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Democratic Republic of the Congo and the IMF Press Release: IMF Completes First Review of the Democratic Republic of the Congo's PRGF Arrangement and Approves US$36 Million Disbursement March 24, 2003 Country's Policy Intentions Documents Free Email Notification Receive emails when we post new
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Democratic Republic of the Congo—Letter
of Intent, Memorandum on Economic and Financial Policies, and Technical
Memorandum of Understanding
Use the free Adobe Acrobat Reader to view Tables 1-6 (207 kb PDF).
Dear Mr. Köhler: 1. On June 12, 2002, the IMF Executive Board approved a three-year arrangement for the Democratic Republic of the Congo (DRC) under the Poverty Reduction and Growth Facility (PRGF). This arrangement was designed to support the Government Economic Program (PEG) for the period April 1, 2002 - July 31, 2005. In accordance with this arrangement, the government of the DRC carried out, together with an IMF mission, the first program review covering the period April 1, 2002 to September 30, 2002. This review examined program execution during this period, as well as the outlook for, and the economic and financial measures to be implemented during, the remainder of 2002. The review also covered the prospects for 2003, and, specifically, the preparation of the 2003 budget and its main aggregates. The government of the DRC remains determined to implement the policies and measures described in the interim poverty reduction strategy paper (I-PRSP) and the memorandum attached to this letter, which supplements its letter of April 13, 2002. 2. We are pleased to note the generally satisfactory execution of the PEG during the first six months of its implementation, but we are aware that further efforts continue to be needed in several areas, in particular with regard to better control of public spending, as well as to the implementation of transparent accounting standards at the Central Bank of the Congo (BCC), the fight against corruption, and the promotion of good governance. Furthermore, we will strenghten the far-reaching structural and sectoral reforms that are in progress to create an outward-oriented environment conducive to sustainable economic growth and the promotion of poverty reduction throughout the country. 3. During the first nine months of this year, annualized inflation fell to 11 percent, compared with 135 percent in 2001. After 13 years of decline, economic growth is rebounding. Despite these encouraging results, we recognize the urgent need to further stabilize our macroeconomic environment, and to avoid any fiscal or monetary slippage that could jeopardize the results of the efforts and sacrifices made by the Congolese people over the last 18 months in extremely difficult circumstances—first, under the enhanced interim program, which ended at end-March 2002, and currently under the PEG. We are pleased to note that our efforts to strengthen the peace process are leading to lasting peace and the formation of an all-inclusive national government. The year 2003 will, therefore, be the year in which peace returns and our country is reunified, which, in turn, will pose new challenges to the government. We propose a "pro-poor" budget for 2003, with an increase in social and infrastructure spending to address the concerns of the people. We are determined to prepare free and transparent elections after a two-year transition period, while vigorously pursuing our efforts toward economic and financial rehabilitation and adjustment. 4. The review of the quantitative performance criteria at end-September 2002 shows that one out of the nine criteria of the program was not observed, namely the ceiling on net domestic assets of the central bank. With regard to the three structural performance criteria, the BCC audit has been carried out, the list of public commercial banks to be liquidated, privatized, or restructured has been drawn up, and the process of putting the Nouvelle Banque de Kinshasa (NBK) and the Banque de Crédit Agricole (BCA) into liquidation has started. The government has decided to consider the case of Banque Congolaise du Commerce Extérieur (BCCE) in more detail without calling into question the principle of putting it into liquidation in its present form, and a decision will be made by end-January 2003. The Code of Ethics and Good Conduct, which is to apply without exception to the entire civil service, was published a little over a month late as it was necessary to reach a broad consensus on it. The two structural benchmarks at end-September 2002 were met, namely the preparation of an overall strategy and an action plan for combating corruption, and the completion of the formulation of a strategy for restructuring the mining company (GECAMINES). In spite of these good results, we are aware that additional efforts are required to improve expenditure management and control so as to increase the share of social and investment expenditure. In addition, there has been an accumulation of payments arrears on utility outlays. Finally, the net financial position of the central bank has continued to deteriorate. We have implemented additional measures to correct these slippages. Taking into account the corrective measures that are described in the attached memorandum, the government solicits waivers from the IMF Executive Board for the nonobservance of the one quantitative and two structural performance criteria mentioned above. 5. We would like to express our gratitude to the entire international community, and the Fund in particular, for the support and show of confidence in our country demonstrated by the normalization of our relations, specifically with multilateral creditors and bilateral creditors of the Paris Club. We hope that the government's determination and its firm resolution to rigorously implement our wide-ranging program, supported by the PRGF, will enable our country to benefit from additional debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in the first quarter of 2003. We also hope that the external financing of the priority investment projects and programs in the social sectors and infrastructure, defined in cooperation with World Bank staff, will be disbursed without further delay. Indeed, resumption of growth and poverty reduction could be seriously jeopardized unless these investment projects and programs are implemented in a timely manner. 6. The government will submit all the information requested by the Fund on the progress in implementing its financial and economic policies, and the attainment of its program targets, as described in the attached memorandum of economic and financial policies (MEFP) and the technical memorandum of understanding (TMU). As in the past, the government authorizes the publication of this letter, the MEFP attached to this letter, and the associated IMF staff report. In addition, the DRC will undertake with the IMF the second six-monthly review of its economic program supported by the PRGF, which should be completed by the Fund by July 15, 2003, at the latest. 7. The government of the DRC considers that the policies and measures set out in the attached memorandum are adequate to achieve its program objectives. The government is prepared to take any further measures that may be necessary to this end. Moreover, the government pledges to consult the IMF, whether on its own initiative or upon your request, on the adoption of any measures that may prove necessary. 8. I would like to take this opportunity to let you know that the Fund's assistance over nearly two years has been a key factor in consolidating the peace process in my country and in the Great Lakes region. Sincerely yours,
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Memorandum on Economic and Financial Policies for 2002-03Kinshasa, February 3, 2003 I. Introduction 1. The Democratic Republic of the Congo (DRC) is going through a critical period in its history, both politically and economically. On the political side, peace agreements were signed with Rwanda in July and Uganda in September, and these countries have all but completed the withdrawal of their troops from the DRC. The same is true for Angola, while Namibia and Zimbabwe have completely withdrawn their troops. Within the framework of the inter-Congolese dialogue, an agreement was signed in Pretoria (South Africa) on December 17, 2002 that paves the way for the formation of a transition government of national unity, expected to be appointed soon. Work is near completion on a new constitution, and free, transparent elections are to be held after a two-year transition period. Meanwhile, the third phase of the operations of the United Nations Organization Mission in the Democratic Republic of the Congo (MONUC) continues, and the multicountry program for the demobilization and reintegration of combatants (MDRP) will be gradually put into place, mainly with help from the World Bank and the United Nations (UN). All parties to the inter-Congolese dialogue held in Sun City, South Africa supported the government's economic and poverty reduction strategies. 2. On the economic side, the implementation of our Fund staff-monitored enhanced interim program during the period June 2001-March 2002 marked a genuine turning point in the conduct of our country's economic and financial policies. Remarkable results have been achieved, especially in eliminating hyperinflation and stabilizing the exchange rate following the introduction of a floating exchange rate regime in May 2001. We have been able to stabilize the macroeconomic situation by introducing wide-ranging measures. Considerable progress was made in the area of fiscal consolidation, in particular through the gradual centralization of budgetary resources and a return to regular budgetary procedures. However, much remains to be done in this area. 3. Important structural measures have been implemented, resulting in the elimination of serious distortions (in particular, the elimination of multiple exchange rates) and the liberalization of the prices of goods, including petroleum product imports, as well as the establishment of a mechanism for the automatic and transparent adjustment of the prices of these imports. These measures also included the adoption of new exchange regulations, a new banking law, a new charter for the Central Bank of the Congo (BCC) enshrining its independence in the conduct of monetary policy, a new investment code, the abolition of the monopoly on diamond exports and the introduction of certificates of origin, and the replacement of special military courts for economic and financial affairs with commercial courts. Based on these results, it has been possible to lay the groundwork for the introduction of the Government Economic Program (PEG), supported by an arrangement under the IMF's Poverty Reduction and Growth Facility (PRGF). II. PEG Implementation During the Period April-September 2002, and Outlook and Policies for the rest of 2002 4. We are pleased to note that implementation of the program was generally satisfactory during the period April-September 2002, with a notable deepening of ongoing structural and sectoral reforms, and we feel that the overall objectives for end-2002 can, by and large, be met. We are, however, aware that additional efforts are necessary, in particular to increase revenue mobilization, improve the control and composition of government expenditure, and establish transparent accounting standards for the banking system, including the BCC. In particular, the BCC has started implementing an action plan, defined with technical assistance from the IMF, to ensure more efficient and transparent management. Additional measures, which have been defined with the help of an international auditing firm, were incorporated in the plan in December 2002. 5. Estimates drawn up on the basis of still partial information show a resumption of economic growth, such that we expect to achieve the program target of 3 percent in 2002, after 13 years of negative growth. All sectors should record an increase, except for manufacturing. Agriculture is expected to achieve a positive growth rate, and the transportation and communication sectors should experience strong growth as a result of the rehabilitation of the national road linking the main seaport of Matadi with Kinshasa. Mobile telephony has expanded enormously, and cement production is rising steadily. Annualized inflation in the first nine months of the year was 11 percent, below the programmed rate of about 13 percent for 2002, plunging from 511 percent in 2000 and 135 percent in 2001. The slowdown of inflation has affected all components of the consumer price index, in particular foodstuffs. However, in light of the acceleration of inflation in October and November 2002, including a rise in the prices of petroleum products, the year-end rate of inflation can be expected to reach about 18 percent (Table 1). In addition, the exchange rate depreciated by 27 percent through end-November 2002. We are pleased to note that hyperinflation has been broken, and that economic growth has resumed. This encourages us to redouble our efforts to consolidate and improve these results. The acceleration of inflation and the depreciation of the Congo franc (CGF) could well indicate slippages in government expenditure (including that of the BCC) financed by money creation. As described below, we have taken steps to correct these slippages. 6. On the fiscal side, the government met its overall objectives at end-September 2002 and expects to meet them for the year as a whole. Total government revenue (excluding grants) far surpassed expectations, exceeding the programmed objective by 10 percent at end-September, partly owing to petroleum revenue, a portion of which was received in advance. The increase in petroleum revenue could have been even higher if the retail prices for petroleum products had been raised according to the automatic adjustment mechanism for fixing such prices, as envisaged in the program. However, for a transitional period, the government has decided to lower the share of quasi taxation of petroleum in the price structure. Total expenditure (excluding the net financial position of the BCC) was much lower than programmed. As a result, the domestic primary balance (cash basis) shows a surplus representing 1.2 percent of annual GDP, compared with the 0.7 percent programmed for end-September 2002. Similarly, the overall balance (nonconsolidated) on a cash basis shows a surplus equal to 0.6 percent of annual GDP, compared with a programmed deficit of 0.1 percent. These results can be attributed to the introduction of the programmed measures to mobilize and centralize revenue and gradually achieve expenditure control, as well as the execution of a monthly cash-flow plan. However, it must be noted that, despite the presidential decree of April 12, 2002 prohibiting expenditure financed directly by the BCC without the prior authorization of the Ministry of Finance, and contrary to the program, such expenditure has continued. This expenditure, which is regularized ex post and is partially linked to the peace process, security expenditure, and the payment of compensation related to the abolition of the monopoly on diamond exports previously held by a foreign company, continued between April and September 2002 and reached nearly 10 percent of total expenditure at end-September 2002 (0.5 percent of GDP). Moreover, arrears have accumulated on the payment of utility outlays (water, electricity, and telephone). Finally, by end-September 2002, the BCC's net financial position had worsened more than expected, representing 0.5 percent of annual GDP, compared with the expected 0.2 percent. Despite these slippages, the consolidated overall balance (cash basis) recorded a surplus equal to 0.1 percent of annual GDP, instead of a deficit of 0.3 percent. Given that net disbursements of budgetary assistance (excluding projects) from the World Bank were larger than expected and despite a higher net redemption of certificates of deposit, net credit to the government was much lower than programmed. 7. During our country's transition to lasting peace, we have had to commit to extraordinary spending, in particular to ensure territorial security. Accordingly, although the overall objectives were achieved at end-September 2002, the planned expenditure composition was not. For instance, social expenditure and infrastructure expenditure each represented only 7 percent of primary expenditure at end-September 2002, whereas the objectives for the entire year were 15 percent and 12 percent, respectively. By contrast, defense-, security-, and sovereignty-related expenditure (including that related to the peace process) represented 50 percent of primary expenditure at end-September, compared with 23.5 percent programmed for the year. The wage bill was as programmed, but, contrary to the program, the elimination of the fictitious workers identified in the internal audit carried out in 2001 did not take place, and there was a substantial increase in wages of the police and the military. Externally financed investment fell well below expectations, amounting to 0.2 percent of GDP compared with the 1 percent programmed at end-September 2002, owing to disbursement delays (grants and loans). Finally, contingent social expenditure tied to net external financing also was not made. 8. As programmed, cash-flow management improved, with technical assistance from the IMF, through the gradual centralization of revenue and expenditure under the control of the Treasury. In this regard, (a) all receipts are deposited in the Treasury's account at the BCC, (b) the bank accounts into which public enterprises' contributions to the Treasury were deposited have been closed; (c) revenue collected from direct and quasi-taxation of petroleum (except the portion that is being offset against the consumption of petroleum products by the Defense Administration and the Office of the President) is deposited directly into the Treasury's account at the BCC; (d) all revenue from mining taxation (except for GECAMINES), including goodwill payments (versements de `pas de porte'), are deposited into a subaccount of the Treasury's account at the BCC; and (e) a presidential decree was published in April 2002, announcing that extrabudgetary expenditure was no longer permitted and that all expenditure, without exception, must be approved by the Ministry of Finance. However, as stated above, this decree has not been fully observed. Compliance with the monthly cash-flow plan has been facilitated by the regular updating of an expenditure commitment plan defining the budget envelopes allocated to the ministries. 9. On the revenue side, and with technical assistance from the IMF, the following actions are being taken, at times with some delay compared with the program because of our still-limited administrative capability: (a) the Large Enterprises Directorate within the General Directorate of Taxes (DGC) will be operational in February 2003; (b) the introduction of a single DGC/General Customs Office (OFIDA) identification number for large enterprises will become effective in February 2003, to be gradually extended in 2003 to include all taxpayers; (c) the reform of the procedures for controlling and monitoring disputes between taxpayers and the DGC has been prepared and will be introduced in February 2003; (d) the management information system set up to monitor OFIDA activity is now in operation; (e) the automated system for customs data (ASYCUDA) is being implemented, and a "one-stop shop" will be created by March 2003 in the main port of Matadi; (f) permanent verification of direct and quasi-taxation of petroleum products has been established to ensure the systematic tracking of physical quantities actually imported; (g) strict control of exemptions and special arrangements (transits and emergency removal from bond) is gradually being implemented; (h) a plan to simplify and reduce the number of taxes falling under the authority of the General Directorate of Administrative and State Revenue (DGRAD) has been drawn up and will be implemented during 2003; (i) the new system for collecting duties and taxes without revenue stamps has been established, and the administrative procedures for taxpayers are being simplified; and (j) the internal management of the revenue-collection agencies has been consolidated through a clear delineation of the responsibilities of their new managers. Finally, as part of the ongoing modernization of the tax system, preparatory steps will be taken in 2003 for the introduction of the value-added tax (VAT) in 2004. 10. Based on developments through end-September, and given the preliminary results achieved in October, we feel that the overall fiscal objectives for 2002 can be met. However, we have decided to freeze until year's-end all operating expenditure (including mission costs), except for minimal allocations for operations. In addition, apart from the measures to mobilize revenue and improve expenditure control described above, the government has decided to implement the following measures: (a) a petroleum price increase of 18 percent (11 percentage points of which were realized on November 9, 2002) resulting from the application of the automatic price adjustment mechanism, which will allow for an increase in quasi-taxation to the desired level in early 2003; (b) elimination as soon as possible-after verification-of the 21,000 fictitious workers on the payroll; (c) an immediate halt to all extrabudgetary expenditure, including extrabudgetary expenditure financed by the BCC; (d) elimination of the offsetting of quasi taxation on petroleum products for the Defense Administration and the Office of the President as of January 2003; and, similarly, the taxes payable by GECAMINES will henceforth be directly deposited into the Treasury's general account at the BCC; and (e) better management of the BCC, including its mission costs. On an annual basis, these measures are expected to improve revenue by 0.6 percent of GDP and reduce expenditure by 0.3 percent. With these measures, the domestic primary balance (cash basis) should show a surplus of 1.4 percent of GDP at end-December 2002, compared with 0.9 percent in the program, and the overall consolidated balance (cash basis) should show near balance instead of the programmed deficit of 0.4 percent of GDP (Table 2). Monetary policy 11. In the area of monetary policy, the BCC has lowered its refinancing rate to take account of the significant slowdown in inflation. The refinancing rate thus dropped from 39 percent to 12 percent in May, while the monthly interest rate on certificates of deposit fell from 3 percent to 0.7 percent at the same time. The outstanding amount of these certificates dropped considerably to about CGF 1.7 billion at end-September 2002, compared with CGF 7.7 billion at end-December 2001. Based on the monetary survey, adjusted to take into account the recommendations of the financial audit of the BCC by an international firm, broad money grew by 19 percent, compared with 26 percent in the program, while the share of bank deposits (denominated in domestic and foreign currency) declined steadily as a result of continued low confidence in the banking system. Net credit to the government, compared with the beginning-of-period money stock, shrank by 29 percent, instead of 8 percent as programmed. Net credit to the private sector and to public enterprises declined slightly, compared with an increase of 6 percent in the program, while the net foreign assets of the BCC increased by more than expected. 12. For the whole of 2002, money supply is expected to increase by 22 percent, compared with 35 percent in the program. Net credit to the government should fall by 18 percent, compared with 6 percent in the program. The quantitative benchmarks for end-December 2002 were revised to take account of recent developments and now constitute a more appropriate basis for monetary programming in 2003. 13. The government is aware that an effective financial sector must have an appropriate legal, institutional, regulatory, and operational framework, as well as sound financial institutions operating in a stable macroeconomic framework. On the institutional level, the financial audit of the BCC by an international firm and an internal management audit by BCC staff have been completed, and efforts are under way to correct the shortcomings highlighted by these audits. In particular, an Accounts Reconciliation Committee (CAC) has been formed at the BCC to follow up on the recommendations made by the external auditors and by IMF technical assistance missions, and the operations of the Internal Audit Department have also been strengthened. The CAC is made up of senior staff from several BCC directorates, and its work has led, in particular, to the clarification of "other items, net" in the BCC balance sheet, which used to be a source of uncertainty about the nature of the central bank's operations. An audit charter defining the audit function, its objectives, its powers, and its operational methods has already been drafted. The Internal Audit Department is expected to amend the BCC multiyear audit plan to take account of the various recommendations made by IMF staff and the international audit firm. To correct the serious lapses in the BCC's accounting, internal control, and reporting systems, terms of reference have been drawn up by an international audit firm for an overall reform of these systems, with the aim of adopting the international standards that apply to these areas. In the short term, the BCC intends to continue working, with technical assistance from the IMF, to strengthen these accounting and internal control procedures, and to continue improving the quality of the financial reporting necessary for monitoring the program. 14. On the operational side, several IMF missions have provided technical assistance to the BCC in the areas of monetary policy and foreign exchange operations (including the management of international reserves). In a context where bank money plays almost no role, the BCC has focused on managing the supply of banknotes so as to achieve the objective of monetary stability. Also, a joint committee (BCC and Ministry of Finance) has been formed to improve the management of the government's financial flows and facilitate coordination between the BCC and the Ministry of Finance. The BCC is aware, however, that a return to monetary policy focusing on base money will require fungibility between banknotes and the deposit money on its books. Concerning the exchange and payments system, the new arrangements adopted in early 2001 to liberalize financial transactions with the rest of the world and the holding of foreign currency have led to an increase in foreign currency transactions. Exchange bureaus have been licensed, and the exchange market is functioning satisfactorily; in particular, the difference between exchange rates in the formal and informal markets has on average been less than 2 percent. However, shortcomings have been found in the BCC's management of its foreign exchange holdings. In addition to receiving technical assistance from IMF staff, the BCC has started collaborating with the Bank of Central African States (BEAC), in order to benefit from the latter's recent experience in the reform of this function. Balance of payments and external debt 15. On the external side, in light of developments through end-September 2002, including the external debt consolidation agreement with the Paris Club and an update of external assistance, the current account (including grants, before debt relief) is expected to show a deficit representing 3.2 percent of GDP for 2002, lower than the programmed 3.7 percent. The overall balance of payments is expected to show a deficit of US$39 million. Total external debt is estimated at US$13.9 billion at end-December 2001, and external debt service after the Paris Club rescheduling is estimated at 3.5 percent of exports of goods and nonfactor services. A comprehensive debt sustainability analysis is being finalized on the basis of the completed reconciliation of the DRC's external debt statistics with Paris Club and multilateral creditors. The government has set itself a January 2003 deadline for concluding bilateral agreements with these creditors and with other multilateral creditors. 16. In the area of international trade, the government has had to take temporary restrictive quantitative measures to deal with the dumping of certain textile products (printed fabric). It plans to raise the matter with the World Trade Organization. In addition, the government received recommendations from the IMF technical assistance mission on acceptance of the obligations under Article VIII, Sections 2 (a), 3, and 4 of the IMF's Articles of Agreement. The government will take the measures necessary to eliminate the restrictions that were identified so as to observe the above-mentioned Article VIII obligations before the completion of the first review under the PRGF arrangement. Structural and sectoral reforms 17. The government is implementing a set of wide-ranging structural reforms, with a view to creating an environment conducive to private sector activity and economic recovery. With assistance from the World Bank, the scope of the reforms encompasses public enterprises, the financial sector, mining, and the rehabilitation of key infrastructure (transportation, water and electricity, the sanitation system, urban and rural development, and the environment), the social sectors (education, health, social security, and community development), agriculture, forestry, and institutional capacity building. 18. Mining sector. The new mining code was published on July 11, 2002, following its approval by parliament. At the same time, the drafting of mining regulations progressed swiftly, and a workshop was held in December 2002 with representatives of national and international operators, with a view to finalizing the regulations. Similarly, decrees have been drafted, establishing (a) the mining cadastre, and (b) the mining rights validation commission, and the aim is to publish these documents by end-March 2003. Preparatory work is ongoing for the restructuring of GECAMINES and, in particular, the program for the voluntary separation of about 11,000 staff, the cost of which will be financed with support from the World Bank. GECAMINES's management and employee representatives have agreed to the voluntary separation program. The audits necessary for drafting the overall strategy for the restructuring of GECAMINES began in November 2002, after delays in selecting consultants. An environmental mining audit began in September 2002, and a first report was received at end-October. 19. Forestry sector. Since March 2002, the government has reviewed forestry concessions and revoked 143 of them, covering a total of 25 million hectares, for noncompliance with contractual obligations. In April, a moratorium was placed on issuing new concessions until the introduction of new award procedures described in the new forestry code. This code was published on August 29, 2002. The main implementing regulations are being prepared. 20. In addition, in April 2002 the Ministry of Environment and the Ministry of Finance signed a Joint Order increasing the area tax (taxe de superficie) from its current annual level per hectare of US$0.0014 to US$0.50 with effect from January 1, 2003. This measure is aimed at (a) encouraging operators who obtained concessions outside the official bidding process with neither the ability nor the intention to use them to return the concessions to the government; and (b) reallocating these concessions by means of the bidding procedures described in the code. This will result in a more effective use of forest resources and an increase in forestry revenue payable to the central and local governments. The Joint Order was cleared by the Office of the President and entered into force on January 1, 2003. This reform is supported by the World Bank. 21. Public enterprise sector. The presidential decree creating the Steering Committee on the Reform of Public Enterprises (COPIREP) was published on October 30, 2002. The process of selecting personnel for the executive secretariat through national bidding procedures has already started. The sectoral groups responsible for drafting reform strategies for enterprises in the telecommunications and transportation sectors have begun their work and have, in some cases, handed in their reports. The operational and functional audits of public enterprises began in November 2002. The consultants for the audit of the domestic cross debts between the public enterprises and the government were selected in December 2002. 22. Governance and anticorruption action. The government continues to stress the promotion of good governance and anticorruption measures. To this end, the Commission for Action Against Corruption, Fraud, Contraband, and the Counterfeiting of Money and Trademarks was created in August 2002. The Ministry of Planning and Reconstruction and the Ministry of Finance organized workshops and seminars in September 2002, including two with the support of the World Bank Institute. The result was an anticorruption strategy and an anticorruption action plan, which were adopted by the Interministerial Committee for the Implementation of a Poverty Reduction Strategy and the Council of Ministers in November. Moreover, the Code of Ethics and Good Conduct for Public Employees was published in November 2002. In addition, certain high-level directors in the government and financial institutions were replaced following the financial audits carried out in the context of the government's reform program. 23. Poverty reduction strategy. Since its adoption in June 2002, the government has had the interim poverty reduction strategy paper (I-PRSP) translated into four national languages, so as to ensure the broadest possible access to it. A National Survey on Poverty has been under preparation since June 2002, using a methodology based on the collection of data through discussions in "target groups" drawn from a sample of villages and urban areas. A test of the methodology and of the questionnaire began in early November and will be completed by end-February 2003. In a country such as the DRC, which is emerging from war, this methodology is more suitable and, above all, quicker than a survey on the living conditions of households. A survey of this type will facilitate the measurement of poverty against specific physical criteria (e.g. distance from schools, health centers, and wells). III. Policies and Measures for 2003 24. To consolidate macroeconomic stability and promote sustainable growth, the government will continue to apply a monetary policy aimed primarily at price stability and a prudent fiscal policy with a "pro-poor" budget and an appropriate expenditure structure. Structural and sectoral reforms will be deepened, with special emphasis on the effective introduction of good governance and action against corruption and money laundering. Economic growth would be boosted by rehabilitation and reconstruction investment within the framework of the World Bank's Emergency Multisector Rehabilitation and Reconstruction Program (EMRRP), and by the introduction of sectoral strategies with World Bank assistance. 25. In keeping with the medium-term macroeconomic framework, which was revised to take account of the estimates of the impact of the country's reunification, external debt service following the Paris Club agreement in September 2002, and expected external assistance, we have adopted the following preliminary objectives for 2003: (a) a growth rate of 5 percent, (b) an annual average inflation rate of 13 percent, and (c) an external current account deficit (including grants, before debt relief) of 5.0 percent of GDP, linked to a strong recovery of investment financed by international assistance. These objectives will be finalized during the second review of our program by Fund staff. We plan to take stock, with the help of the international community and especially the World Bank, of the situation in the provinces that are to revert to government control, to get a better idea of the actual situation and better prepare for reunification. 26. Fiscal consolidation will continue to be a pillar of the government's economic and financial policies in 2003. The 2003 budget will be approved by parliament in early 2003 and will include the broad aggregates on which we have reached understandings with Fund staff. The 2003 budget will be the subject of the second PEG review with Fund staff. We are considering submission of a supplementary budget to parliament in 2003, to take full account of the impact of reunification, the civil service staffing census, the implementation of the regional demobilization and reintegration program and its effect on the staffing cuts expected from our national army, the cost of restructuring public enterprises, the establishment of a timetable for the gradual settlement of the cross arrears on domestic payments that will be certified with World Bank support, and the updating of the external debt sustainability analysis. The expenditure allocations for occupied provinces earmarked in the 2003 Budget Law (in particular, wages) will not be released until they are verified after the country's effective reunification. We will ensure that the supplementary budget is in accordance with the objectives of our program and that it is discussed with Fund staff before it is debated by the Council of Ministers. 27. The domestic primary balance (cash basis) will show a surplus of 2.1 percent of GDP in 2003, and consolidated government operations, including the net balance of the BCC's operations, which will not exceed CGF 8.5 billion or 0.4 percent of GDP, should show an overall consolidated deficit (cash basis, before debt rescheduling) of 5.3 percent of GDP. Total revenue (excluding grants) is expected to reach 8.3 percent of GDP, and total expenditure (on a commitment basis) 16.8 percent of GDP, as a result of the resumption of largely externally financed investment, and external debt servicing. To achieve this, we will take additional measures to cut nonpriority expenditure and mobilize revenue. 28. On the expenditure side, extrabudgetary spending will be eliminated. In particular, the BCC will no longer finance expenditure of the government that is not authorized in advance by the Ministry of Finance (a continuous performance criterion under the program). The overall wage bill increase will not exceed 35 percent (including the costs of reunification and a voluntary retirement program), while the wage bill increase for the army and police will be limited to 8 percent, as part of the continued effort to achieve parity with civil service wages. In addition, the civil service staffing census, expected to start—unfortunately with some delay—in February 2003 with support from Belgium and the United Nations Development Program (UNDP), will help eliminate all identified fictitious workers. A study on overall civil service reform is also under way, having started in two pilot ministries (the Ministry of Civil Service and the Ministry of Finance). In addition, coordination between the Ministries of Civil Service and Finance will be improved through regular meetings of the committee created to improve payroll monitoring and the effective establishment of a central database, which will be updated regularly. Finally, some of the employees (about 35,000 persons) who have already passed retirement age will be placed on retirement for which financing is being solicited from the World Bank. 29. Utility outlays will be audited within the framework of the reform of public enterprises and the analysis of domestic debt, with World Bank assistance. On that basis, the budget allocation will be adjusted in the supplementary budget, and an action plan will be formulated by end-March 2003 to improve control of these expenditures. The introduction of a new expenditure classification at end-December 2002, to be followed by the introduction of new expenditure recording procedures in March 2003, with technical assistance from the IMF, should help in tracking these expenditures. Thus, expenditure traceability and tracking will be strengthened. 30. The share of social and infrastructure expenditure will increase considerably and will reflect the recommendations of the public expenditure review (PER) that was carried out with the World Bank. Operations related to the HIPC Initiative, for which the preliminary amount identified totals CGF12 billion (0.5 percent of GDP), could be budgeted in the first quarter of 2003. The resources released by the Initiative will be deposited in a special account maintained at the BCC and will be used to finance poverty reduction expenditure, in accordance with I-PRSP guidelines. Generally speaking, the 2003 budget should clearly identify all poverty reduction expenditure, regardless of how it is financed. Tracking the execution of this expenditure will be facilitated by the introduction of the above-mentioned new classification. In light of the transparency requirements under the HIPC Initiative, the introduction of the new expenditure recording procedures should facilitate their detailed monitoring. To that end, an advisory committee to monitor pro-poor expenditure will be formed by end-March 2003. The technical ministries concerned will monitor the execution of social and infrastructure expenditure, while World Bank staff will assist in ensuring coordination with sectoral policies. This monitoring will be enhanced by half-yearly progress reports and audits that will be centralized in the Ministry of Planning and Reconstruction and the Ministry of Finance, with the help of the Central Coordination Office (BCECO) and World Bank staff. Finally, it is expected that the 2001 budget will be audited by the General Accounting Office (Cour des Comptes) before March 2003, and the 2002 budget before end-December 2003. Measures will be taken to strengthen the General Inspectorate of Finance. 31. On the revenue side, mobilization efforts will continue, based on IMF recommendations and with IMF technical assistance, in particular with the actual establishment and strengthening of the Large Enterprises Directorate (DGE) and implementation of the plan to modernize the customs administration (OFIDA), which should become operational by March 2003. A tariff reform will be put into place in 2003, with steps taken to ensure that its impact on revenue is at least neutral. 32. Monetary policy. The government will pursue a monetary policy aimed at price stability in the context of a floating exchange rate regime. To this end, broad money is expected to increase by 17 percent (or slightly less than the nominal GDP growth rate). Since the BCC will make no further advances to the government (in observance of the BCC charter), net banking system credit to the government will not increase. Credit to the private sector and to public enterprises is expected to grow by 8 percent and 0.2 percent in terms of beginning-of-period money stock, respectively. It is anticipated that the net foreign assets of the BCC will increase. 33. To facilitate restoration of a normally functioning payments system, the BCC will include in its monetary programming liquidity injections to liquefy the banks' free reserves. Moreover, there will be strict adherence to the government's and the BCC's monthly cash-flow plans within the monetary programming framework. In this regard, the BCC reaffirms its commitment to observe the presidential decree of April 2002 and thus to no longer finance expenditure not first authorized by the Ministry of Finance. In October 2002, the BCC ceased purchasing in the market Congo franc banknotes and foreign exchange at a premium against payment in bank money, and it undertakes not to engage in such operations in the future (a continuous performance criterion). Moreover, tax payments can be made in either currency or bank money from January 1, 2003. 34. The BCC undertakes to strengthen the operational framework of its monetary programming as recommended by IMF technical assistance missions. With the final repayment of the remaining certificates of deposit, the BCC plans to quickly put in place new monetary policy instruments, in coordination with Fund staff. To control liquidity, the BCC intends to regularly issue its own paper (with a maturity of one to four weeks) or engage in short-term (one or two weeks) swaps of foreign currency against Congo francs. Thus, in mid-December 2002, the BCC issued short-term paper (Billets de Trésorerie) with the objective of mopping up the liquidity created by the reimbursement of certificates of deposit. The BCC will ensure that its refinancing rate remains positive in real terms. The BCC is strengthening its financial management and lowering its operating costs. Accordingly, the BCC will strictly execute its cash-flow plan with the aim of narrowing its net financial deficit. Moreover, the BCC will ensure that export proceeds are repatriated within 30 days from the date of shipment of goods, as required by the new exchange regulations. Lastly, to improve fiscal transparency, the BCC and the Ministry of Finance will prepare a list of government bank accounts in the banking system (including those that cover special budgets (budgets pour ordre) that are to be eliminated or transferred to the Treasury's general account. 35. The economic situation in recent years has forced the BCC to carry out its duties in a climate of uncertainty and resource shortages. This has adversely affected its functioning, as evidenced by lapses in its organization and accounting procedures. With the promulgation of the new law enshrining the independence of the central bank, the monetary authority, with IMF technical assistance, has defined an action plan aimed at correcting these weaknesses and thus restoring the BCC's credibility with local and external partners. This broad-based action plan constitutes the basis for fundamental reform at the BCC. Finally, the BCC Board will be appointed by end-January 2003. 36. Certainly, the BCC has little room to maneuver, in sofar as (a) its operating account is structurally in deficit, (b) the resources needed to hire and maintain qualified staff, to print banknotes and to acquire equipment are large, and (c) the reunification of the provinces will imply a further increase in needed resources. The areas in which it is most urgent that capacity be restored are the departments responsible for foreign exchange operations and external relations, accounting, banking supervision, the prevention of money laundering, cash management, and monetary policy instruments. Table 3 summarizes the action plan that the BCC intends to carry out in the coming months. 37. To ensure effective implementation of the action plan, a steering committee (with the participation of the IMF's resident expert) was created in November 2002. Structural and sectoral measures 38. Banking sector. Within the framework of the overall banking sector reform, the government, with World Bank assistance, decided to take the following four measures. First, it will update, by end-March 2003, the already completed audits of four banks, namely, Banque Commerciale du Congo (BCDC), Union des Banques Congolaises (UBC), Banque Internationale de Crédit (BIC), and Stanbic Bank. Second, the government will prepare, by end-March 2003, audits of the three commercial banks that have not yet been audited, namely, Banque de Commerce et de Développement (BCD), Citibank, and Banque Internationale pour l'Afrique au Congo (BIAC). Third, it will close credit institutions deemed to be bankrupt and beyond recovery—this concerns Nouvelle Banque de Kinshasa (NBK) and Banque de Crédit Agricole (BCA), which were placed in liquidation in late September 2002, and Fransabank (Banque Congolaise), whose banking license was revoked in mid-November. The Banque Congolaise du Commerce Extérieur (BCCE), which was also declared bankrupt and excluded from participation in the clearinghouse, will be placed in liquidation in its present form and structure by end-January 2003. Finally, the government will draft and introduce, by end-June 2003, an appropriate recovery plan for the banks that are considered viable on the basis of the audits. 39. Mining sector. In the regulatory area, the government plans in 2003 to pursue and deepen structural and sectoral reforms with the help of the international community, and the World Bank in particular. The new mining regulations are expected to be published by end-February 2003. Voluntary separations at GECAMINES could start on April 1, 2003. To that end, the following measures will be implemented by end-February 2003: (a) formulation and implementation of the procedures for carrying out the voluntary separations program, and (b) establishment of the GECAMINES restructuring committee, which will initially be responsible for overseeing the implementation of the voluntary separations program. The corresponding regulations, and in particular the decree creating the above-mentioned committee, will be promulgated by end-February 2003. As regards the preparation of the overall strategy for restructuring GECAMINES, we expect the preliminary audit to be completed by end-February 2003, so that the strategy can be drawn up and finalized in March 2003. 40. Forestry sector. By end-January 2003, the Ministry of the Environment will publish a decree presenting the official list of existing concessions recognized as valid (about 117) by the government and those that have been revoked. This list will serve as a basis for the establishment of the forestry cadastre mentioned in the forestry code and for collection of the area tax (taxe de superficie), which was increased as of January 1, 2003. By end-February 2003, the Ministry of the Environment and the Ministry of Finance will set up a database and joint management information system to ensure efficient collection of the area tax. Concessions will be revoked in cases of nonpayment of the area tax by end-December 2003. In addition, by end-February 2003, the two ministries will have finalized the terms of reference for the general study on forestry taxation. Finally, by end-March 2003, the Ministry of the Environment will adopt, after taking account of the remarks made by the parties involved and by the World Bank, the main implementing regulations for the forestry code relating to (a) the procedures for awarding concessions, (b) logging rules, (c) verification procedures and the collection of fines, (d) community forests, (e) the creation of the forestry cadastre, and (f) the operating procedures of the National Forestry Fund. 41. In 2003, the government plans to prepare and adopt a new water code (by end-June) and a new energy code (by end-December). An in-depth study of the electricity rates should be completed by end-June, so that the structure of the electricity rates can be streamlined in both local and export markets. The government also intends to undertake rehabilitation investments in 2003, in the context of the emergency program financed by the World Bank (EMRRP). At the same time, a project is under preparation, with World Bank assistance, to increase the export capacity of the National Electricity Corporation (SNEL), especially to South Africa. 42. In the public enterprise sector, COPIREP will become fully operational by April 2003. This will necessitate, in particular, the appointment of a Secretary-General and the completion of the selection of national experts by end-March 2003. The auditor of the petroleum corporation (COHYDRO) has been instructed to submit his report by end-February 2003, and the auditors of the other public enterprises by that date as well. The sectoral study groups will have completed their work by end-March 2003, especially in the transportation, energy, and telecommunications sectors. In addition, a new legal framework is being prepared, governing the operations of public enterprises and the various forms of private sector participation in the public enterprises. The aim is to start preparing reform strategies for all public enterprises by April 2003, in particular for the Compagnie des Hydrocarbures (COHYDRO), the Société Nationale de l'Electricité (SNEL), the Société Nationale des Chemins de Fer du Congo (SNCC), the Office Congolais des Postes des Télécommunications (OCPT), the Lignes Aériennes Congolaises (LAC), and the Régie des Voies Aériennes (RVA). 43. With respect to domestic debt, the reform of public enterprises includes a survey and certification of cross debts between public enterprises and the government, and of government domestic debt to resident creditors, particularly private-sector enterprises. This task consists of two parts: validation of the work already done by OGEDEP for the debt up to December 31, 1997, and validation of the debt up to December 31, 2001. The studies should start soon, and initial results are expected by end-March 2003. 44. Concerning the private sector, a new labor code was adopted by parliament and published in October 2002, but will enter into force only after publication of the implementing decrees, which should be drafted within 12 months, in consultation with World Bank and International Labor Organization (ILO) staff. A review of the taxation of enterprises will be completed by end-March 2003, and on that basis an action plan, including an implementation schedule, will be adopted. A one-stop shop for investors will be set up by end-April 2003 with World Bank assistance. In addition, the government undertakes to eliminate as soon as possible all quasi-taxation that has no legal basis; a presidential decree will be published to this effect. Moreover, no form of contribution, tax, duty, or levy (national or regional) can be created without the approval of the Minister of Finance. Last, the government undertakes to limit the number of agencies involved in audits of taxpayers, in particular of companies, and to increase the transparency of its tax audit procedures. 45. Regarding the recently published Code of Ethics and Good Conduct, it is expected that its implementing regulations will be finalized by end-March 2003. A draft law against corruption, money laundering, and transnational organized crime (action against the financing of terrorism) will be submitted to parliament and published by end-March 2003. The same procedure will be adopted with respect to the Citizen's Handbook (a collection of citizens' rights and obligations). The reform of the public procurement system will be launched by end-March 2003, with World Bank support; the emphasis will be on strengthening the bidding committees. 46. A National Poverty-Monitoring Unit will be set up in February 2003 to track and evaluate the poverty indicators compared with the objectives set out in the I-PRSP. The government, assisted by the international community, plans to launch the National Survey on Poverty as of March 2003, with the aim of completing data collection by end-June 2003 and data analysis by end-October 2003. This survey will be essential for the drafting of the full PRSP, in particular the poverty profile, the priority areas for action and reform, and the quantification of the pertinent programs and projects. IV. Program Monitoring, Prior Actions, and Performance Criteria and Benchmarks 47. The two interministerial committees—the first responsible for monitoring the three-year program supported by the Bretton Woods institutions and chaired by the Minister of Finance, and the second responsible for drawing up the poverty reduction strategy—will continue to monitor closely the implementation of the PEG and the poverty reduction strategy. In addition, information sharing between the BCC and the Ministry of Finance will be improved, and a computer link for data transmission will soon be established between the two institutions to facilitate daily monitoring of the government and BCC cash flow plans. 48. To ensure that the program succeeds fully, the government has already implemented, or will soon implement, the following prior actions: (a) an audit by an international firm, by end-December 2002, of the five performance criteria (net foreign assets of the BCC, net domestic assets of the BCC, net bank credit to the government, BCC credit to non-financial public enterprises, and BCC credit to the non-financial private sector) as of end-September 2002; (b) an 18 percent increase in petroleum product prices, in accordance with the automatic mechanism for fixing these prices; and (c) the opening of a separate account at the Bank for International Settlement (BIS) to deposit the proceeds of IMF drawings; any use of these deposits will be subject to ex ante controls. The adoption by parliament of the 2003 budget, in conformity with the aggregates discussed with Fund staff, is a condition for the completion of the second review of the program. 49. Program execution in 2003 will continue to be monitored with the help of half-yearly reviews, half-yearly performance criteria (March 2003), and quarterly performance benchmarks (June, September, and December 2003). As shown in Table 5, this involves (a) a floor on the net foreign assets of the BCC; (b) a ceiling on the net domestic assets of the BCC; (c) a ceiling on net bank credit to the government; (d) a ceiling on BCC credit to nonfinancial public enterprises; (e) a ceiling on BCC credit to the nonfinancial private sector; (f) a ceiling on new nonconcessional external debt (with a grant element of less than 35 percent) contracted or guaranteed by the government, with maturities of more than one year (excluding the IMF); (g) a ceiling on new nonconcessional external debt with an initial maturity of less than one year, contracted or guaranteed by the government, excluding normal import credits; and (h) no accumulation of arrears on wages (including all forms of compensation) in the civil service (civilian and military) and the BCC. The program contains three continuous performance criteria: (a) the BCC will not finance any government expenditure that has not been authorized in advance by the Ministry of Finance; (b) the BCC will not purchase in the market Congo franc banknotes and foreign currencies at a premium against bank money; and (c) the government will not accumulate external arrears on debt service for which a rescheduling agreement has been concluded with its creditors, or on any new borrowing. In addition, the government intends to maintain SDR8 million in its accounts with the IMF to ensure the regular payment of its obligations to the Fund. 50. The program also includes a structural performance criterion for end-March 2003, namely, the establishment of new public expenditure procedures. Structural performance criteria for end-September and structural benchmarks for 2003 will be defined during the second review of the program. DEMOCRATIC REPUBLIC OF THE CONGO Kinshasa, February 3, 2003 1. This memorandum covers the agreements on monitoring implementation of the program supported by the Poverty Reduction and Growth Facility (PRGF) of the International Monetary Fund (IMF). It establishes the information to be reported and the deadlines for its submission to the IMF staff for program monitoring. It defines the quantitative performance criteria and benchmarks, as well as the structural performance criteria and benchmarks presented in the memorandum on economic and financial policies (MEFP) of the government of the Democratic Republic of the Congo (DRC), which is attached to the letter of February 4, 2003 to the Managing Director of the International Monetary Fund. Monitoring Program Implementation 2. Implementation of the program covering the period April 1, 2002-July 31, 2005 will be monitored on the basis of the performance criteria and benchmarks described in paragraphs 49 and 50 and Tables 5 and 6 of the MEFP of February 3, 2003. Definition of Quantitative Performance Criteria and Indicators 3. The quantitative performance criteria and indicators described in Table 5 of the MEFP are as follows: (a) floor on net foreign assets of the central bank (BCC); (b) ceiling on net domestic assets of the BCC; (c) ceiling on net bank credit to the government; (d) ceiling on BCC credit to nonfinancial public sector enterprises; (e) ceiling on BCC credit to the nonfinancial private sector; (f) ceiling on new nonconcessional external debt contracted or guaranteed by the government or the BCC, with maturities of more than one year, except borrowing for debt rescheduling purposes, and IMF credit; (g) ceiling on new nonconcessional external debt contracted or guaranteed by the government or the BCC, with maturities of less than one year, except borrowing for debt rescheduling purposes, IMF credit, and normal import credits (suppliers' credits) excluding petroleum imports; (h) ceiling on wage arrears (including all forms of compensation) by the civil service (civilian and military) and the BCC; (i) the BCC will make no payment of government expenditure that has not been authorized in advance by the Minister of Finance; (j) the BCC will make no purchase of Congo franc banknotes or foreign currency in the market at a premium against payment in bank money; and (k) the government will not accumulate payments arrears on external debt service for which a debt rescheduling agreement has been concluded with the government's creditors, or on any new borrowing. Definitions 4. Net foreign assets of the BCC are defined as the difference between the BCC's gross foreign assets and all its external obligations, as shown in the Integrated Monetary Survey prepared by the BCC. The net foreign assets and all the foreign currency accounts of the BCC, as well as the Integrated Monetary Survey, will be valued at the following exchange rates: SDR 1 = US$1.26537; US$l = CGF313.6; and 1 Euro=CGF357.62. 5. The net domestic assets of the BCC are equal to the sum of the following line items, as they appear in the BCC balance sheet: • net claims on the government; • claims on nonfinancial public enterprises; • claims on the nonfinancial private sector; • claims on banks, net of "Billets de Trésorerie" obtained by banks; • claims on other banking and nonbank institutions; and • "other items, net," defined as other assets minus other liabilities (including capital and valuation accounts, and "Billets de Trésorerie" obtained by the public). 6. Net banking system credit to the government is defined as the sum of net claims of the central bank and of deposit money banks on the government, as described in the Integrated Monetary Survey prepared by the BCC, plus the BCC's net cash deficit. 7. Fifty percent of any surplus over the programmed amount of external budgetary assistance (excluding project assistance), net of debt service, and including external debt service rescheduling that has not been used to finance poverty reduction expenditure, public enterprise restructuring, and domestic debt repayment (including cross-arrears on payments that have been certified in cooperation with World Bank staff) will be used to reduce net banking system credit to the government, and the corresponding performance criterion will be lowered accordingly. The criteria on net foreign assets and net domestic assets will be raised and lowered, respectively, by the same amount. This adjustment does not apply to HIPC resources, which will be deposited in a special account at the BCC. 8. BCC credit to nonfinancial public sector enterprises is equal to BCC claims on nonfinancial public enterprises, as defined in the Integrated Monetary Survey prepared by the BCC. 9. BCC credit to nonfinancial private sector enterprises (excluding loans to BCC personnel) is equal to BCC claims on nonfinancial private enterprises, as defined in the Integrated Monetary Survey prepared by the BCC. 10. Wage arrears are defined as validated personnel expenses not paid for more than 30 days. Wages include all compensation paid to employees (civil staff, including the military, national police, members of Cabinet, and BCC staff), including bonuses and allowances. Under the program, these arrears will be assessed cumulatively and partly based on the balances of the accounts of the provincial delegated payment authorization officers (ODs) in the treasury's general account at the BCC. 11. The government will not accumulate any payments arrears on external debt, except on debt being rescheduled with creditors. 12. The definition of external debt can be found in Decision 6230-(79/140), para. 9, amended on August 24, 2000 (Annex I). 13. The grant element of borrowing will be calculated on the basis of currency-specific rates based on the OECD commercial interest reference rates (CIRR) on the disbursement date, as specified in Annex I. A loan is defined as concessional if, on the date of the initial disbursement, the ratio of the present value of the loan, calculated on the basis of the reference interest rate to its nominal value, is less than 65 percent (i.e., including a grant element of at least 35 percent). 14. Base money is defined as the sum of the following: • currency in circulation (in and outside banks); • deposits of banks with the BCC; • deposits of public enterprises with the BCC; • deposits of private enterprises and individuals with the BCC; • deposits of other financial institutions, other than deposit money banks, with the BCC. Note: "Base money" excludes all "Billets de Trésorerie" issued by the BCC. 15. The following concepts are used in the letter of intent and the MEFP: (a) Budget: annual law authorizing the government's financial operations. Transfers to the provinces are included, but the provinces' own revenues are not covered. The social security system is not consolidated in the budget; (b) Special budgets (budgets pour ordre): autonomous agencies and entities receiving earmarked revenues that, like their expenditure, are covered in the budget; (c) Extrabudgetary accounts: accounts receiving government revenue not tracked by the Treasury Management and Payment Authorization Directorate. The consolidation of these accounts with those that are regularly monitored by the Treasury Management and Payment Authorization Directorate is necessary for a comprehensive view of budget execution; and (d) Poverty-reduction expenditure: spending on health, education, food, housing, social and community development, and infrastructure (including agriculture-related infrastructure) and on retirees and voluntary separations. It includes both current and capital expenditure. Social spending is a subset of poverty reduction expenditure. It covers health, education, food, housing, and social and community development. Structural Performance Criteria and Benchmarks 16. The structural performance criteria and benchmarks are described in para. 50 and Table 6 of the MEFP. Reporting 17. The authorities will forward to the IMF's African Department, as soon as possible and preferably by e-mail or fax, the data and information needed to monitor program implementation. Following are the data or documents to be submitted: 1. Exchange system (a) Volume of purchases and sales of foreign exchange on the interbank market, between commercial banks and their customers, and in exchange bureaus; (b) Volume of purchases and sales (interventions) by the BCC on the interbank market; (c) Average Congo franc/U.S. dollar reference exchange rate of the BCC (indicative rate); (d) Average Congo franc/U.S. dollar exchange rate on the interbank market; (e) Average Congo franc/U.S. dollar exchange rate offered by commercial banks to their customers; and (f) Average Congo franc/U.S. dollar exchange rate used by exchange bureaus. Note: The above information is to be submitted with a time lag of one day. 2. Banking system (a) Integrated monetary survey, with a breakdown into domestic currency and foreign currency; (b) Monetary survey of the BCC, with a breakdown into domestic currency and foreign currency; (c) BCC operating account; (d) Implementation of the BCC's cash flow plan; (e) Statement of wage arrears owed to BCC staff; (f) Monetary survey of deposit money banks, with a breakdown into domestic currency and foreign currency; (g) Net banking system credit to the government; (h) Net banking system credit to public sector enterprises; (i) Structure of nominal and real interest rates of deposit money banks; (j) Reserves (voluntary and required) of deposit money banks; (k) Structure of BCC interest rates; (l) Structure of BCC certificate of deposit (CD) rates; and (m) Premium on Congo franc banknotes and foreign currency purchased in the market against bank money. Note: The above monthly information is to be submitted not later than three weeks after the end of each month. 3. Public sector (a) Implementation of treasury cash flow plan; (b) Expenditure execution by type and by ministry/institution; (c) Validated wage bill by category of payee, region (Kinshasa/provinces), and activity status (active/retired); (d) Wage bill debited from the Treasury General Account by category of payee, region, and activity status; (e) Paid wage bill by category of payee, region, and activity status; (f) Paid employees, by category of payee, region, and activity status; (g) Civil service pay scale (if changed); (h) Issues, redemptions, and stocks of certificates of deposit (including maturity and interest charges), by category of creditor (commercial banks, public enterprises, and other); (i) Public sector domestic debt, by category of creditor (commercial banks, private entities, etc): collect and report data related to domestic public debt as soon as they are available; and (j) Payments arrears on utility outlays. Note: The above information is to be submitted not later than three weeks after the end of each month. Starting in April 2003, following implementation of the new expenditure procedures, the budgetary tracking statements mentioned in Annex II will also be forwarded. 4. Real sector Report as soon as possible indicators on recent economic developments and other related data, such as the consumer price index once a week; exports of merchandise (in value and volume), crude oil, copper, cobalt and zinc, and industrial and artisanal diamonds; imports in value and volume, if possible by principal product and showing petroleum products separately; indicators of production of the manufacturing, mining, and services sectors, published in the BCC's monthly reports on economic activity. Monthly tax base (imports) prepared by OFIDA. 5. External debt (a) Actual disbursements of external assistance, whether or not to finance projects, including those associated with new loans contracted (on a monthly basis, with a lag of three weeks); (b) Composition of external debt-service obligations, by maturity (including after debt rescheduling by the Paris Club, other bilateral creditors, and multilateral creditors, commercial debt, and short-term debt), and the stock of external arrears, taking into account actual payments, with a breakdown by principal and interest, and classification by creditor (to be provided quarterly by the Public Debt Management Office (OGEDEP)); and (c) Copy of the debt rescheduling agreements with the Paris Club, non-Paris Club bilateral creditors, commercial creditors, and multilateral creditors, as soon as such agreements have been concluded. Also, all individual loan information is required without delay, for the debt sustainability analysis in the context of the HIPC Initiative. Note: The above monthly information is to be provided not later than three weeks after the end of each month. 6. Miscellaneous A progress report on implementation of the structural reforms will be submitted to Fund staff each month. In addition, information on the legal and regulatory environment as it affects business (new decrees, circulars, and laws) and pricing policy, as well as the official gazette, will also be reported to Fund staff.
Kinshasa, February 3, 2003 ANNEX I Definition of External Debt 4. The definitions of "debt" and "concessional borrowing" for the purposes of this memorandum of understanding are as follows: (a) As set out in Point 9 of the Guidelines on Performance Criteria with Respect to Foreign Borrowing adopted by the IMF's Executive Board on August 24, 2000, debt is understood to mean a current, that is, not contingent, liability created under a contractual agreement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services at some future points in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debt can take a number of forms, the primary ones being as follows: (i) loans, that is, advances of money to the obligor by the lender on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans, under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, that is, contracts where the supplier permits the obligor to defer payment until some time after the date on which the goods are delivered or services are provided; and (iii) leases, that is, arrangements under which property is provided that the lessee has the right to use for one or more specified period(s) of time, which are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the arrangement, excluding those payments that cover the operation, repair, or maintenance of the property. Under the definition of debt set out above, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt. (b) A loan is considered concessional if, on the date the contract is signed, the ratio of the present value of the loan, based on the reference interest rates to the nominal value of the loan is less than 65 percent (i.e., a grant element exceeding 35 percent). The reference interest rates used in this assessment are the commercial interest reference rates (CIRRs) established by the Organization for Economic Cooperation and Development (OECD). For debts with a maturity exceeding 15 years, the ten-year reference interest rate published by the OECD is used to calculate the grant element. For shorter maturities, the six-month market reference rate is used. ANNEX II
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