE

transmitting true copies of

training reports and acceptance

reports for the IT equipment.

1.7. Operationalize the

Public procurement

Regulatory Authority

(ARMP), the National

Directorate for Public

Procurement Control

(DNCMP) and the Public

Procurement Units

(CGMP)

2.8. Publish tender

invitations and contract

award announcements on

CREF's website from 1

January 2013

Appointment of officials

and deployment of staff to

ARMP, DNCMP and the

CGMPs of the ministries

and State-owned

companies; Regular

preparation of quarterly

progress reports by ARMP

and DNCMP in 2013

Publication of tender

PEFA: PI-19

(2007 benchmark:

D+; 2013 target: C+)

ARMP and DNCMP

officials and CGMP

staff are appointed

and the ARMP and

DNCMP are

operational

Letters from MFEBICE

transmitting true copies of

Presidential Decrees to appoint

ARMP and DNCMP officials;

Letters from MFEBICE

transmitting true copies of orders

to deploy staff to ARMP and

DNCMP; Letters from

MFEBICE providing

information on the deployment

of staff members from the

Annex 2

Page 3/3

OBJECTIVES 2012 MEASURES 2013 MEASURES TARGETED OUTPUT

INDICATORS

KEY IMPACT

INDICATORS DATA SOURCE

invitations and contract

award announcements on

the CREF website

tender invitations and

contract award

announcements are

published on CREF's

website from 1

January 2013

CGMPs of the Ministries and

State-owned enterprises; Letters

from MFEBICE transmitting

true copies of 3 quarterly reports

of the ARMP and 3 quarterly

progress reports of the DNCMP

for 2013

1.8. Produce detailed

annual report on the

domestic and external

debt, including data on the

existing stock, new loans

as well as outstanding and

settled debt service

payments for 2011.

2.9. Produce detailed annual

report on the domestic and

external debt, including data

on the existing stock, new

loans as well as outstanding

and settled debt service

payments for 2011.

Annual reports on the

public debt

NPV of the external

debt-to-exports ratio

2011 benchmark:

239%

2013 target: 86%

Transmit copies of the annual

public debt reports for 2011 and

2012

1.9. Adopt the decree and

the effective establishment

of the new Treasury

administration, including:

(i) the appointment of the

General Director of the

Treasury and Public

Accounting; (ii) appoint of

the Paymaster General of

the Union; and (iii)

appointment of paymasters

for the various islands.

Decree adopted Transmit true copies of the

decree

2.10. Prepare and adopt (in

CM) a targeted and simple

strategy for debt

management

The targeted debt

management strategy

Transmit a copy of the strategy

and minutes of the CM meeting

that adopted it.

Annex 3

Page 1/4

Statement on IMF-Country Relations

IMF Executive Board Concludes Third Review Under the Extended Credit Facility

Arrangement for the Union of the Comoros; Approves Extension of the Arrangement and

US$2.37 Million Disbursement

Press Release No. 12/230, June 15, 2012

The Executive Board of the International Monetary Fund (IMF) today completed the third review

of the Union of the Comoros’ economic performance under the program supported by the

Extended Credit Facility (ECF). In completing the review, the Board approved a waiver for the

nonobservance of a performance criterion on reduction of domestic arrears and the modification

of this performance criterion. The Executive Board also approved an extension of the

arrangement through December 31, 2013, and a rephasing of the remaining disbursements.

The completion of the review will enable an immediate disbursement of SDR 1.56 million

(equivalent to US$2.37 million). The Union of the Comoros’ ECF arrangement was approved in

September 2009 in an amount equivalent to SDR 13.57 million (about US$20.63 million; see

Press Release No. 09/315).

Following the Executive Board discussion on the Union of the Comoros, Mr. Naoyuki Shinohara,

Deputy Managing Director and Acting Chair, issued the following statement:

“Comoros’ overall performance under the ECF-supported program has significantly

improved since late 2011. Against the backdrop of a favorable political environment,

and enhanced donor support, the authorities have initiated corrective measures to put

their ECF-supported program back on track and are committed to prudent

macroeconomic policies and structural reforms. All these efforts are necessary to

promote sustained strong growth, facilitate progress towards long-term debt

sustainability, and reduce poverty.

“Achievement of the government’s fiscal objectives, including creating the fiscal space

needed for pro-poor and pro-growth spending, will require strengthening domestic

revenue collection and observing expenditure restraint. In this context, it will be

important to enhance the efficiency of tax and customs administration, and expand the

tax base. Efforts should also continue towards avoiding accumulation of new payments

arrears.

“Prudent debt management policies remain essential to address Comoros’ unsustainable

debt situation. Further progress towards reaching understandings on debt restructuring

with all external creditors and implementing the HIPC Initiative Completion Point

triggers will therefore be important.

“On the structural front, the authorities have stepped up technical consultations with

development partners on the reform of public financial management and the

Annex 3

Page 2/4

restructuring of public utilities. In the financial sector, the authorities are reinforcing

banking oversight and strengthening the central bank’s internal control mechanisms, all

of which are essential to ensure continued sound expansion of financial intermediation.

“In light of the more supportive policy environment, an extension of the ECF

arrangement to end-2013 would provide the needed additional time for addressing

delays in the implementation of reforms, so as to strengthen economic competitiveness

and enhance the effectiveness of the authorities’ poverty reduction strategy,” Mr.

Shinohara added.

Statement at the Conclusion of an IMF Staff Mission to the Comoros

Press Release No. 12/386 of 9 October 2012

An International Monetary Fund (IMF) staff mission visited the Union of Comoros from

September 22 to October 6, 2012, to conduct discussions on the Article IV Consultation for 2012,

the fourth review of performance under the Extended Credit Facility (ECF) program1, and to

finalize preparations for reaching the Heavily Indebted Poor Country (HIPC) initiative

completion point. The mission met with HE Dr. Ikililou Dhoinine, the President of the Union;

and held discussions with the Vice-President and Finance Minister; the Governor of the Central

Bank of the Comoros; the Head of the Planning Commission; as well as representatives of the

press and private sector, civil society, and the donor community.

At the conclusion of the mission, Mr. Mbuyamu Matungulu, the IMF mission chief for the Union

of the Comoros, issued the following statement today in Moroni:

“Macroeconomic developments are broadly favorable in 2012. Real GDP growth is

projected to strengthen further to 2.5 percent, mainly driven by activity in construction

and public works, as well as in food crop agriculture. The economy continues benefiting

from sustained donor support, foreign direct investment, and resilient remittances.

Despite increased price pressure in mid-year following floods that destroyed part of the

domestic food harvest, end-year inflation should be contained at 5 percent, thanks to

relatively stable world energy and food prices. Notwithstanding a moderate deterioration

in the terms of trade, the external current account deficit is projected to significantly

narrow to 6.9 percent of GDP in 2012 from 9 percent of GDP in 2011, reflecting a surge

in public transfers, including under the economic citizenship program. As a result, gross

international reserves will likely increase to a comfortable level equivalent to 7.2 months

of imports.

“Progress in budget consolidation continues, with the authorities poised to exceed their

2012 revenue target, and the wage bill under tighter control following the 2011 census of

the civil service. Excluding a windfall in economic citizenship receipts, estimated at 3.1

percent of GDP, the domestic primary budget deficit is projected to narrow to 0.9

percent of GDP in 2012, compared with a program objective of 1.1 percent of GDP and

an outturn of 1.4 percent of GDP in 2011.

“Implementation of the structural reform agenda was broadly satisfactory. All but one

of the structural benchmarks for the period through end-September were observed. In

particular, parliament approved legislation on a new, functionally better integrated,

Annex 3

Page 3/4

General Administration of Taxes; and the government cleaned up the civil service

payroll list consistent with the findings of the 2011 census. Also, with technical

assistance from the World Bank and African Development Bank, the government

finalized a feasibility study on the establishment of an integrated computerized public

finance information management system. However, the implementation of new and

leaner civil service personnel frameworks recently approved by parliament, which was

set to begin at end-September, was postponed to early 2013 as the authorities address

various related technical challenges

“With technical assistance from the World Bank and IFC, the government has updated

its reform strategies for the public utilities. Consistent with these, they have issued a call

for bids to enlist external expertise in the management of the power company (MA-

MWE); and approved a social plan for Comores Telecom. This clears the way for the

long-awaited issuance of a call for bids from potential investors. In the financial sector,

the authorities are soon to finalize the restructuring of Comoros Development Bank into

a full-fledged private commercial banking institution. Efforts to reform the state-owned

National Postal and Financial Services Company (SNPSF) are focused on preparing a

strategy to separate the postal and banking functions, with the latter being ceded to a

significant foreign partner.

“Reflecting on-going reforms in public financial management and in the financial and

public utility sectors, medium-term macroeconomic prospects are favorable. In the fiscal

area, the reforms are helping to consolidate the viability of public finances and to create

room for increased expenditures in infrastructure and other poverty reducing areas;

improvements in public utility efficiency would strengthen the business and investment

environment, setting the economy on a course of sustained strong growth. The

government expressed its determination to fast-track these reforms, aiming in 2013 to

secure effective private sector involvement in the management of Comores Telecom and

to bring about substantive changes in the management of MA-MWE and the state-

owned oil-import company (SCH).

“Assuming continued rigorous implementation of the reform agenda, real GDP growth

could accelerate to 3 ½ percent in 2013, and the primary fiscal deficit could be contained

at 0.9 percent of GDP; with government revenue at about 15 percent of GDP. Risks to

the outlook include a further weakening of global economic conditions and delays in

implementing the agreed macroeconomic and structural reforms.

“In collaboration with World Bank staff, the mission reviewed progress in implementing

the HIPC Initiative completion point triggers. These include policy measures to advance

macroeconomic stability; improve public financial management and governance;

strengthen health and education; support growth; and improve debt management.

Broadly satisfactory performance would be achieved when the call for bids from

potential Comores Telecom investors is issued in the coming weeks. This would

facilitate reaching to the HIPC Initiative completion point and permit full delivery of

related debt relief from creditors.

“The mission reached broad agreement ad referendum with the authorities on an

economic program for 2013 that could form the basis for completing the fourth review

under the Extended Credit Facility (ECF) arrangement, and permit Comoros to reach the

Annex 3

Page 4/4

HIPC completion point. The agreement will be reviewed by IMF management, before

being presented to the IMF Executive Board for consideration.

“The mission is grateful for the very open and frank discussions with the authorities of

Comoros, and for their hospitality.”

1The 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.

Annex 4

Page 1/1

Recent Trends in the Key Social, Macroeconomic and Financial Indicators

1990 2011 *

Area ( '000 Km²) 30 323 98 461

Total Population (millions) 0,4 0,8 1 044,3 5 733,7

Population growth (annual %) 2,4 2,6 2,3 1,3

Life expectancy at birth, total (years) 55,6 61,1 57,7 77,7

Mortality rate, infant (per 1,000 live births) 91,9 65,8 76,0 44,7

Physicians per 100,000 People 11,3 15,0 57,8 112,0

Births attended by skilled health staff (% of total) ... 61,8 53,7 65,3

Immunization, measles (% of children ages 12-23 months) 87,0 72,0 78,5 84,3

School enrollment, primary (% gross) 85,8 104,3 101,4 107,8

Ratio of girls to boys in primary education (%) 70,1 92,0 88,6 ...

Literacy rate, adult total (% of people ages 15 and above) ... 74,9 67,0 80,3

Access to Safe Water (% of Population) 87,0 95,0 65,7 86,3

Access to Sanitation (% of Population) 17,0 36,0 39,8 56,1

Human Develop. (HDI) (0 to 1) ... 0,4 0,5 ...

Human Poverty Index (% of Population) ... 20,4 33,9 ...

Economy 2000 2009 2010 2011

GNI per capita, Atlas method (current US$) 380 740 750 ...

GDP (current Million US$) 202 525 531 633

GDP growth (annual %) 1,7 1,1 2,0 2,0

Per capita GDP growth (annual %) -0,9 -1,5 -0,6 -0,5

Gross Domestic Investment (% of GDP) 10,1 13,8 13,8 13,8

Inflation (annual %) 5,9 4,8 3,8 1,9

Budget surplus/deficit (% of GDP) ... 0,6 7,2 -0,1

Trade, External Debt & Financial Flows 2000 2009 2010 2011

Export Growth, volume (%) -2,6 54,8 16,9 3,3

Import Growth, volume (%) 2,8 10,9 2,1 0,1

Terms of Trade (% change from previous year) 58,8 53,8 -1,8 -7,0

Trade Balance ( mn US$) -30 -151 -158 -200

Trade balance (% of GDP) -14,7 -28,7 -29,8 -31,6

Current Account ( mn US$) 0 -39 -46 -49

Current Account (% of GDP) -0,2 -7,4 -8,7 -7,7

Debt Service (% of Exports) 4,7 10,5 11,7 10,4

External Debt (% of GDP) 90,3 52,5 49,6 42,9

Net Total Inflows ( mn US$) -2 44 70 ...

Net Total Official Development Assistance (mn US$) 19 50 67 ...

Foreign Direct Investment Inflows (mn US$) 0 9 9 ...

External reserves (in month of imports) 6,0 4,5 4,0 ...

Private Sector Development & Infrastructure 2000 2009 2010 2011

Time required to start a business (days) ... 24 24 24

Investor Protection Index (0-10) ... 4 4 4

Main Telephone Lines (per 1000 people) 12,0 43,0 28,6 ...

Mobile Cellular Subscribers (per 1000 people) 0,0 171,3 224,9 ...

Internet users (000) 2,7 33,9 48,0 ...

Roads, paved (% of total roads) 76,5 ... ... ...

Railways, goods transported (million ton-km) ... ... ... ...

* Most recent year Last Update: May 2012

Comoros - Development Indicators

Developing

countries

Source: ADB Statistics Department, based on various national and international sources

ComorosAfricaSocial Indicators

2

Comoros