1. VFLEX 2009 Country Experiences from Mauritius, Seychelles, Comoros BESA, 23 March 2010

2. Rich experience of Mauritius delegation Rich experience of Mauritius delegation 3 different countries in 3 different contexts: 3 different countries in 3 different contexts: –Comoros: Fragile State –Seychelles: middle income country facing an economic crisis situation –Mauritius: middle income country Bottomline: three VFLEX dossiers prepared within 2 months, VFLEX envelopes for all 3 countries and all disbursements made before end of december 2009 Bottomline: three VFLEX dossiers prepared within 2 months, VFLEX envelopes for all 3 countries and all disbursements made before end of december 2009

3. MAURITIUS:COUNTRY CONTEXT Economic reform programme ongoing since 2006 Economic reform programme ongoing since 2006 In 2009, the economic growth rate fell to 2.8% as compared to an average of 5% over the period 2006-2008. The most affected sectors were tourism and textile manufacturing sectors, which posted negative growth rates of 6.4% and 4% respectively. Foreign Direct Investment also fell by 25% in 2009 as compared to 2008. In 2009, the economic growth rate fell to 2.8% as compared to an average of 5% over the period 2006-2008. The most affected sectors were tourism and textile manufacturing sectors, which posted negative growth rates of 6.4% and 4% respectively. Foreign Direct Investment also fell by 25% in 2009 as compared to 2008.

4. 1. Mauritius satisfied the vulnerability criteria for VFLEX in 2009: an increase of the overall budget deficit, excluding grants from 3.9% in 2008/2009 to 6.5% in fiscal year 2009 i.e. a worsening of 2.6% for 2009 an increase of the overall budget deficit, excluding grants from 3.9% in 2008/2009 to 6.5% in fiscal year 2009 i.e. a worsening of 2.6% for 2009 a drop in government revenue from 22.6 % in 2008/2009 to 21.3% in FY 2009, showing a drop of 1.3% in 2009 a drop in government revenue from 22.6 % in 2008/2009 to 21.3% in FY 2009, showing a drop of 1.3% in 2009 existence of a residual fiscal financing gap of 21.8 mio in 2009 existence of a residual fiscal financing gap of 21.8 mio in 2009 The VFLEX instrument was used to solve the rising public sector debt problem, which as per the law should not exceed 50% by 2013n but reached almost 60% in 2009 The VFLEX instrument was used to solve the rising public sector debt problem, which as per the law should not exceed 50% by 2013n but reached almost 60% in 2009 VFLEX would be used to mitigate this increase in public sector debt, so that the negative impact of debt servicing is not at the cost of priority spending in social sector and for infrastructure projects. VFLEX would be used to mitigate this increase in public sector debt, so that the negative impact of debt servicing is not at the cost of priority spending in social sector and for infrastructure projects. ALLOCATION RECEIVED in 2009: 10.9 MIO ALLOCATION RECEIVED in 2009: 10.9 MIO

5. Seychelles' economic growth has averaged 7.7% per annum over 2005-2007 (mostly explained by a buoyant tourism sector) However, in mid-2008, the petroleum and food price spike deeply affected Seychelles Arrears to bilateral creditors had built-up, official reserves had been virtually exhausted, and foreign exchange shortages and extensive exchange restrictions were heavy constraints on economic activity. Growth was already negative in 2008 (-0.9%) The Government has also formulated a macroeconomic and financial reform programme to rebalance the economySeychelles' economic growth has averaged 7.7% per annum over 2005-2007 (mostly explained by a buoyant tourism sector) However, in mid-2008, the petroleum and food price spike deeply affected Seychelles Arrears to bilateral creditors had built-up, official reserves had been virtually exhausted, and foreign exchange shortages and extensive exchange restrictions were heavy constraints on economic activity. Growth was already negative in 2008 (-0.9%) The Government has also formulated a macroeconomic and financial reform programme to rebalance the economy SEYCHELLES:COUNTRY CONTEXT

6. VFLEX criteria for 2009 for Seychelles: Level of reserves was below 2 months of imports: Level of reserves was below 2 months of imports: –2008:0.7 –2009:1.3 Budget support had just started Budget support had just started Financing Gap of USD 12 mio in 2009 Financing Gap of USD 12 mio in 2009 Allocation of an envelope of 9 mio under VFLEX 2009

7. COMOROS: country context Fragile state, one of the poorest countries in the world Fragile state, one of the poorest countries in the world Economic and political crisis and also affected by food crisis Economic and political crisis and also affected by food crisis Rate of growth 1% in 2008 Rate of growth 1% in 2008 Estimated 45% of population living under absolute poverty threshold Estimated 45% of population living under absolute poverty threshold

8. COMOROS:VFLEX criteria Decrease by 0.1% of government revenue between 2008 and 2009 Decrease by 0.1% of government revenue between 2008 and 2009 Fiscal deficit excl grants improved by 3%, but including grants fell by 1.3% Fiscal deficit excl grants improved by 3%, but including grants fell by 1.3% Foreign reserves at 5.8 months of imports Foreign reserves at 5.8 months of imports Comoros obtained an allocation of 4.7 mio under VFLEX 2009 Comoros obtained an allocation of 4.7 mio under VFLEX 2009

9. ISSUES –Urgency of exercise over the whole project cycle –Collaboration and communication from HQ –Collaboration with the IMF and WB –Budget support eligibility for some countries were still being addressed (SEY, COM) –Specific case of fragile states /MICs should be considered when assessing the criteria (fragility waiver)

10. CONSTRAINTS Bilateral discussions between IMF and HQ to which Del was not party Bilateral discussions between IMF and HQ to which Del was not party Low capacity of NAOs (eg Comoros) to submit detailed VFLEX requests Low capacity of NAOs (eg Comoros) to submit detailed VFLEX requests Verification of residual fiscal financing gap Verification of residual fiscal financing gap

11. Working sessions with the NAOs to explain criteria Working sessions with the NAOs to explain criteria Good collaboration Del –HQ-IMF-WBank Good collaboration Del –HQ-IMF-WBank Work closely with IMF and WBank when assessing the criteria Work closely with IMF and WBank when assessing the criteria Anticipate questions from EDF Ctee Anticipate questions from EDF Ctee Identify programmes to which the VFLEX can be tagged easily Identify programmes to which the VFLEX can be tagged easily Disbursement can be quick! Disbursement can be quick! Lessons for others

12. Question to HQ Will there be VFLEX after 2010, given that some countries have a lagged effect of the crisis, ie the impact of the global crisis is slow but ongoing and expected for still several years. Will there be VFLEX after 2010, given that some countries have a lagged effect of the crisis, ie the impact of the global crisis is slow but ongoing and expected for still several years.