Libreville, April 10, 2001

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431
U.S.A.

Dear Mr. Köhler:

1.  This letter of intent reviews the implementation of the economic reform program of the government of Gabon supported by the Stand-By Arrangement approved by the Executive Board of the International Monetary Fund on October 23, 2000. It supplements our letter of intent of September 12, 2000. The government proposes that the first and second reviews be combined and that the third review be deferred until September 2001. It does not intend to make the third drawing under the first review and reaffirms its resolve to regard the 2001 Stand-By Arrangement as a precautionary agreement, in the event that the forecast for world oil prices of US$23 per barrel materializes. In addition, as the government has taken the corrective measures required to achieve the objectives originally set forth in the program (see paras. 7, 8, and 24), it requests waivers of the (two) structural and (two) quantitative performance criteria for end-December 2000, as well as the structural performance criterion for end-March 2001 that were not observed. The attached tables set forth the quantitative and structural performance criteria for end-June and end-September 2001, which will serve as the basis for evaluating the program under the third and fourth reviews.

A.  Program Execution Through End-December 2000

2.  Macroeconomic and financial performance in 2000 was largely in keeping with the program targets. The decline in real GDP is estimated at 1.0 percent, as against the program forecast of 2.9 percent, thanks to a more rapid recovery of activity in the non-oil sector—in particular the timber, construction, building, and commerce sectors—which registered growth of 3.0 percent. The inflation rate, as measured by the household consumer price index (CPI), remained below 2 percent on a 12-month, end-period basis. Foreign assets increased strongly—following the fiscal consolidation implemented by the government, renewed confidence on the part of economic agents, and the favorable trend of petroleum exports—and improved from the equivalent of minus 10 percent of beginning-of-period money supply at end-1999 to over 40 percent at end-2000.

3.  The primary fiscal balance, as defined in the program, was below the floor adjusted upward for any surplus in oil revenue, reaching the equivalent of 17.6 percent of GDP, 0.3 percent of GDP below the adjusted target level, and, consequently, the performance criterion at end-December 2000 was not observed. Oil revenue in 2000 exceeded the program target by an amount equivalent to 3.2 percent of GDP, thanks to an average price per Gabonese barrel of US$27.2 instead of the US$25.6 forecast in the program. The objective set for non-oil revenue was almost achieved, owing in particular to improved organization of staff and increased efforts to collect indirect taxes. The shortfall of about 0.2 percent of GDP was attributable to the delay in cashing some tax payments received at year's end. The expenditure overruns observed at end-September,¹ largely in the areas of goods and services and public investment, were in large measure corrected through stricter controls during the final quarter. Moreover, the government refrained from making any new expenditure commitments for goods and services after November 15, 2000, in accordance with the legal provisions in force. Nevertheless, expenditure on transfers and subsidies slightly exceeded the objective because of the assumption of the operational costs of certain public enterprises to be privatized.

4.  The government continued its efforts to reduce domestic payments arrears and observed the performance criterion on net reduction in arrears² by a margin of CFAF 56 billion, or 1.6 percent of GDP, while meeting current service payments on the domestic debt. These two factors contributed to improvements in the financial position of the economic agents concerned. In addition, the government decided to regularize the back pay (rappels de salaires) that accumulated between 1977 and 2000 in respect of promotions, allowances, and recruitments as a consequence of the lengthy administrative procedures. The stock of back pay, provisionally estimated at CFAF 30 billion—equivalent to 1 percent of GDP or 15 percent of the wage bill—in 2000, will be treated as domestic debt. An initial amount of CFAF 6.5 billion in back pay was settled in 2000; the remaining back pay files will be examined, with a view to determining the definitive amount by end-July 2001.

5.  The adjusted objective for net credit from the banking system to the government at end-December 2000 was exceeded by 3.4 percent of GDP, largely owing to factors outside the government's control. These include (i) higher-than-projected payments of domestic public debt service as a consequence of less favorable interest rates and maturities than anticipated; and (ii) much higher external debt service than projected (by 1.3 percent of GDP) following the reconciliation of debt data with the Paris Club and the unfavorable impact of exchange rate movements.³ Nevertheless, the oil revenue windfall made it possible to reduce net bank credit to the government by CFAF 175.4 billion (4.8 percent of GDP), as against the programmed reduction of CFAF 91.6 billion (2.5 percent of GDP).

6.  During the second half of 2000, notable progress was made in the control and transparency of public finance. In particular (i) the integrated information system for public finance (CRYSTAL), which covers all stages of budget execution, became operational in January 2001 (a performance criterion); (ii) the staff reorganization of the Directorate General of Financial Control (DGCF) took effect, along with the strengthening of controls on services rendered; (iii) the controls exercised by the Ministry of Economy and Finance over invitations to bid for government contracts and the publication thereof became more systematic, thereby helping avoid overinvoicing; (iv) the revitalization of the Auditor General's Office (Cour des comptes) has been initiated, in particular by its submission to parliament, in April 2001, of its approval of the budget execution law for 1999, which the government had sent to the Auditor General's Office and to parliament in October 2000; and (v) the audit of oil companies' accounts for fiscal years 1999 and 2000 was begun in March 2001. However, the share of public expenditure subject to invitations to bid is still small, pending the government's adoption of new legal provisions and procedures applicable to government procurement.

7.  The government continued its efforts aimed at improving governance. In particular, it prepared a first draft of the law against illegitimate enrichment (including corruption) and the law creating a National Commission Against Illegitimate Enrichment independent of the executive. However, these draft laws could not be submitted to parliament on time because of the process required for consultations (a performance criterion for end-December 2000). However, the government has submitted these draft laws to parliament on March 27, 2001 (a prior action for the second review), after consultation with IMF and World Bank staffs. The revised draft laws aim at ensuring prosecution by the attorney general (Procureur de la République) before the Special Criminal Court of each case of illegitimate enrichment transmitted by the Commission. The government intends to immediately begin consultations with parliament with a view to putting in place the legal modalities so as to ensure the autonomy and accountability of the Commission, and the transparency of its operations. This involves in particular: (i) the modalities for firing and replacing members of the Commission; (ii) the conditions for their immunity; (iii) the Commission's autonomy in its administrative operations; and (iv) the transparency of any nonbudgetary funding. In addition, a code of conduct (Ethics Code) for the Gabonese central administration, including the members of the government, was announced in the 2001 Budget Law and is in preparation, and a timetable was established for its finalization in February 2001 (a prior action for the second review), with a view to submitting a draft law to parliament before end-December 2001 (a proposed new structural benchmark).

8.  Progress was made in implementing the structural reform program despite some slippage from the projected timetable. In the absence of a successful respondent to the invitation to bid in the privatization of AGROGABON, the performance criterion on the selection of the provisional contractor by end-December 2000 could not be observed. To remedy this situation, the government proposed modified terms to two of the bidders and to a third interested investor, and, after consultation with World Bank staff, opened the new bids and selected a provisional contractor in March 2001. The restructuring and privatization of the post and telecommunications sector got under way on the basis of the February 2000 executive orders. They brought about (i) the de facto abolition of the monopoly held by the Office of Post and Telecommunications (OPT) over mobile telephony, with the establishment of two new companies; and (ii) the selection, in September 2000, of a merchant bank for implementing the privatization of Gabon Télécom. However, the liquidator for OPT and the provisional managers for Gabon Post and Gabon Télécom could not be appointed in September 2000 as planned. After examining parliament's amendments, in mid-March 2001 the government resubmitted to parliament in draft law form the executive orders on the splitting of the OPT and the regulatory framework. On this basis, the government intends to make these appointments at end-April 2001 (a prior action for the second review). Given the delays in the passage of the laws and in making the appointments, it is no longer possible to issue the invitation to bid in the privatization of Gabon Télécom by end-March 2001 (a performance criterion for the third program review). In consultation with the World Bank, the government has established a new timetable that calls for issuing this invitation to bid by end-December 2001 (a proposed new structural benchmark). Before the invitation is issued, the management bodies of the two new entities will have approved the financial audit and established the opening balance sheet, scheduled for end-June and end-September 2001, respectively.

9.  The invitation to bid in the privatization of HEVEGAB, issued in November 2000 well in advance of the cutoff date of March 2001, was unsuccessful, owing to the lack of interest on the part of potential investors. In consultation with the World Bank, the government will issue a second invitation to bid by end-June 2001 (a proposed new performance criterion) in order to select the provisional contractor by end-October 2001. Despite a number of delays, progress has been made in the privatization of the Compagnie forestière du Gabon, where a new management contract has been put in place, and Air Gabon, which is receiving technical assistance in management. Following consultation with the World Bank, the government will decide upon the privatization arrangement for Air Gabon by end-December 2001 and do everything in its power to speed up the privatization in the context of creating a subregional air carrier. Finally, in 2001 the government will divest its holdings in other enterprises, including AGRIPOG, PIZOLUB-SOGAFUTS, SMAG, and SNAT.

10.  As regards the legal and regulatory framework, the objectives were attained for the most part, in particular through the October 2000 promulgation of the new Labor Code and the adoption by the National Assembly of the Forestry Code, which is now being examined by the Senate. The government has issued a decree eliminating all quasi-fiscal levies that are not established by a law, with immediate effect from February 16, 2001, the date on which the measure was announced to the public. Civil service reform has continued as envisaged under the program. The physical census of all civil servants was completed in October 2000, and the results are being used in preparing the new organizational charts, as well as for the harmonization of the civil service roster with the payroll projected for end-March 2001. In view of the progress made in preparing the revised civil servants statutes, the government should be in a position to submit draft laws to parliament in accordance with the timetable stipulated in the program. In addition, the government has prepared a draft law on the reorganization and management of government, including the new organizational charts for all ministries, which will be submitted to parliament in the fourth quarter of 2001.

B.  Fiscal Policy for 2001

11.  In late December 2000, parliament adopted the Budget Law for 2001 by the constitutionally imposed deadline. This Budget Law is broadly in line with the government's fiscal program set forth in its letter of intent of September 12, 2000, with the exception of the public investment program, the amount of which exceeds the level envisaged in the program by 0.8 percent of GDP (see para. 15). Consequently, the primary fiscal balance in the Budget for 2001 amounts to CFAF 630 billion, or 20.3 percent of GDP, compared with CFAF 655 billion, or 21.1 percent of GDP, in the initial fiscal program. However, because the net financing available in 2001 is considerably smaller than projected, the government intends to achieve a primary balance of CFAF 655 billion.

12.  In line with the commitment made in our letter of intent of September 12, 2000, any surplus oil revenue over the programmed level will be deposited in the Account for Future Generations opened with the central bank (BEAC) in March 1998; this is a special blocked account included in the government's net position vis-à-vis the BEAC. In addition, in order to ensure adequate monitoring of movements in this account, a performance criterion (floor) will be established on the projected quarterly amounts of government deposits in this account during the third review; the floor will be set at the projected level of the cumulative oil revenue surplus. The government undertakes not to draw on this account without prior consultation with IMF staff in the context of quarterly program reviews. The possible use of such resources will be covered by a supplementary budget law and aimed at reducing the public debt and financing clearly identified basic infrastructure and poverty reduction projects.

13.  On the revenue side, the 2001 Budget Law incorporates the measures included in the program, with a view to improving non-oil revenue. These include (i) lowering the threshold for business exemption from the value-added tax (VAT); (ii) implementing the land tax with the creation of a tax registry within the new Directorate General of Taxes by end-September 2001, followed by the establishment of a tax registry and property appraisals; and (iii) strengthening customs with a view to curtailing fraud, undervaluation, and unjustified exemptions. In addition, by end-December 2001 the government will reexamine tax exemptions and assess the operations and effectiveness of tax administrations. In view of the 3.6 percent rate of growth for the non-oil sector, which is slightly higher than projected, the measures described above, and the steps taken to improve collections, non-oil revenue should amount to CFAF 475 billion in 2001.

14.  Noninterest expenditure is projected at CFAF 580.1 billion. The wage bill will be contained at CFAF 217.9 billion in 2001, compared with CFAF 216.6 billion in 2000. The anticipated savings⁴ in the context of the civil service reform will be offset by the impact of automatic promotions and new recruitment, which will, however, be limited to the education, health, and security sectors. In addition, no general salary increase is envisaged for 2001. As regards back pay, the outstanding stock at the beginning of 2001, estimated provisionally at CFAF 23.5 billion, will be paid off over several years, with CFAF 5 billion to be settled in 2001. It is understood that beginning in 2001 back pay will be included in the wage bill for the current year, with an item, "projected back pay," included in the budget beginning in 2002. The new human resource management software package to be introduced in early 2002 will make it possible to manage the wage bill in its entirety and to avoid the accumulation of arrears. Transfers and subsidies, including sovereignty expenditure, will be contained at CFAF 103.5 billion, as compared to CFAF 117.8 billion in 2000. The government expects to generate savings in water and electricity consumption and telephone charges, in particular through the implementation of rigorous control measures. In order to harmonize expenditure with the services consumed, despite any delays in invoicing, the government will make lump-sum monthly payments for telephone service in the same way that it is done for water and electricity invoicing.

15.  In accordance with our letter of intent of September 12, 2000, the government intends to contain public investment expenditure in 2001 at CFAF 125 billion, including equity participations, as against CFAF 105 billion in 2000. As in the past two years, during which the policy of spreading out spending over many small projects was ended, for fiscal 2001 the government has decided to concentrate the available resources in the education, health, basic infrastructure, and poverty reduction sectors. Accordingly, expenditure devoted to basic infrastructure and the social sectors in 2001 will represent 2 percent and 1 percent of GDP, respectively, as against 0.7 percent and 0.6 percent of GDP in 2000. No equity participation or injection of capital in an enterprise will occur without prior consultation with World Bank staff, and unless the prospects for improving financial viability are good. In addition, the government is continuing its efforts to improve the quality and effectiveness of public investment; in this context, it will initiate a review of public expenditure, in particular the public investment program (PIP) for 2001-03—with assistance from the World Bank and the African Development Bank—during the second quarter of 2001, with a view to facilitating the preparation of the draft Budget Law for 2002. Based on the results of this review, and if cash surpluses from oil revenue occur, the government will examine the possibility of revising the amount of public investment expenditure in consultation with IMF and World Bank staffs.

16.  Net revenue from restructuring is projected at CFAF 4.1 billion in 2001, with CFAF 17.5 billion in receipts from sales and asset transfers, and CFAF 13.4 billion in costs for public enterprise privatization and restructuring and for administrative reform. The privatization and restructuring costs include separation bonuses payable for Transgabonais and anticipated for the OPT, HEVEGAB, and other public enterprises. The government will continue its efforts to reduce the stock of unpaid payment orders at the treasury, estimated at CFAF 143.2 billion at end-2000, and will pay an amount of CFAF 50.1 billion in 2001 to reduce this stock to less than CFAF 93.1 billion by end-2001. The stock will subsequently be reduced gradually to a level equivalent to two months' primary expenditure (excluding interest, wages, and net lending) during 2002.

17.  The financing requirement for central government financial operations in 2001 is heavily influenced by the fact that external debt service is markedly higher than initially projected. This situation results from the less favorable than expected terms obtained from the Paris Club and an upward revision in debt service due following the reconciliation of debt data. Accordingly, external debt service in 2001 is projected to represent 47 percent of fiscal revenue in 2001, or 19 percent of GDP. This burden—combined with domestic debt service that is also higher than projected—will absorb the projected cash surplus for 2001 in its entirety, as a result of which the CFAF 167.0 billion reduction in the central government's indebtedness to the banking system will no longer be feasible. Therefore, the level of net bank credit to the government will remain unchanged, at CFAF 129.1 billion, from end-2000 to end-2001. However, the government's position vis-à-vis the banking system would improve to the extent that oil production would stabilize at 13.5 million metric tons in 2001 (as the latest projections suggest), exceeding the 11.3 million metric tons assumed in preparing the 2001 budget. The government has respected its obligations vis-à-vis the Paris Club so as to ensure the entry into force of the Agreed Minute of December 15, 2000. It intends to conclude bilateral agreements with Paris Club members before end-June 2001, and it will seek to obtain from the other bilateral creditors terms that are comparable to those obtained from the Paris Club.

C.  Governance and Structural Reforms

18.  As indicated in our letter of intent of September 12, 2000, the government is determined to vigorously pursue its efforts to improve the management and control of public finance. These efforts will focus on (i) the integrated information system for public finance (CRYSTAL); (ii) the reorganization of the Ministry of Economy and Finance; and (iii) other aspects of governance. In the area of budget execution and monitoring, the government has requested long-term external technical assistance.

19.  The CRYSTAL system will be fully operational, integrating all accounting offices in Libreville and the major spending ministries as from end-April 2001 onward. Beginning in June 2001, CRYSTAL will make it possible, among other things, to prepare the accounting balances of the treasury in real time and improve the monitoring of the stock of unpaid payment orders (treasury float). The control and monitoring of the "special accounts" funded by earmarked revenue will be enhanced through the mandatory issuance of payment orders, as well as the verification of the nature and the classification of each expenditure.⁵

20.  As regards the reorganization of the Ministry of Economy and Finance, the respective roles of the Directorate General of Financial Control (DGCF), the Directorate General of Budget (DGB), and the Directorate General of Government Accounting (DGCP) will be redefined. New modalities enabling financial controllers to verify services rendered will be introduced in mid-2001 to strengthen the role of the DGCF. The DGB will focus more on the quality of expenditure through the creation of the Directorate of Supplies, the monitoring of budget execution on the revenue and expenditures sides, and the controlling of the special accounts. The role of the DGCP will be refocused on accounting, internal control, and regulation, with its debt management function entrusted to a separate unit that is being established. In addition, the government will redefine the role of the DGCP to make its supervision of the treasury effective. The General Inspectorate of Finance, whose new responsibilities will include supervision of the directorates of the Ministry of Economy and Finance and of all government accounting offices, will become operational in the second half of the year, thanks in particular to the adoption of the implementation provisions and the hiring of inspectors.

21.  As regards other aspects of governance, the resources and institutional capacity of the Auditor General's Office (Cour des comptes) will be enhanced in order to ensure that its role of controlling and sanctioning government accounting agents (comptables publics) is fully operational. Publication of the budget execution laws for 1999 and 2000 is scheduled for end-September 2001 and in the course of 2002, respectively. The decree approving the new Procurement Code will be adopted by end-June 2001, along with the National Commission on Government Contracts and its technical secretariat, and the implementation provisions will be introduced by end-June 2001. In future, all contracts exceeding a threshold of CFAF 20 million will require restricted or open invitations to bid, and the initial bidding documents and final award will be approved by the National Commission on Government Contracts. The financial audit of the oil companies for 1999 and 2000, initiated by the Joint Commission of the Ministry of Economy and Finance and the Ministry of Mining, will be completed not later than end-September 2001 (a proposed new structural benchmark). In future, such audits will be carried out annually in such a way as to cover the entire sector at least once every three years.

22.  To improve the preparation and transparency of the budget, the government plans to reexamine the budget format and to introduce new economic, administrative, and functional classifications—in particular to establish a more direct link between budget lines and the desired allocation of government expenditure. The new nomenclature will be adopted in conjunction with the Budget Law for 2002. The government has requested technical assistance from the IMF for reviewing budget classifications and reexamining the budgetary legislation and ancillary regulations.

23.  As regards the regulatory framework, the government undertakes to (i) finalize the draft Commercial Code in conformity with the OHADA Uniform Acts by September 30, 2001, at the latest; (ii) make effective the liberalization of prices by implementing the 1998 Law on Competition and appointing the members of the Competition Commission; and (iii) publish and explain to the public the regulations and procedures governing the citizenry's access to the courts by December 2001. As regards the liberalization of foreign trade, in consultation with the other CEMAC member states, the government intends to eliminate by end-2002 all surtaxes/surcharges currently in force (that is, a 20 percent rate on imports of mineral water, poultry and derivatives, edible oils, and soap), and to take a significant step toward that end by end-2001. Moreover, the quantitative restriction on the imports of sugar will be eliminated when the agreement between Gabon and the privatized sugar company expires at end-2003.

D. Prior Actions, Program Monitoring, and Waivers

24.  The government intends to implement the prior actions indicated in Table 2 of this letter and described in paras. 7 and 8 by not later than one week prior to the distribution to the IMF Executive Board of the documentation for the second review. As indicated in the revised technical memorandum of understanding, the government has strengthened its program monitoring. To this end, it intends to use the integrated information system for public finance in order to improve the supervision of budget execution at all stages and to improve the quality of information and the frequency with which it is communicated to IMF staff. The quantitative performance criteria proposed for end-June and end-September 2001 and the structural performance criteria proposed for the remaining period of the program are listed in Tables 1 and 2 of this letter. The structural reforms will be monitored by means of the structural benchmarks set forth in Table 4 of Attachment I.

25.  The government requests that the IMF grant waivers for the performance criteria on net credit from the banking system to the government, the primary fiscal balance, the selection of the provisional contractor of AGROGABON, the submission to parliament of a draft anticorruption law by end-December 2000, and the issuance of the invitation to bid for the privatization of Gabon Télécom by end-March 2001. The latter criterion would be changed to a structural benchmark for end-December 2001. In addition, the government requests modification of two structural performance criteria, namely, the second invitation to bid in the privatization of HEVEGAB by end-June 2001 (instead of the selection of the provisional contractor by end-September 2001, as initially called for under the program) and the selection of the provisional contractor for Gabon Télécom by end-March 2002 (instead of end-June 2001, as initially called for under the program). The third quarterly review, to be completed by the IMF Executive Board by mid-September 2001 at the latest on the basis of the performance criteria for end-June 2001, will among other things evaluate the progress made in the management of public finance, governance (including progress on the draft anticorruption laws), and administrative reform; the review will also set the performance criteria for end-December 2001. In addition, the government proposes a rephasing of the remaining drawings under the Stand-By Arrangement by dividing the fourth drawing (associated with the performance criteria for end-March 2001) among the three final drawings (associated with the performance criteria for end-June, end-September, and end-December 2001, respectively), thus making them SDR 17.640 million each.

Sincerely yours,

/s/ Emile DOUMBA Minister of Economy, Finance, Budget, and Privatization

REPUBLIC OF GABON

Technical Memorandum of Understanding

1.  This memorandum spells out the understandings for the monitoring of program implementation, the reporting requirements, and the purchase schedule and terms under the Stand-By Arrangement. In this context, it defines (a) the quantitative and structural performance criteria and benchmarks; (b) the adjusters for the quantitative performance criteria and benchmarks; and (c) the key assumptions used in the formulation of the program for 2001 presented in the letter of intent of the Government of Gabon attached to the letter from the Minister of Economy, Finance, Budget, and Privatization to the Managing Director of the International Monetary Fund dated April 10, 2001, which updates the letter of September 12, 2000.

A.  Monitoring of Program Implementation

2.  Monitoring of the implementation of the program will be made on the basis of (a) six quarterly reviews; and (b) an assessment of the observance of the quantitative and structural performance criteria and benchmarks at specified dates.

B.  Quantitative Performance Criteria and Benchmarks and Adjusters

Quantitative performance criteria and benchmarks

3.  The quantitative performance criteria and benchmarks are specified in Table 1 of the letter of intent of April 10, 2001. The performance criteria are the following:

• a ceiling on the net claims of the banking system on the central government;

• a floor on the cumulative deposits in the Account for Future Generations, opened in March 1998 at the Bank of Central African States (BEAC), of any projected financing surplus for 2001 (cumulative from January 1, 2001);

• a ceiling on new nonconcessional external debt (including lease operations) with original maturity of more than 1 year and up to (and including) 12 years contracted or guaranteed by the government (cumulative from January 1, 2001);

• a ceiling on the outstanding stock of new nonconcessional external debt with original maturity of up to (and including ) 1 year contracted or guaranteed by the government;

• a zero limit on the accumulation of external arrears (a continuous performance criterion);

• a floor on the net reduction in the domestic payments arrears of the central government (cumulative from January 1, 2001); and.

• a floor on the primary fiscal balance, on a payment order basis (cumulative from January 1, 2001).

4.  The program includes adjusters for the quantitative performance criteria and benchmarks as specified in paragraphs 20 and 21 below and in footnotes 3, 4, and 8 of Table 1 of the letter of intent of April 10, 2001.

5.  The quantitative benchmarks (cumulative from January 1, 2001) are as follows:

• a floor on government non-oil revenue;

• a ceiling on the total government wage bill, on a commitment basis; and

• a ceiling on total noninterest nonwage expenditure, on a commitment basis.

Definitions and computation

6.  The outstanding amount of the net claims of the banking system on the central government is measured in accordance with the accounting practice at the central bank, the BEAC, along the lines of the IMF format. As of December 31, 2000, this outstanding amount was CFAF 129.1 billion, and its breakdown was as follows:

7.  The cumulative deposits in the Account for Future Generations at the BEAC are built up from any financing surplus on government operations accumulated from January 1, 2001 onward, which are to be deposited before the end of each quarter as they accrue, as well as any oil revenues in excess of the programmed levels (based on program baseline projections in para. 24). The Account for Future Generations is part of the net claims of the banking system on the government. The possible use of any projected surplus financing and any additional oil revenue will be discussed with the staff of the Fund in the context of the next quarterly reviews. The surplus could be used in the context of a supplementary Budget Appropriations Act to reduce the public debt and for clearly identified essential infrastructure and poverty reduction projects.

8.  The performance criteria on external debt are ceilings on new nonconcessional external debt contracted or guaranteed by the government. External debt with maturities of 1 to 12 years is debt with an original maturity of more than 1 year and up to (and including) 12 years, as specified in the initial contractual agreement (see footnote 5, Table 1 of the letter of intent of April 10, 2001). The performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt, adopted by the IMF on August 24, 2000, but also to commitments contracted or guaranteed for which no value has yet been received. Excluded from this performance criterion are rescheduling arrangements and purchases from the IMF. Ceilings are also set on the outstanding stock of nonconcessional external debt,¹ with an original maturity of up to 1 year (1 year included) contracted or guaranteed by the government (see footnote 6, Table 1 of the letter of intent of April 10, 2001). Excluded from this performance criterion are rescheduling arrangements, purchases from the IMF, and normal import-related credits. The concessionality of debts will be calculated on the basis of the reference interest rates for the specific currencies of denomination used, as established by the Organization for Economic Cooperation and Development (OECD). A debt is deemed to be on concessional terms if, at the time of the initial disbursement date, the ratio between the present value of the loan calculated on the basis of the reference interest rates, on the one hand, and the face (nominal) value of the loan, on the other hand, is less than 65 percent (i.e., a grant element of at least 35 percent). As an example, the reference interest rates for the period January 15, 2001-February 14, 2001, were as follows:

9.   The accumulation of external payments arrears (to which a continuous zero limit applies) is calculated as the difference between (a) the gross amount of all the maturities falling due on account of contractual external debt-service obligations (interest and principal, including moratorium and late/penalty interest, where applicable); and (b) the amount of actual payments made during the period under consideration. Payments arrears to non-Paris Club bilateral creditors, for which the government is seeking a rescheduling on terms comparable to those obtained from the Paris Club on December 15, 2000, are excluded from external arrears for program-monitoring purposes. The outstanding amount of external debt arrears is valued at the end of the period under consideration, with the foreign currency-denominated debts converted into CFA francs on the basis of the exchange rates published by the IMF. The projected external debt service for 2001 was computed by the Directorate General of Government Accounting (DGCP) of the Ministry of Economy, Finance, Budget, and Privatization on the basis of the interest rates and exchange rates for the major currencies of denominations as specified in Table 1. According to the DGCP data and based on these currency-specific exchange rates, the outstanding amount of external debt-service arrears at end-December 2000 was zero. Projected external debt-service and debt payments due in 2001 come to CFAF 575.0 billion, comprising CFAF 281.0 billion in principal and CFAF 293.9 billion in interest, before taking into account CFAF 17 billion in debt cancellation. These amounts include debt-service payments due in 2000 but deferred to 2001: CFAF 23.8 billion in arrears to the African Development Bank, CFAF 69.6 billion in arrears to Paris Club creditors under the previous rescheduling (December 1995); CFAF 74.0 billion in maturities falling due between the date the accounts were closed out (September 30, 2000) and the date of the Paris Club rescheduling (December 15, 2000); CFAF 33 billion in penalty/late interest; CFAF 32.7 billion in moratorium interest; CFAF 30.1 billion for uninsured suppliers; CFAF 6.9 billion in arrears to non-Paris Club creditors; and CFAF 1.3 billion in arrears to banks.

10.  The net change in domestic payments arrears of the central government corresponds to the change since January 1, 2001 in the treasury float plus the difference between the amount due as interest on the domestic debt² and the amount actually paid in the period in question. The treasury float consists of the "payment orders at the treasury" and the "other treasury float."³ The "payment orders at the treasury" corresponds to the difference between the cumulative payment orders (ordonnancements)⁴ and the cumulative actual payments (checks encashed—cash basis).⁵ At end-December 2000, the government's domestic payments arrears amounted to CFAF 187.3 billion, comprising CFAF 143.2 billion in outstanding treasury float and CFAF 44 billion in "other treasury float," with no payments arrears on the domestic debt as defined above (see Table 3).⁶

11.  In addition to monitoring the evolution of domestic payments arrears and the quantitative benchmark on total noninterest nonwage expenditure on a commitment basis (engagements), the Government will closely monitor the difference between expenditure commitments (engagements) and payment orders (ordonnancements)—that is, dépenses engagées non ordonnancées (DENO)—as well as its composition by the subitems wages and salaries, goods and services, transfers and subsidies, interest, investment, and net lending.

12.   Total government revenue is measured on a cash basis and includes offsetting revenue and expenditure operations, including the reimbursement of advances from oil companies and private sector tax obligations offset against government obligations to the private sector. Tax receipts are specified in Table 2 on central government financial operations (Tableau des opérations financières de l'Etat-TOFE), including the gross credits and gross debits under the special accounts and funds. Total revenue in 2000 amounted to CFAF 1,207.6 billion and is targeted at CFAF 1,235.1 billion for 2001, based on the assumptions specified in paras. 24 and 25 below.

13.   Total government expenditure is defined on an adjusted payment order basis, that is, all payment orders (ordonnancements) adjusted to take into account advances (avances non régularisées), expenditure committed and payment ordered for the year (or a subperiod) as a whole (crédits délégués), and anticipated expenditures (anticipations non régularisées). Total expenditure will be limited to CFAF 907.1 billion (29.3 percent of GDP) in 2001. Total expenditure, excluding interest payments on the public debt, will be limited to CFAF 580.1 billion (18.7 percent of GDP) in 2001. These amounts include expenditures under the special accounts and funds (which were incorporated into the budget with the adoption of the revised Budget Appropriations Act for 2000 on July 27, 2000, as well as any expenditure commitments (including for investment) in 2000 that were carried forward to the next budget year (crédits reportés).

14.   Monitoring of revenue and expenditure and their respective components will be done on the basis of Table 2.

15.   The primary fiscal surplus, on a payment order basis (ordonnancements), is defined as the difference between (a) total government revenue on a cash basis; and (b) total noninterest current expenditure plus investment expenditure (including foreign-financed investment, and investment on crédits reportés from the previous year) and net lending. The primary fiscal surplus is programmed to increase from CFAF 633.5 billion (17.6 percent of GDP) in 2000 to CFAF 655.0 billion (21.1 percent of GDP) in 2001.

16.   The quantitative benchmark on the government wage bill is defined on a commitment basis (engagements) for all personnel (whether on a permanent or a temporary basis) of the civil service and the security and defense forces. The government wage bill in 2000 was CFAF 216.6 billion and should not exceed CFAF 217.9 billion in 2001. It consists of all remunerations, including indemnities, social contributions, housing allowances, and other statutory allowances.

17.  The quantitative benchmark on total noninterest nonwage expenditure is defined on a commitment basis (engagements), adjusted to take into account advances (avances non régularisées) and anticipated expenditures (anticipations non régularisées), and including expenditure deferred from the previous year and/or recommitted in the current year.

18.   The restructuring costs posted as "financing" represent the social costs relating to the public enterprises to be liquidated or privatized in the context of the central government's divestiture of its productive sector holdings, the operating costs (consultants, etc.) of the Secretariat of the Privatization Committee, and the costs of voluntary departures in the context of the administrative reform. The other expenditures, intended in particular for maintaining the activity of the other public enterprises included in the privatization program, are posted under "transfers and subsidies".

19.  The financial operations specified in Table 2 on central government financial operations (Tableau des opérations financières de l'Etat-TOFE) relating to treasury correspondents (correspondants du Trésor), local governments (collectivités locales), and expenditure for which the government's bank accounts have not been debited (dépenses non imputées en banque) must correspond to the change from period to period in the overall balance of these accounts taken together. The Government will provide information on the overall balance of all these accounts on a quarterly basis to the IMF.

Adjustments to performance criteria⁷

20.  A specific contingency mechanism for oil revenue is established for 2001, given the importance of oil for the Gabonese economy and the uncertainties regarding oil prices and output. As noted in paragraph 7, if oil revenue is above the baseline projections in a given quarter, the surplus will be deposited in the Account for Future Generations with the BEAC, with a corresponding downward adjustment in the ceiling on net credit from the banking system to the government and an upward adjustment in the floor for the primary fiscal balance. If oil revenue in CFA franc terms is lower than programmed because actual oil prices and/or output are lower than projected in the baseline scenario, 50 percent of the shortfall, with a cumulative maximum of CFAF 30 billion in 2001 (1 percent of GDP),⁸ could be offset by additional net bank credit—with an upward adjustment in the ceiling on net credit from the banking system to the government, a downward adjustment in the floor on deposits in the Account for Future Generations (not lower than zero), and a downward adjustment in the floor on the primary fiscal balance. The remaining shortfall is to be covered by additional fiscal tightening (higher non-oil tax revenue and/or lower noninterest expenditure than programmed). If the oil revenue shortfall exceeds 2 percent of GDP, the quarterly fiscal targets will be reassessed in consultation with Fund staff.

21.  The program also includes symmetric (downward/upward) adjusters for the performance criteria on net credit from the banking system to the government for higher/lower-than-programmed nonproject external financing disbursements (net of external debt service effectively paid)⁹ and lower/higher-than-programmed net reduction of domestic arrears. The upward adjustment in net credit from the banking system to the government is capped at 50 percent of the total shortfall (i.e., the net external financing shortfall plus the excess in net reduction in domestic payments arrears), with a cumulative maximum of CFAF 30 billion.¹⁰ The program also includes a symmetric (downward/upward) adjuster for the net bank credit to the government for privatization proceeds higher/lower than projected in the program. The program's financing assumptions are the following: (i) external debt service for 2001 as per the December 15, 2000 Paris Club rescheduling agreement, the agreed payment of arrears deferred from 2000, and moratorium and penalty/late interest; (ii) zero nonproject external financing disbursements; (iii) disbursements on project-related financing totaling CFAF 20 billion in 2001; and (iv) a net reduction of domestic payments arrears of CFAF 50.1 billion (Table 1 of the letter of intent of April 10, 2001).

C.  Structural Performance Criteria

22.  The structural performance criteria are specified in Table 2 of the letter of intent of April 10, 2001.

D.  Structural Benchmarks

23.  The structural benchmarks are specified in Table 4.

E.  Key Assumptions of the 2001 Program

24.  The main assumptions of the program are the following:

25.  In computing the value of oil exports, oil output is reduced by 616,000 metric tons in 2001, reflecting the amount of domestically produced oil consumed by the domestic oil refinery company (SOGARA). As regards non-oil export tax and duties, the program assumes total timber and manganese exports of CFAF 324.0 billion and CFAF 82.3 billion, respectively, in 2001.

F.  Reporting Requirements¹¹

26.  To facilitate monitoring of program implementation, the government of Gabon will prepare and send to the IMF monthly reports within four weeks following the end of the preceding month. In addition, the Technical Support Unit of the Interministerial Committee for Monitoring the Structural Adjustment Program will communicate each month to the IMF's African Department by fax or by e-mail the data required to monitor the implementation of the program. Such data will include (but are not limited to) the following:

(a) the comprehensive monetary survey, the central bank balance sheet, and the consolidated balance sheet of the commercial banks;

(b) the net financial position of the government with the BEAC (PNG) and net credit from the banking system to the government, showing separately the cumulative deposits in the Special Account;

(c) central government financial operations (opérations financières de l'Etat) on a payment order basis (ordonnancements) (Table 2), identifying any discrepancy between the fiscal deficit and changes in domestic and external arrears, on the one hand, and total net domestic bank/nonbank and net external financing, on the other;

(d) the detailed breakdown of petroleum receipts by nature (royalties, profit tax, and other) and by company, and the underlying basis when available (e.g. production, prices, turnover, costs, etc.), as well as the detailed breakdown of non-oil receipts (by type of tax) and nontax revenue;

(e) the detailed breakdown of total central government expenditure, on an adjusted commitment basis, adjusted payment order basis, and cash basis as defined in paragraphs 13 and 17 above, in line with the integrated information system, that is, including advances (avances non régularisées), expenditure committed and payment ordered for the year as a whole (or a subperiod) (crédits délégués), and anticipated expenditures (anticipations non régularisées);

(f) the details for domestic and external debt-service obligations, on a contractual and actual payments basis, respectively, with a breakdown into interest and principal and by creditor, as well as any possible accumulation of domestic or external arrears;

(g) the details for the outstanding stock of domestic arrears (month to month) and the cumulative flows from January 1, 2001: the net accumulation of new arrears during 2001 as defined in paragraphs 10-11 by the difference between payment orders (ordonnancements) and payments made (cash basis), as well as the repayment of pre-2001 arrears, with both items to be broken down by wages and salaries, goods and services, transfers and subsidies, interest, capital expenditure, and net lending, and to show any stock-flow adjustment (see format specified in Table 3).

(h) the amount of new external debt contracted or guaranteed by the government, with the detailed information on the original terms and conditions (currency of denomination, interest rate, grace period, and maturity);

(i) actual disbursements on non-project-related external financing, including on newly contracted loans, and the amounts of debt relief granted to Gabon by external creditors;

(j) indicators and other statistical data on recent economic developments, such as the household consumer price index, merchandise imports and exports (in value and volume terms) by major category, oil production and exports of oil and timber (in value and volume terms), and activity in the forestry sector, the wood-processing industry, other light processing and manufacturing industries, and mining, as well as the quarterly reports on economic activity prepared by the General Directorate of the Economy and the Interinstitutional Committee on Statistics; and

(k) a status report on the implementation of the structural reforms specified in Table 2 of the letter of intent of April 10, 2001 and Table 4 of this TMU.

27.  The Technical Support Unit of the Interministerial Committee for Monitoring the Structural Adjustment Program will provide the African Department of the IMF with any other information that the latter may deem necessary or that may be requested by the staff of the IMF for the effective monitoring of the program.

G.  Purchase Schedule and Terms

28.  The purchases under the Stand-By Arrangement will be made in accordance with the following schedule and conditions:

• The first purchase will be available upon approval by the Executive Board of the International Monetary Fund of the Stand-by Arrangement request (October 2000).

• The second purchase will be available on (a) completion by the Executive Board of the IMF of the first quarterly review of the program, no later than December 15, 2000; and (b) observance of the quantitative and structural performance criteria for September 30, 2000 and of the structural performance criterion for October 31, 2000. This first review will also establish the quantitative performance criteria for end-March and end-June 2001 and the indicative targets for end-September 2001.

• The third purchase will be available on (a) completion by the Executive Board of the International Monetary Fund of the second quarterly review of the program, no later than March 15, 2001; and (b) observance of the quantitative and structural performance criteria for December 31, 2000 and of the structural performance criterion for January 31, 2001.

• The fourth purchase will be available on (a) completion by the Executive Board of the IMF of the third quarterly review of the program, no later than September 15, 2001; and (b) observance of the quantitative performance criteria for, and the structural performance criteria through, June 30, 2001. This third review will also establish the quantitative performance criteria for end-December 2001.

• The fifth purchase will be available on (a) completion by the Executive Board of the IMF of the fourth quarterly review of the program, no later than December 15, 2001; and (b) observance of the quantitative performance criteria for, and the structural performance criteria through, September 30, 2001.

• The sixth and last purchase will be available on (a) completion by the Executive Board of the IMF of the fifth quarterly review of the program, no later than March 15, 2002; and (b) observance of the quantitative performance criteria for, and the structural performance criteria through December 31, 2001.