Report No. 6690-COM The Comoros The Arduous Path to Economic Growth: The Need for Adjustment August 14,1987 South Central and Indian Ocean Department Africa Region FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Annual Average The Comoros belongs to the "franc zone' and the Comorian franc is tied to the French franc at FF 1 - CF 50. Year CF 1 - US$ US$1 - CF 1982 0.00304 329 1983 0.00262 382 1984 0.00229 437 1985 0.00223 448 1986 0.00289 346 1987 (4 months) 0.00332 301 The 1986 exchange rate is used in this repor_ for projections. FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES Metric System 1 kilometer - 0.62 mile 1 square kilometer 0.3861 square mile 1 hectare = 2.47 acres 1 ton - 1,000 kilograms 1 kilogram 2.2046 pounds FOR OFFICL USE ONLY This report is based on the findings of a World Bank economic mission which visited the Comoros from November 29 to December 20, 1986. The mission was composed of: Mr. Devaux Mission Leader Mrs. Eap Economist Mr. Bui Quang Balance of Payments Mr. Bheenick Public Investment Program Mr. Demangel Public Finance Mr. Rakotobe National Accounts Mr. Ouedraogo of the Islamic Development Bank joined the mission from December 13 to 20, 1986. Mr. Jebrin Al Jebrin of the Saudi Development Fund participated in the discussions of the main conclusions of the mission members from January 26 to 28, 1987. Mrs. Virginia Hinter assumed responsibility for processing the various drafts. Some of the data and conclusions of this report are drawn from other World Bank missions. The report was discussed with the Comorian authorities during the period from June 19 to 23, 1987. The original version of this report was written in French. This dcument ha a nstricddtibutionand may be used by reipients only in thepeformane of the ofki duties.its content may not otherwis be diced without Wodd bank autholzalton. ABBR£VIATIONS AND ACRONYMS US$ - United States dollar CF - Comorian franc FF * French franc ha * hectare kg - kilogram Km - kilometer ABEDA - Arab Bank for Economic Development in Africa ACP - African, Caribbean, and Pacific ADB - African Development Bank BEES - Bureau dt'tudes e.onomiques et statistiques BDPA - Bureau pour le developpement de la production agricole CADER - Centre 'appui au diveloppement rural CARE m United States private non-profit organization CCCE - Caisse centrale de cooperation economique CEFADER - Centre federale d'appui au developpement des Comores CREDICOM - Societe de credit pour le developpement des Comores FAC a Fonds d'aide et de cooperation FAO Food and Agriculture Organization of the United Nations EDF - European Development F7ind UNICEF - United Nations Children s Fund GDP - Gross domestic product IBRD - International Bank for Reconstruction and Development IDA - International Development Association IDB - Islamic Development Bank ONICOR - Office national pour l'Importation et la commercialisation du riz OPEC m Organization of Petroleum Exporting Countries OPT - Office dss postes et telecommunications SCH - Societe comorienne des hydrocarbures SNI a Societe nationale d'imprimerie SNTA - Societe nationale des transports aeriens SOCOTEL - Soceite comorienne d'hotel SOCOVIA - Societe comorienne dtimportation des viandes et des produits alimentaires SONATRAE - Societe nationale des transports maritimes STAC - Societe des tabacs et allumettes TARI - Tropical Agriculture Research Institute UNDP - United Nations Development Program WFP - World Food Program BIBLIOGRAPHY WoritJ Bank Documentst - The Comoros - Problems and Prospects of a Small, Island Economy, 162a-COM, 1979. - The Comoros - Current Economic Situation and Prospects, 3432-COM, 1982. - Comoros - Education Sector Memorandum, 5598-COM, 1985. - Comoros - Telecommunication Sector Memorandum, 3918-COM, 1985. - Comoros - Agricultural Sector Memorandum, 4368-COM, 1984. Other Working Papers: R. Bheenick - The Comoros: An Approach to a Public Investment Program, April 15, 1987. P. Demangel - Les Comorest Comptes consolides du secteur public, May 1987. D. Bui-Quang - Les Comores: L'Analyse et l'evolution de la balance des paiements et projections macroeconomiques, May 1987. United Nations - Economic Commission for Africas R. Rakotobe - Rapport de Mission en Republique Federale Islamique des Comores, 21 novembre- 20 decembre, 1986. Government Documents: Bilans et perspectives du developpement, Juillet 1983. Bilan du plan interimaire, 1983-86, Janvier 1986. TABLE OF CONTENTS Paae SUMMARY AND CONCLUSIONS ....................................i-i I. INTRODUCTION...*. ** e*@0 0* 0 0 00**** 1 II. 'ECENT ECONOMIC TRENDS .................... 3 A. Slowdown of Economic G r o w t h 3 B. Balance of Payments De f i c i t 5 C. Public Finance D.f.lt**.*......0. 8 D. Public Enterprise Management* 12 E. Currency and Prices ..... .. ..*0 . 14 III. BACKGROUND TO T7E CHALLENGE FACING THE CCMOROS .............. 16 IV. SOURCES OF POTENTIAL GROWTH ................... ***e....... 20 A. Agriculture.........0..... ..... 002.0 C. $nut ........... *..*....**.. .......................... ..... ................27 E. Education and Health .............. ...............30 V. ON TE PATH TO GROiWTH.............................. ........32 A. The Thrust of Adjustment ....32 B. The Macroeconomic Context .....33 C. The Public Investment Program.34 D. Financing Public Expenditure....... 000000* ........ .037 E. Balance of Payments Prospets..........................40 F. The Need to Restructure the Debt ......................42 GS AonNEusn .....0 ........* 43 STATISTICAL ANNEX ............ LIST OF TABLES gane I Resource Availability and Use ........... 4 II Macroeconomic Indicators, 1983-1986 .................... 5 III Balance of Payments Summa ry............................ 6 IV Public Finances: Consolidated Data .....................10 V Public Enterprisess Consolidated Data ..................13 VI Economic Projections, 1985-1995 .................*..... .34 VII The Public Investment Program .............. ...........35 VIII Public Finances, 1987-1990 .......................... ...39 IX Export Projections, 1986-1995 ............ .............40 x Import Projections, 1986-1995 ............ ............. 41 XI Balance of Payments, Projections for 1985-1995 ......... 42 a_ wmic dIAYm tid-196l8 . Ibuatian (Si l*.) 0.407 a 1/a 196 Per Cpita @f I; USS 810 JoI 19 S7 A. Sharpet Gron eotie Product ( S. Growth ate. (_per aum) (fm current price dew) (from current Was dt) 196 1964 19 1966 194 196 196 are" Doeatic Product c.p. 100.0 100.0 100.0 100.0 4.95 2.73 2.15 Agriculture 85.0 8S.6 86.1 87.4 8." 4.65 8.8 lnduatrp 14.2 15.8 14.1 12.9 7.05 -8.95 0.45 (4mb facturia*e) 8.6 8.7 8.7 8.7 7.85 4.5 6.13 Services 80. 10.0 49.8 49.6 8.73 8.13 1.81 ReM c. Balance -26.2 -56.6 -8.8 -27.1 91.85 -96.05 -17. Exports UANS 19.8 9.0 17.4 16.4 40.05 67.0o 5.1s mport. Om" 46.0 65.6 86.2 48.5 46.95 -10."8 -10.851 Total Expenditure. 16.2 156.6 16.6 17.1 24.95 -7.81 4.85 Y Canaumptlen 97.2 10.0 109.2 108.5 96.05 1.451 43.75 Private Consuaption 66.7 62.5 79.4 78.9 29.5 -1.25 -4.15 Public Conaumption 20.4 29.8 29.8 27.6 4.95 8.95 -8.51 Ora 0.ae.tia Inveatunt s9.0 45.8 29.? 24.6 A.N -29.95 -4.91 Fixed Inveetset 26.7 88.8 96.1 20.9 6.75 -15.11 -4.5 Chanes in Stock 2.8 12.8 8.6 2.7 . -66.81 -4.5 Ore.. D_metic Sevi n4 2.6 -10.8 -9.2 4.5 .. 11.05 6.95 In Ni I Ilina of CF (at constant 196 pric s) ree. Dmesitic Product 466 80102 51487 SUQ Tor of TradeAjustment 1701 -912 0 M Not Factor Inc". -1l -1882 -.127 -12 Gross Dotic ncome 487 4765 80162 8s18 C. Price Indices Conumer Prie. Ce.rian F%aly 64.6 94.6 100.0 10.8 Expatriates 61.9 90.7 100.0 114.0 0GP Deflator 88.4 9O.7 100.0 107.1 0. Other Indicators Growth Rate Poptlation 8.8 5.8 8.8 8.8 Labor Force .. ODP .. 4.2 2.7 2.1 Private ConsurpOin .. 29.2 -1.2 -8.1 Imort El;atclity Iport. (OMNS) / CDP .. 11.6 -4.0 4.1 1988-66 CN(peri avrage) 15.2 COMM - ED@NZC VOMACI Page? 1 / 8 Volume lndeU (191 a 100)1 Volvo St Currat prlea ( WI 11.. t8) B. lbrcAndlm Experts 19tS 164 196 196 196 1464 196 16 Vanl a 97.6 14.4 100.0 140.8 9.8 1.8 10.8 18.4 Cloves 101.4 97.4 100.0 52.6 6.8 4.1 8.1 1.9 llams-Ylons 80.8 88.0 100.0 69.8 1.8 1.8 1.8 1.7 Copruh 108.8 75.8 100.0 4.8 0.2 0.1 0.1 .0 Other .. .. .. .. 0.2 0.1 0.6 1.0 Total Ept luB .. .. .. .. s19. 6.9 18.7 20.0 P. Nardhandlsee, Reort. Food (Rice and Most) 62.? 125.0 100.0 128.8 A.7 7.6 6.1 7.1 Petela ProduOct 9.7 158.8 100.0 161.8 8.8 4.7 8.2 8.4 Others .. .. .. .. S0.1 80.1 29.8 26.9 Total Iporte CIP .. .. .. .. 7.4 42.4 86.7 87.8 0. 8rlae ofPaymenta ( i lltonc USI) Expoit. ows 21.6 8.6 1s.0 28.6 *ooa (F8 19.8 7.0 17.7 20.0 HN.-Factor SarvIa 2.1 1.5 2.8 8.6 imports OaS 40.8 82.0 49.1 88.6 Goode (FOB) 8V.4 42.4 86.7 87.8 N.ie-Fato.r Servce. 8.8 9.8 10.4 16.8 Neeurce 8alance -19.1 -48.4 -81.1 -80.0 Na Ftor Zncoa -9.6 -17.8 -16.6 -4.9 (intereete) 0.2 -0.8 -1.2 -0.8 Nat Current TraneFer 17.9 28.5 81.8 80.8 Currant Account blanc. -11.1 --2.7 -16.8 -14.4 Lent-Term Loan (not) 18.5 25.1 20.4 18.6 other Capital -8.o o.6 -1.6 0.6 Errore and OC;"elen -1.6 1.8 8.1 1.0 Chane In Raesrves -2.4 7.6 -7.6 -8.8 (- indicate. hicrawa) A, shares of 0P: Re.orce blace -17.2 -40.8 -27.1 -18.8 tAreete 0.2 -0.8 -1.0 -0.8 Current Acount Ban" -9.9 -80.4 -14.2 -8.9 Neasfand Itmes: Officiatl XC-Rt (CF/ U$) 861.06 486.9 449.26 846.8 0DP (al1. US$) 111.8 107.8 114.8 162.8 - - Not available * mac wc ---w-*@X-¢*--v i~~~~~~~~tet 3 / a Sear.. of MP (6 AoalGrowth 4tue *94* - - - -- - -- - - os- ---- ....-* *---- o - -^- - - --- M. Budget 1968 1984 190 19U 196 - 66 1968 1964 1961 1986 ,, _ ,, . ___ __ ,_,_ ,,_, ,_, .~~~.... ,_...... -------- , ..._ curret Recipt. 1i.1 14.6 12.4 18.0 8.71 1.S6 -S.46 2.71 C,rr.nts pExWiturce 82.9 81.4 J2.i 81.9 9.2s6 5.75 18.8I 7.2 curret oBdgt alsance -16.7 -16.6 -19.9 -16.9 12.S5 9.96 81.38 -7.06 Capital Rel eipt. 0.0 0.0 0.0 0.0 Capital FPeditur;e 1W.e 21.9 18.7 1.0 0.1S 48.40 -4.26 -28.91 Overall i.cis -8.6 41.8 -86.6 -29.9 6.11 i6.W 10.06 -18.261 armt 19.2 19.1 1t.$ 19.4 1.6 10.06 2.91 -..76 inotenal oreWiftg 13.S 16.9 18.7 10.6 0.11 81.46 -i.46 -26.06 oeet ic Borrwing 0.6 0.9 2.4 1.0 40.D8 307.86 -88.71 et. ustanding A Oleburae (USI e1.) Dabt Service (UN all.) I. ibtal Capital Flw. Dt .--bt- . ---_-.,--------- aid Dbt1 Ourden 166 1944 1965 1966 ~~~~- .--.-.- - -- -- -- -- .- - -- -- -...- PubiIc A Publicly OGearateed LT 64.9 108.0 124.8 138.8 1.4 2.7 8.1 6.8 official Creditors 84.6 10t.6 12.2 1O.2 1.4 2.7 8.1 8.5 iulti lbteral 78.8 92.7 189.8 164.? 1.8 2.6 8.0 4.9 of ahick 1D 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 of which IA 10.2 14.1 18.7 24.2 0.1 0.1 0.1 0.1 eileteral 8.9 12.9 18.7 21.8 .0 0.1 0.2 0.7 Private Creditors 0.4 0.2 0.1 0.2 .. Supler. .. .. .. .. .. . . Fitlncial "aritet 0.4 0.2 0.1 0.2 .. Obn-4saraatoed LT .. .. .. .. .. Totl I.? 64.9 106.8 124.8 186.8 1.4 2.7 8.1 8.6 Seek ad iDA ItbIo. Det Outstading 100.0 100.0 100.0 100.0 1. a as S tf htl 0.0 0.0 0.0 0.0 2. MDA *S lof tatel 12.1 18.3 18.0 18.5 _. DID * ID eSof total 12.1 18.8 15.0 18.8 LT Debt Service 100.0 100.0 100.0 100.0 1. IID as d tot 0.0 0.0 0.0 0.0 2. MDAsolof teoal 4.4 2.8 8.8 2.7 S. Ii IDAae of tot a 4.4 2.8 8.8 2.7 MlX to Eprto Ratioe 1. Long Te Dr t/Eaporte 898.6 10.8 689.9 662.4 2. DF Credit/apErte, .. S. Sot Tem Dtabt/wpr .. .. . . 4. Total Det/Exports 892.6 180.8 9.9 2.4 Mi to MP Netle 1. Lane Tea Dal/ 76.1 98.8 106.6 98.2 2. lD Credit/P .. . . S. Sht Tem b"t/UP .. 4. Total Debt/ 76.1 98.8 106.6 98.2 Debt Service/ iEspout 1. Pubic a Greateed LT 6.8 0f.0 18.0 20.0 2. Man-uneed T ..LT 8. Total LT Dbba Service 6.8 25.0 18.0 20.0 4. IW Rep.* Jev. Chas .. S. tatrota on ST Oebs .. S. otat (0,t) 6.S 25.0 18.0 20.0 8. ST Debt Srvi.ejlporte .. . . ,!ES= I SUMMOAR! AND CONCLUSIONS i. The salient features of the Comoros can be summarized as follows: a small country made up of several islands, a young and rapidly increasing population, and high population density. Poor health conditions and extensive malnutrition are responsible for a life expectancy of only 54 years. The low level in edacation has resulted in a low level of economic activity, high unemployment and heavy dependence on technical assistance. The country's lack of natural resources, coupled with its remoteness and vulnerability to natural calamities and external shocks, exacerbates the difficulties facing the Government. ii. The Comoros is one of the world's poorest countries. In spite of substantial external aid (approximately US$130 per inhabitant), per capita GDP is only about US$300. iii. The long-term economic and financial strategy has to take into account the specific circumstances of the Comoros. One reality which must be kept in mind is that debt service absorbs a large part of the Government'5 resources. An attempt should, therefore, be made to mobilize more domestic resources and to cut spending wherever possible. (The expenditures directly financed by the Government are often insufficient to cover the operation of its agencies.) An effort to rehabilitate public finance and improve its management is, therefore, imperative and constitutes the key to future ecoutomic development. The Government is aware of this situation, and the 1987 budget reflects its determination to correct it. The austerity policy adopted reflects both the Government's willingness to progressively trim the deficit (from 39Z of GDP in 1985 to 251 in 1987) and the reduced availability of aid from certain donors. iv. Restoring the financial situation is vital, but this task cannot be undertaken by the Government without the help of the international community. The Comoros could not be expected to be able to function if foreign aid, which has covered between 401 and 501 of the State's current expenditures to date, were to dry up. A concerted effort must be made, therefore, to reach an agreement on the amount of this aid in the context of a multi-year program and the annual national budget. Moreover, it is difficult to halt public investments; at best they could be cut back. The solution is more rational use of the resources made available to the State and strict economic criteria to select public investment pro1ects. v. While it is clear that reform and austerity measures are essential for restoring the economy and finances of the Comoros, such measures are not sufficient to assure a resumption of steady economic growth. Longer-term adjustments are necessary to create the framework for sustainable economic development. The yields of traditional cash crops must be improved and steps must be taken to encourage the development of new ones. PrioritY must be given to food security while maximizing return from each individual plot of land. Measures need to be taken to shift consumption habits toward domestic food products. Marketing channels must be imaroved to ensure a better distribution of domestic products at a lower cost. Last, but not least, the Comoros' long-term goal must be exort-oriented industrialization. - ii - vi. Agriculture is the leading sector of the economy; it contributes 40% of GDP and employs about 80% of the labor force. Introduced during the French colonial period, rice has become the main food staple. Although rice cultivation occupies one third of the area devoted to food crops, domestic rice production meets only 10X of the demand, and the rest has to come from imported rice. Yields of hill-grown rice are particularly low (paddy 300 kg/ha)? and its cultivation is a major cause of soil erosion. The retail price of rice includes an implicit tax that ought to deter consumption, since the consumer price is three times the world price. It is particularly important to discourate the non-economic cultivation of local rice and to improve the production of domestic food products. A more in-depth study of the problems related to pricing and marketing of food products would be advisable. At the same time, it would be desirable to continue to improve cultivation methods of traditional food crops (cassava, sweet lotatoes, bananas, bread-fruit, pigeon peas, etc.) through agricultural research and specialized extension services to train farmers. vii. The World Bank's agriculture sector report of 1984 showed that land use at present is far from optimum to maximize income for both the farmers and the country. Income per hectare from cash crops is well above that earned from subsistence crops. Therefore, the cultivation of cash crops should be encouraged. Since international demand for the traditional cash crops (ylang-ylang, vanilla, and eloves) is so sluggish that higher production does not necessarily mean higher earnings, it is particularly urgent to introduce new cash crops and to diversify agricultural production. Spices (pepper, cinnamon, cardamon) and certain Indian Ocean tropical fruits (lychees, soursops) seem to offer attractive possibilities. viii. A good part of the population has no land, while large estates remain undeveloped. It is urgent for the Government to reach an agreement with the owners so that either the plantations be rehabilitated and modernized or the land be redistributed. ix. The absence of adequate marketing channels (whether for agricultural or fisheries products) constitutes a major problem in the supply process. Private enterprise should be encouraged. Legislation should be introduced to define the role of marketing cooperatives and to encourage them by facilitating access to credit. In addition, Government should take measures to guarantee access to the market for newcomers and encourage direct sales by producers. x. The Comorian economy is fragile and the prospects for growth in the next few years are limited. Crop yields are low and world demand for the traditional cash crops is sluggish. Tourism has some potential, but its development is not very encouraging due to the large investment that would be necessary and the low value added for the country. Labor- intensive export processing industry seems the most promising course in the long run. The Government needs to take steps to attract foreign investment, and the Investment Code should be revised to offer more attractive incentives to foreign investors. A promotion and publicity campaign should be undertaken, and approval procedures for new investment projects should be simplified. Still, in the immediate future (the next - iii - five or six years), it would be unrealistic to expect these measures to have much impact on the economy, and economic growth will probably remain around 3-3.5X per year, i.e., In line with the rate of population growth. xi. The Investment Code should be revised to make it as attractive as those of the Indian Ocean countries that have succeeded in attracting labor-intensive export industries. Approval procedures must be simplified. Promotional campaigns should be undertaken in countries facing restrictive import quotas or having industrial minorities interested in emigrating to countries able to offer them reasonable political security in exchange for new job-creating investments. xii. Another major constraint to overcome is the weakness of the civil service. Salaries are genera2VY low and, in the past, civil servants were often paid several months late. Such conditions are not conducive to the efficietnt functioning of the civil service or the motivation of staff. With nearly 8,000 employees, the State is the biggest employer. Unfortunately, a large number of civil servants are not sufficiently qualified. If competent staff are to be motivated, their salaries should be raised to a reasonable level. To do this wihhout unduly increasing the total wage bill, the number of civil servants would have to be cut back to a degree that would be socially and politically acceptable. The Government should continue its efforts to review the individual status of its employees, simplify staff regulations, and abolish certain categories sui.h as fixed-term, auxiliary, and volunteer staff that burden the administrative services. At the same time, a special task force of high- level Comorians could be recruited outside of ordinary channels to serve as special advisers in key ministries such as Economy and FiAance, Planning, and Production. This team, supported by short-term consultants, would be provided with appropriate office equipment and qualified local support staff. In view of the Government's financial difficulties, the cost of this operation should be borne by international assistance, at least for the next few years. However, the Comorian authorities expressed their concern about the establishment of this task force: first, it might create a negative impact on Government's effort to restructure the civil service administration; and second, it might create a distinction among various classes of Comorians which would be politically difficult to accept. xiii. Like most small island nations, the Comoros depends heavily on technical assistance. As the level of qualification of most civil servants is insufficient, foreign technicians have to be brought in. Unfortunately, the permanent technical assistance personnel is not always efficiently used. In many cases, expatriates do not have Comorian counterparts and, after a while, they tend to lose motivation and effectiveness. Therefore, technical assistance should be critically reviewed and short-term technical consultants be encouraged whenever possible. xiv. Given the weakness of Comorian management, donors, concerned with efficiency in the short term, have often set up a parallel structure by establishing project-mPangement units. The CEFADER/CADER structure is one example, but the same phenomenon can be found in other sectors (health, education, etc.). It would be preferable to strengthen the administrative - iv - capacity of the Government and to improve its productivity rather than multiplying the agencies. xv. The CEFADERICADER system, established in 1980, performs functions that are handled by the Ministry of Agriculture in other countries. Close examination of the CEFADER/CADER organization shows that the proliferation of responsibilities assigned to it has transformed a dynamic institution intc something no longer readily manageable. CEFADER/CADER manages the coconut and rural development projects financed by IDA, together with the maize project financed by EDF. It receives aid from the Caisse Centrale de Cooperation Economique and from FAC, which provide some technical assistance personnel. CARE, UNICEF, FAO, and WFP finance all sorts of activities: the promotion of women, improved nutrition, soil conservation and erosion control, and smallholder credit. The multiplicity of aid sources, each with its own requirements, creates a variety of administrative and budgetary problems that hinder the smooth operation of the agricultural extension services. Therefore, activities not directly connected with the agricultural extension services should be placed under the relevant ministries and institutions, such as Health and Population, Education, and the Development Bank. xvi. The fact that some CEFADERICADER staff are paid directly by different aid programs or receive salary supplements from certain donors creates differences among members of the same department. This underscores the need for the various donors to coordinate their assistance within the framework of an integrated work program drawn up by the Government with assistance from main donors. xvii. One of the critical problems facing the Comoros is the country's overdenendence on external aid. External aid covers between 40% and 60% of the Government's current expenditures. Although there is no rapid solution to the problem, the Government should make considerable effort to mobilize higher domestic financial resources. Yet, foreign aid will have to continue at a high level for the next ten to fifteen years. xviii. In the next few years, the Comorian economy will continue to depend not only on substantial. financial and technical assistance, but also on the Government's willingness to improve the management of public finances. Revenues should be increased and expenditures trimmed. Efforts should be focused on mobilizing domestic resources and increasing tax receipts. Tex collection should be reinforced and the tax base correctly estimated. The reform of the General Tax Administration and the improvement of the Customs Administration are steps in the right direction, but these efforts will have to be intensified. In the short term, the following measures are necessary to increase budgetary revenuet and reduce expenditures: a. Collect the turnover tax from all taxpayers liable to it. b. Collect the tax on profits after auditing of businesses' accounts. c. Intensify Government's efforts to reduce smuggling and continue to improve the operation of the Customs Administration. - v - d. Institute a 100% tax on rice and petroleum products to capture part of the difference between the domestic price and the world price. e. Keep the increase of personnel expenses below the inflation rate. f. Progressively reduce technical assistance expenses as a certain number of posts held by expatriates are gradually filled by Comorian personnel. g. As regards public enterprises, liquidate SOCOVIA and implement the rehabilitation plan prepared, with French technical assistance, for the Comorian Postal and Telecommunications Services and the Electricity and Water Corporations. In addition, improve management of public enterprises and conduct complete audit of the various enterprises, with settlement of arrears and their consolidation into long-term debts. xix. Under those conditions, the Government's current account deficit would rise from CF 9.9 billion in 1986 to CF 10 billion in 1990, which represents a decline from 19% to 17% of GDP. The consolidated revenues of the Central Government, the governorates and the Stabilization Fund would increase by about 7S in real terms each year, from CF 8.4 billion in 1986 to CF 14 billion in 1990. Current expenditures, on the other hand, would rise by only 1% on average in real terms, from CF 18.3 billion in 1986 to CF 24 billion in 1990. xx. At Independence, the Comoros had practically no infrastructure, and one of Government's priorities was to provide the country with the necessary infrastructure to support economic development. Availability of financing seems to have been the main criterion for project selection, and the Government felt that, given the magnitude of the needs, no well- intentioned offer should be turned down. The result today is that a number of investments are oversized or nonproductive, and that Comoros has contracted an external debt which exceeds the repayment capacity of the country. Nevertheless, the question is not to halt public investments but rather to scale them down. The solution is a more rational use of resources made available to the State and strict economic criteria for selecting investment pro1ects. xxi. Should the Government resolutely embark on export-oriented industrialization, and adopt policies to encourage cash crops diversification and to modify the population's dietary preferences, economic groWth could gradually accelerate from 2.6% in 1987 to 4.5-5% by 1995. In the short term, agriculture will remain the chief sector of economic activity, and growth in that sector will continue to reflect the impact of the maize and coconut projects. In the longer term, growth in the sector will depend on the success of the agricultural diversification policy to be pursued by the Government. Given the weakness of the manufacturing sector at present, a growth rate of 9% or 10% per year over the next five years already reflects considerable efforts. Should Government adopt a strategy for attracting foreign investors and encourage - vi - export industries, a growth rate of 10-15% per year would not then be impossible, given the present small size of the sector. Nevertheless, taking into consideration the limited growth potential of the construction industry, which is seriously affected by the slowdown of Investment, and a moderate growth in the water supply and electricity sectors, industrial growth could accelerate from 4.6% in 1987 to 5% in 1995. Pv.jected growth in tourism reflects an effort by the two hotel companies to increase the occupancy rate through promotional campaigns with travel agents in the Indian Ocean region to induce tourists traveling in the region to spend a few days in the Comoros. xxii. The Comoros' debt service ratio is projected to increase from 20% in 1986 to about 34% by 1990. Although this ratio might not appear excessive when compared with some countries in Africa and South America, it exceeds by far the long-term repayment capacity of the Comoros. In these circumstances, alternative debt relief scenarios woald naave to be considered to reduce the country's debt burden. xxiii. The balance of payments prospects for the coming years remain bleak. Global demand for the traditional products is not expected to rebound, and, barring a recovery in the market for cloves, no appreciable improvement in exports appears likely. Imports, by contrast, will continue to grow faster than exports. Taking into account the debt service requirements, it is estimated that for 1988-90 the Comoros will need about US$60-65 million per year. These funds should continue to come largely from grants and soft-term loans from bilateral and multilateral sources, and disbursements of ongoing projects. The amount of new loans to be contracted each year would be about US$25 million. xxiv. In conclusion, the path to-development is arduous and calls for sustained efforts and sacrifices from both the Comorians and the international community. It is important that a "compact" be reached between the Comorian Government and friendly countries and institutions. The austerity policy should be intensified to ensure that available resources, domestic or external, are put to the most effective use on the basis of the above reform measures which the Comorian Government undertakes to implement. It would be desirable if, in recognitUon of this effort, the friendly countries and institutions that responded generously to the Comoros' appeal following Independence would consider either forgiving the debt (which, after all, is rather small) or taking imaginative steps to ease the debt burden (such as long-term deposit of funds with the Central Bank, or annual budgetary subsidies in an amount equal to the debt service). In addition, the donors should undertake to provide new aid on exceptior.al terms (grants or quasi-grants) so as not to further increase the country's debt service burden. The development of the Comoros_is a long-haul operation and today's choice of economic policies will shape the future, even if the impact of those policies does not materialize for a number of years. - 1 - I. INTRODUCTION 1.1 This is the third economic report prepared by the World Bank on the Comoros. The first, 'Problems and Prospects of a Small, Islard Economy' (1979) gave a general description of the country and set out the main problems facing it immediately after Independence. The second, 'Current Economic Situation and Prospects" (1982) based on the conclusions of an economic mission at the end of 1980, provided a quantitative picture of the Comorian economy and its development pros'ects, in spite of the poor quality of the statistical data. The present report attempts to analyze the recent economic trends and to formulate the broad outlines of a development strategy, while taking into account the imperative need for the Government to adopt a policy of economic recovery and financial stability. However, its purpose is not to provide an exhaustive view of the Comoros; the reader is referred to the preceding reports for more details. 1.2 The Comoros Archipelago consists of four major islands: Grande Comore, Anjouan, Moheli, and Mayotte. It occupies a strategic position at the North Mozambique Channel, at an equal distance from the coasts of Africa and Madagascar. Mayotte is still under French administration. In this report, all references to the Islamic Republic of the Comoros or simply to the Comoros will exclude Mayotte, unless otherwise noted. 1.3 The islands are of recent volcanic origin and are distinguished by their very rugged terrain. The peak of Kartala on Grande Comore is 2,300 m high, while Mtingui on Anjouan reaches 1,575 m. They enjoy a maritime climate and microclimates: tropical along the coast and cooler in the uplands. The heavy rainfall (more than two meters) and the fertility of the volcanic soil are responsible for the abundant and luxuriant vegetation on the islands. However, the islands are subject to the effects of frequent tropical cyclones in this part of the Indian Ocean. 1.4 The Comorian population is the product of various invasions that have swept the country in the course of the ages: African, Arab, Persian, and Malagasy. The occupation of Mayotte in 1843 marked the beginning of French colonization. Attached to Madagascar in 1908, the Comoros did not obtain the status of colony until 1946. The independence process did not really begin until 1973, with the signing of the Franco-Comoros agreement that provided for a referendum in five years. However, this process, precipitated by the unilateral proclamation of Independence in 1975, was marked by a series of political troubles that affected the country until the fall of the Soilih Government in 1978. 1.5 The adoption of the Constitution by referendum in October 1978 marked the return to political stability. Nevertheless, the scars left by the period 1975-78 have aggravated the economic difficulties with which the country has had to contend. To permit the return of Mayotte, which has remained under French administration, the Constitution of 1978 provided for a federation of the governorates of the three islands, which were virtually autonomous territorial entities. To counter the separatist tendencies that were emerging in the island councils, and to ensure uniform national administration and equitable distribution of budgetary resources, institutional amendments were made to the constitution in 1982. The powers of the Federal Government were broadened, and the division of responsibilities between the governorates and the Federal Government was more precisely defined. The governors of the islands are no longer elected but appointed by the President of the Republic, on the proposal of the council of each island. Tax revenues are now collected by the Federal Government and the governorates receive budget allocations. Civil servants, finally, are no longer responsible to the governors but directly to the Federal Government, from which they receive their salaries. 1.6 At the time of the second report, "Current Economic Situation and Prospects", the Comoros was emerging from the political upheavals that had followed Independence. An economic recovery was under- way thanks to the normalization of bilateral relations with France and the resumption of substantial budgetary aid. Job creation and the reconstitution of the administrative services were providing a strong stimulus to domestic demand. The implementation of a number of investment projects undertaken by the previous Government was contributing appreciably to economic growth. 1.7 Some concern was expressed on the Comoros' aoility to service the external debt. It was not clear whether the Government would be capable of servicing the debt contracted to finance the road projects, together with the rehabilitation and construction of the ports, when export prospects remained modest and imports continued to increase to meet the needs of the population. 1.8 The second report also noted that the Comoros would continue to depend on external financial and technical assistance for the years ahead and stressed the need for the Government to appreciably boost its tax revenues in order to cover its current expenditures. 1.9 After a brief analysis of recent economic trends (Chapter II), the present report identifies the main constraints to economic development (Chapter III). An analysis of the sources of potential growth is presented in Chapter IV. Chapter V reviews the short- and medium-term prospects for the economy, discusses their financial consequences, and makes a number of policy recommendations. 1.10 The statistical data are extremely sketchy and hardly reliable. This report has attempted to gather all available information, to process it, and make it homogeneous and coherent; but in many cases it was not possible to improve the quality of the basic data. A major effort should be undertaken by the Government and the international community to improve the quality of the statistical data and to proceed with a number of studies and surveys. - 3 - II. RECENT ECONOMIC TRENDS A. Slowdown of Economic Growth 2.1 The 1983-86 period was marked by a slowdown of economic growth. Infrastructure investments, which had provided the main impetus for growth in the preceding years, slowed considerably toward the end of the period when some large-scale projects were completed. This had direct repercussions on GDP growth, which slackened from 4.2% in 1984 to 2.7% in 1985. Preliminary estimates indicate a GDP growth of only 2.1% in 1986. 2.2 The slowdown in infrastructure investments was reflected in a rapid decline of activity in the construction and civil works sector, whose share of GDP declined from 9.8% in 1983 to 8.3% in 1986. This reduction was offset by rising agricultural and fisheries output, which constitutes the key factor of growth. Although there are no reliable agricultural statistics, maize production is estimated to have risen from 2,700 tons in 1983 to 3,900 tons in 1986. The appreciable increase in output of some tgricultural products reflects some improvement in the marketing of those products and the impact of the agricultural extension efforts supported by the EDF, CCCE and IDA projects. A similar movement is apparent in livestock and fisheries. Production of eggs and poultry has increased under the combined effect of the maize project and the poultry-farming projects financed by EDF. Fisheries production, encouraged by a Japanese project, has risen by approximately 7% per year. Though very small, the industrial sector, including water and electricity production, has increased nearly 7% per year. 2.3 Table I summarizes the trends of the principal economic aggregates over the period 1983-1986. The slowdown of GDP combined with the sluggish growth of imports meant that fewer resources were available in tha economy. This led to a downturn in consumption and a considerable fall in savings from 4% of GDP in 1983 to a negative figure in 1984. 2.4 Statistics on savings, particularly private savings, are obtained as the residual of a number of aggregates whose estimates are not necessarily accurate. Table II shows some important points. First, it clearly brings out the share of foreign aid in gross domestic product. Second, it shows that the shortfall between public savings and public investment is financed essentially by foreign savings but that a part of private savings nonetheless serves to help cover that shortfall. And third, it points out the effects on the economy of the 1984 slump in vanilla prices, the accumulation of forced stocks by exporters, and the general fall in revenues, which led to lower domestic savings. - 4 - TABLE I. RESOURCE AVAILABILITY AND USE -----1985----- Annual ChangelI Annual Growth Millions 2 of 1984 1985 1986 Rate of CF GDP % X % 1983-861I Agriculture 18,577 36.0 3.8 4.8 3.3 4.0 Industry, water, electricity 2,360 4.6 7.9 5.1 6.9 6.7 Construction, civil works 4,877 9.5 6.6 -7.7 -2.7 -1.5 Commerce, hotels, restaurants 13,147 25.5 5.1 3.7 3.1 4.0 Public admin. 9,442 18.4 2.7 1.9 0.7 1.8 Other services 3,034 6.0 0.6 4.7 -0.4 1.6 Gross Dom. Prod. 51,437 100.0 4.2 2.7 2.1 3.0 Resource GaP 19,"66 38.8 n.a. n.a. n.a. n.a. Exports of goods and NFS 8,943 17.4 -30.0 67.2 5.1 7.0 Imports of goods and NFS 28,909 56.2 48.9 -10.6 -10.8 5.9 Total Resource Availability 71,403 138.8 24.0 -7.0 -3.8 3.5 Consumption 56,151 109.2 20.0 1.4 -3.8 5.5 Public 15,310 29.8 4.9 8.9 -5.2 2.7 Private 40,841 79.4 26.2 -1.2 -3.1 6.5 Investment 15,252 29.7 36.3 -30.0 -4.1 -3.0 GFCF 13,410 26.1 6.6 -15.5 -4.1 -4.7 Changes in stocks 1,842 3.6 438.9 -68.8 -4.2 17.3 1/ At 1985 prices. Source: United Nations Economic Commission for Africa (UNECA), and IBRD mission. -5- TABLE II. MACROECONOMIC INDICATORS, 1983-1986 (in percentages of GDP) 1983 1984 1985 1986 (Est.) Foreign Savings Foreign exchange gap -26.2 -56.6 -38.8 -27.1 Private Sector Gross domestic investment 7.5 21.3 8.0 7.7 Fixed capital formation 5.2 9.0 4.4 5.0 Changes in stocks 2.3 12.3 3.6 2.7 Domestic savings 19.5 5.8 10.7 13.4 Investment-savings -12.0 15.5 -2.7 -5.7 Public Sector Gross fixed capital formation 21.5 24.5 21.7 15.9 National Savings -16.6 -16.6 -19.9 -16.9 Current revenues 16.2 14.8 12.6 15.0 Current expenditures 32.8 31.4 32.5 31.9 Investment-savings 38.0 41.0 41.6 32.8 Public and Private Investment-savings 26.0 56.5 38.9 27.1 Memo Item Share of gross domestic investment financed by foreign savings 116.0 126.0 118.4 114.9 B. Balance of Payments Deficit 2.5 Except for 1984, when substantial deterioration occurred, the balance of payments situation has remained almost unchanged. The current account deficit fluctuated around 102 of GDP and was more than offset by net external capital flows. As a result, reserves increased steadily. However, this performance was less brilliant than it might appear, for the State was unable to service the external debt and accumulated a sizable amount of arrears. Table III presents a summary of the balance of payments. 2.6 Exports that fluctuate considerably with international demand. With the closing of the Malagasy market for Comorian copra following the economic recession, Comorian exports now depend on only three agricultural commodities, the international demand for which fluctuates considerably. From US$19.6 million in 1982, merchandise exports fell to US$7 million in 1984 and did not recover until 1986 with an estimate of US$20 million. 2.7 The fall in exports in 1984 reflects the collapse of vanilla extorts. Under the Vanilla Agreement concluded by the chief producers and users in May 1984, the price for Comorian vanilla was set at US$69.50 per kilogram. This price, which represented a substantial increase over the - 6 - price negotiated in previous years, should have been a strong incentive for Comorian exporters. Unfortunately, this increase encouraged foreign importers to draw down their stocks and the steady appreciation of the dollar led Comorian exporters to delay their shipments in the hope of obtaining higher prices in Comorian francs. Export volume did not pick up until late 1985, when the Comorian exporters agreed, at the request of foreign importers, to give a rebate of nearly 15% on the dollar price. Vanilla exports were exceptional in 1986, when the Comorian exporters succeeded in negotiating a certain sales volume directly with the United States vanilla extractors, without going through the usual exporters. The considerable improvement in prices (which moved up from US$57.8/kg at the end of 1985 to US$70/kg at the end of 1986) and an Increase in the volume exported, produced record export earnings of US$15.4 million in 1986. 2.8 Clove exports in 1983 of'set the decline of vanilla exports as the result of an unusually high price for cloves and difficulties in trade reaations between Madagascar and Indonesia, the leading consumer of cloves. In 1984, however, while the export volume remained at about the 1983 level, the export price dropped nearly 50% as the Malagasy cloves that had not been exported in 1983 came onto the market, and Indonesian demand s:owed. The export volume held up in 1985 despite the steady fall in prices and did not begin to diminish until 1986, by which time the exporters had brought producer prices down to the prevailing world level. TABLE III. BALANCE OF PAYMENTS SUMMARY (Millions of US$) 1982 1983 1984 1985 1986 (Est.) Exports FOB 19.6 19.5 7.0 15.7 20.0 Imports FOB -22.8 -24.3 -29.7 -25.7 -26.1 Trade balance -3.2 -4.8 -22.7 -10.0 -6.1 Services, net -24.7 -24.1 -38.5 -35.6 -38.7 Transfers, net 16.9 17.9 28.5 31.3 28.4 Currcnt balance 11.1 -11.1 -32.7 -14.3 -16.5 Med. and long-term capital 16.2 18.5 23.1 20.5 18.6 Other capital 1/ -0.3 -5.0 2.1 1.4 1.7 Changes in reserves -4.9 -2.4 7.6 -7.6 -3.8 Memo item Current account balance as percentage of GDP -10.1% -9.9% -30.4% -12.5% -10.2% Debt service ratio 3.7% 5.8% 25.0% 15.4% 19.7% 11 Including errors and omissions. Source: Central Bank and IBRD mission estimates. -7- 2.9 Ylang-ylang exports, on the other hand, fluctuated little during the period. Output also remained largely static and adjusted to the depressed price level. 2.10 Imports greatly exceed exports. It is difficult to detect a trend in imports as different factors play an Important role in determining the level of Imports: export performance, availability of foreign aid, nature of investments In progress, population growth, the need to renew stocksp and the minimum volume of products that can be orde -ed because many goods can be imported only by ship and it is unfeasible and inefficient to charter a vessel for very small quantities. The available data at the time of the mission on the composition of imports only cover about a third of all imports. They nevertheless show a considerable increase in cement imports from 1981 to 1984 followed by a slackening when the civil works program slowed. The volume of rice and petroleum imports reflects various shipment arrivals and does not represent economic trends. 2.11 The balance of services in the Comoros is usually negative and strongly inf'uenced by the cost of transport and insurance, which is extremely high (over 402 of the FOB value of imports), because of the relative isolation of the archipelago, the absence of a deepwater port in Moroni and the need to unload merchant vessels offshore with the aid of dhows. Even disregarding 1984, a year in which exports collapsed and imports reached a new record, the deficit on the goods and services balance is considerable (30S of GDP on average from 1982 to 1986). 2.12 Between 1982 and 1985 net transfers doubled, reflecting the considerable increase in foreign technical assistance since 1983 as well as remittances from expatriate Comorians helping their families who were affected by the vanilla slump in 1984. The size of the net transfers helps to keep the current account deficit lower than that of the goods and servicer balance. The current account deficit is nevertheless considerable and has had to be financed by sizable drawings on loans obtained abroad. These drawings gathered momentum from 1982 to 1984 with the implementation of the road investment program and the construction of the port of Mutsamudu, then tapered off from 1984 to 1986 as the roads program drew to an end. 2.13 Rapid growth of external borrowings. External borrowings have increased rapidly in recent years, as a consequence of the surge in investment outlays. The total debt, outstanding and disbursed, rose from US$68 million in 1982 to US$156 million at the end of 1986 (96X of GDP). The undisbursed amount (US$48 million) can be expected to be drawn down rapidly over the next three years. Among the multilateral development aid agencies, the African Development Bank emerges as the largest creditor, with 20% of the current debt. IDA ranks second with 152, followed by BADEA (12%). The two largest bilateral creditors are the Kuwait Fund and the Saudi Fund, which hold 15% and 142 of the total debt, respectively. The Caisse Centrale de Cooperation Economique (CCCE) ranks third with 102 of the debt. The financial institutions of the Arab countries hold nearly 51X of the outstanding debt (Statistical Annex, Tables 4.1 and 4.2). - 8 - 2.14 Although most of the external loans are on concessional terms, Comoros has experienced serious problems in servicing its debt obligation and the Government is now accumulating arrears on payments. The majority of the loans are long-term, with maturities of 15 to 50 years and interest below 2%. The loans with the hardest terms are from the CCCE for public enterprises (14 years maturity with 5-year grace period and 5% interest), nnd a loan from tne African Development Bank for the financing of the port of Mutsamudu (16 years maturity with 4-year grace period and 7% interest). The debt service obligations rose steadily from US$0.9 million in 1982 to US$5.5 million in 1986, representing about 20% of total export earnings. The service on the debt contracted for the port of Mutsamudu alone amounts to US$1.3 million, or nearly 5S of export earnings. 2.15 The financial situation has become critical and Government has not been able to meet its debt service obligations. Estimates of accumulated arrears have increased from US$0.9 million in 1984 to US$2.6 million in 1986. In addition, arrears on postal transactions accumulated during the period 1982-86 are about US$2.5 million. C. Public Finance Deficit 2.16 The size of the deficit continues to be the central feature of the public finances. This deficit grew from 26% of GDP in 1982 to almost 392 in 1985 (compared to 13% and 6% for Mauritius during the same pexiod). It was only in 1986 that the Government has deliberately pursued a policy of austerity. According to the preliminary estimates, the overall deficit Was reduced to around 302 of GDP in 1986. This deficit has been practically entirely financed by external aid, which is equal to about twice the State's capital expenditures. The figures presented in this section (see Table IV) are slightly different from those to which Comorian authorities are generally accustomed, because the analysis relates to the consolidated data for the finances of the Federal Government,1 the governorates and the foreign aid programs. The accounts of the General Tax Administration, the Stabilization Fund, the Retirement Fund and the Chamber of Commerce have also been consolidated. 2.17 Tax receipts remain small in relation to GDP (between 11% and 13% of GDP, compared to 22% for Hauritius and 14% for Madagascar) and are derived essentially frou indirect taxes on external trade. Direct taxes only account for a small portion of tax revenues (9% in 1984 and 13% in 1985). Import duties represent about 55%, and export duties 20%, of taxes collected. The dependence of Government revenues on duties on foreign trade stems from the general weakness of the economy, the small number of taxpayers and the prevalence of tax evasion. As an example, in 1985 fewer than 12,850 taxpayers paid income tax. Tax collection rates are extremely low. According to the data furnished to the mission or. the basis of information containec in AGI (General Tax Administration) files, the amounts actually collected in 1985 represented 24% of the tax base established for the income tax, about 50% of the profits tax base and 35% of the turnover tax base. 11 Since 1986, the national budget has also consolidated financial operations involving external aid, but considers the grants and loans used to finance them as receipts. - 9 - 2.18 Tax administration is weak because of lack of qualified personnel, inadequate equipment, and lack of authority for tax administration personnel to enact the law or to perform the necessary verifications. 2.19 The Government has recently taken important measures to upgrade the operations of the tax administration. The General Tax Administration, which was created in 1981 to standardize tax collection and make it more equitable throughout the various islands, has now been abolished and replaced by an Office of Taxes and Land Registry (Direction des Impots et du Cadastre) under the direct authority of the Minister of Finance to ensure effective implementation of the tax system. The Government has also appointed an expattiate to head the Customs Administration to minimize the many pressures to which a national at that level can be subjected. 2.20 The means available are nevertheless still quite insufficient. The Office of Taxes has no computer and its staff, which is too small, often lacks sufficient training to carry out the required verifications. The Customs Administration does not have the vehicles or means of communication needed to intercept smugglers who traffick with the neighboring islands. The talks on collaboration in the prevention of evasion and smuggling being held with neighboring countries are expected to lead to an agreement that will make it possible to reduce evasion in a good number of cases by stopping it at its source. - 10 - TABLE IV. PUBLIC FINANCESs CONSOLIDATED DATA1' (CP billions) 1982 1983 1984 1985 1986 1987 1987 (Prel.) (Budg.) (Est.) Current receipts 4.80 6.86 6.95 6.50 8.43 10.52 9.01 Tax revenues 4.11 5.24 5.73 5.72 7.09 8.98 7.66 Non-tax revenues 0.69 1.62 1.22 0.78 1.34 1.54 1.35 Current expenditure 10.40 13.95 14.75 16.74 17.96 19.99 19.99 Budgetary 5.51 7.71 7.81 9.21 10.19 11.69 11.69 Extrabudgetary 4.89 6.24 6.94 7.53 7.77 8.30 8.30 Current deficit 5.60 7.09 7.80 10.24 9.53 9.47 10.98 Investment expenditure 4.41 7.17 10.26 9.63 7.33 4.64 4.65 Budgetary 0.07 0.57 0.84 0.56 0.63 0.77 0.78 Extrabudgetary 4.34 6.60 9.42 9.07 6.70 3.87 3.87 Overall deficit 10.01 14.26 18.06 19.87 16.86 14.11 15.62 External fiuancing 10.05 14.04 17.86 19.32 1700 13.22 13.22 Grants 5.93 8.17 8.99 11.23 10.93 11.20 11.20 Loans 4.12 5.86 8.87 8.09 6.07 2.02 2.02 Domestic financing -0.04 027 0.40 1-23 0Q57 1.38 2.91 Banks -0.32 -0.05 0.32 0.53 0.15 0.22 0.22 Other 0.28 0.31 0.08 0.69 0.42 0.16 2.67 Memo Item Current deficit as X of GDP 14.8 16.7 16.6 19.9 16.9 16.8 19.5 Total deficit as % of GDP 26.4 33.5 38.5 38.6 30.0 25.0 27.8 1/ Federal Government, governorates, Stabilization Fund, Retirement Fund, General Tax Administration, Chamber of Commerce, and expenditures of the external aid agencies. 2.21 The figures on non-tax receipts reflect a settlement of reciprocal debts between enterprises in 1983 and 1984, sales of gold confiscated by customs in 1984 and the transfer of the profits of certain enterprises in 1985 (ONICOR and SCH). 2.22 The Government has recently taken a number of measures to improve the functioning of the customs administration. A convention was signed on May 29, 1987 with France to reduce smuggling with neighboring islands, although the official implementation of the convention remains to be defined. The Government has also changed the procedure for temporary - 11 - duty-free admission of some imports, and established a bonded warehouse system. A computerized management information system is being implemented and the introduction of the customs acquittal will ensure that all merchandise coming into the country has appropriate customs clearance. 2.23 Current expenditures (budgetary and extrabudgetary) exceed e.urrent Government revenues; nevertheless their 3rowth in the period 1982- 86 was slightly below that of revenues. The rise in current expenditure derives basically from the higher personnel costs resulting from a continuous increase in the number of Government employees and the steady expansion of technical assistance. Wages and salaries more than doubled from 1982 to 1986, reflecting the growing number of civil servants and grade creep, since the pay scale remained unchanged throughout the period. Procurement of goods and services almost doubled in nominal terms between 1982 and 1986. The relatively 'ow increase in current budgetary outlays for goods and services (23X in real terms) was due to the fact that an ever-growing proportion of such purchases was financed by foreign aid. The rise in interest payments was particularly steep, since they tripled over 1982-86, whereas transfer payments rose by only 10% in nominal terms, actually a decline of 15% in real terms. 2.24 From 1982 to 1985 spending on education rose from 19X to 22% of total expenditures, while spending on health and agriculture dropped from 12% to 11% and from 14% to 11% of total expenditure, respectively. The proportion of education financed by foreign aid remained virtually unehanged, while domestic resources covered a larger rzirt of expenditure on health, providing 25% of the funds in 1985 as compared with approximately 7% in 1982. By contrast, foreign aid financed a growing proportion of current expenditures on agriculture (862 in 1985 versus 62% in 1982), thus reflecting the participation of the various donors in the operation of the CADER/CEFADER system. 2.25 Investment outlays are essentially financed outside the budget through foreign aid programs. The Government's contribution, while often symbolic, has nevertheless increased, rising from less than 2% in 1982 to nearly 9% in 1986. This contribution often takes the form of provision of sites, construction of buildings or execution of small public works by local enterprises. 2.26 The overall deficit during the period was financed almost entirely by external aid; domestic financing covered only 3X of the total. French budgetary aid, Stabex and the sale of multilateral and bilateral food aid accounted for more than 55% of this external financing. The remaining 45% was financed with the help of loans and credits on moderate terms, even though they appear excessive in relation to the Comorian situation. Domestic financing was accomplished through borrowings from the Central Bank, but also by allowing payments of arrears to accumulate and mobilizing deposit accounts with the Treasury. Government employees wore paid as much as two to four months late and often with cash vouchers which the Treasury could only honor after considerable delay. The issuance of these vouchers in fact created a parallel currency worth less than the official currency and which the public has tended to use where possible for payment of taxes. Recently, the situation has improved and since May 1987 salaries have been paid on time. - 12 - 2.27 Furthermore, the Government has recently established a national commission to survey all domestic debt as a first step toward restoring liquidity. The commission has nearly completed its work and studies are under-way on how this debt should be consolidated. D. Public Enterprise Management2 2.28 Public enterprises ara a cause for concern, although some progress has been made. Their legal and institutional framework has been defined and the legal status of a number of them has now been clarified. The fact remains that they continue to suffer from an inadequate administrative structure and a lack of managerial staff. 2.29 All public enterprises3 now submit their balance sheets to the unit responsible for public enterprises at the Ministry of Finance. The balance sheets have been consolidated in Table Vs 2/ For more details on the eondition of the enterprises, the reader is referred to working papers prepared by consultants for the mission, which are available upon request. 3/ Societe Comorienne des Hydrocarbures (SCH), Office des Postes et Telecommunications (OPT), Societe comorienne d''importation djs Viandes et des produits alimentaires (SOCOVIA), Eau et Electricite des Comores, Comotel, Office National pour l'Importation et la Commercialisation du Riz (ONICOR), Societe Nationale des Transports Aeriens (SNTA), Aeroport, Societe des Tabacs et Allumettes (STAC), Societe Nationale d'Imprimerie (SNI), Al Watwani (weekly newspaper) - 13 - TABLE V. PUBLIC ENTERPRISES: CONSOLIDATED DATA1' (Millions of CF) 1983 1984 1985 1986 (Est.) Net operating income 1,130.0 -27.8 847.9 1,109.4 Grants received 630.6 806.4 479.1 616.2 Net external borrowing 1,171.8 1,454.4 1,657.2 1,165.5 Net domestic borrowing 79.3 624.9 -232.5 -296.1 Total available resources 3,011.7 2,857.9 2,751.7 2,595.0 Applications: Investments 2,723.7 2,507.6 2,311.1 2,100.0 Technical assistance 288.0 350.3 440.6 495.0 Memo items Taxes paid 898.1 1,608.4 1,378.0 1,162.0 Subsidies received 34.0 40.0 110.9 10.0 I/ Includes only non-financial public enterprises. Source: Statistical Annex, Table 5.5. 2.30 Three enterprises generally generate sizable profits: Societe Comorienne des Hydrocarbures (SCH), Sociite des Tabacs et Allumettes (STAC) and Office National pour l'Importation et la Commercialisation du Riz (ONICOR). With cereal prices falling on the world market, ONICOR posted a surplus of CF995 million in 1986 as compared with CF550 million in 1985. Although no accounting data are available for SCH in 1986, the surplua resulting from the decline of oil prices on world markets can be estimated at roughly CF2 billion. STAC's earnings are more modest but could be increased considerably if smuggling from Mayotte were reduced. 2.31 Two enterprises are consistently in deficit: Office des Postes et Telecommunications (OPT) and Comotel. OPT has faced severe financial difficulties due to unplanned personnel increases, arrears owed by the State and other public enterprises, and the sizable postal debt. A ssady financed by the Caisse Centrale de Cooperation Economique proposes a rehabilitation plan. Comotel's deficit is essentially the result of the low hotel occupancy rates (less than 30%); to break even it needs an occupancy rate of at least 80S. Combined with investments financed with external aid, this gives rise to a sizable deficit and payment arrears that are ultimately assumed by the State. 2.32 A significant effort has been made in the management of Electricito et Eaux des Comores (the electric power and water utility), and the firnm implementation of cutting off electricity users who do riot pay has proved to be an effective solution. SNTA (air transport) maintains its precarious financial equilibrium only because it uses expatriate technical assistance personnel paid directly by foreign aid. The Government has recently liquidated SONATRAM (maritime transport), and - 14 _ it would be desirable if the same were to be done with SOCOVIA (the meat import company). 2.33 The problem of reciprocal debts between the State and the enterprises continues to affect the cash flow of all the enterprises, even though some steps have already been taken. Therefore, a complete audit of the situation should be made and the accounts settled. There is no reason for the Comorian Government to assume the entire costs alone. Certain arrears should be converted into long-term debt and the main donors should make a financial contribution to this rehabilitation effort. E. Currency and Prices 2.34 It is difficult to discern a trend in the monetary situation. Since December 1981, various developments have seriously disturbed the equilibrium of the monetary situationt the liquidation of CREDICOM, the closure of the Commercial Bank of the Comoros and its replacement by the International Bank of the Comoroo (1981), the creation of the Development Bank, and the collapse of vanilla exports in 1984. 2.35 The money supply grew by 75% from December 1981 to December 1985, more than twice as fast as the GDP growth at current prices. This increase essentially resulted from the rise in net external assets, which more than doubled during the same period. The increase in credit to the economy during the period was fairly small following the drop in 1985. This drop essentially reflected decreased activity on the part of the Commercial Bank in financing the vanilla harvest and the improvement in tLe cash flow of ONICOR, which was able to repay the rice-import credit in full by the end of the year. Net claims on the State rose as deposits by the State with the banking system diminished and the amount of Central Bank advances increased steadily. 2.36 The figures for the first nine months of 1986 confirm the movement begun in the course of 1985 and reflect the Government's stabilization efforts. The decrease in the availability of credit is largely due to the continuous improvement in ONICOR's and SCH's cash flow and the fact that some vanilla exporters turned to foreign financing. Rising reserves reflect the improved performance of vanilla exports. 2.37 Price changes were relatively moderate during the period, according to the various indicators available. Interest rates for term deposits and savings accounts are commensurate with the inflation rate. Rediscount rates, on the other hand, are lower, while the real rates charged by the Commercial Bank are positive as a result of the substantial margin (4 to 10 points) charged by the latter to cover its costs. 2.38 The Comoros subscribes to the franc zone and consequently the Comorian franc is directly pegged to the French franc (FF1 CF50). This limits the choice of monetary policies. In fact, adjustments of the exchange rate cannot be made independently of the exchange rate of the other members in thi zone. In this context, discipline in the management of public finances becomes a critical factor. According to a recent study by the International Monetary Fund, the Comoros' effective exchange rate appreciated by 301 from 1980 to 1987. This mainly reflects the - 15 - fluctuations of the U.S. dollar In relation to European currencies and particularly the French franc, to which the Comorian franc is tied. Given the weakness of the Industrial sector, recent exchange-rate movements have hardly had any impact on short-term prospects for exports of industrial products, but over the longer term such movements could have adverse effects, especially if an industrialization policy is embarked upon. The only short-ternm problem is the producer price for vanilla, which might make exporting vanilla unprofitable for exporters, but a lower price would have a negative impact on production. 2.39 Recent trends. The trends registered in 1986 seem to have continued in 1987 and the deterioration may have accelerated due to external factors. Capital outlays are likely to be considerably reduced because Government has decided to reduce investment expenditures, but also because delays in debt servicing have a negative impact on the clearing of outstanding loans. Furthermore, the appreciation of the Comorian franc vie-i-vie the US dollar will tend to reduce the export earnings exprossed in Comorlan francs and will have a negative impact on budgetary revenues. The decline in the income of vanilla producers hit by the decline of producer prices will further reduce domestic demand and further depress the overall economic activity. - 16 - III. BACKGROUND TO THE CHALLENGE FACING THE COMOROS A. A Small Country 3.1 With an area of 1,860 km2 and a populationl estimated at 425,000 in 1987, the Comoros is a small country in the Indian Ocean. The fact that its territory is spread over three islands exacerbates the problems common to all small countries. Each island has its own characteristics and traditions, and the issue of bringing the country out of isolation has both a domestic and an international dimension. B. High Population Density 3.2 With 288 inhabitants per km2, Comoros is one of the most densely populated countries in Africa after Mauritius, Reunion, the Seychelles and Rwanda. The population density varies from one island to anothert 405 inhabitants per km2 on Anjouan, 197 per km2 on Grande Comore and 91 per km2 on Moheli. C. High Population Growth 3.3 According to the 1980 census, the annual population growth rate is 3.3X, one of the highest in the world. At this rate, the population is doubling every 20 years, and demographic pressure, already very high, is rapidly becoming unbearable. Although about 100,000 Comorians are living outside the country, current opportunities for emigration are quite limited. Inter-island migration, from Anjouan to Moheli or Grande Comore, seems difficult due to the marked differences in tradition. Emigration to France, where many Comorian expatriates live, is now far less easy than before, whether directly or via Mayotte, as has been the case since Independence.. The traditional emigration to neighboring countries (Madagascar, Tanzania) is no longer possible, given the economic problems these countries face and due to the incidents that have occurred (emergency repatriation of 18,000 Comorians living in Majunga in 1977). D. A Young Population 3.4 Comoros has a young population with an average age of 22.8 years. The age pyramid is very flat: 47% of the population is under age 15 and 57% under age 20. This young population constitutes a heavy burden for the Governmen.t in terms of provision of education and health facilities, as well as requirements for investments, employment opportunities and demand for foodstuffs. E. Poor Health Status 3.5 The very high birth rate (46/1,000) is offset by a mortality rate (16/1,000) that is also very high. The infant mortality rate is one of the 1/ The population of each island, according to the 1980 census, has been projected at its own historical growth rate. - 17 - highest in the world (122/1,000). Health is generally poor: malaria is endemic and affects about 80% of the population. Malnutrition is commons calorie intake which differs from one island to another averages only 1,754 calories per day. These health problems are reflected in a life expectancy at birth of less than 54 years. . Low Education Level 3.6 Illiteracy is high with almost half of the population being illiterate. School enrollment rates2 are also very lows 17.5% for males and 12.1% for females. Only 38% of children aged six to 14 years are in school, and their attendance is often irregular or made difficult by the long distances they have to walk to school. G. High Unemployment 3.7 The vast majority of Comorians live in rural areas in a subsistence economy. The rate of participation in the active labor force is relatively low, although underestimated. According to the 1980 census figures, less than 80% of the population over the age of 12 is employed. Unemployment is especially high in urban areas and among young people (30% of those between ages 15 and 19 and 19% of those between ages 20 and 24). Only 43% of men and 24% of women are considered to be full members of the active labor force: every 100 economically active persons in 1980 were estimated to be supporting 237 persons who were not employed, as against 183 in 1966. H. Heavy Dependence on Technical Assistance 3.8 Despite its high unemployment rate, the Comoros, like many small island countries, is heavily dependent on foreign technical assistance. The country's small size means two things: first, a full range of qualifications is not available in all disciplines; and second, when there is a supply of individuals qualified in a particular discipline, the scarcity of career development opportunities at home drives them overseas in search of better prospects. The outcome in practice is that the Comoros is forced to rely on the services of a large number of expatriate technicians, while numerous qualified nationals remain abroad. The ratio of expatriates or technical assistance personnel working in the Comorian Government is particularly high. I. Lack of Natural Resources 3.9 At present, the country is not known to possess any mineral deposits. Energy resources, other than geothermal energy, are limited; there are no petroleum deposits. The sole resources are the forests and vegetal wastes. Solutions that would tap the potential of the archipelago's active volcanoes exceed by far both the financial capacity of the Comoros and its energy needs. 21 Gross ratess school population over total population. - 18 - J. Rapid Soil Erosion 3.10 Population pressure is extreme, particularly on Anjouan. Steep hillside areas have gradually been cleared to make room for crops. Even slopes with gradients of over 30% are cu'tivated. In the absence of plant cover, the arable soil is being progressively washed out to the sea, to such an extent that after the rain the coasts are ringed with mud, which is slowly silting up the mouths of the rivers. The soil is no longer able to retain moisture and is becoming progressively drier, while streams are drying up and the volume of water in the rivers is decreasing. Reforestation and erosion control are Government priorities, for which assistance is being received from CARE and IDA. K. Isolation 3.11 Like other island nations in the Indian Ocean, the Comoros is remote from major world markets, a factor that reduces its development potential. The archipelago is approximately 9,000 km from Europe, 16,000 km from the United States, 9,000 km from Australia, and 10,000 km from Japan. It also lies away from the principal shipping routes, which makes transportation costs particularly high. The Comoros can only alleviate this handicap by keeping wage costs lower than in the countries with which it competes. L. Vulnerability to External Shocks 3.12 Like all small countries, and tropical islands in particular, the Comoros exports a limited number of agricultural products and imports almost all the consumer goods, petroleum products, and raw materials. Its imports are therefore particularly sensitive to external crises and to the deterioration of the terms of trade. M. Inadeguate Infrastructure 3.13 It was not until the late 19609 that the Government began building a network of all-weather roads. Upon Independence, the country had only 250 km of paved roads and 400 km of earth roads. The road program was funded mostly with external financial assistance. The ring roads on each of the three islands are now almost completed, although feeder roads to the interior are still lacking and many regions remain isolated. 3.14 The very steep terrain, abrupt slopes, and volcanic rock formations furrowed with gullies by the tropical rains, make road building and maintenance very costly. Roads have to be surfaced to prevent heavy gullying; but costly structures can be avoided by incorporating roads with steep gradients. As the tropical rains tend to wash roads away, adequate drainage is essential. Roads and feeder tracks generally get damaged during the wet season and annual repairs are substantial. 3.15 Up until a few years ago, the country had no deepwater port and supplies have been brought in through either transshipment to smaller vessels in neighboring countries or unloading offshore into dhows. With external financing, the Government has Just completed a port on Anjouan which should be fully operative in the very near future. This port will - 19 - provide a point where cargo for the other two islands can be transshipped. In Moroni, cargo continues to be oftloaded in high sea, while Moheli can be supplied only by means of dhows or small flat-bottomed boats that can be beached at low tide. 3.16 Long-distance sea transport to and from the Comoros is provided by the 16,000-ton ships of the Capricorn consortium which call at the islands about twelve times a year. Rice is brought in by ships of 12,000-25,000 tons from Pakistan or Thailand for both Comoros and Mauritius. Regional service in the Indian Ocean is provided by small coasters of 1,000-2,000 tons. At present, inter-island traffic is provided by the only coaster, Noumachoua (180 tons) which requires major repairs. The other coaster, Kamar al Kuweit (250 tons), which sunk in the port of Mutsamudu on April 6, 1987 cannot be salvaged. In addition, nine motor-powered dhows and four sailing dhows with about 20-50 tons of cargo capacity each, provide transport between the islands. 3.17 Telecommunications facilities in the Comoros are unreliable. Although intra- and inter-island communications have been improved thanks to CCCE loans, service with the rest of the world is very unsatisfactory. The Republic is linked to France by an electromechanical system, in service only for a few hours per day with very patchy transmission quality. As a result, communication even with neighboring countries is often poor and may involve long delays, a major obstacle to any development effort of regional and international trade. 3.18 The Islamic Republic of Comoros has an international airport, but with inadequate ground installations and only minimal radio=xavigation system. There are no facilities for the warehousing and handling of air cargo. Anjouan and Mohili have only short airstrips with very minimal ground installations and no firefighting or air navigation equipment. - 20 - IV. SOURCES OF POTENTIAL GROWTH 4.1 This chapter reviews the prospects of the Comoros in the medium term and the extent that agriculture, industry and tourism could contribute to economic growth and employment generation over the coming years. A. Agriculture 4.2 Agriculture is the most important sector of the economy. It accounts for over 40% of GDP, generates almost all export earnings and provides employment for about 801 of the labor force. It consists mainly of production of foodstuffs for domestic consumption and traditional cash crops for exports. Only a small proportion of food crops is marketed, the rest is for personal consumption. The cash crops require only seasonal labor. 4.3 Although no reliable statistics are available, the agriculture sector is estimated to have grown at an annual average rate of 4% over the last three years. Any development in the sector would depend on improving the farming techniques for both cash and food crops, and on diversification to develop high-value export crops. 4.4 Arable land is scarce in the Comoros. According to a 1971 study by the Tropical Agriculture Research Institute, only 581 of the land area of the islands is suitable for agriculture (602 on Grande Comore and Moheli, and less than 501 on Anjouan). Given the steep slopes, the rugged terrain and the thin layer of arable soil, 801 of this land is better suited to tree and shrub cultivation, which leaves no more than 17,000 ha usable for food crops. Some 34,000 ha could be brought under cultivation if extensive improvement work is first carried out. 4.5 The scarcity of land results in its being intensively exploited, and the dominance of food crops which cover respectively 981 of land cultivated in Grande Comore, 912 in Anjouan, and 96% in Moheli. By far the most important food erops produced are those dependant on tree-shade cover (43% in Grande Comore, 571 in Anjouan, and 591 in Moheli). 4.6 Recent trends indicate an increase of food crops cultivated in tree-shaded areas, and a decline in forestry in favor of food crop cultivation. Over the last ten years, forested areas have declined by 73% in Anjouan, 532 in Moheli and 361 in Grande Comore. 4.7 The areas under cultivation equal or exceed the land with agricultural potential, including land of marginal value according to TARI classification. To prevent further use of marginal value land, higher yields will have to be achieved, otherwise deforestation will increase further. (1) Inappropriate land tenure system and many landless farmers 4.8 There are four types of land tenure: Government landholdings (33% of all land in the Comoros, mostly forests); large estates (171), whose - 21 - uncertain future precludes rational and Intensive cultivation; land held by individuals, which can vary anywhere from 1 to 500 ha; and the 'magnshoulies" which remain undivided in the family and are traditionally inherited by women. Many Comorians own no land, and have to work as sharecroppers or farm laborers. The Government should act urgently to reach an agreement with the foreign corporations which own the large estates. The agreement could take place in the framework of a general land titling and registration campaign. (2) Poor crop yields 4.9 A wide range of crops is grown in the Comorost tubers (cassava, yams and taro); upland rice is the major cereal, followed by maize (often in mixed-crop systems); varieties of pea known as pois du Cap, the cajan pea (ambrevade) and the mung bean (amberique); banana, coconut and breadfruit trees are widespread while numerous fruit trees grow spontaneously. 4.10 Yields are poor, as a result of the rudimentary farming techniques employed. Fertilizers and pesticides are not applied. The use of selected seed is almost unknown (with the possible exception of the maize project), and there is no program for improving vegetal stock. The soil is commonly tilled by hand using a traditional stick hoe. After a period of interruption, agronomic research has been taken up again since 1983 with a view to developing new selected species for coconut, maize, and vegetables (tomatoes, potatoes, beans, saladstuff, etc). Agricultural investment is very limited because the current land-tenure system does not give farmers enough incentive to undertake modest irrigation or terracing schemes or to plant shrubs or trees to stop soil erosion. (3) Cash crops for which world demand is diminishing 4.11 Cash crops, such as ylang-ylang, vanilla, cloves and coconuts occupy about 40,000 ha. Cloves are grown on each of the three islands. Ylang-ylang trees can survive on steep slopes and adjust to poor soils; in 1980, 1.2 million of them covered almost 2,900 ha, but the slump in sales of the essence and the high cost of distilling it have led to a deterioration of the plantations and in many cases trees have been uprooted to make room for food crops, such as rice, maize or bananas. The good market conditions prevailing for cloves over the last few years resulted in an expansion of clove plantations, especially on Anjouan, which currently produces 70% of all Comorian cloves; however, the recent fall in wforld prices has now affected producer prices and resulted in a decline in export volume. With 5 million vanilla vines occupying a total of 2,500 ha, the Comoros could easily double its output if market conditions were right. However, given the limited world market (of which Comoros shares approximately 15%), increased vanilla production would only lead to the accumulation of surplus stocks or falling prices. Efforts should therefore be concentrated on improving quality and productivity. This would be done through a price/quality incentive system in order to motivate producers to increase the quality of vanilla. Coconut plantations occupy about 30,000 ha and produce about 75 million nuts. However, since nearly 25% of the output is destroyed by rats, the number of nuts available for local consumption or 4sxport is no more than 57 million. The growing local demand and higher - 22 - copra production costs combined with the loss of the Malagasy market have led to a virtual cessation of exports. While coconut production is expected to increase in the future, it is not clear that there would be an export market available. (4) Food security 4.12 Increasing and diversifying primary production to reach food self- sufficiency and reducing the balance of payments deficit has replaced the objective of food self-sufficiency of the Soilih Government. A study by the Bureau pour le Developpement de la Production Agricole (BDPA) demonstrated that in order to provide each inhabitant with a daily food intake of 2,100 calories by the year 2,000 (compared to the current daily figure of 1,700 calories), it would be necessary, given the rate of population growth, to increase available supplies two and a half times. The same study indicated that, at best, it might be possible to double food production, which would still leave a deficit of roughly 80,000 tons of rice-equivalent per annum. The Government has now abandoned the goal of food self-sufficiency as unattainable in the near future, but has become aware of the need to ensure food security and is therefore elaborating an integrated agricultural development strategy aimed at maximizing the return from every available piece of land. 4.13 The Agriculture Sector Report (4368-COM), issued by the World Bank in 1984, gave comparative figures on the potential revenue obtainable per hectare from specific crops. Cash crops were identified as the major potential source of revenue, with food crops lagging a long way behind. This study suggested that it would be preferable to import foodstuffs, and pay for them by increasing exports. This recommendation is even more valid at the present time, when grain prices on the world market have fallen by nearly half. 4.14 The success of such a policy depends on the introduction of an integrated agricultural development strategy which aims at rehabilitating cash crops and improving the productivity of traditional food crops, and also at diversifying production by introducing new crops. Although the Comoros has received significant aid since the late '70s from numerous donors, who have concentrated their efforts on specific projects, no such strategy has actually been put forward, nor has any agreement been reached on the means necessary for its implementation. (5) Institutional reform 4.15 The CEFADERICADER system established in 1980 performs the functions assigned to the Ministry of Agriculttire in other countries. Critical examination of the CEFADER/CADER system as a whole shows that the multiplicity of activities for which it is now responsible have transformed a dynamic institution into one difficult to manage. Created by the Government, following a UNDP recommendation, to perform the functions of a Ministry of Agriculture, CEFADER/CADER runs, inter alia, the coconut project and the rural development project financed by IDA, and the maize project financed by the European Development Fund. It receives aid from CCCE and FAC, which provide technical assistance services. CARE, UNICEF, FAO and the World Food Program finance a range of activitiess women's - 23 - development, nutrition training, soil conservation, erosion control, and smallholder credit. The many different aid sources, each with its own set of conditions, creates numerous administrative and budgetary problems that impede the smooth functioning of agricultural extension services. The fact that some staff are paid directly via aid programs or receive a salary supplement from certain donors creates a number of injustices and jealousies among extension personnel, which serves to underscore the need for donors to coordinate their aid within the framework of an overall strategy drawn up by the Government with assistance from the principal donors. 4.16 The Government is aware of the necessity to develop an integrated agricultural development strategy and to restructure the CEFADER/CADER system. First, efforts have been made within the Ministry of Production to define the terms of reference of the study on agriculture strategy. Second, a draft of the development stratwgy in the fisheries sub-sector is being examined by various departments. And third, a draft of the new organigram of CEFADER prepared with assistance from the United Nations experts is being discussed within the administration. (6) The issue of imported rice 4.17 Rice, introduced by the French during the colonial era, now constitutes one of the major elements of the Comorian diet. According to a survey carried out in 1966 by the Bureau d'Etudes Economiques et Statistiques (BEES), consumption per ^apita varied from around 65 kg a year among the urban population and coastal villages to 25 kg a year in the highland villages. In 1980, average annual per capita consumption had reached approximately 72 kg. Local production, at around 2,800 tons per annum, can only meet about 102 of domestic demand, which means that about 20,000 additional tons per annum has to be imported. 4.18 Rice landed in the Comoros for US $180/ton sells on the local market at three times that price (CF165/kg). One would expect such a difference should be enough of an incentive to encourage the consumption of local products. However, quite the opposite occurs, with prices of local products (bananas, breadfruit) in urban centers tending to adjust to the price of rice. 4.19 ONICOR (Office National pour l'Importation et la Commercialisation du Riz) holds the monopoly to import rice, which it resells to wholesalers. The financial surplus generated by the agency after payment of turnover and profits tax is transferred to the Treasury to ease the Government's cash- flow problems. It would be preferable,if the difference between the cost of buying rice on the international malrket and its local selling price were subject to a tax, the proceeds of which would be allocated through the budget, since this would then free public revenues from dependence on ONICOR's management performance. Initially, a 100% tax should be imposed, which could subsequently be amended if warranted by the study on the marketing of foodstuffs. 4.20 The situation here is a paradoxical one. Domestic rice production, the yield from which is particularly poor (0.3 to 1.2 tons/ha of paddy as against 1.5 tons/ha in Madagascar and 8 tons/ha in Asia) takes - 24 - up about 15 to 202 of the land under food crops cultivation but provides only 82 of the daily calorie intake in the islands. It would be advisable to consider measures to discourage rice-growing, which is largely responsible for the present rapid soil erosion, particularly on Anjouan, and to replace rice with other crops that are more remunerative and ecologically less harmful. However, a more detailed study of the problems arising in the pricing and marketing of rice and local food products is needed before decisions are taken to institute far-reaching measures to discourage rice production. (7) Encouraging production and consumption of maize 4.21 With assistance from the European Development Fund, the Government launched a program to foster maize production and gradually substitute maize for rice in the national diet. The program has been quite successful and the maize production increased from 2,400 tons in 1982 to approximately 3,900 tons in 1986. So far, yields of 800 kg/ha have been obtained, but experience gained through the pilot project shows that 1,500 kg/ha (as compared to 2,250 kglha in Kenya) could easily be reached. 4.22 Demand for maize, in particular the green maize which is eaten broiled on the cob before it is ripe, far exceeds output. To accelerate the change in dietary habits, the Government should consider importing dry maize, possibly subsidizing the price--a feasible proposition, since maize on the cob is significantly more expensive than the dry product--so that importing .ne latter would not discourage domestic production, at least over the near term. However, given the fact that at present dry maize is used mostly as animal feeds, careful testing should be made to see what form of maize is best accepted in the local dietary habit (i.e., broken maite, rice maize, etc.). In fact, neither the maize project nor the maize flour imported under a WFP project has been able to sensibly modify the dietary habit of the Comorian population. (8) Chanaing consumer habits and encouraging consumption of local products 4.23 It is essential to bring about the kind of change in dietary habits that will mean higher consumption of other grains available more cheaply on the world market and of alternative products native to the Comoros (cassava, breadfruit, bananas) or ones whose production can be developed locally (maize). 4.24 Development of traditional crops such as bananas, cassava and breadfruit will depend largely on improving the plant materials. Since this has been neglected up to now, better results are unlikely to be obtained for some time. Other factors, such as improving the marketing channels, are also important. A system of domestic trade and free access for farmers to markets combined with upgrading of the transportation system should improve the supply of traditional foodstuffs currently available. The initiative taken in establishing a marketing cooperative on Moheli is a step in the right direction: a private group organizes the collection of food products and their transportation by dhow to Anjouan and Grande Comore. The Government should encourage this type of initiative, formulate a framework law for the purpose and set up a technical and financial support program. - 25 - 4.25 Both Government and donors should reexamine the role of food aid programs and their effect on production. Systematic distribution of foodstuffs in lieu of wages tends to encourage consumption of those products at the expense of local goods and lower their market price. (9) Diversifyina cash crops 4.26 Various avenues should be followed in developing cash crops in the Comoross the productivity of existing crops should be improved and rehabilitated, and newf ones introduced and developed. The coconut project, with its successful development of a dwarf hybrid, is already a significant achievement. Where vanilla is concerned, however, a considerable effort to improve productivity still remains, and rejuvenation of ylang-ylang plantations is essential. A study on producer prices for traditional crops and existing collection and marketing structures could lead to recommendations for increasing both output and quality. In addition, serious thought should be given to introducing new crops such as pepper, cinnamon and cardamon, all products native to the Comoros that command attractive world prices and for which demand is increasing quicker than supply. Tropical fruits such as lychees, mangos and soursops, which bring unit prices high enough to defray the cost of air transport, should be encouraged. Finally, flowers could provide a source of foreign exchange; Mauritiust for instance, is currently earning nearly US$2 million from its exports of anthuriums. (10) Livestock development 4.27 Although secondary to crop-growing, stockraising is not negligible in the Comoros. The 1973 livestock census indicated a population of 40,000 head of cattle, 5,700 sheep and 42,000 goats. Poultry farming has developed rapidly as a result of the increase In the availability of maize. 4.28 The Zebu cattle that make up the Comorian herd are generally small in size owing to a lack of genetic variety In breeding. The calving rate is relatively low and the mortality rate high because of parasitic infections and malnutrition. Meat and milk output figures are quite low. Average weight on the hoof is 200-250 kg, and milk production 1-2 liters per day. The situation is largely the same with the sheep and goat flocks; as they are commonly parasite-infested, with their poor diet supplemented only by crop wastes, the animals are small, below normal weight and give low yields of meat and milk. 4.29 Livestock production could be increased by improving animal health. The first step would be to set up a veterinary service to deal with the various parasites, and the second to Improve the breeds by appropriate crossing. Improved pasture, forage crop development, use of forage grasses as anti-erosion aids, and provision of watering facilities w uld also help improve livestock nutrition and increase output of meat and milk. Such a program is being implemented through the rural development project. Small poultry-raising projects which already give positive results should be encouraged. - 26 - B. Fisheries 4.30 Fish is an important component of the Comorian diet and fishing could become a main source of revenue. At present, fishing activities by 8,000 f'shermen using non-industrial methods are confined to the immediate coastal waters, so that output is well below its potential. There are approximately 3,600 fishing boats, of which less than 100 are motorized. The 50 fiberglass craft (BLC-30) supplied by the Japanese International Cooperation Agency in 1983 appear to be perfectly adapted to Comorian fishing practices, although some are not in working order for lack of spare parts. These craft enable the fishermen to go beyond the immediate coastal waters and, thus, to increase their catch. 4.31 The total catch is estimated at about 5,000 tons a year and provides some 40S of the population's animal protein needs. A large part of the rest is covered by imports, consisting of about 500 tons of frozen or dried fish and 2,000 tons of frozen meat. While coastal fishing has reached its limits, potential within a radius of 50 km around the islands seems excellent (approximately 12,000 tons annually). Accordingly, the development of fisheries should be actively promoted so as to increase production to the point where domestic demand is covered and fish takes the place of much of the meat currently imported. 4.32 Although several projects are now underway, a few were dropped from the program. Recently, the Ministry of Production has adopted a fisheries policy oriented toward the development of artisanal deep-sea fishing within the 5OKm radius around the islands. Moreover, the Ministry has negotiated the regulation of an industrial deep-sea fishing in the Comorian waters with the European Community and other interested countries. For the short term, the main concern should be to increase output for domestic consumption by improving fishery equipment, disseminating knowledge of better techniques, and providing certain services for fishermen (e.gtvv t&eess to credit for the purchase of improved equipment and parts). 4.33 Emphasis should be placed on improving preservation methods and distribution and marketing channels so that fish will still be fresh on reaching consumers. This is particularly important where sales in villages in the interior are concerned. Drying, curing or smoking are perhaps more appropriate than refrigeration, because of the lower cost and local habits. Appropriate measures should be introduced to promote and support family cooperatives, while distribution channels need to be rationalized. In numerous cases, producer prices are too low to elicit much effort from fishermen, while distribution margins are such that retail prices are high enough to deter many potential consumers. The type of cooperative system set up on Mohili could be extended to the other two islands to assure supplies and bring market prices down. 4.34 As regards the long term, potential for industrial fishing certainly exists. The Indian Ocean is rich in tuna and attracts many foreign fishing vessels into Comorian waters when following schools of migrating fish. The difficulty lies in the size of the minimum investment required. Modern trawlers electronically equipped to locate migrating schools of fish cost between US$50 million and US$70 million, need highly- I - 27 - trained crews and require large-scale logistic support, both in maintenance and preservation of the catch. This kind of potential cannot be tapped, however, until the Comoros acquires adequate cold-storage facilities, in association with foreign partners possessing the know-how and required technical expertise, and capable of organizing distribution. For the immediate future, the Government should content itself with collecting dues from foreign fishing boats in its territorial waters and negotiate agreements with neighboring countries regarding policing of the seas. C. Tourism 4.35 The Comoros archipelago could prove highly attractive to tourists looking for something different, and thus may have as yet unexploited tourism potential. The islands provide a fascinating combination of mountain panoramas and tropical coastal scenery. Although there ar few beaches, the black volcanic rocks lapped by a bright blue sea that turns emerald green closer inshore offer many striking vistas of rare beauty. Although the coastline is mostly abrupt cliffs, there are exceptional opportunities for scuba diving and spear-fishing. 4.36 Tne tourism sector accounts for a relatively small share in GDP, despite the increase in hotel capacity from 90 to 160 rooms when the Ylang Ylang Hotel was inaugurated in 1984. Although the number of tourist arrivals (which rose sharply in the early 1980s reaching the record number of 11,500 in 1983) dropped back to 5,350 in 1985, the number of tourists and businessmen visiting the Comoros has risen significantly. This was reflected in the number of hotel guest-nights, which rose from 16,800 in 1983 to 22,700 in 1985. Unfortunately, the room occupancy rate is still very low, at less than 30X. Comotel, a mixed corporation affiliated with the French Novotel group and in which tne Comorian Government is the major shareholder, is responsible for management of the various hotels in the archipelago. . - 4.37 The Government recently authorized construction, on Grande Comore, of a new hotel with a capacity of 150 rooms. This hotel, built and managed by Socotel (a foreign group in which the Government has taken a 302 interest), is scheduled for completion at the end of 1987. The same corporation is also to open two new hotels on Anjouan and Moheli, with 20 and 15 rooms respectively. 4.38 dne of the main constraints to tourism development is the remoteness of the archipelago from the principal tourist departure points, namely Europe, North America, Japan and Australia. However, the Comoros is no more handicapped here than other Indian Ocean countries that have succeeded in.attracting tourists from the same areas and in building up a flourishing tourism business. Therefore, the basic problem for the Comoros is to be able to offer competitive prices. 4.39 Another obstacle is the scarcity of air links. The Comoros is served once a week by flights from Europe and southern Africa. Connections with Nairobi and the other Indian Ocean islands are provided by Air Madagascar and Air Mauritius. There is also service with Dar es Salasm, although it is irregular. In view of the low seat-occupancy rates - 28 - on flights to and from Europe, it would perhaps not be advisable to encourage charter flights, since they might prompt the companies providing scheduled air service to abandon routes which are not profitable. 4.40 Investments in tourism are to be discouraged for the moment. Even if the Government refrains from any financial participation, new investments will inevitably lead to expenditure on infrastructure and additional recurrent charges which the country is in no position to finance. Unless investors are prepared to take on all infrastructure costs and recurrent charges (e.g., access roads, increased power generation capacity), the Government should be most circumspect in authorizing new ventures. Moreover, how much net value added can the tourism sector generate, since nearly everything has to be importeds building materials, furniture, alcoholic beverages, and most foodstuffs and qualified personne4.. 4.41 Meanwhile, the Government should withdraw from the two hotel corporations in which it has holdings, while requiring them to undertake a major promotion campaign. An increase in occupancy rates can only be obtained by means of publicity targeted at tour operators specializing in the Indian Ocean islands. An effective campaign along these lines should help to fill the hotels. D. Industry 4.42 The indt-strial sector in the Comoros is in its infancy. It contributes less thar. 5% of GDP and provides approximately 4,000 jobs. Some 2,000 persons work in the textile industry (ready-made garments, leather, footwear), and an additional 1,000 in the woodworking industry. Processing and packaging of cash crops, food industry (bakery, pastry- making), jewelry-making, and the production of building materials account for the rest of employment in industry. 4.43 Most industrial plants are rudimentary: stills for the distillation of ylang-ylang, kilns for drying copra and for processing vanilla. With the exception of two or three large enterprises, processing industries are generally small-scale outfits that use wood as their main energy source, thereby contributing to deforestation and soil erosion. 4.44 Despite the limited size of the domestic market, many small industrial establishments, mostly owned by young people, have flourished in recent years: bakeries, confectioneries, ice-cream makers, coffee- roasters, garages and small machine-shops, ready-to-wear garment factories, etc. The innovations of small businesses seem to come from several factors: (i) small traders' interest in diversifying; (ii) lack of employment opportunities in the Comoros; (iII) the increasing difficulty of emigrating; and (iv) the demonstration effect of success. In addition, the promotional activity of the Comoros Development Bank and enactment of the new Investment Code in 1984 have also unquestionably helped in this respect. 4.45 Nevertheless, potential is limited by the size of the domestic market and its dispersion over three islands. On the other hand, potential for attracting export-oriented industries exists, and the - 29 - Government ought to encourage this kind of activity. Monthly wages in the Comoros range from CF12,000 (US$30) to CF15,000 (US$45) and are very competitive with those paid in other countries where labor-intensive industries have been established. Comorian manpower is abundant and can easily be trained to perform repetitive tasks. The cost of energy obtained entirely from imported petroleum products is high, but could be reduced by applying appropriate pricing policy. 4.46 Even if the Comoros is to diversify its activities to labor- intensive export-oriented industries, this effort would be unlikely to yield results for several years. The experiment launched in Mauritius in 1970 when the Parliament enacted legislation on free zones did not begin to produce results until after many years with various errors and bankruptcies. In any case, Mauritius started with certain advantages: legislation on development certificates had been introduced as early as 1963, and the local market was more than twice the size of that in the Comoros. Like the Comoros, Mauritius was compelled to do something about high unemployment (20-25Z of the active labor force). After reviewing the incentives offered by various countries to attract foreign investors, Mauritius deliberately chose to .provide the most advantageous conditions, in the form of generous tax exemptions for foreign investors. 4.47 Most new industrial ventures were set up in association with Mauritian partners. Following this example, the Comorians, even if the extent of their participation is likely to be more modest, should be able to attract foreign partners who, in addition to their capital, will provide not only the necessary technology and know-how but also marketing channels and loreign market outlets. The Comoros should also follow the Mauritian model further by negotiating agreements with other countries in the interests of avoiding double taxation. Again as in the case of Mauritius, the Comoros, as an ACP country, has a guaranteed entry for its products into the Common Market. 4.48 The Comoros Qffers the same advantages and strategic position as Mauritius, a small country supported by several of the EEC aiations and Persian Gulf countries. The Indian Ocean Commission, to whtch the Comoros belongs, can pave the way for the establishment of branches of industry already operating in other island countries which are confronted with quota problems. Furthermore, entrepreneurs in certain neighboring countries that face internal problems and political disturbances may want to diversify their activities by investing abroad. The Comorian Government could very well take advantage of this situation and attract them with appropriate incentives to come to invest in the country. 4.49 The Comorian Investment Code should be simplified. In such a small country, there seems no need to have four types of regime. The main criteria for entitlement to the advantages of the Code should be the ability of the investing enterprise to export. A procedure for appraising the benefits that would accrue from foreign investment should be developed. The Government should not have to commit itself to extensive - 30 - infrastructure worksl just to attract in exchange a few additional jobs or a little more foreign exchange. The benefits obtainable need to be far more than that. Generally speaking, approval procedures should be streamlined. The three-month period specified ir. the Gode is wach ton long and the overly complicated procedures could well put an investor off before he has even begun making his investment. The approval procedure is currently too long and requires the signature of the President of the Republic. As a result, over 100 applications are currently awaiting approval. The benefits allowed under the Code should be as generots as possible and the Government would do well to draw some inspiratioi; from the legislation currently in effect in Mauritius. 4.50 After amending the Code to the point where it is at least as generous as those in effect:in the countries in competition with the Comorob., the Government should organize a series of visits to its neighboring countries and the Gulf states with which the Comoros has traditional relations, and even to some countries in the Far East where certain ethnic minorities could be interested in emigrating in order to enjoy greater political security. The purpose of these promotional visits should be to attract the attention of foreign investors and explain to them the advantages of establishing themselves in the Comoros. E. Education and Health 4.51 The objective of economic growth is to improve the quality of life for the population, which means, among other things, creating better health conditions and a higher level of education. Paradoxically, however, economic growth depends on the quality of the labor force, its health condition and its level of education. As already noted in paras. 3.3-3.6, the Comoros faces particularly serious handicaps in these areas. 4.52 Education. The Government has decided to take certain measures, with the ceclztance of the World Bank (in the context of a second' education project) and several other donors, to reduce its recurrent costs and raise the quality of national education. Entrance into secondary education has been made stricter, and the actual number of first-year students has been reduced by approximately 600. The number of students in the first year of upper secondary has also been reduced, from 2,055 in 1985 to 994 in 1986. On the other hand, by way of exception, students who did not pass the entrance examination for high school have been allowed to repeat for a second time; this has added greatly to the size of the enrollment in lower grades, where the number of classes has increased from 90 to 128. 4.53 As a parallel measure, steps were taken to reorganize the teaching profession. Teachers recruited illegally were dismissed, as were a certain number of auxiliaries. The remaining auxiliaries have been given training courses and will be made full-fledged teachers upon passing a professional-level examination. Altogether, the number of teachers has been reduced from 3,900 in 1985 to 3,200 in 1986. 1/ The investments the Comorian Government is responsible for under the terms of the two hotel projects completed or in the course of execution on Grande Comore provide two characteristic examples. - 31 - 4.54 In addition, the Government is trying to get parents to participate In the maintenance of school facilities through parent-teacher associations. Som members of the Government have proposed that all parents be asked to make a modest financial contribution, as a way of relieving the burden on the Government and recovering a certain proportion of education system operating costs from #,.he beneficiaries. 4.55 Pooulation and health. The Comorian authorities' attitude to the population growth question has changed over the last few years. At the recent international seminar on Islam and family planning, the religious authorities encouraged the spacing of births. The highest echelons of Government now emphasize the need to limit population growth. 4.56 The Government intends to improve the country's health infrastructure nd the professional qualifications of health care personnel. Unfortunately, because of the particular nature of the requirements of different donors, it has not been in a position to adopt an overall health strategy. There are a number of specific projects which, because of lack of counterpart funds, often could not be executed fully. For example, although vaccines may have been supplied by donors, the gasoline and vehicles needed by the vaccination teams are not always available. Therefore, an integrated approach is essential. o , - !2 - V. ON THE PATH TO GROWTH A. The Thrust of Adiustment 5.1 The long-term economic and financial strategy has to take into account the specific circumstances of the Comoros; the one reality witich must be kept in mind is that debt service absorbs a large part of the Government resources. Therefore, an attempt should be made to mobilize more domestic resources (by increasing tax revenues), and to cut expenditure. Efforts to rehabilitate public finances and improve their management are therefore imperative and constitute the key to future economic development. The Government is already aware of the situation and the 1987 budget reflects its determination to correct it. The austerity policy introduced reflects both the Government's willingness to progressively reduce the deficit (from 39X of GDP in 1985 to 25% of GDP in 1987) and the reduced amount of aid available from certain donors. 5.2 The financial situation should be brought under control, but it is difficult for the Government to come to grips with this task alone. Assistance from the international community is vital and the Comoros cannot be expected to function if the aid which up till now has covered between 40% and 50% of the Government's current expenditures were to dry up. A concerted effort must be mounted to negotiate the amount of this aid in the context of the annual State budget. Halting public investments would be unthinkable; at the very most they could be cut back. The answer is for a more rational use of the available resources and for strict economic criteria for the selection of investments. 5.3 The financial reform must also be accompanied by a review of the role played by technical assistance and its contribution to the country. The cost of this assistance is sometimes out of proportion. In 1985, technical assistance accounted for about CF4 billion. (By way of comparison, expenditures for Comorian personnel included in the Budget amounted to CF4.7 billion.) Can the Government and the international community afford to go on with such an expenditure for such disappointing results? A systematic evaluation of technical assistance is needed to see to what extent it would be possible to establish a system to encourage qualified Comorian professionals to return home and to form a joint top- level expatriate/Comorian team h#red on a consultant basis to provide the services critical to the functioning of Comorian public administration. 5.4 Furthermore, the various donors should cooperate with the Government authorities by strengthening the national administrative machinery instead of setting up parallel units, in the interests of short- term efficiency, to manage projects they finance. A set of rules that are mutually acceptable to both donors and the Comorian authorities will therefore have to be devised. 5.5 Along the same lines, the resident technical assistant system also clearly needs to be reassessed and should, wherever possible, be replaced by experts who visit the country on short missions scheduled at regular intervals throughout the year, ,to launch programs, discuss with Comorian officials any difficulties encountered in the implementation of these - 33 - programs and jointly prepare the work program to be carried out until the next visit. This procedure should lead to Comorian personnel assuming greater responsibility and should help prevent the gradual "marginalization" of permanent technical assistants who, in the course of time, tend to succumb to discouragement and eventually adopt a passive attitude. 5.6 In parallel with these .ctions, steps must be taken to ensure that government personnel are paid regularly. It is hard to motivate public employees, if their salaries are low and not paid regularly. Government efforts to review the employment status of individual employees need to be stepped up. It is difficult to maintain all the present staff categories, i.e. fixed-term staff, support staff, temporary personnel and even volunteers. The international community should help the Government by establishing an aid-budgeting process to ensure regular pay to the Comorian public employees. 5.7 This type of approach emerged recently in the agriculture sector, where the Comorian authorities and the leading donors at the local level simultaneously came up with the idea of formulating an integrated agricultural development program and of identifying the resources needed for its implementation. This approach should serve as an example for the concerted and coordinated budget funding of a revitalized CEFADERICADER structure. Initiatives of this sort should be encouraged in the various sectors of the economy. B. The Macroeconomic Context 5.8 The scenario presented is based on the assumption that, as a follow-up to the reform and austerity measures, the Government will be resolutely committed to an industrialization process geared to exports and will adopt an aggressive policy to encourage cash crop diversification and will change the dietary habits of the population on the basis of the policies recommended in Chapter IV. In these circumstances, economic growth could be expected to rise from 2.6% in 1987 to 5% by 1995, resulting in an average annual growth rate of 3.3% for the period 1987-95. Given the weakness of the manufacturing sector at the present time, it is doubtful whether this sector could grow by more than 9% or 10% per annum over the next five years. But if the Government were to adopt a strategy to attract foreign investors and encourage export industries, experience would indicate that faster growth could be expected during the following ten years. A growth rate of 10-15% per annum would then not be out of the question. However, given the limited possibilities for growth in the construction sector, which has been seriously affected by the tapering off of the investments, and the moderate growth in the production of water and electricity, the growth rate of the industrial sector is projected to rise from 4.6% in 1987 to 5.2% in 1995. In the short term agriculture will continue to be the key sector of the economy and growth in this sector will continue to reflect the impact of the maize and coconut projects. Growth during the subsequent ten years will,;in this case also, depend on the success of the agricultural diversification policy, which the Government is committed to pursuing. The growth projected in tourism is based on an effort by the two hotel companies to increase the occupancy rate by persuading the various tour operators in the Indian Ocean region to encourage their customers to spend a few days in the Comoros. - 34 - 5.9 Table VI summarizes the key assumption underlying the projection scenario. Investment is projected to remain at around 202 of GDP per annum from 1987 onwards, reflecting a redu6tion in public investment, a normalization of relations between the Comorian authorities and the leading donors and a gradual increase of foreign private investments. TABLE VI. ECONOMIC PROJECTIONS. 1985-1995 1985 1986 1987 1988 1990 (Percentage of GDP) Gross Domestic Income 100.0 101.4 101.3 101.2 100.8 Resource Gap 35.6 26.1 23.7 25.9 25.2 Consumption 108.4 102.1 104.2 106.4 105.8 Fixed Investments 27.2 25.4 20.8 20.7 20.2 Domestic Savings -8.4 -0.7 -2.9 -5.3 -5.0 1985 1986 1987 1987-90 1990-95 (Annual Growth Rate) GDP 2.7 2.1 2.6 3.8 3.1 Agriculture 4.8 3.3 2.8 5.9 / 3.8 Industry, Construction -3.9 0.4 4.6 4.4 5.0 and Public Works 1/ This rate reflects the clove crop cycle. C. The Public Investment Prograrm 5.10 Immediately following Independence the Comoros had virtually no infrastructure and one of the Government's priorities was to remedy this situation. The various donors likely to finance the infrastructure vital to the country's economic development were canvassed. The response of the international community was overwhelmingly favorable and a large number of projects were financed without much concern for their relative priorities, economic rates of return or financial consequences. The Comoros had no debt service obligations at that time. A number of donors suddenly had large amounts of funds available and were ready to demonstrate their solidarity with a small country for which they felt sympathy. 11 For a more detailed analysis of the public investment program, working documents are available for reference on request. - 35 - 5.11 Availability of financing seems to have been the main selection criterion used for the public investment program. The authorities felt that, given the extent of the country's needs, they could hardly go wrong by doing something toward solving a problem even if it were only a partial solution. This explains the predominance of infrastructure investments. 5.12 The lack of qualified managers and the need to supplement the very limited budgetary resources also prompted the more traditional donors to finance technical assistance programs and a large proportion of the recurrent expenditures and local costs entailed by these programs. The weakness of Comorian public administ'aation also made it impossible to ensure effective monitoring of the execution of these investments, particularly as in a large number of cases the donor handled project supervision and settled invoices directly. 5.13 It is difficult to draw up a public investment program with any certainty at a time when the Government is still traumatized by the external debt consequences of the prpgram undertaken earlier. Nevertheless, using the data available from the Ministry of Planning, the other ministries and the aid agencies, the mission managed to draw up a possible public investment program for th. next few years. TABLE VII. THE PUBLIC INVESTMENT PROGRAM (CF billions) Average 1983-85 1986 1987 1988 1989 Production Sector 2.7 3.7 4.2 5.3 5.0 Infrastructure 8.3 6.9 5.4 5.6 5.5 Social Sector 4.3 3.8 2.2 1.9 2.6 Other 1.2 0.8 0.6 1.6 0.1 Total 16.5 15.3 12.6 12.8 12.3 Note: The figures in this table are higher than the capital expenditures shown in Tables IV and VIII because they include expenditures for technical assistance and minor equipment. 5.14 Table VII demonstrates the Government's determination to cut the public investment program and adopt a more catttious approach for the future. The breakdown of the public investment program for the period 1986-89 would be as follows: (a) Agriculture. Even if one accepts the principle that in the future various donors will join forces, within the budgetary framework, to provide the resources needed to finance a proportion of the recurrent expenditures of the CEFADER/CADER structure, the fact still remains that a certain number of specific investment projects will continue to attract - 36 - aid. Noteworthy among the new projects are the Moheli integrated rural development project financed by CCCE, the Jimilime integrated development project, which has already received EDF approval, pending the introduction of an agricultural development strategy, the agricultural census project, the Nioumachoa and Karthala reforestation projects and a research and development project on bush and fruit-tree crops. (b) Fisheries. The main projects in the fisheries sector are the small-scale fisheries project financed by EDF, the fisheries school at Anjouan and the fishing fleet motorization project, financed by Japan, the reformulation of an ADF project to encourage small-scale fishing and FAO aid to encourage fisheries management and marketing. (c) Industry and tourism. In light of the strategy defined in Chapter IV, there is very little room for these two sectors in a public investment program. Three projects are to be adopted, however: a supplementary line of credit for the Development Bank, which has played an important role in promoting industrial activities in recent years, an investment and export promotion project and a tourism promotion project. (d) Roads. Investments in roads cannot continue at the same pace as in previous years and the emphasis must now be placed on the maintenance of existing roads. But infrastructure needs cannot entirely be ignored. The only road project is connected with development of the Jimilime peninsula, i.e. the coad from Bambao to Jimilime (but its width should be scaled down from 5 tneters to 3.5 meters). (e) Ports and airports. A certain amount of complementary expenditure is needed in connection with the Mutsamudu port project; essentially provision of loading and unloading equipment. Upgrading of the port of Moroni is under consideration but no agreement has yet been reached as to the nature of this investment. The financing proposed by EDF and CCCE is insufficient for the project initially planned. Eventually, a scaled-down version will probably be decided on. On the other hfhd, if there is serious interest in improving sea links between Moheli and the other two islands to ensure their supply of fruits and vegetables, a loading zone for flat-bottomed boats will have to be constructed. A modest project is envisaged for 1989. With the recent loss of the Kamar al Koweit, the coaster which sank in the port of Mutsamudu, there would be a need to invest in inter-island transportation. In the airport sector, mention must be made of the project to upgrade Hahaya Airport and to develop cargo handling facilities, financed by CCCE. On the other hand, there is no economic justification for construction of a VIP lounge, but it would be desirable to improve the security facilities at the two airports of Anjouan and Moheli. The project for an international airport at Anjouan must be dropped altogether since there is no economic justification for it. (f) Telecommunications. The only projects adopted are the construction of buildings to house the telephone exchanges and the Fomboni- Nioumachoua short-wave link, for which financing seems to be assured. With regard to the possibility of a radio station, this project should be dropped since an alternative via Mayotte would be far less costly. - 37 - (g) Enerav and water. Two electric power projects have been adopted provisionallys the Mutsamudu power plant and the fifth generating unit at Voidjou, subject to size and cost adjustments. Investments for supply of petroleum products will have to be limited to the bare minimum; i.e. the repair or replacement of the sea-line at Moroni (estimated cost CF350 million) and a small expansion of the storage capacity at Moroni (CF250 million). However, the oil terminal planned for Moheli (CF1.2 billion) is quite unnecessary and should not be built. A water supply project for a village in Grande Comore, financed by UNDP, has been included in the program. Other water supply projects in the villages located in the lower part of Grande Comore are being considered. In Anjouan, the rehabilitation of the Inadequate water supply system in four villages will be necessary. This rehabilitation project could be financed either by grants or by Government budget and a cost recovery system should be introduced. Feasibility studies for Grande Comore were undertaken in 1987 (Kuwait Fund) and for Anjouan in 1986 (CCCE). h. Education and health. No new education or health projects have been scheduled. Only on-going projects are included in the program. D. Financing Public Expenditure 5.15 The capital budget differs from the public investment program described above, to the extent that many projects include a large proportion of technical assistance and recurrent operating expenditures. The mission had to make a global estimate of the actual capital expenditures. This should be seen as an illustration of what is possible and a target for the Government. 5.16 Table VIII summarizes the projections of public finances. This table differs from Table IV, since the financial surpluses of public enterprises have been consolidated. In the projection, the consolidated revenues of the central Governmoat, the governorates and the Stabilization Fund increase from CF8.4 billion in 1986 to' CF14 billion in 1990. This represents an average annual growth rate of about 7% in real terms. Current expenditures are projected to rise from CF18.3 billion in 1986 to CF24 billion in 1990, i.e. an annual growth rate of 1% in real terms (with an annual inflation rate of 6%). 5.17 Thus the Government's current account deficit is projected to increase from CF9.9 billion in 1986 to CF10 billion in 1990, which, expressed as a percentage of GDP, represents a drop from 19% to 17%. Given the Government's determination to constrain the public investment program, the total deficit, as a percentage of GDP, will thus decline from 37% in 1986 to 35% in 1990. 5.18 This effort is feasible but it assumes budgetary discipline and austerity on the part of the Government and willingness on the part of the international community to continue to provide the Comoros with large amounts of budgetary assistance. This assumes, also, that Government will take a number of measures to increase revenues and trim expenditures, namely: a. collect the turnover tax from all taxpayers liable to it; - 38 - b. collect the tax on distributed profits following an audit of businesses' accounts; c. intensify the efforts to cut down on smuggling and to improve the operation of the Customs administration; d. institute a 1002 tax on rice and hydrocarbons. (The reasons for introducing a tax on petroleum products are the same as those for instituting one on imported rice (see para. 4.19)); e. keep the increase of wages and salaries of civil servants below the inflation rate; f. progressively reduce expenditure on technical assistance (52 per annum), as a certain number of posts occupied by expatriates will gradually be filled by Comorian personnel; g. as regards the public enterprises, liquidate SOCOVIA (the monopoly on imported meat) and implement the recovery plans prepared by the French technical assistance for OPT and Electricite et Eau des Comcres. - 39 - TABLE VIII. PUBLIC FINANCES, 1987-199011 (CF billions) 1985 1986 1987 1988 1989 1990 Fiscal revenue 5.7 7.1 7.7 8.6 9.4 10.0 New revenue 0 0 0 2.5 2.0 2.9 Non-fiscal revenue 0.8 1.3 1.4 0.9 1.0 1.1 Total revenue 6.5 8.4 9.0 11.9 12.4 14.1 Wages and salaries 4.7 5.5 6.3 6.7 7.2 7.7 Technical assistance 4.5 4.5 4.9 4.6 4.4 4.2 Purchase of goods and services 6.1 6.3 7.0 7.6 8.5 9.3 Transfers 1.1 1.3 1.2 1.4 1.5 1.7 Debt service 0.6 0.7 1.1 1.2 1.2 1.3 Total Current Expenditure 17.0 18.3 20.5 21.6 22.9 24.2 Current Deficit -10.5 -9.9 -11.5 -9.6 -10.5 -10.1 Capital Expenditure 11.6 9.1 8.6 9.2 9.9 10.6 Total Deficit -22.1 -19.0 -20.1 -18.9 -20.3 -20.6 Financing: Grants 11.3 11.0 10.0 13.0 13.3 14.0 Net borrowing 9.3 6.4 6.3 5.6 5.4 4.9 Gross borrowing 9.8 7.6 7.4 7.6 7.5 7.4 Amortization -0.5 -1.1 -1.1 -2.1 -2.1 -2.4 Other financing 1.1 1.5 2.0 0.3 1.7 1.8 Adjustment 0.4 0.1 1.8 - - - Memo Items: Current deficit as X of GDP -19.2 -21.8 -17.9 -18.9 -17.3 Total deficit as 2 of GDP -36.9 -38.3 -35.0 -36.8 -35.5 1/ The investments and the cash flow of public enterprises have been consolidated in this Table. 5.19 The bulk of the deficit will be financed by subsidies from foreign governments and aid agencies. These may take the form of grants, as in the case of several donors at present, but they could also be in the form of debt rescheduling or relief oe even debt cancellation (see Section F). Borrowing from the Central Bank will be limited to 201 of preceding year revenues and thus domestic financing will be minimal. 5.20 The scenario described above and illustrated in Table VIII clearly shows the necessity for the Comoros to adopt an austerity and stabilization policy, but also the need for continued and increased aid from the international community. - 40 - E. Balance of Payments Prospects 5.21 Exports are unlikely to increase over the next few years. As can be seen from Table IX, no increase in the volume of exports is expected. World demand for the country's basic traditional exports is expected to remain sluggish. The only changes expected reflect the cycle of the clove crop. Even if a substantial increase in the export of non-traditional commodities is projected (spices, manufactured products, and also revenue from tourism), this will have little impact on export earnings. Export prices have been projected along with world inflation projections. TABLE IX. EXPORT PROJECTIONS. 1986-1995 Average annual growth Growth rate at rate at 1985 prices current prices 1985 1987-90 1990-95 1987-90 1990-95 (in US$ millions) (Z) (%) (2) (2) Goods 15.7 2.7 0.3 5.8 2.9 Vanilla 10.5 0.3 0.0 2.9 2.3 Cloves 3.1 19.2 -5.1 22.3 -2.9 Ylang-ylang 1.5 5.3 3.8 8.1 6.2 Other 0.7 4.6 4.9 9.3 12.9 Exports of NFS 4.2 4.5 3.2 7.2 5.3 Total exports 19.9 3.2 1.1 6.1 3.6 5.22 Import projections indicate that the volume of commodities imported will show an annual increase of 6.11 during the period 1987-90 and an average annual increase of 4.6% during the subsequent five years. These projections assume that maize and other local products will continue to play an increasing role in the local diet. The projected pattern of rice imports reflects this trend, and the pattern of boat-load (10-15,000 tons/boat-load) fluctuated substantially from one year to the next (one boat-load being imported certain years, two boat-loads other years). Imports of intermediate products and raw materials are projected to follow trend in the construction sector (cement and construction materials) and the needs of the industrial sector. Capital goods imports reflect the Government's more careful attitude toward public investment and a dynamic policy for promoting private investment. Imports of petroleum products have been projected to grow in volume along with the rising demand for electric power and petroleum products. - 41 - TABLE X. IMPORT PROJECTIONS, 1986-1995 Average annual growth Growth rate at rate at 1985 Rrices current prices 1985 1987-90 1990-95 1987-90 1990-95 (in US$ millions) (%) (X) (%) (2) Goods 25.7 4.6 5.1 8.5 8.1 Food productsl/ 7.4 1.8 0.6 8.7 4.1 Consumer goods 3.0 2.9 2.8 5.6 5.2 Petroleum products 2.3 4.4 5.0 8.2 10.7 Raw materials 8.1 8.1 8.9 10.9 11.4 Machine and trans- port equipment 5.0 3.1 3.5 5.8 5.9 Imports of NFS 38.7 2.2 3.5 4.9 5.9 Total imports 64.5 3.2 4.1 6.3 6.7 _/ Rice imports fluctuate sharply from one year to the next. The growth rates for food products is, therefore, calculated by using a two-year moving average. 5.23 Under these assumptions import of goods and non-factor services is projected to grow by 3.7% in real terms for the period 1987-90 and an average of 3.9X for 1990-95. Thus, thp balance of trade is projected to remain more or less in equilibrium. Imports of services, while projected to increase at a moderate rate, continue to weigh hesvily on the deficit in the balance of goods and services. Allowing for the country's external debt service obligations and the need to keep services at a level equal to at least three months" imports, annual capital requirements will average US$60 million for 1987-90 and US$78 million for 1990-95, as compared to US$45 million in 1982-86. 5.24 It will be possible to obtain a part of this financing for 1987- 90 by drawing on the proceeds of loans already contracted. It is unlikely that the Comorian Government will be able to obtain more than about US$20 million per year2 because the generosity of certain lenders is somewhat tempered by the difficulties they experience in collecting debt service and also because the Government's decision to limit the public investment program ought to result in a reduction of the volume of loans. Direct 2/ This could be broken down as followst US$6-8 million on IDA-type terms, US$4-5 million on CCCE-type terms, US$6-8 million on ADF-type terms and US$2 million on concessional OPEC-type terms. - 42 - foreign investment will be negligible during this period, even if the Government takes the necessary steps to attract foreign investors. (The experience of Mauritius shows that it takes several years of sustained effort before any results can be expected.) The bulk of the country's capital requirements must therefore come from grants in the form of public transfers and/or from a reduction of the debt burden. Table XI illustrates the possible format for such financing. TABLE XI. BALANCE OF PAYMENTS. PROJECTIONS FOR 1985-95 (US$ millions) 1985 1986 1987 1988 1989 1990 1995 EXPORTS OF GOODS AND NFS 19.94 26.74 27.81 30.30 33.16 32.91 39.92 Goods, FOB 15.72 19.97 20.71 22.50 24.60 24.22 28.63 NFS 4.23 6.76 7.10 7.80 8.56 8.68 11.28 IMPORTS OF GOODS 64.47 70!.82 69.66 80.33 82.94 86.11 116.24 AND NFS Goode, FOB 25.73 26.15 24.92 30.09 30.91 34.24 47.50 NFS 38.74 44.67 44.74 30.25 52.03 51.87 68.74 RESOURCE GAP -44.52 -44.08 -41.85 -50.03 -49.78 -53.20 -76.32 Interest (Net) -1.16 -0.85 -1.87 -2.28 -2.37 -2.49 -3.47 Transfers (Private) -0.68 -1.16 -1.17 -1.25 -1.29 -1.26 -1.41 Amortization -1.42 -3.26 -5.70 -6.11 -7.04 -7.75 -12.20 Reserves -7.60 -3.76 -1.09 -1.23 -1.35 -1.01 -1.22 FINANCING REQUIRED -55.38 -53.10 -51.69 -60.90 -61.84 -65.71 -94.63 Transfers (Public) 32.08 29.57 28.60 37.70 38.44 40.47 58.55 Other 1.42 1.99 1.08 1.59 2.09 2.59 5.10 Disbursements from 21.88 21.54 18.00 15.00 7.77 4.12 0.00 pipeline Disbur3ements from 0.0 0.0 4.0 6.6 13.5 18.5 31.0 new commitments COMMITMENTS 15.20 13.80 10.00 23.00 25.00 26.00 33.00 Program aid 5.20 1.00 6.00 0.00 8.00 0.00 12.00 Project loans 10.00 12.80 4.00 23.00 17.00 26.00 21.00 Debt service ratio 15.4Z 19.72 29.82 30.22 30.8Z 33.6% 41.2% Sources IBRD Mission F. The Need to Restructure the Debt 5.25 These projections show that the debt service ratio would gradually rise from 302 in 1987 to 412 in 1995. Although these figures seem negligible when compared with those currently quoted for the most indebted countries of South America or Africa, for the Comoros they represent an untenable burden, for three reasons. First, with a 20% debt service ratio the Comoros is already unable to meet Its obligations and - 43 - will be even less able to do so with the higher ratio. Second, experience shows that countries whose debt service ratio increases suddenly, as in the case of the Comoros between 1986 and 1987, have considerable difficulties in adjusting. Finally, because of belonging to the franc sone the Comoros has to face a special problem--that of budgetary constraints. The critical problem is for the Government to meet its obligations to the Comorian people by providing them with essential public services, i.e. security, health, education, while maintaining smooth functioning of public institutions. We know that already in 1985 and 1986, whon debt service took up only 202 of public revenues, public employees were being paid several months in arrears. The Government's financial difficulties are likely to increase considerably when the debt service absorbs 302 of public revenues in 1987 (interest accounts for about one third). This situation is particularly disturbing in light of the fact that public revenues cover nearly one third of current expenditures. 5.26 Thus it would be desirable for the countries and institutions which responded generously to the Comoros' plea for help immediately after Independence to envisage making a special effort for the Comoros today. Two alternative scenarios have been considered. The first (see Table 9.1 in the Statistical Annex) is based on the assumption that the debt and arrears payable to these countries at the end of 1986 will be refinanced on IDA-type terms (50-year maturity, 10-year grace period and 0.752 Interest rate) and that a project aid program to finance development projects with sound economic rates of return, will be continued. Under these circumstances the debt service ratio would fall to a more reasonable levels i.e. 7S in 1987, and would not reach 23X again until about 1995. 5.27 The other alternative (see Table 9.2 in the Statistical Annex), which may be more generous and better suited to the needs of the Comoros, would consist in cancelling the debt completely, even if that means that countries who have cancelled the debt do not grant further aid in the future. Such an approach would bring the debt service ratio down to 5S in 1987 and would keep it below 20X until the year 2000. Other donors would thus have to increase their grants by about US$5 million each year. While this would represent a 252 increase In grants to the Comoros, it vould be a negligible incroase in terms of these countries' total aid programs. A further possibility that could be envisioned would be to defer repayments of principal for an extended period and to collect interest only for the next five to ten years. G. Conclusion 5.28 In conclusion, the Rath to development is arduous and calls for sustained efforts gad sacrifices from both the Comorians and the international community. It is important that a 'compact' be reached between the Comorien Government and friendly countries and institutions. The austerity policy should be intensified to ensure that available resources, domestic or external, are put to the most effective use on the basis of the above reform measures which the Comorian Government undertakes to implement. It would be desirable if, in recognition of this effort, the friendly countries and institutions that responded generously to the Comoros' appeal following Independence would consider either - 44 - forgiving the debt (which, after all, is rather small) or taking imaginative steps to ease the debt burden (such as long-term deposit of funds with the Central Bank, or annual budgetary subsidies in an amount equal to the debt service). In addition, the donors should undertake to provide new aid on exceptional terms (grants or quasi-grants) so as not to further increase the country's debt service burden. The development of the Comoros is a long-haul operation and today's choice of economic policies will shape the future, even if the impact of those policies does not materialize for a number of years. - 45 - LIST OF STATISTICAL TABLES I. Population 1. Population Growth II. National Accounts 2.1 GDP by Industrial Origin, at Current Market Prices 2.2 GDP by Industrial Origin, at 1985 Prices 2.3 GDP by Expenditure at Current Market Prices 2.4 GDP by Expenditure at 1985 Prices 2.5 Sectoral Deflators ,III. Balance of Payments and External Trade 3.1 Balance of Payments 3.2 Imports of Goods 3.3. Structure of Imports 3.4 Exports of Goods IV. External Debt 4.1 Debt Outstanding and Disbursed 4.2 Debt Service Payments V. Public Sector Accounts 5.1 Consolidated Public Finances 5.2 Classification of Budgetary Expenditure 5.3 Budgetary Revenues 5.4 Consolidated Public Sector Accounts 5.5 Consolidated Accounts for Public Enterprises VI. Monetary Statistics 6. Monetary Survey VII. Production 7.1 Agricultural Production 7.2 Land Use VIII. Prices 8. Price Indices IX. Balance of Payments Projections. 1985-95 9.1 Scenario I: Partial Debt Rescheduling 9.2 Scenario IIs Partial Debt Cancellation - 46 - Table 1. Population Growth (In '9) Annual 198 1061 1082 1988 1984 1986 1988 1"? Growth RNo. ---- ---- . --- ---- Anjovan 8.605 186.0 140.7 146.6 150.7 15t.0 161.6 167.1 17.o ad Comore 3.19X 162.7 136.8 104.2 290.2 209.4 212.6 219.4 226.2 mobhslI 4.02X 16.6 17.2 17.9 18.6 19.8 20.1 20.9 21.0 Total Population 886.2 846.2 857.7 U 9.5 881.7 894.4 467.4 423.9 Sourcet too3 Misslon. - 47 - Table 2.1 GDP by Industrial Origin, at Current Market Prices ------------------------------------------------------------- ----------------------------------------------------------------------- (in millions of CF) 1983 1984 1985 1986 Agriculture 14861 16266 18577 21049 Manufacturing 1516 1716 1887 2062 Electricity, Gas, Water 362 214 473 551 Construction and Public Works 4160 5265 4877 4673 Commerce, Hotels, Restaurants 10872 12000 13147 14517 Banking and Insurance 1842 1962 2104 2258 Transport and Communications 1406 1528 1688 1855 Public Administration 8129 8765 9442 10181 Other Services 197 228 260 282 Imputed Banking Service Charge -849 -976 -1018 -1158 GDP 42496 46968 51437 56270 …______________________________-______________________________________ Source: UNECA. - 48 - Table 2.2 GDP by Industrial Origin at 1985 Prices 1983 1984 1985 1986 (in millions of CF) Agriculture 17073 17724 18577 19186 Manufacturing 1683 1806 1887 2040 Electricity, Gas, Water 398 439 473 483 Construction and Public Works 4958 5286 4877 4744 Commerce, Hotels, Restaurants 12067 12684 13147 13555 Banking and Insurance 2044 2074 2104 2108 Transport and Communications 1561 1615 1688 1732 Public Administration 9022 9265 9442 9506 Other Services 219 241 260 263 Imputed Banking Service Charge -942 -1032 -1018 -1081 GDP 48083 50102 51437 52536 1983 1984 1985 1986 (Annual Growth Rates) Agriculture 3.81 4.82 3.31 Manufacturing 7.31 4.51 8.1% Electricity, Gas, Water 10.3% 7.71 2.11 Construction and Public Works 6.61 -7.71 -2.72 Commerce, Hotels, Restaurants 5.11 3.71 3.11 Banking and Insurance 1.5% 1.41 0.21 Transport and Communications 3.5Z 4.5% 2.61 Public Administration 2.7% 1.9% 0.71 Other Services 10.01 7.9% 1.2Z Imputed Banking Service Charge 9.6X -1.41 6.2% GDP 4.21 2.71 2.11 -------------------------------------------------------------------__ --- Source: UNECA. - 49 - Table 2.3 GDP by Expenditure at Current Market Prices (in millions of CF) 1983 1984 1985 1986 Public Consumption 12084 13305 15310 15552 Private Consumption 29207 38727 40841 42700 Fixed Investment 11366 15740 13410 11773 Change in Stock 974 5783 1842 1500 Exports of G & NFS 8426 4236 8943 9251 Imports of G & NFS -19561 -30823 -28909 -24506 GDP 4249§ 4696 51437 56270 Source: UNECA. - 50 - Table 2.4 GDP by Expenditure at 1985 Prices e* e COO…----------------- _----- --e---------- e_________________…___________________ e_________ ft ft--------_e _____ _____ 1983 1984 1985 1986 ____ ---- ____ _ (in millions of CF) Public Consumption 13412 14064 15310 14521 Private Consumption 32743 41331 40841 39573 Fixed Investments 14877 15867 13410 12853 Change in Stock 1094 5895 1842 1765 Exports of G & MNS 7653 5355 8943 9401 Imports of G & NFS -21715 -32331 -28909 -25785 GDP 48083 50102 51437 52536 1983 1984 1985 1986 ____ ---- ---- ---- (Annual Growth Rate) Public Consumption 4.92 8.91 -5.21 Private Consumption 26.22 -1.22 -3.11 Fixed Investment 6.71 -15.52 -4.22 Change in Stock 438.82 -68.82 -4.22 Exports of 0 & NFS -30.02 67.0S 5.12 Imports of G & NFS 48.92 -10.6Z -10.82 GDP 4.22 2.72 2.12 Source: UNECA. - 51 - Table 2.5 Sectoral Deflators. GD? by Industrial Origin 1983 1984 1985 1986 Agriculture 87.0 91.8 100.0 109.7 Manufacturing 90.1 95.0 100.0 101.1 Electricity, Ga", Water 91.0 48.7 100.0 114.1 Construction and Public Works 83.9 99.6 100.0 98.5 Other Services 90.1 94.6 100.0 107.1 GDP by Expenditure 1983 1984 1985 1986 Public Consumption 90.10 94.60 100.00 107.10 Private Consumption 89.20 93.70 100.00 107.90 Fixed Investment 76.40 99.20 100.00 91.60 Change in Stock 89.03 98.10 100.00 84.99 Exports of G & NPS 110.10 79.10 100.00 98.40 Imports of 0 & NFS 90.08 95.34 100.00 95.04 GDP 88.4 93.7 100.0 107.1 Source-----------------------------------------------------------__---- Sources UNECA. - 52 - Table 3.1 Balance of Payments (in millions of CF) 1982 1983 1984 1985 1986 11 --- ----e --- ---- --- Exports fob 6435 7419 3079 7048 6911 Imports fob -7507 -9274 -12981 -12158 -9049 (imports cif) -10725 -14267 -18544 -17369 -12926 TRADE BALANCE -1073 -1855 -9902 -5110 -2137 Insurance and Freight -3217 -4993 -5563 -5211 -3878 Transport -658 -735 -812 -1115 -840 Travel -1665 270 -2672 -2500 -3530 Interest (net) 147 83 -146 -520 -293 Other Goods, Services, Income -2711 -3821 -7638 -6918 -4870 SERVICE BALANCE -8105 -9196 -16831 -16264 -13410 Unrequited Tranfers Private -790 -822 -1302 -305 -400 Public 6332 7662 13738 14386 10961 CURRENT BALANCE -3636 -4211 -14297 -6405 -4986 Other Long Term Capital 879 -1052 -385 -100 202 Medium and Long Term Capital 5321 7033 10079 9174 6435 Drawings 5340 7147 10652 9811 7563 Amortization -19 -114 -573 -637 -1128 Non-monetary Capital -507 -304 640 -651 29 Errors & Omissions -458 -566 659 2278 380 OVERALL BALANCE 1599 900 -3304 3408 1300 Change in Reserves -1599 -900 3304 -^408 -1300 o/w Central Bank -1220 -791 2664 -2757 -1868 Foreign Assets -1236 -955 2822 -2752 -1832 Foreign Liabilities 16 164 -158 -5 -36 Arrears 104 168 510 509 1183 Contractual Debt 0 0 385 449 883 Postal Debt 104 168 125 60 300 Memo items: Current Balance/GDP -10.11 -9.91 -30.44Z -12.45S -8.90Z Debt Service/Exports G&S 3.742 5.78X 24.99Z 15.372 19.692 Debt ServicelExports G&NSF 3.95% 6.112 27.66S 15.812 20.762 11 Estimates Sources Central Bank. - 53 - Table 3.2 Imports of Goods 1/ ______________.____________ 1981 1982 1983 1984 1985 Rice Value in CF 2704 2401 1168 2711 2156 Value in US$ 10.0 7.3 2.8 6.0 4.8 Volume 30648 24853 14172 27234 22545 Unit Price (CF) 88.2 96.6 79.1 99.5 89.1 Unit Price (US$) 324.7 293.7 207.1 221.9 198.6 Petroleum Products Value in CF 1605 2252 1342 2092 1445 Value in US$ 5.9 6.8 3.5 4.7 3.2 Volume 18877 14952 9911 15455 9939 Unit Price (CF) 85.0 150.6 135.4 135.4 145.4 Unit Price (US$) 312.9 457.9 354.8 301.9 324.2 Meat *Value in CF 667 658 371 713 601 Value in US$ 2.5 2.0 1.0 1.6 1.3 volume 1206 1501 579 2184 989 Unit Price (CF) 553.1 438.4 640.8 326.5 607.7 Unit Price (US$) 2035.3 1332.7 1678.8 728.0 1355.1 Cement Value in CF 461 430 584 829 642 Value in US$ 1.7 1.3 1.5 1.8 1.4 volume 20962 13282 18283 23637 20400 Unit Price (CF) 22.0 32.4 31.9 35.1 31.5 Unit Price (USS) 80.9 98.4 83.7 78.2 70.2 Iron, Corrugated Sheet Value in CF 157 253 109 188 501 Value in US$ 0.6 0.8 0.3 0.4 1.1 Volume 958 1403 567 640 2046 Unit Price (CF) 163.9 180.3 192.2 293.8 244.9 Unit Price (US$) 603.1 548.2 503.7 655.1 546.1 Others (CF) 3198 4732 10809 12011 12104 Others (USS) 11.8 14.4 28.3 26.8 27.0 TOTAL (CF) 8792 10726 14383 18544 17369 TOTAL (US$) 32.4 32.6 37.4 41.4 38.9 …------------------------------------------------------------------__--------__-------- 11 Value in millions of CF, or US$, volume in tons, unit price in '000 CF, or US$, per ton. Source: Comoros Customs Service and IBRD mission. - 54 - Table 3.3 Structure of Imports --------------------- ------ (in millions of CF) _______________ -------------------------- ------------------------ e-- 1984 1985 1986 __ee ---- ---- Capital Goods 3362 3178 2493 Raw Materials 5241 5184 4066 Cement 829 642 661 Iron, Corrugated Sheet 188 501 300 Others 4077 4054 3081 Food 5588 5682 3697 Rice 2711 2156 1822 Most 713 601 638 Others 2008 2925 1237 Consumer Goods 2201 1947 1527 Petroleum Products 2152 1445 1167 TOTAL 18544 17369 12926 -----------------------------------------------------------------__---b Source: Comoros Customs Service and IBRD mission. - 55 - Table 3.4 Exports of Goods 1/ 1981 1982 1983 1984 1985 Vanilla Value in CF 2169 4201 3542 587 4689 Value in US$ 8.0 12.8 9.3 1.3 10.5 Volume 160 259 177 26 181 Unit Price (CF) 13556 16220 20011 22577 25906 Unit Price (US$) 49.9 49.3 52.4 50.3 57.8 Clove Value in CF 1728 1473 3181 1824 1376 Value in US$ 6.4 4.5 8.3 4.1 3.1 Volume 929 585 1134 1089 1118 Unit Price (CF) 1860 2518 2805 1675 1231 Unit Price (US$) 6.8 7.7 7.3 3.7 2.7 Ylang-Ylang Value in CF 453 715 , 558 581 657 Value in US$ 1.7 2.2 1.5 1.3 1.5 Volume 40 63 49 51 61 Unit Price (CF) 11325 11349 11388 11392 10770 Unit Price (US$) 41.7 34.5 29.8 25.4 24.0 Copra Value in CF 78 19 64 46 65 Value in US$ 0.29 0.06 I 0.17 0.10 0.14 Volume 1021 195 687 490 651 Unit Price (CF) 76.4 97.4 93.2 93.9 99.8 Unit Price (US$) 0.28 0.30 0.24 0.21 0.22 Others (CF) 33 27 74 41 261 of which Fuel n.a. n.a. n.a. n.a. (157) Others (US$) 0.12 0.08 0.19 0.09 0.58 TOTAL (CF) 4461 6435 7419 3079 7048 TOTAL (US$) 16.4 19.6 19.5 6.9 15.7 _--------------------------------------------------------------------__-----__-------- 1/ Value in millions of CF, or US$, volume in tons, unit price in '000 CF, or US$, per ton. Sources Comoros Customs Service and IBRD mission. - 56 - Table 4.1 Debt Outstanding and Disbursed (in millions of CF) --------------------------------------..------------------------------__- 1982 1983 1984 1985 1986 Financial Institutions 202.9 152.8 102.7 52.6 52.6 Bilateral China 856.1 2108.2 2804.8 2479.9 1868.2 France 738.1 1290.6 2832.3 4577.2 5571.2 Multilateral ADB 355.5 1084.0 1969.8 2750.1 3655.3 ADF 1787.4 2777.6 5724.7 7110.9 7102.6 BADEA 3732.3 5182.1 6521.8 7031.6 6681.3 Kuwait Fund 4052.7 5811.1 7194.0 8647.2 8022.8 Saudi Fund 5927.2 7495.0 9300.4 9665.5 7719.0 UAE Fund 332.4 358.3 395.5 404.7 328.1 IDA 2665.1 3899.2 6165.7 8399.3 8373.3 IDB 489.8 1015.1 1969'8 2776.1 2781.0 OPEC 1041.1 1155.2 1266.1 1826.6 1781.1 EIB 5.1 4.4 3.4 2.7 2.7 IFAD 0.0 0.0 0.0 129.5 193.9 TOTAL 22158.6 32333.4 46251.1 55854.0 54133.2 Source: IBRD mission. Table 4.2 External Debt Service 1/ (in millIons of CF) 1962 1983 1984 1985 1998 Principal Int. Princ. Int. Prine. Int. Princ. Int. Princ. Int. Bilateral China 0.0 0.0 0.0 g.0 0.0 0.e 0.* 0.0 109.6 O.J France 0.0 9.0 4.8 6.1 4.8 23.0 4.3 0.4 4.8 119.0 multilateral ADO 0.0 0.0 0.0 27.7 0.0 68.4 0.0 146.4 160.1 169.2 ADF 0.9 0.0 11.9 15.1 0.0 22.9 0.0 43.7 9.e 44.2 BADEA Kuwait Fund 9.O 84.3 o.9 65.4 9.9 99.4 46.4 180.8 170.3 122.6 Saudi Fund 9.O 35.8 9.9 46.0 0.0 65.7 9.9 72.5 72.9 72.6 UAE Fund 9.9 80.7 9.9 189.6 89C.5 168.7 393.0 171.0 451.9 134.3 IDA 9.9 8.2 29.6 9.6 38.9 11.0 34.7 .10.4 28.1 7.7 ID. 9.9 15.1 0.0 22.9 0.9 83.2 0.9 47.2 0.9 51.8 OPEC 10.8 4.7 79.8 6.9 122.7 7.5 128.5 7.7 191.0 9.1 ES 0.9 0.0 0.0 o.9 1.3 9.9 1.8 o.0 9.9 9.e IFAD 0.0 0.9 9.9 o.o e.g e.g e.o o.o o.o 1.1 TOTAL 16.0 268.0 114.2 499.8 572.6 599.0 08N.9 m.8 1128.0 792.5 (in millions of CF) Debt Service Projection 2/ 1#87 1968 1989 1990 1985 Prine. Int. Prtnc. lat. Prife. lot. Prine. Int. Prine. lot. Bilateral China 219.1 9.0 219.1 9.9 n29. 9.0 219.1 0.9 219.1 0.0 France 54.8 147.1 54.8 219.7 199.6 232.2 181.9 230.0 862.9 167.6 Yultilateral ADB 325.7 283.9 826.7 240.1 826.7 217.2 826.7 194.4 826.7 69.9 ADF 52.4 45.6 88.9 57.9 8.09 57.8 191.0 66.7 399.9 108.4 BADEA 483.4 107.8 48a.4 178.0 483.4 166.1 463.4 152.2 483.4 87.0 Kwait Fund 7.9 79.5 72.9 89.9 185.1 89.2 135.1 79.8 391.1 74.0 SaWdi Fund 451.9 125.3 461.9 110.2 582.8 107.2 582.8 185.2 582.0 58.4 UAE Fund 28.1 7.0 28.1 6.8 28.1 5.6 28.1 4.9 28.1 1.4 IDA 0.9 04.1 0.0 75.2 48.8 81.9 98.4 65.9 39.8 863.1 IDS 158.2 08.0 150.2 04.7 159.2 00.7 158.2 60.8 156.2 87.9 OPEC 125.6 11.8 149.9 12.8 1896.1 11.4 198.4 10.1 89.3 3.0 EID 0.9 0.0 0.0 0.0 0.0 0.0 9.0 9.0 9.o 0.0 IFAD 9.9 2.0 0.9 3.9 *.o 5.9 9.9 7.8 9.0 12.3 TOTAL 1972.7 960.8 2188.4 1904.5 2857.8 1924.0 2699.1 988.7 3242.0 726.0 1/ Amount scheduled does not Include debt service to financial Institutions. 2/ As of Deember 81, 108. Source: a "Isston. - 58 - Table S.1 Consolldsted Public Finance (In millions of CF) 1962 1968 1994 196 196 197 1987 __ - --- " satip. budget eatim. A. REVENUE AND CRANTS 10729.0 18A6.8 15945.0 17724.4 19585.6 21728.0 2021B.5 1. R Bvonu 4801.0 6862.6 6962.8 6496.8 8427.2 10528.0 9013.5 Tax revenue 4110.4 5241.4 5726.8 6715.5 7091.6 8690.0 7668.5 Non-tax revenue 698.6 1621.2 1225.5 779.6 1885.6 1648.0 18W6.0 2. (elng 5928.0 6174.2 6992.2 11229.1 10929.8 11200.0 11200.0 56Budgetary grants 714.4 1256.9 1798.8 2748.9 1/ 2672.8 2760.6 27n0.0 Non-budgetary grantn 5218.6 6917.8 7196.9 6486.2 8357.0 8600.0 860W.0 B. EXPENDITURE AND NET LENDING 14810.5 21144.6 26114.6 26706.6 256841.1 24879.6 24879.8 1. B wistery *xpondittur Current 6618.9 7714.2 7808.7 92065.4 10186.6 11889.8 11869.8 Capital 186.0 589.6 77.1 56a.6 686.0 766.0 780.0 Net lending -70.8 28.4 61.6 1.8 0.0 0.0 0.0 2. Non-budsetary *xpediture 9280.9 12886.7 16866.0 16667.0 14466.0 12165.9 12186.9 financod by grant. 5218.8 6917.8 7199.9 8S46.2 8a85.6 8560.0 8566.6 Current 4619.6 6789.4 640.9 6486.7 6968.4 7160.0 7160.0 C*pital 589.8 1101.8 1156.0 1976.8 1888.6 1860.0 1860.0 Net landing 64.8 28.7 29.3 financed by loans 4017.8 6918.4 9187.1 8122.8 6199.0 8865.9 8685.9 Current 271.1 468.8 696.5 1647.9 799.9 1149.5 1149.6 Capital 8696.2 6466.1 8168.6 6766.7 4966.6 2272.8 2272.8 Nt I ending 160.0 0.0 162.6 809.6 862.5 244.1 244.1 current expenditure 4890.6 8259.4 7089.4 7871.9 8120.8 8648.6 8548.8 eapital expenditure 4186.6 6566.4 9825.8 8788.0 6845.2 8622.8 8622.8 net lending 264.6 25.7 162.6 888.t t52.6 244.1 244.1 Total current expenditure 10464.5 1898.6 14646.1 17077.8 18867.4 20288.4 20238.4 Total capital expenditure 4271.5 7106.9 16168.7 9289.6 8981.2 4402.8 4402.8 Total net lending 184.6 56.1 168.0 889.6 862.5 244.1 244.1 Total expenditure 14678.0 21089.4 24961.6 26866.2 26288.6 24685.7 248865.7 Surplus or defieit (-). -4081.6 -6107.7 -9169.8 -8981.4 -6264.8 -8166.8 -4686.4 (budgeted) Change In expenditure arroara 22.5 -89.8 520.8 156.9 484.0 0.6 0.6 Surplus or deficit -4069.0 -4197.5 -8649.0 -6622.6 -6856.6 -8168.8 -4868.4 (cash) C. FIMCM 4069.0 6197.6 8649.0 6622.6 5856.6 8156.6 4666.4 1. formlin (net) 4122.6 5864.5 8888.0 6692.9 80B7.6 2022.2 2022.2 Drawings 4141.5 6928.4 9166.7 8122.0 6286.9 8784.6 8784.8 Aortization -18.7 -101.9 -446.7 -44S.7 -1629.0 -1782.8 -1762.6 Ar re 46.0 147.0 g 416.8 809.7 Refinancing 2; Rointi (net) -68.6 B88.0 219.0 729.6 -217.0 1184.6 2644.2 Ctral k -4. 88.0 166.0 228.6 162.0 120.4 120.6 Other banks -251.0 -118.0 186.6 899.0 0.0 100.0 100.0 Others 267.2 878.0 -646.0 197.6 -869.0 814.6 2424.2 1/ Excluding CF 482 milIIon received from Stabex and held at SIC. Sources: 169 il"lon. - 59 - Table 5.2 Classification of Budgetary Expenditures (in millions of CF) 1982 1983 1984 1985 1986 1987 1987 ; ---- ---- ---- ---- estim. budget estim. BUDGETARY EXPENDITURES 5649.9 8253.7 8585.8 9758.4 10822.6 12469.8 12469.8 Wae$s and salaries 2604.6 3311.0 3729.0 4739.4 5450.0 6306.0 6306.0 Ooods and services 1995.8 3149.4 2581.8 3096.3 3100.0 3587.0 3587.0 Interest 230.0 410.0 590.0 606.7 652.5 796.8 796.8 Transfers 683.5 843.8 887.9 763.0 984.1 1000.0 1000.0 Total Current Expenditure 5513.9 7714.2 7808.7 9205.4 10186.6 11689.8 11689.8 Capital expenditure 136.0 539.5 777.1 553.0 636.0 780.0 780.0 Net lending -70.3 28.4 61.0 1.3 0.0 0.0 0.0 Budgetary expenditure I and net lending 5579.6 8282.1 8646.8 9759.7 10822.6 12469.8 12469.8 (budgeted). Change In expenditure arrears 22.5 -89.8 520.8 158.9 434.0 0.0 0.0 Budgetary *xpenditure and net lending 5557.1 8371.9 8126.0 8600.8 10388.6 12469.8 12469.8 (cash) Sourcet IBRD mission. - 60 - Table 6.8 Budgetary Revenue (in millions of CF) 1982 1983 1984 1985 1988 1987 1987 *- ---- - ---- - * etim. budget sttim. TOTAL REVENUE 48901.0 682.86 6962.8 6496.3 8427.2 10258.0 9018.5 TAX REVENUE 4110.4 6241.4 A §J1S. 7091 U 114O.0 M3.5 Tax on lncome, profit & cap. gains I-..2I 2. C8.-' 79. U246.9 1I46. 114.. Income tax 78.4 142.5 162.2 206.1 250.0 869.0 800.0 Corporate 104.4 182.? 848.5 489.8 95.0 600.0 899.0 Other (bul ding.) 9.8 7.1 29.4 84.0 46.0 46.0 45.9 Property tax 42.2 87.8 122.4 99.0 95.0 110.0 119.0 Registration fee 42.2 87.6 122.4 99.9 95.0 119.0 119.0 Tax on goods and services 215.8 812.8 821.0 6lf.5 728.2 884.0 884.0 sales taxes 159.7 265.1 250.0 481.8 oo.# 720.0 720.0 Turnover tax 159.7 265.1 260.0 481.8 666.0 720.0 720.0 Business, prof. license 64.7 56.0 69.5 68.8 126.9 110.0 110.0 Llcnse 68.5 51.8 85.2 60.3 116.0 199.0 199.9 Surcharge tax 1.2 8.7 4.8 6.9 11.9 10.0 10.0 Other 0.9 2.1 2.5 2.4 2.2 4.0 4.0 Transport tax 0.9 0.8 0.5 0.4 0.0 0.0 0.0 Entertalnment tox 9.9 9.9 9.1 9.0 a.o 0.. 0.0 Video tax 9.0 1.8 1.9 2.0 2.2 4.0 4.0 Taxes on lnternational trade 8868.9 4612.5 4709.1 4812.8 4968.0 6826.90 558.6 Import duties 210680 8187.4 8945.2 8128.0 8581.8 6479.8 4252.7 -Customs duties 224.5 869.0 404.6 868.6 400.7 858.4 500.0 -Consumer tax on imports 1879.5 2485.7 3B69.8 2457.0 2767.6 4264.7 8m.7 Federal Government 167.7 1412.7 2799.2 2091.8 2851.8 8822.9 28006 0 Governorates 671.8 128.0 297.4 865.7 415.8 482.7 482.7 customs fes 199.0 258.6 865.7 281.9 816.0 466.2 420.0 Road tax 9.0 79.2 76.4 75.6 9S.9 100.0 190.0 Export duties 1788.6 1206.6 724.6 1127.5 1825.0 1815.9 1225.0 Federal Government 11890.2 1096.4 678.2 1016.1 19.0 9. 1 .9 1096.0 StabilIzatton fund 529.1 84.1 180.1 95.1 210.0 200.0 200.0 Chomber of Commerce 24.8 25.0 16.4 24.2 25.O 25.0 26.0 Other custo" duties 26.4 169.6 89.8 57.8 59.7 80.8 80.8 Other tax revenue -22.8 48.5 84.7 48.9 67.4 68.0 66.0 Pensittie 5.6 4.9 28.2 11.1 16.0 15.0 15.0 Stamp duty 22.4 40.6 28.0 82.8 41.4 51.0 51.0 Others -280.8 9.6 -11.5 9.9 O.0 O.9 9.O NON-TAX REVENUE ma hILL 1hEE . I 135l 1ME JE Visa tees U 9 9.0 9.9 9.9 9. 29.9 Revenue from State property 17.6 4.4 19.9 19.6 11.2 85.9 86.9 Revenue from services 464.9 1128.2 685.5 491.1 998.9 1148.0 969.0 Fine* end penaltles 0.5 5.5 8.8 12.0 6.9 15.9 15.9 Other fines 0.4 1.1 8.8 19.8 20.0 20.0 20.0 Rod tax 18.7 18.1 6.8 0.8 O.O O.6 0.0 Governorates revenue 229.7 120.5 10.8 12.0 12.0 12.0 Chamber of Comerce revenue 64.5 70.8 101.1 74.0 70.0 75.0 75.0 Incom from securlties 1.6 8.0 8.8 8.0 2.5 8.0 8.0 Contributions to penolon fund 152.2 159.2 171.2 266.0 215.0 229.9 220.0 AdJustments -15.8 5.1 -28.9 -17.7 Source: 180 mission. - 61 - Table 5.4 Consolidated Public Sector Accounts (in milli9ns of CF) 1983 1984 1985 1986 REVENUE Government 6857.5 6981.7 6513.0 8427.2 least tax paid by pub. enterprise (898.1) (1608.4) (1378.0) (1162.0) Consolidated Gov. revenue 5959.4 5373.3 5135.0 7265.2 Pub. enterprise cash flows 1039.4 (111.9) 765.6 1109.4 plust taxes paid 898.1 1608.4 1378.0 1162.0 lesst cur. expend. financed by grants (336.4) (350.3) (440.6) (495.0) lesst subsidies (34.0) (40.0) (110.9) (10.0) Net cash flows 1567.1 1106.2 1592.1 1766.4 Consolidated public sector revenue 7526.5 6479.5 6727.1 9031.6 EXPENDITURE Total current expenditure and net lending (cash basis) 14123.4 14519.2 17275.6 18225.7 les8s subsidies (34.0) (40.0) (110.9) (10.0) Total current consolidated expend. 14089.4 14479.2 17164.7 18215.7 CURRENT PUBLIC SECTOR DEFICIT (6562.9) (7999.8) (10437.6)(9184.1) Capital expenditures 9781.3 12611.3 11715.3 9081.2 Government 7105.9. 10103.7 9289.0 6981.2 Pub. enterprises 2675.4 2507.6 2426.3 2100.0 CONSOLIDATED PUBLIC SECTOR DEFICIT (16344.1)(20611.0)(22152.9)(18265.4) FINANCING Grants 8804.8 9798.4 11708.2 11545.5 A. Current 7409.4 8184.4 9699.5 10035.7 Government 7072.0 7834.1 9258.9 9540.7 Pub. enterprises 336.4 350.3 440.6 495.0 B. Capital 1395.4 1614.0 2008.7 1509.8 Government 1101.3 1158.0 1970.2 1388.6 Pub. enterprises 294.1 456.0 38.5 121.2 Net Foreign financing 7034.9 10322.9 9750.1 7232.9 Drawings 7146.9 10671.7 -9811.0 7563.4 Amortization (152.0) (495.8) (476.7) (1140.2) Arrears 40 147 415.8 809.7 Not Domestic financing 504.4 498.7 694.5 (513.1) Central Bank 68.0 186.0 223.0 152.0 Others 436.4 303.7 471.5 (665.1) …-------- ---------------------_-------__ ___ ___ ___ ___ f___ f_____ Sourcet Ministry of Finance and IBRD mission. - 62 - Table 5.5 Consolidated Accounts for Public Enterprises ------------------------------------------------------- (in millions of CF) 1983 1984 1985 1986 ---- ---- ---- (estim.) Net income 118.6 -14.2 -54.4 Amortizations and allowances 513.9 651.7 1299.5 Beginning inventory 210.6 808.6 725.1 Ending inventory 134.2 712.5 763.4 Cash on hand 708.9 733.6 1206.8 1459.4 Current assets 67.8 443.7 703.4 Short-term assets 488.9 -317.7 344.5 -350.0 Net operating income 1130.0 -27.8 847.9 1109.4 Grants received 630.6 806.4 479.1 616.2 Technical assistance 298.0 350.3 440.6 495.0 Gross investment 2723.8 2507.6 2311.1 2100.0 Net external borrowing 1171.8 1454.4 1657.2 1165.5 Met domestic borrowing 79.3 624.9 -232.4 296.1 Memo items: __________ Taxes paid 898.1 1608.4 1378.0 1162.0 Subsidies received 34.0 40.0 110.9 10.0 Consolidated cash 1994.1 1540.6 2115.0 2261.4 N.B. Financial institutions are excluded as they appear in the consolidated accounts of the banking sector. .. Not available. Source: IBRD mission. - 63 - Table 6. Monetary Survey _________________________ (in mvllions of CF) -------------------------- ----------------------------------------------------------- Dec 81 Dec 82 Dec 83 Dec 84 Sept 86 Dec 85 Sept 86 ----- - ----- ------ ------ ------- ------ -C----- Foreign Assets 2381 4224 4794 1490 3108 4898 5906 Government Credit 846 548 503 824 1185 1356 676 Private Sector Credit 3279 3601 4721 6838 6045 4218 3772 Other -2110 -2587 -1759 -2036 -1754 -2331 -2178 Currency 1971 2434 3427 3142 2792 3448 3434 Deposits 2267 2334 3737 3008 2927 3466 3434 Quasi-Money 158 1018 1095 C66 2865 1227 1308 ----------------------------------------------------------------------------------- Source: Central Bank and IBRD mission. Table 7.1 Agricultural Production _______ _____ _ ___ ___ ____ __ ________ _______ __-____ _______----__- __- -_--__---__ _ _-- _ _ _ _ _ - _ _ _ _ _ _ _ 1983 1984 1985 1986 1983 1984 1985 1986 1983 1984 1986 1986 VOLUME/TONNAGE PRODUCER PRICE (in CF) MARKET PRICE (in CF) CEREALS Rice (Paddy) 3,460 3,t30 8,820 3,700 : 76 80 90 90 : 75 80 90 go Male 2,700 3,460 3,560 3,900 : 83 88 86 80 : 92 96 90 99 STARCHES AND ROOT CROPS Cassava 24,780 26,880 28,630 27,820 : 60 84 83 103 : 75 89 103 128 Taro 8,280 8,560 6,760 7,060 : 82 88 90 104 102 110 118 10 Ignmo. 2,460 2,580 2,630 2,760 : 83 64 88 68 : 79 80 8S e6 Swet Potatoes 960 1,000 1,040 1,080 : 72 74 87 89 90 93 109 111 FRUITS Bananas 84,050 38,659 37,800 38,540 83 64 71 81 : 79 80 89 101 Coconuts ('000) 63,340 63,750 55,430 67,100 34 33 37 42 43 41 48 63 Other fruits 2,200 2,400 2,450 2,600 : 84 88 97 109 105 - 110 121 186 VEGETABLES Pigeon peas 6,8a0 5,S80 t,800 8,130 : 96 110 123 126 120 138 164 156 Amberiques 180 190 200 210 : 197 226 241 262 : 248 283 gO1 328 Tomatoes 280 280 290 810 : 823 332 880 853 : 404 416 413 441 Potatoes 180 190 200 210 : 148 195 206 229 185 244 258 286 Amedridos 410 430 460 480 : 94 108 108 122 : 117 135 136 153 Onions 90 95 100 10S : 521 695 534 544 : 061 744 668 680 Miscellanoous 680 640 670 710 : 141 154 178 190 : 778 193 223 238 EXPORT PRODCJCTS : Green Vanilla O00 970 1,000 800 : 1,850 2,260 2,000 2,000 : 1,850 2,260 2000 2,000 4- Processed Vani Ia 184 198 204 183 : 11,490 14,68t 12,710 12,710 : 19,716 22,265 25,881 20,881 Ylang-YIang (Flowers) 2,790 2,880 8,420 3,170 : S0 so 60 s0 : 80 s0 60 60 Essence of Yfang-Ylang 49.8 60.6 60.6 54.2 : 7,628 7,628 7,734 7,850 : 11,325 11,482 10,866 10,867 Other Essences 8.2 2.6 1.8 2.8 : 18,670 19,800 19,370 26,5W : 27,956 30,400 29,000 48,261 Cloves 1,200 960 1,260 1,200 : 1,940 90 960 900 : 1,940 960 960 g00 Cloves, processed 1,116 884 1,168 1,118 : 2,360 1,160 1,160 1,090 : 2,805 1,674 1,231 1,119 Coprah 1,200 1,280 1,360 1,410 70 71 75 76 : 93 96 100 100 Coffee 60 80 80 60 : 409 448 486 627 : 511 668 608 669 Miscollanoous 187 193 219 231 170 219 226 191 : 170 219 226 191 LIVESTOCK Cattle 811 811 811 856 : 931 997 1,100 1,145 * 1,184 1,248 1,875 1,'.1 Sheop 117 117 117 120 : 1,011 1,088 1,200 1,239 : 1,263 1,80 1,600 1,649 Poultry 130 145 167 177 : 778 826 811 798 : 973 1,033 1,014 991 Milk (000 liters) 780 780 780 820 : 289 200 207 228 : 2386 250 269 279 Eggs ('0O) 2,660 3,010 8,870 8,780 . 60 56 60 8 83 69 76 83 FISHERY PRODUCTS Fish 4,390 4,530 5,170 6,310 : 732 756 716 763 : 916 944 896 941 FORESTRY ('000 of 83) Firewood 892 405 418 433 : 2,300 2,400 2,600 2,600 : 2,876 8,000 3,125 8,260 Peachtree Wood 11 11 12 12 : 2,800 2,406 2,600 2,600 : 2,876 3,040 8,126 3,26 Other 6 8 8 8 : 38,800 38,400. 40,6W 41,800 : 46,_ 48,0 60,000 52,00 Soure UNECA. Table 7.2 Land Use --------------__---- _------_----_---------_- -__-_---------------------------_--_---_----------___--------------------------- TYPE OF LAND USE GRANDE CORO%E MOHELI _ ANJOUAN TOTAL ____ _ ________ ----- - - - - - - - - - - - - - - - HA X HA X HA X HA 2 Natural Vegetation 32062 31.71 4143 19.65 3316 7.82 39251 24.01 Tree plantations for forestry or income - 1398 1.38 680 3.22 3387 7.99 5465 3.32 Land for fooderop production 60416 59.76 15644 74.14 33862 79.86 109922 66.78 Land without vegetation 4621 4.57 287 1.36 280 0.66 5188 2.84 Miscellaneous 2603 2.57 346 1.64 1555 3.67 4504 2.74 TOTAL 10110 21100 4240 164600 Source: Ministry of Production. - 66 - Table 8. Price Indices _______________________ (1985 = 100) ----------------------------------------------------------------------__--- 1982 1983 1984 1985 1986 Cost of Living Index (Comorian families) 63.0 84.6 94.6 100.0 108.3 Cost of Living Index (expatriate families) 72.3 81.9 90.7 100.0 114.0 GDP Deflator 83.2 88.4 93.7 100.0 107.1 So______________r__________e:______________________________C______________ *Sourees UNECA. - 67 - Table 9.1 Scenario I: Partial Debt Rechoduling _____-~--~--~-r~----- -------------------- (in US 8 millions) 19865 1988 1987 1988 1980 1090 1996 EXPORTS ONFS 10.04 26.74 27.81 86.80 88.1 82.91 80.02 Goods, F08 16.72 19.07 20.71 22.60 24.80 24.22 28.68 NFS 4.28 8.76 7.10 7.80 8.66 8.68 11.28 IMPORTS ONFS 64.47 70.62 80.66 8088 82.94 86.11 116.24 Goods, FOS 25.78 26.15 24.92 80.09 80.91 84.24 47.60 NFS a8.74 44.6? 44.74 50.25 62.08 61.87 68.74 RESOURCE BALANCE -44.62 -44.08 -41.85 -50.98 -49.76 -68.20 -76.32 Intere$t (net) -1.16 -4.85 -0.21 -0.86 -0.88 -1.18 -2.78 Private Transfrs -0.68 -1.16 -1.17 -1.26 -1.29 -1.26 -1.41 Asortization -1.42 -8.26 -0.79 -1.02 -1.29 -1.67 -6.38 Resrves -7.60 -3.76 -1.09 -1.28 -1.86 -1.01 -1.22 REqUIRED FINANCING -56.88 58.10 45.11 -54.18 -54.81 -58.28 -87.07 Public Transfers 82.08 20.57 22.08 80.98 81.29 88.04 51.00 Other 1.42 1.99 1.09 1.S9 2.69 2.59 6.10 Drawings on current debt 21.68 21.54 18.00 16.00 7.77 4.12 0.00 Drwings on ne loans 0.0 0.0 4.0 6.8 18.6 18.6 81.0 COMITMENTS 15.2 138. 10.0 28.0 25.0 26.0 88.0 Proram Loans 6.2 1.6 8.6 0.0 8.0 0.0 12.0 Project Loans 10.0 12.8 4.0 28.0 17.0 28.0 21.0 Debt Service Ratio 16.4 19.7% 7.6x 8.8X 9.8% 11.9X 22.9X Source: IORD miseion. - 68 - Table 9.2 Scenario 11: Partial Debt Concellation (In US I millions) 198S 196 1987 1988 1989 1990 1996 EXPORTS ONFS 19.94 26.74 27.81 80.30 U3.16 32.91 89.92 Goods, FOB 15.72 19.97 20.71 22.50 24.80 24.22 28.61 NFS 4.28 6.6 7.16 7.80 8.56 8.68 11.28 IMPORTS aNmS 64.47 70.82 69.66 80.88 82.94 66.11 116.24 Goods, FOB 26.7$ 26.15 24.92 90.09 80.91 84.24 47.60 NFS 88.74 44.67 44.74 50.26 62.08 51.87 68.74 RESOURCE BALANCE -44.52 -44.08 -41.5 -60.08 -49.78 -58.20 -76.82 Interest (not) -1.16 4-.86 0.84 -0.08 -0.0 -4.5w -1.70 Privete Transfers -0.68 -1.18 -1.17 -1.25 -1.29 -1.26 -1.41 Amortization -1.42 -8.26 -0.79 -1.02 -1.29 -1.67 -4.68 Reserves -7.60 -8.78 -1.89 -1.23 -1.85 -1.61 -1.22 REqUIRED FINANCING -56.88 63.10 -44.66 -58.62 -54.02 -57.65 -85.84 Public Transfers 82.98 29.57 26.79 84.86 86.29 40.90 62.64 Other 1.42 1.99 1.08 1.59 2.09 2.59 5.10 Deawings on eurrent debt 21.88 21.54 12.89 12.18 6.02 2.68 O.00 Drawingo on now loaps 9.9 0.0 4.0 5.5 9.6 11.6 17.6 CONMITUENTS 16.2 18.8 10.0 18.0 15.0 16.0 19.0 Program Loans 5.2 1.0 6.0 0.0 8.0 0.0 12.0 Project Loans 10.0 12.8 4.0 18.0 7.0 16.0 7.0 Debt Service Ratio 15.4% ;19.7X C.1X 7.?J 8.1X 10.1X 18.7X Sourc: IBRD) mislion.