Republic of Tajikistan and the IMF
Country's Policy Intentions Documents
Free Email Notification
Tajikistan—Staff Monitored Program—Letter
of Intent, Memorandum of Economic and Financial Policies, and Technical
Memorandum of Understanding
Mr. Horst Köhler
Dear Mr. Köhler:
During the past three years, the Government of Tajikistan has been implementing a program of economic reform with support from the IMF's Poverty Reduction and Growth Facility (PRGF). The Executive Board of the IMF approved the third annual arrangement under the PRGF in October 2000, and the first and second reviews under this arrangement were completed. The arrangement expired on December 24, 2001.
Under the program, we made significant progress toward reducing inflation and maintaining a disciplined approach to fiscal policy. Improved macroeconomic policies contributed to our recent strong economic performance. Our progress, however, with structural reform has been uneven and prevented the completion of the third and final reviews under this arrangement.
We regret the recent incidents of misreporting and are working to strengthen our institutional capacity to prevent such occurrences in the future. We have made substantial progress toward establishing a detailed inventory of the status, terms, source, and size of our external stock of debt. This will increase transparency and improve the management of our external obligations. The Swiss authorities (in consultation with Fund staff) plan to finance technical assistance, and provide training and equipment to further enhance debt monitoring, analytical capacity, and debt reporting systems in the Ministry of Finance.
Together with an IMF mission that met with a government delegation in Moscow in October 2001, and again in Dushanbe during February 25-March 5, 2002 we have reached understandings on a Staff Monitored Program (SMP) covering the period January 1-June 30, 2002. The SMP establishes a macroeconomic framework that supports our efforts at further stabilization, and includes structural reforms that will help to improve economic efficiency, as well as address weaknesses in our debt management capacities. The Memorandum of Economic and Financial Policies attached to this letter sets out the details of the SMP.
The Government believes that the policies described in the Memorandum will enhance the prospects for achieving the objectives of our economic program for 2002. We intend to remain in close consultation with Fund staff, in accordance with IMF policies on such consultation and will provide the staff with information it requests for monitoring economic developments and implementation of polices under the SMP. In addition, the Government stands ready to take any further measures, in consultation with Fund staff that might be necessary to ensure that the overall objectives of the program can be attained. In order to enhance transparency of our economic policies, we request that the Memorandum of Economic and Financial Policies be published on the Fund's website.
The first review of the SMP is expected to take place in April/May. If that review is successfully completed, we hope to begin discussions on a program to be supported by the Fund under the Poverty Reduction and Growth Facility.
Very truly yours,
President of the Republic of Tajikistan
Memorandum of Economic and Financial
1. The Republic of Tajikistan has been implementing economic reforms with financial support from the International Monetary Fund (IMF) since 1997. More recently, our reform program has been supported through a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) approved in June 1998, with access of SDR 96 million.1 At this time, we have reached understandings on a Staff Monitored Program (SMP) with the IMF covering the period January 1-June 30, 2002.
2. We have experienced strong macroeconomic performance over the past two years, as growth has been sustained at a relatively high rate, while inflation has declined. Real GDP expanded by over 8 percent in 2000, and by10.3 percent in 2001. At end-2000, consumer price inflation was about 60 percent, but last year it was less than 13 percent. The external current account deficit widened last year, to around 7¼ percent in 2001, due to strong domestic demand, additional demand for imported electricity as a result of two consecutive droughts, and steep declines in international prices for cotton and aluminum. The exchange rate remained stable through much of 2001, but weakened somewhat late in the year, reflecting a rapid expansion of liquidity (through directed credit) late in the fourth quarter and uncertainties over the situation in Afghanistan. Our gross international reserves remained at about 2.1 months of import cover at the end of 2001.
3. Underpinning this favorable macroeconomic situation has been our commitment to meeting the quantitative targets under the recent PRGF-supported program. Indeed, during the third annual arrangement (covering the period October 2000-December 2001), nearly all of the quantitative performance criteria were observed. (Two of the three performance criteria that were not met related to external arrears, reflecting weaknesses in our debt-management capacity.) Strong revenue performance from both buoyant economic activity and improved tax collections resulted in a small overall deficit last year of about 0.1 percent of GDP (and a primary surplus of around ½ percent of GDP). This relatively good fiscal over-performance contributed to efforts by the National Bank of Tajikistan (NBT) to control liquidity. The expansion of base money slowed considerably in the first nine months of 2001, relative to the previous year, although it accelerated sharply during the fourth quarter.
4. We have begun to implement the debt reduction strategy that we prepared in consultation with Fund staff last year. For example, we are pursuing discussions with Russia and Kazakhstan in order to reconcile our external obligations. We are finalizing discussion with Russia on a reduction in our debt by US$49.9 million, and we will seek written clarification with them on our service obligations for this year. We have also restructured our debt with Uzbekistan on more favorable terms that also allows for repayment in cash or goods. Additionally, we recently completed a 3-year privatization strategy, which includes the sale of 12 large state-owned enterprises, 100 medium and large enterprises, and the sale of service enterprises in the energy sector. During 2002, the proceeds from privatization are projected to be SM 8 million, of which SM 5 million will be used for debt repayment. Any privatization proceeds in excess of SM 8 million will be held as a contingency reserve against unanticipated external arrears that may emerge from an ongoing review of our external debt stock (see below).
5. During 2001, progress with structural reform was not as successful as our efforts to achieve macroeconomic stability. During that time, we did not implement fully several of the structural performance criteria and benchmarks under the PRGF arrangement, including regularizing financial arrangements between the NBT and the Ministry of Finance (MOF), measures to improve the operation of our Treasury and tax administration, and enhancing fiscal transparency. However, we made progress in other areas, such as farm restructuring, small-scale privatization, and improving the banking sector. Nonetheless, it was not possible to complete the third and fourth reviews under the third annual arrangement of the PRGF.
6. We regret that the PRGF-supported program went off track last year. This Memorandum of Economic and Financial Policies (MEFP) details our plans for accelerating structural reform and enhancing macroeconomic stability. The program will be monitored by the IMF staff and will serve to reestablish a credible track record of policy implementation. It is our expectation that the successful implementation of the measures contained in this SMP, would lead to discussions in the spring of 2002 on a program that could be supported by the PRGF.2
II. Economic Policies under the Staff Monitored Program
7. During the period January-June 2002, we will intensify our macroeconomic stabilization efforts and demonstrate our commitment to structural reform. In particular, we will undertake measures to enhance our capacity to monitor and manage our external debt and servicing obligations. These measures will work to bolster credibility with our creditors and improve the prospects for future debt rescheduling.
8. A principal goal of the SMP is to enhance macroeconomic stability and further reduce inflation to around 10 percent at end-2002. Real GDP is projected to expand at about 5-6 percent. With a stable exchange rate, this growth would lead to further improvements in per capita incomes (in US dollars), and thereby helping to alleviate poverty. An early loan repayment to the IMF and heavy debt service obligations this year will prevent us from increasing our gross international reserves. Instead, we expect our import cover to decline to the equivalent of 1.7 months of imports at the end of the year. We plan to implement tight fiscal and monetary policies, in order to achieve the financial policy targets specified in Table 1. With regard to structural policies, we are committed to the successful implementation of the measures outlined in Table 2.
9. For 2002, the budget law assumes an overall fiscal deficit of 1 percent of GDP. This widening of the deficit (relative to last year) is due to increased defense expenditures associated with the conflict in Afghanistan, and higher external and domestic interest payments. The primary surplus (excluding interest payments) would amount to about 1 percent of GDP, which is a significant improvement over last year.
10. We have recently created a Ministry of National Incomes and Duties combining the Tax and Customs Committees in order to increase the efficiency and effectiveness of tax and customs collections. These benefits will be accomplished by greater computerization of taxpayer data, improving the exchange of information between the tax and customs department, restructuring the organization, and reducing the staff of the new ministry by 20 percent, and improving the management and operation of the large taxpayer inspectorate. In order to increase the effectiveness of revenue collection, we request technical assistance from the Fund.
11. Achieving our fiscal targets will depend heavily on our ability to raise the ratio of revenue-to-GDP, and to compensate for the reduction of the sales tax on cotton to 10 percent effective from January 1 of this year. In addition to creating a new revenue ministry, we have simplified the income tax rate structure that will broaden the tax base, increased the rates on excise taxes and road user tax, and introduced a (pilot) unified agricultural tax in several regions. We are in the process of strengthening the Large Taxpayer Inspectorate (LTI) by improving the operation of the VAT by enforcing the use of tax invoices for large taxpayers, and printing of tax-return forms and pamphlets required by the LTI. With regard to the application of the VAT on trade with Russia and Kazakhstan, we have completed the move to the destination principle. For Uzbekistan, we have implemented the destination principle for all commodities, except for natural gas, and electricity. These actions only partially compensate for the reduction of the sales tax on cotton. Thus, the 2002 budget targets a tax revenue-to-GDP ratio of around 14 percent, which is about the same as 2001, as a result of the loss in cotton tax revenues and slightly slower economic growth. Although we believe that our tax projections can be achieved, if deviations occur, we will introduce corrective actions to ensure adherence to the program's targets. Given the desirability of reducing the deficit in order to address the debt problem, we will apply 60 percent of any over-performance of tax revenue to deficit reduction.
12. On the expenditure side, planned increases in social sector spending will be limited by both higher debt service costs and higher defense expenditures. These items account for the rise in current spending from about 12 percent of GDP last year to about 14 percent this year. To improve efficiency and to reverse the erosion of real wages in the public sector, we increased the basic public sector wage by 40 percent effective January 1, 2002. This increase in wages is consistent with our commitment to limit the growth in the 2002 wage bill to 25 percent based on the actual amount of wages paid in 2001 (i.e., from SM 82.4 million to SM 103 million). The 15 percent difference will be financed through savings from natural attrition and the reduction of bonus payments. The 2002 budget law (passed late last year) allocated SM 110 million for the wage bill, based on an estimate of the 2001 outcome. Thus, we will reassess budget developments in June in consultation with Fund staff, with an eye to reallocating this surplus of funds (SM 7 million) within the overall budget.
13. We will also complete the implementation of two longstanding issues. The first involves compensation to Tajik Rail for the in-kind debt service it provides on behalf of the government. The 2002 budget provides a SM 12 million payment to Tajik Rail for operating and capital expenditures. The second involves regularizing financial relations between the NBT and the MOF. Regularizing these relations is important for improving the transparency of public sector financial management and enhancing the balance sheet of the central bank. In February, the Ministry of Finance converted its present debt to the NBT (US$25.8 million) into long-term bonds, which accrue interest equal to the twelve-month rate of consumer price inflation, plus one percent. Interest is to be paid quarterly. The NBT will be responsible for collecting its loan in the amount of US$5 million from Samomyon, and will establish a repayment schedule at a market interest rate by end-March 2002.
Monetary and exchange rate policies
14. The NBT will pursue a restrictive monetary policy, consistent with our goal of further reducing inflation to 10 percent this year. The central bank will act aggressively to remove the excess liquidity from the market that was introduced late last year through directed credits to several cotton exporters. Further, the NBT will ensure that no directed credit is issued, or other forms of preferential access to credit are allowed. The NBT will tighten monetary policy through open market operations (including the sales of NBT bills), and through aggressive collection of overdue loans. Lower inflation and the growing confidence in the local currency suggests that we can expect a small increase in the demand for money during 2002. Given the need to correct the monetary overhang at the end of 2001, reserve money is projected to grow only moderately at about 3½ percent during this year, with broad money growth of about 9 percent. Net domestic assets of the NBT are programmed to rise from SM 198 million at end-March 2002 to SM 218 million at end-June. As a result of the heavy debt service burden in 2002, and the early repayment to the IMF gross international reserves are projected to decline to around 1.5 months of imports in mid year, and to remain at that level through year end.
15. The NBT will maintain a flexible exchange rate regime, and refrain from intervening in the foreign exchange market, except to smooth large fluctuations. Despite some recent depreciation in the exchange rate, we expect that the nominal exchange rate will remain broadly stable during the year. The NBT will continue to set the official exchange rate as a weighted average of transactions in the interbank foreign exchange market on a weekly basis. We plan to accept the obligations under Article VIII of the Fund's Articles of Agreement and will work with the Legal Department of the Fund to formulate an action plan for achieving this objective.
16. The government will enhance the independence of the central bank by implementing several measures. We will ensure that market interest rates are paid on NBT credit transactions, including credit auctions, and NBT bills. The recent safeguards assessment of the NBT by Fund staff identified a number of ways in which the independence and financial condition of the central bank could be enhanced. In response to these recommendations, we submitted to parliament in December of last year, amendments to the central bank law (Article 10) prohibiting the NBT from paying expenses that are not related to its core operations; and obligating the NBT to allocate all of its post-tax profits to rebuilding its capital as long as its net worth is negative. Also in December, we submitted to parliament an amendment to Article 68 of the central bank law requiring the NBT's financial statements to be prepared in accordance with international standards. We will ensure that the NBT is repaid SM 5.2 million by end-March 2002 in connection with its inappropriate expenses for the construction of the government dacha. Finally, we will put in place a clear classification system for core expenditures (by end-June 2002), and undertake an unqualified international audit of the central bank by the end of this year.
17. In order to improve confidence in the banking sector, we submitted to parliament last December, amendments to the tax code (Articles 104, 135, and 261), that preclude the tax authorities from conducting reviews of customer accounts when carrying out corporate tax examination, or freezing clients' accounts without obtaining prior court order; allow full deductibility of loan loss provisions for all categories of credits, except for provision for standard loans; and to change the property tax base from net assets to fixed assets. We will also submit an amendment to the commercial bank law (Article 13) to allow banks to keep part of their charter capital in foreign exchange. We increased, through an NBT Board decision, the minimum capital requirement from US$1 million at end-2000 to US$1.5 million at end-2001 and will consider a further increase for end-2002. After a change in management, Amonat Bank is implementing its restructuring plan aimed at strengthening its internal operations, improving portfolio performance, and enhancing customer services. In order to reduce costs, Amonat Bank will reduce the number of agencies (local bank offices) by 10 percent (from 575 to 520) by end-June 2002. Further, we will not allow Amonat Bank to resume lending prior to a review of its operation in consultation with Fund staff. As well, we will pay service fees to Amonat Bank on a timely basis.
External policies and debt management
18. We expect an improvement in the external current account this year, as the deficit is projected to fall to around 5 percent. The surplus in the capital account is likely to decline significantly, as amortization payments rise. With balance of payments support from the World Bank and the Asian Development Bank amounting to US$37 million, a financing gap of around US$21 million is expected to remain. Thus, while we expect to meet our external debt service obligations during the period covered by the SMP, it will be necessary to consider additional external financing, in order to close the financing gap in the second half of 2002. If we successfully complete the SMP and reach understandings on a new Fund-supported program, we plan to seek a Paris Club rescheduling of our external debt.
19. We intend to implement a number of measures that will strengthen debt management. We are currently in the process of compiling a detailed inventory of the status, terms, source, and size of our external stock of debt. The inventory that includes all public and publicly-guaranteed debt will be completed by end-March 2002, while the inventory of state-owned enterprise debt will be completed by end-June 2002. The Swiss authorities plan to finance technical assistance, and provide training and equipment to enhance debt monitoring, analytical capacity, and debt reporting systems in the Ministry of Finance. To enhance transparency, the government will submit quarterly reports to parliament on the government's external debt situation, including debt service obligations, and accumulated arrears. In order to better control our debt situation, we will also adhere strictly to the law which vests sole authority to undertake and guarantee external loans in the Ministry of Finance.
20. While we have made some progress with structural reform, much more needs to be done to restructure the economy in order to sustain economic growth and reduce poverty. In particular, during the SMP we plan to introduce measures to improve governance, and enhance public sector management.
21. Last year, we established a state audit agency, which was made operational under a provisional charter. This agency will help improve both the efficiency and transparency of the use of public funds. The audit agency has authority to audit all government agencies (including the office of the president, and parliament) that receive public funds. We have submitted legislation to parliament that indicates the responsibilities and authority of the audit agency. By end-March 2002, we will amend this legislation to specify that parliament has the right to receive full information on specific audit results upon request, and to issue its own reports.
22. The pace of restructuring and privatization of state-owned farms has not progressed as quickly as planned, owing mainly to the complexity of the process, and the limited institutional capacity of the State Land Reform Committee. In response to numerous complaints from farmers about the process, we have (in collaboration with the World Bank) made adjustments to the process to make it both more transparent and equitable. These involve: conducting general meetings at which the membership of a collective farm decides whether or not to restructure; subdividing the assets of state-owned farms; and completing the privatization process by issuing land use and share certificates for the newly created farms. As such, the State Land Reform Committee will conduct at least 40 general meetings, and convert at least 20 state-owned farms into private farms by issuing marketable land use and share certificates between October 1, 2001 and end-June 2002.
23. While recognizing the need to regulate certain aspects of cotton production and exports, we will prohibit government officials from unjustified interference in private sector decisions. To this end, we will establish a working group to explore the problem of public sector involvement in the cotton sector. The working group will consist of three representatives, one from government, the private sector, and the Fund's resident representative, and will prepare a report by end-April 2002.
24. We have recently completed a privatization strategy and are working with the World Bank to accelerate the privatization of medium and large enterprises. With regard to Tajik Rail, Tajik Airlines, and Tadaz, we are preparing a program to restructure their operations. We will also enhance the commercial viability of a number of state-owned enterprises by preventing the emergence of new payment arrears, and establishing by end-June 2002 a plan to eliminate the stock of existing arrears. In this context, Naftrason has eliminated all of its arrears to Tajik Rail that were accumulated in 2001. The government, as the owner of Naftrason, will ensure that it does not accumulate any new arrears during 2002. We have cleared 34 percent of the arrears accumulated by Tajikgas to Tajik Rail during 2001. Further, we will ensure that the total stock of arrears owed by Tajikgas to Tajik Rail does not exceed SM 78.6 million at end-June 2002. By end-June 2002 we will prepare a strategy paper that will outline our plan to strengthen the finances of the energy sector and eliminate arrears.
25. Finally, we will complete the final draft of our Poverty Reduction Strategy Paper by end-April 2002. Following further discussion with IFIs and in Tajikistan, we plan to submit the PRSP to the World Bank and the IMF by end-May 2002. This strategy will set out our policies to promote economic growth and to reduce poverty over the coming three years. It will contain a program of public expenditures that will be consistent with the need to reduce our heavy external debt burden, contain the public investment program, and lie within the parameters of our medium-term economic and fiscal framework.
III. Program Monitoring
26. The period covered by the Staff Monitored Program will be January 1-June 30, 2002. To help monitor the implementation of our stabilization and structural reform program over this period, we will rely on quarterly indicative targets and structural benchmarks, and a quarterly review of end-March 2002 and end-June 2002 performance. The quantitative targets would include: a floor on net international reserves of the NBT; a ceiling on net domestic assets of the NBT; a ceiling on NBT credit to government; a ceiling on the cumulative fiscal deficit of the general government; a floor on cumulative tax collections of the Ministry of National Incomes and Duties; a zero ceiling on the accumulation of wage and non-working pension and external arrears (as indicated in Table 1, and further elaborated in the Technical Memorandum of Understanding attached to this document). The SMP will also include a number of structural benchmarks as specified in Table 2.
27. A review of the SMP will take place in April/May 2002, and if successfully completed, discussions could begin with Fund staff concerning a new PRGF arrangement. In this event, the fulfillment of end-June 2002 financial targets and structural benchmarks would form prior actions for Executive Board consideration of a Fund-supported program.
28. The Government believes that the policies described herein will further strengthen our macroeconomic stabilization and structural reform efforts, and that they are adequate to achieve the objectives of our economic program for 2002. We intend to remain in close consultation with the IMF in accordance with IMF policies on such consultation and will provide the IMF with information it requests for monitoring economic developments and implementation of policies under the program. The Government stands ready to take further measures, in consultation with the IMF staff, which might be necessary to ensure that the overall objectives of the program can be achieved.
29. To promote transparency, we hereby request that the letter of transmittal, and the Memorandum of Economic and Financial Policies be published on the IMF website.
1This access was augmented by SDR 4.3 million to SDR 100.3 million (115 percent of quota) in December 1998. The arrangement expired on December 24, 2001, with total disbursements of SDR 78.3 million having been made.
2As the basis for a possible new PRGF arrangement, we are finalizing a Poverty Reduction Strategy Paper (PRSP) that will set out policy parameters and proposals to achieve a sustained improvement in living standards.
REPUBLIC OF TAJIKISTAN
Technical Memorandum of Understanding
1. This memorandum defines variables that constitute quantitative targets under the Staff Monitored Program (SMP), and sets out the reporting requirements for the authorities and the National Bank of Tajikistan (NBT).1
I. Quarterly Targets
A. Fiscal Deficit of the General Government
2. The general government budget is defined to include the republican budget, local (including municipal) budgets, and all extra-budgetary funds at all levels of general government, including the social protection fund (SPF). The overall cash deficit of the general government is defined from the financing side as the sum of the following:
3. The augmented deficit of the general government is defined from the financing side as the sum of the same items as in the definition of the overall cash deficit of the general government plus the counterparts (-) to increases in net credits or net claims on the general government from the NBT or commercial banks as a result of the resolution of the bad loans problem under the bank restructuring program. These counterparts consist of the full value of the loans taken over by the government.
4. Monthly data on net claims of the domestic banking system on the general government are taken from the balance sheets of the NBT and commercial banks. The Ministry of Finance shall provide information on, and confirm the amounts of general government deposits held abroad, disbursements of foreign loans to the general government, net sales of treasury bills and other securities, borrowing from the nonbank sector, as well as gross receipts and expenditures of the central government privatization account. It shall provide detailed monthly data on: (i) revenues, expenditures and lending operations of the state and local budgets, as well as all budgetary and extra-budgetary funds; (ii) quasi-fiscal operations; (iii) estimates of the outstanding stock of wage and pension and all other domestic expenditure arrears; and (iv) estimates of the outstanding stock of tax and other revenue arrears to the general government.
B. Tax Collection of the Ministry of National Incomes and Duties
5. Tax collection include all taxes collected by the Ministry of National Income and Duties. With regard to internal taxation excluded from the definition is: any tax offsets or in-kind payments, sales taxes on cotton and aluminum exports, taxes, charges, and fees collected by the Social Protection Fund, and any proceeds from loans, or other banking system credits, the issuance of securities, or from the sale of state assets. With regard to foreign taxes, custom revenues are defined to include import duties, export duties and taxes, customs duties, exchange taxes, and other taxes (including VAT) on international trade and transactions.
6. Further, if there is any over-performance of tax collections as defined above, 60 percent of those revenues will contribute to deficit reduction.
C. Limits on the Stock of Net Domestic Assets of the NBT
7. Net domestic assets of the NBT are defined as: reserve money minus net foreign assets of the NBT. Reserve money is composed of currency in circulation, required reserves, other bank reserves, and deposits of non-government non-banks with the NBT. Net foreign assets of the NBT includes net international reserves in convertible currencies. The NBT's net domestic assets comprises the following assets and liabilities: net credit to the general government, counterpart deposits of the World Bank, AsDB, EU and other official creditors (–), privatization account (–), claims on the government with regard to bank restructuring, claims on banks, credit to the economy, and other items net (OIN). OIN includes, the foreign exchange re-valuation and capital accounts of the NBT.
8. The NDA ceiling should be also adjusted for changes in reserve requirements, in accordance with the following formula:
NDA = rB0 + r0B + rB
where r0 denotes the reserve requirement ratio prior to any change; B0 denotes the programmed level of the reservable base money in the period prior to any change; r is the change in the reserve requirement ratio; and B denotes the immediate change in the reservable base with respect to the programmed base money level as a result of changes in the definition.
9. The ceiling on net domestic assets of the NBT will be adjusted: (i) downward/upward by 100 percent for excesses/shortfalls of the disbursement of (non-project) foreign loans and cash grants; (ii) downward/upward by 100 percent for the excesses/shortfalls of privatization receipts; and (iii) downward by 100 percent for any overdue or rescheduled debt service obligations for 2002.
D. Limits on the NBT's Net Credit to General Government2
10. The limits will be adjusted upward by 100 percent of the amount by which actual net foreign financing of the budget falls short of the amount programmed for: (i) debt repayments; (ii) disbursements of external loans for balance of payments support, including but not limited to the World Bank's Structural Adjustment credit and the Asian Development Bank's Post-Conflict Infrastructure Program Loan, up to an amount the lower of (a) the programmed use of net external financing for the budget as listed in section I.1, or (b) the equivalent value of US$10 million (the limits will be adjusted downward for any write-off of government debt to the NBT); and (iii) downward by 100 percent for any overdue or rescheduled debt service obligations for 2002.
11. Net credit from the NBT to the general government is defined in section A above.
E. Net International Reserves
12. Total net international reserves of the NBT are defined as the difference between total gross international reserves of the NBT and total reserve liabilities of the NBT. Total gross international reserves of the NBT are defined as the NBT's holdings of monetary gold, holdings of SDRs, any reserve position in the IMF, holdings of convertible currencies in cash or in nonresident banks that are readily available. Also included are holdings of foreign currency-denominated securities issued by governments or central banks of OECD member states. Excluded are capital subscriptions in foreign financial institutions, non-liquid assets of the NBT, convertible currency denominated claims on domestic banks and other residents, assets in non-convertible currencies, foreign assets pledged as collateral or otherwise encumbered and the net forward position, if any (defined as the difference between the face value of foreign currency denominated NBT off balance sheet claims on nonresidents and foreign currency obligations to both residents and non-residents). Reserve liabilities of the NBT are defined as outstanding IMF credit, and liabilities of the NBT to nonresidents with an original maturity of up to and including one year, that are public or publicly guaranteed.
13. For the purpose of program monitoring, U.S. dollar denominated components of the balance sheet will be valued at the program exchange rate, and other foreign currency denominated items will be valued at cross rates between the program exchange rate of the U.S. dollar and current official exchange rates of the U.S. dollar against those currencies. Official gold holdings shall be valued at US$276.5 per troy ounce.
14. Fund staff will be informed of details of any gold sales, purchases, or swap operations during the program period, and any resulting changes in the level of gross foreign reserves that arise from revaluation of gold will be excluded from gross reserves (as measured herein).
15. The floor on net international reserves of the NBT will be adjusted: (i) upward/downward by 100 percent for excesses/shortfalls of the disbursement of (non-project) foreign loans and cash grants; (ii) upward/downward by 100 percent for the excesses/shortfalls of privatization receipts in foreign exchange; and (iii) upward by 100 percent for any overdue or rescheduled debt service obligations for 2002.
F. Limits on Short-, Medium-, and Long-Term External Debt
16. The contracting or guaranteeing of external debt by the government of Tajikistan, the NBT, or any other agency acting on behalf of the government, is understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future points in time; these payments will discharge the principal and/or interest liabilities under the contract. Included are also commitments contracted or guaranteed for which value has not been received. Debts can take a number of forms, the primary ones being as follows: (i) loans, i.e., advances of money to obligor by the lender made on the basis of undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and (iii) leases, i.e., under which property is provided the lessee has the right to use one or more specified periods of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the program, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property.
17. Under the definition of debt above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition will not give rise to debt.3
18. External debt limits apply to the net disbursement of short term external debt (with an original maturity of up to and including one year); and contracting or guaranteeing of nonconcessional medium- and long-term external debt (with original maturities of more than one year) with sublimits on the contracting and/or guaranteeing of such debt with maturities of up to and including five years.
19. Short-term debt includes all short-term obligations excluding the reserve liabilities of the NBT, as defined in section D above and import credits. Debt denominated in currencies other than the U.S. dollar shall be valued in U.S. dollars at the exchange rate prevailing at the time of disbursement. Net disbursements of short-term external debt are defined as net changes in the stock of such debt, i.e., disbursements of new short-term obligations minus any amortization of existing obligations.
20. The medium- and long-term debt includes all nonconcessional loans with maturities of more than one year. Debt falling within these limits that are denominated in currencies other than the U.S. dollar shall be valued in U.S. dollars at the exchange rate prevailing at the time of contracting or guaranteeing takes place or at the exchange rate stipulated in the contract.
21. For the purposes of the program, the guarantee of a debt arises from any explicit legal obligation of the government or the NBT or any other agency acting on behalf of the government to service such a loan in the event of nonpayment by the recipient (involving payments in cash or in kind), or indirectly through any other obligation of the government or the NBT or any other agency acting on behalf of the government to finance a shortfall incurred by the loan recipient.
22. Concessionality will be based on currency-specific discount rates based on the OECD commercial interest reference rates (CIRRs). For loans of an original maturity of at least 15 years, the average of CIRRs over the last 10 years will be used as the discount rate for assessing the concessionality of these loans, while the average of CIRRs of the preceding six-month period will be used to assess the concessionality of loans with original maturities of less than 15 years. To the ten-year and six month averages of CIRRs, the following margins will be added: 0.75 percent for repayment periods of less than 15 years; 1 percent for 15-19 years; 1.15 percent for 20-30 years; and 1.25 percent for over 29 years. Under this definition of concessionality, only loans with grant element equivalent to 35 percent or more will be excluded from the debt limits. The debt limits will not apply to loans classified as international reserve liabilities of the NBT, or to loans contracted for debt rescheduling or refinancing.
II. Continuous Quarterly Targets
A. No Directed Credits by the NBT
23. The NBT will not issue any directed credits. This requirement will be monitored on the basis of changes in the NBT's balance sheets supported by the NBT's regular reporting on the results of its credit auctions, including interest rates, and amounts bid and received.
B. No New External Arrears
24. No new external arrears shall be accumulated at any time under the SMP. External arrears are defined as overdue debt service arising in respect of obligations incurred directly, guaranteed, or converted into interstate debt by the government of Tajikistan or the NBT, including penalties or interest charges.
C. Exchange and Payments Arrangements
25. Over the next six months, the Republic of Tajikistan will not: (i) impose or intensify restrictions on the making of payments and transfers for current international transactions; (ii) introduce or modify multiple currency practices; (iii) conclude bilateral payments agreements which are inconsistent with Article VIII of the IMF's Articles of Agreement; or (iv) impose or intensify import restrictions for balance of payments reasons.
D. No Expenditure Arrears of the Republican (Central) Budget
and of the Social Protection Fund
26. No new arrears of the republican budget on wages and of the Social Protection Fund on transfer payments to its regional offices shall be accumulated at any time under the SMP.
27. For purposes of the performance criterion, expenditure arrears shall be defined as any shortfall in monthly disbursements on wages and in transfers from the Social Protection Fund to its regional offices related to the planned payments. A monthly disbursement plan will be presented to the Fund staff by the 15th day of the month preceding the month of actual wage and pension payments.
28. To permit monitoring as defined above, the government will provide data on actual wage payments and on transfers from the Social Protection Fund to its regional offices to the IMF staff in the form of treasury reports and statements from the Social Protection Fund on a monthly basis no later than 14 days after the end of each month.
III. Quarterly Indicative Target
A. Reserve Money
29. Somoni reserve money of the NBT is defined as the sum of: (i) domestic currency issued by the NBT; (ii) deposits of commercial banks and other financial institutions held with the NBT; and (iii) deposit liabilities of the NBT with respect to the public. Deposits of the general government are excluded from reserve money, but are included under NDA. NBT reserve money liabilities with respect to commercial banks and other financial institutions comprise all deposits held by these institutions at the NBT, including required reserves and excess reserves held in the correspondent accounts, but excluding NBT liabilities held by commercial banks and other financial institutions in the form of short term NBT notes. Deposit liabilities of the NBT to the public include all deposits placed at the NBT, in domestic or foreign currency, by the nonbank public.
1Quantitative targets are based on a program exchange rate of SM 2.7 = US$1, and SDR = US$1.26, unless otherwise indicated.
2The change in net credit to general government in the NBT balance sheet may differ from the amount of NBT credit to the general government shown in the fiscal accounts as the NBT balance sheet revalues the stocks of the net general government according to the program exchange rate.
3In line with the Guidelines on Performance Criteria with Respect to Foreign Debt (Decision No. 12274-(00/85), adopted August 24, 2000).