Comoros: Country outlook
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Comoros: Country outlook
FROM THE ECONOMIST INTELLIGENCE UNIT
POLITICAL STABILITY: Political fragility related to the 2019-20 elections will continue in the 2020-21 forecast period, with the president, Colonel Azali Assoumani, and his party, Convention pour le renouveau des Comores (CRC), retaining a firm grip on power. In April 2019 the Supreme Court confirmed Colonel Assoumani as president after a disputed snap presidential election on March 24th 2019. This was followed by two rounds of legislative elections (on January 19th and February 23rd); these were boycotted by the opposition, who cited lack of faith in the electoral process. As a result, the CRC secured an absolute majority, winning 20 of the 24 elected seats in the National Assembly--marking the first clear majority of a single party in parliament since 1996. A parliamentary majority will aid the president in circumventing the political gridlock associated with a fragmented parliament that has hitherto impeded policymaking. However, the absence of an opposition in parliament is a drawback for much-needed checks on the potentially overarching executive decisions that could be made. A large section of the opposition still refuses to recognise Colonel Assoumani as president and has called for him to resign; the recent legislative polls (which went ahead despite the opposition boycott) have only escalated the opposition's frustrations with Comoros's exclusionary and authoritarian political landscape. Unresolved frustrations with the electoral process will thus remain a source of latent political tension.
ELECTION WATCH: Colonel Assoumani was re-elected in the latest presidential election (in March 2019) for a second consecutive term (after 2016-19) after securing a clear majority (59.1% of all votes) against 12 opposition candidates. Several important opposition party candidates were rejected by the Supreme Court, and all losing presidential contenders consequently disputed the election result. However, the Supreme Court confirmed Colonel Assoumani's victory, and the election result has been widely accepted by the international community. The first round of legislative elections was on January 19th, followed by a second round on February 23rd. The two main opposition parties in the previous parliament (the Parti Juwa and the Union pour le développement des Comores) boycotted the elections, but the polls were still held and were therefore exclusionary. The Alliance of the Presidential Movement, a pro-Azali alliance of four parties--the CRC, the Orange party, the Rassemblement pour une Alternative de Développement Harmonieux et Intégré party and the Rassemblement Démocratique des Comores--fielded 36 candidates, with 21 from the president's CRC party alone. Of the 24 elected seats, the CRC won 21, followed by the Orange party and independents, which secured two seats each; parliamentarians for the remaining nine seats will be elected indirectly by their peers in the National Assembly.
INTERNATIONAL RELATIONS: Diplomatic ties with France--the former colonial power and a major bilateral donor and trading partner--will remain crucial and cordial, albeit with intermittent tensions, owing to a long-standing territorial dispute over the Mayotte islands; the islands form part of the Comorian archipelago but remain under French control. France's strong stance against illegal immigration from Comoros to Mayotte, as a gateway to Europe, will resurface in the context of the coronavirus; France is keen on repatriating illegal Comorian immigrants from Mayotte, but Comoros is wary, given the likelihood of a rise in domestic infections from returnees. Overall, however, strong bilateral relations will be underpinned by France's economic importance to Comorian economic policy--the French Treasury guarantees the Comorian franc and France (in partnership with the World Bank and the UNDP) helped to organise the Conference of Partners for the Development of Comoros (CPAD) for Comoros in Paris in 2019, which helped to mobilise pledges worth over US$4.3bn in grants and investments for Comoros's development plan. The CPAD also highlighted the country's close ties with Middle Eastern countries (such as Kuwait, the UAE and Saudi Arabia). Further the archipelago also has close trade relations with India and China--with both countries having recently provided medical equipment for the government's coronavirus response.
POLICY TRENDS: The policy focus in the remainder of 2020 will shift from post-cyclone reconstruction (before the coronavirus pandemic) to combatting the domestic outbreak of the disease (87 cases as at May 29th) and its economic impact. The healthcare response is being guided by a US$2.2m plan formulated in accordance with WHO recommendations, financial assistance from donors and medical support from bilateral partners. In addition, budgetary and policy support from multilaterals, such as the IMF and World Bank, will guide implementation. The IMF, for instance, approved emergency financial assistance for Comoros in April 2020 worth SDR8.9m (US$12.3m). Economic policy actions adopted thus far include price controls and tax cuts on certain essential foods and medical supplies to ensure affordability, as well as a reduction in statutory reserve requirements at banks to boost liquidity. However, additional measures that are currently in consideration will be implemented, such as targeted transfers and social safety nets for the most vulnerable households, credit relief and tax deferrals (preferably for small- and medium-sized enterprises). We also expect more stringent movement restrictions to be imposed for a few weeks in the July-September quarter to prevent a rapid rise in infections, albeit with an eventual easing as a lockdown will simultaneously be hugely detrimental to the country's large informal economy.
ECONOMIC GROWTH: After cyclone-induced disruption to economic activity in 2019 (real GDP growth is estimated to have decelerated to 1.9% in that year), we forecast that the fallout from the coronavirus pandemic will result in a real GDP contraction of 1.7% in 2020. Underpinning this view, the detrimental effects of trade, tourism and global economic difficulties began affecting the country through reduced earnings and remittance inflows even before the country recorded its first case of the virus (on April 30th), thus prompting the IMF to approve emergency assistance to the country just days before the domestic outbreak. Pending post-cyclone reconstruction will be hampered in 2020 by supply-side disruptions and funding constraints as external financial support will largely be disbursed for coronavirus response and healthcare capacity expansion.
INFLATION: Following average estimated inflation of 3.6% in 2019, reflecting the impact of post-cyclone inflationary pressures arising from food import needs, we expect inflation to fall to 2.9% in 2020. Inflation will move back below the 3% upper limit (followed by Franc zone countries), but we forecast only a moderate deceleration as the effect of the global oil price slump is offset by rising food prices from anticipated supply shocks owing to the coronavirus. In 2021 normalising food prices and a stronger Comorian franc will aid lower inflationary pressures, driving down inflation to 1.7%.
EXCHANGE RATES: The Comorian franc has been pegged to the euro at Cfr492:EUR1 since 2000 and therefore fluctuates against the US dollar in line with euro-dollar movements. The peg is guaranteed by the French Treasury and provides macroeconomic stability to Comoros. The euro fell against the dollar following the announcement by the ECB of a new round of asset purchases worth EUR870bn (US$948bn). Although the euro is likely to firm against the dollar in the second half of the year, after the coronavirus pandemic has peaked, we expect it to remain low by historical standards, averaging US$1.1:EUR1 in 2020. In 2021 the euro is forecast to strengthen against the US dollar when the ECB will begin preparing for monetary tightening. In line with these dynamics, the Comorian franc will depreciate, from a 2019 average of Cfr439.5:US$1 to Cfr447:US$1 in 2020, before strengthening to Cfr438.3:US$1 in 2021.
EXTERNAL SECTOR: The structural current-account deficit is forecast to widen as a share of GDP in 2020, to 5.5%, as a sharp decline in export earnings (from trade and tourism) and remittance receipts outpaces a softer decline in the goods and services import bill as a result of reduced demand and the global oil price slump. The deficit contraction in 2021, to 4.5% of GDP, will be driven by a recovery in earnings (goods exports and remittance inflows).
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