Govt outlines austerity measures to IMF

Comoran authorities are hoping that a series of belt-tightening measures will strengthen the economy and boost investor confidence. In a letter of intent to the International Monetary Fund (IMF) dated 2 February, the government said it was determined to reform fiscal policy, mainly by reining in state expenditure and overhauling the tax system. The Indian Ocean archipelago has endured two decades of internal strife, resulting in a serious deterioration of public services and large drop in donor support. Although a December 2001 agreement made the islands of Moheli, Anjouan and Grande Comore more autonomous and politically more stable, almost 60 percent of the country's 800,000 people still live below the poverty line and have limited access to clean water and electricity. Sluggish economic performance was largely attributed to a collapse in international vanilla prices - from an average of US $251 per kilogram in 2003 to about US $50 per kilogram at present - while Gross Domestic Product (GDP) had been well below population growth in recent years. Inflation, which had been very low in the first half of 2004, picked up in the second half of the year in response to the worldwide spike in the cost of oil. According to government forecasts inflation is expected to hover around a yearly average of 4.3 percent. Performance in the external sector was mixed in 2004, with the impact of the drop in vanilla prices counterbalanced to some extent by travel receipts and remittances from Comorians living abroad, which rose sharply following the opening up of a new direct flight between France and Moroni, the Comoran capital. One of the key concerns raised in the letter to the IMF was the accumulation of arrears in servicing external debt, projected at US $6.1 million in 2004; outstanding external debt at the end of last year stood at US $290 million. Authorities said an agreement between the Union government and the autonomous islands to transfer shared revenues to a special account at the Central Bank of the Comoros would anchor fiscal policy in 2005. "Strictly adhering to these agreements will be critical for achieving our programmes' macroeconomic objectives," finance officials remarked. There was also a decision to import only one shipment of rice in 2005 instead of the usual two, and to discontinue the surtax of 50 Comoran Francs per kg of rice on the islands of Moheli and Grande Comore. The tax was introduced to finance the launch of the new university last year, but had weighed heavily on the most vulnerable segments of society. The harmonisation of custom tariffs between the Union and the autonomous islands was also expected to increase revenue during 2005 by about 0.4 percent of GDP. The 2005 budget limits primary expenditure to 14.4 percent of GDP compared with 16.3 percent in 2004. The bulk of savings will come from a 1.6 percent cut in the wage bill, brought about by not renewing the contracts of temporary personnel hired over the last two years, and applying a freeze on new hiring, except in the social sector.