WASHINGTON, September 29th, 2023 — As Comoros works toward improving human capital outcomes and increasing productive capital investments to boost inclusive and resilient growth, the World Bank is committed to supporting the country to implement new reforms through the First Fiscal Management and Resilient Growth Development Policy Financing (DPF). This DPF will help Comoros improve public expenditure efficiency, build its resilience to shocks, and enhance transparent fiscal management and state-owned enterprises performance—all of which weigh heavily on the public budget.
Over the past four decades, economic growth in Comoros has been modest due to macroeconomic and governance weaknesses and low private investment. Real growth domestic product (GDP) growth averaged 2.6% from 1980 to 2022. This low level of growth has stymied poverty reduction and efforts to expand economic inclusion. The growth model has relied heavily on public and private consumption, with a heavy presence of state-owned enterprises (SOEs) in key economic sectors.
Comoros’ SOEs, which contribute up to 43% of government revenues, saw their net income drop by more than two-thirds between 2017 and 2020. Their poor financial performance has been accompanied by an increase in domestic public debt, from around 0.9% of GDP in 2016 to 6.6% in 2022. Furthermore, productivity growth has been marginal, partly due to limited fiscal space to realize productive capital investments and improve human capital outcomes. Private investment has also been limited by the shallow banking sector, which is characterized by high credit risks and substantial risks for financial stability. Comoros is highly exposed to shocks and has limited ability to cope with them.
“Considering the current macroeconomic challenges facing Comoros, enhancing fiscal management and governance are essential to create the fiscal space needed to improve public service delivery for better economic and social outcomes, and building resilience to future shocks,” said Boubacar Sidiki Walbani, World Bank Resident Representative for Comoros. “Through this operation, the Government of Comoros took the necessary steps to implement much-needed reforms to strengthen the macroeconomic environment and address key vulnerabilities that reduce growth opportunities.”
The operation of $20 million grant, the first in a programmatic series of three DPFs, is anchored in three pillars. The first will support reforms that will enhance debt management and public expenditure efficiency through the enactment of the first debt management law and the use of e-Government Procurement (e-GP) in public procurement. The second pillar includes reforms to strengthen Comoros social, financial, and food resilience against exogeneous and climatic shocks through increased efficiency of the social protection program, the creation of a disaster risk resilience fund, and the lifting of a state monopoly on the importation of rice to strengthen food security. The third pillar will aim at improving the governance and performance of SOEs, including through increased transparency of SOEs financial statements, the restructuring of a major state-owned bank which represents a systemic financial stability risk, and the enactment of a renewable energy law which will support access to low-cost sources of energy and improve the financial performance of the energy utility company.
Aligned with the national development plan – Plan Comores Emergent (PCE) – and with the World Bank Country Partnership Framework for Comoros, this series of DPF supports critical reform actions to promote a resilient economic expansion, complementing ongoing World Bank support in energy, finance, and social protection.
“This operation, which aims to enhance debt management and public expenditure efficiency, strengthen resilience to shocks, and improve the governance of state-owned enterprises, lays the foundations to enhance macroeconomic stability and inclusive and sustainable growth in Comoros. Given the recent shocks, this program will also help reduce fragility risks,” said Steve Loris Gui-Diby, Senior Country Economist for Comoros and Task Team Leader of the operation.