May 23, 2000

Mr. Horst Köhler
Managing Director
International Monetary Fund
700 19^th Street, N.W.
Washington, D.C. 20431
U.S.A.

Dear Mr. Köhler:

1.  In the context of its adjustment efforts to promote rapid and sustainable economic growth and reduce poverty, the government of Cameroon embarked on a medium-term economic and financial program (July 1, 1997–June 30, 2000), supported under a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF).¹ This letter, which supplements the one dated August 9, 1999, reviews Cameroon's performance under the program supported by the third annual PRGF arrangement, approved by the IMF Executive Board on September 7, 1999, and outlines the government's objectives and policies for the second half of fiscal year 1999/2000 (July–June). In addition, Cameroon requests an extension of the three-year commitment period under the three-year arrangement to December 20, 2000.

Performance during the first half of the fiscal year 1999/2000

2.  The satisfactory performance under the first two annual PRGF arrangements in both the macroeconomic and the structural areas continued broadly during the first half of fiscal year 1999/2000 despite the worrisome development observed during the first quarter. The government has remained fully committed to the implementation of its reform program, and corrective measures were taken. Notably, a new, reinforced monitoring mechanism was set up to ensure a regular and timely transfer of oil revenue to the government budget, and a cash-flow management committee was created to strengthen budgetary execution. Thus, all quantitative performance criteria and benchmarks for end-December 1999 were met, with the exception of the benchmark related to the ceiling on bank credit to the nonfinancial public sector, which was missed by a small margin because of a bank credit of CFAF 6 billion extended to the national oil refinery company (SONARA). The government continued its satisfactory implementation of structural reforms. The two structural performance criteria for end-December 1999 and end-January 2000 have been met, namely, the completion of an audit by end-December 1999 of the procurement system and of the ten largest transactions in 1998/99, and the conclusion of an economic and financial study of the forestry sector. Also, the five structural benchmarks set at end-December 1999 have been respected.

3.  Notwithstanding the improvement in the terms of trade, owing mainly to higher oil prices, there were signs that the pace of economic activity slowed during the first half of the year as a result of the decline in timber, rubber, and other non-oil commodity exports and the weakening of domestic demand. Inflation, measured by the average consumer price index (CPI), remained low, leveling off at 1.9 percent in December 1999. The budget performance was slightly better than projected: total revenue was CFAF 33 billion higher than expected, owing to the transfers of the CFAF 30 billion oil windfall and higher non-oil revenue. Total expenditure was CFAF 65 billion lower than envisaged, mainly reflecting lower external interest payments and underspending on both foreign-financed and domestically financed public investments. The fiscal primary balance increased to CFAF 171 billion, compared with a target of CFAF 144 billion for the first half of 1999/2000. Monetary developments during the first half of the year showed a slowdown in the expansion of credit to the private sector, a net repayment to the banking system by the central government amounting to CFAF 6 billion, a larger contribution from Cameroon (CFAF 45 billion) to the improvement of the net foreign assets position of the regional central bank, and signs that deposits were beginning to recover, although at a slower pace than programmed.

Macroeconomic and budgetary framework for the second half of the year

4.  In view of developments in the first half of the year, notably the non-oil commodity price and volume prospects, real GDP growth, which was initially projected at 4.8 percent, has been reduced to 4.2 percent, reflecting a downward revision in non-oil exports during the first half of 1999/2000. The new average oil price for Cameroon for 1999/2000 is projected at US$22.8 a barrel, US$7.5 a barrel higher than anticipated. On this basis, preliminary projections point to an improvement in the external current account deficit, including grants, to 2.7 percent of GDP, compared with the 3.2 percent initially projected for 1999/2000.

5.  The fiscal program for 1999/2000 has been revised to take account of the more favorable oil prices; oil revenue is now projected to be 2.3 percent of GDP higher, boosting total revenue to 19 percent of GDP. As a result, the primary surplus for 1999/2000 is expected to increase to 7.1 percent of GDP, compared with the target of 5.2 percent, and the overall deficit, excluding grants, should narrow from 2.9 percent of GDP to 0.3 percent of GDP. Part of the additional oil revenue will be used to accelerate the clearance of domestic arrears audited and validated by an independent, internationally recognized firm, as well as the payments of agreed debt (dette conventionnée) and bank debt, in consultation with IMF staff.

6.  The government will continue to strengthen its capacity to mobilize non-oil revenue through measures to improve customs and tax administration efficiency and combat fraud, including a broadening of the tax base and the strengthening of value added tax (VAT) and forestry tax collection. To this end, a World Bank-sponsored study of the forestry sector has been carried out by an independent, internationally recognized firm. In consultation with donors and lenders, the recommendations of the study will be implemented by the government starting in 2000/01. In addition, the authorities plan to enhance the operational efficiency of the forestry revenue protection program by stepping up field inspections (work sites, checkpoints, factory entrances, and ports) and by strengthening cooperation between the agencies involved in the program. The decree establishing selection criteria and procedures for choosing bidders for forestry licenses was recently revised to make the process of awarding forestry concessions more transparent. The supplementary measures concerning forestry revenue are indicated in the annex. In the meantime, all the prior measures for release of the World Bank floating tranche in support of the forestry sector, particularly regarding the forestry development plans, the establishment of an effective guarantee system, and the revision of the by-laws of ONADEF, should be implemented by end-June 2000.

7.  In domestic taxation, the authorities will ensure the systematic and immediate transfer of self-assessed taxes (impôts à versement spontané), especially the VAT collected by the electricity company SONEL, the water company SNEC, the telecommunications company CAMTEL, and the other public enterprises. In particular, the government will endeavor to collect existing VAT arrears, estimated at CFAF 4.3 billion. Moreover, steps will be taken to (a) ensure control over the tax base and tighten fiscal audits; (b) simplify procedures; (c) modernize tax directorate management tools; and (d) strengthen VAT enforcement based on the recommendations of the IMF technical assistance mission of November 1999. To increase the efficiency of the tax directorate, the government will establish a unit to monitor tax compliance by the 200 largest enterprises by end-June 2000. The supplementary measures are indicated in the annex.

8.  In the customs area, a customs reform committee has been created as recommended by the IMF technical assistance mission, and an action plan has been drawn up. A timetable has been established for implementation of the key recommendations in the second half of the financial year, including the definition of procedures for enhanced coordination with the agent responsible for revenue protection and preshipment inspections, simplification of customs clearance and export procedures by end-March 2000, and closer monitoring of the transit trade between Douala and neighboring countries. In addition, the government will transform the joint unit of the customs and tax departments into a unit responsible for the collection and analysis of tax data by end-May 2000. The government will also take steps to make the computer system secure for the entry of all customs declaration, and to ensure that the required information is provided and that it is both consistent and plausible, by end-May 2000. IMF technical assistance will be required for monitoring the implementation of customs reforms. Finally, all the remaining import surcharges will be eliminated by end-June 2000, in accordance with the tax and customs reform. Moreover, the government, in concert with the other members of the Economic and Monetary Community of Central Africa (CEMAC), will undertake a further reduction of the common external tariff. The government will support the progress made toward adopting a common investment charter. The other steps to be taken to boost tax yield, as well as measures to restructure and modernize the customs administration, are indicated in the annex.

9.  On the expenditure side, after normalizing its relations with other countries, the government plans to step up its efforts toward the social sectors, particularly health and education. Detailed strategies for the health and education sectors are being prepared by the government with World Bank assistance, and they will include quantifiable targets in the context of a three-five year medium-term expenditure framework, to be reflected in the budget starting in 2000/01. Quarterly budget execution reports will be strengthened by an improved analysis of operating and investment expenditure on a commitment, settlement, and payment basis beginning in 2000/01, and by closer monitoring of transferred appropriations (crédits délégués). To further enhance accountability in key spending ministries, the government agreed to extend the practice of issuing quarterly reports to eight additional ministry departments. To address weaknesses in the Ministry of Education, the government will implement the corrective actions identified with World Bank assistance, as discussed in paragraph 23. Regarding the civil service, a physical census of all civil servants and a compendium of relevant regulatory texts are to be completed by end-May 2000, to provide a more accurate basis for assessing appropriate staffing and salary levels beginning in 2000/01.

10.  The government will continue its efforts to improve public expenditure management. To this end, the following initial actions have been taken: (a) simplification of procedures and reduction of the number of steps and players involved in budget execution; (b) increase in the responsibility of financial comptrollers in spending ministries; (c) systematization of control by the Ministry of Finance and external audit agencies; and (d) improved monitoring of transferred appropriations. Also, a committee composed of key directorates has been formed to improve by end-May 2000 the quality of data and facilitate the production of treasury balances on a continuing and comprehensive basis, while ensuring the consistency of the detailed table for government financial data monitoring (tableau de bord) with these balances. To strengthen cash-flow management in the context of budget execution, a cash-flow committee has been formed, consisting of representatives of all concerned departments in the Ministry of Finance and the autonomous debt agency (CAA).

11.  The government is aware that reform of the procurement system is urgent, and it will take the necessary measures for its successful implementation. In line with the recommendations of an internationally recognized firm following its audit of the procurement system, the government will issue a decree to (a) introduce new procurement thresholds, as proposed by the auditor; (b) limit the splitting up of procurement contracts; and (c) ensure control of procurement commissions. To this end, the government is planning to overhaul the existing system to make it more transparent through the adoption of (a) an action plan by end-May 2000; (b) a procurement code by end-June 2000, which will require the participation of an independent observer in the procurement commission and an expost audit mechanism by an independent and internationally recognized company; and (c) an institutional mechanism by end-June 2000. In addition, by end-June 2000, the government will implement a procurement monitoring system in the form of a simple information system providing a statistical assessment of the status of contracts.

12.  Regarding domestic arrears, the government has established an inventory commission to identify all arrears not yet included in the stock of government arrears and backed by the necessary supporting documents for submission to an independent firm for validation. The government has completed this inventory by March 15, 2000, the deadline beyond which no new claim could be considered. It nearly completed the validation by mid-April 2000, at which time it determined the bulk of the official amount of government arrears and adopted a comprehensive multiyear settlement plan for the validated arrears. The government will complete the validation process of the remaining domestic arrears by end-May 2000, including the settlement plan. In the meantime, the government will ensure that no unaudited arrears are paid and will inform all holders of audited claims included in the inventory but not validated that their claims have been officially rejected.

13.  The financial program for 1999/2000 has been revised based on monetary developments in the first half of the financial year and the improvement in the terms of trade. The program for the second half aims at enabling Cameroon to contribute CFAF 77 billion to the increase in the net foreign assets position of the regional central bank (BEAC). As a result of the more favorable budget outturn, net bank credit to the central government will be reduced by CFAF 81 billion during the second half of 1999/2000. To this end, the government will ensure that export earnings are repatriated by economic agents and surrendered to the BEAC within 30 days of collection, in accordance with the regional foreign exchange regulations. Money growth, which was slower than expected in the first quarter of the year, is expected to recover, and the average velocity for the year 1999/2000 as a whole will decline to 6.8.

Structural and sectoral policies

14.  The government is determined to consolidate the ongoing reforms in the agro-industry, public utilities, transport, petroleum, and financial sectors, with a view to stimulating private sector investment, enhancing the competitiveness and efficiency of the economy, and boosting production.

15.  In the agro-industrial sector, reforms are well under way: the selection of the successful bidder for the sale of the palm oil company (SOCAPALM) has recently been validated; negotiations are proceeding with the bidder for the successful conclusion of the transactions. However, The second round of bids for the privatization of the Cameroon Development Corporation (CDC), which was to occur by end-December 1999, has been delayed owing to technical and legal considerations. The government is aware of the need to speed up the process, and appropriate actions will shortly be taken to (a) minimize the delay in the issuance of an invitation to bid which was initially envisaged for April 2000; and (b) select provisional successful bidders by end-September 2000.

16.  With regard to public utilities, the government will conclude their privatization within the next 6–12 months. In the telecommunications sector, the newly created cellular company began operating on January 15, 2000; meanwhile, the selection of the successful bidder for the government-owned cellular company, CAMTEL-Mobile, was confirmed in mid-January 2000, and its privatization was finalized by the adoption of the presidential decree by mid-March 2000. Also, the second round of bidding for the privatization of CAMTEL was launched in December 1999. The final invitation to bid was issued in May 2000 and the provisional successful bidder will be selected by end-September 2000. In the electricity sector, the invitation to submit prequalification bids for SONEL, was launched in October 1999; the final invitation to bid is to be issued by end-June 2000 and the provisional successful bidder will be selected by end-November 2000. In the water sector, the second round of bidding for the privatization of SNEC took place in October 1999; the provisional successful bidder was selected in May 2000 and, following validation, entered into negotiations in May 2000. This is expected to clear the way for disbursement of the World Bank's Third Country Assistance Strategy (CAS III) privatization tranche. The government is taking all the steps necessary to conclude without delays the privatization of SNEC, SONEL, and CAMTEL. If necessary, the government will appoint temporary administrators for each of these companies, in compliance with the modalities specified in Section 3 of the annex.

17.  The government is engaged in far-reaching reforms of the transport sector, aimed notably at improving the competitiveness of the economy. In the port sector, all measures necessary for completion of the institutional and regulatory reform will be taken by end-May 2000, including (a) for the ports of Kribi, Tiko-Limbé, and Garoua, the establishment of management bodies, as well as consultative steering committees; (b) the transfer of ONPC assets and liabilities to the autonomous ports, the APN, and the government, based on the recently completed inventory; and (c) the liquidation of the ONPC. A detailed timetable for the transfer of the industrial and commercial activities currently carried out by the Port of Douala to the private sector through competitive bidding, which was to be prepared by end-March 2000 in accordance with the provision of CAS III, was delayed. The bidding documents will be prepared shortly with the assistance of an internationally recognized firm and the World Bank, with a view to completing the transfers by March 2001.

18.  The objective of the reform of foreign trade procedures is to make the one-stop window fully operational by July 1, 2000, based on a detailed action plan recently prepared with the technical assistance of the European Union. The government will take the necessary steps to implement all of its recent decisions on the establishment of a single checkpoint at the Port of Douala, the nothing-to-declare lane (canal vert), and customs clearance at the place of business (dédouanement à domicile) of goods eligible for such procedures. Lastly, the government will prepare an action plan to complete, by end-May 2000, the implementation of the recommendations of the legal audit of foreign trade procedures recently carried out with financial assistance from the European Union. These reforms will be closely coordinated with the recently initiated customs reforms. Together, these measures should go a long way toward achieving the goal of further reducing delays to seven days for imports and two days for exports, in accordance with the provisions of the CAS III.

19.  In the area of programming road maintenance work and operations of the Road Fund, the government will: (a) carefully prepare the maintenance of unpaved rural roads and urban roads in accordance with Article 3(3) of Decree 98/1962; (b) complete, by end-May 2000, the technical audit of road maintenance work financed by the Road Fund in fiscal year 1998/1999; (c) complete, by end-June 2000, the first financial audit of the Road Fund for fiscal year 1999/2000 in accordance with the provisions of Decree 98/1962; and (d) systematically publish the reports and resolutions of the Management Committee.

20.  In the petroleum sector, the authorities reaffirm their pledge to conduct annual audits of the national oil company, SNH. In this connection, the government has implemented fully the key recommendations of the first two audits regarding computerization, and internationally accepted accounting standards were adopted in May 2000. The ongoing third financial audit of the SNH, covering fiscal year 1998/99, will be completed shortly. In addition, an organizational and operational audit of the SNH, primarily to examine the cost structure of the sector, will be carried out by an independent, internationally recognized firm by end-June 2000. Finally, a global strategy defining the respective roles of the SNH and the private sector in the production and distribution of petroleum products is being prepared with assistance from the World Bank and will be completed in June 2000. This strategy will provide the basis for the further deepening of the reform and liberalization of the sector. As a first step, the distribution segment of the market has been liberalized, and a majority of the shares in, and management of, the petroleum storage facility (SCDP) will be transferred to the private sector by end-September 2000.

21.  In the financial sector, the government will continue to support actions to strengthen the Central African Banking Commission (COBAC) and enhance its independence. Consistent with the government's policy of withdrawing from the banking system, the privatization of the recently restructured bank (BICEC) was concluded on January 7, 2000. Also, the financial market law was adopted by the National Assembly in December 1999, and the strategy for the reform of the social security system was approved by the Interministerial Committee and adopted by the government. Studies aimed at accurately defining the stages and the process of implementing the social security reform will be undertaken by end-June 2000 and effectively under way in fiscal year 2000/01. In the insurance sector, the government was to complete the transfer of SOCAR's portfolio of fire, accident, and miscellaneous risks policies to the provisional successful bidder in April 2000; it was to appoint a liquidator for the CNR by end-April 2000. All liquidation operations managed by the SRC, with the exception of the BMBC, will be audited by end-June 2000, with completion scheduled for end-September 2000. Efforts to register savings and loan cooperatives (COOPEC) for licensing purposes continue, and the documentation received from the existing cooperatives will be forwarded to the COBAC for approval by end-June 2000. The government will support the efforts made to adopt a single community-wide bank licensing system within the CEMAC. Finally, the government is participating in the Financial Stability Assessment Program (FSAP) pilot project, with a view to identifying potential vulnerabilities in the financial system and the capacity for crisis response. The government is ready to implement any corrective measures that will emerge from this exercise to strengthen the financial system and ensure its viability and resilience.

22.  The main focus of the government's social policies is to ensure that strengthened economic performance translates into tangible results in terms of poverty reduction, job creation, and genuine improvement in the economic welfare of the population as a whole. The strategies being developed for the education and health sectors, rural road infrastructure, and safe drinking water will constitute the core elements of the government's fight against poverty and will aim at correcting the malfunctions of the current system for delivery of the corresponding government services, to increase their efficiency.

23.  In the education sector, the government is undertaking the following corrective measures identified with the assistance of the World Bank:

(i) elimination of the textbook distribution monopoly, as agreed by the government, the World Bank, and the Fund;

(ii) establishment of a textbook approval unit to define and publish, by mid-April 2000, a list of criteria for the selection of textbooks, and, by end-May 2000, to publish a list of textbooks approved for academic year 2000/2001;

(iii) elimination, by passing a law by end-June 2000, of the contributions required of parents of primary school students, following the decision of the President of the Republic;

(iv) elimination of the management committees of primary schools and revision of their makeup in secondary institutions to increase the representation of parents by April 30, 2000; and

(v) publication of a medium-term strategy to decentralize the administrative management of teaching staffs by June 30, 2000.

The government will take the necessary measures to liberalize the distribution of textbooks through an instruction of the Prime Minister to the Minister in charge of Education.

24.  The government is aware that the health sector needs to be restructured and that this will take a long time to accomplish. To this end, a sectoral strategy is being prepared to achieve the following objectives: (a) reduce mortality and morbidity rates at birth and following diseases and/or infections; (b) reduce the incidence of communicable diseases (such as malaria, onchocerciasis, leprosy, and trypanosomiasis) and especially, diseases with the potential to become epidemics (e.g., meningitis, cholera, and bacillary dysentery); and (c) slow the spread of the HIV/AIDS virus and other sexually transmissible diseases (STDs). The government is also aware that attaining these objectives will require focusing on preventive medicine. It follows, then, that an intersectoral health strategy is needed, addressing such issues as access to drinking water, sewerage, nutrition, and public education. By June 2000, the authorities will have (a) completed preparation of the sectoral strategy, which will serve as the basis for the sector's medium-term budget framework and the monitoring of health care expenditure; (b) completed the institutional audit of the health sector; (c) prepared a framework for dialogue with NGOs, the private sector, and representatives of health care providers (seminars, workshops, and participatory conferences); (d) begun surveying beneficiaries concerning the supply of health services; and (e) initiated a study on costs and financing, as well as studies on the health map and the viability of the health districts.

25.  The government is aware that HIV/AIDS is no longer just a public health issue but also a threat to Cameroon's development, with the potential to decimate the work force, splinter society, plunge families into poverty, and create millions of orphans. To combat this scourge, the government will take various steps with support from the international community: (a) it will develop a communications strategy to explain the seriousness of this epidemic; (b) it will arrange for NGOs and specialized agencies of the United Nations (UNAIDS) to have free access to public radio and television in order to broadcast special programs and information about AIDS—in particular, specific programs will be developed for the most vulnerable sectors and populations to minimize risk; and (c) the government will head up appropriate actions to systematize AIDS screening by health centers and psychological and social services for patients. With the assistance of the World Bank and other donors, pilot projects will be initiated in the six health districts covered by the PSFN project, with a view to developing anti-AIDS community action programs.

26.  The poverty reduction strategy prepared in April 1999 with World Bank assistance is being revised on the basis of comments from the World Bank and IMF missions that visited Cameroon in November 1999. Based on the preliminary outline and timetable for preparation of the Poverty Reduction Strategy Paper (PRSP) agreed with the World Bank and the IMF, the participatory process, which will cover ten provinces, began in early April 2000, with a view to finalizing the preliminary PRSP by end-September 2000 and the final PRSP by in the Summer 2001.

Governance

27.  The government is determined to enhance transparency and accountability in its operations and to fight corruption. To this end, its actions will focus on public expenditure management, transparency in oil sector operations, and the privatization of public enterprises. In the first half of 1999/2000, the government conducted a number of audits: (a) an audit of SNH accounts for the fiscal year 1998/1999; (b) an audit of the government contract award and monitoring of the procurement system; (c) an economic audit of the forestry sector; and (d) technical and financial audits of the Road Fund. In the context of the action plan to improve public expenditure, the government has required the Ministries of Education, Health, and Public Works to prepare quarterly reports on the execution of their respective budgets. It has also established a procedure for monthly and quarterly monitoring of oil operations to ensure the transparency and automatic transfer (automaticité) of oil revenue to the treasury. The program for the second half of the year calls for implementation of most of the recommendations from these audits and enhanced monitoring of the management of social spending through physical and financial audits of investment and nonwage expenditure. To reinforce these measures, the government will prepare a comprehensive strategy aimed at improving governance and reducing corruption based on the National Governance Program, which was developed with assistance from the United Nations Development Program (UNDP). This strategy will be adopted by end-June 2000. The government plans to take the steps necessary to correct deficiencies in the legal system, the proper functioning of which is essential to the development of the private sector, particularly the financial system.

External sector policies and debt management

28.  A key objective of Cameroon's external policy remains to enhance external competitiveness, in order to achieve external viability and strengthen growth prospects. On the basis of the improvement in oil prices, the current external account deficit for 1999/2000 is now projected to narrow to 2.7 percent of GDP, against the anticipated 3.2 percent. The government is aware that the pursuit of prudent fiscal and credit policies, as well as the implementation of the envisaged efficiency-enhancing structural reforms, will be key to achieving this objective.

29.  The government is determined to continue efforts undertaken in the context of its three-year program to regularize its relations with the international financial community. However, contrary to expectations, progress in reaching an agreement with commercial creditors has been rather slow, mainly because of protracted efforts to recruit a legal advisor and the need to have a debt- and debt-service-reduction operation that is as comprehensive as possible. Work continues to complete the reconciliation process and to assess the legal validity of the nonbank claims. Based on the current schedule, the operation could be completed by end-2000. The government will strive to obtain relief from its commercial creditors that will meet the test of comparability of treatment with the terms Cameroon would receive under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative).

30.   Initial work on the preparation of a loan-by-loan debt sustainability analysis shows that Cameroon is eligible for assistance under the HIPC Initiative. The government has contacted all its external creditors, with a view to reconciling each individual loan. All the multilateral loans and a large number of bilateral loans have already been reconciled. The government intends to complete the reconciliation process by end-May 2000. However, if there are still some unreconciled loans by that date, the government will seek the assistance of the World Bank and the Fund in order to expedite the process. The government is aware that, in order to reach the HIPC Initiative decision point, Cameroon will have to satisfactorily complete the third year of the program, strengthen expenditure management, develop detailed strategies for the social sectors, improve governance, and begin implementing key measures to reverse the current deterioration in the fields of education and health. The government is also aware that it will have to demonstrate its ability to use additional resources effectively in the health and education sectors and in the fight against poverty. To that end, the capacities of these sectors will be enhanced to better monitor expenditure.

Program monitoring and review

31.  To monitor policy implementation under the program, a number of quantitative benchmarks have been proposed for end-March 2000, as well as quantitative performance criteria and benchmarks for end-June 2000 (see Table 1). The proposed benchmarks will comprise the following: (a) a ceiling on the increase in net claims of the banking system on the central government; (b) a floor on the primary balance; (c) a minimum for the net reduction of public sector external payment arrears; (d) a ceiling on new medium- and long-term nonconcessional external loans contracted or guaranteed by the government; (e) a ceiling on the net disbursement of external loans with a maturity of less than one year; (f) a ceiling on the increase in net claims of the banking system on the nonfinancial public sector; and (g) a minimum for the total revenue of the central government. The limits established in items (a)-(e) will serve as performance criteria for end-June 2000. In addition, the reform measures indicated in Table 2 have been adopted as performance criteria or structural benchmarks for the second half of the year.

32.   In view of the uncertainties about external debt relief, privatization proceeds, and oil prices, the program contains a built-in contingency mechanism for the adjustment of the quantitative benchmarks and performance criteria. The mechanism will be triggered if petroleum receipts differ from the projections. Transfers of government oil revenue to the budget are programmed for the second half of the year as follows: CFAF 109 billion in the third quarter and CFAF 79 billion in the fourth. Disbursement of the third tranche under the third annual arrangement will be subject to observance of the end-June 2000 performance criteria and completion of the final review no later than end-September 2000. The review will focus mainly on budgetary non-oil revenue performance and on the customs reform, public expenditure management, detailed strategies in the education and health sectors, and progress in the privatization program and in the liberalization of the petroleum and transport sectors, as well as on governance.

33.  As in the past, program implementation will be regularly examined in cabinet meetings chaired by the Prime Minister, the Head of Government. An Interministerial Supervisory Committee, chaired by the Minister of Economy and Finance and comprising the key economic and social sector ministers, will continue to coordinate program implementation with the assistance of a technical monitoring committee. The committee will, on a timely basis, provide Fund staff with all the data necessary to effectively monitor the program. To this end, the government will continue to improve data quality, coverage, and timeliness, in the context of the General Data Dissemination System (GDDS).

ANNEX

• By June 2000, complete the task of cleaning up the taxpayer master file, with priority given to locating and updating the tax records of all previously registered enterprises; finalize this work by end-December 2000 for enterprises subject to the impôt libératoire2 and employees.

• Expand the taxpayer master file by assigning a taxpayer identification number (TIN) to all economic agents, starting with those in the files of customs, budget, and the treasury, which should be required to use the TIN in their dealings with taxpayers effective May 1, 2000.

• Establish computer interfaces between finance departments to facilitate information exchanges by end-December 2000.

• Generalize the self-assessment system so that each taxpayer can assess on his return and pay simultaneously all his taxes beginning in fiscal year 2001/02 (July-June), by (a) simplifying the profit tax return (BIC/IS, BNC, and BA); (b) revising the apprenticeship tax assessment and settlement payment procedure; and (c) in connection with the general income tax, replacing the progressive surcharge with a single, proportional single-rate tax applicable to all schedular incomes, with harmonized filing dates.

• Improve performance in the tax audits by enhancing the role of intelligence division (tax investigation teams and the Joint Tax/Customs Unit) in the programming of audits, facilitating the circulation and use of information within the Tax Directorate, and granting tax departments access to the data contained in the files of other finance departments (PADOGE—the computerized customs system—in particular).

• In connection with the 2000/01 Budget Law, prepare a tax procedures manual containing, inter alia, provisions aimed at streamlining audit procedures, harmonizing penalties and dates for filing returns and paying taxes, and allowing tax investigation.

• Improve collection by strengthening cooperation between the Tax Directorate and the Treasury, complete the inventory of tax arrears, and implement a plan for an effective recovery of tax arrears and the write-off of the unrecoverable amounts by end-June 2000.

• Strengthen the staff of the departments in charge of tax collections and provide training for their staff by end-March 2000.

• Develop a program to strengthen and modernize the Tax Directorate by end-June 2000, specifically to: (a) increase the number of assessment and collection agents; (b) upgrade management tools; (c) create a large enterprise unit; and (d) organize tax offices following the model of the specialized tax offices.

• Make the Forestry Revenue Protection Program operational by stepping up field inspections (establishment of checkpoints at mandatory entry/exit points—factory and port entrances); use information from inspections to create an interactive database to make DF 10 declarations more reliable; and identify and adopt new inspection technologies specifically designed to improve timber tracking, by end-December 2000.

• Require full payment of the bidding amount in the first year of the provisional agreement to eliminate the risk of excessive biddings and subsequent nonpayment of the annual royalty, thus ensuring the credibility of the competitive bidding process, by end-July 2000.

• Transform the security money deposited with the Treasury (CFAF 200 per hectare) into a bank bond and make it at least equal to the royalty for new and previously granted forestry licenses in order to better guarantee the concession holders' compliance with their long-term forestry management and tax obligations, by end-July 2000.

• By March 22, 2000, exclude from all bidding procedures any bidder who has committed at least one of the violations referred to in Article 9 of Decree 758/MINEF of June 16, 1999.

• By end-March 2000, and after giving notice, revoke the operating licenses of enterprises that have not fulfilled their tax obligations.

• For the four following measures, establish a parallel dialogue with economic agents or conduct studies to determine the requirements for implementation under the 2000/2001 Budget Law: (a) adopt a system to auction log export rights in order to recover a portion of the forestry economic rent associated with these activities and later eliminate the export surcharge; (b) eliminate the system of export processing enterprises (points francs); (c) replace export duties and taxes on processed goods with a timber tax at the factory entrance; and (d) create an intercommunity equalization fund financed by a portion of the annual forestry royalties with a view to making better use of these resources for specific projects of all communes in the country.

B.  Customs Administration Reform

• By end-May 2000, perform a quick audit of the operational and functional status of the PAGODE system, to eliminate breakdowns and safeguard the computer system.

• The remaining customs reform measures are those mentioned in the annex to the letter of Intent of August 9, 1999 (EBS/99/153;8/11/99), with their completion dates extended to end-June 2000.

II.  Measures to Improve Expenditure Management

The authorities are determined to pursue actions aimed at improving expenditure management through the following measures, as indicated in paragraphs 9–12 of the letter of intent:

• Continue to prepare sectoral policies and strategies, which will serve as a basis for a medium-term budgetary framework for the health and education ministries, and issue documents analyzing the current status of sectors, objectives, priorities, and strategic decisions, by end-June 2000.

• Continue to provide the ongoing institutional support to priority ministers for the establishment and implementation of sectoral policies in the following fields: education, health, public works, and supply/distribution of drinking water.

• Establish an operational mechanism for investment management (identification of projects; programming or budgeting; monitoring of physical, financial, and budget execution; and report on execution) by end-June 2000.

• Submit the detailed quarterly budget execution reports of ten ministries (Social Affairs, Agriculture, Education, Justice, Economy and Finance, Public Investments, Mines and Energy, Health, Transportation, and Public Works) to be disseminated to the authorities beginning with the quarter of January–March 2000.

• Improve the monitoring and management of the budget by (a) presenting a unified budget classification of public administrations by end-June 2000; (b) introducing the concepts of objective and function in the budget preparation circular for the budget of 2000/01 by end-February 2000; (c) preparing a first draft budget nomenclature to be unitary, harmonized, and based on administrative and economic classifications by end-June 2000, in order to implement it in the budget of 2001/02; (d) reforming the Budgetary Framework Law of 1962 (Ordonance of 1962) and the subsequent texts concerning the budget structure by end-June 2001; (e) producing an improved budget execution law by end-June 2000; and (f) preparing the tables and documents required by the statutes in force by end-June 2000.

• Make budget execution simpler and more efficient by (a) shortening the deadlines for implementing priority projects and (b) reducing the number of participants in the expenditure process by eliminating those who are redundant and issuing the ex post audit reports of budget auditors by end-June 2000.

• To contain the wage bill, adopt a management program for government employees by (a) completing the fieldwork for the general census of government employees by end-June 2000; (b) auditing the human resources management system for the presentation of an Operational Government Employee Management Plan, including an employee master file and decentralized management at the central and local levels, by end-September 2000; (c) after the census, updating the payroll file by end-September 2000; (d) reactivating the SIGIPES (payroll software) system project by end-September 2000; and (e) auditing the organization and functions of the payroll system (ANTILOPE, the civil service management software), with a view to reorganizing the staff and simplifying and safeguarding administrative and financial procedures by end-September 2000.

• Strengthen the computer systems of the Ministry of Economy and Finance by (a) drawing up specifications for the establishment of interfaces between the computer systems of finance departments by end-June 2000; (b) redefining the mandate of CENADI (government computer center) by end-June 2000; and (c) establishing interfaces between finance departments to exchange fiscal data by end-December 2000.

• Improve the public expenditure audit procedures by (a) adopting an audit program by end-March 2000; and (b) making the data collection network reliable for the presentation of treasury accounts on budget execution.

• Make operational the cash-flow committee, which is responsible for developing quarterly cash-flow plans based on potential revenue and priority expenditure, beginning in March 2000.

• To ensure the permanent coherence of the current operations treasury balance with the operations of the Budget, Tax, Customs and Treasury Departments and Autonomous Debt Amortization Fund (CAA) and the broad budget execution table (Tableau de bord) by end-June 2000, (a) harmonize the budget and treasury nomenclatures; (b) respect the rules, methods and time frames; (b) follow up budget audits; (c) strengthen the comprehensiveness of the public accounting by including the operations of accounting units at the diplomatic and consular missions through reorganization and improvement of the technical level of the cashiers by geographic zones, by end-March 2000; (d) improve gradually the accounting of the treasury operations to enable government budget execution to be distinguished (revenues/expenditures) by budget year; (e) incorporate operations executed by the CAA into the government financial operations; (f) establish the payment arrears based on treasury accounts by budget year; and (g) introduce the first module of the auxiliary accounting for expenditures/treasury beginning July 1, 2000.

• Respect rigorously the 1999/2000 budget (operating and investment) closing dates for expenditure commitments, payment orders, and adjustments and notify those responsible for managing appropriations that expenditure committed but not ordered for payment by the closing dates will have to be recommitted and settled from the 2000/2001 budget appropriations.

• Establish the broad budget execution table (tableau de bord) and the consolidated central government operations table (TOFE) based on authorized/payment-ordered expenditure (i.e., settled commitments), starting with fiscal year 2000/2001.

• By end-March 2000, rearrange the tableau de bord: Table M10, the statement of payment-ordered expenditure and delegated appropriations, should distinguish between settlements and appropriations transfers by fiscal year, that is between preceding and prior fiscal years and current fiscal year.

• Achieve a satisfactory rate for expenditure commitments and settlements in the budget of 1999/2000 at March 31, 2000 and June 30, 2000 (equipment expenditure and investment expenditure), as well as for priority expenditure (subsidies of all kinds, scholarships, drugs, etc.), and submit a cash-flow plan taking this pace of execution into account.

• Identify expenditure commitments without any payment order before the close of 1998/1999, as well as payment arrears from the budget 1998/1999 and prior fiscal years at the level of government accountants, in order to monitor budget execution separately; then present a cash plan by end-June 2000.

III.  Provisions Pertaining to the Privatization Program

To facilitate the privatization of major public enterprises, it will be essential to ensure the following:

• full access to financial data, and audits by international audit firms, without reservations on the part of the auditors;

• free access to technical data and sites;

• prudent management, without taking measures that bind potential buyers, without signing new collective agreements, and without launching new investment initiatives other than those related to maintenance; and

• cooperation with the authorities and with the buyer.

If any of the goals listed above are not achieved because of the manager of the enterprise to be privatized, the authorities shall immediately appoint an interim manager.