For more information, see Cambodia and the IMF

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

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June 22, 2001

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

Dear Mr. Köhler:

1. The attached memorandum highlights key developments under the PRGF-supported program during 2000 and the first half of 2001, and sets forth the economic, financial, and poverty alleviation policies that the Royal Government of Cambodia intends to implement in the remainder of 2001 and over the medium term. Macroeconomic stabilization has been fostered despite the adverse impact of severe flooding in the second half of 2000. Significant strides have been achieved in bank restructuring, reorienting government expenditure toward key social sectors, and adopting a comprehensive Governance Action Plan. All quantitative performance criteria for end-March 2001 were observed. The National Bank of Cambodia has complied with the provisions for the Fund's Safeguards Assessment.

2. The Government has received broad support from development partners during the recent Consultative Group Meeting held in Tokyo (June 11-13). The implementation of the full military demobilization program is expected to move forward, with financial support from the World Bank and bilateral donors. Shortfalls in revenue collection and delays in disbursing priority outlays are in the process of being corrected to ensure that the budgetary targets will be met. The Government would like to express its appreciation for the support provided by the IMF under several recent technical assistance missions as part of the Technical Cooperation Action Plan (TCAP). These actions should result in a strengthening in tax and customs administration, as well as in budget and expenditure management, over the medium term. The computerized civil service payroll system is near completion and progress in designing a broad-based reform strategy for the civil service will pave the way for implementation of the reform program starting in 2002.

3. As a first step toward preparing the ground for the full Poverty Reduction Strategy Paper (PRSP) the Government has prepared the second Socio-Economic Development Plan (SEDP II) covering 2001-05. Preparations for the full PRSP have begun in the wake of the PRSP workshop held in Phnom Penh (April 24-25). However, the need to prepare the full PRSP through broad consultation between government ministries, civil society, stakeholders, and NGOs may require additional time beyond end-2001 before a high quality document can be submitted to the World Bank and IMF Executive Boards.

4. The Government believes that the policies and measures described in the attached memorandum are adequate to achieve the objectives of the program for 2001, and stands ready to take additional measures that may become necessary for this purpose. The Government will consult with the Managing Director, at the initiative of either party, and will provide the IMF with such information as it requests on the progress made in policy implementation and the achievement of program objectives. In any event, Cambodia will conduct with the IMF the next review of the arrangement no later than end-January 2002.

5. In continuing with our policy of transparency, we consent to the publication, including on the IMF's website, of the attached Memorandum of Economic and Financial Policies and the accompanying Executive Board documents prepared by the IMF staff.

Sincerely yours,

Keat Chhon
Senior Minister
Ministry of Economy and Finance
Chea Chanto
National Bank of Cambodia


Supplementary Memorandum of Economic and
Financial Policies for 2001

June 22, 2001

I. Introduction and Recent Developments

1. Cambodia's economic and financial program is deeply grounded in the Government's poverty alleviation strategy outlined in the interim PRSP of October 2000. Fostering sustained economic growth is at the center of the Government's efforts aimed at addressing the multiple dimensions of poverty in Cambodia. Raising the population's standard of living and creating employment opportunities in the medium term will be achieved through maintaining a sound macroeconomic environment and implementing broad-based structural reforms with a view to promoting private sector development while improving public service delivery.

2. All quantitative and structural performance criteria through end-March 2001 were observed. Macroeconomic performance and reform implementation in 2000 was generally in line with program expectations. Real GDP continued to grow, despite the adverse impact of the severe flooding in the second half of 2000, largely on account of buoyant activity in the garment and tourism sectors. Inflation in 2000 was broadly flat on a year-on-year basis, and declined slightly in the first quarter of 2001, as timely flood-related assistance by the Government and donors prevented an increase in food prices.

3. The budgetary outturn strengthened in 2000, as evidenced by increased revenue mobilization, improved composition of government expenditure, and the avoidance of bank financing of the budget. Despite the burden of sizable government outlays for flood relief, fiscal targets for 2000 were largely observed. With fiscal revenue reaching 11½ percent of GDP and current expenditure contained at 10 percent of GDP, the current budget surplus reached 1½ percent of GDP. The overall deficit (excluding grants) was contained at

5½ percent of GDP, notwithstanding the marked increase in public investment for flood damage rehabilitation. However, improvements in revenue collections, especially for the value-added tax (VAT) and direct taxes, were partly offset by revenue shortfalls in trade taxes and nontax revenue, thus highlighting the fragility of the fiscal position. On the expenditure side, while progress was achieved in redirecting government spending toward social programs and reducing defense and security spending, there was a delay in implementing Priority Action Programs (PAPs) and social sector spending fell short of budget targets. Although bank financing of the budget was avoided, total domestic financing slightly exceeded the program's benchmark, largely owing to flood relief outlays at year-end.

4. Broad money growth in 2000, at 27 percent, was lower than expected, largely on account of a reduction in net credit to the Government and a marked slowdown in private sector credit in the last two months of the year. Domestic currency grew by 1 percent, consistent with continued fiscal restraint. Gross international reserves reached more than three months of import coverage at end-2000 and have remained at that level in 2001, while the market exchange rate depreciated only slightly against the U.S. dollar. In the external sector, the current account deficit in 2000 (excluding official transfers) was 10 percent of GDP--smaller than previously projected--largely owing to stronger-than-anticipated garment exports and lower oil prices.

5. Progress was also achieved in implementing key structural reforms in 2000. In particular, progress was made in bank restructuring, establishing a forest crime monitoring unit, computerization of the civil service payroll, and the reintroduction of preshipment inspection for imports. Additional progress has been made in the first part of 2001, including in bank reform and the adoption of the Governance Action Plan (GAP).

6. However, delays or disruptions have been experienced in several key areas during the first four months of 2001. These include completion of the pilot demobilization program, formulation of an acceptable civil service reform strategy consistent with fiscal constraints, completion of the Forest Law, revision of the Law on Investment, and disruptions to forest crime monitoring. These delays have, thus far, prevented the release of the floating and second tranches of the World Bank's SAC program. While financing targets have been observed, fiscal developments in the first quarter of 2001 indicate that corrective actions--on both revenue and expenditure--will be required in the period ahead to meet the 2001 budget targets.

II. Macroeconomic and Structural Policies for 2001

7. Under the program for 2001, GDP is projected to grow by 6 percent, with inflation contained at below 5 percent. The current budget surplus is expected to remain at 1½ percent of GDP, as revenue is targeted to increase to 12 percent of GDP and current expenditure would continue to be contained, while being further redirected toward social objectives and away from defense and security. The overall fiscal deficit (excluding grants) is expected to be contained at about 6 percent of GDP and fully covered through external concessional financing. Broad money growth is projected to grow by 24 percent, while private sector credit would rise by 15 percent. The overall external position would strengthen further, with gross official reserves at end-2001 projected to reach $531 million (about three months of import coverage).

8. Revenue performance in the first quarter of 2001 was below program expectations, largely owing to delays in implementing several revenue measures called for under the 2001 budget. The Government, however, has started taking corrective actions toward meeting the 2001 revenue target. The list of revenue-enhancing measures is shown in

Annex I (with several measures having already been implemented, as indicated in Table 2). In addition, efforts to strengthen tax and customs administration will be based on recent technical assistance recommendations. In particular, the Government will establish a Large Taxpayers Unit in the Tax Department by October 2001, including the possibility of direct payment of taxes by check or transfer into Treasury accounts at the National Bank of Cambodia (NBC). The policy of auctioning all new garment quota allocations, with full and timely transfer of revenue to the budget, will also be maintained.

9. Proposed amendments to the Law on Investment are still being discussed with a view to reaching agreement on the changes and submitting the amended draft of the law to the National Assembly after a due participatory process. The proposed amendments are aimed at establishing an adequate balance between enhancing revenue and ensuring an attractive business environment. Under the proposed amendments, investment procedures and criteria for the application of tax holidays would be streamlined, with general investment incentives in the form of accelerated depreciation and an investment allowance to be incorporated into the Law on Taxation. As a result, incentives for investment would remain favorable and apply equally to all investors.

10. Steps will also be taken to improve customs administration and the effectiveness of the preshipment inspection program (PSI) for imports. To this end, a steering committee, as defined in the PSI contract, has been established to discuss issues regarding the implementation of the PSI program on a regular basis. Among other things, this committee will strengthen the application of penalties for firms that bring import shipments outside of the PSI system. The Government will also strengthen and extend the work of the anti-smuggling task force, and work to improve coordination between the Tax Department and the Customs Department. A new Customs Law (or Customs Code), in line with World Trade Organization (WTO) requirements, is expected to be submitted to the National Assembly (or adopted by the Government) by end-December 2001. Ongoing efforts to develop the revenue analysis capabilities within the Customs Department will also continue.

11. The expenditure program for 2001 was designed to support the poverty reduction strategy. The Government is committed to continue reorienting expenditure toward key social sectors and away from defense and security. Spending for the priority social sectors is budgeted to increase to 3 percent of GDP in 2001. However, enhanced efforts to improve expenditure management and increase the effectiveness of the PAP program will be crucial for meeting this goal. Difficulties in ensuring timely release of funds for key social spending will be addressed by increasing coordination among key departments of the Ministry of Economy and Finance (MEF) and the NBC to improve cash management, including the transfer of all budgetary accounts in commercial banks to the NBC by end-June 2001. There was a delay in releasing the first quarterly allocation for PAP again this year. To avoid delays in the future, the cash management task force has secured payment for the second quarter PAP allocation, and will continue to do so at the beginning of each quarter thereafter. The post-audit team of the MEF is now fully operational, and the internal audit teams at line ministries will become fully operational for the 2002 budget. Aside from the priority sectors, other components of the expenditure program will be implemented cautiously, and locally financed development spending reduced, if necessary, to ensure that the financing targets are observed.

12. In line with the macroeconomic framework outlined in the I-PRSP, the 2002 budget will provide for a further improvement in social sector spending and improved resource mobilization. The 2002 budget will be based on maintaining a current surplus of 1½ percent of GDP, and limiting the overall deficit to available concessional assistance, with no domestic financing of the budget. To meet the expenditure demands envisaged for 2002, including the cost of the commune elections, revenue is projected to increase to 13 percent of GDP. The tax measures being implemented during 2001 will help to set the stage for a further improvement in revenue in 2002, but additional significant revenue measures and improvements in tax and customs administration will be needed. In this regard, the Government will review a range of options based on recent technical assistance recommendations and will consult further with IMF staff in the context of the preparation of the 2002 budget. To support improved fiscal management in 2002, detailed implementation plans based on recent technical assistance recommendations will be prepared by end-November 2001 for tax and customs administration, as well as for expenditure management. Technical assistance support will be provided under the Technical Cooperation Action Plan (TCAP), as well as a World Bank capacity building credit to enhance public service delivery and targeted technical assistance on PAP implementation.

13. Prompt implementation of the full military demobilization program is crucial for redirecting resources to the priority social sectors. Building on the positive assessment of the pilot demobilization program by the Government, donors, and NGOs in March 2001, the Government will complete the registration of 15,000 soldiers for the full program by end-June 2001, and use available funding to complete the last phase of assistance under the pilot program in the near future. The Government remains fully committed to finance the cash component of the demobilization package by using available budget support. On this basis, the Government will be fully prepared to launch the implementation of the full demobilization program as soon as the World Bank credit is presented to the Executive Board, and the reintegration package for veterans under the pilot program begins to be delivered. This is expected to lead to the discharge of 15,000 soldiers by end-2001.

14. The Government has made considerable progress in validating the census results and completing the computerization of the civil service. This process has already led to the removal of 6,091 irregular cases from the payroll and the identification of 2,000 additional irregular cases that have been ordered to be removed from the payroll. The fingerprinting and registration of civil servants in all provinces will be completed by end-July 2001, and the full computerization of the payroll will be completed before the end of the year, with the removal of additional irregular cases as they are discovered. A medium-term civil service reform strategy is being discussed with the World Bank and IMF staffs with implementation due to begin in 2002. As part of this strategy, the Government wage bill will continue to be agreed annually in the context of the budget and will be kept below a maximum of 40 percent of current expenditure to ensure adequate funding for nonwage operations and maintenance. Details on the pay and employment strategy will continue to be discussed with the World Bank and the Government will continue to provide monthly progress reports on the implementation of civil service reform in the agreed format. The Government is also seeking additional financing for the implementation of priority mission groups.

15. The recent adoption of the Governance Action Plan (GAP) has demonstrated the Government's full commitment to establish a sound public governance framework. The GAP is aimed at improving public service delivery, involving broad stakeholders such as civil society, and facilitating an enabling environment for private sector development. The GAP, which has been fully endorsed by development partners, provides a comprehensive set of actions in crosscutting areas designed to address the multiple and complex dimensions of governance and corruption in Cambodia. The GAP is a compendium of priority initiatives, and its implementation is under way or is actively being planned. Reform agencies (reform councils and some line ministries) are preparing detailed work plans in consultation with respective stakeholders to sequence and cost their actions. The Government has identified three initiatives to further implement the GAP: (i) a broad-based dissemination campaign already underway among the central government, provincial administration, and NGOs; (ii) continuous updating of a performance matrix; and (iii) establishment of a monitoring and coordination mechanism. With the assistance of the World Bank, the Government held two workshops among reform agencies in early May to articulate the specifics of the latter two initiatives and prepare their implementation plan. The Government circulated an aide- memoire at the CG meeting that reported on the progress made in implementing the GAP, and specified the monitoring and coordinating mechanisms. In support of strengthening governance and anti-corruption measures, the Government will propose a candidate to head the newly created National Audit Authority to the National Assembly by end-June 2001. The Government also intends to prepare new legislation on bankruptcy and secured transactions. This legislation will be submitted to the National Assembly at a time to be determined in the context of the overall legal reform framework.

16. The Government will maintain a prudent monetary policy aimed at low inflation and a stable exchange rate. With subdued inflationary pressures and favorable growth prospects in 2001, broad money is projected to rise by 24 percent, while currency in circulation is expected to increase by 8 percent. The expansion in broad money is expected to continue to be led by buoyant foreign currency deposits. However, as the banking reform proceeds, the impact on monetary aggregates is subject to high volatility, as uncertainty remains on the effect of the increase in bank's capital requirement on credit distribution and deposit mobilization. The NBC will continue efforts to strengthen bank supervision and improve credit monitoring capabilities. In this regard, a chart of accounts for fully licensed commercial banks, according to international standards, will be operational by January 2002.

17. The Government will maintain a flexible exchange rate policy. To that end, NBC will adhere to its current intervention policy of using any increased demand for local currency to bolster international reserves while not resisting any downward pressure on the rate, except under exceptional circumstances of disorderly market conditions. The official exchange rate will increasingly be set at the level of the market rate with a view to unifying the rate in the future. Any deviation from the market rate will be temporary, and limited to a maximum of one percent.

18. Trade liberalization will be intensified in the context of WTO membership, ASEAN requirements, and the development of a trade strategy supportive of poverty reduction. After the completion of the current tariff restructuring exercise, an evaluation will be made of the average import duty and options formulated for reducing the unweighted average duty below 15 percent in the context of the 2002 budget. As Cambodia's trade and exchange arrangements are now free of restrictions on current account transactions, the Government intends to accept the obligations of Article VIII of the IMF's Articles of Agreement by end-2001.

19. The Government has continued debt restructuring discussions with several major Paris Club and former CMEA creditors. In the period ahead, the Government will refrain from contracting or guaranteeing any nonconcessional debt, as defined in the attached technical memorandum. A prudent debt management policy will be maintained to contain external borrowing within Cambodia's debt-servicing capacity. In compliance with the requirements of the IMF, the NBC has recently completed an external audit of its financial accounts and has transmitted a copy of the audit report to the IMF.

20. The Government is committed to maintain the momentum of bank restructuring. Liquidators have been appointed for the banks that are being closed for failing to comply with the Financial Institutions Law, and the NBC will pursue legal recourse against the managers of failed banks to obtain further funds for depositors. The 12 banks which signed Memoranda of Understanding (MOUs) have been closely monitored since their signing in December 2000 to ensure compliance with the MOU requirements, including phased injections of capital and other regulatory requirements. In this regard, the NBC has prepared the first quarterly monitoring report on banks' performance under the MOUs. This report identifies specific sanctions against those banks that are falling short of their performance targets. The NBC will prepare by end-August the second quarterly monitoring report, as well as a plan of action--including exit strategies comprising voluntary liquidation and potential mergers and acquisitions--for banks not capable of meeting their requirements. In view of the need to ensure the quality of the banks and build confidence in the banking system, the NBC will not license any new commercial bank until the current round of restructuring is completed. Regulations governing specialized banks will be clarified and strengthened, and restrictions on the scope of their activities strictly enforced. The payments system reform initiated in parallel with bank restructuring will be broadened, taking into account technical assistance from the IMF, and a new Payments Law is expected to be submitted to the National Assembly by end-2001.

21. In preparation for future privatization, the Foreign Trade Bank (FTB) will be recapitalized by end-June 2001. In order to avoid delays in the recapitalization process, the NBC will provide bridge capital until the MEF acquires the legal authority to issue bonds in the context of the 2002 budget (i.e., by end-February 2002). The Board of Directors of the FTB has been expanded to include an outside director with adequate banking experience, and a subcommittee of the Board will be formed to identify qualified candidates with international experience to provide management assistance to the FTB, and to start searching for future private investors. As part of the recent completion of a preliminary audit of the 2000 accounts, actions will be identified to secure a full unqualified audit of the FTB as soon as possible.

22. Forestry reform will be targeted at strengthening the Forest Crime Monitoring Unit (FCMU) and completing the restructuring of forestry concessions. A draft Forestry Law aimed at establishing sound legal conditions for sustainable forest resource management will be submitted to the National Assembly by end-June 2001. The Government will continue supporting monitoring and reporting by the FCMU with participation of an outside independent monitor. The operations of forest concessionaires for 2001 have been reduced and are being closely monitored. Only those concessions that submit credible restructuring plans by end-September 2001 will be permitted to continue operations. Review by the Government of the recent industry-sponsored forest royalty study is underway and changes to the royalty system are expected to be addressed in the context of the restructured concession agreements.

23. The Government intends to seek support from the IMF and development partners to upgrade social and economic statistics and widen their dissemination. To that end, further IMF technical assistance on monetary data, government finance statistics (GFS), and balance of payments statistics has been or will be provided. Progress has recently been made in compiling budget data in accordance with GFS standards. As a result, budget data will be published shortly on a regular basis in International Financial Statistics (IFS) and is expected to be submitted for publication in Government Finance Statistics (GFS) by end-2001. The Government is reviewing the prospects for participating in the IMF's General Data Dissemination System (GDDS) as a means of guiding statistical development, providing a basis for further IMF support in economic statistics, and for coordinating efforts with other development partners.

24. The Government held a workshop on the implementation of the poverty reduction strategy during April 25-26. The workshop included government officials, NGOs, other members of civil society, multilateral and bilateral donors, and World Bank and IMF staff. Based on these discussions, the Government will take steps to improve inter-ministerial coordination, and will begin preparation of the full PRSP with a comprehensive participatory approach, building on the information and analysis in the SEDP II. If more time beyond end-2001 is needed for the completion of the full PRSP, the Government will prepare a progress report to be submitted to the Executive Boards of the World Bank and IMF.

25. Actions required prior to the IMF Executive Board consideration of the third review, together with quantitative and structural performance criteria and benchmarks, are shown in the attached tables. Quantitative benchmarks through end-December 2001 include: (i) a ceiling on net domestic assets of the NBC; (ii) a ceiling on net bank credit to the Government; (iii) a ceiling on net domestic financing of the budget; (iv) a ceiling on publicly contracted or guaranteed external debt; and (v) a floor on net official reserves of the NBC. The above quantitative benchmarks for end-September 2001 will be performance criteria. The fourth review under the program is expected to be completed by end-January 2002 and will focus primarily on budget implementation, reform of tax and customs administration, expenditure management, and banking sector reform.

Cambodia: Revenue Measures for April-December 2001

  • Issue sub-decree to reduce the number of tariff bands from 12 to 4 and lower the maximum tariff rate to 35 percent, with associated adjustment in excise rates, (end-June 2001).

  • Issue regulation to treat all diesel sales as final sales for VAT purposes, (end-April 2001), with retroactive application from February 2001.

  • Improve enforcement of the 10 percent tax on entertainment services.

  • Compile data and follow the collection and level of tax arrears by company for major taxpayers in the context of establishing a Large Taxpayers Unit (by end-October 2001). To improve collection of arrears, VAT and withholding tax taxpayers will be contacted within 10 days of the outstanding payments; profit tax taxpayers within 5 days for large taxpayers; 15 days for medium taxpayers; and 30 days for small taxpayers.

  • Fully implement stamp system for taxes on cigarettes. A Prakas or sub-decree is expected to be issued by end-July 2001 with the system ready to be implemented by end-October 2001.

  • Increase collection of revenue from visas by improving the monitoring mechanism (i.e., visa sticker). Prakas to be issued by mid-June 2001 with implementation within 3-4 weeks thereafter.

  • Review terms of contract for collecting the entrance fees at the Angkor complex when sales of tickets exceed 200,000 in the calendar year (as specified in the contract).

  • Establish a monitoring mechanism for leases of state assets, and increase efforts to collect arrears and payments due on leases of state assets using the recently established task force between the MEF and line ministries (and authority provided by Article 11 of the Financial Act). An inventory of state assets will also be initiated.

  • Improve collection of arrears and payments due on telecommunications through the enlargement of the inter-ministerial task force to include MPTC.

Cambodia: Technical Memorandum of Understanding

This memorandum sets out the understandings between the Cambodian authorities and the IMF staff regarding the definitions of the quantitative performance criteria and benchmarks for the program supported by the Poverty Reduction and Growth Facility (PRGF), and the related reporting system of monetary and financial data.

1. Net official international reserves of the National Bank of Cambodia (NIR*) is defined as the unencumbered (i.e., readily available) gross official reserves of the National Bank of Cambodia (NBC) less foreign liabilities of the NBC. Under the program, the floor for NIR* will be: (i) decreased (increased) by the amount of a shortfall (excess) in external nonproject support from program estimates--any downward adjustment would not exceed $10 million; and (ii) decreased by any foreign-currency costs associated with bank restructuring. For purposes of monitoring performance against the program target for NIR, valuation effects on the stock of gold holdings will be excluded, and gold holdings will be evaluated at the gold price in effect on December 31st of the previous year1. Similarly, the level of foreign assets and liabilities will be evaluated at the U.S. dollar/SDR exchange rate in effect on December 31st of the previous year. NIR* data will be transmitted to the IMF weekly with a lag of no more than one week.

2. Net Domestic Assets of the National Bank of Cambodia (NDA*) are defined as reserve money minus net foreign assets of the NBC, adjusted for valuation changes arising from the difference between the program and the actual exchange rates. Reserve money is defined as the sum of notes and coins issued by the NBC, excluding NBC holdings of currency, and deposits of commercial banks and domestic nongovernmental sectors at the NBC. Reserve money excludes all NBC securities. The program ceilings for NDA* will be adjusted upward (downward) for any shortfall (excess) in nonproject external budgetary support from program estimates--any upward adjustment will not exceed $10 million. The ceilings will also be adjusted upward for costs associated with bank restructuring. NDA* data will be transmitted monthly within four weeks.

3. Net credit to the government from the banking system (NCG) is defined as claims on the general government by the banking system less deposits of the general government with the banking system. General government is defined to include central government, provinces, and communes. The program ceilings for NCG will be adjusted upward (downward) for any shortfall (excess) in nonproject external budgetary support from program estimates--any upward adjustment would not exceed $10 million. NCG data (as reflected in the monetary survey) will be transmitted monthly within four weeks.

4. Net domestic financing of the budget (NDF) is defined as the sum of NCG and any nonbank financing of the general government. The program ceilings for NDF will be adjusted upward (downward) for any shortfall (excess) in nonproject external budgetary support from program assumptions--any upward adjustment would not exceed $10 million. For purposes of program monitoring, actual levels of NDF will not include any flows associated with "outstanding operations" (committed spending that has not yet been executed) or any "exchange rate adjustment" (valuation effects on government deposits from exchange rate fluctuations). Details on all transactions associated with outstanding operations and exchange rate adjustment will be reported at all test dates. For purposes of program monitoring, any accumulation of domestic payments arrears will be included as part of NDF. NDF data (as reflected in the consolidated report on government operations (TOFE) table) will be transmitted monthly within four weeks.

5. The contracting or guaranteeing of external debt by the public sector is defined as foreign currency borrowing contracted or guaranteed by the public sector in Cambodia. Public sector is defined to include the Royal Government of Cambodia, the NBC, publicly-owned enterprises, or any other agency acting on behalf of the government. The program has ceilings for all debt below five years maturity and all nonconcessional debt for maturities beyond five years (both ceilings are set at zero). The coverage of debt includes financial leases and other instruments giving rise to external liabilities on nonconcessional terms.2 Details on any such borrowing should be reported within three weeks. Noncessional debt is defined as a debt with a grant element (NPV discount relative to face value) of less than 35 percent, based on the currency- and maturity-specific discount rates reported by the OECD (commercial interest reference rates).

6. External payments arrears are defined as the stock of external arrears on loans contracted or guaranteed by the public sector (as defined above), excluding debts subject to rescheduling or debt forgiveness.

7. Establishing the Large Taxpayers Unit (by end-October 2001) will involve selection of appropriate office space, approval of a selection process for hiring staff, beginning staff selection, and initiation of direct payment by check or transfer into National Treasury accounts at the NBC for the largest taxpayers.

Summary of data reporting requirements

Data on daily average selling and buying exchange rates (official and market rates) to be transmitted daily.
NIR* to be transmitted weekly with a lag of one week.
Monetary survey and consolidated balance sheets of the NBC and commercial banks to be transmitted monthly within four weeks.
Consolidated report of government operations (TOFE) to be transmitted monthly within four weeks.
CPI data to be transmitted monthly within five weeks.
Flash report of NBC accounts to be transmitted weekly within one week.
Quarterly monitoring reports on banks' under Memoranda of Understanding (MOUs) to be transmitted within one month.
Trade data to be transmitted monthly within ten weeks.
Any publicly contracted or guaranteed nonconcessional borrowing to be transmitted within three weeks.
Any external payments arrears to be transmitted monthly within three weeks.
Information on the status of civil service reforms (e.g., fingerprinting and computerization, functional analysis, and removal of irregular cases from the payroll) to be transmitted monthly within two weeks.
The outstanding stock of tax and nontax arrears, and any expenditure arrears, to be transmitted quarterly within four weeks.

1For example, gold holdings in 2001 will be evaluated at the end-December 2000 gold price.
2This performance criterion applies not only to debt as defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (August 24, 2000) but also to commitments contracted or guaranteed for which value has not been received. Excluded from this performance criterion are amounts contracted under the government loan agreement with China, dated July 26, 2000, for a maximum loan amount equivalent to $12 million. For purposes of program monitoring, the ceilings on external debt also exclude normal short-term trade-related credits and any borrowing associated with debt rescheduling.