March 29, 2001

Mr. Horst Köhler
Managing Director
International Monetary Fund
700 19th Street NW
Washington, D.C. 20431

Dear Mr. Köhler:

1. The Government of Tajikistan is implementing a program of economic reform with support from the IMF's Poverty Reduction and Growth Facility (PRGF). The Executive Board of the IMF approved a third annual arrangement under the PRGF on October 25, 2000. Together with an IMF mission that visited Dushanbe during January 30-February 15, 2001, we conducted a review of the implementation of the economic program supported by the third annual arrangement. In the following paragraphs, we assess the macroeconomic and financial performance of recent months and our efforts to implement the macroeconomic stabilization and structural reform policies specified in the program. Based on this assessment, we then describe the specific measures that we will take to keep the overall program on track and to further the economic reform process in Tajikistan.

2. Despite a drought that affected mainly rain-fed wheat production, economic growth increased to more than 8 percent during 2000. This strong performance was due to increased industrial production—led by the aluminum sector—and strong growth in the agricultural sector, especially cotton and fruit production. Inflation, however, was significantly higher than expected in the last quarter of 2000, with the consumer price index increasing cumulatively by about 21 percent during October-November. We attribute this rise of prices to uncertainties associated with our otherwise successful currency reform introducing the Somoni, the failure to control liquidity as well as external factors. In December, we began addressing this problem by pursuing a substantially tighter fiscal policy than called for under the program. During December and January, inflation moderated. Despite an improvement in the prices for our major exports during 2000, the balance of payments remained under pressure. This was largely due to the need to import large amounts of wheat and a significant increase in world energy prices.

3. All of the quantitative performance criteria for end-December 2000 under the program were met, with the exception of that for net domestic assets (NDA) of the National Bank of Tajikistan (NBT). Difficulties enforcing loan collections combined with the deterioration in the income position of the NBT contributed to the excess liquidity. Further, because progress with the implementation of key structural reforms envisaged under the program was slower than expected, particularly in the area of land reform, some of the structural benchmarks for end-December 2000 were not met.

4. During January 2001, the NBT substantially improved its efforts to collect loans from the cotton sector and Tajik Rail. Furthermore, execution of the 2001 budget proceeded cautiously on the expenditure side, while tax revenue collection was particularly strong thereby contributing to a significant build-up of government deposits at the NBT. As a result, we met the NDA target set for end-December 2000 by end-January 2001. We intend to continue our macroeconomic adjustment efforts and to bring the pace of implementation of structural reforms back on track in order to enhance their positive impact on the economy. On this basis, we are requesting a waiver for the non-compliance with the performance criterion on NDA of the NBT (we are also requesting one additional waiver for non-compliance with a performance criterion and a modification of the end-March 2001 performance criterion as discussed below). This would allow completion of the first review under the current program and permit access to the scheduled quarterly loan disbursement based on the end-December 2000 outcome. A more detailed discussion of salient policy issues and measures to improve program performance is provided below.

5. Fiscal policy. Consistent with our revised stabilization targets, the overall nominal cash deficit in 2001 will be unchanged from that included in the budget law of December 8, 2000. Our estimates of tax revenue and expenditures have been revised to reflect the higher than expected inflation in the latter part of 2000 and the depreciation in the nominal value of the exchange rate. Accordingly, without any change in policies underlying the 2001 budget, we are now projecting total revenues (including grants) in 2001 of Sm340.7 million which excludes payments from the NBT under the regularization agreement. Total expenditures and loans (minus repayments) in 2001 are projected to be Sm353.1 million, which also excludes payments to the NBT under the regularization agreement. Strong revenue collections since the beginning of the year reduced our projected budget deficit for the first quarter of 2001 to Sm5.3 million.

6. With a view to sustaining the tax revenue effort of early 2001 and enhancing the transparency of our fiscal activities, we will issue a government resolution specifying the revised revenue and expenditure targets for the 2001 budget no later than June 30, 2001. Article 23 of the Budget Law for 2001 authorizes the Ministry of Finance to fund additional expenditures in the event of higher revenue collection (within an unchanged overall deficit). The proposed resolution will be submitted to Parliament for information.

7. In order to strengthen our fiscal performance and the quality of governance pertaining to budgetary matters, we plan to enhance the effectiveness of our treasury system. We have established regional treasuries in the remaining six rayons as indicated in the Memorandum of Economic Policies that we submitted in October 2000 to the Managing Director of the IMF. Further, the parliament approved the treasury law and we have extended the coverage of the treasury to all government payments outside Dushanbe. At the same time, we have begun implementation of a pilot project in four ministries designed to enhance expenditure commitment control. Additional measures we plan to take include abolishing the treasury single extrabudgetary account, publishing and distributing the treasury manual, and consolidating the bank accounts of individual ministries.

8. We have continued working on improving tax administration with the support of technical assistance from the Fiscal Affairs Department of the IMF. During 2001 we plan to (1) improve operation of the VAT by enforcing the use of tax invoices by taxpayers, for which return forms will be made available by the Tax Committee; (2) ensure that funds are available for producing essential forms and pamphlets required by the Large Taxpayer Inspectorate and to retain and attract suitably qualified staff; and (3) give priority to recruiting and retaining the computer programmers necessary to complete the computerization project at the Tax Committee.

9. Our plans to begin implementing the agreement between the Ministry of Finance (MOF) and the NBT aimed at regularizing their financial relations along the lines spelled out in Annex III of the Government's Memorandum of Economic Policy of October 2000, were delayed because of the need to consider various technical issues and safeguards. The government approved the agreement on March 16 under which Sm3 million in NBT loans to the government are to be replaced by treasury bills carrying the market determined interest rate, and, the rest of loans, totalling to Sm89 million are to be converted into long-term government bonds. An additional US$32 million of NBT loans to state entities, once clarified are to be converted into long-term bonds. In addition, the NBT started paying interest on government deposits. The implementation of the agreement is to begin immediately and issuance of these treasury bills and long-term bonds will be completed by end-June 2001.

10. Monetary Policy. We recognize that the implementation of a strict monetary policy remains a pre-condition for the stability of prices and the nominal exchange rate. We intend to sustain the substantial tightening of monetary conditions achieved in January and February as part of our strategy to restore price stability consistent with our commitments under the program. We also plan to intensify our use of interest rates as a tool of monetary policy. We have met NDA and NIR targets for end-February as discussed with the mission that visited Dushanbe in early February. We will continue our efforts to meet the performance criteria set for end-March under the program.

11. There is a major risk that liquidity will again increase in weeks ahead, as the MOF is expected to draw down its deposits with the NBT as part of the execution of the budget. Although the strong performance of the budget thus far in 2001 should limit the size of this draw down, the NBT will need to contain the expansion of reserve money and offset the impact on net domestic assets of the NBT. Necessary measures would include further loan collection, as well as the sale of NBT certificates of deposit and treasury bills.

12. Under our monetary program, the NBT's claims on the private sector are projected to decline by Sm24.7 million between end-January and end-March 2001. From end-March to end-June 2001, the NBT's claims on the private sector will remain unchanged. This means that credit collected by the NBT would be available for lending to the private sector during the second quarter of 2001 and this credit would only be extended through transparent credit auctions.

13. Financial sector reform. The bank restructuring agreements between the NBT and the four largest commercial banks that were signed in May 2000 are under implementation. Each of the four banks has prepared a business plan for achieving improved financial and operational effectiveness. The banks have shown various degrees of progress in the areas of profitability, transparency, and recovery of non-performing loans. The banks' planning expertise continues to evolve, but still needs improvement. Following a review of progress midway through the restructuring period (July 2000-June 2001), we have amended the business plans in accordance with the recommendations of Fund staff and in consultation with the banks. We plan to withhold judgment on the next steps regarding these four banks until the restructuring agreements expire, but we realize that two of these banks, the Amonat Bank and the Agro-Invest Bank may require more fundamental restructuring as part of an overall strategy to develop a banking system that is responsive to the needs of the economy. The strategy will be prepared in consultation with Fund staff and will be completed by end-September 2001 (Annex II). Regarding the other banks outside the restructuring program, we have already begun the process of revoking the banking licenses or effecting mergers of 2 banks that had not met the minimum capital requirement of US$1 million as of end-December 2000.

14. In order to improve the regulatory environment for commercial banks, we plan to submit to parliament, no later than April 30, 2001, amendments to the existing legislation that will (1) eliminate the obligation of commercial banks to report automatically information on new deposits to the Tax Committee; (2) eliminate the 30 percent tax (specified in Government Resolution 583 dated November 29, 1993) on transfers from abroad; and (3) change the present practice such that the Tax Committee assesses the property tax on the fixed assets of the commercial banks instead of on the net worth of banks. By end-June 2001, we will adopt a government resolution or will pass an amendment to the existing laws allowing average foreign equity ownership of the banking system as a whole to increase to a maximum of 40 percent in 2001 and 50 percent in 2002. Finally, by end-June we will amend Article 104 of the tax code to prevent the tax authorities from reviewing customer accounts when conducting corporate reviews of the commercial banks.

15. Management of the foreign exchange market. We have recently taken steps to improve the efficiency of the interbank foreign exchange market. As a result, the gap between the interbank and official exchange rates has been eliminated and the gap between the official and the street (cash) exchange rates has been reduced. We are taking steps to strengthen the operations of the interbank foreign exchange market by improving the flow of information, including the reporting requirements of banks. We will now set the official exchange rate as a weighted average of exchange rates at which actual interbank transactions take place. Information on each day's transactions in the interbank market will be made available to all commercial banks and the office of the IMF Resident Representative by the close of business the same day.

16. Governance reform and other structural reforms. In order to enhance the quality of governance, a Presidential Decree establishing an audit agency was issued on January 25, 2001. A decree specifying the charter for the audit agency was issued on February 7, 2001. We intend to draft in consultation with the staff of the IMF and submit to parliament and seek adoption, no later than end-June, 2001 a law on the audit agency. The charter that was recently issued will be amended so that it is consistent with the law. We intend this law to include provisions for transmitting reports of the audit agency to parliament and to be consistent with Annex IV of the Memorandum of Economic Policy of October 2000.

17. Although we did not meet the structural benchmark for introducing a "black book" mechanism, we are now working with the World Bank to finalize arrangements for a "black book." The "black book" mechanism would be introduced as part of the policy conditionality in the World Bank's second structural adjustment credit.

18. The progress of our farm-restructuring program has slowed because of the limited capacity of the Land Reform Committee and because of increased interference from local officials, especially the managers of those state farms being restructured. In order to accelerate the farm restructuring process, we have issued a Presidential Decree (#470) on February 2, 2001 announcing the restructuring of an additional 120 state-owned farms into non-state owned and privately operated farms by end-December 2001. This is consistent with the overall objectives for land reform described in our MEP of October 2000, although we realize that the benchmark regarding land reform that was set for end-December 2000 in this regard was not met. We agree to an upward adjustment in remaining quarterly benchmarks under the program and are strongly committed to deepening the reforms in this area by dividing existing state farms into individual units reflecting the farmer's land access rights as represented by a "land share certificate." For state-owned farms already restructured into large dekhan farms, the right of individual farm households to exit in order to form other dekhan farms will be fully respected.

19. In order to improve the land reform process, we have upgraded the status and enhanced the responsibility of the Land Reform Committee. In order to provide the upgraded committee with an operating mandate, we will prepare in consultation with the IMF a draft statute outlining the enhanced responsibilities of the upgraded Land Reform Committee. The government will approve this statute no later than end-June 2001. Finally our objective is to eliminate the backlog of undistributed land share certificates no later than end-July 2001.

20. In October 2000, the MOF and Tajik Rail (TRR) reached an agreement in principle to compensate TRR for the cost of in-kind debt servicing provided on behalf of the Government of Tajikistan. A provision of Sm8 million was made for this purpose in the 2001 budget. Having reached agreement with Uzbekistan on the arrangements for debt servicing during 2001, the MOF started compensating TRR for the services provided as in-kind debt servicing. As part of this agreement, TRR has also committed itself to cash payment for all its tax obligations.

21. While we recognize that our performance in some areas has been disappointing, as indicated herein we remain fully committed to successful implementation of our reform program. Accordingly, we have completed several actions in order to ensure that our program remains fully on track, including (i) extending coverage of the treasury to include all central government payments outside Dushanbe; (ii) beginning implementation of the agreement between the NBT and MOF concerning regularization of their financial relations as indicated in Annex III of the MEP of October 2000; (iii) limiting the NDA of the NBT to Sm151 million for end-February 2001; (iv) begin the process of revoking the banking licenses or of effecting mergers of 2 banks outside the restructuring program that have not met the minimum capital requirement of US$1 million as of end-December 2000; (v) upgrading the status and responsibilities of the Land Committee to that of a state committee; and (vi) beginning implementation of the agreement between the MOF and Tajik Rail (TRR) of the agreement to compensate TRR for in-kind services that it will provide to the Government of the Republic of Uzbekistan on behalf of the Government of Tajikistan in 2001 and ensure the appropriate amount is included in the budget for 2001.

22. Program monitoring. In order to monitor the implementation of our economic reform program, our MEP of October 2000 established quarterly performance criteria, quarterly reviews, and quarterly disbursements. Annex I presents the quantitative performance criteria for end-June 2001 and the indicative targets for end-September 2001, which incorporates the revised macroeconomic and financial program. Annex II updates the structural performance criteria and benchmarks listed in Annex V of the MEP of October 2000 and establishes structural performance criterion and benchmarks for end-June 2001. The performance criteria and structural benchmarks for end-June 2001 are further specified in the revised Technical Memorandum of Understanding ("TMU") attached to this Letter. The next program review will center on, in addition to the achievement of macroeconomic objectives, progress with our structural reforms, with a particular focus on governance, development of financial markets, bank restructuring, as well as land and agriculture reform. In aid of transparency, we hereby request that this letter of intent and the staff report for the first review of the third annual arrangement under the PRGF be published on the IMF web site.

23. Due to a technical error in the computation of the performance criteria for the collection of tax revenue by end-December 2000 and end-March 2001, we are requesting that a waiver be granted for the non-compliance with the end-December 2000 performance criterion and that a modification be made of the end-March 2001 performance criterion. Tax collection for end-December was Sm49,543 million, which is lower than the minimum level of Sm53,701 million set out in Annex VII to the Memorandum of October 11, 2000 which mistakenly included grants and non-tax revenues, but is still higher than Sm48,724 million, which was the level on which the Government and IMF staff had originally reached understandings. We propose that the performance criterion (which also mistakenly included grants and non-tax revenues) for end-March 2001 be modified from Sm94,726 million to Sm80,158 million. Additionally, we proposed that the end-March performance criteria for the non-concessional debt be modified to clarify the sources of such borrowing.

24. The Government believes that the policies described above will sustain our macroeconomic stabilization efforts and strengthen our structural market reforms, and that they are adequate to achieve the objectives of our economic program for 2001. We intend to remain in close consultation with the IMF in accordance with IMF policies on such consultation and will provide the IMF with any information it requests for monitoring economic developments and implementation of policies under the program. The Government stands ready to take any further measures, in consultation with the IMF staff, which might be necessary to ensure that the overall objectives of the program can be achieved.

ANNEX III

Tajikistan: Performance Criteria and Indicative Targets 1

I. Quarterly Performance Criteria

1. Fiscal deficit

Table 1. Floor on the Cumulative Overall Deficit of the General Government 1
	(In thousands of somoni )
Cumulative deficit from end-September 2000 to:
March 31, 2001 (performance criterion)	14,480
June 30, 2001 (performance criterion)	4,508
September 30, 2001 (indicative target)	14,830
1The March 2001 performance criterion is based on an accounting exchange rate of Sm1.9=US$1 as in EBS/00/206 while targets for end-June and end-September 2001 are revised to reflect actual data for the fourth quarter of 2000 and revised projections for 2001.

Adjustors

Should the actual financing component of the Public Investment Program (PIP) exceed the programmed levels, these limits will be adjusted upwards by the corresponding amount up to a limit of Sm10 million. Thus far such financing is programmed at zero.

Definitions

The general government budget is defined to include the republican budget, local (including municipal) budgets, and all extrabudgetary funds at all levels of general government, including the social protection fund (SPF). The overall cash deficit of the general government is defined from the financing side as the sum of the following: (i) the increase in net claims on the general government from the NBT; (ii) the increase in net claims on the general government of the rest of the domestic banking system; (iii) the increase in net claims on the general government of domestic non-bank institutions and households, including payments to the Tajik Rail for its servicing the government's external debt; (iv) the use of proceeds from the privatization of state property; and (v) net foreign financing of the general government.

(i) Net claims of the NBT on the general government are defined as all claims of the NBT on the general government (including holdings of government securities), less claims on the government as regard bank restructuring, and all deposits of the general government with the NBT, excluding counterpart deposits of loans received from the World Bank and from other official creditors, and privatization account where proceeds from the privatization state property is held.

(ii) Net claims on the general government of the rest of the domestic banking system are defined to comprise (i) the net asset position arising from operating balances and current accounts of the general government with domestic commercial banks; and (ii) the net position of the general government in regard with other domestic commercial bank assets (loans, overdrafts, cash advances, holdings of treasury bills or other securities) and liabilities (deposits, etc.).

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

(iv) Proceeds from the privatization of state property, which are kept in a separate account with the NBT, are defined as all net receipts originating from the sale of state property.

(v) Net foreign financing of the general government is defined as the difference between gross disbursements of foreign financing and amortization of government debt to foreign financial and nonfinancial institutions, plus the change in the stock of government counterpart deposits with the NBT during the period. Foreign financing of the general government is defined as the increase in claims on the general government of foreign financial and nonfinancial institutions, excluding the IMF, and including but not limited to loans received for balance of payments support from the World Bank's Structural Adjustment Credit and the Asian Development Bank's Post-Conflict Infrastructure Program Loan.

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

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

The cumulative net foreign financing projected for the program period is as follows:

2. Minimum Levels of Tax Collection of the State Tax and State Customs Committees ¹

Table 3. Floors on the Tax Collection of the STC and SCC
	(In thousands of somoni)
Cumulative revenues from end-September 2000 to:
March 31, 2001 (performance criterion)	80,158
June 30, 2001 (performance criterion)	146,547
September 30, 2001 (indicative target)	197,244
1 The end-March 2001 performance criterion is based on an accounting exchange rate of Sm1.9=US$1 as in EBS/00/206. The target has been modified to correct the mistake in the calculation of the target in EBS/00/206. The end-June and end-September 2001 targets are based on actual data for the fourth quarter of 2000 and revised projections for 2001.

Definitions

Tax collection of the State Tax Committee (STC) and State Customs Committee (SCC) include all taxes collected by the STC and SCC. Excluded from the definition of tax collection of STC and SCC are the following: any tax offsets, in-kind payments, sales taxes on cotton and aluminum exports, taxes, charges, and fees collected by the Social Protection Fund, any proceeds from loans, or other banking system credits, the issuance of securities, or from the sale of state assets. Custom revenues are defined to include import duties, export duties and taxes, customs duties, exchange taxes, and other taxes (including VAT) on international trade and transactions.

II. Targets for Monetary Aggregates

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

Table 4. Ceilings on the Stock of Net Domestic Assets of the NBT
	(In millions of somoni)
March 31, 2001 (performance criterion)1	184.7
June 30, 2001(performance criterion)	238.3
September 30, 2001 (indicative target)	207.7
1 The March 2001 performance criterion is based on an accounting exchange rate of Sm1.9=US$1 as in ESB/00/206 while end-June and end-September numbers are revised to reflect actual data for the fourth quarter of 2000 and revised projections for 2001 based on an accounting exchange rate of Sm2.4=US$1.

Adjustors

The limits will be adjusted downward by 100 percent of the amount by which actual net foreign financing of the budget exceeds the amount programmed for (i) debt repayments and (ii) disbursement of external loans for balance of payments support, including but not limited to the World Bank's Structural Adjustment Credit and the Asian Development Bank's Post-Conflict Infrastructure Program Loan. In the event of a shortfall of net foreign financing, the limits will be adjusted upward, but by no more than the Somoni equivalent value of US$10 million.

Definitions

Net domestic assets of the NBT are defined as: reserve money minus net foreign assets of the NBT. Reserve money is composed of currency in circulation, required reserves, other bank reserves, and deposits of non-government non-banks with the NBT. Net foreign assets of the NBT comprise net international reserves in convertible currencies. The NBT's net domestic assets comprises the following assets and liabilities: net credit to the general government (excluding counterpart funds), counterpart deposits of the World Bank, AsDB, EU and other official creditors (-), privatization account (-), claims on the government with regard to bank restructuring, claims on banks, credit to the economy, and other items net (OIN). OIN includes, inter alia, the foreign exchange re-valuation and capital accounts of the NBT.

2. Limits on the NBT's Net Credit to General Government ²

Table 5. Ceiling on the NBT's Net Credit to General Government
	(In millions of somoni)
March 31, 2001 (performance criterion)1	142.0
June 30, 2001 (performance criterion)	119.6
September 30, 2001 (indicative target)	121.3
1 The performance criterion for end-March 2001 is based on an accounting exchange rate of Sm1.9=US$1. Targets for end-June and end-September 2001 are revised to reflect actual data for the fourth quarter of 2000 and revised projection for 2001.

Adjustors

The limits will be adjusted upward by 100 percent of the amount by which actual net foreign financing of the budget falls short of the amount programmed for (i) debt repayments and (ii) disbursements of external loans for balance of payments support, including but not limited to the World Bank's Structural Adjustment credit and the Asian Development Bank's Post-Conflict Infrastructure Program Loan, up to an amount the lower of (i) the programmed use of net external financing for the budget as listed in section I.1, or (ii) the equivalent value of US$10 million. The limits will be adjusted downward for any write-off of government debt to the NBT.

Definitions

Net credit from the NBT to the general government is defined in section I.1 above.

3. Net international reserves

Table 6. Floors Under the Stocks of Net Official International Reserves of the NBT in Convertible Currencies 1
	(In millions of U.S. dollars)
March 31, 2001 (performance criterion)	-45.9
June 30, 2001 (performance criterion)	-52.8
September 30, 2001 (indicative target)	-37.3
1 The March 2001 performance criterion is as in EBS/00/206 while targets for end-June and end-September are revised to reflect actual data in the fourth quarter of 2000 and revised projections for 2001.

Adjustors

The limits will be adjusted upward by 100 percent of the amount by which actual net foreign financing of the budget exceeds the amount programmed for (i) debt repayments and (ii) disbursements of external loans for balance of payments support, including but not limited to the World Bank's Structural Adjustment Credit and the Asian Development Bank's Post-Conflict Infrastructure Program Loan. In the event of a shortfall of net foreign financing, the limits will be adjusted downward, but by no more than US$10 million.

Definitions

Total net international reserves of the NBT are defined as the difference between total gross international reserves of the NBT and total reserve liabilities of the NBT. Total gross international reserves of the NBT are defined as the NBT's holdings of monetary gold, holdings of SDRs, any reserve position in the IMF, holdings of convertible currencies in cash or in nonresident banks that are readily available. Also included are holdings of foreign currency-denominated securities issued by governments or central banks of OECD member states. Excluded are capital subscriptions in foreign financial institutions, non-liquid assets of the NBT (with maturity beyond one year), convertible currency denominated claims on domestic banks and other residents (if the NBT does not have control over use of these resources), assets in non-convertible currencies, and foreign assets pledged as collateral or otherwise encumbered. Reserve liabilities of the NBT are defined as outstanding IMF credit, and liabilities of the NBT to nonresidents with an original maturity of up to and including one year, that are public or publicly guaranteed.

For the purpose of program monitoring, U.S. dollar denominated components of the balance sheet will be valued at the program exchange rate, and other foreign currency denominated items will be valued at cross rates between the program exchange rate of the U.S dollar and current official exchange rates of the U.S. dollar against those currencies. Official gold holdings shall be valued at US$265 per troy ounce.

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

III. Limits on External Debt and Arrears

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

Table 7. Limits on Public and Publicly Guaranteed External Debt
	Cumulative net disbursements	Cumulative contracting and guaranteeing of external debt
	(In millions of U.S. dollars)
	0-1 year Maturity	1-5 year Maturity	Total
During the period from end-September 2000 to:
March 31, 2001	0	10	10
June 30, 2001	0	10	10
September 30, 2001	0	10	10

Definitions

The ceilings specified in Table 7 shall apply exclusively to external debt to the EBRD in the amount of US$9.2 million and to other creditors in the amount of US$0.8 million. No other non-concessional external debt is permitted. The contracting or guaranteeing of external debt by the government of Tajikistan, the NBT, or any other agency acting on behalf of the government, is understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future points in time; these payments will discharge the principal and/or interest liabilities under the contract. Included are also commitments contracted or guaranteed for which value has not been received. Debts can take a number of forms, the primary ones being as follows: (i) loans, i.e., advances of money to obligor by the lender made on the basis of 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 collaterilized loans under which the obligor is required to repay the funds and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and (iii) leases, i.e., under which property is provided the lessee has the right to use one or more specified periods of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the program, 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.

Under the definition of debt above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition will not give rise to debt. Excluded from this performance criterion are two government guarantees extended to the cotton sector totaling US$83 million which remained effective until end-1999, when the guarantees were called but not enforced as agreed between the government and CSFB. As of end-2000, the total outstanding government guaranteed debt amounted to US$18.5 million. The room remaining under extended guarantee will not be used for any additional external borrowing.

External debt limits apply to the net disbursement of short term external debt (with an original maturity of up to and including one year); and contracting or guaranteeing of nonconsessional medium- and long-term external debt (with original maturities of more than one year) with sublimits on the contracting and/or guaranteeing of such debt with maturities of up to and including five years.

Short-term debt includes all short-term obligations excluding the reserve liabilities of the NBT, as defined in section II.3 above and import credits. Debt denominated in currencies other than the U.S. dollar shall be valued in U.S. dollars at the exchange rate prevailing at the time of disbursement. Net disbursements of short-term external debt are defined as net changes in the stock of such debt, i.e., disbursements of new short-term obligations minus any amortization of existing obligations.

The medium- and long-term debt includes all loans with maturities more than one year. Debt falling within these limits that are denominated in currencies other than the U.S. dollar shall be valued in U.S. dollars at the exchange rate prevailing at the time of contracting or guaranteeing takes place or at the exchange rate stipulated in the contract.

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

Concessionality will be based on currency-specific discount rates based on the OECD commercial interest reference rates (CIRRs). For loans of a maturity of an original maturity of at least 15 years, the average of CIRRs over the last 10 years will be used as the discount rate for assessing the concessionality of these loans, while the average of CIRRs of the preceding six-month period will be used to assess the concessionality of loans with original maturities of less than 15 years. To the ten-year and six month averages of CIRRs, the following margins will be added: 0.75 percent for repayment periods of less than 15 years; 1 percent for 15-19 years; 1.15 percent for 20-30 years; and 1.25 percent for over 30 years. Under this definition of concessionality, only loans with grant element equivalent to 35 percent or more will be excluded from the borrowing limits. The debt limits will not apply to loans classified as international reserve liabilities of the NBT, or to loans contracted for debt rescheduling or refinancing.

IV. Continuous Performance Criteria

1. Continuous performance criterion on new directed credits by the NBT

The NBT will not issue any directed credits. This performance criterion will be monitored on the basis of changes in the NBT's balance sheets supported by the NBT's regular reporting on the results of its credit auctions, including interest rates, and amounts bid and received.

2. Continuous performance criterion relating to external arrears

No new external arrears shall be accumulated at any time under the arrangement. External arrears are defined as overdue debt service arising in respect of obligations incurred directly, guaranteed, or converted into interstate debt by the government of Tajikistan or the NBT, including penalties or interest charges.

3. Continuous performance criterion relating to exchange and payments arrangements

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

4. Continuous performance criterion relating to expenditure arrears of the republican (central) budget and of the Social Protection Fund

No new arrears of the republican budget on wages and of the Social Protection Fund on transfer payments to its regional offices shall be accumulated at any time under the arrangement.

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

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

V. Quarterly Indicative Targets

1. Reserve money

Table 8. Indicative Limits on the Stock of Reserve Money of the NBT
	(In millions of somoni )
March 31, 2001 (indicative target) 1	97.5
June 30, 2001 (indicative target)	111.5
September 30, 2001 (indicative target)	118.1
1 The end-March 2001 target is based on an accounting exchange rate of Sm1.9=US$1 as in EBS/00/206 while targets for end-June and end-September are revised to reflect actual data in the fourth quarter of 2000 and revised projections for 2001 based on an accounting exchange rate of Sm2.4=US$1.

Definition

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