Comoros Economic Outlook

Economic performance and outlook

The outlook for this fragile state has improved following the resolution of the electricity crisis in 2014 and 2015. Economic growth rose from 2.8% in 2016 to an estimated 3.4% in 2017 and is projected to reach 3.7% in 2018 and 4.1% in 2019. Growth was spurred by a broad investment program with both public (roads and a national hospital) and private (tourism and hospitality) components. The regularization of civil servants’ salaries and cash transfers from the diaspora are likely to foster higher private consumption. In terms of supply, growth relies on a sharp recovery in the primary sector and to a lesser extent in services. In terms of demand, end-use consumption is the primary growth driver. However, the budget remains highly fragile, with the tax burden exceeding 10%.

Macroeconomic evolution

The government elected in May 2016 inherited a challenging budgetary position and had no cooperation program with the International Monetary Fund (IMF) in place since December 2015. The 2017 budget has been criticized as overly ambitious. Taxes accounted for 13% of GDP in 2016 and 22.3% in 2017, while capital expenditure rose from 10.7% of GDP in 2016 to 29.8% in 2017. Inflation is stable at under 3%, due to sound management by the Central Bank. Although the trade balance is expected to worsen slightly due to the economic recovery, this trend is likely to be offset by cash transfers from the diaspora, which average 25% of GDP. The risk of debt distress was ranked as moderate by the IMF’s most recent debt viability analysis (2014), which includes cash transfers from the diaspora.

Tailwinds

The purchase of new power stations led to the recovery of electricity production, which revitalized entire sectors of the economy, including tourism, hospitality, trade, and distribution of fresh food products. Another important factor is rising international prices of the country’s main export products, including Bourbon vanilla, whose price per kilo rose from $60 in 2014 to $400–$500 in 2017. Comoros, the world’s second largest producer of vanilla, plans to expand production from 23 tons to 90 tons over three years. Vanilla accounts for 80% of exports and employs 45% of the workforce. The third tailwind is improved diplomatic relations with Saudi Arabia and its Persian Gulf allies, which have led to significant budget and off-budget support for public investment, including the project to build roads connecting Moroni to the airport and Ouani to Bambao.

Headwinds

The current political climate poses a serious risk to the economy. The country faces potential political and institutional instability as a result of the new leaders’ decision to challenge the constitutional principle of alternating presidencies between the country’s three main islands, a practice that has ensured institutional stability and peaceful transitions of power since 2001. Since the split in the Juwa-CRC coalition that brought the president to office, Comoros has experienced power sharing between the executive and legislative branches. Laws can be passed by Parliament only with support from the former majority, which was defeated in the most recent elections. Another important factor is the high cost of electricity to the government due to the large fuel subsidies it pays to the two public electricity companies (MAMWE and EDA). These subsidies absorb a sizable portion of the budget and create ongoing cash flow problems. The country continues to struggle with a high fertility rate and the heavy presence of the informal sector in the national economy.