Burundi and the IMF |
Press Release: IMF Approves a Three-Year US$104 Million Arrangement Under the Poverty Reduction and Growth Facility for Burundi
January 23, 2004
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. Burundi has made substantial progress in the implementation of its program, which was supported by two drawings under the Fund's post-conflict emergency assistance policy, in October 2002 and May 2003. Our medium-term strategy for 2004-06 is described in the attached memorandum of economic and financial policies (MEFP). The objectives and policies in the MEFP are drawn in large part from the government's interim poverty reduction strategy paper (I-PRSP-Cadre stratégique intérimaire de croissance économique et de lutte contre la pauvreté), which was separately sent to you and the President of the World Bank on November 7, 2003. In support of this program, we are requesting a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) in the amount of SDR 69.3 million (90 percent of quota). Of this total, an amount equivalent to 25 percent of quota would be used to repay outstanding drawings under the post-conflict emergency assistance policy.
2. The government will provide the Fund with all information necessary to monitor developments and achieve the objectives of the PRGF-supported program in a timely manner. It will conduct the first review of the three-year PRGF arrangement with the Fund no later than September 30, 2004.
3. The government believes that the economic and financial policies set forth in the attached memorandum are adequate to achieve the objectives of the program, but it will take any further measures that may become appropriate for this purpose. Burundi will consult with the Fund on the adoption of these measures in advance of revisions to the policies contained in the MEFP, in accordance with the Fund's policies on such consultation.
4. We are keen on making the contents of this letter and those of the attached MEFP and technical memorandum of understanding (TMU), as well as the staff report on the request for the three-year PRGF arrangement, available to the public and hereby authorize their posting on the Fund's website subsequent to Executive Board consideration.
on Economic and Financial Policies
1. This memorandum summarizes recent developments, outlines the government's medium-term objectives and policy framework, and sets out the economic and financial policies under the 2004 program for which the government is requesting Fund support under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The policies and objectives of the program are drawn in large part from the interim poverty reduction strategy paper (I-PRSP), consistent with the orientations laid out under the Peace and Reconciliation Agreement concluded in Arusha (Tanzania) in August 2000.
A. Political Transition and the Peace Process
2. As envisaged under the Arusha agreement, there have been further advances with the political transition and the peace process during the last few months. In particular, a peace agreement was signed with most rebel forces in late 2002, and the midterm presidential rotation took place as scheduled on April 30, 2003. An African peacekeeping force and military observers have been deployed throughout the country under a mandate from the African Union, and cantonment centers have been set up as part of the launch of the disarmament, demobilization, and reintegration (DDR) of combatants. In spite of the refusal so far of one extremist rebel faction to enter into negotiations, the government continues to hope that a global settlement can be reached soon and that the transition period will conclude as scheduled in October 2004, following the organization of national elections.
3. The government has begun addressing the plight of refugees and internally displaced persons, who number nearly 1 million (including an estimated 550,000 refugees in Tanzania). To step up action and improve coordination in this area, a national commission to assist war victims (CNRS—Commission Nationale de Réhabilitation des Sinistrés) was set up in February 2003, and it has already started its work. The CNRS will be an important instrument to support national reconciliation, notably by promoting the return of displaced populations and refugees, and it should serve as a vehicle to channel donor support.
B. Recent Economic Developments
4. Reflecting improved security conditions in various parts of the country and favorable weather, real economic growth reached an estimated 4½ percent in 2002. However, poor rainfalls early this year compromised agricultural output, and, despite a continued recovery in the secondary and tertiary sectors, it is estimated that real GDP has fallen by 1 percent in 2003. Inflation has been deeply influenced by volatile food prices, which caused the 12-month rate to increase slightly in 2002 (to 3½ percent in December) and to rise again in 2003 (to 8 percent as of September). Underscoring an improvement in the external position in 2002-03, the Bank of the Republic of Burundi (BRB) strengthened its net international reserves from the equivalent of 2 weeks of import cover in June 2002 to 3½ months in September 2003 (although only two-thirds of the total was readily usable, as the timing of disbursements must be agreed upon with donors).
5. The financial program is broadly on track, reflecting the maintenance of a prudent fiscal stance during 2002-03 and support from the donor community. Government revenue collection is expected to reach 20 percent of GDP in 2003, or about the same level as in 2002. Progress has been recorded with the administration of domestic taxes, following the setting up of a large taxpayers' unit at the tax directorate, effective January 1, 2003. The impact of the lowering of customs duties for goods originating from other countries in the Common Market for Eastern and Southern Africa (COMESA) has been limited. Meanwhile, control over expenditure has been tight, thanks in part to the setting of monthly ceilings on departments' commitments. In addition, the wage bill has been somewhat below the initial allocation as a result of controls on the civil service roster. The primary budget deficit (excluding foreign-financed projects) is projected at 0.3 percent of GDP in 2003, which represents an improvement of 1 percentage point relative to the original budget; this compares with a surplus of 2 percent of GDP in 2002. The small deficit in 2003 reflects in part spending out of the World Bank's Economic Rehabilitation Credit (ERC).
6. Monetary developments have reflected the tightening of liquidity conditions since late 2002. At end-September 2003, broad money growth had slowed to 24½ percent, compared with 30 percent at end-December 2002. The growth of domestic credit also slowed, mainly as a result of a contraction in loans extended to the coffee sector (the harvest in 2003/04 is much smaller than in 2002/03). The improved foreign reserve position was the result of large aid disbursements, including the second tranche of the ERC, as well as substantial export receipts from the 2002/03 coffee crop. In view of the recent slowdown in inflation and improved overall conditions, the BRB lowered its base refinancing rate by 1 percentage point to 14.5 percent in early December 2003. As a result of delays in the provision of the required technical assistance, the central bank has not yet been in a position to switch to indirect instruments of monetary control, as planned under the program.
7. The exchange rate differential between the official and parallel markets has declined from 30 percent in mid-2002 to less than 15 percent (in foreign currency terms) in recent months. The measures implemented so far by the BRB to improve the functioning of the foreign exchange auction market—including the adoption of a modified Dutch auction system, the lowering of the surrender requirement on traditional exports (coffee, tea, and cotton), and the lifting of restrictions on the payment of dividends—have not been sufficient to narrow the differential further. Additional measures have been implemented recently in this area (see para. 28 below). The government believes that the current level of the exchange rate is broadly appropriate, provided that coffee prices remain at least at their current level (about US$0.65 per pound) on the international market and that the differential continues to narrow.
8. Reflecting concerns over the availability of foreign exchange for import payments, the government was not able to effect in full its nonreschedulable debt-service payments during the first half of 2003. Nevertheless, payments have recently increased, reflecting in particular the activation of the World Bank-managed trust fund for multilateral debts. In particular, the debt service due to the African Development Bank in 2003 has been paid in full. The resumption of payments to all multilateral creditors is an essential prerequisite for the normalization of relations with those creditors—which in due time should open the way for new project and program aid.
9. The implementation of structural reforms has continued to focus on setting up the transition institutions envisaged under the Arusha agreement. Accordingly, the CNRS was established in early 2003 and a law to set up an auditing court of public accounts (Cour des Comptes) was approved by Parliament in November. Other important actions included the completion of the census of civil service employees in June 2003, preparations for a new civil service statute, and the privatization of two state enterprises.
10. As planned under the program, albeit with some delay, the government set in June 2003 the producer prices for fully washed coffee for the 2003/04 crop year. However, no formal price mechanism was adopted, pending the finalization of a comprehensive strategy to reform the sector (see below, para. 33). The deficit of the coffee sector in 2002/03 turned out substantially larger than earlier projected (FBu 6 billion, compared with an allocation of FBu 1.5 billion in the 2003 revised budget law), mainly reflecting persistently weak prices on the international market and a sizable qualitative discount for Burundi coffee.
11. The performance under the program supported by the Fund's post-conflict emergency assistance policy is summarized in Table 1 of this annex. All quantitative indicators at end-March, end-June, and end-September 2003 were met. The structural indicator relating to the price mechanism for the producer price of coffee was not implemented, and the indicator relating to the changes in the BRB's monetary policy operations could not be met because of delays in the provision of the required technical assistance.
III. Medium-Term Framework and Policies
12. The main orientation of the government's medium-term policies are drawn from the principles laid out in the Arusha agreement of August 2000 and the priorities set in the I-PRSP. The latter was issued in April 2002 and subsequently revised in November 2003. The I-PRSP, which underscores the launching of an unprecedented medium-term effort to fight poverty in Burundi, was prepared in the context of extensive consultations with private and public stakeholders and supported by the donor community. Such a broad participatory process, including with the civil society, and the consensus on its importance to address difficult social issues make the I-PRSP an invaluable instrument for promoting national unity and economic development.
A. Main Objectives and Medium-Term Strategy
13. In order to reduce poverty substantially over the medium to long run, it is essential to promote strong, lasting, diversified, and equitable economic growth. To this end, the I-PRSP is articulated around the following themes: (a) promoting peace and good governance; (b) reforming the macroeconomic framework and promoting high-quality economic growth; (c) developing human capital; (d) reintegrating and resettling conflict victims and disadvantaged groups into the economy; (e) combating HIV/AIDS and sexually transmitted diseases; and (f) advancing the role of women in development.
14. The growth and social objectives pursued under the I-PRSP are underpinned by a comprehensive macroeconomic framework that aims at improving key indicators over the medium term. In particular, the government intends to (a) increase real growth to about 5 percent per year; (b) raise public spending on the social sectors from 6 percent of GDP in 2003 to 7 percent in 2004 and 10 percent by 2006; (c) lower inflation to about 4-5 percent annually; (d) maintain gross official foreign reserves at six months of imports of goods and services; (e) limit the deficit of the external current account to levels that can be financed by grants and loans on highly concessional terms; and (f) reduce the debt stock and debt-servicing ratios substantially.
B. Sources of Economic Growth
15. The progress of the peace process should result in substantial improvement in the overall conditions for economic growth. The government has identified several sources for growth in the short and medium run, which will be exploited as far as possible as part of the poverty reduction strategy. In the short run, the government will foremost endeavor to increase productivity in the agriculture sector, which still accounts for about 50 percent of GDP in 2002-03. This aim is related to the broader objective of developing the rural economy. Strong potential also exist in the mining sector, services, and tourism. In the medium and long run, modernizing and diversifying exports, as well as developing manufacturing and other activities in the small and medium-sized enterprise sector, are important potential sources of growth.
C. Poverty Reduction Policies
16. The above-mentioned objectives are underscored by the many specific aspirations expressed by the Burundi population during the I-PRSP consultations. In particular, these include: (a) increasing employment; (b) improving agricultural productivity and reducing pressure on land use; (c) diversifying the economy; (d) reducing dependency on foreign aid; (e) containing the HIV/AIDS pandemic; (f) advancing the role of women in society; (g) resolving all conflict-related issues, which implies notably the reintegration of refugees and the resettlement of internally displaced persons; and (h) promoting peace, security, and good governance.
17. The I-PRSP emphasizes transparency and accountability in the management of public affairs, as well as greater decentralization in decision making. Accordingly, structural measures will cover the institutional reforms necessary to achieve those objectives, including the setting up of an auditing court to review public sector accounts. Other structural reforms will focus on the diversification of Burundi's production and export resource base away from the distressed coffee sector—a move that will be essential for sustained growth. Improving the performance of Burundi's parastatal sector will entail privatizing public enterprises and implementing more efficient management and cost recovery mechanisms.
18. Determined support from the international community in the provision of humanitarian and financial aid will be crucial to achieve the objectives of the I-PRSP. Considering the high ratio of the net present value of external debt to export earnings (about 700 percent at end-2002), the government expects to secure debt relief under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative), which will help increase the resources available for implementing the antipoverty programs contained in the I-PRSP. The government also hopes that progress in the PRSP process and successful implementation of the PRGF-supported program will serve as catalysts for foreign assistance on a large scale.
IV. The 2004 Program
A. Macroeconomic Objectives
19. The strategy for 2004 builds on achievements to date under the post-conflict program. It focuses on the implementation of the I-PRSP to consolidate progress with the peace process and macroeconomic stabilization. The immediate challenge is to ensure appropriate conditions for a strong resumption of real economic growth in 2004 and thus make up for the contraction expected in 2003 owing to the poor weather. With the expectation of a return to normal agricultural production next year, the government projects real economic growth of 5 percent in 2004 and will aim at lowering the 12-month rate of inflation to 5½ percent by year's end.
20. The short-term outlook remains dependent on the ongoing regional and domestic political tensions, which impose caution in projecting economic growth for the years ahead. However, as the situation normalizes and peace takes hold fully throughout the country, enabling refugees and internally displaced persons to return to productive activity, the potential for output growth is high, as Burundi's GDP remains some 30 percent below its pre-conflict level. In addition, an eventual recovery in world coffee prices could significantly improve domestic production and incomes well in excess of current projections.
21. The external current account deficit is projected to hover at 9-10 percent of GDP in 2004 and beyond, mainly reflecting the large needs for reconstruction and development. The government will aim at raising its savings gradually, although the scope for such improvement will remain limited. In particular, the primary budget balance (excluding foreign-financed projects) is to remain about nil in 2004. With the expected increase in external aid disbursements, mainly for project implementation, the government deficit, on a commitment basis and excluding grants, is projected to remain on the order of 10 percent of GDP in 2004. Private sector savings are projected conservatively at 3-4 percent of GDP in 2004, assuming a substantial improvement in the terms of trade.
B. Fiscal Policy
22. The fiscal program for 2004 aims to provide for essential outlays for the consolidation of peace and improved social conditions, while maintaining the cautious fiscal stance of the last two years. This implies striving for overall deficits that can be financed with available concessional assistance and a primary budget close to balance in 2004. The priority attached to social spending will require continued control over the government wage bill and other current expenditures, including subsidies and transfers.
23. The fiscal objectives under the program are reflected in the budget law for 2004 which is expected to be approved by Parliament in December 2003 (a prior action under the program). The current projections do not take into account the costs of DDR operations that will be launched shortly. Financing for such operations is expected to be provided through donor assistance, including the World Bank-managed Multi-Country Demobilization and Reintegration Program.
24. At about 20 percent, the ratio of government revenue to GDP is high by regional standards. The government is working to rationalize the tax system, with technical assistance from the Fund and bilateral sources, especially to improve the efficiency of revenue collection and strengthen control over exemptions. The top rate for corporate and personal income tax has been lowered from 40 percent to 35 percent in the context of the 2004 budget. In addition, the transactions tax will be gradually extended to cover all domestically produced goods and services from January 1, 2004 onward. These endeavors will lead to a widening of the tax base and are expected to make up for a small loss of revenue in 2004 from the inception of the COMESA free trade area. The government intends to introduce a value-added tax system in 2005, at the same time it adopts the common external tariff of COMESA, which will lower the tariff rates and rationalize the structure of customs duties.
25. Noninterest expenditure is projected to increase by about 8 percent in 2004, compared with 24 percent in 2003. The government's wage bill is set to increase by 6½ percent in 2004, compared with 20 percent in 2003 (this latter reflects the hiring of new teachers and the granting of long-delayed seniority raises). To underscore its commitment to a prudent wage policy, the government has set quarterly ceilings on the wage bill, which will be a quantitative indicator under the PRGF-supported program. In the short run, the costs associated with the constitution of a unified national army will limit the extent of reductions in military outlays from the winding down of hostilities.
26. Capital expenditure will continue to be financed mostly from external aid disbursements. The public investment program continues to place priority on labor-intensive projects to rehabilitate and rebuild the social and economic infrastructure, and emphasizes rural development and poverty alleviation. Aggregate poverty-related expenditure (as defined in the I-PRSP) is set to increase from 38 percent of primary expenditure in the 2003 revised budget to 44 percent in 2004. The latter amount does not take into account possible debt relief under the enhanced HIPC Initiative, from which the government hopes to benefit by early 2005.
27. As a preamble to the normalization of relations with external creditors, the government has stepped up payments on multilateral debt service. Throughout the program period, it will settle all nonreschedulable debt service due in a timely manner. To this end, the ceiling on the stock of external debt payments arrears will be a performance criterion under the PRGF-supported program.
C. Exchange Rate and Monetary Policies
28. The government gives a high priority to eliminating the persistent exchange rate differential between the official and parallel markets, which constitutes a serious obstacle to an efficient allocation of foreign exchange. In the short run, the BRB will intensify its efforts to improve the functioning of the foreign exchange system. To this end, measures have been implemented since March 2003 to facilitate the opening of foreign exchange bureaus, and all remaining restrictions on current account transactions have been eliminated effective September 8, 2003 (a prior action under the program). As a result, there only remain reasonable limits on allowances for education, travel, and health care, which are waived in justified cases. In addition, the BRB has simplified procedures for the acquisition of foreign exchange for small-scale imports, which should help promote reexport trade.
29. The BRB is committed to a floating exchange rate system, which should allow for movement in the exchange rate in line with developments in the supply and demand for foreign exchange. Nevertheless, it will continue taking a proactive approach in its management of the foreign exchange auction market by refusing excessively low bids that could suggest the possibility of collusion among commercial banks. To facilitate the operations of commercial banks, the foreign exchange surrender requirements on traditional exports will be lowered further from 70 percent to 50 percent by end-December 2003.
30. The BRB plans to maintain a tight monetary stance to support the low inflation objective. The main instrument for achieving this aim is the targeting of reserve money growth through the imposition of refinance ceilings (moreover, coffee crop credits no longer benefit from a preferential interest rate). By June 2004, subject to the provision of timely technical assistance, the BRB will introduce indirect instruments of monetary control, which would provide more flexibility and improve monetary policy response (a performance criterion). In the meantime, the refinancing interest rate will be adjusted periodically in line with changes in the trend for the underlying rate of inflation, and the BRB will continue enforcing strictly its refinance ceilings through the imposition of penalties on overdrafts. In addition, the system of mandatory reserve requirements has already been modified to allow banks to maintain reserves in the form of deposits with the BRB (rather than exclusively in cash, as in the past).
31. Burundi's financial sector remains generally sound, and most banks meet the prudential requirements in terms of liquidity, solvency, and the term structure of assets and liabilities. However, following the tightening of provisioning requirements in March 2003, two commercial banks have seen their capital seriously eroded and need to be recapitalized urgently. The BRB has taken appropriate measures so that these banks meet all prudential requirements by March 2004 at the latest (a structural indicator regarding the minimum capital). Continued efforts will be made to strengthen bank supervision, and the existing prudential requirements will be tightened gradually to meet international standards.
D. Structural Reforms
32. The government will endeavor to step up implementation of its structural reform agenda, especially with a view to fostering an enabling environment for private sector activity. The program laid out in the I-PRSP and discussed in detail with Fund staff provides for a series of measures to improve governance, including the setting up of an auditing court by March 2004 (a structural performance criterion), facilitate private sector development, and strengthen the monitoring and accounting of public finances. The government also expects to initiate a reform of the civil service in 2004, accelerate the privatization of public enterprises, and submit to Parliament a draft law on bankruptcy. Most of the structural reforms will be monitored with the help of World Bank staff as part of its Transitional Support Strategy.
33. A comprehensive strategy to address the weaknesses of the coffee sector is being developed with the support of the World Bank and the European Union. While several options are being considered, the main orientation is to liberalize the sector and in due course to transform the coffee parastatal (OCIBU) into a regulatory agency and privatize processing plants. The main measures with respect to the liberalization of the coffee and tea sectors will be a topic for discussion with Fund staff in the context of the first review under the PRGF arrangement. In the meantime, in view of the difficulties faced by this sector, the government is committed to taking appropriate measures to improve its financial situation. To this end, an auditing team from the Ministry of Finance (Inspection générale des finances) has been dispatched to assess the operations account of the sector. Moreover, the government has requested technical assistance from the World Bank in order to benefit from long- term accounting and financial expertise.
E. Program Financing and External Debt Management
34. On the basis of program projections for 2004, gross external financing needs are estimated at US$391 million, while available resources are US$196 million. The uses of resources take into account the clearance of external arrears for an amount estimated at US$145 million. Thus, there remains a financing gap of US$196 million (30 percent of GDP) in 2004. This external financing requirement is expected to be covered as follows: US$117 million in debt relief from official creditors, which the government expects to secure on standard concessional terms; and US$80 million in program grants and loans already committed from bilateral and multilateral donors (including the European Union, the World Bank, Belgium, and France, as well as the trust fund for multilateral debts managed by the World Bank).
35. Closing the financing gap requires substantial efforts on the part of the government and the BRB to mobilize the resources needed to meet essential debt-servicing obligations. The government expects that adequate arrangements will be found rapidly with all creditors, including the African Development Bank, to secure new program aid disbursements that would result in positive net transfers from 2004 onward, especially considering Burundi's post-conflict situation. It is expected that Burundi will be in a position to meet its essential debt-service payments, provided that the trust fund for multilateral debts is well funded and that projected balance of payments support is secured in a timely manner.
36. The government is determined to pursue prudent debt-management policies and to strive to reach a sustainable external debt position. Given the heavy external debt burden and the contraction in export earnings since the late 1990s, Burundi intends to seek debt relief under the enhanced HIPC Initiative as early as conditions permit.
F. Safeguards, Statistical Issues, and Technical Assistance
37. The BRB is committed to maintaining its financial soundness, along the principles of good governance and best practice as encapsulated in the Fund's safeguards guidelines. In this regard, the BRB will provide the Fund with all the required documentation for the PRGF arrangement. In addition, it will strengthen its existing financial supervision apparatus to fight money laundering and the financing of international terrorist organizations.
38. 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. These include, in particular, tax administration, civil service reform, monetary and exchange rate policy, and bank supervision. Assistance will also continue to be needed to improve economic statistics, notably as regards the national accounts, balance of payments, and social indicators. The BRB has begun implementing some of the recommendations of the November 2002 Fund technical assistance mission on liquidity management and foreign exchange operations. However, further substantial technical assistance will be essential for implementing the planned monetary policy reforms.
V. Prior Actions, Program Monitoring, and Contingencies
39. The prior actions, performance criteria, and structural benchmarks under the 2004 program are presented in Table 2 of this annex. Table 3 summarizes the quantitative performance indicators for program-monitoring purposes. The definitions of these performance indicators are provided in the attached technical memorandum of understanding. The standard clauses on overdue financial obligations to the Fund, new exchange restrictions, multiple currency practices, bilateral agreements inconsistent with Article VIII of the Fund's Articles of Agreement, and import restrictions for balance of payments purposes are also applicable as performance criteria.
40. Burundi's three-year program is ambitious and faces numerous challenges. To provide for contingencies, the monitoring framework includes an adjustment mechanism (described in detail in the technical memorandum of understanding, para. 17) relating to deviations in nonproject external assistance from program projections. In addition, the government stands ready to adopt new measures in the fiscal or monetary areas, in consultation with Fund staff, were this to prove necessary.
41. The government is aware that the first review under the PRGF arrangement scheduled to be completed by September 2004 would be conditional upon the observance of performance criteria at end-June 2004 (Table 4 of this annex). The review would focus on fiscal and exchange rate developments, and on the definition of reform programs for the coffee and tea sectors. Drawing on such programs, structural conditionality may be set at the time of the review.
Table 3. Burundi: Quantitative Performance Criteria and Indicators
Technical Memorandum of Understanding
December 31, 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 (i) the prior actions and structural performance criteria and indicators; (ii) the quantitative performance criteria and indicative targets and the applicable adjuster; and (iii) the key assumptions used in formulating the economic program for 2004 set out in the memorandum of economic and financial policies (MEFP) of the government of Burundi annexed to the letter of December 31, 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 criteria and indicators.
3. The prior actions implemented in September-December 2003 listed in Table 2 of Appendix I, Attachment I, Annex I are the following:
• elimination of all remaining exchange restrictions on current account transactions, as well as on bona fide amortization payments, through issuance of a BRB circular;1 and
• adoption by Parliament and promulgation of a budget law for 2004 in line with program objectives.
4. The structural performance criteria listed in Table 2 of Appendix I, Attachment I, Annex I are the following:
• setting up of the new auditing court (Cour des comptes), through approval of an executive order appointing the magistrate members of the court; and
• 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 through issuance of relevant central bank regulations.
5. The structural indicators listed in Table 2 of Appendix I, Attachment I, Annex I are the following:
• extension of the transactions tax to domestically produced goods and services though the approval of a appropriate legal provision by Parliament and issuance of a regulatory order by the government; and
• assessment to ensure that all banks in operation meet the minimum capital requirement, that is, at least FBu 1.5 billion net of provisions as required by the BRB.
Quantitative performance criteria and indicators
6. Quantitative performance criteria and indicative targets under the program are set on the basis of cumulative flows from January 1 of each calendar year or on the basis of end-of-period stocks, and are set out in Table 3, Appendix I, Attachment I, Annex I, as follows:
• a floor on the end-period stock of net external assets of the BRB;
• a ceiling on the end-period stock of net domestic assets of the BRB;
• a ceiling on the end-period stock of net credit from the banking system to the government;
• a ceiling on the end-period stock of central government's external payments arrears;
• a ceiling on the outstanding stock of short-term external debt (maturity of less than one year) of the central government and the BRB; and
• a ceiling on the new nonconcessional medium- and long-term external debt contracted or guaranteed by the government or the BRB.
7. The program includes an adjuster for the first four quantitative indicators, as specified in footnote 2 of Table 3, of Appendix I, Attachment I, Annex I, and explained in paragraph 18. below.
• a floor on the primary budget balance, excluding externally financed projects; and
• a ceiling on the government's wage bill.
Definition and computation
9. The net foreign assets of the BRB are defined as the difference between (i) foreign exchange assets and gold holdings (valued at market prices), and (ii) foreign exchange liabilities to nonresident entities (including the use of Fund resources, but excluding the counterpart of SDR allocations). 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 41.2 billion, equivalent to US$ 37.0 million, at end-September 2003, broken down as follows:
10. The net domestic assets of the BRB are defined as the difference between (i) the amount of reserve money, comprising currency in circulation, reserves of commercial banks and other deposits held at the BRB, and (ii) 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 12.4 billion at end-September 2003, broken down as follows:
11. Net credit from the banking system to the government is defined as the difference between (i) loans, advances, and other government credits from the BRB or any of Burundi's commercial banks, and (ii) government deposits held at those institutions. The relevant scope of government is defined as central government and any other special funds or operations that are part of the budgetary process or have implications in terms of the government's fiscal stance. Net credit from the banking system to the government totaled FBu 39.8 billion at end-September 2003, broken down as follows:
12. 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 payments arrears were estimated at US$187 million at end-September 2003, broken down as follows:
13. The program includes a ceiling on new nonconcessional external debts contracted or guaranteed by the government and the BRB. The ceiling is meant to preclude the contracting of any such debt. However, in view of the fact that the treasury is responsible for working credits to Burundi's embassies abroad, the program allows for a small nominal amount on account of the fact that at times such credits may show positive net values.
14. The stock of short-term external debt, with a maturity of up to one year (one year included), owed by the central government is to remain at zero under the program. Normal import credits are excluded from this ceiling. Loans with an initial maturity, as recorded in the original loan agreement, of more than one year are considered medium term and long term. 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 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 65 percent (equivalent to a grant element of at least 35 percent). As of end-September 2003, the stock of short-term debt outstanding was nil, as was nonconcessional medium- and long-term debt contracted during the first half of the year.
15. A transfer of dividends from the BRB to the central government is projected to take place in March 2004, in the amount of FBu 9.0 billion. Any transfer from the BRB in excess of the set amount in 2004 will be treated as central bank financing (rather than government revenue) and counted against the program's ceilings.
16. The government's primary budget balance is defined as the difference between total government revenue, excluding grants, on the one hand, and noninterest current government expenditure and domestically financed capital expenditure (including through the use of counterpart funds), on the other hand. The primary budget balance for the first nine months of 2003 was estimated at FBu -1.8 billion, broken down as follows:
17. The government's wage bill is defined as total labor remunerations on a commitments basis for civil servants, contractual employees, and military personnel of the central government, including all allowances and bonuses. The government's wage bill for the first nine months of 2003 totaled FBu 39.5 billion, broken down as follows:
18. The program provides for a symmetrical adjuster (upward and downward) that applies to quantitative targets on the net foreign assets and the net domestic assets of the BRB, net bank credit to the government, and outstanding external payments arrears. Adjustments are 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 3 of Appendix I, Attachment I, Annex I)2 and external debt relief (inclusive of both debt rescheduling and debt cancellation). The ceilings on (i) the stock of net domestic assets of the central bank, (ii) stock of net credit from the banking system to the government, and the floors on (iii) the stock of net foreign assets of the central bank, and (iv) primary balance of the government budget excluding externally financed projects will be adjusted to accommodate 75 percent of any deviation from the projected disbursements of external nonproject financial assistance shown in the memorandum item of Table 3 of Appendix I, Attachment I, Annex I. In case of, respectively, a financing excess (shortfall) the floors on the stock of net foreign assets of the central bank and on the primary balance of the government budget will be adjusted upward (downward), and the ceilings on the stock of net domestic assets of the central bank and on the stock of net credit from the banking system to the government will be adjusted downward (upward).3 External financing will be converted in terms of Burundi francs on a quarterly basis, using the average official exchange rate.
19. The main program assumptions are as follows:
20. 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:
• the monetary survey, the position of the central bank and of commercial banks;
• the financial position of the government vis-à-vis the banking system;
• a detailed breakdown of government revenue;
• a detailed breakdown of government expenditure on a commitment basis;
• a detailed breakdown of the government wage bill on a commitment basis;
• detailed information on government social spending, in particular on the health and education sectors;
• 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;
• a detailed breakdown of the stock of domestic payments arrears and cumulative flows from January 1, 2004; 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);
• 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);
• actual disbursements of nonproject financial assistance, including new loans and debt relief granted by Burundi's external creditors;
• 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;
• 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
• an update on the implementation of structural measures planned under the program, as summarized in Table 2 of Appendix I, Attachment I, Annex I.
21. 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 As of July 2003, the remaining exchange restrictions on current account transactions related to the following: shipping insurance on imports and on coffee exports, transfers of rental income, fees for services providers, and allowances for travel, medical expenses, and studies abroad. The new system retains reasonable limits on travel and education allowances, which are waived in justified cases.
2 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 is spent with the concurrence of the budget directorate.
3 To compute the amount of adjustment, debt relief includes only debt rescheduling and cancellation of debt service due during the period, except as concerns the stock of arrears for which debt relief includes only the rescheduling and cancellation of arrears.