Republic of Tajikistan—Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

Dushanbe, December 19, 2003

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Mr. Horst Köhler
Managing Director
International Monetary Fund
700 19th Street, N.W.
Washington, DC 20431

I would like to take this opportunity to express my gratitude to the International Monetary Fund for its ongoing support for our economic reforms and development.

During October of this year, the government of Tajikistan held discussions with Fund staff for the second review under the Poverty Reduction and Growth Facility (PRGF). Based on these discussions, we have prepared a Memorandum of Economic and Financial Policies (MEFP) for the second year of the three-year PRGF arrangement. This MEFP reflects the impact of recent economic developments on the macroeconomic framework; measures we will take to accelerate structural reforms; quantitative performance criteria; and structural performance criteria and benchmarks to cover the period October 1, 2003–September 30, 2004.

All of the quantitative performance criteria for end-September 2003 were observed, however, the indicative target on reserve money was missed. The end-September structural performance criterion on eliminating subsidized tariffs for privileged groups was not met on time, but will be implemented by end-December 2003. Therefore, we request a waiver for the non-observance of the one structural performance criterion. The end-June structural benchmark regarding the restructuring of Agroinvestbank was not met on time, but will also be implemented by end-December 2003. On the basis of performance during the period up to end-September 2003 and the policies set out in the attached Memorandum of Economic and Financial Policies, we request the completion of the second review under the PRGF arrangement.

We intend to remain in close consultation with Fund staff on the adoption of any measures that may be appropriate, in accordance with IMF policies on such consultations, and will provide the staff with information it requests for monitoring economic developments and progress in the implementation of polices and in reaching the objectives of the program supported by the PRGF arrangement.

The government believes that the policies set forth in the attached Memorandum of Economic and Financial Policies (MEFP) are adequate to achieve the objectives of its program, but it will take any further measures that may become appropriate for this purpose. Tajikistan will consult with the Fund on the adoption of these measures, and in advance of revisions to the policies contained in the MEFP, in accordance with the Fund’s policies on such consultation.

In line with our commitment to transparency, we hereby request that the staff report, this letter of intent, and the attached Memorandum of Economic and Financial Policies (including all annexes) be published on the IMF website.

Please accept, sir, the assurance of my highest consideration for you.

/s/

REPUBLIC OF TAJIKISTAN

Memorandum of Economic and Financial Policies
for the Period October 1, 2003 to September 30, 2004
Supported Under the Poverty Reduction and Growth Facility

December 19, 2003

I. INTRODUCTION

1. During the past year, we have been pursuing an economic and financial program with support from the International Monetary Fund’s Poverty Reduction and Growth Facility (PRGF). This Memorandum of Economic and Financial Policies (MEFP) reviews the progress made during this period and details our economic strategy for the second annual program under this facility.

II. RECENT DEVELOPMENTS AND PERFORMANCE UNDER THE PROGRAM

2. Since 1998, real GDP has expanded by an average of 7 percent per annum and through September of this year it has increased by 7.9 percent. This strong performance has led to an improvement in per capita incomes and a reduction in poverty. Although economic activity continues to be supported by traditional sectors (aluminum and cotton), there is evidence that growth is broadening. Between January 2002 and September 2003, the service sector expanded by 19.5 percent, and it accounted for a third of the growth in output during the first nine months of this year. This performance has, however, been undermined by ongoing high inflation. Consumer prices increased by 12.2 percent last year (year-on-year) and are projected to rise by more than 15 percent this year. Exogenous factors and administered price increases (utility tariffs) contributed to inflation, but lapses in monetary policy also played a role. The nominal exchange rate has remained stable for the past year and has not been a major source of inflationary pressure.

3. A depreciation of the real effective exchange rate by 14 percent between end- 2001 and end-September 2003 has helped maintain Tajikistan’s international competitiveness. We expect the trade deficit to decline significantly this year, while the current account deficit is broadly unchanged at 2.9 percent of GDP compared with 2.7 percent last year. The debt rescheduling with Russia last year has reduced our debt service this year, and gross international reserves are projected to remain unchanged at 1.8 months of imports at end-2003 compared with 2002.

4. Macroeconomic policies have generally remained on track. The projected deficit for 2003 was 0.9 percent of GDP, however, we expect realize a overall budget surplus for the year due to higher-than-projected GDP growth and expenditure discipline. At the same time, we limited public sector wage increases and foreign-financed capital expenditures in line with the Fund-supported program.

5. During the first nine months of this year, tax collections have exceeded the program targets and have allowed for expanded social expenditures. Although higher-than-projected GDP explains much of this performance, improved tax and customs administration has also played a role. The ratio of tax revenue to GDP has increased this year, but by less than we projected because much of the recent growth has been concentrated recently in services, which are difficult to tax.

6. Prudent fiscal policy has helped the National Bank of Tajikistan (NBT) observe most of the monetary policy targets during the first year of the program. Nonetheless, the indicative ceiling for reserve money has been consistently exceeded. Both the ceiling on net domestic assets of the NBT and net credit of the banking system to government were observed for end-March and end-September 2003, and the floor on net international reserves was exceeded by a wide margin (all performance criteria). Net international reserves were US$38.5 million at end-September 2003, compared with an adjusted target of US$5.5 million. The NBT accumulated these reserves because the interbank foreign-exchange market could not absorb large monthly foreign-exchange sales by the state-owned aluminum enterprise. The NBT, however, did not return these purchases to the inter-bank market and as a result, reserve money growth through end-October was 33 percent above the end-September program target. More recently, the NBT has begun returning these purchases to the interbank market in an effort to reduce liquidity.

7. Additionally, the restructuring of the NBT has been completed, although with a slight delay, and the newly established Monetary Policy Committee is operational. We believe these changes will significantly improve the implementation of monetary policy and contribute to a reduction in inflationary pressures.

8. With regard to external policies, we have harmonized our trade regime with the requirements of the Eurasian Economic Community. This involved the introduction of two new tariff rates (10 and 15 percent) to the present system of three rates (0, 2, and 5 percent) and resulted in an increase of the average tariff from 5 to 7.7 percent. We informed the World Trade Organization of our intention to change the trade regime and there were no objections. Together with technical assistance from the Fund, we have continued to improve debt management and to update our comprehensive computerized inventory of all public and publicly-guaranteed external debt.

9. Under the Fund-supported program, we have continued the implementation of structural reforms. In the energy sector, we raised gas tariffs to cost recovery levels; increased collection rates, and raised gas consumption norms for unmetered households. Recognizing the need to mitigate the impact of these measures on low-income households, we introduced an energy compensation mechanism. As of end-October 2003, we have provided SM 9 million through this compensation mechanism. We are currently working with the World Bank to improve this mechanism through better targeting of poor households and streamlining of the application procedure.

10. The problems of the Agroinvestbank (AIB), which is Tajikistan’s largest commercial bank, proved more difficult to resolve than expected and we did not meet the structural benchmark (end-June 2003) for separating AIB into two independent entities. We have issued a government resolution on the restructuring of the AIB that requires (i) issuing SM 25 million in government bonds as compensation for directed credits issued by the AIB on behalf of government and (ii) finalizing the separation of AIB into two independent entities. We are exploring options that will strengthen the management of AIB. We plan to amend this resolution to ensure that AIB is fully compensated for all remaining non-performing loans under this agreement as of end-2006 as a prior action for completing the second review. Further, we have revoked the banking licenses of two problem commercial banks. We plan to close one of these banks and convert the other into a limited credit union by end-December 2003.

11. Our farm privatization program has been hindered by the lack of a mechanism for addressing the indebtedness of state-owned farms and concerns over the transparency and fairness of the process. We had hoped to resolve this issue by end-December 2002, but it proved to be more complex than anticipated. We have completed an inventory of the domestic and external debts of these farms and are currently finalizing proposals for improving the administration and transparency of the farm privatization process.

12. We are preparing the progress report on the implementation of our Poverty Reduction Strategy Paper (PRSP) and will submit it to the IMF and World Bank Executive Boards by end-February 2003. This report will be based on an analysis of the recent household poverty survey and an updated public investment program (PIP). It will pay particular attention to identifying investment priorities.

III. ECONOMIC POLICIES FOR THE SECOND ANNUAL PROGRAM

13. During the second year of the program, we will build on the recent progress and intensify structural reform. In particular, we plan to achieve the following main objectives:

• Real GDP growth of 6–7 percent and a reduction of inflation of 7 percent for 2004;
• An increase of gross international reserves to the equivalent of 2.7 months of imports at end-2004;
• Maintain the overall stance of fiscal policy and its focus on enhancing social policy expenditures
• Improve the implementation of monetary policy;
• Continue structural reform in the energy, banking and agricultural sectors; and
• Improve governance.

A. Fiscal Policy

14. The budget for 2004 envisages an overall fiscal deficit (excluding the foreign-financed public investment program, PIP) of ½ percent of GDP. In support of this goal, we will focus on completing a number of tax and customs administration measures to achieve tax revenue collections of SM 825 million or 16.2 percent of GDP, and continue to improve expenditure management through improved prioritization of expenditures. In particular, we will maintain the PIP at 3 percent of GDP and allow a modest increase in public sector wages linked to progress in the civil service reform agenda. We plan to review the appropriate level of annual disbursements under the PIP and will take account of our investment priorities as outlined in the PRSP, absorptive capacity, the availability of domestic resources, the sustainability of our external debt and improved forecasting of disbursements. The government will submit to parliament a 2004 budget that is consistent with program targets.

15. As part of our civil service reform agenda, we are preparing a plan for reducing the number of employees paid from the budget. This plan will be available at end-December 2003 and is aimed at improving the efficiency of the civil service. We have completed a survey of the number of the civil service employees and have prepared a database of civil service positions, grades and salaries and plan to begin auditing these positions in early 2004. During the first ten months of 2003, we reduced the number of employees paid from the budget by 20,080 or 4.3 percent.

16. As a pilot civil service reform effort, we will establish a working group chaired by the prime minister that will complete by end-March 2004 a fully costed plan for reforming the education sector. The working group will include representatives from government, donor agencies and IFIs. As part of this plan, we will reduce the number of employees in the education sector by 30 percent over a period of three to five years. We will begin the process of downsizing by reducing the number of budgetary employees in the education sector by 5 percent as of July 2004 (structural benchmark). Further, the plan will address reform of the education budget system with a move to more school autonomy; introduction of a fee schedule; expansion of teaching assignments; curriculum reform; and private sector involvement.

17. Recognizing that the level of public service wages is unacceptably low and in line with the gradual reduction in public sector employment, the 2004 budget allows for an increase in the civil service wage bill to a maximum of SM 155 million. The savings from staff reductions in education will be targeted on teachers as will the savings from an average 25 percent increase in their average standard workload. This will allow a further targeted increase in teachers’ wages effective July 1, 2004. As reform progresses, it would be possible to increase the public sector wage bill as a share of GDP to higher levels without compromising fiscal sustainability.

18. In order to strengthen our health and education sectors, we will increase expenditures in the 2004 budget on health and education to SM 225.8 million or 4.4 percent of GDP. Additionally, we will further increase transparency in public spending by continuing to publish detailed health and education expenditure execution data in national newspapers. In addition, from end-March 2004, we will publish in the local press a detailed breakdown of education and health expenditures by individual facility, e.g. schools and hospitals, on a quarterly basis.

19. To sustain our revenue efforts into the medium term, we plan to focus on completing a number of tax changes proposed earlier through Fund technical assistance. These measures include reducing the number of nuisance taxes (i.e. fee, charges and duties), simplifying both the tax and customs codes to enhance compliance, and introducing the unified land tax on a national basis. Effective January 1, 2004, we will eliminate the preferential tariff treatment of alumina imports by increasing the tariff on these (and all other imported inputs for aluminum production in that bracket) to 5 percent and reducing the sales tax on aluminum exports to 1 percent. We will also improve the transparency of revenue collections by publishing the 50 corporate taxpayers with the largest tax arrears on a quarterly basis in local newspapers. Excerpts from the tax and customs code will be published in national newspapers on a weekly basis to disseminate information on tax and customs payers’ rights and responsibilities.

20. Improvements in our VAT system are critical to our revenue collection efforts. In view of this, we have implemented measures aimed at enhancing the efficiency of the system. In particular, we have [compiled and published an inventory of VAT refund claims and reimbursed these claims], cleared all overdue VAT refund claims and we are gradually eliminating tax arrears of key state-owned enterprises. To support the implementation of these measures, we will accelerate reform of the Ministry of State Revenues and Duties (MSRD) especially in the area of tax administration. To improve tax administration, we will finalize a plan to restructure the MSRD along functional lines by end-January 2004. By end-June 2004, we will adopt a standardized taxpayer registration document that will allow the introduction of a single taxpayer identification number for tax, customs and the social protection fund. Further, to improve monitoring of taxpayers, we will fully update the database of registered taxpayers by end-February 2004. Regarding improvements in customs administration, we will continue to limit export and import licensing to goods that adversely affect health, the environment, and our national security.

B. Monetary and Exchange Rate Policies

21. The monetary program for 2004 focuses on improving the implementation of monetary policy and reducing inflation, while strengthening the reserve position of the NBT. The program envisages a modest growth of 19.4 percent in banking sector credit to the non-cotton private sector, an increase of 18.5 percent in reserve money mainly through reserve buildup, and broad money growth of about 19.9 percent. Money demand is projected to increase by 1 percent during 2004 as confidence in the currency continues to improve.

22. In support of the 2004 monetary program, we established a monetary policy committee (MPC) to improve liquidity management. The MPC meets on a weekly basis and issues instructions for the purchase and/or sale of foreign exchange and other monetary instruments which are strictly enforced. To improve further the effectiveness of monetary policy, we will publish on a monthly basis our quarterly targets and end-month balance sheet statements. To strengthen the financial position of the NBT, we are committed to non-payment of dividends to the Ministry of Finance by the NBT as long as the latter’s net worth remains negative (continuous structural performance criterion). Further, the NBT will not make any contribution to a deposit insurance scheme. Finally, the NBT will continue to refrain from issuing directed credits (continuous structural performance criterion).

23. The NBT will continue to maintain a managed floating exchange rate regime. While foreign exchange purchases and sales would continue to be the NBT’s most effective policy instrument, any interventions in the foreign exchange market in excess of those required for monetary policy will be undertaken solely to reduce excess exchange rate volatility, and in line with the recommendations of the MPC.

24. A follow-up safeguards assessment of the NBT was completed in July 2003. It noted progress in strengthening safeguards since the previous assessment but that vulnerabilities remain. These relate mainly to financial accounting, reporting, and auditing procedures. In order to strengthen the management of the NBT further, we will appoint three well-qualified external candidates to the Executive Board by end-March 2004.

C. External Policies and Debt Management

25. We are committed to maintaining a liberalized trade and investment environment and the harmonization of our tariff regime with that of the Eurasian Economic Community is consistent with this goal. A working party of the World Trade Organization has been formed to consider our accession and will meet again in February to discuss our accession.

26. During the period under the Fund-supported program, neither the government nor the NBT will, without Fund approval, introduce or intensify existing restrictions on the making of payments and transfers for current international transactions. Nor we will introduce or modify any multiple currency practices, conclude any bilateral payments agreements that are inconsistent with Article VIII of the Fund’s Articles of Agreement or impose or intensify restrictions for balance of payments reasons. All remaining restrictions on current international transfers and payments will be removed by end-March 2004 in order to pave the way for acceptance of obligations under Article VIII, sections 2, 3, and 4 of the Fund’s Articles of Agreement.

27. We will continue to prohibit all non-concessional borrowing, and we will not draw on any outstanding non-concessional credit facilities. We will continue to update the inventory of public and publicly-guaranteed debt, and submit quarterly reports on debt to parliament. We will also improve accounting and reconcile PIP disbursements between the Ministry of Finance and the Aid Coordination Unit in the Office of the President. To ensure external debt sustainability, we will seek further debt rescheduling with major bilateral creditors on concessional terms. We will also compensate Tajikrail for rail services provided to service Tajikistan’s debt to Uzbekistan.

D. Structural Policies

28. Our structural reform program will continue to focus on the energy, banking and agriculture sectors. In the energy sector, we eliminated the use of differential tariffs for privileged categories of consumers as a means of reducing the quasi-fiscal deficit. This was a structural performance criterion for end-September 2003, but due to the political sensitivity of the change, was only partially implemented. We will implement this structural performance criterion as a prior action for completion of the second review. We request that a waiver be granted for not observing this structural performance criterion. To alleviate the impact of higher energy tariffs on low-income households, we have increased funding for the energy compensation mechanism to SM 20 million in 2004 from SM 12 million last year. Up to 10 percent of these resources will be used to defray the cost of installing gas meters. In order to accelerate the installation of gas meters, we will finalize a contract by end-December 2003 to procure 250,000 gas meters from China. Between October 1, 2003 and end-March 2004, we plan to install 15,000 gas meters in households (structural benchmark). We also plan to continue automatic quarterly adjustments of all utility tariffs to account for depreciation of the nominal exchange rate (structural performance criteria). Although key state-owned enterprises have accumulated arrears to Tajikgas and Barqui Tajik since end-June 2003, we plan to eliminate these arrears by end-December 2003. By end-June 2004, we will also complete an external audit of Tajikgas by a reputable international auditing company and finalize a restructuring plan (structural benchmark).

29. We are continuing our efforts to strengthen the banking sector by strictly enforcing all prudential requirements. In addition to restructuring AIB, we will revoke (by end-March 2004) the banking license of the three weakest banks and close two of these institutions. For all remaining banks, we will strictly enforce all prudential requirements by imposing the maximum penalty for non-compliance with prudential requirements. We will raise the minimum capital requirement to US$2 million with effect end-December 2004, from US$1.5 million. We will also allow banks to hold up to 50 percent of their capital in foreign exchange beginning January 1, 2004. We will also ensure that the management of all commercial banks is fully competent by ensuring strict adherence to the “fit and proper” requirement contained in the laws of Tajikistan.

30. In the agricultural sector, we will continue to address the farm debt problem and to improve the transparency and equity of the farm privatization process. We estimate the total farm debt at SM 765 million (US$255 million) of which SM 502 million is owed to foreign creditors; SM 14 million is owed to domestic banks in interest; and SM 249 million is owed to the government and/or state-enterprises. We are presently finalizing our plan for restructuring farm debt which includes a provision for writing-off the domestic debt that restructured farms and those that are being restructured incurred before their privatization. This plan will also include a mechanism for the sale of the external debt of the farms in exchange for temporary cotton marketing rights. We will prepare, in consultation with IMF staff, and issue a government resolution by end-December 2003 containing the mechanism for reducing the debts of state owned farms.

31. To enhance the transparency of the farm privatization process, we will reach understandings (by end-March 2004) with independent third parties (including international non-government organizations) to monitor the privatization of at least 25 state-owned farms. To improve the governance of the farm privatization process, we will submit amendments to the law on local government and the land code to parliament (by end-March 2004) that will eliminate the authority of local government leaders to interfere in the farm privatization process or the operations and decisions of farms. Further, we will eliminate the double subordination clause and thereby make local officials of the State Land Reform Committee independent of local government officials.

32. To expedite the process of ensuring that privatized farms have clear and unequivocal land rights, we will issue 5,000 additional land share certificates (between October 1, 2003 and end-March 2004, structural benchmark). Further, we plan to begin issuing land share certificates to landholders under the presidential land distribution program.

33. Finally, to enhance governance we will complete an audit by a reputable international auditing firm of the structure, functions and practices of the State Financial Control Committee (SFCC) by end-March 2004 (structural benchmark). This audit will also provide recommendations for strengthening the SFCC’s operations so that it can serve as a deterrent to corruption. It is anticipated that the on-going parliamentary review started mid-2003 of all of the SFCC’s audit reports will also contribute to reducing corruption. A progress report on implementation of the SFCC’s recommendations will be submitted to parliament on a quarterly basis. Excerpts from the law on State Financial Control will be published in national newspapers on a weekly basis to improve transparency of its operations.

E. Program Monitoring

34. The second annual program will cover the period October 1, 2003–September 31, 2004, and will be monitored through two reviews by the Fund’s Executive Board based on semi-annual performance criteria (at end-March 2004 and end-September 2004), indicative targets, and structural performance criteria and benchmarks.

35. Quantitative performance criteria and indicative targets are specified in Annex III. The quantitative performance criteria are: a floor on net international reserves of the NBT; a ceiling on net domestic assets of the NBT; a ceiling on NBT credit to government; a ceiling on the cumulative fiscal deficit of the general government; a floor on cumulative tax collections of the Ministry of State Revenues and Duties; a zero ceiling on the accumulation of wage and non-working pension and external arrears; a zero ceiling on the net disbursement of short-term external debt with original maturity of up to and including one year; and a zero ceiling on the contracting or guaranteeing of medium and long-term nonconcessional debt with original maturity of more than one year. Detailed definitions and reporting requirements for these performance criteria are contained in the Technical Memorandum of Understanding attached to this memorandum (Annex V). In addition, the program includes adjustors on net domestic assets of the NBT and net international reserves to reflect excess/shortfalls of the disbursement of (non-project) foreign loans and cash grants, privatization receipts, and any overdue or rescheduled debt service obligations. The structural performance criteria and benchmarks are detailed in Annex IV.

36. The third review of the program will take place on or after May 15, 2004, based on performance as of March 31, 2004. At the time of the third review, the timing of the fourth review will be established, and quantitative and structural performance criteria as well as structural benchmarks will be established for end-September 2004.

37. The government and the National Bank of Tajikistan believe that the policies described herein will further strengthen our macroeconomic stabilization and structural reform efforts, and that they are adequate to achieve the objectives of our economic program. We intend to remain in close consultation with the IMF in accordance with IMF policies on such consultation and will provide the IMF with information it requests for monitoring economic developments and implementation of policies under the program. In addition, the government and the NBT stand ready to take further measures, in consultation with the IMF staff, which might be necessary to ensure that the overall objectives of the program can be achieved.

38. In line with our commitment to transparency, we hereby request that the staff report, the letter of intent, and this Memorandum of Economic and Financial Policies (including all annexes) be published on the IMF website.

Use the free Adobe Acrobat Reader to view Annex I-IV (207 Kb PDF file)

ANNEX V

REPUBLIC OF TAJIKISTAN

Technical Memorandum of Understanding
for the PRGF Arrangement 2003-2005

1. This memorandum defines variables that constitute quantitative performance criteria and indicative targets under the Poverty Reduction and Growth Facility Arrangement (PRGF), and sets out the reporting requirements for the authorities and the National Bank of Tajikistan (NBT).¹

I. QUARTERLY TARGETS

A. Fiscal Balance of the General Government

Definitions

2. The general government budget is defined to include the republican budget, local (including municipal) budgets, and all extra-budgetary funds at all levels of general government, including the social protection fund (SPF) but excluding the externally financed public investment program. The overall cash balance of the general government is defined from the financing side as the sum of the following:

(i) The change in net claims (transactions) of the NBT on the general government which includes all deposits of the general government with the NBT, counterpart deposits (which reflect balance of payment and/or general budget support from IFIs and other donors), NBT loans and advances to the general government, NBT holdings of government securities, bank restructuring costs, and the privatization account (where proceeds from the privatization of state property are held);

(ii) The change in net claims (transactions) on the general government of the rest of the domestic banking system which are defined to include the net position of the general government with respect to other domestic commercial bank assets (loans, overdrafts, cash advances, holdings of treasury bills or other securities) and liabilities (deposits, etc.);

(iii) The change in net claims (transactions) on the general government of domestic nonbank institutions and households is defined to include net sales of treasury bills, bonds or other government securities to nonbank institutions and households (including nonresidents and nonresident financial institutions), plus any other increase in liabilities of the general government to domestic nonbank institutions or households. Included in this item are also compensation payments (-) to Tajik Rail for its servicing of external debt to Uzbekistan;

(iv) Gross proceeds from the privatization of state property, which are kept in a separate account with the NBT, are defined as all receipts originating from the sale of state property; and

(v) Net foreign financing of the general government which is defined as the difference between gross disbursements of foreign financing excluding the externally-financed public investment program and amortization of government debt to foreign financial and nonfinancial institutions, plus principal arrears, debt rescheduling and the drawdown of Tajikistan’s claim on the Central Bank of Russia.

3. The augmented Balance of the general government is defined from the financing side as the sum of the same items as in the definition of the overall cash Balance of the general government plus the counterparts (-) to increases in net credits or net claims on the general government from the NBT or commercial banks as a result of the resolution of the bad loans problem under the bank restructuring program. These counterparts consist of the full value of the loans taken over by the government.

4. Monthly data on net claims of the domestic banking system on the general government are taken from the balance sheets of the NBT and commercial banks. The Ministry of Finance shall provide information on, and confirm the amounts of general government deposits held abroad, disbursements of foreign loans to the general government, net sales of treasury bills and other securities, borrowing from the nonbank sector, as well as gross receipts and expenditures of the central government privatization account. It shall provide detailed monthly data on: (i) revenues, expenditures and lending operations of the state and local budgets, as well as all budgetary and extra-budgetary funds; (ii) quasi-fiscal operations; (iii) estimates of the outstanding stock of wage and pension and all other domestic expenditure arrears; and (iv) estimates of the outstanding stock of tax and other revenue arrears to the general government.

Adjustors

5. The ceiling on the cumulative overall fiscal Balance will be adjusted downward by 100 percent for any overdue or rescheduled interest obligations.

B. Tax Collection of the Ministry of State Revenues and Duties

Definitions

6. Tax collection include all taxes collected by the Ministry of State Revenues and Duties. With regard to internal taxation excluded from the definition are any proceeds from loans, or other banking system credits, the issuance of securities, or from the sale of state assets. With regard to foreign taxes, custom revenues are defined to include import duties, export duties and taxes, customs duties, exchange taxes, and other taxes (including VAT) on international trade and transactions.

C. Limits on the Stock of Net Domestic Assets of the NBT

Definitions

7. Net domestic assets (NDA) of the NBT are defined as: reserve money minus net foreign assets of the NBT. Reserve money is composed of currency in circulation, required reserves, other bank reserves, and deposits of non-government non-banks with the NBT. Net foreign assets of the NBT includes net international reserves in convertible currencies. The NBT’s net domestic assets comprises the following assets and liabilities: net credit to the general government, claims on banks, credit to the economy, and other items net (OIN). OIN includes, the foreign exchange re-valuation and capital accounts of the NBT.

8. The NDA ceiling should be also adjusted for changes in reserve requirements, in accordance with the following formula:

∆NDA = ∆rB_ο + r_οΔB + ΔrΔB

where r_ο denotes the reserve requirement ratio prior to any change; B_ο denotes the programmed level of the reservable base money in the period prior to any change; ∆r is the change in the reserve requirement ratio; and ΔB denotes the immediate change in the reservable base with respect to the programmed base money level as a result of changes in the definition.

Adjustors

9. The ceiling on net domestic assets of the NBT will be adjusted: (i) downward/upward by 100 percent for excesses/shortfalls of the disbursement of (non-project) foreign loans and cash grants; (ii) downward/upward by 100 percent for the excesses/shortfalls of privatization receipts; (iii) downward by 100 percent for any overdue or rescheduled debt service obligations; and (iv) upward by 100 percent for withdrawals from government project accounts at the NBT in excess of programmed levels and downward by 100 percent for disbursements in excess of programmed levels.

D. Limits on Net Credit of the Banking System to General Government²

Definitions

10. Net credit of the banking system to the general government is the sum of net credit from the NBT to general government and net credit from the rest of the domestic banking system to general government, both as defined in section A above.

Adjustors

11. The ceiling on net credit of the banking system to general government will be adjusted: (i) downward/upward by 100 percent for excesses/shortfalls of the disbursement of (non-project) foreign loans and cash grants; (ii) downward/upward by 100 percent for the excesses/shortfalls of privatization receipts; and (iii) downward by 100 percent for any overdue or rescheduled debt service obligations.

E. Net International Reserves

Definitions

12. Total net international reserves of the NBT are defined as the difference between total gross international reserves of the NBT and total reserve liabilities of the NBT. Total gross international reserves of the NBT are defined as the NBT’s holdings of monetary gold, holdings of SDRs, any reserve position in the IMF, holdings of convertible currencies in cash or in nonresident banks that are readily available. Also included are holdings of foreign currency-denominated securities issued by governments or central banks of OECD member states. Excluded are capital subscriptions in foreign financial institutions, non-liquid assets of the NBT, convertible currency denominated claims on domestic banks and other residents, assets in non-convertible currencies, foreign assets pledged as collateral or otherwise encumbered and the net forward position, if any (defined as the difference between the face value of foreign currency denominated NBT off balance sheet claims on nonresidents and foreign currency obligations to both residents and non-residents). Reserve liabilities of the NBT are defined as outstanding IMF credit, and liabilities of the NBT to nonresidents with an original maturity of up to and including one year.

13. For the purpose of program monitoring, U.S. dollar denominated components of the balance sheet will be valued at the program exchange rate, and other foreign currency denominated items will be valued at cross rates between the program exchange rate of the U.S. dollar and current official exchange rates of the U.S. dollar against those currencies. Official gold holdings shall be valued at US$370 per troy ounce.

14. Fund staff will be informed of details of any gold sales, purchases, or swap operations during the program period, and any resulting changes in the level of gross foreign reserves that arise from revaluation of gold will be excluded from gross reserves (as measured herein).

Adjustors

15. The floor on net international reserves of the NBT will be adjusted: (i) upward/downward by 100 percent for excesses/shortfalls of the disbursement of (non-project) foreign loans and cash grants; (ii) upward/downward by 100 percent for the excesses/shortfalls of privatization receipts in foreign exchange; (iii) upward by 100 percent for any overdue or rescheduled debt service obligations; and (iv) downward by 100 percent for withdrawals from government project accounts at the NBT in excess of programmed levels and upward by 100 percent for disbursements in excess of programmed levels.

F. Limits on Short-, Medium-, and Long-Term External Debt

Definitions

16. The external debt limits (short-, medium- and long-term) apply to the government of Tajikistan, the National Bank of Tajikistan and any other agency acting on behalf of the government. For short, medium- and long-term external debt, the performance criterion applies not only to debt as defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Decision No. 12274-(00/85), adopted August 24, 2000), but also to commitments contracted or guaranteed for which value has not been received.

17. The definition of debt set forth in point No. 9 of the guidelines reads as follows: “(a) For the purposes of this guideline, the term “debt” will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement 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 under the contract. Debts can take a number of forms, the primary ones being as follows: (i) loans, i.e., advances of money to obligor by the lender made 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, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and (iii) leases, i.e., arrangements under which property is provided which the lessee has the right to use one or more specified period(s) of time that 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 the 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 agreement excluding those payments that cover the operation, repair or maintenance of the property. (b) Under the definition of debt set out in point 9(a) above, arrears, penalties, and judicially awarded damages arising from the 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.”

18. External debt limits apply to the contracting or guaranteeing of new nonconcessional short term external debt (with an original maturity of up to and including one year), and to the contracting or guaranteeing of new nonconcessional medium- and long-term external debt (with original maturities of more than one year).

19. Excluded from the external debt limits are loans contracted for the purpose of debt rescheduling or refinancing if the terms of the new loan are more favorable. IMF credit is excluded from the external debt limits. The performance criterion on new nonconcessional short-term external debt will not apply to loans classified as international reserve liabilities of the NBT (liabilities of the NBT to nonresidents with an original maturity of up to and including one year). Normal import-related financing is excluded from the performance criterion on new short-term external debt.

20. Debt falling within the external debt limits that are denominated in currencies other than the U.S. dollar shall be valued in U.S. dollars at the exchange rate prevailing at the time of contracting or guaranteeing takes place or at the exchange rate stipulated in the contract.

21. For the purposes of the program, the guarantee of a debt arises from any explicit legal obligation of the government or the NBT or any other agency acting on behalf of the government to service such a loan in the event of nonpayment by the recipient (involving payments in cash or in kind), or indirectly through any other obligation of the government or the NBT or any other agency acting on behalf of the government to finance a shortfall incurred by the loan recipient.

22. Concessionality will be based on currency-specific discount rates based on the OECD commercial interest reference rates (CIRRs). For loans of an original maturity of at least 15 years, the average of CIRRs over the last 10 years will be used as the discount rate for assessing the concessionality of these loans, while the average of CIRRs of the preceding six-month period will be used to assess the concessionality of loans with original maturities of less than 15 years. To the ten-year and six month averages of CIRRs, the following margins will be added: 0.75 percent for repayment periods of less than 15 years; 1 percent for 15–19 years; 1.15 percent for 20–30 years; and 1.25 percent for over 29 years. Under this definition of concessionality, only loans with grant element equivalent to 35 percent or more will be excluded from the debt limits.

II. CONTINUOUS QUARTERLY TARGETS

A. No Directed Credits by the NBT

23. The NBT will not issue any directed credits. These involve credits that are issued in the absence of a competitive auction or on non-market terms and conditions. This requirement will be monitored on the basis of changes in the NBT’s balance sheets supported by the NBT’s regular reporting on the results of its credit auctions, including interest rates, and amounts bid and received.

B. No Non-Core Activities of the NBT and no Dividend Payments by the NBT

24. The NBT will not make any expenditures not related to its core business activities or pay dividends while it has negative net worth.

C. No New External Payments Arrears

25. No new external payments arrears shall be accumulated at any time under the PRGF arrangement, excluding those which are subject to negotiation among creditors. External payments arrears are defined as overdue debt service arising in respect of obligations incurred directly, guaranteed, or converted into interstate debt by the government of Tajikistan or the NBT, including penalties or interest charges.

D. Exchange and Payments Arrangements

26. Over the next six months, the Republic of Tajikistan will not: (i) impose or intensify restrictions on the making of payments and transfers for current international transactions; (ii) introduce or modify multiple currency practices; (iii) conclude bilateral payments agreements which are inconsistent with Article VIII of the IMF’s Articles of Agreement; or (iv) impose or intensify import restrictions for balance of payments reasons.

E. No Expenditure Arrears of the General Government
and of the Social Protection Fund

27. No new arrears of the general government on wages and of the Social Protection Fund on transfer payments for non-working pensioners’ pension payments to its regional offices shall be accumulated at any time under the PRGF arrangement.

28. For purposes of the performance criterion, expenditure arrears shall be defined as any shortfall in monthly disbursements on wages and in transfers from the Social Protection Fund to its regional offices. A monthly disbursement plan will be presented to the Fund staff by the 15th day of the month preceding the month of actual wage and pension payments.

29. To permit monitoring as defined above, the government will provide data on actual wage payments and on transfers from the Social Protection Fund to its regional offices to the IMF staff in the form of treasury reports and statements from the Social Protection Fund on a monthly basis no later than 14 days after the end of each month.

III. QUARTERLY INDICATIVE TARGETS

A. Reserve Money

Definition

30. Somoni reserve money of the NBT is defined as the sum of: (i) domestic currency issued by the NBT; (ii) deposits of commercial banks and other financial institutions held with the NBT; and (iii) deposit liabilities of the NBT with respect to the public. Deposits of the general government are excluded from reserve money, but are included under NDA. NBT reserve money liabilities with respect to commercial banks and other financial institutions comprise all deposits held by these institutions at the NBT, including required reserves and excess reserves held in the correspondent accounts, but excluding NBT liabilities held by commercial banks and other financial institutions in the form of short term NBT notes. Deposit liabilities of the NBT to the public include all deposits placed at the NBT, in domestic or foreign currency, by the nonbank public.

B. New Arrears by Budget Entities and State-Owned Enterprises
to Naftrason, Barqui Tajik and Tajikgas

Definition

31. Budget entities include all entities that are included in the state budget law. Key state-owned enterprises are Tadaz, Nitrogen (Sarband city), and Tajikcement.

¹ Quantitative targets are based on a program exchange rate of SM 3.2 = US$1 and SDR 1 = US$1.388.
² The change in net credit to general government in the NBT balance sheet may differ from the change in NBT net claims (transactions) on the general government shown in the fiscal accounts because the NBT balance sheet revalues the stocks of the net general government according to the program exchange rate.