VFLEX 2009VFLEX 2009

Country Experiences fromCountry Experiences from

Mauritius , Seychelles , Mauritius , Seychelles , ComorosComoros

BESA, 23 March 2010BESA, 23 March 2010

Rich experience of Rich experience of Mauritius delegationMauritius delegation

3 different countries in 3 different contexts:3 different countries in 3 different contexts:– Comoros: Fragile StateComoros: Fragile State– Seychelles: middle income country facing an Seychelles: middle income country facing an

economic crisis situationeconomic crisis situation– Mauritius: middle income country Mauritius: middle income country

Bottomline: three VFLEX dossiers prepared Bottomline: three VFLEX dossiers prepared within 2 months, VFLEX envelopes for all 3 within 2 months, VFLEX envelopes for all 3 countries and all disbursements made countries and all disbursements made before end of december 2009before end of december 2009

MAURITIUS:COUNTRY MAURITIUS:COUNTRY CONTEXTCONTEXT

Economic reform programme ongoing Economic reform programme ongoing since 2006since 2006

In 2009, the economic growth rate fell In 2009, the economic growth rate fell to 2.8% as compared to an average of to 2.8% as compared to an average of 5% over the period 2006-2008. The 5% over the period 2006-2008. The most affected sectors were tourism and most affected sectors were tourism and textile manufacturing sectors, which textile manufacturing sectors, which posted negative growth rates of 6.4% posted negative growth rates of 6.4% and 4% respectively. Foreign Direct and 4% respectively. Foreign Direct Investment also fell by 25% in 2009 as Investment also fell by 25% in 2009 as compared to 2008. compared to 2008.

1.1. Mauritius satisfied the vulnerability criteria for Mauritius satisfied the vulnerability criteria for VFLEX in 2009:VFLEX in 2009:

an increase of the overall budget deficit, excluding grants from an increase of the overall budget deficit, excluding grants from 3.9% in 2008/2009 to 6.5% in fiscal year 2009 i.e. a worsening of 3.9% in 2008/2009 to 6.5% in fiscal year 2009 i.e. a worsening of 2.6% for 2009 2.6% for 2009

a drop in government revenue from 22.6 % in 2008/2009 to a drop in government revenue from 22.6 % in 2008/2009 to 21.3% in FY 2009, showing a drop of 1.3% in 2009 21.3% in FY 2009, showing a drop of 1.3% in 2009

existence of a residual fiscal financing gap of € 21.8 mio in 2009 existence of a residual fiscal financing gap of € 21.8 mio in 2009

The VFLEX instrument was used to solve the rising public sector The VFLEX instrument was used to solve the rising public sector debt problem, which as per the law should not exceed 50% by debt problem, which as per the law should not exceed 50% by 2013n but reached almost 60% in 20092013n but reached almost 60% in 2009

VFLEX would be used to mitigate this increase in public sector VFLEX would be used to mitigate this increase in public sector debt, so that the negative impact of debt servicing is not at the debt, so that the negative impact of debt servicing is not at the cost of priority spending in social sector and for infrastructure cost of priority spending in social sector and for infrastructure projects. projects.

ALLOCATION RECEIVED in 2009: € 10.9 MIOALLOCATION RECEIVED in 2009: € 10.9 MIO

•Seychelles' economic growth has averaged 7.7% per annum Seychelles' economic growth has averaged 7.7% per annum over 2005-2007 (mostly explained by a buoyant tourism over 2005-2007 (mostly explained by a buoyant tourism sector)sector)

However, in mid-2008, the petroleum and food price spike However, in mid-2008, the petroleum and food price spike deeply affected Seychelles deeply affected Seychelles

Arrears to bilateral creditors had built-up, official reserves Arrears to bilateral creditors had built-up, official reserves had been virtually exhausted, and foreign exchange had been virtually exhausted, and foreign exchange shortages and extensive exchange restrictions were heavy shortages and extensive exchange restrictions were heavy constraints on economic activity. constraints on economic activity.

Growth was already negative in 2008 (-0.9%) Growth was already negative in 2008 (-0.9%)

The Government has also formulated a macroeconomic and The Government has also formulated a macroeconomic and financial reform programme to rebalance the economyfinancial reform programme to rebalance the economy

SEYCHELLES:COUNTRY SEYCHELLES:COUNTRY CONTEXTCONTEXT

VFLEX criteria for 2009 for VFLEX criteria for 2009 for Seychelles:Seychelles:

Level of reserves was below 2 months Level of reserves was below 2 months of imports:of imports:– 2008:0.72008:0.7– 2009:1.32009:1.3

Budget support had just startedBudget support had just started Financing Gap of USD 12 mio in 2009Financing Gap of USD 12 mio in 2009

Allocation of an envelope of € 9 mio Allocation of an envelope of € 9 mio under VFLEX 2009under VFLEX 2009

COMOROS: country COMOROS: country contextcontext

• Fragile state, one of the poorest Fragile state, one of the poorest countries in the worldcountries in the world

• Economic and political crisis and also Economic and political crisis and also affected by food crisisaffected by food crisis

• Rate of growth 1% in 2008Rate of growth 1% in 2008• Estimated 45% of population living Estimated 45% of population living

under absolute poverty thresholdunder absolute poverty threshold

COMOROS:VFLEX COMOROS:VFLEX criteriacriteria

• Decrease by 0.1% of government Decrease by 0.1% of government revenue between 2008 and 2009revenue between 2008 and 2009

• Fiscal deficit excl grants improved by Fiscal deficit excl grants improved by 3%, but including grants fell by 1.3%3%, but including grants fell by 1.3%

• Foreign reserves at 5.8 months of Foreign reserves at 5.8 months of importsimports

• Comoros obtained an allocation of € 4.7 Comoros obtained an allocation of € 4.7 mio under VFLEX 2009mio under VFLEX 2009

ISSUESISSUES– Urgency of exercise over the whole Urgency of exercise over the whole

project cycle project cycle – Collaboration and communication from Collaboration and communication from

HQHQ– Collaboration with the IMF and WBCollaboration with the IMF and WB– Budget support eligibility for some Budget support eligibility for some

countries were still being addressed countries were still being addressed (SEY, COM)(SEY, COM)

– Specific case of fragile states /MICs should be Specific case of fragile states /MICs should be considered when assessing the criteria considered when assessing the criteria (fragility waiver)(fragility waiver)

CONSTRAINTSCONSTRAINTS Bilateral discussions between IMF and Bilateral discussions between IMF and

HQ to which Del was not partyHQ to which Del was not party

Low capacity of NAOs (eg Comoros) to Low capacity of NAOs (eg Comoros) to submit detailed VFLEX requestssubmit detailed VFLEX requests

Verification of residual fiscal financing Verification of residual fiscal financing gapgap

Working sessions with the NAOs to explain Working sessions with the NAOs to explain criteriacriteria

Good collaboration Del –HQ-IMF-WBankGood collaboration Del –HQ-IMF-WBank Work closely with IMF and WBank when Work closely with IMF and WBank when

assessing the criteriaassessing the criteria Anticipate questions from EDF CteeAnticipate questions from EDF Ctee Identify programmes to which the VFLEX Identify programmes to which the VFLEX

can be tagged easilycan be tagged easily Disbursement can be quick!Disbursement can be quick!

Lessons for othersLessons for others

Question to HQQuestion to HQ

Will there be VFLEX after 2010, Will there be VFLEX after 2010, given that some given that some countries have a countries have a lagged effect of the crisis, ie the lagged effect of the crisis, ie the impact of the global crisis is slow impact of the global crisis is slow but ongoing and expected for still but ongoing and expected for still several years.several years.