Burundi and the IMF |
Press Release: IMF Approves US$13 Million in Post-Conflict Emergency Assistance for Burundi
May 5, 2003
Country's Policy Intentions Documents
of Intent, Memorandum of Economic and Financial Policies, and Technical
Memorandum of Understanding
Mr. Horst Köhler
Dear Mr. Köhler:
1. Recent advances with the peace process and economic recovery have improved prospects for Burundi after almost a decade of hostilities. In the spirit of the Peace and Reconciliation Agreement concluded in August 2000 in Arusha (Tanzania), national reconciliation is under way and substantial progress has been made. A global settlement of the conflict is now closer, after a cease-fire agreement was reached between the transition government with the two armed factions of the CNDD-FDD and with one faction of the Palipehutu-FNL (in the course of the last quarter of 2002 and in early 2003). In February 2003, some of the leaders of the rebel groups returned to Bujumbura in order to participate in the implementation of the cease-fire. At the same time, the African Union approved Burundi's request for help and its main committee responsible for settling conflicts has already begun to implement the accord to dispatch international military observers, who will supervise the implementation of the cease-fire. In addition, this committee is continuing to put pressure on the last holdout armed faction, which has not yet started negotiations.
2. Against this background, the approval in October 2002 by the IMF's Executive Board of a drawing under the post-conflict emergency assistance policy marked the resumption in Fund support to economic reform in Burundi after a decade long hiatus. This important step has helped catalyze the support of the international community, as underscored by the positive outcome of the November 2002 Geneva Round Table, where donors pledged US$981 million over the 2003-05 period in support of the peace process and national reconstruction.
3. Although successful to date, implementation of the program is taking place against a background of serious economic difficulties, including those posed by unfavorable terms of trade. Low world coffee prices have resulted in a major contraction in foreign exchange earnings, while higher oil prices have further strained Burundi's external position. This difficult outlook has further strengthened the government's resolve to follow sound policies to generate equitable and sustainable growth.
4. The government's updated program for 2003 is summarized in the attached memorandum of economic and financial policies. This program continues to address the immediate needs of security, humanitarian aid, and the rehabilitation of basic infrastructure, as well as to improve the macroeconomic environment. The main elements of the economic and financial program include the strengthening of fiscal and monetary policies, the implementation of major reforms of the exchange system, and efforts to normalize relations with external creditors.
5. In support of this program, the government of Burundi requests a second drawing from the IMF under the post-conflict emergency assistance policy in an amount equivalent to SDR 9.625 million (12.5 percent of quota). Satisfactory implementation of the program would in turn open the way for adopting a medium-term program aimed at reducing poverty and promoting strong and sustainable economic growth, which could be supported by an arrangement under the Poverty Reduction and Growth Facility (PRGF). With a view to concluding such an arrangement, the government has prepared a comprehensive national anti-poverty action plan that will serve as the basis for an interim poverty reduction strategy paper (I-PRSP).
6. The government believes that the economic and financial policies presented in the attached memorandum are adequate to address the difficulties faced by the country and achieve the objectives of the program. In any event, it will consult with IMF staff on the adoption of additional measures, should this prove to be necessary in the course of the program period. In addition, the government will report to IMF staff all information necessary to monitor program developments.
Memorandum on Economic and Financial Policies for 2003
April 11, 2003
1. The signing of a cease-fire agreement in Dar es Salaam in October 2002 and Arusha in December between the transition government and several armed opposition forces represented another important milestone in bringing closure to the internal conflict that devastated the country during most of the 1990s. In parallel, the government has pursued other steps under the Arusha Peace and Reconciliation Agreement of August 2000, which set conditions for power sharing and the social and economic rehabilitation of the refugee populations and internally displaced persons, which are essential for lasting peace and economic development. Of key significance among these steps was the setting up in February 2003 of the national commission to assist war victims (Commission nationale de réhabilitation des sinistrés—CNRS) that will enhance the government's efforts to address national reconciliation and social reintegration priorities. Despite the persistence of sporadic attacks by one holdout rebel group, the government continues with determination to seek peaceful solutions for the restoration of lasting peace and security.
2. The economic difficulties stemming from the conflict have been aggravated by the drop in the terms of trade, resulting especially from the fall of world coffee prices (the main foreign exchange earner), which have more than halved since 1997. Since 1992, GDP per capita has fallen by almost 30 percent in real terms, and social conditions have seriously deteriorated. It is estimated that two-thirds of the population live in absolute poverty, including about one million Burundians internally displaced or in refugee camps in neighboring countries. In addition, the spread of HIV/AIDS, which already affects 12 percent of the population, has strained the national health system, while the deterioration of the national education system has caused an increase in illiteracy. Against this difficult background, strong support from the international community, including through humanitarian assistance, remains crucial to improve living conditions in the context of the implementation of the Arusha agreement.
3. The government of Burundi is aware of the challenges ahead, and, following the progress recorded in 2002, remains determined to continue to implement its program for 2003 to ensure the consolidation of proper conditions for peace and economic recovery.
II. RECENT ECONOMIC DEVELOPMENTS
4. Program implementation during the second half of 2002 was hampered by delays in the release of external assistance, but performance was broadly satisfactory at end-2002. Taking into account the shortfalls in budgetary loans and grants, quantitative indicators for end-December 2002 were in line with projections, with the exception of the stock of external debt payments arrears and a minor occurrence of nonconcessional borrowing for the construction of a new embassy (Table 1). Two of the three structural indicators were also observed as envisaged, and the third one (setting up of the CNRS) was achieved in February 2003 (Table 2).
5. Economic activity continued to recover in the second half of 2002, boosted by reconstruction and the strong coffee crop, which doubled from the level recorded in the previous year. As a result, real GDP growth is estimated to have reached 4½ percent, which represented an increase in Burundi's per capita income for only the second time in a decade. However, despite some resumption of investment and the improvement in the global environment, activity in the manufacturing and services sectors remained subdued, in part due to the scarcity of foreign exchange. Buoyant agricultural output reversed the increase in consumer prices recorded in 2001, and the average rate of inflation turned out slightly negative in 2002. Nevertheless, consumer prices increased in the last four months of the year, following a 20 percent depreciation of the Burundi franc in August. Notwithstanding weak world prices for arabica coffee and lags in exporting the 2002/03 crop, the external current account deficit narrowed in 2002, owing to a contraction of imports reflecting foreign exchange shortages.
6. Fiscal developments during 2002 were broadly in line with the revised 2002 budget adopted in August. Mainly as a result of the deflationary environment, revenue collection was somewhat less than projected, but this was offset by lower expenditure. The disbursement of budgetary assistance toward the end of the year allowed the government to reduce its net indebtedness vis-à-vis the banking system. However, available resources were insufficient to step up debt-service payments to external creditors as planned under the program, as the bulk of external aid (notably from the World Bank and the European Union) was earmarked for other specific uses.
7. The policies implemented by the Bank of the Republic of Burundi (BRB) in the context of the program aimed, in particular, at improving the functioning of the foreign exchange market. All restrictions on discriminatory merchandise trade and related services, which had been in effect for the last two years, were eliminated in August 2002, and the BRB held weekly auctions of foreign exchange from September onward. The exchange rate differential between the official and parallel market exchange rates narrowed, but remained on the order of 20 percent (in foreign currency terms), compared with more than 30 percent during the first half of 2002, reflecting the scarcity of foreign exchange and difficulties in the operations of the auction market.
8. Reflecting unforeseen developments in the coffee sector, monetary policy was more accommodative than programmed in 2002, which resulted in overruns with respect to the net domestic assets objectives at end-September. Bank refinancing remained higher than expected at end-December 2002, but this was offset by higher government deposits. The expansion of credit and associated central bank refinancing during the second half of 2002 stemmed largely from the needs of the 2002/03 coffee crop, which exceeded program assumptions as to the amounts and their seasonal elements. Meanwhile, net official reserves recovered to reach US$27 million at end-2002, compared with an adjusted program target of US$22 million. Gross international reserves at end-2002 rose to US$60 million (equivalent to six months of imports of goods and services), but only less than one-half was readily usable.
III. OBJECTIVES AND STRATEGIES OF THE 2003 PROGRAM
9. The government's program for 2003 continues to focus on addressing Burundi's economic and financial difficulties and laying the basis for a significant improvement in living conditions. The main objectives are to (a) address the urgent needs for humanitarian assistance and the implementation of the Arusha peace process; (b) improve the functioning of basic infrastructure; (c) strengthen economic institutions; and (d) accelerate the liberalization of the economy to increase efficiency, stimulate supply, and promote growth and welfare. Determined support from the international community in the provision of humanitarian and financial aid is crucial to achieve the government's social and macroeconomic objectives. The government also continues to count on its international partners to support the peace process through mediation and to help monitor the implementation of the Arusha agreement.
10. To achieve its economic recovery objectives, the government will seek to enhance the steps already taken to (a) reduce macroeconomic imbalances; (b) improve economic policy instruments, notably in the areas of monetary and exchange rate policies; and (c) strengthen public finance management, so as to steer expenditure toward the social sectors, especially primary education and basic health care. As regards the structural agenda, the government aims at (a) improving business conditions, especially in the coffee sector; (b) strengthening public finance control mechanisms; (c) rehabilitating and developing basic infrastructure; (d) fighting poverty through job creation; and (e) promoting economic diversification and integration in the subregion.
11. The government aims to keep the rate of inflation at about 7½ percent (end-of-period basis) in 2003 through an appropriately restrictive monetary policy. It will also continue to keep the fiscal position under control, normalize relations with foreign creditors, improve monetary and exchange rate management, and maintain an adequate level of international reserves. To restore a sound macroeconomic and financial framework, fund its development plans, and alleviate the scarcity of foreign exchange, Burundi will continue to need foreign assistance on a large scale.
12. In spite of the expected consolidation of political and security conditions and the continuation of economic reforms, growth would be on the order of 1 percent only in 2003, reflecting a contraction in agricultural output in the wake of poor weather conditions early in the year. The external current account deficit is projected to widen to the equivalent of 8 percent of GDP in 2003, compared with an estimated 6 percent in 2002, taking into account in particular higher project-related imports.
A. Fiscal Policy
13. The 2003 program rests in good part on the efficient mobilization of resources to address the needs for emergency humanitarian assistance, reconstruction, and reintegration, while strengthening the country's overall financial situation. Thus, in 2003 the government intends to achieve broad improvements in social conditions while pursuing budgetary targets that are consistent with consolidation of the macroeconomic situation and the promotion of greater stability. In particular, fiscal management will support the central bank's policies, so as to contain inflationary pressures and help the development of financial intermediation.
14. The 2003 budget approved by the National Assembly in December 2002 provides for a primary budget deficit (excluding foreign-financed projects) equivalent to 1½ percent of GDP, compared with a surplus of 2 percent in 2002. This projection is predicated on government revenue collections of 19½ percent of GDP, compared with 20½ percent in 2002, and primary current expenditure broadly unchanged at 17½ percent of GDP. The turnaround in the primary budget balance essentially reflects the increase in capital expenditure associated with the World Bank's Economic Recovery Credit (of which the first tranche, for US$20 million, was disbursed in November 2002). The overall deficit, on a commitment basis, excluding grants, would reach 10 percent of GDP in 2003, compared with 5 percent in 2002. Externally financed capital outlays are projected at US$30 million in 2003, up by 45 percent compared with 2002.
15. The government will continue in 2003 ongoing efforts to enhance tax administration. The large-taxpayers' unit of the tax directorate started operations on January 1, and it is expected to improve gradually the collection of income and transaction taxes through enhanced monitoring of assessments and compliance. As part of Burundi's commitments under COMESA (the Common Market for Eastern and Southern Africa), and ahead of the adoption of the common external tariff in January 2004, the 2003 budget law reduced tariffs on intra-regional trade (to 20 percent of the normal rate); in addition, external tariffs have been lowered from a maximum of 100 percent to 40 percent, while tariff bands have been reduced from five to four. All domestic transactions on goods and services will be subject to the turnover tax from April onward, which will partly offset the loss of revenue from lower tariffs. Moreover, all export duties have been eliminated as part of the 2003 budget law, including the tax on coffee exports (which has not been enforced since the 1998/99 crop year).
16. The increase in primary current expenditure reflects the implementation of the government's commitment to recruit new teachers, raise salaries in the education sector, and unblock the freeze on promotions—which had been deferred for the last five years—and thereby correct an untenable situation in this sector. Current expenditure in the social sectors in the 2003 budget is projected at 5.3 percent of GDP, compared with 4.0 percent in 2002. Meeting this commitment necessitates containing the growth of other expenditures on goods and services. In addition, subsidies and transfers will decline in nominal terms (reflecting in particular the discontinuation of subsidies to the coffee sector). Military and security outlays will continue to decline relative to GDP (7 percent in 2003, compared with 7.2 percent in 2002 and 8 percent in 2001). To ensure adherence to the expenditure targets, monthly ceilings on commitments have been set under the direct authority of the Minister of Finance.
17. Public investment is projected to increase from 5 percent of GDP in 2002 to nearly 9 percent in 2003, reflecting stepped up project disbursements. This projection takes into account the pledges made at the Geneva Round Table of November 27-28, 2002. The public investment program gives priority to labor-intensive projects to rehabilitate and rebuild the social and economic infrastructure, and emphasizes rural development and poverty alleviation.
18. The government plans to service nonreschedulable debt and settle nonreschedulable debt-service arrears during the program period, subject to the availability of resources. On the basis of existing aid commitments, projected resources will not suffice to clear the stock of arrears outstanding at end-December 2002 (of nearly US$150 million). However, if additional resources were to become available, notably through the multidonor trust fund set up by the World Bank, the government will give priority to the settlement of arrears owed to multilateral creditors. As soon as possible, and before concluding an IMF-supported program under the Poverty Reduction and Growth Facility (PRGF), Burundi will adopt and begin to implement an appropriate strategy to regularize nonreschedulable arrears.
19. The program provides for an increase in net bank credit to the government by FBu 24½ billion in 2003, which corresponds in large part to the drawdown of the counterpart funds accumulated at end-2002. The government intends to step up the issuance of treasury bills at competitive rates, in order to cover part of the budget's financing requirement through the mobilization of domestic savings and foster the development of a domestic securities market.
B. Monetary and Exchange Rate Policies
20. The conduct of monetary policy will seek to keep inflation under control, maintain an adequate level of foreign exchange reserves, and preserve a competitive exchange rate. In this context, in the latter part of 2002 the BRB moved to tighten access to its refinancing window and rein in domestic liquidity—in particular through an increase in reserve requirements—so as to contain inflationary pressures.
21. The BRB's room for maneuver was curtailed in 2002 by the priority attached to the financing needs of the coffee sector. Coffee crop credits continued to benefit from a preferential refinancing interest rate (10 percent, compared with a normal rate of 15½ percent since September 2002), which was eliminated by the central bank in December 2002. In addition, the BRB adopted in March 2003 a stricter system of penalties for exceeding refinance ceilings. Pending the introduction of more flexible procedures, it continues to make use, as necessary, of its discount rate and set bank refinance ceilings monthly (rather than quarterly) to ensure sufficiently tight liquidity conditions.
22. In line with recommendations of the IMF technical assistance mission of November 2002, the BRB intends to develop more flexible intervention procedures through the use of indirect monetary control instruments in the course of 2003. To this end, the BRB will adopt weekly liquidity auctions and introduce a marginal refinancing window at a penalty rate. At the same time, to facilitate monetary programming and control, the BRB will reform the system of mandatory reserve requirements, with reserves to be held in the form of deposits with the BRB rather than cash holdings, as is the case at present. Subject to the availability of technical assistance, the BRB will launch the new system by end-June 2003.
23. While there is no systemic problem of compliance with the key prudential requirements (in terms of solvency, liquidity, and the term structure of assets and liabilities), the IMF technical assistance mission noted overexposure in foreign currency by some of Burundi's seven commercial banks. In January 2003, the BRB issued a circular to regulate exposure in foreign currencies, which is presently limited at 20 percent of own funds. This limit will be reduced gradually to reach 5 percent by 2004 at the latest. To rebuild their foreign exchange positions, banks benefit from the recent unification of the export surrender requirement, and part of the resources available through the foreign exchange auction market. In the latter part of 2003, the BRB will consider the possibility of lowering further the surrender requirement for all goods and services.
24. The 2003 program features a projected growth rate in money supply of 14 percent and a drawdown of official reserves of US$12 million. The reserve target is predicated on a limit in the increase of the BRB's net domestic assets of FBu 19 billion in 2003, equivalent to 12½ percent of broad money at end-2002.
25. Improving the functioning of the foreign exchange auction markets remains of key importance, both to ensure a better allocation of available resources and help safeguard foreign exchange reserves. Following the reforms initiated in August 2002, the BRB introduced new regulations for the foreign exchange auction market in December. The new regulations lifted limits on bid rates and administrative constraints on the use of foreign exchange bought through the auction market, and introduced a modified Dutch auction mechanism resulting in a single settlement rate for all foreign exchange transactions. In addition, the BRB lowered the export surrender requirement to a maximum of 70 percent for all commodities. Restrictions on the payment of dividends by private companies were lifted in March 2003.
26. The government hopes that competitive conditions will take root quickly and expects a gradual convergence between the official and parallel market exchange rates. In any event, over the immediate future, the success of the reforms will depend in large part on the availability of foreign assistance to supply the auction market adequately.
C. Structural Reforms
27. With the gradual improvement in security conditions, the government plans to step up implementation of its structural reform agenda in 2003. To this end, priority will be given to reforming the coffee sector, strengthening budget-auditing mechanisms, initiating the privatization of public enterprises, reforming the civil service, and implementing the government's poverty reduction plan (Programme social d'urgence du Cadre stratégique intérimaire pour la relance économique et la lutte contre la pauvreté), which was launched in April 2002. The government hopes that this plan will advance discussions during 2003 with the staffs of the IMF and World Bank on an I-PRSP in the context of a prospective PRGF-supported program. In support of this objective, and with assistance from its international partners, the government will also seek to develop and implement during 2003 expenditure tracking mechanisms that would allow better targeting and monitoring of social outlays.
28. Enhancing transparency and control over public finances is an important objective in the 2003 program. At present, there is neither an external budget-auditing mechanism nor procedures to account for budgetary execution to parliament. In accordance with the Arusha agreement, the government plans to set up an auditing court (Cour des comptes), which will be statutorily independent. To this end, a draft law was submitted to the National Assembly in March 2003, and the court will be formally set up as soon as possible after the law is promulgated. In the meantime, budgetary control—including defense and security budgets—continue to be exercised by the auditing services (Inspection des finances) of the Ministry of Good Governance.
29. Controlling the government's wage bill involves monitoring closely the civil service roster and payroll. The government plans to launch in 2003 a civil service census, and to implement a new payroll management system at the Ministry of Finance with technical and financial assistance from donors. A first stage of this operation entails the elaboration of an interim technical census and control procedures to verify the civil service roster. Pending the finalization of this operation, new recruitments have been limited to the health, education, and justice sectors, and to the newly set up transition institutions. In addition, the government is preparing the reintegration of civil servants presently exiled or internally displaced.
30. Burundi's external position remains dependent on developments in world coffee prices, which have been depressed during the last five years. This situation poses a major challenge to Burundi, insofar as prices may not fully recover given the new reality in world markets. The government intends to avoid subsidizing producer prices and will re-evaluate its policies in the cash crop sector. The objective is to reduce costs and the margins of all operators in the sector. To this end, by April 2003, the government will devise a formal mechanism to set the producer price in line with world prices and exchange rate developments; the price for the 2003/04 campaign will be announced by May 2003. Over the coming months, in collaboration with staffs from the World Bank and the European Union, the government will prepare a plan to liberalize the coffee sector and transform Burundi's coffee board (OCIBU) into a regulatory board.
31. The government intends to continue its program of public enterprise privatization as soon as conditions permit, and to withdraw gradually from commercial activities. To promote job creation, the government will also expand a series of labor-intensive public work projects financed with external assistance from multilateral and bilateral donors. Through the CNRS, which has begun to set its operational plans, the government will undertake to help the socioeconomic reintegration of refugees and internally displaced persons.
D. Technical Assistance
32. Burundi has vast technical assistance needs and the government will continue to work closely with its multilateral and bilateral partners to address priority areas in rebuilding administrative capacity. This includes, in particular, tax administration, civil service reform, monetary and exchange rate policy, and bank supervision. Assistance will also continue to be needed to improve the statistical apparatus, notably as regards the national accounts, balance of payments, and social indicators. As mentioned above, the BRB has begun implementing the recommendations of the November 2002 IMF technical assistance mission on liquidity management and foreign exchange operations. The BRB expects substantial technical assistance during 2003, which will be essential for implementing the planned monetary policy reforms.
IV. PROGRAM FINANCING
33. On the basis of program projections for 2003, external financing needs are estimated at US$359 million while available resources are US$159 million. Uses of resources take into account the clearance of external arrears, which were estimated at US$148.5 million at end-2002. Thus, there remains a financing gap of US$200 million (equivalent to 34 percent of GDP). At present, only part of this gap is expected to be covered by program loans and grants already committed from the World Bank, the European Union, bilateral partners, and disbursements from the multidonor trust fund for debt service set up with the World Bank; possible debt relief on bilateral debt and arrears; and a second drawing under the IMF's emergency post-conflict assistance policy. The government intends to continue discussions with its international partners to speed up the settlement of nonreschedulable external arrears and mobilize additional financing.
V. PRIOR ACTIONS AND PROGRAM MONITORING
34. The quantitative performance indicators for program monitoring are presented in Table 1. Table 2 summarizes the prior actions and performance indicators under the 2003 program. The definitions of these performance indicators are provided in the attached technical memorandum of understanding.
Technical Memorandum of Understanding
(April 11, 2003)
1. This technical memorandum of understanding sets out the terms and conditions for monitoring the implementation of the program and the reporting requirements for the government of Burundi. It defines: (a) the quantitative performance indicators and the applicable adjuster; (b) the prior actions and structural performance indicators; and (c) the key assumptions used in formulating the economic program for 2003 set out in the memorandum of economic and financial policies (MEFP) of the government of Burundi attached to the letter of April 11, 2003 from the Minister of Finance and the Governor of the Bank of the Republic of Burundi (BRB) to the Managing Director of the International Monetary Fund.
2. Program monitoring will be based on an assessment of the observance of the quantitative and structural performance indicators.
A. Quantitative Indicators and Adjuster
3. Quantitative indicators under the program are set on the basis of cumulative flows from January 1 of each calendar year or the basis of end-of-period stocks, and are set out in Table 1, Attachment I, as follows:
(a) A ceiling on the cumulative change in central government financing defined as the sum of the following flows: official program assistance loans and grants (excluding project assistance) minus interest on external debt, plus net accumulation of domestic and external arrears, plus other net domestic and external budget financing (excluding project loans, but including gap financing for the projections);1
(b) A ceiling on the end-period stock of net domestic assets of the BRB;
(c) A ceiling on the end-period stock of central government's external payments arrears;
(d) A ceiling on the outstanding stock of short-term external debt (maturity of less than one year) of the central government and the BRB;
(e) A ceiling on the new nonconcessional medium- and long-term external debt contracted or guaranteed by the government or the BRB; and
(f) A floor on the end-period stock of net international reserves of the BRB.
4. The program includes an adjuster for the quantitative indicators (a), (b), and (f), as specified in footnote 2 of Table 1, Attachment I, and explained in paragraph 11 below.
Definition and computation
5. Total financing of the central government is measured in accordance with accounting practices of the BRB and the Treasury, following the IMF format, and taking into account residual gap financing for program projections. For the period January 1-December 31, 2002, such financing totaled FBu -4.9 billion, broken down as follows:
6. A transfer of dividends from the BRB to the central government is programmed to take place in March 2003 in the amount of FBu 9.0 billion. Any excess payment from the central bank over this amount will be treated as bank financing (rather than government revenue) and counted against the 2003 ceilings.
7. The net domestic assets of the BRB are defined as the difference between (a) the amount of reserve money, comprising currency in circulation, reserves of commercial banks, and other deposits held at the BRB; and (b) the amount of net foreign assets of the BRB, including the counterpart to the use of Fund resources (see below). Net domestic assets of the BRB totaled FBu 20.8 billion at end-December 2002, broken down as follows:
8. The stock of external payments arrears corresponds to the amount at the end of period of external debt service due and not paid, including contractual and late interest. The government's external payment arrears were estimated at US$148.5 million at end-December 2001, broken down as follows:
9. Indicators relating to external debt include a ceiling on new nonconcessional external debts contracted or guaranteed by the government, and a ceiling on the stock of short-term external debt owed by the central government and the BRB, with a maturity of up to one year (one year included). The latter does not cover normal import credits. Medium- and long-term loans have an initial maturity, as recorded in the original loan agreement, of more than one year. This performance criterion applies not only to debt, as defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt, adopted on August 24, 2000, but also to commitments contracted or guaranteed for which value has not been received (including leasing). Excluded from this performance criterion are rescheduling arrangements and borrowing from the Fund. The concessional nature of debt will be ascertained on the basis of the commercial interest reference rates (CIRRs), as laid out by the Organization for Economic Cooperation and Development (OECD). A debt is said to be at concessional conditions if, on the date of its initial disbursement, the ratio between the present value of the debt computed on the basis of reference interest rates, on the one hand, and the face value of the debt, on the other hand, is less than 50 percent (equivalent to a grant element of at least 50 percent). The short-term debt outstanding was nil as of end-December 2002, and the nonconcessional medium- and long-term debt contracted in 2002 was US$0.7 million.
10. The net foreign assets of the BRB are defined as the difference between (a) foreign exchange assets and gold holdings (valued at market prices), and (b) foreign exchange liabilities to nonresident entities (including the use of Fund resources, but excluding the counterpart of SDR allocations). For monitoring purposes, the definition used in Table 1 excluded the liabilities vis-à-vis the IMF arising from the post-conflict emergency assistance drawing through December 2002. The new definition used from 2003 onward takes into account all liabilities to the IMF. These amounts are valued in terms of U.S. dollars based on end-of-period exchange rates. The net external assets of the BRB totaled FBu 28.9 billion, equivalent to US$27.0 million, at end-December 2002, broken down as follows:
11. The program provides for a symmetrical adjuster (upward and downward) that applies to quantitative indicators on aggregate government financing, the net domestic assets of the BRB, and the net external assets of the BRB, based on deviations (excess or shortfall) on nonproject external financing (namely, budgetary support, measured in terms of U.S. dollars, as indicated as a memorandum item in Table 1). In case of a positive deviation (or, respectively, negative) of nonproject external financing, the ceiling on aggregate government financing will be raised (lowered), the ceiling on the net domestic assets of the BRB will be lowered (raised) and the floor on the net external assets of the BRB will be raised (lowered) by an amount equivalent to 75 percent of the recorded deviation. External financing will be converted in terms of Burundi francs on a quarterly basis, using the average official exchange rate.
B. Prior Actions and Structural Indicators
12. The prior actions implemented in December 2002 and March 2003 listed in Table 2 of Attachment I are the following:
(a) Adoption by the National Assembly of a budget for 2003 in line with program objectives;
(b) Unification of the BRB refinancing window (elimination of preferential refinancing for new coffee crop credits);
(c) Adoption of a stricter system as regards penalties for exceeding refinance ceilings (penalty rate applied on the outstanding refinancing, rather than on the amount in excess of the ceiling); and
(d) Elimination of exchange restrictions on the payment of dividends by private companies.
13. The structural indicators for 2003 listed in Table 2 of Attachment I are the following:
(a) Holding of regular weekly foreign exchange auctions at the BRB, with results to be reported weekly;
(b) Submission to the National Assembly of a draft law for a new auditing court (Cour des comptes);
(c) Adoption of a formal mechanism to set domestic producer prices of coffee in line with world prices and exchange rate developments, and announcement of the price for the 2003/04 campaign;2 and
(d) Adoption of weekly liquidity auctions and introduction of a marginal refinancing window at a penalty rate; and reform of the system of mandatory reserve requirements, with reserves to be held in the form of deposits with the BRB.
C. Key Program Assumptions
14. The main program assumptions are as follows:
D. Provision of Information to IMF Staff
15. To facilitate the monitoring of program implementation, the Burundi government will prepare a monthly report within five weeks from the end of each month, which will be sent to IMF staff. In addition, the staff of the monitoring committee (technical bureau of the Secrétariat Permanent de Suivi des Réformes Économiques et Sociales—SP/REFES) will forward each month to the African Department of the IMF, by facsimile or electronic mail, the data required for program monitoring. These data will include, in particular, the following:
(a) The monetary survey, the position of the central bank and of commercial banks;
(b) The financial position of the government vis-à-vis the banking system;
(c) A detailed breakdown of government revenue;
(d) A detailed breakdown of government expenditure on a commitment basis;
(e) A detailed breakdown of the servicing of domestic and external public debt, including amounts due and paid, in interest and principal, as well as the detail by creditor and any accumulation of arrears on domestic or external debt;
(f) A detailed breakdown of the stock of domestic payments arrears and cumulative flows from January 1, 2003; the accumulation of new arrears is defined as the difference between commitments and actual payments (on a cash basis, as reported in the cash statement summary—Reddition des comptes);
(g) The amount of new debts contracted or guaranteed by the government, including detailed information on its conditions (such as currency denomination, interest rate, grace period, maturity);
(h) Actual disbursements of nonproject financial assistance, including new loans and debt relief granted by Burundi's external creditors;
(i) The weekly balance sheet of the BRB and the outcome of weekly foreign exchange auctions, including the allocated amounts and exchange rate levels, as well as the level of buying and selling exchange rates used by commercial banks and those observed on the parallel market;
(j) Indicators and other statistical data to allow an evaluation of macroeconomic developments, such as the consumer price index, indices of manufacturing output, merchandise imports and exports (volume and value), with a breakdown by main categories; and
(k) An update on the implementation of structural measures planned under the program, as summarized in Table 2 of Attachment I.
16. The SP/REFES will also provide the African Department of the IMF with any information that is deemed necessary to ensure an effective monitoring of the program.
1 Nonproject assistance is defined as all external financing, in the form of loans or grants, that generates counterpart funds with the banking system, and/or are spent with the concurrence of the Budget Directorate.
2 The producer price will be set for fully washed coffee only, given that the price for washed coffee will be liberalized in the 2003/04 campaign.