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RwandaLetter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

July 3, 2002

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

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


Dear Mr. Köhler,

1. Rwanda has strived over the past eight years to addressing the rent in the social fabric and immense surge in poverty engendered by the genocide of 1994. The challenges faced in this endeavor have no precedence in history. Nonetheless, our eventual success in providing a better future for our nation is ineluctable.

2. Following the genocide in 1994, our immediate priorities were the restoration of peace, the resettlement of the internally displaced and of returned refugees, the promotion of national reconciliation, and the revival of the economy. In the interim, we have largely succeeded in restoring peace and the vast majority of refugees have returned and resettled. By end-1999, over three million internally displaced persons and refugees had been permanently resettled.

3. We have set as our goals: reconstruction, national reconciliation, peace, stability, good governance and poverty reduction. We have made some noteworthy achievements toward those ends, including empowering the Rwandan people through a process of decentralization and democratization. The National Assembly adopted a decentralization law in November 2000 and local elections were held in March 2001. Judges, who will preside over community-based judicial processes (Gacaca) to try those suspected of having committed crimes, were elected in October 2001 and are currently being trained.

4. There is an extraordinary urgency in our actions to reduce poverty. The share of households living below the poverty line, estimated at 53 percent in 1993, rose to 70 percent in 1994 and, as some progress has been made, now stands at 60 percent. But, in addition to the usual considerations in targeting poverty, for Rwanda a significant and rapid decline in poverty will be a key element in securing national reconciliation; while creating new and more productive employment is critical to creating a future for a generation of young that has suffered beyond normal limits. We have finalized and issued a Poverty Reduction Strategy Paper (PRSP), detailing priority objectives and an action plan for their achievement. This PRSP focuses on the areas of rural development and agricultural transformation, human resource development, economic infrastructure, governance, private sector development and institutional capacity building. The PRSP underpins our policy program for the period ahead, including the macroeconomic and financial policies to be supported under a new arrangement from the IMF.

5. During the next years, Rwanda will embark on a sweeping national transformation: democracy will be rooted, including through a referendum on a new constitution and elections at the national level during 2003, reconciliation critical to sustaining a common national interest will be forged, and resources that had been claimed by conflict will be turned to building a better future. The achievement of these goals will depend on steady and efficient implementation of a coordinated action plan, whose key elements are set out in the PRSP.

6. We recognize clearly that the achievement of our objectives will depend critically on the establishment of a sound macroeconomic foundation. The three-year ESAF/PRGF arrangement that was approved by the Fund's Executive Board of Directors in June 1998, and which was extended to end-April 2002, provided a framework for our efforts to that end. Our record under that framework has been successful in broad terms. With successive years of strong economic growth, in 2000 we were able to re-attain the real GDP level of 1990. We plan to improve on that record in the period ahead. We have also made strides in checking inflation and have substantially rebuilt official reserves. Despite our capacity limitations, we have made progress in improving structural efficiency through reforms in the exchange and trade regime, financial administration, tax policy, privatization and the civil service.

7. The Government, in collaboration with DfID, is currently carrying out a poverty and social impact assessment (PSIA). We intend to discuss the findings of the PSIA with the staff of the IMF and the World Bank and with other key stakeholders later this year. The PSIA findings and subsequent discussions will be taken into account in reviewing possibilities for accommodating supplemental grant income that may become available within the fiscal and monetary policies set out in the attached MEFP.

8. The attached memorandum of economic and financial policies (MEFP) reviews the implementation of the 2001 program and lays out the objectives and policies that the government intends to pursue during 2002, and for the medium term. In support of these objectives and policies, the Government of Rwanda requests the approval of a new three-year PRGF arrangement with access in an amount equivalent to SDR 4 million (5 percent of quota) and the extension of additional interim relief from the Fund to cover part of its debt service obligations to the Fund during the period August 1, 2002 to July 31, 2003 under the HIPC Initiative. We would therefore request the disbursement of a first loan in an amount equivalent to SDR 574 thousand upon approval of the new PRGF arrangement. The remaining SDR 3.426 million would be disbursed in six equal amounts equivalent to SDR 571 thousand, each available upon completion a review. The limited access requested reflects the foreign reserve cover already in place and the availability of complementary concessional financing. We understand that consideration by the Executive Board of Rwanda's requests for approval of a follow-up PRGF arrangement will be subject to the fulfillment of a number of prior actions, as indicated in the attached MEFP, Table 6.

9. The Government of Rwanda will continue to provide the Fund with such information as the Fund requires in assessing Rwanda's progress in implementing the policies described in this letter and the attached memorandum. Moreover, Rwanda will continue to consult with the Fund on its economic and financial policies, in accordance with the Fund's policies and practices on such consultations.

Yours sincerely,

/s/

François Kanimba
Governor
National Bank of Rwanda

/s/

Donald Kaberuka
Minister of Finance and
Economic Planning


Memorandum of Economic and Financial Policies of the Government of Rwanda for 2002–04

I. Performance Under the 2001 Program

1. Rwanda's economic performance during 2001 was broadly in line with the objectives set under the PRGF-supported program. Favorable climatic conditions supported increased agricultural production; income from coltan mining contributed to domestic demand, especially in the first half of 2001 and, along with substantial external transfers, contributed to growth in construction and services output. Overall, real GDP grew by 6.7 percent during 2001, compared with the targeted 6 percent. Falling food prices, associated with increased local supply following a drought in 2000, helped to moderate consumer price increases. Accordingly, inflation fell from 3.9 percent in 2000 to an average of 3.4 percent in 2001—some 0.4 percentage points above the program target. The external current account deficit (excluding official transfers), at 16.4 percent of GDP in 2001, was roughly unchanged from the 2000 level largely as increased private sector saving was offset by an expansion in the public investment. In the first quarter of 2002, preliminary information indicates that mining receipts have contracted following a collapse in prices of coltan in mid-2001, while export earnings from coffee and tea prices continue to limited by historically low international market prices.

2. The fiscal outcome in 2001, as measured by the primary fiscal deficit, was 0.2 percent of GDP better than programmed, as stronger-than-projected revenue collections more than offset expenditure overruns. Consistent with this, the overall fiscal deficit was limited to 9.5 percent of GDP, compared with the 10.4 percent target under the program, as spending delays on foreign-financed capital expenditure added to gains on the current balance. Receipts from income and profit taxes, international trade taxes, and excise taxes were higher than projected reflecting, in part, improved tax administration. However, nontax revenue collections, particularly from public enterprises, fell somewhat short of expectations. Given the strong revenue performance, it was possible to increase public spending beyond the level foreseen under the program while maintaining the agreed fiscal stance. There were some increases in nonpriority spending due to a number of urgent demands including minor overruns in military spending associated with the withdrawal of troops from the Democratic Republic of the Congo (DRC). The performance criterion on social spending was met, with social expenditure marginally higher than the program floor. The strong revenue performance allowed for a modest increase in exceptional expenditure (0.2 percent of GDP), mostly for tertiary education.

3. Payments to clear overdue government obligations during 2001 were equivalent to 2 percent of GDP, and exceeded the program target by 0.7 percent of GDP. Obligations settled included remuneration due to teachers, local government employees, police and soldiers (equivalent to 0.8 percent of GDP), and arrears for energy, petroleum, transport, the tea parastatal and treasury bonds. At the same time, the stock of pre-2000 obligations presented to the Auditor General for verification, rose from RF 27 billion (3.6 percent of GDP) to over RF 40 billion (5.3 percent of GDP), as initial tallies were revised and new claims, reflecting the continued return of refugees and growing confidence in the process, emerged. Following review, the Auditor General established that required documentation had been submitted for RF 31 billion (3.7 percent of GDP) of the claims submitted. For the remaining RF 10 billion, and other subsequent claims, for which some required documentation is not available, the government has charged a committee of senior administrators (the PRGF Committee) with establishing acceptable standards, reflecting dislocations and losses in the period following the genocide. The government remains committed to settle its arrears in an orderly manner and to take any steps necessary to avoid the re-emergence of arrears in future.

4. Although a miscommunication regarding the payment schedule led to minor delays in debt service payments during December 2001, commitments on avoiding new arrears on external debt service have been substantially met. The government is continuing its efforts to strengthen external debt management and intends to observe agreements reached with external creditors.

5. Regarding monetary developments, the net foreign assets (NFA) of the National Bank of Rwanda (NBR) at end-2001 exceeded the floor set under the program by over RF 7 billion (0.5 months of imports). Reflecting both the strong fiscal performance and the impact of grant inflows, net credit to government was substantially reduced, and more than met program targets. With credit to the private sector growing by 9.1 percent, however, the fall in the net domestic assets of the banking system did not fully offset net foreign inflows and broad money grew by 10.0 percent (current exchange rates), exceeding the 6.6 percent growth that had been targeted.

6. In moving to tighten monetary policy in the second half of 2001, an increase in the discount rate by the NBR to tighten monetary conditions led to a substantial compression in activity in the interbank market, reflecting a skewed liquidity position among banks. In response, the NBR temporarily relaxed its policy stance while moving to address the underlying issue. While this revitalized the interbank market, it led to a buildup in bank reserves and thus to an expansion in reserve money, which is currently being addressed.

7. Regarding exchange rate developments, the Rwanda franc depreciated by 3.4 percent in nominal effective terms in the official market in 2001, and by 4.9 percent in real effective terms. The exchange rate premium in the parallel market trading remained below 5 percent during most of 2001, indicating that the introduction in February 2001 of weekly foreign exchange auctions by the NBR has led to improved efficiency and transparency in this market.

8. There has been progress in carrying out the agenda of structural measures adopted under the program (Box 1 and Table 1). The difficulty of the task at hand should not be underestimated. Thus, despite strong commitment and concerted effort, work is still in progress in some areas that were targeted for implementation, including the issuance of financial instructions in accordance with the organic budget law, which is awaiting supporting legislation that will modify the roles of the Auditor General and of the Cours des Comptes.

9. In strengthening public financial administration and its institutions we have made some significant strides forward. A presidential decree issued on January 2, 2002 put the arbitration center on a firm legal basis. A draft decree giving legal status to the National Tender Board (NTB) was submitted to the cabinet for consideration on June 15, 2002 and is expected to be issued by September 2002. This step caps a comprehensive training program for decentralized tender boards in ministries, public institutions, provinces, and districts that was completed in December 2001. The National Tender Board has started to monitor their tendering activities to assure quality control. Financial and commercial courts, as specialized chambers of the Provincial Court, will be put in place, beginning with pilots in Kigali, Butare, and Ruhengeri, by December 2003.

10. We have, similarly, taken some important steps towards improving financial controls, transparency and accountability. An external audit group has submitted the draft of a comprehensive study of government bank accounts to government. Detailed analysis of these accounts has highlighted extrabudgetary and off-budget account movements, and has been followed up by appropriate legal action. Off-budget receipts, including privatization proceeds and revenue from frequency allocations, have been brought on budget, and the activities funded from these sources are now allocated through the Treasury account.1 During 2001, public accountants were established in all line ministries, and will begin filing quarterly reports during March 2003. A beginning has been made in developing a central government internal audit system—some auditors have been put in place within the line ministries, and with the help of the Auditor General's office, a procedural manual has been developed and some auditors have been trained.

11. The office of the Auditor General has continued to expand and broaden the scope of its activities. Audits of the 2000 accounts of 27 public sector entities, including 8 ministries, were completed in December 2001 and submitted to the President, the Speaker of the National Assembly, and the Chief Justice of the Supreme Court. A parliamentary committee is currently reviewing the reports and it is expected that they will be discussed in a meeting of the Budget Committee open to all parliamentarians and the public by end-September 2002. The government will make access to audits of five ministries for 1999 by the Auditor General's Office freely available to the public before year-end.2

12. Substantial headway has also been made in reinforcing revenue administration and in eliminating departures from appropriate application of tax laws. Discretionary exemptions from direct and indirect taxes, mainly to donors and NGOs, have been largely eliminated, and a database has been established for tracking the tax expenditures from customs duties and the VAT associated with the implementation of existing policies. In addition, procedures are being implemented to verify that goods brought into Rwanda on a duty free basis under existing policies are in fact used for the stated purposes.3

13. The Rwanda Revenue Authority (RRA) significantly improved its performance during 2001: targets for voluntary declaration and tax payment compliance rates for profit taxation have improved (largely meeting a program benchmark), declaration rates for small and medium-sized enterprises exceeded the target, and tax declarations of large companies largely were on-track. The rate for profit tax collections within a month of assessment lagged, however, behind the 50 percent target for much of the year due to legally established payment periods, as well as capacity constraints of the public notary, which have now been addressed. The reform of the personal income tax (TPR) has been further delayed, due to a number of technical issues.

14. On the expenditure side, a number of steps have been taken to strengthen budget implementation and monitoring. However, the system is still in its initial stages and more progress needs to be made. A circular is being prepared defining more specifically the scope of work of the auditors and the procedural manual will soon undergo refinement. To improve monitoring capacity, the expenditure recording system has been decentralized to central government ministries allowing ministries to directly follow their own accounts.

15. Civil service reform is advancing with the implementation of the new provincial organigrams. Redeployment within each province has been completed, and redeployment between provinces is expected to be completed with some delay in January 2003. Preparation of organigrams for the districts is in the initial stages, and there will be a need to revisit the central government organigrams to adequately reflect changes due to the decentralization exercise.

16. While slower than had been envisaged, some gains have been registered in the privatization agenda—12 companies were privatized in 2001. In addition, the government has reached agreement with the World Bank on the privatization process for Rwandatel and the recruitment of an advisor is under way. With this, it is estimated that Rwandatel's privatization will be completed in 15 months. An advisor was recruited for the pilot privatization of the two tea factories, in collaboration with the World Bank in October 2001 and a call for bidders is expected shortly. Progress has been made toward putting Electrogaz, the utility company, under private management: the pre-qualification phase for bidders has been completed and five bidders have been short listed; and, as the terms of the management contract have been agreed with the World Bank, it is expected that the bidding and subsequent selection process can be completed by December 2002.

17. A number of significant landmarks were realized in financial sector structural reforms (see Box 1). The Arbitration Center was granted legal person status in January 2002 and began operations. To enable loan recovery from real estate guarantees, the Office of the Public Notary was opened in accordance with the new civil service organigrams (cadres organiques). At the same time, the accelerated loan recovery procedure (voie parée), which had been suspended in 1997, was reinstated in November 2001. In microfinance, strategic audits were completed for the UBP—the major microfinance agency—by March 2001 and a restructuring plan was been agreed with the World Bank. While the government has decided, in principle, to restart the CHR (Caisse Hypothecaire du Rwanda), further action will reflect the findings of a financial sector study that is being undertaken in collaboration with the World Bank.

Box 1. Financial Sector Reforms Completed Under the 2000/01 Program


Action

Planned Implementation

Implementation


  • The commercial banks to continue with the restructuring plans agreed in the first half of 2000.

12/31/2000

On time

  • Conduct with MAE assistance a review of all banks lending procedures, and make recommendations to banks and implement them.

12/31/2001

On time

  • The office of the public notary will be fully operational, in accordance with the new organigrams.

8/31/2001

On time

  • The diagnostic/strategic audit of the UBP—the major microfinance vehicle in Rwanda

12/31/2000

3/31/2001

  • An agreement will be reached on an appropriate restructuring plan, in consultation with the World Bank

3/31/2001

12/31/2001

  • A new diagnostic audit of the Caisse Hypothéquaire du Rwanda (CHR) and an action plan for CHR's restructuring /privatization will be adopted

3/31/2001

5/23/2001


18. In the banking system, central bank supervisors found that about 40 percent of outstanding loans from commercial banks at end-September 2001 were nonperforming and, as a consequence, a number commercial banks will need to add to their capital. A substantial share of the nonperforming loans, largely extended after 1994, are related to real estate investments hurt by the scaling down of activities in Rwanda by NGOs and international aid organizations, and transportation projects hit by the imposition of axle weight restrictions on trucks transiting Tanzania and Kenya. However, the incidence of nonperforming loans in other sectors suggests that additional factors may have contributed to the buildup in problems, including a post-1994 decline in the effectiveness of the legal system in commercial and banking matters that has undermined loan compliance and enforcement. In light of this, efforts to address these problems will be sustained in the period ahead.

19. The first full Poverty Reduction Strategy Paper (PRSP) was issued on June 21, 2002, building on wide consultations that were successfully held at the grass-roots level and on a host of comments received after having widely circulated a full draft of the paper.

20. Although some delays have been experienced, progress has been made in regularizing relations and implementing agreements reached with external creditors. Outstanding arrears (US$5.5 million) to the OPEC Fund were cleared during the last quarter of 2001. Regarding the Paris Club agreement signed in May 2001, which provided for a topping up of debt relief to Cologne terms, due to an administrative delay, payments have continued on the basis of the Naples agreement signed in 1998 (with the exception of Austria, which informed the authorities that any amounts paid would be deposited into a suspense account). Following the resolution of these difficulties in mid-April 2002, a further extension of the deadline for the conclusion of bilateral agreements has been requested. The Paris Club agreed to extend the deadline for the conclusion of bilateral agreements to September 30, 2002 and we are committed to concluding these negotiations by the revised deadline. We have also requested an extension of the consolidation period from the Paris Club to enable the provision of debt relief under Cologne terms. A decision by the Paris Club is pending, subject to approval of the new PRGF arrangement by the Executive Board. As regards non-Paris Club creditors, an agreement was reached with the People's Republic of China in November 2001 providing for the cancellation of its outstanding arrears, as well as for part of its remaining stock of debt, amounting to US$16.3 million. We remain committed to reaching rescheduling agreements with the remaining non-Paris Club creditors on terms that are at least as favorable as those provided by the Paris Club creditors.

II. Medium-Term Policy Framework

21. Strong economic growth and stable macroeconomic conditions are keystones in the effort to transform the Rwandan economy. Increased productivity, the creation of an educated, healthy, and fully employed workforce, and the progressive eradication of poverty are our goals. In achieving these, the elements critical to supporting a dynamic, market-oriented economy will be set firmly in place: (i) enabling public institutions, including a commercial chamber in the court system, regulatory agencies, and strengthened government financial administration; (ii) a well-focused public expenditure program supported by sustainable revenue and financial policies (iii) an energized private sector that will include public enterprises slated for privatization; (iv) a sound and competitive banking system; (iv) reliable and efficient utilities; and (v) rehabilitated economic infrastructure. This national effort will be further strengthened by a progressive deepening of the regional economy, including through our participation in COMESA and through other bilateral and multilateral initiatives.

22. In line with this approach and given our population growth rate of 3 percent, Rwanda's macroeconomic policies will need to assure that real GDP grows by at least 6 percent a year, while keeping inflation in check (with an annual average of about 3 percent), the external current account improves steadily to a sustainable position, and appropriate steps are taken to reduce vulnerability to shocks, including by maintaining an adequate level of gross official reserves. In this regard, the government aims to bring its debt to a sustainable level by targeting a net present value (NPV) of debt-to-exports ratio of below 150 percent over the medium and long term.

23. Over the medium term, government saving will be strengthened substantially with the overall fiscal deficit limited to 9.9 percent of GDP in 2002, and falling to 9.4 percent in 2003, and 8.0 percent in 2004. Targeted improvements in public institutions, in the health and competitiveness of the financial system, and in regional integration will progressively improve the benefit accrued from moving from the informal to the formal sector and thus extend the tax base and contribute to improved revenue collections. Added to this, revenue measures and continued improvements in tax administration will contribute to strengthening the government's revenue base. Tax policy will be designed to be pro-poor and to facilitate private sector development for growth and poverty reduction. Furthermore, following the completion of transitional programs including Gacaca, demobilization, and decentralization, associated spending will no longer be required and deficits will fall substantially. The government, in collaboration with DfID, is currently carrying out a poverty and social impact assessment (PSIA). We intend to discuss the findings of the PSIA with the staff of the IMF and the World Bank and with other key stakeholders later this year. The PSIA findings and subsequent discussions will be taken into account in reviewing possibilities for accommodating supplemental grant income that may become available within the fiscal and monetary policies set out in the following paragraphs.

24. Improvements in the revenue base will be accompanied by increased efficiency and refined prioritization in the expenditure program. Budget design, implementation, monitoring, and reporting will be strengthened. In particular, budgeting will reflect the priorities identified in the PRSP, encompass public expenditure management at the central, province, and district level, and provide for necessary accountability.

25. A sound monetary program will accompany the fiscal program. While maintaining a firm ceiling on the growth of broad money, monetary programs will also be consistent with an ample expansion of credit to the private sector, and the maintenance of a comfortable foreign reserve cover of six months of imports.

III. The Economic Program for 2002

26. In line with the medium-term objectives outlined above, the program for 2002 aims at avoiding a further deterioration in the macroeconomic imbalances and taking further steps toward poverty reduction. The macroeconomic targets are (i) achieving real GDP growth of 7.3 percent; (ii) limiting inflation to about 3 percent; and (iii) maintaining the gross international reserves cover at about 5.9 months of imports.

A. National Transformation and the Economy

27. Key national initiatives toward decentralization, demobilization, and reconciliation will set the context for the economic program for 2002. Under the demobilization initiative, 20,000 soldiers will be demobilized by 2004, 15,000 ex-FAR personnel already in Rwanda will receive a recognition of service allowance, and 25,000 ex-combatants returning from the Democratic Republic of the Congo will be reintegrated into the Rwandese society—5,000 of them into the army. In parallel, the total size of the armed forces will be substantially reduced by 2005. The traditional court system, GACACA, will be re-established on a major scale to promptly resolve, at the community level, the cases of more than 100,000 persons detained following the genocide, and prison conditions will be improved. Also included in the initiatives will be the preparation of a new constitution and for national democratic elections during 2003. Within this framework, and consistent with the policies set out in the PRSP, resources will be refocused to productive activities and on creating a strong economic base at the community level. This effort will build on the achievements noted in section I of this memorandum, and be supported by the macroeconomic and structural policies set out in the following sections.

28. An established social safety net is critical to assuring the equitability and sustainability of economic policies. At present, the safety net is targeted to the needs of orphans and for assistance to the victims of the genocide. Transfers for the latter will be funded through the Fund for the Victims of the Genocide, which will continue to receive a budgetary allocation equal to 5 percent of domestic revenues. During 2002, the government will conduct a systematic review of the resources required to provide basic support for orphanages and orphans, and those required to meet its commitments to the victims of the genocide. The full assessment will be provided to parliament, along with a report on resources currently available to meet these needs, including from international donors.

B. Macroeconomic Policies

Fiscal policy

29. The overall fiscal deficit of 9.9 percent of GDP targeted for 2002 balances the resource requirements for implementing national initiatives and supporting core government activities against the need to achieve macroeconomic stability in the near term and in assuring sustainability over the medium and long term. As part of this effort, a limited number of revenue measures will be implemented, following parliamentary ratification on July 1, 2002: (i) in order to promote production, the government will announce that the corporate income tax rate will be reduced from 40 percent to 35 percent; (ii) at the same time, the VAT rate will be increased from 15 percent to 17 percent—moving toward the regional average and strengthening the revenue base; and (iii) in line with the strategy of strong regional economic relations, import tariff rates will be aligned with the preliminary proposal for the COMESA common external tariff, with rates set of 0, 5, 15, and 30 percent.

30. The revenue base will be further strengthened during 2003–04 by the introduction, beginning on January 1, 2003, of a tax on in-kind benefits under the professional income tax, and the introduction of an excise tax on new and used cars. In addition, in the event that increased consumption levels during June–October 2002 do not credibly establish the likelihood that excise tax objectives for 2003, as discussed with the Fund staff, will be achieved, the excise tax rate for beer will be returned to the 2001 level with effect from January 1, 2003. Additional steps required to achieve revenue objectives, including a possible further increase in the VAT rate or equivalent nontariff measures, will be implemented beginning in 2004. These key measures will be supported by the continued strengthening of the Rwanda Revenue Authority and complemented by a comprehensive study of exemptions and incentives granted under the law and through investment agreements. Any required modification to tax concessions, based on the findings of that study, will be implemented as soon as feasible. A summary listing of core targeted policies and administrative improvements can be found in Table 3 of this memorandum.

31. The strengthened income stream will allow government to implement its program of social, priority, and exceptional spending,4 as identified in the PRSP, and progressively strengthen core government administration while meeting its fiscal targets. Reflecting the positions set out in the PRSP, the new Common Development Fund—a fund earmarked for capital projects identified and implemented at the district level, the road fund, and expenditures for employment and social security promotion have been classified as priorities, while central support services have been reduced in importance. Given the limited administrative capacity at the district level, however, the CDF will be phased in more gradually than initially planned. The budget also provides for funding activities key to nation building: demobilization/reintegration, decentralization, and community reconciliation noted in paragraph 27.

32. In the area of capital expenditure, the government has reviewed the implementation capacity of the investment budget in recent years and on that basis determined a realistic target for such spending in 2002 and beyond, which is also consistent with the macroeconomic goals under the program. The 2002 fiscal program will increase capital expenditure to 6.8 percent of GDP, compared with an estimated 6.6 percent for 2001. Such outlays are expected to increase to 7.5 percent of GDP by 2004. In order to improve spending efficiency, the government plans to strengthen the development coordination agency (CEPEX) with the assistance of the World Bank.

33. As the settlement of outstanding government obligations incurred prior to 2000 is an important element in the overall strategy for establishing social unity and in restoring financial solvency in key areas of the private sector, additional payments to clear such obligations will continue during 2002–04. As the documentation normally required for establishing the validity of some recognized claims has been lost, it has been necessary in some cases to establish exceptional procedures for payments authorizations. In strengthening those procedures, detailed policy guidelines have been developed that provide the basis for determining the qualification and priority of claims for payment without discretion. Beginning on July 1, 2002, authorizations to settle these domestic obligations will be based solely on these guidelines. Furthermore, it has been decided that, in order to clearly establish and limit the extent of pre-2000 obligations, June 30, 2003 will be set as a deadline for lodging new claims.

Monetary policy

34. For 2002, the target for broad money growth has been set in line with nominal GDP growth of 9.4 percent, while taking into account the larger-than-targeted money growth in 2001. Targets for developments in the monetary base have been established in line with this. As reserve money growth exceeded the target trajectory during the first quarter of 2002, the NBR has recently tightened its stance, both through money market interventions and as signaled through an increase in the discount rate, following a formula recently established by the NBR, from 11.5 percent to 13 percent, on June 14, 2002. In this regard, the NBR will quickly absorb excess liquidity in banks in the period ahead in order to limit volatility in the money multiplier and to maintain monetary control.

35. The level of gross international reserves of the NBR attained at the end of 2001 corresponded to an import cover 5.7 months. In light of Rwanda's continuing susceptibility to external shocks and the volatility of aid flows, the NBR will aim to improve its net foreign assets position by some US$16.5 million (0.4 months of import cover). In line with its foreign exchange budget (plan de trésorerie), the NBR will adjust the volume of foreign currency offered at its weekly foreign exchange auctions accordingly, and allow for the necessary exchange rate adjustments to clear the market. Net credit to government provided by the NBR will decline by RF 9 billion, 7 percent of beginning-of-period broad money, as external financing will permit government to eliminate its overdraft and accumulate deposits at the central bank. These policies are consistent with a 13 percent growth of credit to the private sector.

36. Regarding the NBR's foreign exchange transactions between auctions, the current system of exchange rate determination will be reviewed with a view to ensuring that deviations from the market rate are kept at a minimum.

External sector

37. The external current account deficit (excluding official transfers) is expected to deteriorate slightly, reaching about 17.0 percent of GDP in 2002. This deterioration is for the most part the result of a sharp reduction in mining receipts and the continued depressed levels of coffee and tea prices in international markets. Over the medium term, the current account deficit is expected to decline to about 13.5 percent of GDP by 2004, as a result of fiscal consolidation, improved domestic productivity, and greater export capacity. Reflecting the changing market incentives that will accompany the likely gradual reduction in aid dependence and support the improvement in the current account balance, real exchange rate adjustments are anticipated. Over the medium term, import growth will moderate, reflecting some domestic substitution, and exports will diversify as a result of the regional trade strategy. Rwanda reduced its import tariffs on COMESA products by 80 percent in January 2002, and will enter the COMESA free trade area by the end of 2004.

38. Trade diversification will be essential for attaining a lasting reduction in external imbalances. Exports are expected to benefit from the gradual recovery of prices but, more importantly, from new policy initiatives. The new strategy on coffee, currently under preparation, envisages the gradual substitution of subsistence production with a market-based system. Coffee quality will be improved through the construction of washing stations, higher yielding varieties will be planted, and fertilizer use expanded, in conjunction with training for farmers. Tea production will benefit from the privatization of tea factories. With coltan exports, largely dependent on world market developments, subdued, the development of horticulture including flowers, bananas, pulses, and tubers will contribute to the expansion. With the return of peace to the region, tourism could also prove an important source of foreign exchange.

39. The authorities are working closely with creditors to assure necessary financing for the macroeconomic program for 2002. In order to limit the deterioration in the NPV of debt-to-exports ratio, grants and highly concessional credits will be substituted for loans (including project loans) to the full extent possible. In any case, the commitment to contract only concessional debt will remain in place. In this regard, the OPEC Fund has been asked to extend the maturity of an already contracted loan in order to meet the agreed concessionality threshold.

40. The financing plan for 2002 assumes that budgetary grants, including HIPC interim assistance, will be disbursed as expected and that rescheduling agreements will be reached with all creditors. A request for additional interim assistance from the Fund is being submitted together with the request for a new PRGF arrangement. The government has regularized all nonreschedulable arrears to creditors. The government will redouble its efforts to reach rescheduling agreements with all non-Paris Club bilateral creditors at terms which are as favorable as those provided by the Paris Club creditors and to ensure the participation of all creditors in the enhanced HIPC Initiative. Upon successful approval of the new PRGF arrangement, the Paris Club will decide on whether to provide additional debt relief on Cologne terms.

C. Enabling Public Institutions

Decentralization

41. Decentralization of government to the provincial and district level will reinforce accountability, refine the focus of government spending, and improve the delivery of public services. The legal framework for fiscal decentralization was largely established during 2000–01.5 Additional legislation adopted in early 2002 established the revenue base and financial management for district governments. As the full implementation of the framework will depend on effective communication between levels of government and an ongoing adaptation of responsibilities and resources, the central government is taking steps to ensure that provincial and district governments report the necessary information. During 2002, the government will seek funding to extend the expenditure recording system to the level of the provinces—where the system will also be available for use by District governments. The central government will also give priority to obtaining financial support for training needed to strengthen the public accounting and internal audit functions for central government ministries, provincial administrations, and district governments.

42. For 2002, districts will provide provincial administrations with information on the resources available to them, and their respective expenditure requirements. Preparation of the budget for 2003 will reflect consultations between the central government and the districts, reconciling the expenditure requirements of the various districts with available resources, including transfers from the central government. Beginning in 2004, representatives of the various levels of government will jointly provide to parliament an assessment of the strengths and weaknesses of the existing legal framework, and an assessment of the measures needed to resolve outstanding problems, particularly as regards ensuring an equitable allocation of resources across district governments.

Strengthening formal sector institutions and governance

43. Strengthening the legal framework and institutions is critical to extending the benefits of formal sector participation and increasing productivity. To this end, the Ministry of Justice is working to set in place a fully operational commercial court by 2003. In the near term, the Ministry of Justice will strengthen the operational capacity of the Arbitration Center in order to facilitate the settlement of commercial disputes. Having granted a status of legal person to the Arbitration Center in 2001, training for judges is now under way.

Civil service reform

44. A well-organized, trained, and motivated civil service is essential for ensuring that public resources are appropriately and efficiently used and that public services are provided promptly and at a good quality. In moving forward in the reform of the civil service, new organigrams are being completed for the provincial level of government, and organigrams for the district level will follow. We are similarly reviewing the organization of central line ministries. Computerization of the complete human resource management process remains a priority and the full integration of the information systems of the line different ministries has been targeted for end-2002. Moreover, improving the quality of the civil service is a government priority.

Administration of public finances

45. Initiatives to strengthen the administration of public finances aim at improving the effectiveness and efficiency in the use of government resources and, by creating a reliable system for monitoring and accountability, assuring that public finances are applied as directed under the budget and the laws. Given this, a wide-ranging program of activities to enhance the transparency of government policies and practices, many of which also meet government commitments under the HIPC Initiative to improve the capacity to track poverty-related expenditures, is being undertaken at all levels of government.

46. As an immediate step in this direction, the government intends to follow up on actions taken during 2001 and early-2002. In this regard, monitoring of government finances, as reported in the monetary survey, will be reviewed and, if necessary, revised based on the final report of the auditor on government bank accounts and off-budget account movements. Any relevant additional off-budget revenue and spending identified under the study will be brought into the 2003 budget. In the meantime, new guidelines for the opening, closing, and monitoring of government bank accounts are being implemented.

47. Strengthening the legal framework that guides the administration of public finances is, thus, a priority. As part of this effort, the government has completed a draft Organic Budget Law; and a draft Law on the Management of the Public Accounts. A legal framework supporting the operations of the National Tender Board, including procurement regulations, has been submitted to the cabinet for consideration. A process to elaborate a new law on the Supreme Court is in preparation and its adoption is expected by December 2002. With the passage of this legislation, it is expected that the National Assembly would approve the Organic Budget Law and the Law on the Management of Public Accounts by June 2003. In the event that the needed legislation is delayed, modified laws containing those elements of the Organic Budget Law and the Law on the Management of Public Accounts consistent with existing legislation would be submitted to the National Assembly no later than June 2003. Additional steps will be taken during 2002–03 to strengthen the legal framework, including the development of draft legislation to create a formal appeals process for taxpayers, and a comprehensive bill of taxpayer's rights. The establishment of both a tax and commercial chambers within the court system will be given priority during the program period and draft legislation establishing the public accounting mechanisms and a public investment regulatory framework will be presented to the Cabinet by June 2003. The latter will facilitate the complete integration of the development and ordinary budgets by 2004.

48. Further strengthening the activities of the Public Accounts and internal audit functions (Inspecteur Géneral des Finances) are also critical for creating the capacity to monitor and control expenditures. To this end, an inventory of assets will be completed for all central government line ministries by end-March 2003, subject to the availability of technical assistance. This inventory will, subsequently, be expanded to capture government assets held by provinces, public enterprises, and acquired as part of project implementation.6 In addition, building on work recently completed by the African Development Bank (AfDB), a fully implemented chart of accounts for all central government agencies is being targeted for completion by end-2003, with similar accounts for provincial and district governments to be ready by end-June 2004.

49. These steps will also allow government to improve both the range and quality of information on government activities available to the parliament and the public. To this end, statistics of government financial operations will be published following the Government Finance Statistics (GFS) format on a quarterly basis, beginning in October 2002, based on September 2002 statistics. In addition, the budget for 2003 will be expanded to include information on budget allocations and (estimated) expenditures for the two previous fiscal years, consistent with established good practice. For 2003, budget materials available to parliament and the public would include: (i) a statement of tax expenditures associated with both existing policies and any new policies included in the budget; (ii) a functional classification for past expenditures and those implied in the proposed budget; (iii) a preliminary statement of assets and liabilities for all levels of government; and (iv) financial statements of public enterprises. For 2004, materials would be expanded to include (v) a consolidated statement of the expenditure obligations, resources, and budgets of the Provincial and District governments; (vi) a fiscal risk assessment; (vii) consolidated district budgets; (viii) a statement of consolidated government equity holdings; (ix) integration of current and capital budgets; and (x) a list of all contingent liabilities, including those arising from the decentralization process. Achieving these objectives will be facilitated by technical assistance from supporting partners, including the IMF.

50. To avoid any accumulation of new arrears, the government is committed to further improvements in the cash budgeting process. The budget for 2002 designates certain expenditures—including those identified as important for poverty reduction as priority areas to be protected from any compression of expenditures in the event of a shortfall in resources, compared with amounts allocated in the budget. During 2002, the government will design and implement a cash budget system consistent with these objectives, including quarterly expenditure ceilings and commitment controls to avoid any accumulation of new arrears. In addition, to assure that contingent liabilities are consistent with government priorities as set out in the PRSP, with immediate effect, new government loan guarantees will be extended only on the basis of loan-specific budget authorizations.

D. Energizing the Economy: Privatization, Utilities, Infrastructure, and Regional Integration

51. In close cooperation with the World Bank, the privatization secretariat will continue to execute its existing privatization strategy. Entities targeted for privatization and/or private management include the electric utility (Electrogaz), telecommunications (Rwandatel), and tea factories and estates. The privatization secretariat will also report on a monthly basis on its privatization receipts and its use of funds.

E. Financial Sector Reforms

52. Strengthening financial sector institutions is another critical element in improving productivity, extending the benefits of participation in the formal economy, and providing the resources needed to finance emerging private sector initiatives at appropriately low cost (a summary of core financial sector reforms is provided in Table 4). In particular, concerted action is currently required to address the problems of Rwanda's banking sector. Given the difficult circumstances of Rwanda's post-genocide recovery, a number of banks have accumulated substantial nonperforming loans. This problem is particularly severe in the case of one especially exposed bank. Recognizing the importance of promptly addressing this bank's problems, the NBR placed it under provisional control in May 2002 and appointed external advisors to develop a plan for its restructuring by year-end. While the details of the restructuring plan remain under development, the NBR-appointed controller has limited new loans extended by that bank to any single borrower to no more than RF 50 million, with effect from May 31, 2002 and external oversight has been strengthened in order to safeguard the bank's capital. The restructuring plan will be developed in consultation with the staffs of the World Bank and the IMF and understandings on the appropriateness of proposed steps would be reached with IMF staff before budgetary resources are committed. When the restructuring plan for this bank has been developed, further policy commitments will be agreed with IMF staff under the program.

53. Addressing the larger problem of nonperforming loans is critical to the establishment of the conditions, including an appropriate legal framework for credit recovery, under which the banking system will be able to provide credit widely and on reasonable terms. In light of this, the NBR is discussing working with the Ministry of Finance, the Ministry of Justice, and the Bankers' Association to identify ways to improve loan recovery. In this regard, an Action Plan detailing specific steps to be taken will be completed by December 2002, with implementation to begin in January 2003.

54. Presently, loan collection will be aided by the reinstatement of the accelerated loan recovery procedure (voie pareé). It is expected that, given recent improvements in the judicial system, past abuses of this procedure will not be repeated. In addition, the NBR is strengthening its Risks and Unpaid Debts Unit, which centralizes the credit information related to delinquent borrowers, in order to improve the quality of credit information. In the period ahead, the NBR will confer with the Bankers' Association on ways in which information on credit quality could be shared with commercial banks. The NBR intends to fully explore possibilities for fostering loan compliance.

55. While the above mentioned measures focus on the strengthening of borrower discipline, a financial sector study commissioned with the help of the World Bank aims at exploring ways to strengthen the overall financial sector and to develop Rwanda's capital market. An important question to be addressed is how to proceed with the high level of nonperforming loans in the banking system. The study will try to evaluate whether the establishment of an asset recovery vehicle in some form would be appropriate. This question will also be investigated within a Financial Sector Assessment Project jointly conducted by the staff of the World Bank and the Fund. In this regard, it should be emphasized that such an asset recovery vehicle should aim to avoid causing moral hazard or burdening the budget. On the basis of the studies noted above, a strategy to improve the management of the high volume of nonperforming loans will be formulated by June 2003 and an Action Plan will be in place by September 2003. Implementation of this plan is to begin in January 2004. Regarding the development of Rwanda's capital market, the financial sector study will investigate—among other options—whether a specialized housing bank can make a contribution toward accumulating long-term capital. Current plans to recapitalize the Caisse Hypothecaire du Rwanda (CHR) and to convert it into a housing bank have been postponed so that the results of this study can be reflected in decisions on moving forward.

56. Substantial progress has been made in the past year to strengthen banking supervision in Rwanda. The NBR will build on this progress and conduct three full-scope examinations in 2002 and another four in 2003. It is expected that at the end of December 2003, the present training program conducted with the assistance of a MAE resident advisor will be completed and that beginning in 2004 each bank will be subject to a full-scope examination each year. During 2002, the off-site supervision process will also be strengthened significantly. The scope of supervision will be extended to micro-finance operations and a Micro-Finance Supervision Unit in the NBR will be established by December 2002. Regarding the ongoing update of the prudential instructions, it is expected that in 2003 two new prudential instructions are going to be issued; one will specify the work required from independent auditors of commercial banks and the other will specify the public disclosure of the commercial banks' financial information. In addition, a new accounting plan for commercial banks is going to be developed, which is going to take effect in January 2004.

57. As existing legislation and institutional structure for preventing money laundering does not currently meet recently established guidelines, the government has requested technical assistance in drafting adequate legislation, and in training and setting up an enforcement unit at the NBR.

IV. Program Coordination and Monitoring

Performance criteria, benchmarks, and reviews

58. The program supported by the new three-year PRGF arrangement will be monitored on a continuous basis with quantitative and structural performance criteria, benchmarks, and indicative targets. The first review of the program will be based on quantitative benchmarks at end-September 2002, quantitative performance criteria for end-December 2002 and a structural performance criterion and structural benchmarks through January 1, 2003, and will be carried out in conjunction with reaching understandings on a new budget for 2003 and on a restructuring plan of a specified commercial bank. The second review will be based on performance of quantitative benchmarks as of end-March 2003, to be set at the time of the first review, and quantitative and structural performance criteria and benchmarks through end-June 2003, and will be completed by mid-September 2003. Quantitative performance criteria will include floors on net foreign assets of the NBR and on recurrent priority spending as well as ceilings on reserve money, net credit to government by the banking system, the domestic fiscal deficit, new non-concessional external debt, short-term external debt, the accumulation of new external payment arrears except for external arrears that are subject to debt-rescheduling negotiations (to be monitored on a continuous basis), and on the net accumulation of domestic arrears. All external borrowing except for the Fund disbursements will be on concessional terms, defined as loans having a grant element of at least 50 percent. A complete list of quantitative and structural performance criteria and structural benchmarks is included in Tables 5 and 6, respectively. The attached Technical Memorandum of Understanding lays out the details of program design and terminology.

Table 1. Rwanda: Structural Reforms Undertaken Under the 2000/01 Program

Action Timing

Civil service reform
  • Publish the prime ministerial decree of the cadres organiques.
11/30/2000 (Done 3/31/2001)
  • Complete job descriptions and cadres organiques for all prefectures.
3/31/2001 (Done 5/11/2001)
  • Enforce procedures for hiring of teachers, enforcing also qualification criteria.
11/1/2000 (Done 1/15/2001)
  • Develop a plan for gradual increase of qualified teachers and phasing out of occasionnels in line with enrollment and pupil-teacher targets.
3/31/2001 (Done 1/31/2001)
  • Adopt civil servants' code submitted to parliament.
1/1/2001 (Done 7/2001)1
  • Complete the organigrams (cadres organiques) reform through:
    • Cabinet approval of decentralized organigrams.
9/30/2001 (Done)
    • Completion of redeployment within each province.
10/31/2001 (Done)
    • Provision for adequate resources for redeployment between ministries and provinces.
Budget Law 2002 (Done)
Privatization
  • Establish a realistic timetable with the assistance of the World Bank for the privatization of remaining companies in government's privatization plan.
3/31/2001 (Done)
Budget preparation, implementation, monitoring, and control
  • Revise the RRA's plan outlining improvements to be made in tax administration. The plan should incorporate specific benchmarks and timetable for implementation.
12/31/2000 (Done)
  • Ensure that regulations and procedures on enforcement of tax collection, as well as suspension of enforcement, are strictly followed.
12/1/2000 (Done)
  • Develop a system for monitoring poverty-related expenditures on a monthly basis.
1/1/2001 (Done)
  • Ensure that adequate reporting mechanisms and budgetary controls are put in place for monitoring the expenditure budgets of prefectures.
12/31/2001 (Partly done)2
Governance
  • Complete the audits of the 1999 accounts of the Ministries of Public Works, Transport, and Communication; Energy, Water, and Natural Resources; Defense; and Education.
12/1/2000 (Done 3/31/2001)
  • Complete the audit of the 1999 accounts of the Ministry of Health.
5/31/2001 (Done)
  • Prepare a monitorable action plan for further strengthening the Auditor's General Office, including inter alia by recruiting qualified staff and training and by preparing a strategy and timetable for delivering a full audit of public accounts annually.
2/28/2001 (Done)
  • To ensure transparency and fairness in the tendering process, there will be no soliciting of bids only from the list maintained by the National Tender Board (NTB).
12/1/2000 (Done)
  • Establish widely publicized and legally effective rules that exonerate the government from paying for expenditure committed outside the existing financial regulations.
3/31/2001 (Done)
  • To ensure transparency and fairness in the tendering process, the availability of the minutes of the NTB will be advertised in the tender announcements.
5/31/2001 (Done 7/2001)
  • Strengthen capacity at the NTB, line ministries, and local levels to adequately monitor, analyze, and audit the tendering process, before decentralizing the tendering process.
9/30/2001 (Done 12/2001)
  • Submit the public accounts for 2000 to the Cours des Comptes.
9/30/2001 (Done 11/2001)
  • Incorporate extrabudgetary projects and transactions, including voluntary contributions to national defense and their use, into the budget.
Budget Law 2002 (Done3)

1Passed by parliament but pending Supreme Court clearance and publication.
2Adequate reporting formats have been put in place—remaining steps are addressed in Box 6
3Voluntary contributions to national defense were brought into the revised 2001 budget. In addition, some extrabudgetary and off-budget activities that were identified by the audit reports for four ministries' 1999 accounts were brought into the 2002 budget.

Table 2. Rwanda: Financial Administration and Governance—Core Actions
To Be Taken During 2002–04

Actions Timing

Budget preparation, implementation, monitoring, and control
  • Continue the process of capacity building in public debt monitoring and management with assistance from Debt Relief International (DRI), with a view to producing a plan by end-December 2002.
12/31/2002
  • Develop and implement a mechanism to ensure that all borrowing by district governments is reported to the central government on a monthly basis.
12/31/2002*
  • Adopt Organic Budget Law and Law on Management of Public Accounts
6/30/2003
  • Prepare financial instructions as provided for by the relevant laws in order to promote effective expenditure control, subject to the availability of technical assistance.
6/30/2003
  • Improve the capacity of CEPEX and line ministries to gather data on disbursements from donors and expenditures on projects.
2002–03
  • Incorporate relevant extrabudgetary and off-budget projects and transactions identified by the stocktaking exercise into the budget to the extent appropriate.
Budget
Law 2003*
  • Expand materials provided to parliament and public on annual budget to include:
2003 budget*
2004 budget*

functional classification, financial statements for public enterprises, consolidated district budget, statement of consolidated government equity holdings, and integrate recurrent and development budgets.

 
  • Improve budget monitoring, producing flash reports within 3 weeks of end-month, functional classification of budget implementation on a quarterly basis, and quarterly reports on development budget and province and district implementation.
6/30/2002–
3/31/2003
  • In the area of expenditure reporting, implement and enforce reporting requirements for provinces and districts, extend SIBET system to provinces and districts, subject to the availability of external funding.
6/30/2002–
12/31/2003
  • Implement the Chart of Accounts reforms for central government, line ministries, provinces, and districts.
12/31/2003–
12/31/2004
  • Complete a comprehensive review of all tax exonerations, exemptions and incentives under tax laws, and investment agreements; and remove and/or modify such special treatment based on appropriate analysis.
6/30/20031
  • Modify the set of tax and import duty concessions in accordance with the findings of the study.
12/31/2003*
Governance
  • Authorizations for settlement of domestic arrears will start to be based solely on explicitly established guidelines—determining qualification and priority of payment of outstanding government obligations—for payment without discretion.
7/1/2002*
  • Start publishing statistics of government financial operations following the Government Finance Statistics (GFS) format on a quarterly basis.
10/30/2002*
  • The Auditor General will initiate and complete the audits for the 2001 accounts of 9 line ministries, three provinces, at least three districts and a number of foreign-financed development projects.
12/31/2002*
  • The Auditor General will inter alia audit the execution of the 2002 accounts of the demobilization/reintegration project.
12/31/2003*
  • Continue the expansion of the Auditor General's office with the goal to audit each line ministry annually by 2005.
12/31/2005*
  • Issue the decree covering public tendering.
9/30/2002
  • To ensure transparency and fairness in the tendering process, an appeals board provided for by the law, will be set up with some members from civil society the National Tender Commission will include some members from civil society.
6/30/2003
  • Issue the decree covering public tendering.
9/30/2002
  • Put in place regulations applying to blacklisted suppliers of the government.
12/31/2002
  • Establish a Code of Ethics for civil servants.
12/31/2003*

Other

  • Establish a Tribunal de Commerce and a Tribunal Fiscal.
12/31/2004
  • Develop a taxpayer appeals process and adopt a Bill of Taxpayer's Rights.
12/31/2003*
  • Publish progress report on PRSP implementation.
6/30/2003*

*New measure.
1Some steps toward the review of exemptions and waivers have been taken, and discretionary waivers and exemptions have been eliminated. However, a full review of the existing body of legal provisions of waivers and exemptions along with a timetable of their elimination is still pending.

Table 3. Rwanda: Core Revenue Measures To Be Taken During 200204 

Action Timing

Customs duty  
  • Develop further the data management system of customs—with a goal to improve the usage of customs valuation data for enhancing the possibilities of risk-based controls and, ultimately, to increase revenue performance.
12/31/2003
  • Align the import tariff structure with the COMESA common external tariff structure and start collecting at the revised rates.
7/01/2002*
Income tax  
  • Reform the tax on professional remuneration (TPR) law to make all salary allowances in cash and in-kind fully subject to TPR. Pass the reform in form of an amended TPR law and start collecting according to the new law.
1/1/20031
  • Announce the reduction in the corporate income tax rate from 40 to 35 percent with effect for the 2002 profits
7/1/2002*
  • Amend the corporate income tax law with a provision regarding thin capitalization in order to limit interest deductions.
12/31/2003
Excises  
  • Introduce and start collecting an excise tax on sales of new and used cars, applying 5, 10, and 15 percent of the sales price, respectively, on sales of vehicles with engine sizes of less than 1500 cc, between 1500 cc and 2500 cc, and above 2500 cc.
1/1/2003*
  • Implement tax stamps for cigarettes.
7/31/2002
  • Revoke the decrease in the beer excise tax rate and start collecting again at a rate of 57 percent, if revenue collection during June-October 2002 does not meet target, as set out in the. Technical Memorandum of Understanding
1/1/2003*
VAT  
  • Raise the rate of VAT from 15 to 17 percent and start collecting at the new rate
7/1/2002*
Other measures  
  • Complete the reform of the taxpayer identification numbers (TIN) that ensures that each business taxpayer is assigned a unique identifiable number across the VAT, Income Tax and Customs departments
12/31/2002

*New measure.
1The scope of the measure was broadened. The original measure planned for 6/30/2001 was to submit the changed law to parliament.

Table 4. Rwanda: Core Financial Sector Reforms To Be Taken Under
the 2002–04 Program

Action Timing

  • Continued strengthening of bank supervision: recruitment and training supervisors, reorganizing the supervision department, and computerizing the bank supervision process
Ongoing
  • Conduct full audits of three banks
2002
  • Conduct full audits of four banks
2003*
  • Begin carrying out on site inspection of all banks every year.
2004
  • Establishment of a Micro-Finance Supervision Unit
12/31/2003*
  • A new accounting plan for commercial banks to be implemented
12/31/2003*
  • Prepare an action plan to improve the legal framework for banking and to facilitate improved loan recovery
12/31/2002
  • Conduct a financial sector study
10/30/2002
  • Restructuring plan for one identified commercial bank will be agreed with the World Bank and the IMF.
2002
  • Implement the action plan to improve credit information quality
1/31/2004
  • Strengthen capacity of Arbitration Center
2002·2004
  • Action plan to address money laundering to be formulated
3/31/2003
  • An agreement will be reached on the treatment of government arrears to the Caisse Sociale du Rwanda (CSR).
12/31/2002
  • A comprehensive plan for the restructuring of CSR will be adopted.
12/31/2002

* New measure.

Table 5. Rwanda: Quantitative Performance Criteria and Benchmarks, 2001·03
(In billions of Rwanda francs, unless otherwise indicated)

    2001   2002   2003
   
 

    Mar.* Jun.** Sep.** Dec.*   Mar.
prel.
Jun.***
Proj.
Sep.** Dec.* Mar.*** Jun.***
    (Performance criteria on test dates*; quantitative benchmarks**; and indicative targets***)

Net foreign assets of the NBR (floor on stock)1
  Actual (program exchange rate) 48.3 45.6 45.2 46.6   39.3 . . . . . . . . .   . . . . . .
  Adjusted program 40.4 33.8 39.4 39.0   . . . . . . . . . . . .   . . . . . .
  Program 24.3 23.9 40.3 33.6   n.a. 33.0 50.9 59.0   58.6 52.6
Reserve money (ceiling on stock)2                    
  Actual 34.7 42.5 39.5 41.3   40.5 . . . . . . . . .   . . . . . .
  Program 38.8 39.6 38.5 39.6   n.a. 40.3 38.1 41.9   40.4 43.7
Net credit to the government by the banking system (ceiling on stock)3                    
  Actual 9.4 17.6 15.0 19.2   23.4 . . . . . . . . .   . . . . . .
  Adjusted program 17.1 22.9 21.2 21.7   . . . . . . . . . . . .   . . . . . .
  Program 33.3 32.8 20.3 27.1   n.a. 26.0 11.5 10.1   9.9 9.8
Domestic fiscal balance (floor on cumulative flow since the end of the previous year)4                    
  Actual -0.5 -8.7 -13.0 -20.4   -3.1 . . . . . . . . .   . . . . . .
  Adjusted program . . . . . . . . . . . .   . . . . . . . . . . . .   . . . . . .
  Program . . . . . . . . . . . .   n.a. -11.0 -18.7 -26.9   -6.3 -12.7
Recurrent priority spending (floor on cumulative flow since end of previous year)5                    
  Actual 7.4 17.0 28.3 40.1   10.2 . . . . . . . . .   . . . . . .
  Program 6.0 14.5 28.3 40.0   n.a. 21.7 35.5 50.3   14.0 28.1
New nonconcessional external debt (ceiling on flow)6                    
  Actual 0.0 0.0 0.0 9   . . . . . . . . . . . .   . . . . . .
  Program 0.0 0.0 0.0 0.0   n.a. 0.0 0.0 0.0   0.0 0.0
Short-term external debt (ceiling on stock)7                    
  Actual 0.0 0.0 0.0 0.0   . . . . . . . . . . . .   . . . . . .
  Program 0.0 0.0 0.0 0.0   n.a. 0.0 0.0 0.0   0.0 0.0
Stock of outstanding nonreschedulable external arrears (ceiling on stock)8                    
  Actual 0.1 1.1 0.0 0.6   . . . . . . . . . . . .   . . . . . .
  Program 0.0 0.0 0.0 0.0   n.a. 0.0 0.0 0.0   0.0 0.0
Net accumulation of domestic arrears (ceiling on cumulative net accumulation since end of previous year)                    
  Actual -5.4 -3.8 -4.9 -15.0   0.3 . . . . . . . . .   . . . . . .
  Program 0.0 0.0 -5.3 -10.0   n.a. -2.0 -6.0 -7.8   -1.8 -3.5
    (Indicative targets)
Broad money (ceiling on stock)
  Actual 122.2 127.8 125.3 131.3   129.3 . . . . . . . . .   . . . . . .
  Program n.a. n.a. n.a. n.a.   n.a. 133.1 136.8 140.5   143.1 146.2
Exceptional spending (floor on cumulative flow since end of previous year)                    
  Actual 3.3 8.1 12.9 17.7   4.1 . . . . . . . . .   . . . . . .
  Program n.a. n.a. n.a. n.a.   n.a. 9.4 16.2 22.5   7.0 14.0
Memorandum item:
Expected budgetary support (in millions of U.S. dollars) n.a. n.a. n.a. n.a.   5.9 17.9 81.4 128.2   27.6 55.2

Sources: Rwandese authorities; and Fund staff estimates and projections.
1Net foreign reserves are defined, for this purpose, consistent with the definition of the Special Data Dissemination Standard (SDDS) template, as external assets readily available to, or controlled by, the National Bank of Rwanda (NBR) net of external liabilities of the NBR. Pledged or otherwise encumbered reserves assets including, but not limited to, reserve assets used as collateral or guarantee for third-party external liabilities are to be excluded.
2Until 2001 indicative target; from 2002 onward performance criterion/quantitative benchmark. The definition of reserve money changed in 2002, as specified in the Technical Memorandum of Understanding (TMU).
3From December 2000 onward, the definition of net credit to government by the banking system has been changed to exclude public nongovernmental deposits.
4The domestic fiscal balance is defined as domestic revenue (excluding grants and privatization proceeds) minus current expenditure (excluding external interest due) and domestically financed capital expenditure on a payment order basis, minus net lending.
5According to the TMU. Definition of this aggregate has changed each year.
6Ceiling on new nonconcessional external debt with original maturity of more than one year, as defined in the TMU.
7Ceiling on change in outstanding stock of external debt (excluding normal import-related credits) owed or guaranteed by the central government, localgovernment, or the NBR with original maturity of up to and including one year.
8This is a continuous performance criterion, implying that the stock of outstanding nonreschedulable external arrears is expected to be constantly kept at zero throughout the program period. In the past, the performance criterion referred to the stock of nonreschedulable external arrears at the respective review dates and was complemented by a continuous performance criterion on the nonaccumulation of new nonreschedulable arrears.
9An OPEC Fund disbursement was made in 2001:Q4, on the basis of a loan agreement signed in 1999. The loan met the concessionality requirement laid out in the TMU at the time of the agreement, but not at the time of the disbursement. The issue is awaiting clarification from the Legal Department.

Table 6. Rwanda: Proposed Structural Conditionality
Until the Second Review of the PRGF-Supported Program, 2002-03

Action Timing Status1

  • Ratify a revised 2002 budget in parliament reflecting the understandings reached during the program discussions; including the following elements:
7/1/02 Prior action2
    • import tariff bands at 0, 5, 15, and 30 percent in line with initial CET;
 
    • VAT rate increased from 15 percent t17 percent; and
    • reduction in the corporate income tax rate from 40 percent t35 percent, announced.
 
  • Bring reserve money tor below indicative ceiling for end-June 2002.
6/30/02 Prior action2
  • Issue guidelines determining qualification and priority for payment of outstanding government obligations for payment, eliminating discretion.
7/1/02 Prior action2
  • Enact a budget for 2003, which specifically contains the following elements:
1/1/03 Structural performance criterion
first review
    • excise tax on sales of new and used cars, with rates of 5, 10, and 15 percent, depending on engine size (less than 1500 cc, 1500 cc t2500 cc, and above 2500 cc), on vehicle sales.
 
    • reform the tax on professional remuneration (TPR) law tmake all salary allowances in cash and in kind fully subject tthe TPR. Pass the reform in form of an amended TPR law..
 
    • Revoke the decrease in the beer excise tax rate and start collecting again at a rate of 57 percent, if revenue collection during June-October 2002 does not meet the target set out in the TMU..
   
  • Finalize restructuring plan for a specified commercial bank consistent with understandings with IMF staff.
9/30/02 Structural benchmark
first review
  • Start publishing statistics of government financial operations, following the Government Finance Statistics (GFS) format, on a quarterly basis.
10/31/02 Structural benchmark
first review
  • Incorporate any extrabudgetary and off-budget projects and transactions identified by the recent stocktaking exercise intthe budget tthe extent appropriate.
12/31/02 Structural benchmark
first review
  • Develop and implement a mechanism tensure that all borrowing by district governments is reported tthe central government on a monthly basis.
12/31/02 Structural benchmark
first review
  • Timprove the management of the large volume of nonperforming loans, commission a comprehensive financial sector study, together with the World Bank.
Tenders tbe awarded nlater than 7/31/02 Structural benchmark
first review
  • Conduct full audits of three banks.
12/31/02 Structural benchmark
first review
  • Ensure that the National Bank of Rwanda, the Ministry of Finance and Economic Planning, the Ministry of Justice, and the Bankers' Association will jointly prepare an action plan timprove the legal environment tfacilitate stronger loan recovery.
12/31/02 Structural benchmark
  • Prepare financial instructions as provided for by the relevant laws in order tpromote effective expenditure control.
7/31/03 Structural performance criterion
second review
  • Complete a comprehensive review of all tax exonerations, exemptions and incentives under tax laws and investment agreements; and remove and/or modify such special treatment, based on appropriate analysis.
6/30/03 Structural performance criterion
second review

1The disbursements of the second and third loan under the new PRGF arrangement are conditional upon completion of the first and second reviews, respectively.
2Prior actions for publication of Executive Board documents.


1Exceptions are limited to revenues collected for the road fund, which, although budgetary, are deposited in a separate account at the BNR operated by the Treasury, and fees collected by hospitals and schools.
2Information that might compromise national defense will be obscured in the version of the audit of the Ministry of Defense open to the public. A complete text version of the audit will be made available to key stakeholders.
3Preliminary information indicates that some of the food entering Rwanda on a duty-free basis is ultimately sold in domestic markets.
4 The elements covered under these programs are spelled out in the accompanying Technical Memorandum of Understanding.
5Law No. 43/2000, Organization and Functioning of the Province; Law No. 04/2001, Organization and Functioning of the District; Law No. 05/2001, Organization and Functioning of Urban Authorities; Law No. 07/2001, Organization and Functioning of the Town of Kigali.
6The census of government assets will not cover military assets, or land holdings where the legal status has not been determined. Assets acquired as part of project implementation are to be auctioned off and the revenues credited to the Treasury Account.

 

Technical Memorandum of Understanding Between
the Government of Rwanda and the International Monetary Fund

July 3, 2002

1. This memorandum outlines the understandings between the Rwandese authorities and the IMF mission with regard to the definitions of the quantitative and structural performance criteria, and quantitative benchmarks and indicators for the three-year Poverty Reduction and Growth Facility (PRGF) arrangement. It also sets out the modalities and data reporting requirements for monitoring the program.1

2. There have been revisions since the last version of the Technical Memorandum of Understanding (TMU). In the area of the monetary program, changes include newly set performance criteria and benchmarks on reserve money replacing the previously set targets on net domestic assets of the banking system; a new definition of reserve money and net credit to government; and a changed adjustment mechanism. Changes to the fiscal program include a new definition for the fiscal balance target and a changed adjustment mechanism.

I. Target Variables under the Program

A. External Budgetary Support

3. Definition: External budgetary support is defined as all official external grants (including all expected or received HIPC Initiative-related grants) and loans, except for grants and loans related to the development budget. In case a program is over financed (negative financing gap), programmed external budgetary support refers only to that level of external budget support needed to close the financing gap to exactly zero at the time of the agreement.

B. Net Foreign Assets of the National Bank of Rwanda (NBR)

4. Definition: Net foreign assets of the NBR in Rwanda francs are defined, consistent with the definition of the Special Data Dissemination Standards (SDDS) template, as external assets readily available to, or controlled by, the National Bank of Rwanda (NBR) net of external liabilities of the NBR. Pledged or otherwise encumbered reserves assets including, but not limited to, reserve assets used as collateral or guarantee for third party external liabilities, are to be excluded. Foreign assets and foreign liabilities in U.S. dollars are converted to Rwanda francs by using the U.S. dollar/Rwanda franc program exchange rate. Foreign assets and liabilities in other currencies are converted to U.S. dollars by using the actual end-of-period U.S. dollar/currency exchange rate. Foreign liabilities include, inter alia, use of IMF resources (CCFF and post-conflict emergency assistance purchases and SAF/ESAF/PRGF disbursements).

5. Target and adjustments: The program sets a floor on net foreign assets of the NBR (as a performance criterion or benchmark depending on the test date). In case of higher than programmed inflows of external budgetary support, excess amounts are targeted to be saved as reserves. The program floor on net foreign assets will thus be increased by any positive difference between actual and programmed budgetary support inflows.

6. Reporting requirement: Data on foreign assets and foreign liabilities of the NBR will be transmitted to the African Department of the IMF on a weekly basis within seven days of the end of each week; data on external budgetary support will be transmitted on a monthly basis within three weeks of the end of each month. Data on the NBR's foreign exchange liabilities to commercial banks (held as required reserves with the NBR) and the exchange rate used for their conversion into Rwanda francs will be shown separately.

C. Net Credit to Government (NCG)

7. Definition: Net credit to government from the banking system is defined as the difference between:

(a) credit to government from the banking system, including credit to central government, provinces and districts, outstanding central government debt instruments; government debt to the NBR incurred as a result of the 1995 devaluation (RF 9 billion) and the overdraft to the prewar government (RF 2 billion), and

(b) total government deposits with the banking system, including central government (including the fund for assistance to genocide survivors), provinces and districts, project accounts, counterpart funds, fonds publics affectés, and privatization proceeds with the NBR. The central government comprises treasury and line ministries.

8. NCG is not affected by credit to or deposits of public enterprises and autonomous public agencies.

9. Reclassifications: The reclassification described in Annex B (EBS/00/264, Appendix I)—for the reclassification of deposits with the NBR of the 15 newly identified autonomous public agencies—affect net credit to the government from the banking system.

10. Target and adjustments: The program sets a ceiling on NCG (as performance criterion or benchmark). In case of higher than programmed inflows of external budgetary support, excess amounts are targeted to be saved as government deposits. The program ceiling on NCG will thus be decreased by any positive difference between actual and programmed budgetary support inflows.

11. Reporting requirement: Data on net credit to central government (showing separately treasury bills and government bonds outstanding, other government debt, and central government deposits) will be transmitted on a monthly basis within three weeks of the end of each month. Deposits of the government with the NBR and with the commercial banks will be separated from the deposits of the public enterprises and autonomous public agencies.

D. Reserve Money

12. Definition: Reserve money for the monetary program is defined as currency in circulation, reserves in deposit money banks (excluding National Bank of Rwanda (NBR) borrowing from deposit money banks on the money market but including cash in vault held by commercial banks), deposits of public enterprises (including Caisse Sociale de Rwanda (CSR) and other autonomous public agencies (dépôts des établissements publics assimilés à l'état), deposits of nonbank financial institutions, and deposits of the private sector (autres sommes dues à la clientèle are included in reserve money).

13. Corollary: Borrowing by the NBR from the commercial banks on the money market will from now on be included under the net domestic assets of the NBR. More specifically, borrowing by the NBR from the commercial banks on the money market will be netted out from commercial bank borrowing from the NBR. However, for balances with respect to deposit money banks, the money market balances of the NBR will only be excluded from reserve money supply when they are excluded from use in meeting reserve requirements.

14. Definition: The definition of reserve money as performance criterion or benchmark will exclude from the above definition the deposits of the Caisse d'Épargne du Rwanda (C.E.R.) with the NBR, the import deposits placed at the NBR (cautions à l'importation), and the dormant accounts. However, the import deposits are only excluded from this definition up to a maximum amount of FR 150 million, and the maximum amount for the deductible C.E.R. deposits is RF 1 billion. Reserve money will be computed as a centered three-week average, including the last two weeks of a given month and the first week of the following month.

15. Target and adjustments: The program sets a ceiling on reserve money (as performance criterion or benchmark). If the required reserve ratio of the NBR is lowered, the NBR will be expected to absorb the excess liquidity that this change creates. Therefore the reserve money target of the NBR will be adjusted by the absolute change in the ratio times the deposit base of the commercial banks.

16. Reporting requirement: Data on reserve money will be transmitted to the African Department of the IMF on a weekly basis within seven days of the end of each week. This transmission will include a weekly balance sheet of the NBR which will show all items listed above in the definitions of reserve money.

E. Broad Money

17. Definition: Broad money is defined as the sum of currency in circulation, deposits in commercial banks and non-bank deposits in the NBR.

18. Target: There is no performance criterion or benchmark on broad money but given its key influential role on inflation, it will be followed closely as an indicative target.

19. Reporting requirement: The balance sheet of the NBR will be transmitted on a weekly basis within seven days of the end of each week. The balance sheets of the commercial banks, including the monetary survey, will be transmitted monthly within three weeks of the end of each month. The monthly transmission will also include a monthly balance sheet for the NBR which will show all items shown also in the weekly balance sheet for the NBR.

F. Ceiling on Contracting or Guaranteeing by the Central Government, Local Governments, or the NBR of New Nonconcessional External Debt with Original Maturity of More Than One Year

20. Definition: This performance criterion applies to the contracting or guaranteeing by the central government, local governments, or the NBR of new nonconcessional external debt (as specified below) with original maturity of more than one year, including commitments contracted or guaranteed for which value has not been received. The term debt shall be understood as defined in the Executive Board decision No. 6230-(79/140) adopted August 3, 1979, as amended by Decision No. 11096-(95/100) of October 25, 1995 and Decision No. 12274-(00/85) adopted August 24, 2000. Debt rescheduling and restructuring are excluded from the criterion. Included are financial leases and other instruments giving rise to external liabilities, contingent or otherwise, on nonconcessional terms. In determining the level of concessionality of these obligations, the definition of concessional borrowing shall apply. Concessional debt is defined as having a grant element of 50 percent or more. For loans with a maturity of at least 15 years, the 10-year average commercial interest reference rates (CIRRs) published by the OECD should be used as the discount rate for assessing the level of concessionality, while the 6-month average CIRRs should be used for loans with shorter maturities. To both the 10-year and the 6-month averages, the following margins for differing repayment periods should be added: 0.75 percent for repayment periods of less than 15 years; 1 percent for 15-19 years; 1.15 percent for 20-29 years; and 1.25 percent for 30 years or more. The performance criterion is defined to exclude the use of Fund resources.

21. Reporting requirement: Details of all new external debt, including government guarantees, will be provided on a monthly basis within three weeks of the end of each month.

G. Ceiling on Change in Outstanding Stock of External Debt, Owed or Guaranteed by the Central Government, Local Governments, or the NBR with Original Maturity of Up To and Including One Year

22. Definition: The term "debt" has the meaning set forth in point No. 9 of the Guidelines on Performance Criteria with respect to Foreign Debt adopted on August 24, 2000. Excluded from this performance criterion are normal import-related credits.

23. Reporting requirement: Data on debt and guarantees by central government, local governments, or NBR will be transmitted, with detailed explanations, on a monthly basis within three weeks of the end of each month.

H. Domestic Fiscal Balance

24. Definition: The domestic fiscal balance is defined as domestic revenue (excluding grants and privatization proceeds) minus current expenditure (excluding external interest due) and domestically financed capital expenditure on a payment order basis, minus net lending.

25. Target and adjustments: The program sets a ceiling on the domestic fiscal deficit, i.e. a floor on the domestic fiscal balance (as performance criterion or benchmark). As an adjustment, any shortfall in expenditure under the World Bank led demobilization and reintegration program will be used to reduce the deficit target, i.e. will be added to the target for the domestic fiscal balance.

26. Reporting requirement: Data on domestic revenue, current expenditure, domestically financed capital expenditure and net lending will be transmitted, with detailed explanations, on a monthly basis within three weeks of the end of each month.

I. Recurrent Priority Expenditure (Table 2)

27. Definition: Central government recurrent priority expenditure is defined as the sum of those outlays in the recurrent budget that the government has identified as priority spending in line with the PRSP process. Table 2 provides the list of budget lines under this definition.

28. Target: The program sets a floor on recurrent priority expenditure (as performance criterion or benchmark).

29. Reporting requirement: Data on priority expenditure, at the same level of detail as in Table 2 will be transmitted on a monthly basis within three weeks of the end of each month.

J. Exceptional Expenditure (Table 3)

30. Definition: Exceptional expenditure is defined as the sum of those outlays in the recurrent budget that the government has identified as exceptional. Table 3 provides the list of budget lines under this definition.

31. Target and adjustments: As an indicative target, the program sets a floor on exceptional expenditure. There will be a downward adjustment in case of shortfalls in spending on the World Bank-led demobilization and reintegration program.

32. Reporting requirement: Data on exceptional expenditure, at the same level of detail as in Table 3, will be transmitted on a monthly basis within three weeks of the end of each month.

K. Net Accumulation of Domestic Arrears

33. Definitions: Net accumulation of arrears for any given calendar year is defined as the difference between

    gross accumulation of new domestic arrears within the calendar year of consideration, cumulative from 1 January to 31 December, as measured as the difference between payment orders and actual payments, and

    gross repayment during the calendar year of consideration of any arrears outstanding at 31 December of the preceding year, including repayment of the preceding year's float and repayment of older arrears in accordance with the government guidelines.

34. Target: The program sets a ceiling on the net accumulation of domestic arrears, with a negative target thus representing a floor on net repayment (as performance criterion or benchmark).

35. Reporting requirement: Detailed data on repayment of domestic arrears and the remaining previous-year stock of arrears will be transmitted on a monthly basis within three weeks of the end of each month.

L. Stock of Outstanding Nonreschedulable External Arrears Owed by the Central Government or the NBR

36. Definition: Nonreschedulable external arrears are defined as the sum of arrears owed by the central government or the NBR to multilateral creditors and, if any, nonreschedulable arrears, to bilateral official and commercial creditors.

37. Target: The program sets a continuous performance criterion on the non-accumulation of nonreschedulable external arrears.

38. Reporting requirement: Detailed information on repayment and/or refinancing (including the terms of refinancing) of arrears will be transmitted on a quarterly basis within three weeks of the end of each quarter. The Fund will be notified immediately in case of incurrence of any nonreschedulable external arrears.

II. Understanding on Level of Beer Excise Tax Rate

39. The excise tax rate on beer will be raised to 57 percent effective January 1, 2003, in case the amount of beer excise tax collection between 1 June and 31 October 2002 is below RF 3.0 billion.

III. Other Data requirements for Program Monitoring

A. Public Finance

40. Reporting requirement: Monthly data on external budgetary support with a breakdown of loans by creditor and grants by donor and domestic nonbank financing of the budget (including treasury bills and government bonds held by the nonbank public) will be transmitted on a monthly basis within three weeks of the end of each month; quarterly data on the implementation of the development budget with detailed information on the sources of financing will be transmitted on a quarterly basis within three weeks of the end of each quarter; public sector external and domestic scheduled debt service and payments will be transmitted on a monthly basis within three weeks of the end of each month. The Rwanda Revenue Authority will transmit any updated census results of small and medium enterprises (including the economic characteristics of these enterprises and their estimated annual sales).

B. Monetary Sector

41. Reporting requirement: The following data will be transmitted on a monthly basis within three weeks of the end of the month: the individual balance sheet and consolidated balance sheets of deposit money banks (situation monétaire des banques); the monetary survey (situation monétaire intégrée); disaggregated data on "other items net" of the NBR and deposit money banks; required reserves and excess reserves of individual commercial banks, showing separately foreign exchange held as required reserves with the NBR; nonperforming loans of individual commercial banks; required and actual provisioning of impaired assets for individual banks; capital adequacy ratio for individual commercial banks and a weighted average for all commercial banks.2

C. Public Enterprises

42. Definition: The financial statements and bank deposits of the key public enterprises (including Rwandatel, Electrogaz, Ocircafé, Ocirthé, and ONP) will be monitored under the program.

43. Reporting requirement: The financial accounts (including profit and loss accounts, balance sheets, and annual reports when published) of key public enterprises (including Rwandatel, Electrogaz, Ocircafé, Ocirthé, and ONP) will be transmitted to the African Department of the Fund within four weeks on a semi-annual basis or as the accounts become available. The statement of these enterprises' bank deposits (bank by bank) will be transmitted to the African Department of the Fund on a quarterly basis within four weeks of the end of each month.

D. External Sector

44. Reporting requirement: The following buying, selling, and average exchange rates will be transmitted on a weekly basis within seven days of the end of each week: (i) intervention exchange rates used in NBR's operations with the commercial banks; (ii) the exchange rates used in interbank transactions among the commercial banks; (iii) the average of (i) and (ii); (iv) the exchange rates for transaction in banknotes at the commercial banks; (v) the same for foreign exchange bureaus; and (vi) the parallel (black) market exchange rates. All these exchange rates will be calculated on the basis of daily buying and selling rates; the average exchange rates will be calculated on the basis of a simple average of the daily buying and selling rates. The NBR will report weekly on the difference between the parallel market rate (buying and selling) and the weighted weekly average rates of NBR intervention in the interbank market for purchases and sales, respectively.

45. The following data will be provided on a monthly basis within four weeks of the end of each month:

  • The amount of foreign exchange held by commercial banks with the NBR as required reserves

  • net open foreign exchange position of each commercial bank and foreign exchange bureau, and the calculation method;

  • foreign exchange intervention by the NBR on interbank market;

  • imports, sales, and purchases of foreign exchange banknotes by commercial banks;

  • sales and purchases of foreign exchange banknotes by foreign exchange bureaus.

46. Export and import data, including volumes and prices, will be transmitted on a monthly basis within four weeks of the end of each month; other balance of payments data including the data on services, official and private transfers, capital account transactions, and the repatriation of export receipts will be transmitted on a quarterly basis within four weeks of the end of each quarter.

E. Real Sector

47. Reporting requirement: Monthly disaggregated consumer price indices for Kigali (NBR), urban areas (Ministry of Finance), and rural areas (Ministry of Finance) will be transmitted on a monthly basis within four weeks of the end of each month; any revisions to gross domestic product by sector estimates will be transmitted within three weeks of the date of revision.

IV. Electronic Data Reporting

48. Reporting requirement: The following data will, where feasible, be made available through electronic format (Excel) and e-mailed to the African Department of the Fund:

(i) Monetary data and exchange rates:

Monthly balance sheet of the NBR, summary balance sheet of the commercial banks, individual balance sheets of the commercial banks, details of public sector deposits with commercial banks, details of commercial banks' loan provisioning and capital adequacy, monthly data on foreign exchange operations of commercial banks and the NBR, and net open foreign exchange positions. These data will be transmitted within three weeks of the end of the month.

Weekly balance sheet of the NBR will be transmitted within seven days of the end of each week.

Weekly data on NBR interventions on the money market (appel d'offres) both to inject and to absorb liquidity, including the maturity and the due date of the transactions, the amounts offered, demanded, and allocated (by bank, in millions of Rwanda francs), the maximum, minimum, marginal, and average interest rates offered, and the interest payments (by bank, in Rwanda francs). These data will be made available within seven days after the end of the week.

Weekly data on recourse to the discount window (prise en pension), including the period of borrowing, the discount rate, and the amount (by bank, in Rwanda francs). These data will be made available within seven days after the end of the week.

Weekly update of the monthly treasury plan (plan de trésorérie) for foreign exchange reserves at the NBR. These data will be made available within seven days after the end of the week.

Weekly data on exchange rates, including foreign exchange auctions by the NBR, the amount of foreign exchange offered, demanded, and allocated (by commercial bank, in U.S. dollars and Rwanda francs), and the minimum, maximum, marginal, and average exchange rate offered. These data will be made available within seven days after the end of the week.

Daily balance by commercial bank of amounts outstanding from money market interventions to absorb liquidity (appel d'offres-ponction), to inject liquidity (appel d'offres-injection), under the discount window (prise en pension) and any other credit facility of the NBR, respectively. These data will be made available within seven days of the reported date.

Weekly balance of the subaccount for HIPC Initiative assistance from the IMF at the NBR. The data will be provided within seven days of the end of the week.

    (ii) Fiscal "flash" report, including detailed lists of priority and exceptional expenditure. These data will be transmitted within three weeks of the end of the month.

    (iii) Detailed export and import data; and

    (iv) Detailed CPI data.

V. Program Monitoring Committee

49. Definition: The Interministerial Technical Committee, composed of senior officials of key ministries and the National Bank of Rwanda shall meet once a month and be responsible for monitoring the performance under the program, informing the IMF staff regularly about progress on program implementation, and transmitting supporting information necessary for program monitoring.

50. Reporting requirement: The names of the Interministerial Technical Committee shall be communicated to the IMF no later than the date of submission of the authorities' request for support of the three-year PRGF-supported program to the Executive Board of the IMF or the start of a new annual arrangement. The Interministerial Technical Committee shall provide to the IMF staff a progress report on the program implementation on a monthly basis within two weeks of the end of each month.

/s/

François Kanimba
Governor
National Bank of Rwanda

/s/

Donald Kaberuka
Minister of Finance and
Economic Planning

Annex B. Reclassifications

The following reclassification of data has been made to the monetary survey:

Reclassification of the deposits of 15 additional autonomous public agencies
: In tables presented by the IMF prior to November 5, 2000, deposits of the central government with the NBR included deposits of 15 autonomous agencies. As of November 6, 2000 these deposits will be itemized separately in a category called "public nongovernment deposits," but will still be included in the domestic credit of the NBR.

Table 1. Rwanda: Summary of Reporting Requirements 

Status Variable or Table Reporting Frequency Reporting delay from end of period covered Report data electronically

  A. Monetary and Foreign Exchange      
PC Net foreign assets NBR Weekly Seven days Yes
PC Reserve money Weekly Seven days Yes
PC Net credit to central government Monthly Three weeks Yes

Table Monthly balance sheet of the NBR Monthly Three weeks Yes
Table Summary balance sheet of the commercial banks Monthly Three weeks Yes
Table Individual balance sheets of the commercial banks Monthly Three weeks Yes
Table Details of public sector deposits with individual commercial banks Quarterly Three weeks Yes
Table Details of commercial banks' loan provisioning and capital adequacy Monthly Three weeks Yes
Table Monthly data on foreign exchange operations of commercial banks, the NBR, and foreign exchange bureaus Monthly Three weeks Yes
Table Net open foreign exchange positions of commercial banks and foreign exchange bureaus Monthly Three weeks Yes
Table Exchange rates Weekly Seven days Yes

  B. Debt      
PC New external government borrowing Monthly Three weeks  
PC Stock of short-term external government debt Monthly Three weeks  

  C. Fiscal      
PC Domestic arrears (repayment of the end-of-year stock of arrears and accumulation of new arrears) Monthly Three weeks Yes
PC External arrears . . .1 . . . Yes
OV External budgetary support Monthly Three weeks Yes
Table Fiscal data (revenue, expenditure,2 priority expenditure, exceptional expenditure, wage bill) Monthly Three weeks Yes
Table Development budget implementation Quarterly Three weeks Yes
Table Scheduled debt service and payments Quarterly Three weeks Yes

  D. Public enterprises      
Table Public enterprises financial statements Semi-annual Four weeks  
Table Public enterprises bank deposits Quarterly Four weeks  
Table Estimated and actual tax payments of the public enterprises Quarterly Four weeks  
  E. Civil service      
OV Size of the civil service (core civil service and teachers) Monthly Three weeks Yes

  F. Balance of payments      
Table Export and imports Monthly Four weeks Yes
Table Detailed Balance of Payments Quarterly Four weeks  

  G. Prices      
OV CPI Kigali (NBR), urban, and rural (Minecofin) Monthly Four weeks Yes

1The authorities will notify immediately the Fund in case of incurrence of any nonreschedulable external arrears.
2
On commitment basis (engagement) and on payment order basis (ordonnancement); the provision of fiscal data is based on the "flash reporting (aggregate and by ministry).
PC = performance criterion or quantitative benchmark;
QI = quantitative indicator;
OV= other variable.

Table 2. Rwanda: Recurrent and Capital Priority Expenditure, 2002
(In millions of Rwanda francs)

  2002 

Internal affairs 5,322
  National police services 3,422
  Prisons 874
  Provinces2 1,026
Agriculture 2,402
  Agricultural production 1,008
  Livestock production 451
  Forestry resources 141
  Soil conservation and water systems management 73
  Agricultural extension and marketing 146
  Provinces2 583
Commerce 1,042
  Promotion of trade and commerce 67
  Industrial development and artisanal promotion 465
  Export promotion 241
  Provinces2 269
Education 27,053
  Pre-primary and primary education 1,859
  Secondary education 599
  Tertiary education 8,119
  Scientific and technological research 463
  Institutional support 926
  Provinces2 15,088
Youth and Sports 700
  Youth mobilization 50
  Cultural promotion 169
  Vocational training 179
  Research, acquisition, and conservation of the national heritage 158
  Provinces2 145
Health 5,438
  Primary health care 754
  Specialist care for major health problems 1,680
  Development of health structures 101
  Improvement in health management services 1,155
  Provinces2 1,748
Transport and Communication 2,451
  Development and modernization of communication infrastructures 145
  Improvement in transport services 163
  Rationalization and management of urban land 47
  Development of transport infrastructure3 2,069
  Provinces2 27
Gender 325
  Institutional support
  Support programs for promotion and development of women 192
  Promotion of gender in development 47
  Promotion of socio-economic equity 10
  Provinces2 75
Public service 448
  Civil service reform 380
  Employment and social security promotion 68
Lands and resettlement 627
  Land planning and management 328
  Planning and supervision of housing amenities 183
  Conservation and protection of the environment 98
  Provinces2 19
Local government (excluding exceptional expenditure) 6,133
  Decentralization 177
  Community development 78
  Social reinsertion 83
  Family rehabilitation 14
  Mass education 107
  Promotion of children's rights 16
  Provinces2 2,288
Decentralization (district transfers in recurrent budget) 1,370
  Common development fund (district transfers in development budget)4 2,000
Energy and water resources 365
  Energy 44
  Water and sanitation 131
  Mining and other geological programs 70
  Methane gas unit 95
  Provinces2 25

Source: Rwandese authorities.
1/ All programs are classified as recurrent expenditures, except where marked.
2/ Province sub-programs have been allocated to the major Ministry under each program.
3/ Includes Road Fund.
4/ As part of capital expenditure.

Table 3. Rwanda: Composition of Exceptional Expenditure, 2002
(In millions of Rwanda francs)

      2002 

       
Exceptional expenditure 22,510
  Demobilization/Reintegration/Reinsertion 5,900
  Supplies for prisoners 1,300
  GACACA  
    GACACA Sensibilization, Ministry of Justice 50
    Health insurance GACACA members 652
    GACACA jurisdictions 1,343
  Victims of Genocide Fund (FARG) 5,025
  Orphans assistance 589
  Assistance to vulnerable groups 93
  Reinsertion of vulnerable groups 50
  Support to local initiatives (education) 54
  Support to orphanages and ENA 56
  Reinsertion of displaced groups from Gishwati 50
  Reinsertion of street children 100
  CFJM operation 1
  Good governance commissions  
    Human Rights National Commission 669
    Constitutional Commission 630
    Commission for Unity and Reconciliation 565
    Electoral Commission 999
    Office of the Ombudsman 174
  National Commission for the Fight Against AIDS 223
  ISAR works 6
  Educational institutes  
    KIST (Kigali Institute for Science and Technology) 2,128
    KHI 503
    KIE 1,165
  Printing flags and stamps 30
  Diffusion of new national hymn 10
  Public education (educational and technical equipment) 120
  Family and public education (educational equipment) 4
  National information system (technical equipment) 21
  Defense of children's rights (technical equipment) 2




1A summary of reporting requirements is provided in Table 1.
2Detailed data account by account on central government (including ministries), other public agencies, and public enterprises accounts with the NBR and each commercial bank will be transmitted on a quarterly basis within for 4 weeks of the end of the quarter.
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