Ukraine and the IMF
News Brief: IMF Completes Fifth and Sixth Reviews for Ukraine under Extended Arrangement
Country's Policy Intentions Documents
Free Email Notification
Mr. Horst Köhler
International Monetary Fund
Washington, D.C. 20431
Dear Mr. Köhler,
1. Since the completion of the fourth review under the Extended Arrangement in December 2000, economic and financial developments in Ukraine have been encouraging. In particular, economic growth was stronger than foreseen while inflation was below target. All performance criteria under the program for end-December 2000 and for end-March 2001, as well as the indicative targets for end-June 2001 were met. However, base money exceeded its indicative targets, and there were some slippages in implementing the structural program (Table 1). We have decided to take a number of measures to keep the program on track, as described below. Our main priorities are to consolidate the financial stabilization gains, to strengthen payments discipline and transparency in the key sectors of the economy, and to underpin the current recovery by private sector investment through privatization, improvements in the business climate, and trade liberalization.
2. For 2001, we expect real GDP growth to increase by more than 6 percent, on account of a strengthening of domestic demand. The annual inflation rate is targeted to drop to about 12½ percent from almost 26 percent in 2000. The external current account surplus is projected to narrow from 4¾ percent of GDP in 2000 to about 3 percent in 2001, in light of the expected return of export growth to a more moderate pace and a further increase of imports. Despite significant foreign exchange inflows, the exchange rate has remained stable since April 2000 at slightly above Hrv 5.4 per U.S. dollar. At end-July 2001, usable gross external reserves of the NBU amounted to about $2 billion, some $700 million more than expected at the time of the fourth review under the arrangement.
3. Money growth in the last quarter of 2000 and the first half of 2001 exceeded the targets envisaged under the program, largely reflecting substantial purchases of foreign exchange by the NBU in the interbank market. The liquidity inflow was partly absorbed by issuance of certificates of deposit by the NBU and by a temporary accumulation of government deposits at the central bank. In view of the decline in inflation, it is our judgement that the monetary expansion accommodated an increase in the demand for hryvnia, driven by the real economic growth and the increasing share of cash transactions in the economy. For the remainder of 2001, the NBU recognizes the need to keep monetary aggregates under control, in order to avoid inflationary pressures. Therefore, monetary policy will be guided primarily by the net domestic assets target for the NBU. Intervention in the foreign exchange market will be guided by the need to safeguard the external reserves objectives of the program, and the NBU will manage the exchange rate flexibly in both directions. The excess liquidity created by the external reserves build-up will be absorbed by the NBU through reverse repos and placement of certificates of deposit. In case privatization receipts and external budgetary financing exceed the originally programmed amounts, the government will further reduce the public debt, primarily its net debtor position vis-à-vis the NBU.
4. The 2001 government budget targets a consolidated government deficit of no more than 3 percent of GDP to be financed by privatization receipts. Notwithstanding the revised outlook for privatization receipts in 2001 (from 3 percent of GDP to an estimated 1¾ percent), we remain determined to have no net recourse to domestic and foreign financing (other than privatization receipts) of the consolidated government budget. Taking account of lower-than-foreseen external interest payments, this will be achieved, if necessary, by additional expenditure cuts. Given the uncertainties over the timing and size of divestiture receipts, the implementation of the privatization program will be monitored very closely, in order to allow the timely undertaking of any additional corrective actions that may be required. The budget provides for an increase of 25 percent of basic wages in the budgetary sphere, starting March 1. We will reduce the number of budgetary positions by 25 thousand to a maximum of 4,363 thousand by end-2001. As of December 1, 2000, pensions were increased by 13 percent on average; pensions were further raised as of February 1 and August 1, 2001, by 22 percent on average. Building on last year's progress, the budget law bans netting and noncash operations, as well as government loan guarantees other than for loans from multilateral organizations, and contains adequate allocations for energy consumption. The budget also provides for the continued reduction of social payments arrears; strict measures will be taken to prevent the accumulation of other payments arrears, especially at the local level. All payments obligations resulting from the September 2000 agreement to restructure the stock of treasury bills, issued in the year 2000 and held by the NBU, will continue to be strictly respected. Profit transfers from the NBU will be based on its audited financial statements, and will only be effected upon approval by the NBU Council.
5. The draft 2002 government budget that will be submitted to parliament in September will contain a consolidated budget deficit of not more than 1.7 percent of GDP. Reductions in tax rates from the current levels will be included in the draft budget only if these are offset by simultaneous elimination of tax privileges and exemptions. In general, total noninterest expenditures will only be increased in line with expected inflation. The tentative 2002 privatization program foresees receipts amounting to about Hrv 5.8 billion (2½ percent of GDP), which would partly be used to reduce the government's net indebtedness to the NBU. This is a first step towards ending the reliance on privatization receipts to finance current budgetary expenditures.
6. In an effort to resolve our long-standing problem of controlling tax arrears, legislation was recently enacted to replace the Kartoteka II system with modern collection procedures. Article 18 of this law, however, also contained provisions for granting tax write-offs (for tax arrears and related fines that arose prior to January 1, 2000) and deferrals (for tax arrears accumulated during the year 2000). Tax arrears and fines which have been written off amount to Hrv 18 billion, or 72 percent of outstanding arrears at end-2000. In order to counter the adverse impact of the tax amnesty on taxpayer compliance and improve collection enforcement, we have taken administrative measures, regularized the payments by Naftogaz of royalties for domestically produced gas and gas transit fees and of VAT payments by the wholesale electricity market, and modified interest charges and penalties on tax arrears. In addition, the State Tax Administration has established 6 pilot large taxpayers offices in 2000 and is in the process of expanding their number to 8, including Kyiv, by end-2001. A full inventory of tax exemptions and privileges, by sector or enterprise, was conducted in April 2001; it indicates the legal status of each exemption and the amount of foregone revenue by type of tax. This inventory has been submitted to parliament with a view to ensuring revenue neutrality of new tax legislation. In the meantime, we will refrain from undertaking ad hoc cuts in tax rates, including in the draft budget for 2002, unless accompanied by simultaneous equivalent reductions in tax exemptions. The government has initiated bankruptcy procedures against the 50 largest tax debtors, starting with nine of these at end-July.
7. To improve expenditure management, the government is firmly committed to fully putting in place the single treasury account by end-2001, with technical assistance from the Fund. The recently enacted budget code envisages full implementation of the formula-based intergovernmental transfer system beginning in 2002. Finally, we have initiated work on developing a multi-year budget framework.
8. As regards to privatization, the sale of a first group of six electricity distribution companies (oblenergos) was successfully completed in April. With a view to conducting an assessment of the results of this operation, the second phase of privatizing oblenergos has been temporarily suspended. In the meantime, the financial advisor for the sale of the remaining oblenergos was selected in May. Regarding Ukrtelecom, the commission that will carry out its privatization has been established, and a financial advisor was selected in June, slightly later than planned. We are also committed to expanding the scope of the privatization program. In particular, the negative list is being reduced, and decrees will be passed shortly that will release blocked government shares in a number of enterprises.
9. We attach great importance to the efficient and transparent implementation of the privatization program. To ensure that privatizations are carried out in an appropriate manner, the State Property Fund (SPF) will remain responsible for managing all sales, using open tender procedures and financial advisors for privatization of large enterprises. The Law on the State Property Fund was approved by parliament in July 2001, but vetoed by the President. In making any revisions to privatization procedures, we will work closely with the recently-established advisory group on privatization, which includes representatives of the World Bank and other donors. Comprehensive information on privatizations carried out in 2000 has been provided to parliament, and has been placed on the website of the SPF. In addition, under supervision of the privatization advisory group, a review was undertaken of privatizations carried out in 2000, which included an assessment of the legal framework and regulations. The implementation of the recommendations of this review will be discussed between the SPF and the advisory group on privatization; such assessments will be repeated periodically if donor support can be secured. Moreover, in the context of the World Bank's Programmatic Adjustment Loan, tender privatizations are being reviewed to meet the minimum standards established by the World Bank.
10. In the energy sector, the targets for the cash collection ratios in the electricity and gas sectors at end-December 2000, as well as at end-March and end-June 2001 were met. The improvement in the cash collection ratios can be attributed to two major policy initiatives: (i) prompt and virtually complete settlement of energy bills by budgetary organizations, based on full budgeting of their energy costs; and (ii) a strict policy of cutting off nonpayers. The strict cut-off policy for nonpaying energy users will be maintained. At end-May 2001, more than 24,000 out of almost 32,000 industrial, agricultural, and residential electricity debtors were cut off.
11. The authorities consider that the current structure of the wholesale electricity market has been an indispensable instrument for enhancing payments discipline in the energy sector. Therefore, we continue to oppose legislative initiatives that alter prematurely the functioning of the wholesale electricity market, which would undermine the gains achieved, and threaten a return to barter and other forms of noncash settlement. To improve the transparency of the electricity market, monthly audits of the central distribution account and the regional distribution accounts have begun, and the first results have been widely distributed. Regarding the audit of Naftogaz, the government is ensuring the implementation of the corrective measures recommended in the first stage to address weaknesses in accounting standards and internal controls. The terms of reference for the second stage of the audit have been finalized and the audit is underway. The government will ensure that the audit includes accurate estimates of Naftogaz's production and transportation costs.
12. In the financial sector, progress is being made in reducing vulnerabilities. In February 2001, we reached agreement with the World Bank on a strategy for Bank Ukraina. In this connection, effective July 16, 2001: (i) Bank Ukraina's banking license was revoked by the National Bank of Ukraine; (ii) the procedure for its bankruptcy was set in motion consistent with Ukraine's legislation; and (iii) the reimbursement of the guaranteed part of deposits at Bank Ukraina was initiated by the Household Deposit Guarantee Fund. Concerning the Savings Bank, we will accelerate the implementation of the restructuring plan agreed with the NBU in 1999 and updated earlier this year, in consultation with the World Bank, in particular by modernizing risk management practices and reducing operational costs. The NBU will continue to enforce the ceiling on the loan exposure of the Savings Bank to the energy sector. We are considering, in consultation with the World Bank, policy issues related to agricultural financing. Finally, we will continue to refrain from influencing or directing credits extended by the banking system.
13. We have made some progress in strengthening banking sector supervision, including by rationalizing the requirements for provisioning and by closing some banks that continued to fail to meet prudential regulations. The new Law on Banks and Banking Activities that was enacted on January 17, 2001, will better enable the NBU to improve compliance with the Basel Core Principles for banking supervision. Furthermore, the NBU will take effective measures to develop, over a period of two years, a regulatory framework with a view to implement the Core Principles for Effective Banking Supervision published by the Basel Committee on Banking Supervision. In order to lower the costs of undertaking banking activities in Ukraine, the NBU has progressively reduced the reserve requirements ratios from a uniform rate of 15 percent to a weighted average rate of 14.4 percent as of January 16, 2001.
14. The NBU continues to enhance the effectiveness of its organization and operations, including the full separation between front- and back-office functions in the foreign exchange department. The conclusions and recommendations of the internal audit of the foreign exchange department of the NBU are being reviewed by the management of the bank. The work plan of the internal audit department also includes audits of several other head-office units, and a number of issue-oriented audits chosen on the basis of operation-specific risks. An independent risk management unit, reporting directly to the Chairman of the NBU Board, has become operational, and submitted its first report in early July. The NBU will achieve full provisioning for impaired and doubtful assets before end-2002. The externally audited financial statements of the NBU for 2000 have been posted on the NBU website, together with the auditor letter and notes prepared in accordance with International Accounting Standards.
15. In the context of our efforts to improve the contribution of the financial sector to the modernization of the economy, we would be interested in participating in the Financial Sector Assessment Program (FSAP), in cooperation with the Fund and the World Bank.
16. To further strengthen transparency and governance, the authorities are taking steps to associate themselves with the OECD-based Financial Action Task Force (FATF), and Ukrainian laws on money laundering will be amended to align with FATF guidelines. Moreover, efforts are underway to allow Ukraine to subscribe to the Special Data Dissemination Standards (SDDS) by end-2001.
17. As regards trade policy, the export tax on sunflower seeds was reduced from 23 percent to 17 percent instead of to 10 percent, which was a structural benchmark under the program. We continue our efforts to obtain approval of this measure by parliament. At the same time, however, and against the backdrop of our efforts to join the World Trade Organization (WTO), we have moved on several fronts to liberalize further the trade regime: (i) laws on standardization and certification, and accreditation of certification agencies have been enacted and are expected to reduce significantly technical obstacles to foreign trade; (ii) the Law on the Customs Tariff was enacted and the new Harmonized Tariff System was introduced on July 1; (iii) laws on copyright and allied rights, on inventions, and on the enforcement of responsibility for violation of intellectual property were approved; (iv) documentation requirements concerning the domestic and external trade in grains have been simplified, and registration fees at the exchanges have been reduced; (v) the requirement to register domestic grain transactions has been abolished; and (vi) the mandatory declaration of grain stocks has been suspended.
18. We recognize the risks inherent to the liberalization of the capital account of the balance of payments, and will proceed in this direction only after careful consideration. In the meantime, no additional licenses to residents for acquiring Eurobonds will be granted, except after adequate consultation, including with the IMF staff.
19. The review of existing Free Economic Zones and Special Investment Regimes has been completed, and is being considered with a view to reducing tax exemptions, in order to limit fiscal losses. In agriculture, the parliamentary ban on bankruptcy procedures for agricultural enterprises was removed and we will step up our efforts to obtain parliamentary approval of the land code, a public system of title registration, and mortgage laws. We will continue the practice of no government interference in the provision of agricultural inputs and the marketing of outputs. The new law on joint-stock companies is also expected to be passed this year.
20. The regularization of Ukraine's relations with foreign creditors is one of our key policy objectives. In this context, the government reached agreement with the Paris Club on a rescheduling of principal in arrears and falling due during the remaining period of the EFF Arrangement with the Fund, with a grace period of three years and a maturity of 12 years, and amounting to $580 million. The agreement pertains to loans contracted before December 31, 1998. Interest arrears and interest due during the remaining period of the Extended Arrangement will be paid over a two-year period. Other bilateral official creditors have been approached to discuss debt rescheduling on comparable terms. Any agreements involving government guarantees on the existing stock of non-sovereign debt or arrears will not include repayments terms more preferential for creditors than those obtained for other rescheduled debt.
21. Progress is also being made in normalizing Naftogaz's financial relations with its external suppliers. A memorandum of understanding covering delivery of transit gas in 2001 has been agreed with the government of Russia. Naftogaz has also been charged to negotiate an agreement with Gazprom on the outstanding stock of gas arrears, which we regard as private sector arrears.
22. We believe that the policies described in this letter are adequate to achieve the objectives of the economic program supported by the Fund, but we stand ready to take any additional measures that may be necessary for this purpose. The specific prior actions for the fifth and sixth program reviews are listed in Table 2. On this basis, we request completion of the fifth and sixth reviews under the Extended Arrangement, as well as the establishment of performance criteria and benchmarks for September and December 2001 as set forth in Tables 1 and 2. We also request a rephasing of the remaining purchases under the arrangement. The seventh review under the Extended Arrangement, based on end-September 2001 performance, will give particular attention to fiscal measures to compensate for possible shortfalls in revenue or privatization receipts; the parliamentary approval of the 2002 budget with a consolidated government deficit of no more than 1.7 percent of GDP; the transparent implementation of the privatization program; the continuing improvement in payments discipline in the energy sector; and progress in reducing vulnerabilities in the financial sector. The seventh review is scheduled to be completed by end-December 2001.
Performance Criteria and Financial Benchmarks
Net international reserves of the National Bank of Ukraine (performance criterion)12
Net international reserves (NIR) of the NBU are defined as the difference between usable gross international reserve assets and reserve-related liabilities to nonresidents.
For the purpose of this program, usable gross international reserve assets comprise all reserve assets of the NBU (Table 1, item 1), to the extent that they are indeed readily available for intervention in the foreign exchange market and held in first-rank international banks. Excluded from usable reserves, inter alia, are:
For the purpose of this program, reserve-related liabilities are liabilities with an original maturity of one year or less and comprise:
The NIR of the NBU for September and December 2001 will be subject to two automatic adjusters. The first will adjust the NIR floor for the amounts by which medium and long term cash foreign financing16 deviates from the programmed levels (specified in Table 1 attached to the LOI). Specifically, if the proceeds from foreign financing:
(a) exceed the program limits, the NIR floor will be increased by 100 percent of the additional financing;
(b) fall short of the program limits, the NIR floor will be reduced by 100 percent of the shortfall, but the amount of the adjustment cannot exceed $100 million.
The second adjuster will automatically increase the NIR floor by 100 percent of the recovery of any maturing foreign currency deposits of the NBU not included in usable international reserves.
For the period from end-September 2000 through the end of the program, the international reserve assets and reserve-related liabilities of the NBU denominated in currencies other than the U.S. dollar, except those held in SDRs, will be converted from other currencies into U.S. dollars at the official NBU fixed cross exchange rates prevailing on September 29, 2000, including the Hryvnia to dollar exchange rate of 5.4397. SDR-denominated assets and liabilities, which will be taken from the records of the IMF Treasurer's Department, will be converted into U.S. dollars at the exchange rate of $1.29789 per SDR. Official gold holdings will be valued for the period of the program at $276.0 per ounce, which was the London gold price on September 27, 2000, afternoon session. On September 29, 2000 the NIR as defined above amounted to $-1,089 million.
Information source: Monetary statistics (form 10R) provided monthly by the NBU. For daily monitoring purposes, the NBU will continue to provide the standard daily data sheet on currency operations and weekly reports on NIR and gross foreign assets and liabilities throughout the program period. All derivative transactions, and transactions involving encumbering reserves will be separately reported. The NBU will also provide quarterly balance of payments data in electronic format.
Net domestic assets of the NBU (performance criterion)
The net domestic assets of the NBU are defined as the difference between the monetary base and the NIR of the NBU, with the NIR as defined above and valued at the program exchange rate of Hrv 5.4397 per dollar and expressed in hryvnia. On September 29, 2000, the NDA of the NBU amounted to Hrv 20,812 million.
The NDA of the NBU for September and December 2001 will be subject to an automatic adjuster for the amounts by which the cumulative (from September 29, 2000) foreign financing of the budget deviates from the programmed levels (specified in Table 1 attached to the LOI).
If the proceeds from foreign financing:
(a) exceed the program limits, the NDA ceiling for that month will be reduced by 100 percent of the additional financing;
(b) fall short of the program limits, the NDA ceiling for that month will be increased by 100 percent of the shortfall in financing, but the amount of the adjustment cannot exceed the hryvnia equivalent of $100 million valued at the program exchange rate.
The NDA ceiling will also be lowered by 100 percent of the recovery of any maturing foreign currency deposits of the NBU not included under usable international reserves.
Foreign currency amounts will be converted to hryvnia at the program exchange rate of Hrv 5.4397 per dollar. Foreign currency amounts received in currencies other than the U.S. dollar, will be converted into U.S. dollars at the official NBU fixed cross exchange rates prevailing on September 29, 2000.
Information source: Monetary statistics (form 10R) provided monthly by the NBU. For daily monitoring purposes, the NBU will continue to provide the standard daily data sheet throughout the program period. All derivative transactions, and transactions encumbering reserves will be separately reported.
Deficit of the consolidated general government (performance criterion)
The consolidated general government comprises: (i) the consolidated budget, which includes the state budget, and the local budgets; (ii), if not already included in (i), the Chernobyl, Pension, Employment, Social Insurance, State Material Reserve, Leasing, Accident Insurance, Innovation, and State Property funds; and (iii) any other extrabudgetary funds included in the monetary statistics compiled by the NBU.17
For the purposes of the program, the deficit of the consolidated government will be measured from below the line as:
For the purposes of measuring the deficit of the consolidated government, all flows to/from the budget in foreign currency will be converted into hryvnia at the official exchange rate prevailing at close of business on the date of the transaction. Payments by/to the government against called guarantees are recorded as positive/negative net lending among government expenditures.
The ceiling on the deficit of the consolidated government will be adjusted downward by 100 percent of the amount of the arrears in the payment of scheduled interest on any domestic debt instrument issued by the government.
The ceiling on the deficit of the consolidated budget will be adjusted downward by 100 percent of the shortfall of project financing from bilateral and multilateral agencies from programmed levels; the ceiling will be adjusted upward by 100 percent of the excess of project financing from bilateral and multilateral agencies from programmed levels, but the amount of the adjustment cannot exceed Hrv 500 million. The programmed levels of project loans are specified in Table 1, attached to the LOI.
The ceiling on the deficit of the consolidated budget will be adjusted downward by 100 percent of the amount of guarantees issued by the government or the NBU on domestic credit to nongovernment entities.
For 2001, the ceiling on the deficit of the consolidated budget will be adjusted upward by the amount of privatization receipts in excess of Hrv 3.5 billion up to the amount of Hrv 5.9 billion envisaged in the 2001 budget. The amount of adjustment for September 2001 cannot exceed Hrv 500 million.
The NBU will inform Fund staff if the Treasury does not pay interest or repay principal on T-bills due to the NBU, Deposit Money Banks, or non-bank entities and individuals. In such case, the NBU will provide information on outstanding interest and principal payments.
Information source: NBU weekly report on treasury bill sales; monetary statistics provided monthly by the NBU for other net banking system credit to government; monthly budget execution data for privatization receipts; State Commission for Securities and Exchange for net proceeds from bonds issued by local authorities; Ministry of Finance or NBU, as appropriate, for net proceeds from foreign borrowing from the capital markets for purposes of financing the deficit of the consolidated budget; Ministry of Finance for disbursements of foreign credits to the consolidated budget and amortization of foreign credits by the consolidated budget; Ministry of Finance and NBU, as appropriate, for monthly data on credit to nongovernment units that is guaranteed by the government or the NBU; and Ministry of Finance for government deposits in nonresident banks or other institutions. Throughout the period of the program, for daily monitoring purposes, the NBU will continue to provide the standard daily data sheet; the Ministry of Finance will continue to provide twice a month data on amortization of foreign credits; and the Treasury will continue to provide weekly data on the deficit and its components, as defined above.
Non-cash netting operations of the consolidated budget (performance criterion)
Non-cash netting operations of the consolidated budget comprise all transactions by which government obligations are netted out against government claims without cash payments. The definition applies to all government obligations arising after December 31, 1999.
Information source: Monthly Treasury Reports submitted to the IMF by the 25th day of the month following the reporting period.
Non-earmarked central government cash revenue (performance criterion)
Non-earmarked central government cash revenue comprises all taxes, fees, and charges levied by the central government that are not earmarked by law for specific expenditure programs and collected in cash. Not included in the definition of revenue are any proceeds from loans or other banking system credits, the issuance of securities, or privatization receipts.
Information source: Monthly Treasury Reports submitted to the IMF by the 25th day of the month following the reporting period; for monitoring purposes, throughout the period of the program, the Treasury will continue to provide the 10-day report on non-earmarked cash revenue, inclusive of the memo item on netting operations of the central and local governments and between the local governments and the central government.
Stock of social budgetary arrears on wages, benefits, and pensions (performance criterion)
Social budgetary social arrears comprise all arrears of the consolidated budget on wages, social benefits, and pensions (including on Chernobyl pensions) owed by the Pension Fund, the central, or local governments. Social arrears are defined as payments one day after they are due and not paid. Wages are defined to comprise all forms of remuneration for work performed, including, but not limited to, payments in cash and in-kind for standard and overtime work. Pension obligations of the Pension Fund comprise retirement pay and all benefit and other obligations of the Pension Fund.
Information source: Ministry of Finance.
External arrears by the government and the NBU (performance criterion)
External arrears comprise all payment arrears to official and unofficial creditors on debt guaranteed or contracted by the government and the NBU, with the exception of those expected to be rescheduled as part of the Paris Club framework, those to Turkmenistan, and those to private creditors that did not accept the 2000 bond exchange. The criterion for non-accumulation of external arrears applies on a continuous basis.
Information source: Ministry of Finance
Contracting or guaranteeing non-concessional external debt (performance criterion)18
The ceilings on contracting or guaranteeing nonconcessional external debt apply to the contracting or guaranteeing by the government or the NBU of new nonconcessional external debt with an original maturity of more than one year; and within this limit, with an original maturity of more than one year and up to and including three years. Concessional loans are defined as those with a grant element of at least 35 percent of the value of the loan, using currency-specific discount rates based on the commercial interest rates reported by the OECD (CIRRs). Discount rates for assessing the concessionality of loans with a maturity of at least 15 years will be based on the average CIRRs over the last ten years. The assessment of concessionality for loans with maturities of less than 15 years will be based on the average CIRRs of the preceding six-month period.19 In addition, during the program period, the government shall not contract or guarantee debt of an original maturity of one year or less, other than for normal import financing. The NBU will not issue guarantees for external debt of any maturity. Excluded from the limits is the use of Fund resources; but other balance of payments support—including loans from official creditors and foreign banks, and bond issues—is included within these limits. The amount of debt contracted or guaranteed will be valued at the relevant currencies of denomination and converted into dollars using the NBU's official exchange rates prevailing at the time the debt is contracted. The maturity of debt instruments with put options shall be taken to be the period going from the issuance to the earliest date the option can be exercised.
Information source: Ministry of Finance and NBU for amounts and terms of all external debt contracted or guaranteed.
Monetary base (indicative target)
The NBU's monetary base (base money) comprises domestic currency outside banks and banks' reserves, including cash in vault of commercial banks,20 and funds of customers at the NBU.
Cash in vault at deposit money banks (DMB accounts 1001:1005, and 1007) plus
DMB correspondent account deposits at the NBU in hryvnia (NBU accounts 3200, 3203, and 3206) plus
On September 29, 2000, base money as defined above amounted to Hrv 14,888 million.
Before changing the reserve requirements for DMBs, the NBU will notify Fund staff.
Information source: Monetary statistics provided monthly by the NBU. For daily monitoring purposes, the NBU will continue to provide the standard daily data sheet throughout the period of the program.
1. Exchange rates
The program exchange rate is Hrv 5.4397 per dollar. The program exchange rate between the Hryvnia and the US dollar is an accounting exchange rate used for the sole purpose of converting foreign currency denominated assets and liabilities into Hryvnias. According to IMF standard practice, the program exchange rate is kept fixed over the program period. Therefore, the program exchange rate differs from the actual exchange rate set in the foreign exchange market. Furthermore, setting a program exchange rate for the purpose of computing monetary aggregates does not imply that there is any target exchange rate for policy purposes.
2. NBU accounting
Changes in classification of the accounts in forms 10-R and 20-R will be notified to Fund staff before they are implemented.
All foreign assets and liabilities of the NBU will be included in the NBU balance sheet, valued at the official exchange rate prevailing on the day for which the balance sheet is compiled.
All NBU claims on and liabilities to the IMF will be included in the NBU daily balance sheet at the NBU official exchange rate, and in the NBU monthly balance sheet at the $/SDR exchange rate of the IMF's Treasury Department at the last day of each month. For the purpose of calculating NIR and NDA under the program, SDR-denominated assets and liabilities, which will be taken from the records of the IMF Treasurer's Department, will be converted into U.S. dollars at the exchange rate of $1.29789 per SDR.
Reporting requirements and monitoring information
To monitor performance under the arrangement, the NBU will provide to the IMF, no later than the twenty-fifth day of each month, an aggregate balance sheet for the NBU and a consolidated balance sheet for the deposit money banks, in the format envisaged by forms 10R and 20R, respectively. The NBU will communicate in writing to the Fund staff any changes in accounting conventions and valuation principles incorporated into the balance sheet data and will notify the staff before introducing any change to the Charts of Accounts of the NBU and the Commercial Banks, as well as changes in the reporting forms.
Every ten days, the NBU will provide the Fund with the operational monetary survey of the NBU, including any additional information that is needed for the IMF staff to monitor monetary policy and developments in the banking sector.
The Ministry of Finance and the NBU will provide data on credit to nongovernment units that is guaranteed by the government or the NBU on a monthly basis no later than 25 days after the end of the month.
The Treasury will report to the Fund data on daily operational state budget revenue, cash unearmarked state revenue on a 10-day basis, and monthly data on accounts payable for state and local budgets (economic and functional classification). Monthly revenue and expenditure figures of the consolidated, state and local government will be reported no later than 25 days after the end of the month. The monthly Treasury Report will include data on on-budget and off-budget netting operations.
The Ministry of Finance will provide information on the amounts and terms of all external debt contracted or guaranteed by the general government once a month, no more than 25 days after the end of the month. The NBU will report data on private sector debt not guaranteed by the government.
The Ministry of Finance will provide data on the stock of all budgetary arrears on a monthly basis, no more than 25 days after the end of the month: specifically wages, pensions, social benefits, energy, communal services, and all other arrears on goods and services.
The Ministry of Finance will provide monthly operational data on the revenue, expenditures, and arrears, and quarterly balance sheets of the Pension Fund, Insurance Fund, Social Insurance Fund, Employment Fund, Leasing Fund, Accident Insurance Fund, and the State Material Reserve Fund; quarterly data on the number of government employees; monthly data on the total state debt, and planned and actual foreign debt repayments; and monthly reports 1.P0 on actual tax revenue and 1.P6 on tax arrears.
The Ministry of Economy will provide quarterly information on actual levels of communal service tariffs in all regions for major services (heating, water supply, sewage, rent, and public transportation). In addition, the Ministry of Economy, in cooperation with the National Energy Regulation Commission, will provide the methodology underlying the calculations of full cost recovery, including electricity and gas, as well as their prices.
The State Tax Administration will provide yearly data for 1999 and 2000, and monthly data for 2001 on tax arrears, inclusive of interest and penalties outstanding, in the following format:
In addition, on a quarterly basis, the STA will provide aggregate data on tax arrears in the above format for the 50 largest tax debtor enterprises, and their cumulative 12-months tax payments.
The STA will provide monthly information on VAT refunds in the following format: (i) beginning stock of refund requests; (ii) refund requests paid in cash; (iii) netted out against obligations of the taxpayer; (iv) denied requests; (v) new refund requests; (vi) end-of-period stock; and (vii) stock of end-of-period requests older than three months.
For each month, Naftogaz will publish the following information in either "Uriadoviy Kurier" or "Golos Ukrainy":
On a monthly basis, the Ministry of Fuel and Energy, taking into account information provided by Naftogaz and Derzhkomstat, will provide to the Fund staff the following operational and final information (operational information will be provided before the end of the month following the reporting period):
In addition to these reporting requirements, the Ukrainian authorities will provide all other information as specified in the above sections on information requirements.
12Under the Extended Arrangement, Net International Reserves (NIR) of the NBU are defined as the difference between gross usable international reserve assets and liabilities to nonresidents; the bulk of these liabilities is medium-term credit from the IMF. The fact that the NIR position is negative does not mean that the country has negative reserves; it only means that its liabilities to the Fund are larger than its gross usable reserves which are available for foreign exchange intervention. An important indicator of the adequacy of reserves is the ratio of gross usable reserves to imports, which is programmed to increase under the arrangement.
13This refers to the notional value of the commitments, not the market value.
14 The definitions used in this technical memorandum will be adjusted to reflect any changes in accounting classifications introduced during the period of the program. The definitions of the foreign accounts here correspond to the system of accounts in existence on August 29, 2001. The authorities will inform the staff before introducing any change to the Charts of Accounts of the NBU and the Commercial Banks, and changes in the reporting forms.
15 Excluding the balances in Russian Rubles on the correspondent accounts at three Russian banks which are being liquidated or considered insolvent.
16Cash foreign financing is defined as disbursements to the budget of cash grants or balance of payments support loans with a maturity of more than a year from multilateral and bilateral official creditors and resources raised in international capital markets by the government or the NBU. This excludes use of IMF resources, or other resources that immediately create a short-term liability on the balance sheet of the NBU.
17 Unless otherwise specified, throughout this Technical Memorandum of Understanding, the word "government" refers to the consolidated general government as defined above.
18This performance criterion applies not only to debt as defined in point 9 of the IMF Guidelines on Performance Criteria with Respect to Foreign Debt (Decision No. 12274-(00/85), August 24, 2000) but also to commitments contracted or guaranteed for which value has not been received.
19Margins added to CIRRs will be 75 basis points for loans with maturity of less than 15 years; 100 basis points for loans with maturity of at least 15 years and less than 20 years; 115 basis points for loans with maturity of at least 20 years and less than 30 years; and 125 basis points for loans with maturity of at least 30 years.
20The definitions set out here will be modified to include any other accounts that may be identified or created in the future in connection with domestic currency issue and the deposit money banks' deposits at the NBU.