Sierra Leone and the IMF
Press Release: IMF Approves In Principle US$169 Million Three-Year PRGF Arrangement for Sierra LeoneCountry's Policy Intentions Documents
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of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding
Mr. Horst Köhler
Dear Mr. Köhler:
1. As you are aware, the government of Sierra Leone implemented an economic recovery and rehabilitation program for the year 2000, that was supported by the use of Fund resources under the emergency post-conflict assistance policy. This program aimed at stabilizing the macroeconomic situation, rehabilitating the war-ravaged communities, improving social services, and rebuilding capacity in many areas. The implementation of the program and overall economic performance were very satisfactory. The majority of the program's objectives and targets were generally attained. As a result, a modest recovery in output was recorded, following many years of economic decline; inflation was sharply reduced; and the country's gross external reserves rose. At the same time, measures were taken to rebuild institutional capacity in key areas, with the generous support of many bilateral and multilateral donors.
2. The improvement in the economic situation has been facilitated by the substantial progress made on the security front. Thanks to military and diplomatic support from the United Kingdom, the United States, the UN, the Economic Community of West African States (ECOWAS), and the international community at large, the peace process has been sustained, and the government's capacity to provide security and law and order to the population has been greatly strengthened. Progress continues to be made in the government's discussions with the Revolutionary United Front (RUF) rebels, aimed at reaching agreement on a basis for a durable peace.
3. In view of the improvement in the security situation and in capacity building over the last 12 months, the government considers that it is now ready to embark on a medium-term program to start addressing, in a more comprehensive manner, the desperate poverty situation that now confronts the overwhelming majority of our citizens. In the attached memorandum of economic and financial policies (MEFP), the government of Sierra Leone outlines the main objectives and policies that the government intends to pursue during 2001–2004. These objectives and policies are elaborated in greater detail in our interim poverty reduction strategy paper (I-PRSP), which was recently issued to the Executive Boards of the Bank and the Fund. In support of these policies, the government of Sierra Leone requests a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) in an amount equivalent to SDR 130.84 million (126.17 percent of Sierra Leone's quota), including SDR 37.51 million (36.17 percent of quota) to be used for the replacement of outstanding purchases under the Fund's emergency post-conflict assistance policy.
4. In light of the evolving situation in Sierra Leone, performance under our program is to be monitored on a quarterly basis during the first year (July 2001–June 2002) of the three-year arrangement. The first review will be completed by December 31, 2001. That review will focus on progress made in implementing the demobilization program, executing the budget for 2001, and reaching agreement on the budget, macroeconomic policies and structural reforms for 2002. The second review will be completed by June 30, 2002.
5. The government of Sierra Leone will provide all information that the Fund requests in connection with Sierra Leone's progress in implementing its economic, financial, and social policies. The government believes that the policies and measures described in the attached memorandum are adequate to achieve the objectives set out in the program; it will take any further measures that may become appropriate for this purpose. During the period covered by the three-year arrangement and, after that period, while Sierra Leone has outstanding financial obligations to the Fund arising from loans under the three-year arrangement, Sierra Leone will continue to consult with the Managing Director on the adoption of any measure that may be appropriate, at the initiative of the government, or when the Managing Director requests such a consultation.
6. The government of Sierra Leone intends to make these understandings public and authorizes you to provide this letter and the attached MEFP to all interested parties that so request, including through the Fund's external website. It also authorizes you to furnish to any international organization providing aid to developing countries that might request it, solely for its own use, the documents related to this request, including this letter and attached MEFP.
Memorandum of Economic and Financial Policies Of the Government of Sierra Leone
1. The security situation has improved markedly during the last twelve months, and in the last two months major steps have been taken to advance the peace process. The cease-fire agreed in Abuja, Nigeria in November 2000 has continued to hold. The UN peacekeeping force (UNAMSIL) has extended its deployment in rebel-held areas in the northwest of the country and has started mobile patrols in the diamond-mining areas. UNAMSIL expects to be fully deployed in all areas soon after the arrival of another 4,500 troops, which should bring it to its authorized strength of 17,500. The Sierra Leone Army (SLA) has been restructured and retrained and is also being deployed around the country. Against this background, the government and the rebels have been discussing the next steps to a more durable peace. During May 3-15, 2001, the two sides agreed on the following main measures: a simultaneous disarmament of the Revolutionary United Front (RUF) and the Civil Defense Forces (CDF), (with the modalities to be worked out in conjunction with UNAMSIL); the resumption of the disarmament, demobilization, and reintegration (DDR) program; the surrender by the RUF of arms and equipment they seized from the UNAMSIL personnel in May 2000, and the conversion of the RUF into a political party. We are now beginning to implement these understandings. We are cautiously optimistic that we can consolidate the peace. The RUF has released several hundred child soldiers, and the DDR program is in full swing.
2. The government has prepared an interim poverty reduction strategy paper (I-PRSP), that outlines the government strategy for enhancing growth and redressing the desperate poverty situation prevailing in Sierra Leone. This memorandum of economic and financial policies provides a summary review of Sierra Leone's reform and performance record, and describes government's objectives and policies for the period 2001-04, as well as the program for 2001/02 (July–June). Sierra Leone is emerging from a brutal and protracted civil war. Consequently, as indicated in the I-PRSP, the government has adopted a two-phase approach to the poverty reduction strategy. In the transitional period 2001-02, the government's efforts will be focused on strengthening security and law and order, catering to the immediate needs of the displaced population and war veterans, rehabilitating the economic and social infrastructure, and capacity building. A longer-term strategy for the second phase, focusing on longer-term development issues, will be developed in the context of a full PRSP. The policy measures described below are designed to reflect this two–track strategy.
II. Background, Recent Developments, and Performance
A. Reform Track Record and Performance During 1991–99
3. The period 1991–99 was marked by episodes of serious efforts to implement reforms interrupted by recurrent outbreaks of violence and political instability. During the three years ending March 1994, Sierra Leone successfully implemented an adjustment program supported by the Fund under the rights approach. As a result of the program, economic performance improved significantly. Inflation fell sharply, while real GDP growth recovered. In March 1994, a Structural Adjustment Facility (SAF)/Enhanced Structural Adjustment Facility (ESAF) three-year arrangement was approved in support of enhanced reform efforts. The program, however, ran into serious difficulties in 1995, following the escalation of rebel activities. In 1996, the government adopted a new economic recovery program that was supported by the Fund with a second annual arrangement under the ESAF. Despite the fragile security situation, the 1996 program was implemented in a satisfactory manner and remained broadly on track. The military coup d'état of May 1997, however, disrupted the government reform efforts.
4. Substantial structural reforms were undertaken during 1991–98, aimed at reducing the role of government in economic activity, improving service delivery, and promoting the private sector. The exchange and trade systems were liberalized. Economic activity in key sectors benefited from a reduced government role in marketing and production. A program of public enterprise reform was launched, leading to the privatization, liquidation, and commercialization of many of these enterprises. The banking system was strengthened by raising capital adequacy ratios and through the consolidation of institutions. Finally, the civil service was reduced by 45 percent.
B. Performance During 2000
5. Following the signing of the peace accords with the rebels of the Revolutionary United Front (RUF) in Lomé, Togo in July 1999, the government adopted an economic recovery and rehabilitation program aimed at sustaining the peace through the DDR and the reintegration, rehabilitation, and reconstruction (RRR) programs, and at promoting economic recovery and macroeconomic stability. In December 1999, the Fund approved Sierra Leone's request for the use of Fund resources under the emergency post-conflict assistance policy, in the amount of SDR 15.56 million in support of the government's recovery program. A further SDR 10.4 million was granted under the same policy in September 2000, following satisfactory progress under the program.
6. Despite the difficulties occasioned by the fragile security situation, the implementation of the 2000 program was quite satisfactory and economic performance improved significantly, even though unevenly, across the country. The recovery in the agricultural sector was delayed by the continuing inability of the displaced people to return to their communities. Nevertheless, the improvement in economic management and gradual strengthening in confidence led to a modest recovery in most other sectors, particularly commerce, industry, and services, which benefited from the improvement in the availability of foreign exchange. Real GDP is estimated to have risen by about 3.8 percent in 2000. Reflecting tighter financial policies, a greater supply of imported commodities, and the appreciation of the Leone against the U.S. dollar, the year-on-year rate of inflation (CPI) fell to –2.8 percent in December 2000, compared to nearly 37 percent in December 1999. Gross external reserves amounted to 1.8 months of import cover.
7. In the context of an uncertain security situation and strong pressures for increased outlays for security and government services, fiscal policy remained strained but generally prudent. The overall deficit (excluding grants) is estimated at 17.3 percent of GDP in 2000 (14.9 percent in 1999), while the domestic primary balance remained stable at 5.5 percent of GDP. There was a substantial government repayment to the domestic banking system as a result of greater-than-programmed external budgetary assistance and nonbank financing. Fiscal performance was helped by the higher-than-expected revenue collection, improved commitment and expenditure control mechanisms, and a substantial increase in external budgetary assistance. Revenue performance exceeded the program target by about 1.4 percentage points of GDP, owing to the substantial increase in customs receipts from the surge in imports, reliance on presumptive income taxes, and improvements in tax administration. The improvements in expenditure control were due to the implementation of a computerized expenditure and commitment control and accounting system, accompanied by computerized payroll and pension verification programs.
8. The implementation of the disarmament, demobilization, and reintegration (DDR) program, as well as the reintegration, rehabilitation, and reconstruction (RRR) program, was slower than planned, mainly on account of non-compliance by RUF rebel's with the peace process. Of the 45,000 ex-combatants targeted for the DDR program, nearly 54 percent had disarmed by early May 2000, mainly non-RUF personnel. After the May disruption of the peace process, many demobilized soldiers were mobilized again, and the DDR program became largely inactive. Consequently, outlays on the program remained well below budget. Similarly, expenditure envisaged on the resettlement and rehabilitation of displaced persons also remained well below budget owing to the inaccessibility of their communities.
9. Reflecting the substantial reduction in the government's reliance on bank financing of the budget deficit in 2000, the growth of broad money declined to about 10 percent from 41 percent in 1999. Credit to the private sector rose by 12 percent, although total bank lending to the sector remained at about 12 percent of deposit banks' total assets. Interest rates generally declined during the year in line with the fall in the rate of inflation, with the treasury bill rate falling from 35 percent to about 20 percent by the end of 2000. The level of nonperforming loans in the deposit banks' portfolio declined to about 43 percent from 56 percent in 1999.
10. Developments in the external sector included in the continuing depression of exports as a result of the suspension of rutile and bauxite mining, the apparent inaccessibility and neglect of coffee and cocoa plantations in rebel held areas, and the surge in imports as a result of the recovery in economic activity, and in rehabilitation and reconstruction operations. Consequently, the external current account deficit (excluding official transfers) rose to an estimated 18 percent of GDP (8 percent in 1999). The overall balance of payments position, however, recorded a surplus estimated at 0.4 percent of GDP (a deficit of 5.7 percent in 1999) as a result of marked increase in official capital inflows. There was, nevertheless, a further accumulation of external debt service arrears to bilateral and private creditors amounting to US$20.5 million, raising the stock of external debt service arrears outstanding to US$180.7 million at the end of 2000.
11. The operation of the foreign exchange market improved markedly in 2000, following the introduction of the foreign exchange auction in February of that year. As a result, market segmentation has been sharply reduced, and the spread between the official and parallel market rates has narrowed substantially from 35 percent in February 2000, to about 5 percent in December 2000. As a result of the improved management of the foreign exchange market, and the greater availability of foreign exchange, the Leone appreciated significantly against the dollar, partly reversing the sharp depreciation that had occurred in 1999. The real effective exchange rate appreciated by 32 percent against a basket of its trading partners' currencies between December 1999 and December 2000; the average real effective exchange rate, however, depreciated by 9.6 percent in 2000, relative to its level in 1999.
12. The government implemented a number of structural measures during 2000. The Net Domestic Financing Committee was reestablished to monitor the implementation of the program. Reviews of duty exemptions and of cross debts between public enterprises and the government were undertaken. Other structural measures included the establishment of the foreign exchange auction; the passage of the new Income Tax and Banking Acts; and the verification of the payroll and pensioners' lists.
13. The government has undertaken several initiatives aimed at institution building and strengthening its capacity for policy formulation and implementation. To ensure the security of the state and its citizens, the SLA, the police force and, the prisons services have all been retrained and restructured, with a view to improving their operational efficiency. A Governance Reform Secretariat (GRS) was created at the Ministry of Presidential Affairs to coordinate public sector reforms. The program of civil service training has been intensified, in line with the reactivation of the civil service reform. In addition, with support from the DFID, the EU, the World Bank, the African Development Bank, and the UNDP, the government has relied extensively on resident expatriates, experts, and consultants to supplement the limited pool of skilled Sierra Leonean personnel resident in the country.1 Donors have assured us that the assistance will be continued over the medium term, with increased emphasis being placed on training and recruitment of local staff.
III. Objectives and Policies for 2001–04
14. As indicated above, the government's two-stage strategy for poverty reduction involves a transition period, 2001–02, when government policy will focus on the following key priority areas: reestablishing personal and state security and maintaining law and order; meeting the needs of the displaced population and war veterans; rehabilitating the social and physical infrastructure; and capacity building in many areas, all in the framework of continuing macroeconomic stability. In the context of these over arching objectives, the government intends to implement measures that will enhance growth and promote poverty alleviation. The transition period will allow for a further strengthening of capacity for the full elaboration and deepening of structural reforms. The second stage, focusing on longer-term growth and the poverty reduction strategy, will be spelled out in the full PRSP, to be prepared in the context of a broader consultative process following the return of the displaced people to their communities.
15. With a reestablishment and consolidation of peace throughout the country, real GDP growth is projected to rise by 5 percent in 2001 and by 6–7 percent annually through 2004. The medium-term program will also aim to limit the annual average rate of inflation to about 5 percent, and to raise external gross reserves to the equivalent of over two months of import cover. Exports are not expected to recover fully until 2003, while imports are expected to increase substantially in response to rehabilitation and reconstruction needs; consequently, the external current account deficit (excluding official transfers) is projected to remain high (17–33 percent of GDP) through 2004. Growth is expected to be supported by the reopening of rutile mining, starting in the third quarter of 2002; the recovery of agricultural production, including that of rice, cocoa, and coffee; and the further expansion of industry, services, and construction, following a program of reconstruction and rehabilitation in the public and private sectors. Rutile production, in particular, is projected to rise from 66,000 tons in 2002 to 236,000 tons in 2006, while the value of rutile exports is projected to increase from about US$15 million in 2002 to about US$118 million in 2006. In the medium term, the potential exists for further investments and expansion in the fishing and mining sectors, including the potential exploitation of gold and the kimberlite diamond pipe identified in the 1970s.
16. Owing to the large pent-up requirements for reconstruction and rehabilitation, particularly in the mining sector, as well as housing and other physical and social infrastructure, the investment-to-GDP ratio is projected to rise sharply from 8 percent in 2000 to a peak of 29 percent2 in 2002, and to remain at about 20 percent through 2004. Gross domestic savings, however, are expected to improve only gradually, from –8 percent of GDP in 2000 to about 6.5 percent in 2004, reflecting the substantial improvement in both private and public sector savings. Gross national savings are expected to rise from –2 percent of GDP in 2000 to about 15 percent of GDP in 2004, reflecting the increase in external assistance required to cover the savings-investment gap.
17. Fiscal policy will seek to raise the revenue-to-GDP ratio over the medium term through the enlargement of the tax base, a further restructuring of indirect taxes, and an improvement in tax administration, including the introduction of a unified revenue authority, and a value-added tax (VAT). Domestic revenue as a percentage of GDP is projected to rise from 11.4 percent in 2000 to 12.3 percent in 2002; thereafter, the ratio improves to about 14.2 percent in 2004. The improvement in revenue performance after 2002 is driven especially by receipts from the reopening of the rutile mine, which accounts for significant increases in all categories of taxes. On the expenditure side, the government objectives are to increase the efficiency and transparency of public sector financial operations and service delivery, while reorienting a greater share of public expenditure towards poverty alleviation. In particular, the government is committed to a substantial increase in outlays on services targeted to the poor, especially in the areas of education, health, and rural infrastructure. Expenditure growth during 2001–04 also reflects the substantial increase in public investment as a result of the large requirements for reconstruction of the social and physical infrastructure. The overall budget deficit (excluding grants) is projected to rise significantly in 2001 to 28.2 percent of GDP and, although declining thereafter, to remain relatively high beyond 2004. The domestic primary budget deficit rises initially before declining gradually over the medium term.
18. In light of the prospective heavy reliance on foreign assistance, the government plans to reduce its domestic debt to sustainable levels over the medium term through a reduction in domestic financing requirements of the budget and improved debt-management practices. Monetary policy will continue to aim at containing inflation and attaining the gross external reserve target for the Bank of Sierra Leone (BSL).
19. The government intends to implement during 2001–04 a number of key structural reforms aimed at enhancing growth and promoting poverty reduction. These reforms include strengthening security services; acceleration of public sector reforms to improve efficiency, transparency and governance; reactivating the program of public enterprises reform and divestiture; improving the operational efficiency of the BSL and strengthening the banking system; improving tax administration through the introduction of a unified revenue authority and a VAT, and enlarging the tax base; improving the tracking of public expenditures,3 especially those directed at poverty alleviation, through the development of a medium-term expenditure framework; and improving the government's statistical databases. The government is planning to introduce a social security system during the next two years; legislative and operating modalities are to be drafted and approved during 2002. Major sectoral and other structural reforms developed in collaboration with our development partners are outlined in the interim PRSP. Special attention will be focused on measures to increase private sector investment and production, as the private sector is expected to be the main source of economic growth over the medium term.
IV. Program for 2001/2002
20. Fiscal policy. The revised4 budget for 2001 aims at attaining domestic government revenue equivalent to 12.3 percent of GDP and limiting total expenditures to about 40.5 percent of GDP; the overall deficit (excluding grants) is projected at about 28 percent of GDP. The domestic primary budget deficit rises to 6.1 percent of GDP (5.5 percent in 2000), largely because of increases in outlays. The sharp increase in expenditures and the related increase in the overall deficit (excluding grants) is due to the surge in capital outlays expected to follow the return to peace, a substantial rise in outlays on goods and services, and the partial implementation of the new salary and benefits package for the SLA, which is aimed at improving morale and providing standard pensions and other benefits. The government believes strongly that, for the SLA and other security services to maintain peace and law and order, their income and benefits have to be raised significantly, including the provision of adequate pensions and benefits for the killed, wounded, or missing in action; until now, these benefits have not been available to the SLA.
21. The main policy reform measure undertaken in the budget for 2001 is the restructuring of the external tariff, in line with the recommendations of an IMF Fiscal Affairs Department (FAD) technical assistance report. As recommended by the report, the highest tariff rate was reduced from 40 percent to 30 percent, while some rates in the 5–20 percent tariff bands were raised to 30 percent but at the same time exempted from an excise import duty of 30 percent. In addition, inconsistencies in the classification of goods were removed. Some changes were also made in administrative fees and charges. A vigorous effort has been launched to reduce tax and duty exemptions, including the introduction of a new code for nongovernmental organizations' operations aimed at limiting their abuses of duty exemptions. The government intends to seek technical assistance to set up a duty/tax credit system to limit tax and duty exemptions to legitimate beneficiaries while avoiding abuses of duty-free privileges.
22. In line with the government's poverty reduction strategy, the budget for 2001 took some preliminary steps in publicizing and developing a medium-term expenditure framework (MTEF),5 and in targeting expenditures in certain key social areas; further work in developing and implementing this framework will be done during 2001 and beyond, including the establishment of mechanisms to track poverty reduction expenditures. In the budget for 2001, the government introduced universal free primary education; in the health sector, the government started providing free consultation and drugs to all pregnant women and children under 5 years of age, as well as free basic primary care to all schoolchildren. Consequently, the share of health and education in recurrent expenditure is projected to rise significantly in 2001. The efforts to strengthen public expenditure management are to be continued with support from the European Commission (EC) and other donors. Thanks to assistance from the EC and the DFID, the capacity for controlling and recording government expenditure is fairly more robust than one would suppose for a post-conflict country.
23. Regarding the wage bill, a number of problems have been identified that make it difficult to control the evolution of wage and salary payments at the Accountant General's Office. These problems result mainly from the ministries'/agencies' inability to adequately plan and make provisions for recruitment and promotions. In submitting their estimated wage bill for the new year, ministries do not adequately plan for the number of authorized posts, expected vacancies and recruitment, and the number of people to be promoted and the cost of such promotion. Instead, promotions are determined and announced during the course of the year, often back-dated several years;6 similarly, recruitment is made on an ad hoc basis during the course of the year, leading to unbudgeted increases in wage and salary payments, and wage arrears. Current budget procedures also allow for automatic increases in pay within grade without any performance evaluation.
24. In view of the above, the government intends to adopt new budgeting procedures for the wage bill in the budget for 2002. For this purpose, a review of the ministries' staffing levels, vacant posts, and recruitment needs has been initiated. A more systematic approach to personnel management issues is to be developed in the context of the civil service reform described in paragraph 37. In the meantime, ministries and agencies have been provided with an allocation for expenditure on wages and salaries during 2001. Ministries and agencies will have to adjust their pay and employment policies to ensure that they do not exceed the limit.
25. During 2000, efforts were deployed to identify and verify domestic payments arrears. Negotiations are under way with domestic creditors regarding the modalities for clearing these arrears, including the discounting by the creditors of certain types of claims. The stock of identified arrears amounted to Le 35 billion as of end-2000. To date, Le 13.9 billion have been verified; this amount has subsequently been discounted to about Le 6.1 billion. The balance of unverified claims is to be verified by end-June, 2001. Provision has been made to pay Le 5 billion of verified arrears in 2001. After verification, the stock of arrears will be repaid over a period of five years, starting in 2002.
26. An inventory of the cross debts between the government and public corporations was also made during 2000. A plan for the settlement of net balances was also agreed between the government and the pubic enterprises (PEs). The amounts owed to the PEs by the government were valued at Le 20.4 billion, while Pes' debts to the government amounted to Le 28.1 billion. The government intends to ensure that this settlement plan is adhered to. In particular, the government plans to ensure that current slippages in meeting agreed payments are rectified. Furthermore, the government has taken measures to ensure the prompt payment of utility bills and the regular remittance of payroll taxes collected by PEs to the treasury.
27. The power sector in Sierra Leone has been devastated by decades of egregious mismanagement, lack of investment and maintenance, and political interference. Consequently, the government has recently had to provide substantial subsidies and on-lending to the power company to prevent a total collapse of electricity supply. The National Power Authority (NPA) is undertaking a series of reforms aimed at improving power generation and distribution, and reducing operating losses. In October 2000, the government authorized the NPA to raise electricity tariffs by 135 percent after a significant improvement in power supply. Unfortunately, it is expected to take some time before the reforms under way at the NPA can completely wean the public utility off government subsidies. However, the government intends to limit subsidies to the NPA to Le 3 billion during 2001. At the same time, the government will pay off accumulated arrears to the NPA, amounting to Le 1.6 billion, by end-September 2001, and ensure that the government's electricity bill (estimated at about Le 400 million per month) from the NPA is paid on a current basis, starting with the bill for May 2001.
28. The implementation of the DDR and RRR programs is expected to accelerate this year in line with the evolution of the peace process. Following consultations with stakeholders during 2000, a review of the past two phases (I and II) of the DDR program was undertaken. Phase III of the DDR program is now operational. The DDR and RRR program are organically linked to the peace process, and are designed to encourage combatants to join the peace process and to permit the civilian government to take over rebel-held areas. The DDR program is projected to cost US$21.4 million in 2001 and US$17.8 million in 2002. The government's contribution in 2001 is budgeted at Le 3 billion (or approximately US$1.5 million). The balance is expected to be met from donor support from the Multi-Donor Trust Fund. US$12 million has so far been committed, of which US$8.6 million has been received. A donors' meeting is planned in June 2001 to raise further commitments for the program in 2001–02. The RRR program in 2001 has a budget of Le 90.5 billion (or about US$45 million). Funding for the RRR program in 2001 has been committed. The budget and the macroeconomic policies to be adopted in 2002 will be agreed by end-December 2001, in the context of the first review.
29. Monetary policy and financial sector reforms. Monetary policy will continue to aim at the containment of inflation and the attainment of the gross external reserves target for the Bank of Sierra Leone. The BSL will continue to target the growth of its net domestic assets as a means to control the growth of broad money. The weekly treasury bill auction remains the BSL's main flexible instrument for managing domestic liquidity. The BSL intends to convert the outstanding stock of ways-and-means advances into treasury bills to be used in its open market operations. At the same time, the interest rate charged on ways and means will be allowed to vary with market conditions and reflect movements in the treasury bill rate.
30. The treasury bill auction will be allowed to operate without administrative intervention. The volume of treasury bills offered for auction by the BSL will be determined on the basis of the BSL's monetary program, which should aim at a consistent set of policy objectives. The BSL is to avoid frequent recourse to the recent practice of declaring a reserve price before the treasury bill auction. The BSL intends to seek technical assistance from the Fund in refining the framework within which monetary policy is conducted, as well as in elaborating measures to discourage collusion by banks in their bidding at the treasury bill auction.
31. Following the sharp decline in inflation during 2000, reflecting in part the spike in the CPI index in 1999 caused by the war, the rate of inflation is expected to rise moderately during 2001. Interest rates are also expected to firm up as the rate of inflation picks up and the demand for credit intensifies. The monetary program for 2001 projects a 15 percent growth in broad money; net credit to government is to be limited to an increase equivalent to about 9.5 percent of broad money at the beginning of the period; and credit to the private sector is projected to rise by about 13 percent. The net domestic assets of the BSL are programmed to grow by about 7 percent.
32. Reforms in the financial sector will aim at reducing the fragility of the banking system and improving the operational and policy implementation capacity of the BSL. The scope and timing of these reforms are to be established after a review of technical assistance recommendations requested by the Fund and other donors. In the meantime, the BSL will issue new regulations and guidelines required to implement the new Banking Act of 2000. The BSL will also press ahead with current efforts to strengthen bank supervision. It will be critical to ensure that, as the economy recovers and the demand for credit increases, banks are adequately capitalized, and that adequate provisions are made against nonperforming bank loans. Although banks are holding a high level of liquid assets and have capital well in excess of the prescribed level, the implementation of the new capital adequacy ratio of 15 percent may be initially difficult for the smaller banks. The government will expedite the passage through parliament of the Financial Institutions Act. In addition, the government will review the current situation of the National Development Bank (NDB) and decide on the future role of the institution. The government intends to seek external technical assistance to help it review the future role of the NDB.
33. External sector policies. A return to peace would substantially improve the medium-term outlook. Nevertheless, in 2001–02,7 exports are projected to recover gradually; the production of rutile and bauxite remains suspended but the volume of diamonds officially exported is projected to increase in response to the UN-sponsored certification program, which would divert an increasing share of diamond proceeds from the financing of military outlays for the rebels. The value of imports is projected to rise substantially, reflecting the large import requirements for rehabilitation and reconstruction. In this context, the revised balance of payments projections indicate that the external current account deficit (excluding official transfers) would amount to about 26 percent of GDP in 2001. The external financing gap for 2001 is projected at nearly US$224 million; of this amount, US$199 million represents the assumed rescheduling of external debt-service arrears to the Paris Club and other bilateral and private creditors. The government intends to approach the Paris Club and other bilateral and private creditors, with a view to requesting debt relief on Naples terms. The residual financing gap of US$25 million is expected to be filled through disbursements from the Fund under the proposed PRGF arrangement. The external current account deficit is projected to widen significantly in 2002 to 33 percent of GDP as a result of import requirements relating to the refurbishment and expansion of the rutile mine. The external financing gap in that year is projected to amount to about US$43 million. Gross external reserves of the BSL are targeted to amount to 1.6 months of import cover in 2001, and to rise to 2 months in 2002.
34. Trade policy will aim at reducing effective protection and increasing the economy's competitiveness. To this end, the government intends to continue rationalizing and reducing external tariffs to a range of 0–25 percent, and to reduce the average external tariff to about 15 percent by 2003; these actions are being taken in line with Sierra Leone's commitments under the ECOWAS, and in order to reduce the extensive smuggling of commodities across the border from neighboring states through lower effective taxation of imported goods. In this regard, the government plans to terminate the current licensing requirements for importing cigarettes, particularly the requirement that overseas manufacturers of cigarette brands appoint an exclusive agent in Sierra Leone for a particular brand. This practice has tended to restrict internal competition and raise prices, thereby providing additional incentives for illegal cross-border trade in cigarettes. To reduce exporters' costs, the government has also decided to abolish the export inspection fee of 1.1 percent of the value of exports,8 as well as the additional 1.1 percent ad valorem fee exporters have to pay to the external dollar account of the defunct Sierra Leone Marketing Board at the Sierra Leone Commercial Bank. Exporters have, in any case, generally ignored the requirement for inspection and fees or have been exempt, so that this decision will regularize current practices.
35. The government remains committed to the maintenance of a liberal trading and exchange system. A flexible exchange rate policy will be maintained through the continuation of the foreign exchange auction, supplemented by measures to encourage the development of an interbank foreign exchange market. The restriction under Article VIII, Section 2(a) in the form of a requirement of a tax clearance certificate for making payments and transfers of certain international transactions and transfers has been abolished, effective June 30, 2001. Sierra Leone's external debt burden is projected to remain onerous over the medium term. The country's debt service-to-exports ratio is projected at over 52 percent in 2001, while the stock of debt stood at 180 percent of GDP at end-2000. Sierra Leone is eligible for debt relief under the HIPC Initiative and has been working with the staff of the Fund and the Bank to ensure the timely completion of the debt sustainability analysis (DSA).
36. Structural and sectoral policies. As indicated in paragraph 4, Sierra Leone has implemented a wide range of structural reforms since 1991, despite the turbulent political and security situation during that period. A number of key reforms proposed in paragraph 37 started during that period but were interrupted by the war. The government intends to implement additional reforms in the fiscal and financial sector, as indicated above. A decision on the scope and timing of these measures will be made by end-September 2001. In the meantime, the government is putting in place a medium-term expenditure framework with technical assistance from the DFID. In addition, the reforms under way in the Accountant General's Office to computerize expenditure accounting and reporting are to be continued with support from the EU.
37. After more than a decade of political mismanagement and protracted civil strife, the capacity of the Sierra Leone public service to deliver services had nearly collapsed, with many services becoming virtually unavailable, especially outside Freetown. In part due to political interference and declining real wages, corruption also increased substantially. These tendencies were aggravated by the civil war, which led to the exodus of qualified public servants, destroyed the physical infrastructure of ministries and local governments, and left the administration of large parts of the country to vicious rebels. To address these problems, the government in 1996 launched a public sector reform (PSR) program. Reform efforts were, however, frustrated by the recurrence of civil strife. With the launching of a medium-term program, government has decided to activate the PSR program. The program aims to quickly rebuild, in stepwise fashion, the capacity of the public sector to deliver services more efficiently and in a transparent manner. The PSR will be managed by the Governance Reform Secretariat (GRS), attached to the Ministry of Presidential Affairs. The PSR is focused on a number of high-priority reforms, sequenced in the following manner: a) a limited program to reestablish capacity at the level of provincial and district administrations; b) diagnostic studies and restructuring programs for key government ministries; c) a program to restructure personnel management and pay and ; d) improvements in records management. The PSR is being supported by financial and technical assistance from the DFID and other donors. Other elements of public sector reform include capacity building in the area of financial management and accounting supported by the EU, and a public sector management program financed by the World Bank aimed at strengthening economic management and the provision of equipment to ministries. Finally, the UNDP capacity-building support program is focused on a number key ministries.
38. In the context of the public sector reforms, several measures have been taken or are ongoing to advance some aspects of the overall reform program. The restructuring of the SLA, the police and prisons services has been conceived and executed in line with the public sector reform objectives. The verification exercise undertaken by the Accountant General for civil servants and pensioners has helped to reduce the number of "ghost" workers and pensioners. Efforts are under way to document daily-wage employees of government ministries, with a view to regularizing their positions, and retiring or terminating those who cannot be absorbed by the civil service. A simplified salary structure has been implemented for civil servants. Various training programs are under way, and the civil service training center is being rehabilitated.
39. As in the case of the PSR, the government had embarked on a public enterprise reform and divestiture program under the Public Enterprise (PE) Reform Act of 1993. Under this program, many enterprises were privatized or liquidated, and several others were leased (hotel) or put under management contract. The intensification of the civil war disrupted the completion of reform efforts in this area. With the support of the World Bank, the government has now adopted a new strategy for continuing reform in the sector. The new strategy is aimed at improving transparency in the reform and divestiture program. Under the existing conditions in the country, it is anticipated that the divestiture program will proceed slowly as confidence builds up and public enterprises improve their financial performance. The strategy has the following main elements: a) loss-making enterprises operating in competitive markets would be targeted for privatization as soon as practicable; b) large PEs, especially utilities, would be sold only in the medium term (in the meantime, management contracts, performance contracts, or leases would be utilized to improve efficiency and profitability; and c) employee ownership schemes and other forms of local participation would be encouraged to, inter alia, increase public support for the divestiture program.
40. Policies to promote private sector development include, first and foremost, the reestablishment of peace and security, and the continuation of legal and regulatory reforms. In addition, the proposed program of public enterprise reform and divestiture is aimed at transferring a substantial part of public assets to private sector ownership and/or management. The government will develop a strategy and policies to improve the surveillance of fisheries, including a resumption of discussions with the EU on a fisheries agreement. In addition, the government will review the framework for the licensing and execution of diamond mining, with a view to introducing reforms to be implemented when the security situation in diamond areas normalizes.
41. Poverty reduction policies. A key factor accounting for the prevalence of abject poverty in Sierra Leone has been the war and related dislocation of about half of the Sierra Leonean people from their communities, which has thereby denied them a chance to engage in productive activity and subjected them to risks of disease, and to physical and food insecurity. Therefore, during the transitional phase of the poverty reduction program, the focus will be on the resettlement of displaced people and the reintegration of ex-combatants in their communities; the focus will also be on providing the displaced and the ex-combatants support to resume regular economic activity, rehabilitate their homes, and rebuild social and community services. These activities are supported under the DDR and RRR programs in collaboration with our development partners and NGOs.
42. At a more general level, the government intends to focus its expenditures, in the context of the medium-term expenditure framework described above, on key sectors like education, health, and sanitation for the benefit of the poor. In this regard, the government will undertake an expenditure review and develop mechanisms to track poverty alleviation-related outlays and their impact. The government intends to improve social and economic databases, with a view to enhancing poverty analysis. The Strategic Planning and Action Process (SPP), which has been responsible for social surveys underpinning the I-PRSP, will collaborate with the Central Statistical Office (CSO) in broadening the scope of these surveys. In the medium term, the priority is to develop more comprehensive databases, starting with a population census planned for 2002, and a comprehensive household expenditure survey.
43. Governance. Reforms promoting good governance aim at establishing democratic government structures at the national and local levels, improving the efficiency, accountability, and transparency of public service delivery, and ensuring the well-being of the people served. The program has the following components: a) the reestablishment of local administrations and the decentralizing of government functions, aimed at empowering the local population; b) the raising of the population's awareness of its rights; c) public sector reforms (as described above); d) the strengthening of the judiciary and legal safeguards to promote the rule of law; and e) the implementation of anticorruption measures and procedures. Apart from measures implemented to improve efficiency and transparency in public sector management, good governance will also be promoted by reforms aimed at improving the public procurement system and by the work of the Anti-Corruption Commission, created in 2000 to investigate allegations of corrupt practices.
44. Statistical issues. The government recognizes that statistical databases monitoring economic, financial, and social developments in Sierra Leone are weak, and it is keen to effect improvement as soon as practicable. To this end, the CSO has been restructured and is to be made an autonomous agency of the government. The government has also requested technical and financial support from the Fund, the World Bank, and other donors to help the CSO undertake the planning and implementation of the key changes necessary to improve our databases over the medium term. In this regard, the CSO will require technical and financial assistance to undertake a new population census during 2002, as well as a comprehensive household expenditure survey. The CSO also plans to resume regular surveys of agricultural and industrial production, as well as the labor market. In addition, the CSO, in collaboration with the SPP, plans to launch regular surveys to collect information on social trends and other data required for the preparation and monitoring of the poverty reduction and alleviation program.
45. Program monitoring and review. The implementation of our program will be done on the basis of prior actions and a number of performance criteria and quantitative and structural benchmarks.9 The first and second reviews of the program will be completed by December 31, 2001 and June 30, 2002, respectively.
46. The prior actions for approval of the PRGF arrangement are as follows: a) approval by parliament of the supplementary budget for 2001, reflecting the agreed10 fiscal targets and policies; b) the issuance by the Bank of Sierra Leone of appropriate new regulations and guidelines under the new Banking Act of 2000; c) the removal of the current exchange restriction under Article VIII, Section 2(a) of the Articles of Agreement, in the form of the requirement of a tax clearance certificate for payments and transfers of certain international transactions; and d) the abolition of the licensing requirement for the importation of cigarettes.
47. Performance criteria. Performance during the first year of the PRGF arrangement will be monitored quarterly on the basis of the following quantitative criteria: (a) a ceiling on net domestic bank credit to the government; (b) a ceiling on the net domestic assets of the BSL; (c) a floor on gross foreign exchange reserves of the BSL; (d) a ceiling on the domestic primary budget deficit; (e) the nonaccumulation of external payments arrears; (f) a limit on the contracting or guaranteeing of nonconcessional external debt by the public sector with maturities of 1–12 years; (g) a limit on the outstanding stock of external debt owed or guaranteed by the public sector with maturities of less than 1 year; (h) a limit on subsidies to the NPA; and (i) a reduction in the stock of verified domestic payment arrears. The program incorporates the following structural performance criteria and benchmarks: a ) the settlement of cross debts between the government and public enterprises;11 b) an agreement on the timetable for the implementation of appropriate fiscal and financial sector reforms by end-September 2001; c) the passage of the Financial Institutions Bill in parliament by end-September 2001; d) passage of the bill setting up the autonomous Central Statistical Office in parliament by end-September 2001; and e) the nonaccumulation of arrears in regard to electricity and water bills.
48. Provision of information. To ensure the effective monitoring of the program, the government will provide to the Fund the core data and information required for that purpose on a timely basis.12
1The UK has provided support for the restructuring and training of the SLA, police, and prisons services, as well as experts and consultants in the areas of the budget (medium-term expenditure framework), taxes, and public sector reforms. The EU is financing experts in public sector financial management in the Ministry of Finance, including the provision of an expatriate Accountant General. This program has been in place for the past three years and has been extended for another three-year period.
2Reflecting heavy investments in the rutile plant that year.
3The government intends to adopt a package of fiscal reforms during 2001–04 on the basis of recommendations that are to be made by a technical assistance mission from the Fund's Fiscal Affairs Department. A decision on the specific reforms to be implemented will be reached by end-September 2001.
4At the time the 2001 budget submitted to parliament was concluded, the cost of the restructuring of the SLA was unknown. In addition, the revised DDR program had not been agreed and costed. After the new SLA restructuring costs were determined, a donors' conference was held in Freetown to review external budgetary financing requirements. In the absence of a substantial increase in donor budgetary support, it has been decided to scale back the implementation of SLA reforms and to effect cuts in other outlays. Another donors' meeting was held in June this year to raise funds for the DDR program.
5This is being done with technical assistance from the DFID. This will be the main mechanism to track poverty expenditures.
6A good example is the recent promotion of nearly 10 percent of the police force without prior provision in the budget.
7Rutile production is scheduled to start during the third quarter of 2002, with a projected output of 66, 700 tons for the balance of 2002.
8This excludes rutile exports and fees and charges levied by the government diamond and gold valuation office (GDDO).
9See also the attached technical memorandum of understanding.
10As reflected in the attached table on the government fiscal operations.
11According to the schedule indicated in Table 3.
Sierra Leone: Technical Memorandum of Understanding
1. This memorandum sets out the understandings between the Sierra Leonean authorities and the International Monetary Fund regarding the definitions of the quantitative and structural performance criteria and benchmarks for the program supported by the Poverty Reduction and Growth Facility (PRGF) arrangement, as well as the related reporting requirements. The definitions are valid at the start of the program but may need to be revisited during the program reviews to ensure that the memorandum continues to reflect the best understanding of the Sierra Leonean authorities and the Fund staff in monitoring the program.
II. Quantitative Performance Criteria: Definitions and Data Sources
A. Gross Foreign Exchange Reserves of the Bank of Sierra Leone (BSL)
2. Definition. Unless otherwise noted here, gross foreign exchange reserves of the BSL will be defined as reserve assets of the Bank of Sierra Leone. Reserve assets are defined in the IMF's Balance of Payments Manual manual (5th ed.) and elaborated in the reserve template of the Fund's Special Data Dissemination Standard (SDDS). They exclude, for example, foreign assets not readily available to, or controlled by, the monetary authorities.
3. Gross foreign exchange reserves consist of (a) monetary gold; (b) foreign currency in cash; (c) unencumbered foreign currency deposits at non-resident banks; (d) foreign securities and deposits;(e) SDR holdings and Sierra Leone's reserve position with the Fund; and (f) balances in the Bank of England account related to debt service to Paris Club creditors. Gross reserves will exclude nonconvertible currencies and pledged, swapped, or any encumbered reserves assets including but not limited to reserve assets used as collateral or guarantees for third party external liabilities.
4. Adjustment clauses. The floor on gross foreign exchange reserves will be adjusted (a) downward (or upward) by the amount in U.S. dollars of the shortfall/excess in programmed external budgetary assistance; (b) downward (upward) for any shortfall/excess in the U.S. dollar value of disbursements from the IMF under the PRGF arrangement; and (c) upward or downward for any increase in BSL short-term foreign currency-denominated debt (to residents and nonresidents), using the definition of short-term debt below.
5. For the purpose of this target, as well as of those for external debt and arrears, valuation will be in U.S. dollars, using the program exchange rates.
6. Supporting material. Data on gross foreign exchange reserves, including its components, will be transmitted by the BSL to the Fund on a weekly basis within ten days of the end of each week.
B. Net Domestic Assets of the (BSL)
7. Definition. Net domestic assets (NDA) of the BSL are defined as the end-period (based on daily data) stocks, during the month of the test dates, of the reserve money less net foreign assets calculated at end-March 2001 BSL mid-exchange rates (program exchange rates).1 Reserve money includes currency in circulation and required reserves on leone deposits. Net foreign assets of the BSL are defined as gross foreign exchange reserves (defined below) minus foreign liabilities (defined below). The leone figures are derived from the U.S. dollar values, using the program exchange rate.
8. Foreign liabilities are defined as short-term (one year or less in original maturity) foreign currency-denominated liabilities of the BSL to nonresidents and the outstanding use of Fund credit.
9. Adjustment clauses. The ceiling on the NDA of the BSL will be adjusted upward (downward) by the amount of the shortfall (excess) in the external budgetary assistance composing non-project-related loans and grants at the end of each quarter. The leone value of the cumulative shortfall (excess) of external budgetary assistance will be calculated at the program exchange rate.
10. The ceiling on NDA of the BSL will also be adjusted downward/upward to reflect increases/decreases in the legal reserve requirements. The adjustor will be calculated as the percent change in the reserve requirement multiplied by the actual amount of reserves (leone and foreign currency-denominated) at the end of the previous calendar month.
11. Supporting material. Net domestic assets of the BSL will be transmitted to the Fund on a monthly basis within four weeks of the end of the month. This report will include foreign assets excluded from the definition of gross foreign exchange reserves in Section IIA above.
C. Net Domestic Bank Credit to Government (NCG)
12. Definition. NCG refers to the net banking system's claims on the central government and is defined as the following:
13. Adjustment clauses. The ceiling on the increase in NCG will be adjusted upward2 (or downward) by the amount of the shortfall (excess) in external budgetary assistance. The leone value of the cumulative shortfall or excess in external budgetary assistance will be converted at the program exchange rate. The ceiling will also be adjusted downward (upward) by any net issues of government securities to the nonbank public up to the annual ceiling set on net domestic credit.
14. Supporting material. The data source for the above will be the series "Claims on Government (Net)" submitted to Fund staff on a weekly basis and reconciled with the monthly BSL monetary survey to be submitted to the Fund within six weeks of the end of each month. These data will be reconciled with monthly reports on treasury bill transactions and the ways-and-means account, and with treasury bearer bond transactions to be submitted to the Fund staff by the Ministry of Finance, within six weeks of the end of each month.
D. Domestic Primary Balance of Central Government
15. The floor on the domestic primary budget balance of the central government is defined as domestic revenue minus total expenditure and net lending, excluding interest payments, externally financed capital expenditure, and the disarmament, demobilization, and reintegration (DDR) program.
16. Supporting material. The data will be submitted to Fund staff by the Budget Unit of the Ministry of Finance within six weeks of the end of each month.
E. Verified Domestic Payment Arrears of Government
17. Domestic arrears of the government are defined as (a) any bill that has been received by a spending ministry from a supplier for goods and services delivered (and verified) and for which payment has not been made within 60 days; (b) wage and salary arrears that were due to be paid in a given month but remained unpaid on the fifteenth of the following month; and (c) interest or principal obligations that remain unpaid 30 days after the due date of payment. Any change in such arrears will be reported to the Fund within six weeks after the end of each month. The ceiling on the reduction in domestic arrears, however, relates only to the stock referred to in paragraph 25 of the MEFP.
18. Supporting material. Data relating to the reduction in the stock of identified arrears referred to in paragraph 25 of the MEFP will be submitted to Fund staff by the Budget Unit of the Ministry of Finance within six weeks of the end of each quarter.
F. Domestic Revenue of Central Government
19. The target on total domestic government revenue is defined as total central government revenue, excluding external grants.
20. Supporting material. The data will be submitted to Fund staff by the Budget Unit of (MFIN) within six weeks of the end of each month.
G. Central Government Wage Bill
21. The ceiling on the government wage bill is defined as total expenditure outlays on wages, salaries, pensions, and cash allowances by the government.
22. Supporting material. The data will be submitted to Fund staff by the Budget Unit of the Ministry of Finance within six weeks of the end of each month.
H. External Payment Arrears
23. Definition. Official external payment arrears are defined as the stock of external overdue debt-service payments by the central government, public enterprises and the BSL, except on debts subject to rescheduling. The nonaccumulation of external arrears is a performance criterion during the program period.
24. Supporting material. Data on arrears are compiled jointly by the Ministry of Finance and BSL and will be reported to Fund staff by the Director of Research, Ministry of Finance on a quarterly basis within six weeks of the end of each quarter.
I. Official Medium- and Long-Term Nonconcessional Loans
25. Definition. Those are defined as all forms of official debt contracted or guaranteed by the public sector. This performance criterion applies not only to debt as defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt "(Decision No. 12274-(00/85; 8/24/00 (a copy of which is attached as Annex I), but also to commitments contracted or guaranteed for which value has not been received.
26. Supporting material. Detailed data on all new concessional and non-concessional debt contracted or guaranteed will be provided to Fund staff by BSL/the Ministry of Finance on a quarterly basis within six weeks of the end of each quarter.
J. External Short-Term Debt Contracted or Guaranteed by the Public Sector
27. The term "debt" has the meaning set forth in point No. 9 of the "Guidelines on Performance Criteria with Respect to Foreign Debt" (Decision No. 12274-(00/85; 8/24/00) (a copy of which is attached as Annex I).
28. In this memorandum, the public sector consists of the central and regional governments and other public agencies, including the BSL. External short-term debt is defined as external debt (as defined above) with a maturity of less than one year contracted or guaranteed by the public sector. For this purpose, short-term debt will exclude normal trade credit for imports.
A performance criterion is no new external short-term debt during the program period.3
29. Supporting material. A comprehensive report on all new external debt with original maturity of less than one year owed or contracted by the public sector will be transmitted to Fund staff by the BSL on a quarterly basis within four weeks of the end of each quarter.
K. Subsidies to the NPA
30. The term "subsidy" refers to government provision of financial support to the National Power Authority (NPA) to cover its operating losses. It does not include the government's on-lending of external loans for capital expenditure of the enterprise. The subsidy is to be reduced by the amount of arrears accruing each month in regard to the government's electricity consumption.
III. Program-Monitoring Committee
31. Definition. The Sierra Leonean authorities shall maintain a program-monitoring committee composed of senior officials from the Ministry of Finance, the Ministry of Economic Development and Planning; the Bank of Sierra Leone, and other relevant agencies. The committee shall be responsible for monitoring the performance of the program, recommending policy responses, informing the Fund regularly about the progress of the program, and transmitting the supporting materials necessary for the evaluation of performance criteria and benchmarks. The committee shall provide the Fund with a progress report on the program on a monthly basis within four weeks of the end of each month, using the latest available data.
IV. Data Reporting to the Fund
A. Domestic Prices
32. Reporting standard. the monthly disaggregated consumer price index will be transmitted within four weeks of the end of each month.
B. Government Accounts Data
33. Reporting standard. A consolidated budget report of the central government comprising (a) the revenue data by each major item, including those collected by the Commissioner of Income Taxes and the Customs Department, as well as privatization receipts to the budget; (b) details of the recurrent and capital expenditure of the central government; (c) details of budget financing (domestic and external), which will be transmitted on a monthly basis within six weeks of the end of each month; and (d) details on the government's outstanding arrears outstanding, including payments and other arrangements to discharge them (these data will be transmitted on a monthly basis within six weeks of the end of each quarter).
C. Monetary Sector Data
34. Reporting standard. The balance sheet of the central bank and the consolidated balance sheets of the commercial banks will be transmitted on a monthly basis within six weeks of the end of each month. The results of the treasury bill auctions will be transmitted on a biweekly basis within five business days. The stocks of government securities, balances in the divestiture account, detailed information on interbank loans (terms, duration, and participating institutions), and interest rate developments will be transmitted on a monthly basis within two weeks of the end of each month.
D. External Sector Data
35. Reporting standard. The following standard will be adhered to: (a) the interbank market exchange rate, as the simple average of the daily-weighted average buying and selling rates, will be transmitted on a weekly basis within five business days of the end of the week; (b) the results of foreign exchange auctions (on a weekly or more frequent basis) will be transmitted on a weekly basis within five business days of the end of each week; and (c) foreign exchange cashflow data will be transmitted on a quarterly basis within six weeks of the end of each quarter.
Guidelines on Performance Criteria with Respect to Foreign Debt
Excerpt from Executive Board Decision No. 6230-(79/140), as revised on August 24, 2000
9. (a) For the purpose of this guideline, the term "debt" will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows:
(i) loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);
(ii) suppliers' credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and
(iii) leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lesser retains the title to the property. For the purpose of the guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property.
(b) Under the definition of debt set out in point 9 (a) above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.
1Unless otherwise defined, program exchange rates for 2001 between the U.S. and other (non-leone) currencies, including the SDR, will be equal to the end-March 2001 rates. Any other assets (e.g., gold) would be revalued at the end-March 2001 market price.
2In case of a shortfall, the upward adjustment will be limited to 50 percent of the shortfall in external budgetary assistance.
3This performance criterion applies not only to debt as defined in point No. 9 of the "Guidelines on Performance Criteria with Respect to Foreign Debt" (adopted by the Executive Board of the Fund on August 24, 2000), but also to commitments contracted or guaranteed for which value has not been received.