The World Bank Comoros Second Fiscal Management and Resilient Growth (FIMARG) Development Policy Financing Series(P181269) @#&OPS~Doctype~OPS^blank@pidcondpfcoverpage#doctemplate Program Information Document (PID) Concept Stage | Date Prepared/Updated: 19-Dec-2023 | Report No: PIDIC00064 Mar 21, 2024 Page 1 of 7 The World Bank Comoros Second Fiscal Management and Resilient Growth (FIMARG) Development Policy Financing Series(P181269) @#&OPS~Doctype~OPS^dynamics@piddpfbasicinformation#doctemplate BASIC INFORMATION A. Basic Project Data Project Beneficiary(ies) Operation ID Operation Name Comoros Second Fiscal Management and Resilient Comoros P181269 Growth Development Policy Financing Region Estimated Approval Date Practice Area (Lead) Financing Instrument EASTERN AND SOUTHERN Macroeconomics, Trade Development Policy 04-Feb-2025 AFRICA and Investment Financing (DPF) Borrower(s) Implementing Agency Union of the Comoros Ministère des Finances, du Budget et du Secteur Bancaire / Ministry of Finance, Budget and Banking Sector Proposed Development Objective(s) The Program Development Objectives are to support the Government of Comoros in their efforts to: (i) enhance debt management and public expenditure efficiency; (ii) strengthen resilience to shocks; and (iii) improve state-owned enterprises governance and performance @#&OPS~Doctype~OPS^dynamics@pidpfrprojectfinancing#doctemplate Financing (US$, Millions) Maximizing Finance for Development Is this an MFD-Enabling Project (MFD-EP)? Yes Is this project Private Capital Enabling (PCE)? No SUMMARY Total Financing 20.00 DETAILS Total World Bank Group Financing 20.00 World Bank Lending 20.00 Mar 21, 2024 Page 2 of 7 The World Bank Comoros Second Fiscal Management and Resilient Growth (FIMARG) Development Policy Financing Series(P181269) @#&OPS~Doctype~OPS^dynamics@piddpfdecision#doctemplate Decision The review did authorize the preparation to continue B. Introduction and Context Country Context Comoros is a small and lower middle-income country and recent exogeneous shocks have deteriorated prospects of accelerating poverty reduction in the near term. Based on the national poverty line (KMF 41,495 or US$99), an estimated 44.8 percent of the population is poor, and statistical analyses show that this level has not changed since 2014.1 Cyclone Kenneth and the COVID-19 pandemic hampered efforts to reduce the poverty rate because of the implementation of pandemic-related containment measures, and the sluggish economic growth. Comoros’ economy has also been significantly impacted by Russia’s invasion of Ukraine and recent inflation. The expected strong recovery in 2022 was thwarted by the international context. The economy grew by 2.3 percent only in 2022 (up from 2.1 percent in 2021) as rising global food and energy prices have weighed on private consumption, which is Comoros’ main growth driver on the demand side. Due to imported inflation, headline prices have increased to record levels, reaching an average of 12.5 percent for the year 2022, up from an average of 1.4 percent in 2011–2020. The increase in food prices is expected to disproportionally affect low-income households. While recent exogeneous shocks exhibit Comoros vulnerabilities, Comoros growth has been slow because of macroeconomic and governance weaknesses, and low private investment. The country has been stuck in a low-growth trap for over 40 years, with growth averaging about 2.6 percent of real GDP in 1980–2022, with a stagnant US$1,348.3 income per-capita (constant 2010 US$). This low level of growth has neither delivered poverty reduction nor promoted inclusiveness, and it has made the country less resilient to shocks. This low economic performance can be explained by an unbalanced growth model which heavily relies on public and private consumption, and with state-owned enterprises being major economic actors. Besides structural issues, Comoros’ macroeconomic situation worsened because of a high risk of debt distress and increased fiscal needs. Comoros’ risk of debt distress was reassessed from moderate to high in September 2021 due to challenging economic conditions, non-concessional loans contracted in 2018-2020, and costs related to the restructuring of a major commercial state-owned bank, Société Nationale des Postes et Services Financiers (SNPSF). In addition, Comoros is exposed to a wide range of natural disasters and is one of the most vulnerable countries in the world to climate change, which adversely impacts its development and exacerbates existing social and economic vulnerabilities. Comoros’ SOEs operate across several sectors, but they have been underperforming during the past few years and now represent substantial fiscal risks. There are at least 13 SOEs operating in different sectors, including the trade and wholesale, transport, telecommunication, energy, pharmaceutical, water, hotel, communications (written press and broadcasting), and financial sectors. However, the quality and reliability of their goods and/or services is limited, and they are increasingly weighing on public finances. The fiscal deficit is also expected to widen to 5.9 percent of GDP in 2023 due to exceptional expenses and an increase in public investment. Public expenditures are projected to increase 1 World Bank. 2021. Poverty and Equity Assessment Report, Washington DC: World Bank. Mar 21, 2024 Page 3 of 7 The World Bank Comoros Second Fiscal Management and Resilient Growth (FIMARG) Development Policy Financing Series(P181269) markedly in 2023 as the government implements its recovery plan, with public investment projected to increase by 34.8 percent, higher purchases of goods and services related to the Comoros’ African Union presidency (which represented around KMF 2 billion or more than the fifth of goods and services expenditures in 2023H1). Relationship to CPF The proposed operation is aligned with the CPF focus areas, specifically economic recovery and inclusive growth as well as crisis response and building resilience. The CPF is based on the priorities identified in the World Bank Systematic Country Diagnostic (2019) and is aligned with the government’s PCE (Plan Comores Emergent). The DPF also builds on policy dialogue structured around analytical work, including the 2022 Public Expenditure Review, 2022 Country Economic Memorandum, analyses on Comoros accession to the World Trade Organization, technical assistance (reports), and other current and prospective World Bank engagements outlined in the CPF. The CPF focuses on four objectives: (1) building human capital; (2) supporting disaster recovery and resilience; (3) improving the business environment and governance; and (4) improving connectivity. The Comoros’ DPF will contribute to the CPF’s Focus Area I on crisis response and building resilience by strengthening institutions, particularly the social safety nets (SSN) and the National Disaster Resilience Fund, which should support disaster recovery and resilience (Objective 2 – Focus Area I). Under the CPF’s Focus Area II on economic recovery and inclusive growth, the operation will contribute to the improvement of the business environment and governance (Objective 3 – Focus Area II). All Prior Actions, except the one on social protection, contribute to the CPF’s Objective 3. C. Proposed Development Objective(s) The program development objectives (PDOs) are the following: (i) enhance debt management and public expenditure efficiency; (ii) strengthen resilience to shocks; and (iii) improve state-owned enterprises governance and performance. Key Results In line with these objectives, the key expected results of this operation are as follows. Under Pillar 1, key results include a more efficient debt management, an improved financial and operational performance of SOEs, a higher public spending efficiency based on improved government procurement systems. Under Pillar 2, key results include a strengthened capacity of national SSN programs to reduce household vulnerabilities, and stronger preparedness against climate disasters. Under Pillar 3, key results include a liberalization of ordinary rice imports, the creation and licensing of the new postal bank (LBP), the development of renewable energy. RESULTS Indicator Name Baseline Target Results Indicator #1. Percentage of new public and publicly guaranteed loans, loan guarantees, and on-lent credit, which were 0 (2021) 90 (2026) issued or signed after a government technical review. Results Indicator #2. Number of high spending ministries and SOEs At least three ministries using exclusively the “Comores Marchés Publics� platform for their 0 (2021) and one state-owned procurement activities for all procurements above US$3 million.2 enterprise (2025) 2 High spending ministries refer to ministries receiving the highest level of budget allocation for goods and services expenses, and capital expenses. Mar 21, 2024 Page 4 of 7 The World Bank Comoros Second Fiscal Management and Resilient Growth (FIMARG) Development Policy Financing Series(P181269) Results Indicator #3. Volume of ordinary rice imported by the private sector (in percentage of total volume of imported ordinary 0 (2022) 50 (2026) rice). Results Indicator #4.1. Number of vulnerable households in the 30,000 (2022) 50,000 (2026) social protection registry. Results Indicator #4.2. Percentage of women-led households 33 (2022) 50 (2026) benefiting from social safety net programs. Results Indicator #5. The National Disaster Resilience Fund is No (2023) Yes (2026) operational with available capital to address climate events. Results Indicator #6. Share of state-owned enterprises that provide to the Ministry of Finance and publish data to allow for the 0 (2022) 80 (2026) monitoring of operational and financial performance. Result indicator #7. Level of BPC’s solvency ratio, as established by NA (2023) 10 (2026) the central bank. Results Indicator #8. Percentage of renewable energy production 5 (2022) 21 (2026) in the Comoros' energy mix D. Concept Description The proposed Development Policy Financing (DPF) operation is the second in a series of three over the period 2023– 2025 for Comoros, supporting reforms that aim to enhance fiscal management and strengthen Comoros resilience to shocks. The DPF series is based on three program development objectives (PDOs), which aim to (i) enhance debt management and public expenditure efficiency; (ii) strengthen resilience to shocks; and (iii) improve state-owned enterprises governance and performance. The associated legal and policy reforms are aligned with the national development plan – Plan Comores Emergent (PCE). The PCE includes actions to strengthen political and institutional framework, develop human capital, and accelerate digitization. All these actions are conditioned by a sound macroeconomic framework and a better resilience, which the DPF series’ program intends to contribute to build. The Program highlights policy reforms in sectors that are critical to shift the country toward a sustainable development by strengthening institutions for inclusive growth and fostering structural reforms to improve resilience to shocks and develop private sector. Pillar 1 of the operation supports efforts to enhance debt management and public expenditure efficiency through the enactment of the first debt management law and the use of e-Government Procurement (e-GP) in public procurement. Pillar 2 includes reforms to strengthen Comoros social, financial and food resilience against exogeneous and climatic shocks through increased efficiency of social protection program, the creation of a disaster risk resilience fund, and the lifting of a state monopoly on the importation of rice to strengthen food security. Pillar 3 includes reforms to strengthen the governance and performance of state-owned enterprises (SOEs) in the country, including through an increased transparency of SOEs financial statements, the restructuring of a major state-owned bank which represent a systemic financial stability risk, and the enactment of a renewable energy law which will support the access to low-cost sources of energy and improve the financial performance of the energy utility company. E. Poverty and Social Impacts, and Environmental, Forests, and Other Natural Resource Aspects Poverty and Social Impacts Mar 21, 2024 Page 5 of 7 The World Bank Comoros Second Fiscal Management and Resilient Growth (FIMARG) Development Policy Financing Series(P181269) Several proposed measures in the DPF are expected to have a positive or neutral impact on the poor. PA#3 may lead to increased availability of rice in the market, potentially lowering prices and benefiting low-income consumers. PA#5 would minimize the negative effects of disasters on vulnerable populations and prevent them from slipping further into poverty. However, key conditions for its success include transparent management to prevent misallocation and corruption, good targeting vulnerable groups, involving local communities, and utilizing risk assessment and early warning systems. By focusing on cost-effective, sustainable energy solutions, PA#8 can potentially lead to lower electricity prices, benefitting low-income households and small businesses. However, this benefit is conditional on poor households’ access to grid electricity. The other DPF measures will have a neutral impact. Environmental, Forests, and Other Natural Resource Aspects Overall, the proposed measures in the DPF are expected to have a beneficial impact on the environment. PA#2 would have a positive impact on the country’s environment and natural resources by significantly reducing paper usage and waste. The National Disaster Resilience Fund (PA#5) shall support nature-based solutions that improve the environment’s resilience to natural disasters and strengthen the country’s disaster resilience. PA#6 could contribute to safeguarding natural capital and natural services. However, PA#4 could lead to more small-scale social safety initiatives, and their associated environmental risks. PA#8 could have a positive/negative environmental effect as it fosters production of renewable energy, but it could also entail adverse impacts such as land use changes, biodiversity loss, involuntary resettlement, and reduced community health and safety, depending on the locations of projects. @#&OPS~Doctype~OPS^dynamics@contactpoint#doctemplate CONTACT POINT World Bank Steve Loris Gui-Diby Senior Economist Etienne Victor Sannicolo Financial Sector Specialist Noro Aina Andriamihaja Senior Financial Sector Specialist Borrower/Client/Recipient Union of the Comoros Implementing Agencies Ministère des Finances, du Budget et du Secteur Bancaire / Ministry of Finance, Budget and Banking Sector Ahmed Houmadi, Secretaire Général, ayahoumadi@gmail.com Mar 21, 2024 Page 6 of 7 The World Bank Comoros Second Fiscal Management and Resilient Growth (FIMARG) Development Policy Financing Series(P181269) FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects @#&OPS~Doctype~OPS^dynamics@approval#doctemplate APPROVAL Task Team Leader(s): Steve Loris Gui-Diby, Etienne Victor Sannicolo, Noro Aina Andriamihaja Approved By Practice Manager/Manager: Country Director: Zviripayi Idah Pswarayi Riddihough 19-Dec-2023 Mar 21, 2024 Page 7 of 7