December 18, 2000

Mr. Horst Köhler
Managing Director
International Monetary Fund
700 19th Street NW
Washington, D.C. 20431

Dear Mr. Köhler:

1. The attached memorandum describes progress under the PRGF-supported program during its first year of implementation and outlines the government's macroeconomic policy framework for 2001. Significant progress has been achieved in the areas of bank restructuring, fiscal policy, and forestry reform, and all quantitative performance criteria for end-September 2000 were observed.

2. Following the worst flooding in recent history, the Royal Government of Cambodia is committed to taking action to minimize the impact on economic growth, inflation, and the implementation of structural reforms. The delays experienced in completing the pilot program of military demobilization, mostly owing to difficulties in securing timely disbursement of committed foreign financing, will be recouped. Efforts to establish a computerized civil service payroll system and to prepare a broad-based reform strategy for the civil service will also be continued.

3. The government's economic program for 2001 is aimed at promoting sustained growth and employment, raising the standard of living of the population, and reducing poverty. The program provides for continued fiscal and monetary restraint and is centered on the implementation of the demobilization program, revenue enhancement, and restructuring of the banking system.

4. The government has successfully completed the preparation of an Interim Poverty Reduction Strategy Paper (I-PRSP) and is committed to submitting a full PRSP by end-2001. The full PRSP will be prepared by the Ministry of Planning and will be synchronized with the preparation of the second socio-economic development plan (SEDP II) covering 2001-05. The process for preparing the full PRSP will be based on broad consultation between government ministries, civil society, donors, and NGO's and will take into consideration the evaluation of the Interim PRSP, as reflected in the joint assessment (JSA) of the World Bank and IMF staff.

5. The government believes that the policies and measures described in the attached memorandum are adequate to achieve the objectives of the program for 2001, and stands ready to take additional measures that may become necessary for this purpose. The government will remain in close consultation with the IMF in accordance with the IMF's policies on such consultations, and will provide the IMF with such information as it requests on the progress made in policy implementation and the achievement of program objectives. In any event, Cambodia will conduct with the IMF the next review of the arrangement no later than end-July 2001.

6. In continuing with our policy of transparency, we consent to the publication, including on the IMF's website, of: (i) the attached Memorandum of Economic and Financial Policies; (ii) the accompanying Executive Board documents prepared by the IMF staff; and (iii) the JSA of the Interim PRSP.

Sincerely yours,

2.  All quantitative benchmarks and performance criteria through end-September 2000 were observed. However, severe flooding during the second half of the year will have an adverse impact on economic performance. While the garment and tourist sectors have expanded as foreseen, agricultural output will decline owing to the impact of the flooding, which has substantially damaged the rice crop and key transportation infrastructure. While the initial impact on prices was mitigated by existing stocks and donor assistance, food prices have started to increase. However, reflecting low prices for most of the year, and despite higher oil prices, the average inflation rate for 2000, as measured by the Consumer Price Index (CPI), is expected to be less than 2 percent.1

3.  Budgetary performance has continued to improve in 2000. The government has implemented the budget cautiously and has managed to prevent a significant deterioration in fiscal balances related to the flooding and increased oil prices. The current budget surplus is projected at 1.3 percent of GDP, compared with a program target of 1.4 percent of GDP, owing to increased spending on flood relief. Total revenue, at 11.6 percent of GDP, is expected to be marginally short of the program target because of lower-than-expected collection of trade taxes stemming from sharply lower volumes of cigarette imports and lack of sufficient progress in improving customs administration. The overall budget deficit is expected to increase to 5_ percent of GDP, reflecting the increased spending for flood relief. As a result, domestic financing of the budget is expected to exceed the original program, but will still provide for a repayment to the domestic banking system of CR 20 billion.

4.  The implementation of comprehensive revenue-enhancing measures in mid-year has helped to contain the revenue shortfall. Revenue from direct and indirect taxes has increased significantly, owing to improved collections from the profit tax and value-added tax (VAT). Further progress is also being made in broadening the base of the VAT by including 500 additional firms. Total nontax revenue is estimated at 3 percent of GDP, in line with the original program, as progress was made in collecting arrears related to telecommunications and profits from state-owned companies, and in raising royalties from tourist service providers.

5.  The desired disbursement of government spending for the priority social sectors has lagged behind program targets in the first nine months. As of end-September, overall expenditure for health, education, and rural development was only about 42 percent of budgeted outlays. The shortfalls reflect a delay in the implementation of the Priority Action Program (PAP) for the health and education sectors, as well as problems at the provincial level in spending centrally allocated funds. However, social spending is expected to increase significantly in the last quarter of the year, as the implementation of the PAP for health has been accelerated beginning in October and large bulk drug purchases are scheduled to take place in the last two months of the year.

6.  Monetary developments in 2000 largely reflect the fiscal policy stance and the broad dollarization of the economy. Broad money is expected to rise by 35 percent, in line with program projections, primarily due to an increase in foreign currency deposits related to improved public confidence in the banking system. In contrast, domestic currency in circulation is expected to rise by only 8 percent, reflecting continued fiscal restraint. Commercial bank credit to the private sector has been running ahead of the anticipated pace, reflecting increased credit demand associated in part with higher oil prices, as well as increased economic activity.

7.   The external current account deficit for 2000 has increased, as anticipated under the program. Total imports have increased in line with economic recovery in the manufacturing sector, while imports of petroleum products have risen substantially. Exports of goods and services have been buoyant, owing to higher garment exports and tourism receipts. The increase in international reserves is expected to be in line with the original program target, reflecting increased capital inflows. The exchange rate has been stable, despite the strength of the U.S. dollar--and depreciation of other regional currencies--reflecting continued monetary and fiscal restraint.

8.  Decisive actions relating to structural reform have also been initiated during 2000. Major achievements in this area include: (i) completion of discharge and reinsertion components of the pilot demobilization program and preparation of a financial and technical assessment; (ii) implementation of the civil service census and elimination of identified "ghost" employees; (iii) improved forest crime monitoring and completion of a forestry concession review; (iv) completion of bank relicensing and initial capitalization of the Foreign Trade Bank; and (v) adoption of a new contract for pre-shipment inspection (PSI). However, there have been delays in important areas of structural reform, including securing financing for the first tranche of the full demobilization program, and in completing the computerization of the payroll and fingerprinting of the civil service.

II.  Macroeconomic Framework and Structural Policies for 2001

9.  The macroeconomic outlook for 2001 is expected to be affected by the recent flooding and continued high oil prices. While damage to the road network could affect trading activity, a recovery in agriculture, further growth in the garment and tourism sectors, and increased spending on rehabilitation, are projected to lead to a recovery of economic growth broadly in line with program targets. Inflationary pressures are expected to strengthen somewhat in late 2000 and early 2001, owing to the lagged effect of higher oil prices and expected increases in food prices. Government attention to addressing widespread flood damage during the last quarter of the year has also delayed the implementation of some key structural reforms, including demobilization and civil service reform. Despite these temporary setbacks, the government is determined to consistently implement agreed policies.

10.  Achieving proper governance at all levels of government is a prerequisite for establishing a sound institutional framework fully supportive of private sector-based economic growth. The government's policy stance in this area, as presented in the draft Governance Action Plan (GAP) submitted to donors at the May 2000 Consultative Group Meeting, provides a comprehensive framework for eliminating the identified bottlenecks and reducing corruption. The GAP calls for broad-based reforms covering: (i) the judicial and legal system; (ii) public finance management; (iii) military demobilization; (iv) administrative reform; (v) specific anti-corruption actions; and (v) strengthening management of land and natural resources. The GAP has been reviewed by line ministries, donors, and NGOs and the final report has been submitted to the Council of Ministers. Upon approval of the GAP, the government will elaborate a comprehensive blueprint providing for specific actions, timing, and financial resource requirements, in consultation with donors. Decisions on Board members to be appointed to the National Audit Authority (NAA) will be finalized and adequate resources provided, to ensure the beginning of operations by end-March 2001. The government also plans to submit revised commercial legislation to the National Assembly. Draft laws on trademarks and commercial enterprises will be submitted by early 2001, draft laws on commercial contracts and arbitration by mid-2001, and draft laws on corporate insolvency and secured transactions by end-2001.

11.  The 2001 budget framework makes further progress toward achieving the government's medium-term fiscal objectives.  The budget is centered on the following objectives: (i) raising revenue to 12.1 percent of GDP, in line with the target of 13 percent of GDP for 2002; (ii) reducing defense and security expenditure from 3.6 percent of GDP in 2000 to 3.1 percent in 2001; (iii) increasing the share of social spending in total expenditure; (iv) providing for rehabilitation from flood damage; and (v) refraining from domestic borrowing. Accordingly, the 2001 current budget surplus is programmed to be 1.4 percent of GDP. The overall fiscal deficit, inclusive of development expenditure, is expected to be contained below 6 percent of GDP. The government will continue small repayments to the banking system, to allow further easing of credit allocation to the private sector. The information system required for proper monitoring of fiscal operations will also be strengthened. To that end, and based on technical assistance to be provided by the IMF, the Ministry of Economy and Finance will report fiscal data to the IMF in accordance with Government Finance Statistics (GFS) standards by end-2001.

12.  The 2001 budget provides for several revenue-enhancing measures. Overall revenue is anticipated to increase by about ½ a percentage point of GDP, largely owing to: (i) the full-year impact of revenue measures introduced in mid-2000 in the context of the first review; and (ii) additional measures included in the 2001 budget.² Furthermore, efforts to upgrade tax and customs administrations will continue, in particular through technical assistance provided under the Technical Cooperation Action Plan (TCAP). To broaden the tax base further, the government intends to submit a revised Law on Investment to the National Assembly (as agreed under the World Bank SAC) by end-February 2001 that will, among other things, subject all imports for approved projects to a minimum import duty rate. The policy of auctioning all new garment quota allocations, with full and timely transfer of all resulting revenue to the budget, will also be maintained.

13.  Efforts to reduce defense and security spending in tandem with raising social expenditure will be continued in 2001. This is largely contingent on the timely implementation of the demobilization program, and improved expenditure management. Total expenditure is expected to increase to 18 percent of GDP, compared with 17½ percent of GDP budgeted in 2000. To meet expenditure requirements and maintain a current budget surplus, current expenditure in 2001 is expected to increase in line with revenue, to 10½ percent of GDP. Despite a rapid response of humanitarian assistance in the wake of the recent heavy flooding, additional current expenditure to cushion the adverse impact on the rural population (amounting to CR 25 billion) has been budgeted for 2001. Overall development expenditure is targeted to rise slightly to 7½ percent of GDP. Within that target, domestically financed capital outlays are expected to increase to 2_ percent of GDP, reflecting increased spending on flood rehabilitation. The efficiency of project implementation and monitoring will be strengthened and scrutiny of procurement standards and practices will be upgraded. The government is fully committed to the avoidance of budgetary payments arrears.

14.  Increased levels and adequate composition of social expenditure are central to ensuring the government's objective of alleviating poverty in the medium term, as set forth in the interim PRSP document. Consistent with the government's commitment under the World Bank's SAC, priority social outlays are targeted to account for 28 percent of total current expenditure in 2001. To that end, the government intends to increase spending for education, health, agriculture, and rural development to 3 percent of GDP. In parallel, ongoing donor-supported programs to improve the efficiency of health and education spending will be strengthened.

15.  As part of the strategy to redirect expenditure toward social needs, the government remains strongly committed to implement the demobilization program, as agreed with international partners. The government, together with donors, will assess the pilot program in the context of a workshop to be completed by end-February 2001. In line with the agreed targets under the demobilization program, and subject to timely funding availability by donors, the discharge of soldiers under the full program will begin by end-May 2001, and at least 10,000 soldiers will be discharged by end-2001.

16.  The government is implementing an administrative reform program aimed at improving the quality of service delivery and strengthening governance. Preparatory efforts for administration reform are being undertaken with a view to designing a strategy by end-March 2001 to rationalize the civil service, in consultation with the World Bank and donors. To validate the recently completed civil service census and ensure the integrity of the payroll, a computerized payroll will be implemented for all central administration employees by end-December 2000 and by end-July 2001 in all provinces. In this context, the computerized payroll has already been used to verify the removal of previously identified "ghost" employees in several ministries, and this process will be continued as the computerized payroll is completed. No additional new hiring will take place until the strategy to rationalize the civil service has been announced, and thereafter all hiring will be monitored through the use of a Human Resource Management Information System (HRMS), as it is developed. To finance potential costs associated with the implementation of civil service rationalization, the 2001 budget provides for specific provisions set under a reserve fund amounting to CR 20 billion. To monitor progress in this area, the government began providing periodical information to the IMF and the World Bank in an agreed format in November 2000.

17.  The monetary program for 2001 is consistent with the objectives for growth and inflation described above. Monetary policy will continue to reflect fiscal restraint and the need to promote private sector activities, while containing any emerging inflationary pressures. The average annual growth rate of currency in circulation is expected to be less than 10 percent, reflecting continued fiscal restraint. The increase in broad money is projected at 24 percent, reflecting a further rise in foreign currency deposits, in line with strengthened public confidence in the banking system. Commercial bank lending to the private sector is projected to increase by 25 percent in 2001, and will remain under close monitoring to help ensure loan quality.

18.  The government will continue to pursue a flexible exchange rate policy. To that end, the National Bank of Cambodia (NBC) will adhere to its current intervention policy of using any increased demand for local currency to bolster international reserves while not resisting downward pressure on the rate except under exceptional circumstances of disorderly market conditions. The official exchange rate is increasingly being set at the level of the market rate with a view to unifying the rate in the future. Any deviations from the market rate would be temporary, and limited to a maximum of one percent.

19.  The agenda of trade reform in connection with Cambodia's participation in the ASEAN free-trade area (AFTA) and accession to the WTO will be continued. In the 2001 budget, the number of tariff bands will be reduced from 12 to 4, and the maximum tariff rate will be lowered to 35 percent. The impact on revenue will be compensated by adjustments in selected excise rates. The reduction in the number of tariff bands and overall duty rates incorporated in the budget is a crucial step toward promoting increased integration in the global economy. Cambodia's application for accession to WTO has been submitted and compliance with WTO requirements will be pursued during 2001. Cambodia's exchange and trade system is free of restrictions on current account transactions. Accordingly, the government intends to accept the obligations of Article VIII in the context of the 2001 Article IV consultation.

20.  In view of Cambodia's limited debt-servicing capacity, the government will maintain a prudent debt management policy and will strengthen debt monitoring capabilities. The government intends to continue efforts to resolve pending debt issues with Paris Club and former CMEA creditors. The government will also refrain from contracting any nonconcessional debt, as defined in the attached technical memorandum. Cambodia has complied with the IMF's initial requirements under the Safeguards Assessment by supplying the requested financial information on the accounts of the NBC for the period 1997-99. The NBC will complete an external audit of its 2000 financial accounts by end-April 2001.

21.  The government will intensify financial sector reform in 2001, with a view to establishing a sound banking system, promoting savings, and increasing the confidence of the public. After announcing final relicensing decisions, the licenses of nonviable banks have been withdrawn and provisional administrators are being placed in banks where necessary to prevent asset stripping and ensure bank liquidation in an orderly manner. Potentially viable banks will be relicensed, subject to the signing of Memoranda of Understanding (MOUs). The MOUs specify the conditions on further capital increases, and compliance with regulatory requirements. NBC will ensure proper monitoring of MOU implementation on a continual basis during 2001, and will prepare monthly progress reports and quarterly reviews of MOUs. Banking supervision capabilities will also be upgraded with technical assistance from the IMF. To establish the ground for a modern payments system, NBC will initiate dollar clearing and settlement in January 2001 and prepare a draft Payments Law by end-June 2001.

22.  As part of bank reform, the Foreign Trade Bank (FTB) will be restructured in 2001 and subsequently privatized. A board of directors has been appointed, and based on the outcome of a recent audit, the FTB will be recapitalized in two stages: (i) the NBC has transferred to the FTB real estate to fulfill the initial capital requirement of CR 10 billion; and (ii) the Ministry of Economy and Finance will issue government bonds to bring FTB's capital up to statutory requirements by end-June 2001. Technical assistance from the IMF will be provided to assist in the design and issuance of capitalization bonds. In preparation for future privatization, the FTB will upgrade its management capabilities, including through recruitment of foreign managers, and will seek private shareholders. In addition to ongoing assistance from the IMF, the government will request assistance from IFC and AsDB to complete the restructuring and privatization process in a timely and orderly manner.

23.  The government will continue strengthening the legal framework supporting forestry activity, complete concession restructuring, review the forestry revenue system and further improve forest crime monitoring. A new draft Forestry Law, aimed at establishing the basis for sustainable forest resource management will be submitted to the National Assembly by end-February 2001. Forest crime monitoring and reporting, and the publication of quarterly reports, will continue in 2001. Remaining forest concessions that have not completed restructuring agreements by end-September 2001 will be cancelled. In the meantime, new cutting permits will be issued only when the required inventory information has been provided, and the annual allowable cuts for all new permits will be reduced by 50-70 percent, until restructured concession agreements have been concluded. Following completion of an industry-sponsored study, the government will complete a review of the forestry revenue system in consultation with the World Bank and IMF staff by end-April 2001.

24.  Efforts to eliminate data shortcomings in key areas of social and economic statistics will be stepped-up with support from the IMF and donors. Highest priority has been granted to strengthening compilation and management of fiscal and balance of payments data. IMF assistance on GFS and balance of payments statistics has already been committed. With the assistance of the technical advisor to the Customs Department, efforts over the next few months will be directed at improving the timely compilation of trade data and developing regular and consistent monthly analysis of customs revenue. Cambodia intends to participate in the IMF's General Data Dissemination System (GDDS), with a view to using GDDS as a framework for statistical development. Actions are under way with donor assistance to establish a comprehensive set of social indicators required for the purpose of monitoring progress in poverty alleviation, as required under the PRSP.

25.  Actions to be taken prior to the IMF Executive Board consideration of the second review and structural performance criteria and benchmarks are contained in the attached Table 2. Quantitative benchmarks through December 2001 include: (i) a ceiling on net domestic assets of the NBC; (ii) a ceiling on net credit to the government from the banking system; (iii) a ceiling on net domestic financing of the budget: (iv) a zero ceiling on publicly-contracted or guaranteed nonconcessional foreign currency loans; and (v) a floor on net official international reserves of the NBC. All quantitative benchmarks for end-March 2001 will be performance criteria. The third review under the program is expected to be completed by end-July 2001, focusing primarily on budget implementation and demobilization, as well as civil service, forestry, and bank reforms.

Table 1. Cambodia: Quantitative Performance Criteria and Benchmarks, 2000-2001
	1999 Stock at End-Dec. Actual		2000 End-Dec Prog.		2001
					End-Mar.1 Prog.		End-June Prog.		End-Sept1 Prog.		End-Dec. Prog.
	(Cumulative change from beginning of year)
Net domestic assets of the banking system    (in billions of riels) 2,3	-719		-142		-43		-107		-98		-91
Net credit to the government from the    banking system (in billions of riels)3	103		-20		-32		-80		-55		-25
Net domestic financing of the budget    (in billions of riels) 3	. . .		-20		-32		-80		-55		-25
Contracting or guaranteeing of external debt       by the public sector 4
Up to one-year maturity5	. . .		0		0		0		0		0
1-5 year's maturity	. . .		0		0		0		0		0
Medium- and long-term non-concessional       debt6	. . .		0		0		0		0		0
External payments arrears7	. . .		0		0		0		0		0
	(Cumulative change from beginning of year)
Net official international reserves    (in millions of US dollars) 8	349		56		7		20		27		40
	(Cumulative flows from beginning of year)
Memorandum items:
Nonproject budget support    (in millions of U.S. dollars)	. . .		30		5		15		20		30
	(Stock at end of period)
Net domestic assets of the banking system    (in billions of riels)	-719		-861		-904		-968		-959		-952
Net credit to the government from the banking    system (in billions of riels)	103		83		51		3		28		58
Net official international reserves    (in millions of U.S. dollars) 8	349		405		412		425		432		445
Sources: Data provided by the Cambodian authorities; and Fund staff estimates. 1Performance criteria. 2Net domestic assets are defined as reserve money minus net foreign assets of the central bank, adjusted for valuation changes arising from the difference between 3For purposes of verifying compliance with the program, the ceiling for net domestic assets, net credit to the government from the central bank, and net domestic financing of the budget will be adjusted upward (downward) by shortfall (excess) in external nonproject budget support from the program estimates. The adjustments for shortfalls in nonproject budget support will not exceed US$10 million. 4Maturity based on original contract. 5Ceiling applies to amount outstanding. Excludes normal import-related credit and any borrowing associated with debt rescheduling. 6Excludes amounts contracted under the government loan agreement with China dated July 26, 2000 for a maximum loan amount equivalent to US$12 million. 7Continuous performance criterion. 8For purposes of verifying compliance with the program, the floor on net official international reserves was adjusted downward (upward) by any shortfalls (excess) in external nonproject budget support for the program estimates. The adjustments for shortfalls in budget will not exceed US$10 million. Valuation effects on the stock of gold holdings are excluded, and gold holdings in 2000 will be evaluated at the end-December 1999 gold price and gold holdings in 2001at the end-December gold price. 9Net international reserves for 2000 will be evaluated at the end-December 1999 gold price and for 2001 at the end-December 2000 gold price.

 

Table 2. Cambodia: Key Structural Policy Actions for 2000-2001
Policy Action	Program Monitoring
I. Prior Actions for Completing the Second Review 1. Submission of 2001 budget to the National Assembly according to the agreed framework and with the tariff reforms and new tax measures as described in the MEFP. 2. Timely transfer to the budget of revenue from ticket sales at the Angkor Temple Complex according to the terms of the revised contract of September 1, 2000 3. Complete evaluation of all remaining banks that have reapplied for a banking license, and announce relicensing decisions. 4. Award banking license and provide initial capital injection to the Foreign Trade Bank. 5. Preparation of a financial and technical assessment of the pilot demobilization program. 6. Using the computerized payroll for the central administration, verify that "ghost" employees and other irregular cases were removed as directed by the August 15 subdecree. II. Key Structural Policies for 2001 1. Financial Sector Development     a. Begin dollar clearing and settlement service by end-January 2001.     b. First quarterly review of performance of relicensed banks against         their by end-April 2001.     c. Appoint outside directors and prepare an updated business plan         outlining commercial prospects of FTB by end-June 2001.     d. Complete final recapitalization of FTB by end-June 2001.	Implemented   Implemented Implemented Implemented Implemented Implemented. Removal of irregular cases have been verified using the computerized payroll as it is established.     Structural benchmark   Structural benchmark Structural benchmark Structural performance criterion
2. Tax Administration Submit revised Law on Investment to the National Assembly	Condition for third review
3. Civil Service and Military Reform     a. Complete computerization of the civil service payroll by end-July         2001 and eliminate irregular cases as they arise.     b. Formulate, in consultation with the World Bank, a civil service         reform strategy by end-March 2001.     c. Launch the first phase of military demobilization involving at least         10,000 soldiers by end-May 2001.	Structural benchmark   Structural benchmark   Structural benchmark
4. Forestry     a. Submit a revised Forestry Law to the National Assembly, to         provide a permanent framework for sustainable logging by         end-February 2001.     b. Review timber revenue mechanism based, inter alia, on the results         of an industry-sponsored study, and in consultation with Bank         and Fund staff.     c. Cancel remaining forestry concessionaires that have not completed         restructuring agreements with the government by end-September         2001.	Structural benchmark Condition for third review Structural performance criterion
5. Trade Reform Reduce the average tariff rate to below 15 percent in the context of the 2002 budget (i.e. by end-November 2001).	Structural benchmark
6. Private Sector Development Submit two draft laws to the National Assembly covering corporate insolvency and secured transactions by end-December 2001. 7. Governance and Financial Transparency     a. Establish and staff the National Audit Authority by end-March         2001.     b. Prepare a comprehensive blueprint in consultation with donors,         outlining specific and financial requirements for implementing the         Governance Action Plan by end-March 2001.	Structural benchmark     Structural benchmark   Structural benchmark

Cambodia: Technical Memorandum of Understanding

This memorandum sets out the understandings between the Cambodian authorities and the IMF staff regarding the definitions of the quantitative performance criteria and benchmarks for the program supported by the Poverty Reduction and Growth Facility (PRGF), and the related reporting system of monetary and financial data.

1.   Net official international reserves of the National Bank of Cambodia (NIR*) is defined as the unencumbered (i.e., readily available) gross official reserves of the National Bank of Cambodia (NBC) less foreign liabilities of the NBC. Under the program, the floor for NIR* will be: (i) decreased (increased) by the amount of a shortfall (excess) in external nonproject support from program estimates--any downward adjustment would not exceed US$10 million; and (ii) decreased by any foreign-currency costs associated with bank restructuring. For purposes of monitoring performance against the program target for NIR, valuation effects on the stock of gold holdings will be excluded, and gold holdings will be evaluated at the gold price in effect on December 31^st of the previous year¹. Similarly, the level of foreign assets and liabilities will be evaluated at the U.S. dollar/SDR exchange rate in effect on December 31^st of the previous year. NIR* data will be transmitted to the IMF weekly with a lag of no more than one week.

2.   Net Domestic Assets of the National Bank of Cambodia (NDA*) are defined as reserve money minus net foreign assets of the NBC, adjusted for valuation changes arising from the difference between the program and the actual exchange rates. The program ceilings for NDA* will be adjusted upward (downward) for any shortfall (excess) in nonproject external budgetary support from program estimates--any upward adjustment will not exceed US$10 million. The ceilings will also be adjusted upward for costs associated with bank restructuring. NDA* data will be transmitted monthly within four weeks.

3.   Net credit to the government from the banking system (NCG) is defined as claims on the government by the banking system less deposits of the government with the banking system. The program ceilings for NCG will be adjusted upward (downward) for any shortfall (excess) in nonproject external budgetary support from program estimates--any upward adjustment would not exceed US$10 million. NCG data (as reflected in the monetary survey) will be transmitted monthly within four weeks.

4.   Net domestic financing of the budget (NDF) is defined as the sum of NCG and any nonbank financing of the government. The program ceilings for NDF will be adjusted upward (downward) for any shortfall (excess) in nonproject external budgetary support from program assumptions--any upward adjustment would not exceed US$10 million. For purposes of program monitoring, actual levels of NDF will not include any flows associated with "outstanding operations" (committed spending that has not yet been executed) or any "exchange rate adjustment" (valuation effects on government deposits from exchange rate fluctuations). Details on all transactions associated with outstanding operations and exchange rate adjustment will be reported at all test dates. For purposes of program monitoring, any accumulation of domestic payments arrears will be included as part of NDF. NDF data (as reflected in the consolidated report on government operations (TOFE) table) will be transmitted monthly within four weeks.

5.   The contracting or guaranteeing of external debt by the public sector is defined as foreign currency borrowing contracted or guaranteed by the public sector in Cambodia with a grant element (NPV discount relative to face value) of less than 35 percent, based on the currency- and maturity-specific discount rates reported by the OECD (commercial interest reference rates). Public sector is defined to include the Royal Government of Cambodia, the NBC, publicly-owned enterprises, or any other agency acting on behalf of the government. The program has ceilings for all borrowing below five years maturity and all nonconcessional borrowing for maturities beyond five years (both ceilings are set at zero). The coverage of debt includes financial leases and other instruments giving rise to external liabilities on nonconcessional terms.² Details on any such borrowing should be reported within three weeks.

6.   External payments arrears are defined as the stock of external arrears on loans contracted or guaranteed by the public sector (as defined above), excluding debts subject to rescheduling or debt forgiveness.

Summary of data reporting requirements