Conakry, March 30, 2001

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

Dear Mr. Köhler:

1.  The attached memorandum of economic and financial policies sets out the objectives and policies that the government of Guinea intends to pursue in the context of a new medium-term program covering the period April 2001–March 2004. To facilitate the achievement of these objectives and the implementation of these policies, the government hereby requests a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) in an amount equivalent to SDR 64.26 million (60 percent of quota).

2.  The government of Guinea will provide the Fund with such information as the Fund requests in connection with the progress made in implementing the economic and financial policies and achieving the objectives of the program as set out in the attached memorandum.

3.  The government of Guinea believes that the policies and measures set out in the attached memorandum are adequate to achieve the objectives of its program; it will take any further measures that may become appropriate for this purpose. During the course of the new PRGF-supported program, the government will consult with the Managing Director on the adoption of any measures that could be appropriate, at the initiative of the government or whenever the Managing Director requests such a consultation. Moreover, after the period of the new PRGF arrangement and for as long as Guinea has outstanding financial obligations to the Fund arising from loans under the arrangement, the government will consult with the Fund from time to time, at the initiative of the government or whenever the Managing Director requests consultation, on Guinea's economic and financial policies.

4.  The government of Guinea will conduct with the Fund two reviews of the first annual program supported by the new arrangement, the first not later than end-December 2001, and the second before end-June, 2002.

Sincerely yours,

Memorandum of Economic and Financial Policies of the Government of Guinea for 2001–04

I.  Introduction

1.  Economic and financial developments in the latter half of 1999 and during 2000 were adversely affected by unfavorable exogenous factors, including a deterioration of the security situation along Guinea's borders, a serious terms of trade shock due to the sharp increase in international oil prices, and large shortfalls in external assistance. In this adverse external context, the implementation of the third annual program supported by the Poverty Reduction and Growth Facility (PRGF) during the period October 1999-December 2000 proved difficult for Guinea. After slippages in early 2000, the Guinean authorities brought the program back on track with the help of an interim program, established in consultation with IMF staff in May 2000. Accordingly, all but two of the revised targets for end-September 2000 were observed, and the first review under the third annual arrangement was completed in December 2000.

II.  The Poverty Reduction Framework for the Adjustment Program

2.  Between 1996 and 1998, the government formulated an overall vision of development set out in a document entitled "Guinea: Vision 2010," which was to be made operational through a National Human Development Program prepared in December 1998 on the basis of broad consultation with civil society. In this context, a variety of programs have been initiated in the priority sectors of health, education, water supply, agriculture, and transportation, but their effectiveness has been limited, owing to the absence of a coherent strategy supported by all participants and development partners. Moreover, the macroeconomic improvements have not resulted in a corresponding improvement in living conditions for the majority of the population, and Guinea continues to fall short of realizing the potential benefits of its human and natural resource endowments.

3.  It is in this spirit that the government of Guinea has embraced the poverty reduction strategy paper (PRSP) as an overall framework for the coordination of its poverty reduction policies and the support of its external partners. In this context, the Guinean authorities have prepared, in consultation with key civil society groupings, an interim poverty reduction strategy paper (I-PRSP), in which is set out a preliminary analysis of poverty in Guinea, as well as the framework for the country's poverty reduction strategy. This strategy has three main axes: (i) increasing economic growth and creating income-earning and employment opportunities, particularly for the rural poor; (ii) developing equal access to basic services; and (iii) improving governance and strengthening institutional and human capacity. To this end, this memorandum presents the new medium-term program for the period April 2001–March 2004, for which IMF support is requested. It sets out the objectives that the government of Guinea intends to achieve during the next three years and describes the accompanying policies, including those to be implemented during the first year of the program.

III.  Medium-Term Macroeconomic Objectives

4.  Over the medium term, the government will focus on fostering economic stability and accelerating broad-based growth, to the benefit of the poor. The main sources of this growth will be the agriculture and animal production, fisheries, and mining sectors. Policies will concentrate on diversifying Guinea's production and export structure, and creating an enabling environment for private sector development.

5.  The key macroeconomic objectives of the new medium-term program are: (i) average output growth of 5.2 percent over the period 2001–04; (ii) a decline in inflation from 6.8 percent in 2000 to 2.8 percent by 2004; and (iii) an external current account deficit (excluding official transfers) of 5.5 percent of GDP on average during 2001–04. The overall fiscal deficit (on a commitment basis and including grants) is expected to decline from 2.9 percent of GDP in 2000 to 1.3 percent in 2004. These projections include the impact of additional poverty-related spending funded in part by the resources resulting from the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative), for which Guinea was declared eligible by the Executive Boards of the IMF and the World Bank in December 2000.

6.  The authorities have designed medium-term policies for the strategic sectors of agricultural and animal production, fisheries, transport, and mining that are intended to foster growth; create employment and income-earning opportunities for the poor; diversify exports; and conserve the natural environment. Moreover, several major private sector investment projects that are planned over the next five years in the mining sector, including a large aluminum smelter, are expected to contribute significantly to overall growth and are likely to have spillover effects into other sectors of the economy.

7.  In the fiscal area, the government will continue the consolidation of the public finances and ensure that the budget benefits the poor. Priority will be given to improving revenue mobilization and expenditure management, with a significant increase in budgetary allocations to the priority sectors (education, health, rural development, etc.).

8.  Monetary policy will focus on further improving the instruments of monetary policy and controlling inflation.

9.  In the external sector, policies will aim to diversify the export structure and strengthen the foreign exchange reserves, thereby contributing to a more stable exchange rate and enhancing Guinea's international competitiveness. The authorities will also continue to strengthen the management of Guinea's external debt, so as to avoid any unsustainable accumulation of external indebtedness after the debt stock reduction at the completion point under the HIPC Initiative.

IV.  The Economic and Financial Program for 2001

10.  The program of the government of Guinea is based on output growth in 2001 of 3.3 percent, expected to stem primarily from the agricultural, fisheries, mining, and transport sectors. The program targets average consumer price inflation (as measured by the Conakry price index) of 9.6 percent for 2001. The external current account deficit, including grants, is projected to narrow from 2.9 percent of GDP in 2000 to 2.6 percent in 2001, despite import growth associated with the increased spending in the priority social sectors and the additional requirements for reconstruction and rehabilitation resulting from the border conflict. The gross domestic investment ratio is projected to rise from about 22 percent to 24 percent of GDP. The saving ratio is expected to increase from 18.6 percent to 19.3 percent of GDP, after use of the additional resources to be obtained under the Enhanced HIPC Initiative.

A.  Public Finances

11.  The amended 2001 budget submitted to the National Assembly at end-March 2001 is based on a significant revenue effort aimed at raising the revenue-to-GDP ratio from 11.1 percent in 2000 to 13.2 percent in 2001, despite the adverse effects of the border conflict on economic activity and imports, and, thus, on revenues, during the first months of the year. With the increase in budget appropriations in the social sectors financed by the interim debt relief under the enhanced HIPC Initiative, current expenditure is projected to rise by 2.7 percent of GDP to 12 percent in 2001, while the domestic contribution to investment expenditure would increase by 1¼ percent of GDP. Therefore, the primary surplus would decline from 2.6 percent of GDP in 2000 to 0.8 percent (2.5 percent, excluding the additional HIPC Initiative-financed spending). Capital expenditure and net lending is projected to increase from 7.3 percent of GDP in 2000 to 9.8 percent in 2001.

12.  The revenue from taxes on international trade is projected to rise by 0.2 percent of GDP in 2001 to GF 131 billion in 2001, primarily as a result of the implementation of measures to strengthen customs administration and to fight fraud, as well as from the reduction of exemptions. With regard to the former set of measures, an action plan has been set up that will be implemented by end-June 2001. In addition to linking the computer systems of the national customs directorate and the preshipment inspection company (SGS), and setting up programs to train agents in the use of the computerized customs information system (SYDONIA) (done in January 2001), these actions include the following: making the database management system of the SGS operational (March 2001); computerizing the database on exemptions (March 2001), on temporary admissions (April 2001), and on diplomatic exemptions (May 2001); and providing specialized training for customs agents in the management of human resources (done in February 2001), and in control mechanisms and in the fight against fraud (June 2001).

13.  The 2001 budget also includes a number of new measures to widen the tax base. In terms of tax policy, the rate of the fixed levy (prélèvement forfaitaire) will be increased from 3 percent to 5 percent, and all imports by mining companies that are not directly used in the production process have been taxed since May 2000 under an assessment processing fee (redevance de traitement et de liquidation—RTL) at the rate of 2 percent. Public works equipment temporarily admitted to Guinea is now subject to normal taxation pro rata temporis. In addition, temporarily admitted vehicles are subject to an annual RTL payment on their residual value. Moreover, the government has started reexamining the system of tax exemptions under the Mining Code, the Investment Code, and the special tax agreements and letters of establishment that provide exemptions beyond those of the two codes. Several of these exemptions will expire or be phased out before end-2001. The government is committed to streamlining by the end of 2004 the exemptions still in force at end-2001, particularly those accorded to the mining companies, through the renegotiation of existing agreements and the nonrenewal of those that expire. No new agreements providing exemptions beyond the scope of the Mining Code and the Investment Code will be granted. The government intends, however, to introduce a levy for the remuneration of administrative services (la rémunération des prestations administratives—RPA) on all imports entering the production process, in addition to the preferential customs rate of 5.6 percent presently in effect. With a view to broadening the tax base by inducing a large number of enterprises to make profit tax declarations, the 2001 budget law includes provisions that widen the range of the fixed minimum tax (impôt minimum forfaitaire) from GF 2–20 million to GF 3_40 million. The withholding tax at the source on local purchases by enterprises not subject to the value-added tax (VAT) has also been expanded to cover more enterprises. Besides, a tax office has been established at the customs directorate to improve the monitoring of the application of the fixed levy and to minimize abuse of the fixed rate by importers not subject to the VAT. In this regard, a restricted list of imported products that could be of interest to the poor has been established, with a view to reducing to a strict minimum the tax advantages granted to the informal sector in the area of customs. A new audit section (section enquêtes et recherches) has been created to impose detailed controls and conduct verifications. Furthermore, a comprehensive survey of taxpayers will be carried out by end-December 2001, and the tax directorate will deepen its collaboration with professional organizations with a view to improving payments morale. The section charged with imposing tax controls a posteriori has been attached to the office of the Minister of Finance—the authorities are examining the possibility of creating a similar structure for the customs.

14.  As part of the action plan adopted in January 2001 to correct the problems identified in the audit reports of three public enterprises—SEEG (water), SOGEL (electricity), and PAG (port)—the government concluded in December 2000 the reassessment of the VAT liabilities of these enterprises. It identified a total of GF 3.8 billion to be repaid to during 2001–03, with GF 3.6 billion due in 2001. Moreover, starting in 2001, the three enterprises are subject to VAT from the billing phase. With regard to the audit of the custom tax invoices (bordereaux de taxation—BDT), a listing of unpaid BDT balances by importer and type of tax was prepared at end-December 2000 and agreement was reached in December 2000, with the importers involved on the amount to be paid (about GF 2.6 billion) and on the schedule of repayment.

15.  The audit of SOTELGUI (telecommunications) revealed repeated incidences of tax fraud, contributing to a revenue shortfall of an estimated GF 3.8 billion. In addition, another major case of fraud, involving employees of the tax directorate, the central bank, and some commercial banks, was uncovered in late January 2001. Both cases have been publicly submitted to the National Anticorruption Committee (CNLC) for investigation, and the Ministry of Justice has already launched proceedings against the persons and companies as provided for under the law. The recommendation of the CNLC in both cases will be published, and a definitive plan for the reimbursement of the amounts concerned, and any related punitive fines, will be established by end-June 2001. The CNLC will also examine the weaknesses of the tax directorate's procedures that made this fraud possible and will make recommendations for strengthening them.

16.  The government adopted at end-March 2001 an automatic adjustment mechanism for the retail prices of petroleum products, following extensive consultation with its partners in the petroleum distribution sector. Prior to the adoption of the new scheme, the price of gasoline at the pump was reduced at end-January 2001 from GF 1,600 per liter to GF 1,300 per liter to reflect the recent decline in oil prices on the world market. Petroleum tax (taxe spéciale sur les produits pétroliers-TSPP) revenues are projected to reach GF 79 billion in 2001, compared with GF 47 billion in 2000.

17.  Total current expenditure is projected to increase to GF 713 billion in 2001 (12.1 percent of GDP), as against GF 504 billion in 2000 (9.4 percent of GDP), reflecting the use of the debt-service savings under the enhanced HIPC Initiative to increase budgetary allocations to the social sectors. The expenditure projection also takes into account the additional spending required to meet the urgent humanitarian needs and to protect the nation against the recent attacks. The wage bill would increase by 10 percent, reflecting the wage increase granted in November 2000, as well as the new recruitment in education and health required to meet the objectives set out in the I-PRSP for these two key sectors. An analysis of public expenditure will be initiated during 2001 that encompasses not only spending in the year 2001 but also expenditures planned over the medium term, with assistance from the World Bank, the European Union, and other donors.

18.  To improve expenditure composition, the government has earmarked the entire amount of debt relief under the enhanced HIPC Initiative for expenditures in the priority sectors (health, education, rural development, road maintenance, and justice). Thus, the share of nonwage recurrent expenditures in 2001 in the priority sectors, relative to total spending, is projected to rise from 26 percent before HIPC Initiative relief to 39 percent after HIPC Initiative relief. All specific HIPC Initiative-financed spending will be appropriated at the time of approval of the budget law for 2001; in this connection, a subaccount of the treasury has been created at the central bank, into which will be paid the counterpart of the nominal debt-service savings resulting from the interim debt relief under the HIPC Initiative. The budget nomenclature has been expanded by two additional categories (lines 8 and 9), in which all HIPC-financed current and capital spending will be accounted for. Spending from this account requires the personal signature of the Minister of Finance or other persons that were explicitly authorized by the latter, consistent with the application of the financial legislation. Detailed reports on the projected and actual use of these resources will be produced and published on a monthly basis.

19.  The government is committed to further improving public expenditure management. To enhance expenditure control and tracking in the short term, it has decided to close, by June 2001, its dormant accounts at the central bank; to forbid overdrafts on government accounts in the banking system without the authorization of the Minister of Finance; and to close all government accounts in commercial banks except for the accounts of projects financed by foreign resources. The objective is to have only one current account of the treasury at the Central Bank of the Republic of Guinea (BCRG) by the end of 2002. Similarly, all government entities will deposit their funds in the treasury. The authorities will work with their development partners to harmonize the procedures relating to counterpart funds. With the technical and financial support of the World Bank, the government will extend its medium-term expenditure framework (MTEF) gradually to cover capital outlays by 2003. By the time of presentation of the 2002 budget, the mechanism for tracking poverty-related spending, which presently covers current spending in health, education, justice, transport, and rural development, will be extended to include spending on urban development and housing, and social affairs. Both the MTEF and the computerized expenditure tracking system will be extended during 2001 to cover current spending by the local authorities.

20.  The government will complete its inventory of the stock of domestic payments arrears by June 2001 and will establish by end-September 2001 a plan for the elimination of the verified arrears by the end of the program period. The monthly cash-flow plan and the computerized expenditure tracking system will be used actively to limit expenditure commitments to available resources and prevent any further accumulation of such arrears, and repayments totaling GF 4.6 billion will be made during 2001.

21.  The overall deficit (on a cash basis, and including grants) is thus projected to reach GF 199 billion (3.3 percent of GDP) in 2001. Repayments to the banking system totaling GF 76  billion are programmed during the year—these include a reduction in net credit from the central bank, thereby lowering the ratio of central bank credit to the previous year's tax revenues from 51.8 percent at end-2000 to 32.7 percent at end-2001. This ratio will be further reduced to 10 percent over the remainder of the program period, consistent with the relevant convergence criterion of the Economic Community of West African States (ECOWAS) monetary zone (see below). Taking into account disbursements of project loans and the amortization due on the external public debt, there remains a financing gap of GF 311 billion. This gap will be covered by committed budgetary assistance from the World Bank, the African Development Bank, the European Union, and bilateral donors, as well as by the expected interim assistance under the enhanced HIPC Initiative. Moreover, the European Union envisages a new support program, the first tranche of which could be disbursed before the end of 2001.

22.  With a view to increasing the transparency of the public finances and allowing the National Assembly to assume the function of ex post control over the execution of the budget provided for by law, the government will in 2001 begin again to produce the administrative and management accounts (comptes administratif et de gestion). It will present these accounts for the 1998 and 1999 financial years by end-September 2001, and for the 2000 financial year before end-June 2002. It will ensure that the draft accounting law (loi de règlement) for the 2001 financial year is submitted to the National Assembly within the time frame set out by law. The Accounts Chamber of the Supreme Court is supposed to submit to the National Assembly the consistency report after verifying the government's accounts. With the support of its development partners, the government will take the necessary steps to increase the human and financial resources of the Accounts Chamber so that it can carry out its function of verifying the financial accounts of the State.

B.  Monetary Policy

23.  The stance of monetary policy will be considerably tightened in 2001 relative to 2000, when the need to finance the government deficit, in the absence of external financial assistance, led to a far greater expansion of net credit to the government and of broad money than was originally programmed. Net bank credit to the government will be significantly reduced and the growth of reserve money limited, with a view to containing inflation and strengthening the net foreign assets of the central bank.

24.  The program therefore targets an increase in broad money of some 8.5 percent in 2001. This target will be achieved by a more active management of liquidity through the auction of central bank bills, as well as by adjustments of the BCRG's refinancing rate, on which the entire structure of interest rates depends (see below).

25.  The net domestic assets of the banking system are projected to contract by 22 percent in 2001, reflecting the reduction in net bank credit to the government of GF 76 billion. Careful monitoring of the liquidity requirements of the treasury will help ensure that this ceiling is not exceeded thereafter. Net bank credit to the private sector, by contrast, is projected to expand moderately.

The reform of monetary policy

26.  With a view to further modernizing and enhancing the efficiency of its framework for the conduct of monetary policy, improving its calculation and forecasting of bank liquidity, and diversifying the monetary instruments at its disposal, the BCRG has prepared a program of major reforms, based on the recommendations of a technical assistance mission from the Monetary and Exchange Affairs Department of the IMF in June 2000. As a complement to these reforms, a wide-ranging program of improvements in monetary and financial statistics has also been developed, in collaboration with a technical assistance mission from the Statistics Department of the IMF. The BCRG will also continue to implement its action plan for improving its internal organization and control procedures, based on the results of the August 2000 audit of its operations.

27.  Two key steps have already been taken in reforming the framework of monetary policy. First, with a view to achieving a clear distinction between the BCRG's monetary policy objectives in the framework of its open market operations and the financing requirements of the treasury, the BCRG introduced, on November 10, 2000, central bank bills (titres de régulation monétaire, TRM) with a seven-day maturity. These TRMs replaced the auction of treasury bills (nouveaux bons de trésor, NBT) for purposes of liquidity management, the existing stock of which (GF 25.3 billion) was transformed into TRMs. To further strengthen liquidity forecasting, by end-March 2001 a joint committee of the BCRG and the Guinean Treasury will be put in place to monitor liquidity developments; the bank inspection unit of the BCRG will begin spot checks of banks' liquidity declarations; and the adjudication procedures for the TRM auctions will be computerized. The BCRG intends to lengthen the maturity of the TRM from 7 to 14 days by end-September 2001.

28.  Second, to ease the tight liquidity situation of the commercial banks, the reserve ratio was halved to 5.5 percent of eligible deposits on December 1, 2000, releasing an additional GF 17 billion in bank liquidity. Approximately half of this amount was invested in a special issue of treasury bills to finance the government deficit at the end of the year, while the remainder was held in foreign exchange. The range of deposits subject to the reserve requirement will be reexamined by end-June 2001.

29.  Furthermore, the BCRG prepared at the start of January 2001 a structure of interest rates, based around a base rate (taux directeur) applicable to its refinancing window, which is intended to become the main channel for signaling changes in the stance of monetary policy, and around which other key central bank rates are defined. This system will take effect by end-March 2001 after consultation with the commercial banks, and will be reexamined by end-July.

30.  The changes in the modalities of the TRM auctions contributed to the reactivation of the interbank market late in 2000. The average interest rate on these transactions has settled at about 13 percent. By end-April 2001, the BCRG will introduce, in consultation with the commercial banks, a revised regulatory framework governing the collateral to be used in these transactions (pensions livrées) and withdraw its guarantee.

31.  The foreign exchange auctions (marché aux enchères de devises, MED) continue to function well, and the differential between the official and the parallel market rates has fluctuated within a very narrow band of less than ± 2 percent over the past few months. However, the supply of foreign exchange on the MED has been extremely tight, given the difficulties experienced by banks in accessing the needed amounts as required. The BCRG will, therefore, encourage the banks to begin interbank foreign exchange transactions up to a certain limit between official auctions—a practice that should help reduce the banks' reluctance to supply the MED with foreign exchange.

32.  The BCRG adopted at end-November 2000 a new regulation governing the foreign exchange bureaus, that facilitated their posting of bonds and allows their participation in the MED through the commercial banks. Also, at end-November 2000, the conditions for foreign exchange accounts held by the exchange bureaus in commercial banks were relaxed to allow cash deposits and withdrawals, and the receipt of transfers from abroad. By end-June 2001, the BCRG will introduce a revised regulatory framework governing foreign exchange swap transactions with commercial banks; it will complete by June 2001 a joint study with economic operators on the functioning of the MED and on the extension of the liberalization of foreign exchange accounts in the banking system to other private holders of such accounts.

33.  Finally, to enhance the transparency of monetary policy, a wide-reaching program of improvements in the system of providing monetary information and statistics has been launched. A series of quarterly meetings between the BCRG and economic operators was initiated in January 2001 to discuss monetary policy, including the BCRG's inflation objectives and the dissemination of statistics. Beginning in July 2001, the BCRG will publish a monthly information bulletin on the financial system, with a report on the TRM adjudication sessions, as well as the resulting interest rates; and it will create, by end-September 2001, a BCRG website containing a database on monetary developments. During the fourth quarter of 2001, the BCRG will establish and publish a summary table of the principal economic indicators of Guinea, including statistical series on key monetary aggregates, which will be integrated into the monetary database. As part of this statistical program, the BCRG will regularly transmit to the Statistics Department of the IMF all relevant statistical series on the monetary aggregates and key interest rates for publication in the International Financial Statistics.

Bank supervision and restructuring

34.  The authorities will continue to strengthen the supervision and prudential regulations of the banking system, with a view to achieving full conformity with the Basel Core Principles by 2004. To this end, by end-September 2001, the BCRG will adopt a regulatory framework providing for an adequate audit of banks, in consultation with the professional association of bank auditors (commissaires aux comptes). It will also follow up rigorously on the results of on-site inspections of banks. With respect to the solvency requirement, the BCRG will submit to the Banking Committee (Comité des Agréments) by June 2001 a proposal for increasing the minimum capital requirement from GF 2 billion to GF 5 billion. The banking law, along with several application measures, will be revised by end-June 2001 to ensure an even playing field among banks; in particular, all banks will be required to hold their capital in Guinean francs. The reform of the accounting framework for banks has been launched and is expected to be completed in the second half of 2002. The authorities will conduct an information campaign during the second quarter of 2001 aimed at members of the government and the parliament to explain the importance of the independence of the BCRG in the conduct of monetary policy and the supervision of the banking system.

35.  Three of the smaller banks in the Guinean banking system continue to experience difficulty. Two of these have since 1998 been under restructuring plans that have not, however, been well executed. The BCRG has set a deadline of June 30, 2001 for the update of the accounts of these banks, and a decision on whether they will be recapitalized or placed under provisional administration. A strengthening of the regulations concerning the refinancing of banks under restructuring that are illiquid but solvent will be adopted by the BCRG by end-June 2001.

36.  Finally, the government of Guinea assigns great importance to the development of the system of microfinance as a critical component of its strategy to reduce poverty by increasing income- and employment-generating opportunities in the rural sector and fostering the development of small-scale enterprises. However, the major microfinancial institution, the Crédit Mutuel de la Guinée (CMG), is essentially bankrupt, owing to mismanagement, poor loan recovery, and fraud. The authorities have therefore decided to liquidate the CMG, with the financial and technical assistance of an external bilateral partner. An agreement with this partner on the terms of this assistance was reached at end-March, 2001], and the authorities will agree with this bilateral partner and the World Bank by end-July 2001 on the process for transforming the Crédit Rural de Guinée (CRG) into a specialized financial institution serving as one of the principal conduits of microfinance in Guinea. The BCRG will develop by end-September 2001 an action plan for helping the microfinance institutions meet the informational requirements for their supervision by the central bank. The institutional framework for this supervision will be adopted by end-December 2001 and introduced gradually over the course of 2002.

C.  External Sector

37.  The balance of payments will be positively affected in 2001 by the growth of exports, driven mainly by the resumption of production by a recently privatized and restructured alumina refinery and higher gold production. The projected increase in the value of imports reflects increased petroleum imports and higher import demand caused by the disruption of production in regions affected by the border conflict, as well as the reconstruction and rehabilitation requirements. With relatively stable prices for its main exports and lower international oil prices, Guinea's terms of trade are expected to improve in 2001–02. The current account deficit (including official transfers) is expected to narrow from 2.9 percent in 2000 to 2.6 percent in 2001 and 2002. With the increase in project loans tied to the various sector programs, the capital account is expected to strengthen considerably. The overall deficit of the balance of payments is projected to an estimated US$81 million in 2001, compared with US$62 million in 2000. The projected financing gap of US$154 million will be covered by the external financing identified in paragraph 21 above and debt relief under the enhanced HIPC Initiative, as well as by the disbursements under the first annual program under the PRGF arrangement. The stock of international reserves is projected to increase by US$79 million to the equivalent of 2.6 months of imports.

38.  Despite the expected strengthening and diversification of exports over the medium term, the current account is expected to deteriorate, reflecting the rising imports for the mining sector projects during 2002–04. However, the capital account will be strengthened significantly by the inflows of private financing for these projects, resulting in an overall deficit averaging US$42 million per year over the same period. The expected mobilization of external financial assistance, as well as interim debt relief in 2002–03 and the debt reduction under the enhanced HIPC Initiative at the completion point in 2003, is expected to cover this deficit and permit the further accumulation of official international reserves.

39.  The authorities intend to request from their Paris Club creditors a rescheduling of eligible debts on Cologne terms by May 2001, in addition to the interim relief already secured from multilateral creditors. Debt relief on comparable terms is expected to be received from Guinea's non-Paris Club bilateral creditors in the next few months. The interim assistance likely to be made available amounts to US$53 million in 2001, US$91 million in 2002, and US$90 million in 2003. After reduction, the net present value of Guinea's stock of debt at the completion point in 2003 is projected at the equivalent of US$545 million.

40.  The creation of a second monetary zone within the Economic Community of West African States (ECOWAS) by 2003 and the observance of the convergence criteria established in this context present a challenge for the Guinean authorities. Reaching the criterion on the tax revenue-to-GDP ratio of 20 percent by 2003 will be extremely difficult in the present circumstances, but the government is confident that, with steady implementation of the new Fund-supported program, they can remain within the ceiling on net central bank financing of the government deficit (10 percent of the previous year's tax revenue), as well as achieve the targeted increase in foreign reserves to the equivalent of four months of imports. The BCRG will complete by December 2001 a study of the necessary amendments to the legislative and regulatory texts governing the central bank, with a view to completing their harmonization with those of ECOWAS during the course of 2002. It will also participate actively in efforts to improve the ECOWAS payments system during this period. Similarly, the authorities will begin by September 2001 preparations for the harmonization of the judicial, accounting, and statistical frameworks of the public finances of the ECOWAS countries.

41.  Finally, with a view to aligning gradually the tariff systems of the non-CFA franc zone countries with the common external tariff (CET) of the West African Economic and Monetary Union (WAEMU), the Ministry of Finance will complete, by September 2001, a study of the impact of the introduction of the CET on Guinea, with the technical assistance of the Fund. Based on the results of this study, a strategy and timetable for implementing the CET in Guinea over the medium term will be established.

D.  Structural Reforms and Governance

42.  The authorities place great emphasis on continuing and deepening the structural reforms aimed at removing the remaining obstacles to private economic activity, and on improving the efficiency of, and access to, public service delivery. The focal points of this strategy are (i) further improvements in the quality of public expenditure; (ii) the public enterprise privatization and restructuring program; (iii) the continuation of the administrative and financial devolution/decentralization; (iv) civil service reform; (v) sectoral programs in the priority areas of health, education, rural development, public works and transportation, and judicial reform; and (vi) the determined implementation of the anticorruption program. Most of these measures and programs enjoy the active support of the World Bank and other multilateral and bilateral donors.

43.  The government intends to build on the achievements in improving budget management and execution over the last two years. In addition to the expenditure control and tracking mechanisms described above, the accounting systems in use at both the central and the local levels of administration will be reinforced. The government further intends to carry out from 2001 onward systematic ex-post audits of all public procurement contracts in excess of GF 100 million financed by own resources, with emphasis on the procurement process and the management of contract procedures. Sanctions against corruption will be effectively applied, consistent with the public procurement code. Similarly, regular audits of investment projects will be carried out to identify bottlenecks in their implementation and enhance the overall efficiency of the public investment program. A National Audit Fund will be created with the financial support of the World Bank to finance these audits.

44.  As part of the extension of the MTEF, a medium-term fiscal framework for projecting overall revenues and expenditures will be put in place by end-2001 in support of sectoral strategies governing medium-term intrasectoral and intersectoral budget allocations. These projections will be constantly refined and updated on the basis of ongoing sectoral reviews of public expenditure, which will begin in 2001 and take into account beneficiary surveys, as well as actual performance relative to preset indicators. The results of these reviews will form the basis of the preparation of the budget laws starting in 2002.

45.  With the adoption in August 2000 of a revised framework for the public enterprise sector and the creation in October 2000 of a special technical unit charged with preparing and implementing the public enterprise restructuring and privatization program, the government has demonstrated its commitment to accelerate the reform of public enterprises. The institutional, regulatory, and judicial framework governing private sector participation in public utility companies will be revised by June 2001, and strategies for these sectors, particularly for energy, will be adopted by end-2001. A final decision on the future of the mining sector parastatal (ANAIM) will be made by December 2001. Moreover, an action plan with a precise timetable for determining the amounts of and eliminating cross debts between the state and the public enterprises will be adopted by end-September 2001. In all restructuring and privatization operations, due attention will be given to establishing adequate social and reinsertion plans for affected employees.

46.  Administrative and financial devolution/decentralization is the centerpiece of the government's strategy for improving the efficiency and targeting of the delivery of public services and ensuring equitable access to these services for all, and particularly for meeting the needs of the poor. Building on the experience garnered in existing pilot programs supported by the World Bank and the European Union, the authorities intend to define the responsibilities of each level of administration, and the human and financial resources needed to fulfill these responsibilities. To ensure that financial and fiscal discipline is maintained, the budgetary structure of local administrations has been revised and a program put in place to provide training to local officials in budget management and execution, and to enhance the quality and coverage of the control and supervision of their financial activities by the central government.

47.  The improvement of service delivery through local administrations and the implementation of the overall poverty reduction strategy require a flexible and modern strategy for managing the civil service that will allow the matching of required and available competencies and skills, the redeployment of employees to areas where they are needed, and the provision of appropriate incentives to high-quality service delivery. The government has thus launched a fundamental reform of the civil service, the key elements of which are the elimination of the system of automatic advancements and the introduction of merit-based remuneration. Draft laws to this effect have been approved by the Council of Ministers and will be submitted for parliamentary consideration by end-June 2001. The authorities are also considering the introduction of a parallel system of employment, under which employees will be offered the option of remaining within the traditional civil service with a base salary, or choosing a contractual relationship, whereby the base salary will be augmented by additional performance-based payments. The quality of performance will be judged by the recipients of the services on the basis of objective indicators. A pilot program could be launched in the Ministry of Agriculture before the end of the year. The existing statutes permit the redeployment of workers—both at the central level and the local levels of administration. Such redeployments will be based on the organizational charts (cadre organique) to be produced by each ministerial department by end-December 2001, containing a description of the required competencies needed to fulfill its role and an inventory of the available competencies. Finally, the files of the payroll unit of the Ministry of Economy and Finance and of the Ministry of the Civil Service will be verified against each other at least once every quarter.

48.  The new management of the National Social Security Fund (CNSS) has slowed its financial deterioration and considerably reduced the stock of pension arrears. However, given the long-standing limitation on civil service recruitment, a large number of civil servants are expected to reach retirement age over the next five to ten years, underscoring the importance of prompt action to fundamentally restructure the social security system. The authorities therefore intend to launch in 2001 an actuarial study of the existing system, possibly with the assistance of external partners, as a preliminary step toward defining a full reform of the social security system over the medium term.

49.  Comprehensive sectoral programs have been set out in the areas of education, health, rural development, rural water supply, and road transport, with the assistance of external donors, including the World Bank, the European Union, the African Development Bank, and bilateral partners. The quantified objectives of the I-PRSP in these areas, and the specific policies and expenditures required to achieve them, have been directly derived from these programs. Of particular note in the area of road transport is the planned creation of a new road fund, with independent sources of financing, to ensure the adequate maintenance of the existing and new road networks.

50.  As indicated above, the government has identified the agricultural sector as a key potential source of future growth and diversification. The agricultural sector provides about 21 percent of overall GDP and is the primary source of employment and income for the rural population. Policies have thus been designed to remove the physical, human, and financial constraints on the sector's development. These policies include the extension and maintenance of rural infrastructure, particularly of rural roads; a more rational management of natural resources; improvement of market access and marketing conditions for producers, particularly for exportable crops; the strengthening of agricultural cooperatives and producer organizations; the improvement of the legal and institutional framework, particularly as concerns rural land rights; the decentralized management of state support services; the creation of an efficient system for providing and distributing inputs; and the fostering of an efficient system of rural credit. The full implementation of these policies is expected to lead to sustainable growth rates of over 5.5 percent per annum by 2003–04.

51.  In the mining sector, major private sector-led investment projects are planned in the area of bauxite and aluminum production, iron ore mining, and gold production over the next five years that could eventually lead to a doubling of nominal GDP, with a significant increase in employment and government revenue. The authorities have firmly resolved to ensure that this expansion is translated into a corresponding reduction of national poverty. They have thus required that all of the projects contain a major social infrastructure component and promote the participation of the local private sector, including through subcontracting arrangements. In addition, up to 1 percent of turnover of these new projects will be transferred directly to the local communities for the expansion of the social infrastructure. Moreover, the sharp increase in government mining revenue will facilitate higher social expenditures in other regions of the country that do not benefit directly from these new projects.

52.  The government remains firmly committed to pursuing its efforts to fight corruption and promote good governance. The CNLC will soon present its work program for the year and will continue to enjoy the full support of the political authorities. The recent cases of tax fraud have been submitted to the CNLC for investigation—in these and other cases, the Ministry of Justice will follow up on the findings and recommendations of the committee to the full extent of the law. The ministry itself is being strengthened in the context of a major program of judicial reform, aimed at improving the quality and accessibility of justice, particularly in commercial matters. In this context, the ratification of the OHADA (Organization for the Harmonization of Business Law in Africa) Treaty by the Guinean government clears the way for the harmonization of Guinea's commercial legislation, bankruptcy procedures, and business reporting requirements with the best practices in the region. Guinean judicial personnel will also benefit from specialized training in commercial law. A focus of the reform program is on increasing the contribution of the justice system to the recovery of bank loans, and special attention will be paid to improving the access of the poor to the system through an increase in the number of justices of the peace.

V.  The PRSP Process

53.  The main thrust of the national poverty reduction strategy has been set out in the I-PRSP, which was considered by the Executive Boards of the IMF and the World Bank in December 2000. This strategy is being discussed among the population through a series of consultations held in all regions of the country, which is expected to be completed by end-April 2001. The first draft of the full PRSP, including the evaluation of the financial and human resource requirements of the identified policies, is expected to be completed by end-August 2001, on the basis of the work of eight thematic groups, in which the development partners actively participate. The recommendations of the joint staff assessment of the I-PRSP will be taken into account at this stage. In the course of this work, the coherency and financial sustainability of the various sectoral strategies will be determined, the institutional framework for their implementation defined, and appropriate performance indicators and monitoring procedures established. The financing of most of these activities has already been secured from key donors. The draft full PRSP will be discussed at a donor roundtable to be convened by the authorities in July 2001, and a revised draft will be submitted for the approval of the populations in the eight administrative regions before the end of December 2001.

54.  The successful achievement of the strategic poverty reduction objectives will require integrating macroeconomic goals with structural policy reforms and poverty reduction policies. The new medium-term adjustment program supported by the IMF's PRGF, the World Bank's Structural Adjustment Credit (SAC), and the 9^th European Development Fund of the European Union are, therefore, designed to reflect this. All policies implemented under the new program will accordingly be examined for their impact on poverty. Given the data limitations, this analysis will initially be primarily qualitative, but the authorities will be prepared to discuss with the Bretton Woods institutions the accompanying measures needed to attenuate any possible adverse effects of the adjustment program on the poor and vulnerable groups. The overall macroeconomic targets for the year 2001 that have been agreed on with the IMF may also differ somewhat from the preferences of the population with regard to the poverty reduction process, as these are revealed during the consultations with civil society on the full PRSP. In this case, and providing these preferences can be accommodated without endangering macroeconomic stability and the achievement of sustainable growth, the macroeconomic program will be adapted, in close consultation with the staffs of the IMF and the World Bank, and the program's targets will be adjusted during the review of the first annual program under the PRGF arrangement.

55.  The authorities are aware that the successful implementation of the poverty reduction strategy will require continued efforts to improve the capacity to monitor poverty and measure the effects of the policies implemented. A major program of statistical improvement has thus been planned within the framework of an integrated System of Statistical Information on Poverty Reduction (SISIRP), culminating in the creation by mid-2002 of a National Poverty Observatory responsible for monitoring the performance indicators set out in the PRSP. A master plan for improving the statistical apparatus will be prepared by December 2001 and implemented over 2002–03. An integrated household consumption/ budget survey will be launched by end-March 2001, with the assistance of the World Bank, and is expected to be completed by mid-2002. These efforts are expected to lead to the production of a social accounting matrix, which will allow a more precise modeling of household demand and a more exacting formulation of poverty reduction policies over the medium term; in the meantime, however, participatory beneficiary surveys will be carried out, in order to contribute to the decision-making process in implementing the full PRSP.

56.  The government has also prepared an action plan for implementing the recommendations of a technical assistance mission from the Fund's Statistics Department in March 2000 regarding the strengthening of the compilation, analysis, and dissemination of real sector statistics—including the update of a harmonized consumer price index; the introduction of an index of industrial production; improvements in the national accounts; and the conduct of regular household consumption surveys. To this end, the authorities intend to create by the end of the year an autonomous National Statistics Institute responsible for all statistical activities in Guinea.

VI.  Program Monitoring

57.  Program implementation during the first annual program under the PRGF arrangement (covering the period April 1, 2001–March 31, 2002) will be monitored according to benchmarks and performance criteria (see attached Tables 1 and 2, respectively). The definitions of the variables monitored as quantitative and structural performance criteria and benchmarks are contained in the technical memorandum of understanding (Appendix II, Attachment II). Program implementation and the economic results recorded in connection with the program targets will be subject to two reviews per annum, the first by end-December 2001 and the second by end-June 2002. The updated benchmarks for end-December 2001 and end-March 2002 and the performance criteria for end-March 2002 will be set at the time of the first review.

58.  As prior actions for consideration by the Fund's Executive Board of Guinea's request for a three-year PRGF arrangement, the government of Guinea has (i) introduced an automatic adjustment mechanism for domestic retail petroleum prices (as described in paragraph 16 above); (ii) submitted to the National Assembly a revised budget law for 2001 after its approval by the Council of Ministers (as described in paragraph 11); and (iii) transmitted to the CNLC for investigation all cases of tax fraud uncovered as of February 2001 at the SOTELGUI, and at the tax inspectorate, the central bank, and some commercial banks (as described in paragraph 15). The first disbursement under this arrangement will be available after Board approval, upon the request of the government. The second disbursement will be conditional upon observance of the quantitative and structural performance criteria for end-September 2001 and completion of the first review, which is expected to be done by end-December 2001. The third disbursement will be conditional upon observance of the performance criteria for end-March 2002 and completion of the second review, which is expected to be done by end-June 2002. The phasing, reviews, and other conditions applicable to disbursements during the second year will be established during the first and second reviews under the arrangement.

59.  During the period of the first annual program under the PRGF arrangement, the Guinean government will not introduce new or intensify existing exchange restrictions, introduce or modify any multiple currency practice, impose or intensify import restrictions for balance of payments reasons, or conclude bilateral payments agreements that are inconsistent with Article VIII of the Fund's Articles of Agreement.

Guinea - Technical Memorandum of Understanding on Definitions and Modalities of the Built-In Contingency Mechanism for the Adjustment of Quantitative Performance Criteria and Benchmarks Under the First Annual Program Under the PRGF Arrangement

I.  Introduction

1.   This memorandum sets out the understandings between the Guinean authorities and staff of the International Monetary Fund regarding the definitions of the quantitative performance criteria and benchmarks for the program supported by the PRGF arrangement, the built-in contingency mechanism, and the related reporting requirements.

II.  Definitions

A.  External Debt

1.   The size and rate of growth of external indebtedness are important factors in the design of a program for a country, especially one benefiting from HIPC Initiative assistance like Guinea. For purposes of the program, "debt" will be understood to mean current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debt can take a number of forms, the primary ones being the following:

• loans: advances of money to the obligor by the lender on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);

• suppliers' credits: contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and

• leases: arrangements under which property is provided that the lessee has the right to use for one or more specified period(s) of time, which are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of this memorandum, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement, excluding those payments that cover the operation, repair, or maintenance of the property.

3.   Under this definition of debt, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

B.  Concessionality of External Debt

4.   Debt is considered concessional if it has a grant element equivalent to 35 percent or more using the available currency-specific commercial interest reference rate (CIRR) and following the methodology set out in staff paper SM/96/86 (4/8/96) and approved by the IMF Executive Board on April 15, 1996.

C.  External Debt Performance Criteria

5.   The performance criterion on the outstanding stock of short-term external debt contracted or guaranteed by the government or by the central bank covers outstanding external debt with original maturity of one year or less. The performance criteria on new nonconcessional medium- or long-term external debt contracted or guaranteed by the government or the central bank covers external debt with original maturity of more than one year; this performance criterion applies not only to "debt" as defined in this memorandum, but also to commitments contracted or guaranteed for which value has not been received.

D.  Cash Relief from External Debt Rescheduling

6.   For the purpose of the program, the only debt relief that will be subject to the contingency mechanism described below is one that leads to an effective reduction in programmed debt service. This excludes debt relief given on debt that has been in drawn-out rescheduling/restructuring negotiations with non-Paris Club creditors and for which no debt service has been paid in the past year, for example, debts to be considered under the debt-and debt-service-reduction operation with commercial creditors, and for which no provision in debt service has been explicitly made in the fiscal program (except for up-front costs).

E.  Domestic Arrears

7.   Domestic arrears are the unstructured domestic debt contracted by the government vis-à-vis the nonbank sector. Unstructured debt is defined as debt that has not yet been subject to an agreement, cash payment, or securitization. Its major components are wage and salary debt; commercial debt; rental debt; debt arising from indemnities and expropriations; tax or customs benefits, allowances, or overcollections payable to third parties; and debt under the social plans associated with public enterprise restructuring. For the purpose of the program, the change in domestic arrears is defined as the sum of (i) payments made for earlier fiscal years (technical lag) for which commitments or payment orders have already been issued; (ii) the accumulation of obligations during the year as a result of the difference between actual obligations and payments; (iii) the change in checks outstanding/payables, or the reduction or accumulation attributable to payment orders covered by checks issued during the year; and (iv) the reduction in obligations through the issue of securities in respect of committed expenditure.

F.  Net Claims of the Banking System on the Government

8.   Net claims of the banking system on the government comprise the stock of all outstanding claims on the government (loans, advances, and all other government debt instruments, such as government securities with initial maturities of over 30 days) less all deposits held by the government with the banking system.

G.  Domestic Debt

9.   The domestic debt includes all current--and unconditional--obligations arising from a contractual agreement concluded or guaranteed by the Guinean government, with a resident partner, as the counterpart to an interest that may take the form of assets (including cash) or services and by virtue of which the obligor must subsequently make one or several payments in the form of assets (including cash) or services in repayment of the principal and/or interest arising from the contractual obligation.

H.  Primary Balance of the Budget

10.   The primary budget balance (commitment basis) is calculated as total government revenue, excluding foreign grants and privatization proceeds (counted as financing), less noninterest expenditure, excluding foreign-financed investment expenditure.

I.  Central Government Expenditure in Priority Sectors

11.   The priority sectors include public health, education, the road infrastructure, justice, rural development (agriculture, fisheries, livestock, and village-level water resources), town planning, and social affairs. For the purpose of the program, expenditure in priority sectors shall include spending under Title 3 (operations) and Title 4 (interventions and transfers), excluding universities.

J.  External Arrears

12.   External arrears of the government or the BCRG consist of all overdue debt-service obligations (i.e., payments of principal and interest) arising in respect of loans contracted or guaranteed by the government or the BCRG, unpaid penalties or interest charges associated with these arrears. Thus defined, external arrears amounted to US$2.485 million at end-December 2000.

K.  Government

13.   Unless otherwise noted, the government is meant to include the central government. Local governments are excluded from the definition of government.

L.  Government Revenue

14.   Government revenue includes tax, nontax revenue, and capital revenue. Tax and nontax revenue are defined in accordance with Government Finance Statistics (GFS) 1986, section IV.A.1. The Ministry of Economy and Finance will report total revenue to the IMF on a monthly basis and within 10 days of the end of each month using the following categories. For tax revenue, the main categories are taxes on income, profit and capital gains (Title 1); taxes on property (Title 2); taxes on international trade (Title 3), including import duties, the export duty (droit fiscal de sortie), the surtax on consumption, the liquidation levy (redevance de liquidation) and penalties related to international trade; taxes on goods and services (Title 4), including general sales taxes value-added taxes on domestic sales and on imports, the single tax on vehicles (TUV), the TAF, taxes on petroleum products, and (export) taxes on mining products, including the tax on mining products, taxes on diamonds, and taxes on precious metals. Other tax revenue include stamp taxes and revenue from recording taxes. Tax receipts also incorporate the taxes assumed by the State. Nontax revenue is defined as property income, including dividends, revenue from fishing licenses, revenue from the sale of telephone licenses, revenue from the rental of infrastructure, revenue for services rendered, administrative duties and fees and other receivables, including payments for the Minusil. For the purpose of the program, capital revenue includes revenue from the sale of fixed assets, excluding revenue from privatization, (which is presented as a separate item) and includes repayment of loans by public enterprises.

15.   For the purpose of the program, nonmining revenue is defined as the sum of (i) taxes on revenue and profits (Title 1) minus the income tax paid by mining companies; (ii) taxes on property (Title 2);other tax receipts (Title 5); (iii) taxes on goods and services minus the proceeds from taxes on mining products (Title 4, Chapter 42); taxes on international trade (Title 3).

M.  Public Accounts with the BCRG and Primary Banks

16.   The attached Table 2 defines the public accounts which determine the net treasury position (NTP) vis-à-vis the Central Bank of the Republic of Guinea (BCRG) and the primary banks. The NTP excludes all accounts of nongovernmental organizations (NGOs), public enterprises, and public establishments with the BCRG and the primary banks, with the exception of those of the National Social Security Fund (CNSS), as well as pilgrimage accounts. For the purpose of the program, the NTP covers all accounts of the central government, as well as certain operations against counterpart fund accounts with the BCRG, except project accounts denominated in foreign exchange. The list of accounts making up the NTP for the purpose of the program is provided in the attached Table 3.

17.   In order to reflect the accounting lag between commitments and cash disbursements in the case of the imprest accounts of government administration (comptes de régies), of these of the republic institutions, and of decentralized accounting officers, the government flow of funds table (TOFE) includes an adjustment item. The list of accounts making up this adjustment item is provided in the attached Table 4.

N.  Privatization Receipts

18.   For the purpose of this memorandum, privatization receipts will be understood to mean all monies received by the government through the sale or concessioning of a public company, organization, or facility to a private company or companies, organization(s), or individual (s). To the extent possible, receipts should be presented on gross basis; if costs are incurred in the sale or concessioning, they should be recorded separately as expenditure.

O.  Net Foreign Assets

19.   Net foreign assets include the official reserves of the central bank net of external obligations valued at the following fixed exchange rates that prevailed on December 31, 2000, i.e., US$1 = F 7.7498, and US$1 = Є 1.180. They comprise holdings of monetary gold, the reserve position in the International Monetary Fund, SDR holdings, and short- and long-term foreign assets, net of external obligations. They exclude the amounts pledged or otherwise incumbered.

P.  Central Bank Money

20.   Central bank money comprises bank reserves and deposits of the private sector with the central bank, as well as cash in circulation.

III.   Modalities of the Built-In Contingency Mechanism for the Adjustment of Quantitative Performance Criteria and Benchmarks

21.   In view of uncertainties about program financing, the program contains built-in contingency mechanisms for the adjustment of the quantitative criteria and benchmarks relating to the ceilings on the increase in the net claims of the banking system on the central government (performance criterion).

A.  Deviations from Programmed External Assistance and Reductions in Domestic Arrears

22.   The quantitative performance criteria and benchmarks will be adjusted (i) upward for a shortfall in exceptional external financing (i.e., program financing and external debt relief) up to an amount equivalent to 75 percent of the shortfall, not to exceed US$25 million); and (ii) downward for the full amount of any excess in external assistance (i.e., program financing and external debt relief).

23.   For the purpose of the program, the criterion on net domestic credit to the government will be adjusted by the amount of any net accumulation of domestic arrears.

24.   For the purpose of the program, the banking system's outstanding claims on the government will be adjusted downward by the amount of government securities held by the public prior to December 31, 2000 and discounted with the banking system during 2001.

B.  Program Exchange Rate

25.   Amounts denominated in SDRs will be converted to U.S. dollars at the fixed exchange rate of US$1.279 per SDR, and converted into Guinean francs at exchange rates agreed with the authorities. IMF liabilities, which are included in the definition of net foreign assets, will be valued at projected exchange rates. Any deviations in those amounts will lead to a full upward or downward adjustment, as appropriate, in the valuation of the stock of IMF liabilities at the central bank.

IV.  Reporting requirements

26.   The authorities will send the data in Table 2 to the Fund within the time limits set out in that table. Barring any indication to the contrary, the data will take the form mutually agreed by the authorities and the IMF. The authorities will supply the Fund with any additional information that the Fund requests in connection with monitoring performance under the program on a timely basis. In the event of any accumulation of external arrears, the government will so inform Fund staff immediately.