For more information, see Republic of Tajikistan and the IMF

The following item is a Letter of Intent of the government of Tajikistan, which describes the policies that Tajikistan intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Tajikistan, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

June 17, 1999

Mr. Michel Camdessus
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Camdessus:

I am pleased to convey to you the attached Memorandum of Economic Policies. In this memorandum we report on the implementation of the first year program supported by the International Monetary Fund (IMF) under the three-year Enhanced Structural Adjustment Facility (ESAF). Moreover, it contains the formulation of our economic stabilization and reform policies for the period of April 1, 1999 to March 31, 2000 as agreed with the staff of the IMF. These policies cover the second year under our three-year ESAF-supported economic program. In support of our new short-term program, we request the second annual arrangement under the ESAF in an amount equivalent to SDR 30 million, or 34 percent of quota. The government asks that the request for this arrangement be considered by the Executive Board of the IMF after the prior actions specified in the attached Memorandum of Economic Policies have been taken.

As detailed in the memorandum, the government is aware that disbursements under the ESAF arrangement are subject to observance of performance criteria, completion of program reviews, and the usual clauses regarding the exchange and trade system. The government believes that the policies set out in the Memorandum of Economic Policies are adequate to achieve the objectives of the program. However, it stands ready to take any additional measures appropriate for this purpose and will consult with the Fund on the matter in accordance with the policies of the IMF on such consultations. We are also willing to make our policies known to the international public and would be grateful if the Fund would make the Policy Framework Paper available on its Internet site. The government will conduct reviews of the program with the IMF under the ESAF arrangement as described in paragraph 43 of the Memorandum of Economic Policies.

Very truly yours,


/s/
Emomali Rakhmonov
President of the Republic of Tajikistan

Attachment

REPUBLIC OF TAJIKISTAN

Memorandum of Economic Policies for 1999–2000

I.   Introduction

1. Since October 1997, the Government of Tajikistan has been implementing a medium- term economic stabilization and reform program which was first supported by the International Monetary Fund (IMF) through its post-conflict emergency assistance mechanism and, since mid-1998, under a three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF). The strategy of our ESAF-supported program was set out in the Policy Framework Paper and the Memorandum of Economic Policies (MEP), both dated June 10, 1998. The MEP was supplemented by the Letter of Intent of December 3, 1998 to the Managing Director of the IMF on the occasion of the midterm review of the first year ESAF arrangement. The World Bank and the Asian Development Bank (ADB) are also supporting our reform program, through a Structural Adjustment Credit (SAC) and a Post-Conflict Infrastructure Program Loan, respectively.

2. The government is generally pleased with the progress made during 1998 and first half of 1999 in the area of macroeconomic stabilization. In this area, most of the initial program objectives have been achieved. In 1998, economic growth reached 5 percent and inflation declined from 164 percent during 1997 to only 3 percent during the year. During 1999, inflation is likely to be higher (13 percent), reflecting the depreciation of the nominal exchange rate vis--vis the U.S. dollar due to a sharp decline in the world market prices of our key export products and the financial crisis in Russia. Official gross reserves increased from a very low level at end-1997 to US$52 million, or 1.2 months of imports, at end-March, 1999, despite the external shocks. The external current account deficit widened from 5.5 percent of GDP in 1997 to 10.9 percent of GDP in 1998. The current account deficit and foreign reserve accumulation were largely financed by concessional borrowing from international financial institutions, mainly from the IMF and the World Bank.

3. Financial policies have been supportive to these achievements. Although the deficit of the general government budget was somewhat higher than programmed in 1998 and in the first months of 1999, the financing of the general government by the National Bank of Tajikistan (NBT) was limited only to 1.3 percent of GDP in 1998 and to 0.5 percent of GDP so far in 1999. As the NBT supplied regularly to the foreign exchange market (TICEX) part of the foreign exchange deposited with the central bank, including sales taxes and disbursements from the World Bank and the ADB, the growth of broad money was contained to 9.5 percent during 1998 and to virtually zero in early 1999. Largely due to the external shocks, however, the accumulation of foreign reserves was less than initially programmed.

4. Progress was also made in implementing structural reforms. Significant achievements in this area include: the introduction of a new Tax Code, which reduces tax distortions and provides a good basis for enhanced revenue collection; the further liberalization of the external trade regime; the strengthening of bank supervision and steps in the restructuring of the banking system. At the same time, the small-scale privatization process is now almost completed although progress has been slower than hoped for in large-scale privatization. Also, electricity tariffs have been raised to improve cost recovery. In agriculture, a strong start has been made in converting state and collective farms into private farms and private farming has increased from 13 percent of arable land in 1997 to about 40 percent by now.

5. Admittedly, there have been delays in implementing the reforms envisaged for the public expenditure system, especially with regard to the restructuring of government wages and reducing overstaffing, in rationalizing the social benefits system, and in reforming the legal and regulatory framework. The development of efficient financial markets remains a challenge, and there continues to be a need to introduce greater financial discipline in relations between government and enterprises. The government and the NBT intend to move forward with these reforms during the second-year program.

II.  The Government's Program for April 1, 1999–March 30, 2000

A.   Policy Objectives

6. The economic policies for the second year of the ESAF-supported program are part of a broader medium-term reform agenda outlined in an updated Policy Framework Paper and policy matrix jointly prepared by the government, the World Bank and the IMF. The key targets of the second-year program include containing inflation to 13 percent during 1999 and 7 percent during 2000, maintaining real GDP growth at 5 to 6 percent per year in 1999-2000, and increasing the gross international reserves of the NBT to 2.2 months of imports of goods and services (excluding imports of alumina and electricity).The program will also aim at minimizing impediments to economic growth through strong structural reforms by accelerating large scale privatization and land reform, deepening financial sector restructuring, further liberalizing the trade and exchange regimes, strengthening the legal and regulatory framework of the economy, and pursuing a broad range of sectoral policies including energy.

7. The government is aware that achieving rapid progress with these goals necessitates a restructuring of government itself, downsizing or eliminating old administrative structures, and creating or expanding new efficient ones. A main objective must be to improve governance in general and reduce corruption in particular. At the same time, we should aim at strengthening the capacity to formulate and implement economic policies and reforms, as well as to improve the coordination between the various government agencies.

8. To achieve our macroeconomic targets, we will (i) limit the growth of net domestic assets of the NBT consistent with the program's targets for foreign reserve accumulation; (ii) limit the central bank credit to government to zero in order to avoid monetization of the fiscal deficit; (iii) limit the overall fiscal deficit (excluding the foreign financed component of the public investment program) to 3 percent of GDP in 1999 and to 1.9 percent of GDP in 2000 in order to continue the fiscal adjustment. The quantification of these targets, as described below, is consistent with the monetary expansion that should contain inflation to the program targets. To ensure a deepening of structural reforms, we have also reached understandings with the staff of the IMF on a number of structural performance criteria and benchmarks for the second year of our program (Annex I).

9. The government recognizes that for the medium-term program to gain credibility, a strong performance in implementing our policies at the earliest stage is necessary. Therefore, we will take the following prior actions by June 15, 1999, before the Executive Board consideration of our program:

(i)  contain the stock of the NBT's net domestic assets and net credit to government at no more than TR 71.4 billion and TR 74.8 billion, respectively, at end-May, 1999. Net international reserves of the NBT shall exceed negative US$13 million as of the same date;

(ii)  clear all external payment arrears;

(iii)  increase the power and authority of the Large Taxpayer Unit over local tax authorities;

(iv)  implement the measures for the VAT reform and issuance of Taxpayer Identification Numbers (TIN) as specified in Annex II;

(v)  sign the sale contracts for the privatization of at least 120 medium- and large-scale enterprises, with full payments received for 80 such enterprises, cumulative since January 1998;

(vi)  issue the third international tender for the remaining cotton ginneries as specified in the agreement between the government and the World Bank, with a deadline for the submission of bids by June 28;

(vii)  issue a presidential decree on converting state and collective farms into private farms during the period April 1, 1999-March 30, 2000 with quarterly quantitative targets for each rayon consistent with the targets set out in paragraph 36;

(viii)  complete the disposition of Pakhtai Tajik's fixed assets;

(ix)  liquidate Tajikbankbusiness; and

(x)  reduce the spread between the TICEX and curb market exchange rates to below 7 percent by removing restrictions on the availability of cash foreign exchange;

10. With these prior actions, and the policies described in detail below, we believe that the implementation of the second-year economic program will take hold rapidly and domestic and international confidence in our reform effort will be strengthened significantly.

B.   Fiscal Policy

11. In line with the requirements of our macroeconomic framework, the 1999 general government budget aims at limiting the overall fiscal deficit on a cash basis to 3.0 percent of GDP. Although we have faced a larger-than-expected decline in cotton and aluminum prices and were hard hit by the Russian financial crisis last year, the deficit target has been kept unchanged, representing a further fiscal adjustment from the deficit of 3.8 percent of GDP in 1998. This deficit does not include the foreign financed component of the public investment program. To the extent such foreign financed investments materialize and can be verified with the IMF staff, the programmed deficit will be adjusted upwards. Regarding the overall financing of the general government budget, there will be no net credit to government from the NBT, except for short-term (maximum one-month) liquidity management purposes. Financing needs after net disbursements of foreign loans, including project loans, will be met by expected transfers from the NBT privatization account, and issuing treasury bills; any government borrowing from banks will be in the form of placement of treasury bills.

12. Despite the weaker-than-expected revenue performance in early 1999, the program envisages a 0.8 percentage point increase in the revenue to GDP ratio, which partly reflects the full-year effect of the elimination of VAT exemptions on food in April 1998, introduction of new excises on gasoline, elimination of the import duty exemption on natural gas, and increases in other tax and nontax revenues. On the other hand, the elimination of sales taxes on some goods partly offset the revenue effect of these measures. Overall, the tax measures put in place are estimated to increase revenues by 0.5 percentage point of GDP in 1999. Moreover, a number of improvements in tax administration regarding VAT, excises, and customs are expected to have a favorable impact of about 0.2 percent of GDP on tax collections in 1999.

13. With the introduction of the new tax code on January 1, progress in modernizing Tajikistan's tax system took a major step forward. Though changes in tax regulations may have exacerbated revenue collection problems in the short term, we recognize that weaknesses in tax administration are largely responsible for the collection shortfall at the State Tax Committee (STC) and the State Customs Committee (SCC). To address these shortcomings, measures to strengthen performance have already been taken: we have started administrative reorganization of the STC and the SCC by involving qualified personnel from the Ministry of Finance in the tax collection process; we are strictly enforcing the presidential decree, which forbids tax offsets and in-kind payments; we have begun issuing taxpayer identification numbers (TIN); and we have started an information campaign on the new VAT legislation.

14. To improve tax administration further, additional measures are needed. The issuance of TINs to enterprises will be completed by end-June 1999 while the taxpayer registration drive will continue. Enterprises should only be allowed to import, or open a bank account, if they have a TIN. In the area of VAT implementation, the following preparatory measures will be completed by mid-June: printing of VAT forms; specifying VAT bookkeeping requirements; issuing VAT implementation instructions; improving coordination between the STC and the SCC in collecting the VAT; and training of staff . Regarding large taxpayers, the authority of the Large Taxpayer Unit (LTU), which to date has no authority over local tax offices, will be strengthened by giving them such authority. Though automatic taxation through banks' settlement accounts was eliminated for 20 large taxpayers under the LTU in January, this measure needs to be extended to all companies currently under the LTU by end-December 1999, and to all remaining taxpayers under the LTU by March 2000.

15. Expenditure policy will need to balance fiscal prudence with the need to maintain key public services. Priority areas are wages, the social safety net, and external debt service. In these areas, no arrears will be allowed. In contrast, indirect producer subsidies through the national economy programs will be reduced. In an effort to reform the public service and decompress the wage structure, the Ministries of Finance and Labor will complete a public sector employment survey by October 1999. In light of its results, rationalization of government employment and pay will be scheduled to take effect on January 1, 2000, with the aim of reducing overstaffing and increasing pay to retain qualified personnel in the public service. The average pay increase will be determined in October in close cooperation with the IMF staff.

16. Expenditure on the social safety net in Tajikistan remains among the lowest in the transition economies, and much of the social protection is provided by extended family networks. In light of fiscal constraints, a major contribution of the program to improving social conditions will be through low inflation and a stable exchange rate, thereby protecting real incomes of the most vulnerable segment of the population. Expenditure of the Social Protection Fund (SPF), the major component of the formal social safety net, is budgeted to increase to 2.2 percent of GDP in 1999 and to 2.5 percent of GDP in 2000, up from 1.9 percent in 1998, and 1.6 percent in 1997. In light of the recent revenue performance, the SPF will build up a reserve fund equivalent to 5 percent of outlays by end-1999 in order to ensure timely pension payments. All pensions below the minimum pension will be brought at the level of TR 2,000 per month on January 1, 2000 provided that the SPF's financial position develops as projected. At the same time, working pensioners' benefits will be frozen, early retirement provisions will be tightened, and the pension law will be amended to increase the minimum pension age by six months each year during the period of 2000-2004 starting on July 1, 2000. These measures are necessary to preserve the longer-term financial soundness of the pension system. While the above measures aim at strengthening the present pay-as-you-go pension system, more profound reform to link benefits and contributions will be examined during the second year program. Steps toward a funded system need to be assessed in this connection taking into account the prospective development of domestic asset markets.

17. Following the recent roundtable discussion on the social safety net, organized together with the World Bank and the IMF, we decided to improve benefit delivery of the cash compensation system by reducing the number of certificates needed for benefit claim and lowering the payment frequency from a monthly to a quarterly schedule. These reforms became effective as of May 1, 1999. In the medium-term, targeting of social benefits will be improved by taking account of non-official sources of income in benefit determination, based on the results of a household poverty survey to be completed in July/August 1999. In addition, steps that aim at eliminating the overlap between the SPF and the cash compensation program will be specified in the 2000 budget. This implies that bringing all pensions below the minimum pension to TR 2,000 will reduce the number of pensioners eligible for cash compensation payments. The SPF would receive a transfer from the budget, and the allocation to the cash compensation program would be reduced correspondingly.

18. During the second-year program, expenditure control will be strengthened by extending treasury coverage to all central and regional budget transactions, with the assistance of the IMF treasury advisor. By end-September 1999, all regional budget transactions will be brought under the treasury system and by end-December 1999, all central budget transactions occurring outside Dushanbe will also come under treasury control. All bank accounts of central and regional budgetary organizations, including extrabudgetary and foreign exchange accounts, will be closed on January 1, 2000. The treasury system will be fully established by March 2000. Furthermore, the regulations on tender for government procurement will be amended by end-December 1999. The procurement agency will begin supervising tenders for government orders on this basis. Technical assistance from the World Bank will be sought for this purpose. With assistance from the FAD fiscal advisor, the Ministry of Finance should complete the transition to GFS accounting standards by the year 2000 budget and start issuing quarterly reports and forecasts on that basis.

19. We fully recognize the constraint imposed on financial policies by the high external debt. Despite the reduction of our debt to Russia from US$300 million to US$160 million, for which a formal agreement is being finalized, our annual external debt service still amounts to 3.8 percent of GDP in 1999, and 5.1 percent of GDP in 2000. We hope that our May 1999 US$1.5 million interest payment to the European Union will accelerate our ongoing discussions on additional financial support from the EU to alleviate our debt service burden. We also expect to finalize the debt rescheduling agreements with Pakistan by end-July as understandings on rescheduling terms have been reached. So far China and India have not yet approved our rescheduling proposal, but we will continue our rescheduling discussions with them as well as with Turkmenistan to settle our correspondent account balances. We will also strengthen our effort to recover debt owed to us by the Baltics and CIS countries.

20. In view of Tajikistan's high external debt, regulations will be adopted by end-August 1999, to further tighten the criteria and procedures for the contracting and granting of government guarantees on debt. The Debt Unit within the Ministry of Finance will be strengthened and assigned central responsibility for monitoring compliance with these procedures. The government will strictly limit its contracting and guaranteeing of nonconcessional external debt as required under the program's performance criteria. As our cotton exporters have not been able to fully repay their cotton loans to Credit Suisse First Boston Co., we have extended two government guarantees totaling US$90 million on these loans to remain effective until end-1999. In addition to these guarantees, we will grant no other guarantees except those for the prospective EBRD loans accommodated by the debt ceilings as specified in Annex V.

21. Regarding domestic debts, an Asset Management Unit will be established under the Ministry of Finance to assume the responsibilities of recovering the loans carved off from Agroinvestbank and other commercial banks' balance sheets as a result a potential government recapitalization of banks. The remaining receivables/payables of Pakhtai Tajik will be transferred to a special government unit for settlement. The financial relations between the government and Tajik Rail will be further regularized in August 1999 in connection with the preparation of the 2000 budget.

C.   Monetary and Exchange Rate Policy

22. Monetary policy will aim at strengthening the balance of payments and supporting low inflation and a stable exchange rate. While nominal interest rates are expected to fall, real rates could remain relatively high, reflecting poor credit worthiness of the enterprise sector and weaknesses in the banking system. More generally, the monetary program has been based on cautious estimates on a gradual decline in velocity and a partial recovery of the money multiplier. Accordingly, the NBT's credit policy will aim at containing the 12-month growth in ruble reserve money to 17 percent during the second-year program.

23. Under the program, the NBT will conduct a flexible exchange rate policy and it does not intervene on the foreign exchange market beyond the need to smooth daily fluctuations in the exchange rate. Given the pursuit of appropriately disciplined financial policies, in particular the monetary and credit policy, this approach is likely to result in a broadly stable nominal exchange rate of the Tajik ruble vis--vis the U.S. dollar but an appreciation of the real exchange rate through inflation. In view of the very low level of dollar wages, such a development is not expected to endanger competitiveness.

24. The financial relations between the NBT and the Ministry of Finance need to be regularized. Starting from January 1, 2000, the government will pay interest at market rates on its new borrowing from the NBT. As of the same date, the NBT and the government will convert the total stock of foreign currency and Tajik ruble debt to the NBT outstanding at end-December 1999 into Tajik ruble denominated long-term bonds. Details of the conversion, including the discount rate, interest rate and maturity of the long-term bond, will be finalized in August in connection with the preparation of the 2000 budget. The NBT will pay market rates of interest on government deposits, including counterpart deposits of multilateral official disbursements at the NBT. The NBT will transfer part of its profits to the budget in accordance with the NBT Board instructions to be prepared by end-September 1999 in close consultation with the IMF staff.

25. A key structural objective in the monetary area under the second year program will be the deepening of financial markets. Access to these markets will be free, including for foreign banks, with a view to improving the efficiency of financial intermediation and encouraging competition. The TICEX Board will allow all banks to participate in foreign exchange auctions on par with shareholder banks. To encourage the development of an interbank foreign exchange market, all restrictions on direct bilateral trading between banks will be lifted before end-December 1999. The NBT will continue to extend all its credits through credit auctions and ensure that all auctions are conducted in a transparent manner. The clearing mechanisms of the credit auction market will also be modified in line with MAE recommendations to ensure a genuine market clearing interest rate.

26. The NBT intends to rely increasingly on indirect instruments to conduct monetary policy. To this end, measures will be taken to develop the treasury bills market as recommended by the April 1999 MAE mission, creating the conditions for the introduction of effective open market operations at a later stage. Loans collateralized with treasury bills will be provided (over and above the existing maximum) through the credit auction to increase the demand for treasury bills. A Lombard facility will be introduced in January 2000.

27. Regarding banking supervision, further progress will be made in monitoring whether all banks meet prudential regulations, and in strengthening the implementation of specific actions and penalties including withdrawal of licenses in case of noncompliance. International audits of Agroinvestbank, Savings Bank, and Vneshekonombank will be completed by end-June 1999. Audited financial statements for commercial banks will be made public. The NBT will require full loan-loss provisioning against nonperforming loans. Currently, only a fraction of provisions is taken into account for the purpose of calculating prudential ratios. For loans extended before January 1, 1997, this fraction will be progressively increased by one eighth each quarter beginning April 1, 1999. For loans extended after January 1, 1999, provisions will be made for 100 percent. Furthermore, in January 2000, the NBT will announce a specific timetable for raising progressively the minimum capital requirement for banks to US$3 million by 2002, with a view to accelerating the necessary process of bank consolidation. The NBT will be audited by an internationally reputable auditing firm for its new IAS based 1999 accounts by end-March 2000.

28. There has been good progress in implementing the bank restructuring program for the four major banks jointly agreed with the IMF and the World Bank. This restructuring program will be continued for the Agroinvestbank and Savings Bank and has been formalized in letters of understanding between the NBT and these banks (Annex III). Following an injection of private capital and progress made in operational restructuring, the government has decided to remove an estimated 7.3 billion of government directed loans from the balance sheet of Agroinvestbank through the placement of a long-term government bond.1 These loans will be assumed by the Asset Management Unit mentioned above.

29. Full privatization of the Savings Bank remains the ultimate objective. In order to facilitate this process, the government is considering a plan to carve off remaining bad loans from the bank's balance sheet. However, such a plan will not be implemented until the current operational restructuring program is satisfactorily completed. An assessment of its performance will be made based on the end-June completion of the international audit. Subsequently, complementary private capital will be sought, and the bank will be privatized according to a special program to be formulated by the NBT together with the government and in cooperation of the World Bank and the IMF.

30. In case the results of the audits at the Agroinvestmentbank, the Savings Bank and Vneshekonombank show less satisfactory operational and financial improvement than targeted in the understandings with the NBT under the restructuring programs, the government will discuss with the IMF and World Bank staff during the program reviews which further course of action to take, including mergers or liquidations if there is no prospect for viability.

D.  Structural Policies

31. The government's priority areas in structural reform are the large scale privatization, banking sector restructuring, land reform, rehabilitation of the energy sector, and government restructuring. At the same time, we intend to make further progress in creating an enabling environment for the development of the private sector, and restructuring key sectors of the economy to make their operations consistent with a market economy.

32. In the area of large scale privatization, in addition to the prior actions described in paragraph 9, the government will (i) by end-June 1999, further simplify registration procedures to incorporate at least 700 medium and large enterprises cumulative since January 1998; (ii) sign the sale contracts for all remaining state-owned cotton ginneries not sold in the June 12 auction; (iii) by end-September 1999, receive full payments for at least 120 medium- and large-scale enterprises, cumulative since January 1, 1998; (iv) complete the ginneries privatization by receiving full payment for all of them by end-September 1999; and (v) complete the privatization of small enterprises by selling at least 200 items between May 1 and September 30 and another 200 items in the fourth quarter of 1999. Beyond September, the government is committed to achieve the following targets (cumulative since January 1998): (i) sign sale contracts for at least 180 medium- and large-scale enterprises with full payments received for at least 140 of them by end-December 1999; (ii) sign sale contracts for 210 with full payments received for 160 such enterprises by end-March 2000. The use of market coefficients in setting sale prices will be prohibited and sale contracts for which 30 percent of the payment is not received within 30 banking days after the signing of the contract will be canceled in order to strengthen payment collections. When dealing with enterprises which cannot be easily sold as an ongoing entity, and for which there is no prospect for viability, these enterprises will be liquidated and their remaining assets sold.

33. Encouraging greater competition by allowing free market entry for new enterprises, and ensuring that enterprises can operate in a stable legal environment are important objectives of the government. In support of these objectives, the Ministry of Justice will present the first part of the new Civil Code to Parliament in May 1999 and aim at submitting the remaining two parts to Parliament by March 2000. It will review the adequacy of the existing Law on Collateral and introduce amendments as necessary by December 1999. In addition, with a view to speed up liquidation and post-privatization restructuring, the Ministry of Justice will review the bankruptcy court procedures, and revise the mechanisms for the enforcement of the Bankruptcy Law. The government also intends to pursue judicial reforms, with the aim of developing an effective and independent judiciary, to complement the bankruptcy reform. The business registration procedures will be simplified to one week and business licensing requirements will be streamlined by end-1999 to encourage private sector development.

34. The existence of a non-cash economy where transactions are conducted through barter, arrears accumulation, and netting-out operations hampers the development of a market economy and undermines public finances. To drastically reduce non-monetary transactions, in addition to the legal reforms mentioned above, we will strengthen payment discipline of the public sector by strictly enforcing the government resolution on banning tax offsets and in-kind payments and conditioning transfers to local governments on timely payments of their current liabilities. Measures to reduce interenterprise arrears will include (i) by end-December 1999, identify state-owned enterprises responsible for most tax and interenterprise arrears; adopt restructuring plans for the viable enterprises and liquidate the unviable ones using the revised Bankruptcy Law; (ii) by end-March 2000, securitize viable state-owned enterprises' debt and market them; (iii) by end-September 1999, prepare a plan to address the stock of electricity arrears; and (iv) develop and implement a plan to enforce full payment for electricity in 1999-2001.

35. Land reform has generated an encouraging supply response during 1998 and its momentum will be maintained. The Land Reform Committee will convert at least 160 remaining state and collective farms into private farms through the issuance of marketable land use and land share certificates to the private farmers during the second year program. Specifically, it will privatize at least (i) 20 farms in the second quarter 1999; (ii) 60 farms (cumulative since end-March 1999) by end-September 1999; (iii) 110 farm cumulatively by end-December 1999; and (iv) 160 farms cumulatively by end-March 2000. With assistance of the World Bank, progress will be made in land mapping, surveying, and title registration. A simple and inexpensive land registry will be established by September 1999 to facilitate the development of land use rights/lease markets. Likewise, the economic court will start dealing with land issues. The government will take steps to further liberalize the supply of farm inputs, and develop a rural credit system by end-1999. To encourage the efficient use of water resources, the Ministries of Irrigation and Economy will investigate the economic costs of water supply by September 1999 and raise irrigation tariffs to cover at least 20 percent of the costs by end-December 1999.

36. Good progress has been made over the past year in the liberalization of the trade and exchange system, and the changes effected have made it possible for Tajikistan to apply for WTO membership. The government's trade policy in 1999 and beyond will be guided by the requirements for early WTO accession, for which we will apply by end-1999. The government will refrain from introducing any discriminatory tariff changes and non-tariff trade barriers inconsistent with WTO policies. On the exchange system, the NBT will ensure free functioning of the foreign exchange market so that the spread between the TICEX and curb market exchange rates will not exceed the estimated transaction costs throughout the program period.

37. The key objective of the reform in the energy sector is to rehabilitate the electricity production. Further to the increase in electricity tariffs for households on April 1, 1999 to achieve a 25 percent cost recovery rate, the privileges for free usage of electric power by certain groups except for war veterans, invalids, and Chernobyl victims will be removed, effective March 2000. The government is committed to raising the tariffs in steps in order to achieve full cost recovery and eliminate cross-subsidies from industry to households by March 2001 according to the time schedule specified in Annex IV. Meanwhile, special social compensation will be provided in the 2000 budget to protect the most vulnerable groups to be defined on the basis of the results of the 1999 household poverty survey. To strengthen payment collections, government agencies at all levels will abstain from interfering with Barki Tojik and Tajik Gas's policy of cutting off service to delinquent customers. With technical assistance to be requested from the Asian Development Bank, an international accounting standards audit of Barki Tojik will be completed by end-October 1999. Cost recovery calculations will be reviewed by end-June 1999 in order to include better provisions for capital maintenance and depreciation; and a longer term restructuring plan of the power sector will be developed by December 1999. A further reform, which the government will initiate in January 2000, relates to the pricing of communal services (rent, transportation, water, and heating when provided centrally rather than individually), which are currently partly subsidized. In parallel with efforts to improve efficiency in the provision of such communal services, their prices will be raised in March 2000 (after consultation with the IMF staff), with a view to improving significantly cost recovery and reducing subsidization.

38. To make the government more effective and improve the governance of the public sector, the government structure needs to be rationalized. To this end, a presidential task force on public sector reform has been set up. As a secretariat for the presidential task force, a Public Administration Reform Management Unit will be established and the director and staff of this unit will be appointed by end-1999 to follow up restructuring initiatives. By March 2000, a government restructuring plan will be prepared and functional reviews of at least two pilot ministries will be started with the objectives of streamlining decision making process and eliminating duplication of functions. In addition, as part of the civil service reform, the government will start, as of January 1, 2000, downsizing public sector employment, restoring sufficient pay and incentive levels for public servants by decompressing the wage structure and consolidating salaries and non-salary benefits, and creating a modern merit-based civil service management system. Moreover, privatizable enterprises will be separated from the existing ministries and state committees, converting them into joint stock companies, and registering them for privatization at the SPC by December 1999. By June 1999, a privatization account will be established at the NBT to increase transparency in the allocation of privatization proceeds. Progress in preparing the public sector reform action plan will be assessed at the time of quarterly reviews of the program.

39. A significant element of improving human resource management will be reforming the public health and education system, with the objective of increasing efficiency in the delivery of these services, while guaranteeing access to at least basic levels of health and education for all. Further reforms will be based on a two prong approach: improving efficiency and cost recovery for facilities remaining in the state sector, and privatization of certain components of the health and education system. Measures in this area will be closely coordinated with the work by the World Bank. In the 2000 budget, specific user fees will be introduced in education and health to ensure that the expenditures in these areas can be maintained at sufficient levels.

40. Improving the quality of economic statistics will remain an important objective under the program. A high level working committee of the government designed to improve economic statistics will be established by June 1999 and resources available to Goskomstat will be increased in the 2000 budget. Specific improvements targeted for 1999, in addition to completing the poverty survey by July/August 1999, will include more reliable monetary data, with the implementation of a new chart accounts and financial reporting standards for commercial banks, better national accounts, consumer and producer price indices, and balance of payments compilation.

III.  Program monitoring and reviews

41. The measures that the Tajik Government intends to implement as prior actions for the IMF Board consideration of the second year program were listed in paragraph 9. Financial performance will be monitored through quarterly quantitative performance criteria and indicative targets (Annex V) through end-March 2000 for (i) limits for the overall fiscal deficit of the general government; (ii) ceilings on net credit of the NBT to the general government; (iii) ceilings on net domestic assets of the NBT; (iv) minimum levels for the net international reserves at the NBT; (v) ceilings and sub-ceilings on the contracting and guaranteeing of new nonconcessional external debt; and (vi) minimum levels of tax collections of the State Tax and Customs committees. There will also be continuous performance criteria on no accumulation of new external arrears. Quarterly indicative targets will apply on the stock of the NBT's reserve money.

42. Besides quantitative performance criteria and indicative targets, monitoring of progress with the implementation of structural reforms under the second year program will be through continuous structural performance criteria on (i) no directed credits from the NBT; and (ii) no accumulation of domestic expenditure arrears on wages, social benefit payments, and pensions for nonworking pensioners. In addition, a structural performance criterion for end-June 1999 applies to the signing of the sale contracts for all cotton ginneries tendered for June 28. The structural benchmarks for end-June and end-September 1999 are listed in Annex I. Structural benchmarks for end-December 1999 and end-March 2000 will be defined in the context of the December 1999 program review.

43. Progress with the program implementation will be assessed by the IMF through quarterly reviews to be completed by the IMF Executive Board no later than September 30, 1999, December 31, 1999, March 31, 2000, and June 25, 2000. In addition to assessing that the macroeconomic objectives are being met, the program reviews will focus, inter alia, on progress in privatization, bank restructuring, land reform, and energy sector rehabilitation.

44. The government believes that the policies described above are adequate to achieve the objectives of the program. It intends to remain in close consultation with the IMF in accordance with the 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 that might be necessary to ensure that the overall objectives of the program can be achieved.


1The exact amount of the loans to be carved off will be determined in close cooperation with the IMF and World Bank staffs.

 

Table 1. Tajikistan: Quantitative Performance Targets, June 1999–March 2000
(In stocks, unless otherwise indicated)
  Actual
Program
  1999
March 31
1999
June 30
1999
September 31
1999
December 31
2000
March 31

  (Billions of rubles)

1. Quantitative Performance Targets

Ceiling on net domestic assets of the NBT1 108.5 89.3 103.1 106.2 94.4
 
Ceiling on NBT's net credit to general government1 98.5 92.2 92.2 92.2 92.2
 
Ceiling on cumulative overall fiscal deficit during the program period . . . 10.0 21.0 21.7 31.7
 
General government wage, compensation
pension and nonworking pensioners' pension arrears
0 0 0 0 0
 
Tax collection of the STC and SCC . . . 19.0 39.7 62.8 81.6
 
  (Millions of dollars)
 
Floor on total net international reserves1 -44 -24 -29 -31 -20
 
Ceiling on cumulative amount of non-concessional loans contracted or guaranteed:2 0 10 10 10 10
   Sub-ceilings:
      With maturities of 1 to 5 years 0 10 10 10 10
      With maturities of less than 1 year 0 0 0 0 0
 
New external payments arrears (continuous) 1.4 0 0 0 0
 
  (Billions of rubles)
2. Indicative Targets
Reserve Money 63.2 64.0 72.9 74.1 74.1

1In the case of different than programmed net foreign financing to the general government budget, these limits will be adjusted accordingly (details are in Annex V of the MEP).
2These limits exclude the extension of two government guarantees to the cotton sector totalling US$90 million. These guarantees remain effective until end-1999 and they will not be extended further. As of end-May 1999, total outstanding of the guaranteed debt amounted to about US$46 million. The US$44 million remaining under the extended guarantee will not be used for any additional external borrowing.
 

ANNEX I
Structural Performance Criteria and Structural Benchmarks

Structural Performance Criteria

Continuous:
1. Issue all gross NBT credit via credit auctions during the program period.

2. No arrears on government wages, pensions, and social benefits.

For end-June 1999
1. Sign sale contracts for all cotton ginneries tendered for June 28, 1999.

2. Issue a government resolution on limits for guaranteeing or contracting nonconcessional external debt consistent with the commitments of the MEP.

Structural Benchmarks

For end-June 1999
1. Complete the process of incorporatization of at least 700 medium- and large-scale enterprises (cumulative since January 1998).

2. Convert at least 20 state and collective farms into private farms by issuing marketable land use and land share certificates to private farmers during the second quarter of 1999.

3. Complete the issuance of Taxpayer Identification Numbers for enterprises.

For end-September 1999
1. Complete privatization (i.e., full payment received for at least 75 percent of shares) of all remaining cotton ginneries.

2. Sign sale contracts for at least 150 medium- and large-scale enterprises, with full payments received for at least 120 of them (cumulative since January 1998).

3. Convert at least 60 state and collective farms into private farms by issuing marketable land use and land share certificates to private farmers (cumulative since April 1, 1999).

4. Privatize at least 200 small-scale enterprises since May 1, 1999.

5. Submit to Parliament a new Law on Foreign Debt and Government Guarantees as agreed with the Fund staff.

ANNEX II
VAT/TIN Implementation Schedule

Action Responsibility Date

Prior actions    

1. Appoint Customs representative to the
    Tax Committee's VAT Implementation Commission

CabMin May 10, 1999
     

2. Print and distribute VAT payer registration forms

STC May 15, 1999
     

3. Issue VAT implementation instructions for all
    identified VAT payers (approximately 1,500 )

STC May 24, 1999
     

4. Issue VAT payer's accounting requirements

MinFin, STC June 1, 1999
     

5. Publicize the VAT and simplified tax on small
    businesses in the mass media

STC June 1-8, 1999
     

6. Assign TINs to 10,000 enterprises

STC June 15, 1999
     

7. Register at least 700 VAT payers

STC June 15, 1999
     
Additional actions    

8. Distribute VAT declaration forms to all tax offices.

STC June 16, 1999
     
9. Register all known VAT payers STC June 26, 1999
 

 

ANNEX III
Tajikistan—Restructuring of Commercial Banks

Progress has been made in implementing the operational restructuring program in three of the four major commercial banks that signed restructuring agreements with the National Bank of Tajikistan (NBT) in 1998. The programs for the Agroinvestbank and Savings Bank will continue and will be formalized by an agreement between the NBT and the two banks before end-May, as specified below. Regarding Agroinvestbank, understandings have been reached between the World Bank staff and the government to write off an estimated TR 7.3 billion of non-performing old directed credits and replace them with a long-term government bond. This recapitalization, once completed, will bring the Agroinvestbank's capital ratio from the current negative to a positive level. No further government recapitalization of this bank is envisaged during the program period. For the Savings Bank, the ultimate objective is full privatization. After successful implementation of the operational and financial restructuring program, the bank will be privatized according to a special program to be formulated by the NBT together with the government and in cooperation of the World Bank and the IMF.

The Tajikvnesekonombank, which has made good progress under the operational restructuring program and achieved a positive capital ratio, will be allowed to operate freely. However, it will be required by the NBT to present a plan by end-June 1999 on how it intends to meet before end-September 1999 the four prudential standards where the bank is in excess of the limit.1 The Tajikbankbusiness, which has not shown improvement in its performance, will be liquidated as a prior action for the Board consideration of the second year ESAF arrangement.

For other commercial banks, the NBT will calculate the capital ratios according to International Accounting Standards by end-June 1999. It will intensify the supervision, including through on-site inspections, over those banks that are not complying with all the prudential standards and requirements set by the NBT. Failure to meet the prudential standards, by September 30, 1999, will result in the suspension or withdrawal of the non-complying bank's banking license and the banks will be liquidated.

More specific targets are outlined below for the restructuring of the Agroinvestbank and the Savings bank.


1As of April 1, 1999, the bank is in excess of the limits on liquidity (K2-1 and K2-2), maximum risk for one borrower (K3-1), and foreign exchange exposure (K6-1).

I. Restructuring Plan For the Agroinvestbank (AIB)

Operational Restructuring Measures Target date

  • Completion of international audit. In consultation with the
    World Bank and the IMF implement measures recommended.
July, 1999
  • The bank's loan portfolio (principal), excluding credits related to
    cotton financing, will increase from its level at end-March 1999 (TR12,365 million) only by a share of [50] percent of new
    non-government deposits. Remaining liquidity may be invested
    in treasury bills.
Ongoing to December, 1999
  • Capital expenditures May through December, 1999 will not
    exceed US$30,000.
December, 1999
  • The number of employees will be reduced by 5 percent from
    the level as of March 31, 1999.
September, 1999
  • Deposits rates will be adjusted to ensure profitability.
June, 1999
  • AIB will collect at least 20 percent of principal and interest
    outstanding as of March 31, 1999
December 1999
  • With respect to overdue loans that cannot be collected immediately, the AIB will take aggressive action on their collection, including bringing enterprises, which have significant obligations to AIB,
    to the economic court.
December, 1999
  • A permanent foreign advisors will be sought to develop the bank's lending and management practices.
Ongoing

Financial Restructuring Measures
  • Provided that the international audit proves a satisfactory
    performance in the AIB's operational restructuring, the above
    scheme for government recapitalization will be completed.
August, 1999
  • Reach 7 percent K1 ratio.
September, 1999
II. Restructuring of the Savings Bank (SB)
   
Actions to be taken Target date

  • Complete international audit. In consultation with the World
    Bank and the IMF implement recommended measures.

July, 1999

  • The number of employees will be reduced by 5 percent from
    the level as of March 31, 1999.

December, 1999

  • Deposits rates will be adjusted to ensure profitability.

June, 1999

  • SB will collect all maturing interbank loans, excluding loans to Tajikbankbusiness which will be collected to the extent
    possible after the liquidation of that bank.

Ongoing

  • As a share of household deposits, 20 percent should be held
    as (non-interest bearing) working capital with the NBT and
    20 percent in government treasury bills.

June, 1999

  • Twinning arrangements, management contracts, or permanent
    foreign advisors will be sought

Ongoing

Financial Restructuring Measures  
  • SB will prepare a detailed list of its nonperforming loans to be presented to the NBT.
May, 1999
  • The NBT will decide the amount of bad loans to be carved
    off the SB balance sheet.
June, 1999
  • The NBT will in cooperation with the World Bank and the IMF determine a mechanism for recapitalization and calculate fiscal
    cost. A timetable for its privatization will be determined.
September, 1999

ANNEX IV
Time Schedule for Electricity Tariff Cost Recovery

Measure Responsibility Timing

1.  Industrial tariffs    
—to 75 percent MinEcon/Barki Tojik End-December 1999
—to 100 percent   End-December 2000
     
2.  Agricultural tariffs    
—to 25 percent MinEcon/Barki Tojik End-September 1999
—to 50 percent   End-September 2000
—to 100 percent   End-September 2001
     
3.  Household tariffs    
—to 50 percent MinEcon/Barki Tojik End March 2000
—to 100 percent   End-March 2001
     
4. Communal tariffs    
—to 50 percent MinEcon/Barki Tojik End-September 1999
—to 75 percent   End-March 2000
—to 100 percent   End-March 2001

A specific social compensation will be granted in the 2000 budget for most vulnerable groups to be defined in August 1999 on the basis of information provided by the household poverty survey.

If the cost recovery level (excluding capital cost) estimated with technical assistance from the ADB in May 1999 turns out higher than US1.5 cents/kWh, the above targets will be adjusted downwards by the percentage amount of the overestimation.

ANNEX V
Performance Criteria and Indicative Targets1

I.  Targets for the Fiscal Aggregates

1.  Limits on the Overall Deficit of the General Government

(In millions of rubles)

  Overall deficit of the
General Government
April 1 to June 30, 1999 (performance criterion) 10,000
April 1 to September 30, 1999 (performance criterion) 21,000
April 1 to December 31, 1999 (indicative) 21,656
April 1, 1999 to March 31, 2000 (indicative) 31,656

Adjustors

Should the actual foreign 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 TR 10 billion. Such financing are programmed to zero from April 1 to December 31, 1999 and TR 1.7 billion from April 1, 1999 to March 31, 2000.

Definitions

The general government is defined to include the Republican budget, local budgets, and all extrabudgetary funds at all levels of government. The overall deficit of the general government is defined from the financing side as the sum of the following: (i) the change in net credit to the general government from the NBT; (ii) the change in net claims on the general government of the rest of the domestic banking system (i.e., excluding the NBT); (iii) the change in net claims on the general government of domestic nonbank institutions and households; (iv) proceeds from the privatization of state property; and (v) net foreign financing of the deficit.

Net credit from the NBT to the general government is defined as all claims (including securities) of the NBT on the general government less all deposits of the general government with the NBT, excluding counterpart deposits of loans or grants received from official creditors (including but not limited to the World Bank Structural Adjustment Credits and Asian Development Bank's Post-Conflict Infrastructure Program Loan) and loans from other official creditors.

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

The change in net claims on the general government of domestic nonbank institutions and households is defined to comprise 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, minus compensation payments to Tajik Rail for its servicing of Tajikistan's external debt to Uzbekistan.

The proceeds from the privatization of state property are defined as all revenues originating from the sale of state property.

Net foreign financing of the deficit is defined as the difference between the use of foreign financing, excluding grants, and the amortization of government debt to foreign financial and nonfinancial institutions. 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, related to balance of payments financing and including but not limited to loans received from the World Bank's Structural Adjustment Credit and Asian Development Bank's Post-Conflict Infrastructure Program Loan. The cumulative net foreign financing projected for the program period is as follows:

  Projected net foreign
Financing of the deficit
April 1 to June 30, 1999 (performance criterion) 16,177
April 1 to September 30, 1999 (performance criterion) 27,677
April 1 to December 31, 1999 (indicative) 30,642
April 1, 1999 to March 31, 2000 (indicative) 37,136

2.  Minimum levels of Tax Collection of the State Tax and State Customs Committees

(In millions of rubles)

  Tax collections of
the STC and SCC
April 1 to June 30, 1999 (performance criterion) 18,969
April 1 to September 30, 1999 (performance criterion) 39,764
April 1 to December 31, 1999 (indicative) 62,824
April 1, 1999 to March 31, 2000 (indicative) 81,681

Definitions

Tax collection of the State Tax Committee (STC) and State Customs Committee (SCC) include all taxes collected by the STC and SCC. Not included in the definition of tax collection of STC and SCC are 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.

II.  Targets for Monetary Aggregates

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

(In millions of rubles)

  Limits
Stock as of March 31, 1999 108,508
   June 30, 1999 (performance criterion) 89,257
   September 30, 1999 (performance criterion) 103,065
   December 31, 1999 (indicative) 106,241
   March 31, 2000 (indicative) 94,425

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) 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 upward, but by no more than the Tajik ruble 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 reserves, and other deposits with the NBT, excluding government deposits with the NBT. Net foreign assets of the NBT consists of net international reserves in convertible currencies plus net assets on the NBT's correspondent accounts with Baltic countries, Russia and other countries of the former Soviet Union. Thus, the NBT's net domestic assets consist the following assets and liabilities: net credit to the general government, counterpart deposits of World Bank disbursements and EU grants, special cotton financing, claims on banks, credit to the economy, and other net domestic assets.

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

(In millions of rubles)

  NBT's net credit to
General Government
2
Stock as of March 31, 1999 98,545
   June 30, 1999 (performance criterion) 92,227
   September 30, 1999 (performance criterion) 92,227
   December 31, 1999 (indicative) 92,227
   March 31, 2000 (indicative) 92,227

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 Tajik ruble equivalent value of US$10 million.

Definitions

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

3.  Floors Under the Stocks of Net Official International Reserves
of the NBT in Convertible Currencies

(In millions of U.S. dollars)

  Floors
Stock as of March 31, 1999 -43.6
   June 30, 1999 (performance criterion) -24.3
   September 30, 1999 (performance criterion) -29.1
   December 31, 1999 (indicative) -31.0
   March 31, 2000 (indicative) -19.6

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

Net international reserves of the NBT in convertible currencies are defined as the difference between total gross foreign reserves in convertible currencies and short-term liabilities in convertible currencies to nonresident institutions with an original maturity of up to and including one year, and include all Fund purchases. Total gross international reserves in convertible currencies of the NBT are defined as the NBT's holdings of monetary gold, holdings of SDRs, any reserve position in the IMF, and holdings of convertible currencies in cash or in non-resident banks. Excluded are capital subscriptions in foreign financial institutions, non-liquid assets of the NBT, and international reserves pledged as collateral for foreign loans.

For the purpose of program monitoring, components of the balance sheet denominated in U.S. dollars will be converted into Tajik rubles at the program exchange rate, and those denominated in other foreign currencies at cross rates between the fixed program exchange rate of the U.S. dollar and current official accounting exchange rates of the U.S. dollar and current official accounting exchange rates of other foreign currencies. Gold holdings shall be valued at US$300 per troy ounce.

4.  Indicative Limits on the Stock of Reserve Money of the NBT

(In millions of rubles)

  Limits
Stock as of March 31, 1999 63,210
   June 30, 1999 (indicative) 64,033
   September 30, 1999 (indicative) 72,860
   December 31, 1999 (indicative) 74,063
   March 31, 2000 (indicative) 74,080

Definitions

Ruble reserve money of the NBT is defined as currency in circulation plus required reserves, other reserves, and other deposits in both Tajik ruble and foreign currencies with the NBT, excluding government deposits with the NBT.

III.  Limits on External Debt and Arrears

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

(In millions of U.S. dollars)

Cumulative contracting, disbursements and guaranteeing of external debt (performance criteria):

  0-1 year
maturity
1-5 year
maturity
Total
During the period from April 1, 1999 to
   June 30, 1999 0 10 10
   September 30, 1999 0 10 10
   December 31, 1999 0 10 10
   March 31, 2000 0 10 10

Definitions

These limits exclude the extension of two government guarantees to the cotton sector totaling US$90 million. These guarantees remain effective until end-1999 and they will not be extended further.

The short-term debt includes all short-term obligations, including gold swaps, at the exception of normal import financing credits. Excluded from the limits are reserve liabilities of the NBT, as defined in section II.3.

External debt limits also apply to the contracting or guaranteeing of nonconcessional medium- and long-term external debt with original maturities of more than one year that are contracted or guaranteed by the Government of Tajikistan, the NBT, or any other agencies on behalf of the Government, with sublimits on the contracting and/or guaranteeing of such debt with maturities of up to and including five years. Debt falling within these limits shall be valued in U.S. dollars at the exchange rate prevailing at the time the contracting or guaranteeing takes place or at the exchange rate stipulated in the contract. Credits received from governments, central banks or banks of the Baltic States, Russia and the other countries of the former Soviet Union shall be included under the limits; if denominated in currencies other than the U.S. dollar, these will be converted into U.S. dollars at the exchange rate prevailing at the time of contracting or guaranteeing.  

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 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 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.

2.  Non-quantitative performance criterion relating to external arrears

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 the Tajikistan Republic or the NBT, including penalties or interest charges. The program requires that no new external arrears be accumulated at any time under the arrangement, i.e., this performance criterion is on a continuous basis.


1Targets for end-December 1999 and end-March 2000 are indicative. Performance criteria for these two test dates will be set at the time of the second quarterly program review in December 1999.
2The change in net credit to general government in the NBT balance sheet may differ from the amount of NBT credit to the general government shown in the fiscal accounts, as the NBT balance sheet revalues the stocks of the net general government according to the program exchange rate.