Democratic Republic of the Congo and the IMF

Press Release: IMF Completes Fourth Review Under the Democratic Republic of the Congo's PRGF Arrangement and Grants Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries
July 13, 2004

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Democratic Republic of the Congo Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

Kinshasa, June 24, 2004

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

Use the free Adobe Acrobat Reader to view MEFP Tables (252 Kb PDF file)

Mr. Rodrigo de Rato
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. de Rato:

1. On June 12, 2002, the IMF's Executive Board approved a three-year arrangement for the Democratic Republic of the Congo (DRC) under the Poverty Reduction and Growth Facility (PRGF). This arrangement was designed to support the Government Economic Program (PEG) for the period April 1, 2002-July 31, 2005. In accordance with this arrangement, the government of the DRC has conducted discussions with an IMF mission on the fourth program review for the period October 1, 2003 to March 31, 2004. The discussions covered program implementation during this period, as well as the outlook for, and the economic and financial measures to be implemented during, the remainder of 2004, taking into account our country's reunification. The government of the DRC remains determined to implement the policies and measures described in the interim poverty reduction strategy paper (I-PRSP), as well as in the memorandum on economic and financial policies (MEFP), which is attached to this letter, and supplements its letters of April 13, 2002, February 4, 2003, July 3, 2003, and December 10, 2003.

2. We are pleased to note the broadly satisfactory implementation of the PEG in 2003, despite some budgetary difficulties encountered during the last quarter, due inter alia to the establishment of the new institutions provided for in our Transitional Constitution and some delays in the implementation of our tax reform. The government took steps in early 2004 to address these difficulties, and the results in the first quarter of 2004 exceeded expectations.

3. The government will strengthen its efforts to maintain macroeconomic stability and reconstruct the country. The Central Bank of the Congo (BCC) will continue to implement an independent monetary policy that aims to maintain price stability in the context of the floating exchange rate system. Before end-June 2004, the government will adopt a draft supplementary budget consistent with the objectives of our economic program for 2004, to take into account the implementation of our national Disarmament, Demobilization, and Reintegration (DDR) Program for the armed forces, the preparation in 2004 of the constitutional referendum, the local, legislative, and presidential elections in 2005, the cost of the restructuring of commercial banks, the repayment schedule for the cross-arrears between the government and the private sector, and updates of the effects of reunification and of external aid. This draft supplementary budget will be submitted to the National Assembly by July 2004.

4. Finally, the government will intensify its efforts to fully establish the rule of law throughout the country and ensure compliance with all the new codes, and promote good governance and transparency in the conduct of public affairs at the level of the central government, the national institutions, the public enterprises, and the eleven provinces of the DRC. The government intends to fight corruption at all levels, including in the mining sector (particularly diamond mining) and the forestry sector, and reduce bureaucratic "red tape."

5. The year 2004 will be marked by preparations for truly free and transparent elections at all levels for the first time in our country's history, allowing the creation of a constitutional democracy. It is our desire that these elections be all-inclusive. For that purpose, a roadmap has been prepared that we intend to follow, with assistance of the international community, in an atmosphere of calm and respect of democratic rules. To this end, the various commissions established under the Global and Inclusive Agreement and the Transitional Constitution are already at work, including the Political, Defense and Security Commission, which is focusing particularly on preparing the legal instruments for the Transition. Thus, since September 2003 the government has approved bills on the organization and functioning of political parties, the armed forces of the DRC, and civic institutions.

6. The government has issued various decrees for these laws, which relate specifically to (a) the establishment, organization, and functioning of the Armed Forces Commission, which has as its mission to control the Armed Forces of the DRC with a view to determining their actual size; (b) the establishment, organization, and functioning of an integrated military structure; (c) the appointment within the army of the joint chiefs of staff and other key positions at the national and provincial levels; (d) the appointment of the coordinator for the implementation of the DDR program; (e) the establishment and organization of the preparatory committee for the International Conference on Peace, Security, Development and Democracy in the Great Lakes Region; and (f) the appointment of the provincial governors and deputy governors, an important step in the effective redeployment of central government authority throughout the country. In addition, the government is expected to approve the anti-corruption bill in June 2004. The government approved the bill on territorial and administrative organization in early 2004, whereas the bill on money laundering has been submitted to the National Assembly. Finally, we expect that the bills necessary for the preparation of the elections, specifically the law on nationality and the decree on voter registration, will be approved soon.

7. Despite this progress on the legal front, the government will redouble its efforts to ensure that these laws are effectively implemented, both at the level of each ministry involved and at the level of each province, to ensure that the roadmap to free and democratic elections is followed. Finally, the members of government undertake to strengthen governmental solidarity and to ensure consistent governmental action during this transition period. Thus, the government will make sure that the Code of Ethics and Good Conduct is strictly applied in the public sector, including with respect to members of government. Moreover, the government intends to ensure strict execution of the 2004 budget and the supplementary budget, fully respecting the composition of expenditures, particularly as regards pro-poor spending. Finally, with the sustained assistance of the international community, in particular the forces of the United Nations Observation Mission in the Congo (MONUC), and, with the cooperation of neighboring countries, the government will endeavor to restore stability and security throughout the country, particularly in the northeast and east.

8. An examination of the performance criteria at end-March 2004 indicates that 3 of the 11 quantitative performance criteria have not been met, owing largely to a delay in ratifying financing agreements with the African Development Bank (AfDB) and the World Bank. Consequently, the floor on the BCC's net external assets was missed by US$77 million. The ceiling on the BCC's net domestic assets and net bank credit to the government, adjusted for external assistance, were exceeded by 0.8 percent of GDP and 0.2 percent of GDP, respectively. These three criteria have been audited by an international auditing firm. The structural performance criterion regarding the BCC's approval of the list of commercial banks to be liquidated or restructured was met. However, only 2 of the 4 structural benchmarks were met at end-March 2004. An international audit firm to conduct the audit of the diamond company (MIBA) will be selected in September 2004 with assistance from the European Union. The structural benchmark concerning submission of the new customs code to Parliament will be met no later than June 2004.

9. As for the four structural benchmarks at end-June 2004, the benchmark on finalizing the reorganization plan for the petroleum products distribution company (COHYDRO) is expected to be executed with some delay, as is the benchmark on the completion of the strategic audit of the Public Enterprise Council (Conseil Supérieur du Portefeuille). The benchmark on finalizing the plans to reorganize commercial banks considered viable and to liquidate nonviable commercial banks has been met. Finally, the benchmark concerning the adoption of a simplified double-entry accounting framework for the government will be met.

10. Taking account of the corrective measures described in the attached memorandum, the government requests waivers from the IMF Executive Board with respect to the nonobservance of the three quantitative performance criteria referred to above. The government also requests that the Board approve an additional tranche of interim assistance under the Heavily Indebted Poor Countries (HIPC) Initiative to enable our country to continue to benefit from the HIPC Initiative during the interim period.

11. The government will provide the IMF with all information requested by the Fund on the progress in the implementation of its economic and financial policies, and the attainment of its program targets, as described in the attached technical memorandum of understanding. As in the past, the government authorizes the publication of this letter, the MEFP attached to this letter, and the associated IMF staff report. In addition, the DRC will undertake with the IMF the fifth six-monthly review of its economic program supported by the PRGF, which should be completed January 15, 2005.

12. The government considers that the policies and measures set out in the attached memorandum are adequate to achieve its program objectives. The government is prepared to take any further measures that may be necessary toward this end. Moreover, the government pledges to consult the IMF, whether on its own initiative or at your request, on the adoption of any measures that may prove necessary.

13. The government would like to thank the international community, and the International Monetary Fund in particular, for the support for its stabilization and reconstruction efforts, and calls upon the international community to maintain its unwavering support for the central government and provincial governments of the DRC during this critical period in the nation's history.

Sincerely yours,


Joseph Kabila
President of the Democratic Republic of the Congo


Memorandum on Economic and Financial Policies for 2004

Kinshasa, June 24, 2004

I. Implementation of the Government Economic Program During the Period October 2003-March 2004

1. We are pleased that program implementation during the period October 2003-March 2004 was broadly satisfactory, owing to our strong efforts in the first quarter of 2004 to improve public expenditure control and increase revenue collection. Progress in the implementation of structural and sectoral reforms since the beginning of the year has been satisfactory, despite delays in some areas. In view of lower-than-expected external debt service and the good results in the first quarter of 2004 (despite the civil service strike in February), we believe that the overall objectives for end-2004 remain achievable. The supplementary budget to be submitted to Parliament in July 2004 addresses the government's three major challenges, namely, the National Disarmament, Demobilization, and Reintegration (DDR) Program for ex-combatants, the cost of preparing the elections, and the repayment of domestic debt. The Technical Committee for Reform Monitoring responsible for the Government Economic Program will be expanded to facilitate the timely implementation of measures and reforms included in the program. With the support of the international community, we will also continue to strengthen the administrative capacity of the central government and of the provincial and local governments, by extending across the whole nation the structural and sectoral reforms that are currently being implemented.

2. Our estimates strongly indicate that economic growth exceeded expectations in 2003, reaching 5.6 percent instead of 5 percent (Table 1), and in the first quarter of 2004 there was a further acceleration. Thus, the rate of growth of real per capita GDP accelerated for the second year in a row. According to the National Investment Promotion Agency (ANAPI), approximately US$1.6 billion in new domestic and foreign private investment was approved in the first quarter of 2004. All sectors of the economy are improving, except for copper and cobalt, as a result of the ongoing restructuring of the GECAMINES mining company. The diamond, construction and public works, manufacturing, transport and communications, and agricultural sectors are contributing significantly to growth. End-period inflation was lower than programmed, at 4.4 percent at end-December 2003 and 2.6 percent at end-May 2004, and continued the steep decline that began in 2001. Since the start of 2004, retail oil prices have increased by roughly 4 percent in the wake of rising prices on the international market. Moreover, the exchange rate of the Congo franc has remained stable vis-à-vis the U.S. dollar.

Government finances

3. The overall fiscal objectives for 2003 have not been fully met, owing in large measure to a revenue shortfall (0.5 percent of GDP), mainly caused by the delay in submitting legislation to Parliament for the large-scale tax reform that we are implementing. Moreover, current primary expenditure has been higher than expected (0.3 percent of GDP), largely because of the cost of setting up new institutions as required by the Transitional Constitution and bonuses paid to judicial staff. However, pro-poor expenditure, according to the new definition that includes infrastructure, was higher than envisaged, at 1.5 percent of GDP instead of 1.2 percent. External debt service was less than projected while externally financed investment expenditure was slightly higher. Consequently, the domestic primary balance on a cash basis showed a deficit of 0.2 percent of GDP against a programmed surplus of 0.5 percent, whereas the consolidated overall balance (on a cash basis) showed a deficit of 2 percent of GDP instead of the programmed deficit of 1.4 percent (Table 2A). Net credit to the government, before adjustment for higher-than-projected net external non-project disbursements, was 0.8 percent of GDP higher than programmed.

4. The 2004 budget, presented in accordance with the new economic, administrative, and functional classification, was adopted by Parliament in March 2004. In addition, all special budgets (budgets pour ordre) have been eliminated, although their receipts must still be deposited into the Treasury General Account. The 2004 budget approved by Parliament incorporates the broad aggregates agreed with IMF staff; however, the composition of current expenditure is slightly different and reflects the wage increases negotiated with the unions in the first quarter of 2004. As a result, the budget includes a civil service wage increase of 20 percent (instead of the originally programmed 10 percent), applicable to retirees as well, and 30 percent for primary and secondary school teachers with grade adjustment, totaling 0.4 percent of GDP. The increases took effect on April 1, 2004 (instead of January 1, as originally planned), along with the doubling of transportation allowances in the cities of Kinshasa and Lubumbashi (0.2 percent of GDP). We have maintained the level of primary expenditure of the initial budget by cutting back on official travel, transportation costs, and centralized expenditure (while ensuring that services rendered are paid for promptly). The 2003 budget tracking statements were prepared in accordance with the new classification. This budgetary tool, which considerably strengthens the monitoring of budget execution, will be fully used in 2004.

5. In the first three months of 2004, and despite the civil service strike, revenue (excluding external grants) exceeded program targets by approximately 0.3 percent of GDP, reflecting the supplementary measures (collection of taxes due in the fourth quarter of 2003 and elimination of unjustified exemptions for petroleum products and foodstuffs) implemented since February 2004 to make up for shortfalls in the final quarter of 2003. Total expenditure was 1.1 percent of GDP lower than projected, particularly as a result of the lower level of externally financed investment expenditure. Current primary expenditure was 0.1 percent of GDP lower than programmed, despite a slight increase in the operating expenses of institutions and ministries. Wage expenditure increased less than expected, chiefly as a result of the postponement of the civil service wage increase originally scheduled for January 1, 2004. There were no wage payments arrears at end-March 2004. Pro-poor expenditure in the first quarter of 2004 amounted to 0.3 percent of GDP, reflecting the slower disbursement of external financing. Consequently, the domestic primary balance on a cash basis shows a surplus of 0.7 percent of GDP instead of the programmed 0.3 percent, and the consolidated general balance (cash basis) a surplus of 1 percent of GDP compared with the programmed deficit of 0.7 percent. The decrease in net bank credit to the government (0.4 percent) was higher than expected (0.2 percent of GDP).

6. The implementation of tax reforms and measures was delayed because of red tape and work interruptions caused by the civil service strike. However, treasury cash management was improved through the introduction of the commitment plan that adjusts on a weekly basis the spending limits allocated to each ministry.

7. Nonetheless, the reforms undertaken to modernize the tax and customs administrations have progressed well. In particular, the General Directorate of Taxes (DGI) has adopted its modernization plan, covering the entire country. Within the DGI, the Large Taxpayers Unit (LTU) has adopted a criterion for the selection of enterprises, and the revision of the new threshold, set at an annual turnover of US$1 million, will be implemented by end-June 2004. The LTU has now the requisite operational autonomy, including for its audit operations. The draft laws and regulations, needed for the establishment of the tax office for medium-sized enterprises, scheduled for July 1, 2004, have been prepared and will be submitted to Parliament by mid-June 2004. The decision to assign 1,500 Ministry of Finance employees to the DGI, which is contrary to its reform plan, will be repealed by mid-June 2004. The Customs and Excise Office (OFIDA) is continuing its reform and modernization program, and the time required for the release of goods at the one-stop window in the port of Matadi has been reduced as a result of the selective inspection of goods and the use of computerized customs procedures. Uniform implementation of the tax laws continues in Boma and in the reunified provinces, where the texts of the laws currently in force have been made available to the administrations concerned. Initially scheduled for end-March 2004, the new customs code is now expected to be adopted by the government and submitted to the National Assembly in June 2004. The unjustified exemptions for petroleum products and foodstuffs have been eliminated and the computerization of the East Kinshasa offices is under way, following the purchase of computer equipment. Finally, the new harmonized revenue classification for the General Directorate of Administrative and State Revenues (DGRAD) was adopted by Parliament in May 2004 and interministerial decrees establishing the applicable rates are being prepared.

8. The delayed adoption by the National Assembly of the tax policy measures envisaged for 2003 has slightly weakened the expected effects of the tariff and tax reform. Accordingly, the implementing legislation for the March 2003 reform and the necessary adjustments to the legislation itself (eliminating excise taxes on sugar, cement, and matches; no longer limiting the credit mechanism to inputs consumed, and eliminating the turnover tax on exports) were adopted by the government in November 2003 and by the National Assembly only in May 2004. The legislative provisions authorizing the Minister of Finance to change the turnover tax rates by ministerial decree and the recent reduction of the turnover tax on services from 18 percent to 13 percent were repealed in June 2004.

9. On the expenditure side, and as envisaged in the program, the government has continued to focus on (a) the strengthening of budget management, (b) a more transparent budgetary process, and (c) enhancement of the capacity to monitor expenditure execution, with special emphasis on pro-poor expenditure.

10. Accordingly, efforts undertaken in the area of public expenditure management have continued. As a result, the budget is now presented in accordance with the new classification and the budget execution process is now functioning, following validation of the new expenditure procedures, from commitment to payment (with the return of BCC debit statements). All expenditure items not channeled through the new expenditure procedures in the first three months of 2004 have been reincorporated. Expenditure items for the month of April not processed using the new budget execution procedures will be reincorporated by end-June 2004. Starting in June, the BCC will transmit its records (journal des opérations) to the Treasury no later than the fifth day of each month. Implementation of three protocols concerning the payroll, public debt transactions, and external disbursements will ensure that, from early June 2004, all expenditures are indeed processed using the new expenditure procedures. The security of the computer link between the BCC and the Treasury, designed to speed up and enhance the reliability of the data exchange between these two institutions, was increased with the installation of a firewall by the BCC. The executions of the 2001 and 2002 budgets were audited by the General Accounting Office (Cour des comptes) and the execution of the 2003 budget will be submitted by end-August 2004. The agreement with the BCC concerning its function of government cashier was adopted by the government and promulgated in April 2004. Finally, work on a double-entry accounting framework for the government, which incorporates the comments of the IMF technical assistance mission, has begun and the simplified accounting framework will be adopted by end-June 2004, as planned.

11. Civil service reform has progressed more slowly than anticipated. The civil service payroll system was audited as planned in April 2004 with assistance from France. However, the schedule for preparing the complete census of government employees could not be adhered to because of a delay in external financing, which only became available in December 2003.

12. The first phase of the retirement program had to be postponed. This phase involves the payment of severance pay to approximately 10,000 employees. The payment, scheduled for April 2004, could not be made as program preparation and the mobilization of financial assistance from the World Bank and the African Development Bank (AfDB) have taken longer than anticipated.

Monetary policy

13. In the area of monetary policy, the BCC has gradually decreased its refinancing rate to take account of the slowdown in inflation. Thus, the rediscount rate moved from 20 percent at September 30, 2003 to 8 percent at end-March 2004, whereas the interbank market rate fell from approximately 20 percent to 8 percent over the same period. Banks' average lending rates have also dropped substantially, from 50 percent to 25 percent. With the resumption of growth, private sector credit applications to commercial banks have increased. The stock of billets de trésorerie has remained relatively small.

14. Based on the monetary survey as at end-December 2003, broad money increased by 33 percent in 2003 compared with the programmed 31 percent. By end-March 2004 it had increased by another 10.7 percent relative to end-December 2003, against the programmed 6.3 percent. The velocity of circulation continued to decline, reflecting stronger than programmed demand for money. However, the share of currency in circulation in Congo francs continued to decline in favor of quasi-money and, in particular, of foreign currency deposits. Indeed, the increase in the demand for money denominated in Congo francs in the wake of lower inflationary expectations, banknote shortages in the reunified provinces, and the stability of the Congo franc vis-à-vis the U.S. dollar, was not always met despite the issuance of new CGF 200 and CGF 500 banknotes. The BCC's belated and relatively small purchases of foreign exchange on the market have contributed to the nonobservance of the performance criterion on its net foreign assets at end-March 2004. As a result, the net foreign assets (NFA) of the BCC shrank by US$82 million at end-December 2003, compared with a programmed contraction of US$9 million. Owing to delays in disbursements by the AfDB and the World Bank, NFA decreased by US$2 million at end-March 2004, compared with end-December 2003, against a targeted increase of US$25 million. Conversely, the net foreign assets of commercial banks grew much faster than expected, by US$42 million at end-December 2003, and another US$53 million in the first quarter of 2004. The counterpart of the growth in money supply in 2003 showed a decline in the share of net foreign assets (owing to the decrease in the NFA of the BCC) and an increase in net credit to the government and credit to the private sector (with over 90 percent of the latter in foreign currency). By end-March 2004, this trend had been reversed, reflecting the good fiscal performance, with the increase in net foreign assets and credit to the private sector and a sharp decrease in net credit to the government.

15. The BCC has continued resolutely with the implementation of its action plan aimed at strengthening its institutional and management capacities (Table 3). To respond more fully to the demand for money denominated in Congo francs, the BCC, with the assistance of an IMF resident expert and the National Bank of Belgium (BNB), is conducting a study on the structure of banknote denominations, to be completed by end-July 2004. Also with BNB assistance, the BCC has undertaken a study on its recapitalization. Actual recapitalization cannot occur until the audit ("unqualified opinion") of its December 2003 accounts is completed, which is expected by end-June 2004. Finally, the BCC has drawn up a plan for the redeployment of its offices throughout the country. The plan includes the renovation of existing offices and utilization of commercial bank branches already on site.

16. Good progress has been made with the restructuring of the banking system. Based on the audits that were completed in 2003, all banks submitted their restructuring plans to the BCC in January 2004. On this basis, the BCC drew up a list of banks to be liquidated or restructured. Taking account of the seven banks already in liquidation, the BCC has decided to liquidate two additional banks (Banque de commerce et de développement (BCD) and the First Banking Corporation Congo). The restructuring plans for seven other banks have been finalized and approved by the BCC, which has instructed them to begin implementation. Regarding the two additional banks to be liquidated, a call for bids will be launched to select a liquidator by end-June 2004. The social plan for the three public banks in liquidation (BCCE, BCA, and NBK) has been delayed but is expected to be finalized by end-September 2004 with World Bank financing. The costs associated with the restructuring of private banks, to be financed domestically, have been included in the 2004 supplementary budget.

Balance of payments and external debt

17. The external current account for 2003 (including grants) showed a surplus of 0.6 percent of GDP instead of the programmed 2 percent deficit, thanks to the stronger growth of exports and external grants and despite the sharp rise in imports (including unofficial imports). However, this improvement was more than offset by an increase in the errors and omissions item and smaller-than-expected disbursements of project loan financing. Consequently, the overall balance of payments position showed a deficit of US$348 million instead of the projected US$263 million, which was financed by a larger-than-anticipated consolidation of external debt service and a decrease in the banking system's net foreign reserves. The gross foreign reserves of the BCC increased by only US$22 million instead of the programmed US$82 million, whereas those of the commercial banks rose by US$84 million.

18. In the context of the enhanced HIPC Initiative, the government has signed bilateral agreements with all its Paris Club member creditors, with the exception of Japan, Sweden, and the United States. The government is in contact with bilateral creditors with a view to concluding similar agreements. Seven Paris Club creditors have indicated that they will cancel the DRC's debt at the completion point (while Switzerland has already canceled the stock of debt). In addition, four creditors have allowed the suspension of debt service during the interim period. The government has also signed agreements with thirteen commercial creditors. The DRC has honored its external debt service obligations and has accumulated no payment arrears, except with regard to creditors with whom a rescheduling agreement has not yet been signed.

19. In the area of trade policy, the government has eliminated the temporary quantitative restrictions that were set up to address the dumping of certain textile products (printed fabrics). In addition, in March 2004 the government concluded an agreement in principle with Zimbabwe to liberalize the exchange rate (which had led to a multiple currency practice contrary to Article VIII, sections 2(a), 3, and 4 of the IMF Articles of Agreement) used for the settlement of commercial transactions between the two countries. Regarding the existing exchange restriction related to the DRC's net debit balance vis-à-vis the other members of the Economic Community of the Great Lakes Countries (CEPGL), the government has contacted these members and will work toward removing this one remaining restriction.

Structural and sectoral reforms

Anticorruption initiatives, the judiciary, and procurement

20. Anticorruption initiatives. The draft law against money laundering and the financing of terrorism has been submitted to the National Assembly, and the anticorruption law will be presented by end-June 2004. These two draft laws reflect comments made by the IMF and World Bank staffs. The information campaign concerning the Code of Ethics and Good Conduct for Civil Servants adopted in November 2002 was launched in March 2003 in Mbuji Mayi, but nationwide implementation has been delayed for lack of financing. The same is true of the citizens' vade mecum (compendium of citizens' rights and obligations).

21. Judiciary system. The audit of the entire judicial system began in October 2003 with support from the European Union and other donors. The purpose of this audit, for which missions were sent into the provinces, is to take stock of the judicial system and propose a plan for its strengthening. A preliminary report has already been completed.

22. Procurement. The report on procurement procedures (CPAR), which includes a draft action plan, was submitted to the government at end-April 2004. The recommendations are aimed essentially at (a) the creation of an authority responsible for guiding and implementing reforms (interministerial committee and technical secretariat); (b) the establishment of a temporary legislative and regulatory framework and the recruitment of international experts to strengthen the capacity of the procurement agencies; and (c) the preparation and implementation of large-scale legislative, regulatory, and institutional reforms.

Private sector development

23. Taxation. In 2003, the government temporarily suspended the imposition of a number of levies, pending the preparation, with World Bank assistance, of a comprehensive action plan for the reform of taxation and quasi-taxation of enterprises. Work is scheduled to begin—with the help of an expert—in July 2004. In addition, the Ministry of the Interior has submitted to the Political, Defense, and Security Commission a draft decree establishing an operational unit responsible for combating police, administrative, and judicial harassment (COLT). The completion of this work will pave the way for the preparation of a comprehensive action plan for the reform of taxation and quasi-taxation of enterprises. Implementation, originally scheduled for July 2004, will be delayed by a few months.

24. Labor regulation. In April 2004, the National Labor Board adopted 5 of the planned 20 decrees implementing the new Labor Code. Another meeting will be held shortly to continue examining the remaining decrees, to facilitate full implementation of the new Labor Code.

25. Judiciary. With World Bank assistance, training has been provided for approximately thirty judges, assistant judges (assesseurs), and court clerks. The first commercial courts can be established once the buildings are ready.

26. Domestic debt. The cross-arrears between the government and the private sector have been audited. The total amount of certified arrears is US$840 million. Based on these audits, the Interministerial Committee on Domestic Debt, created by decree in January 2004, continues to work toward reaching agreement between private creditors and the government on the amount, terms, and repayment conditions, taking into account the available financing from the World Bank. An international invitation to bid for the recruitment of a negotiator to help the Commission with its work will be launched by mid-June 2004.

Reform of public enterprises

27. The Steering Committee on the Reform of Public Enterprises (COPIREP) is now operational. It is responsible for procurement in its areas of competence. The two draft laws on the modernization of the legal framework of public enterprises and on the course that the government's divestment of public enterprises could take, as well as those governing the partnership between public enterprises and the government, are being finalized. The audit of the Public Enterprise Council (Conseil Supérieur du Portefeuille) started slightly behind schedule.

28. The Sectoral Working Groups (GST), created in March 2004, are in the process of defining their sectoral strategies, as well as the restructuring plans for public enterprises in the priority sectors (transport, mines, energy, postal services and telecommunications, and insurance).

Mining sector

29. In the mining sector, the government has continued to focus on (a) reform of the regulatory framework; (b) the deepening of institutional reforms, notably of the Mining Registry and the Commission for the Validation of Mining Titles; (c) the restructuring of GECAMINES; (d) regulation of the diamond sector; and (e) the certification of mining sector exports and tax revenues.

30. Reform of the legal and regulatory framework of the mining sector. Efforts have focused on the distribution and dissemination of the Mining Code and its implementing provisions. Accordingly, two training seminars for provincial division chiefs and mining operators were held in March in Lubumbashi and Kinshasa. The Mining Code and the Mining Regulation have been distributed to provincial governors and district commissioners, who are responsible for their dissemination to associations of mining sector operators and to embassies for dissemination to foreign investors.

31. Institutional reform. Unfortunately, the Mining Registry (CAMI), the key administrative institution responsible for managing the sector's new legal and regulatory framework, and, in particular, the portfolio of mining titles, including collection of the corresponding area taxes, has continued to experience management problems that have hindered the effective start of its operations. Over the next three months, the main responsibility of the new acting director of CAMI is to regularize mining titles and the related administrative files. The Commission for the Validation of Mining Titles, created by decree in March 2003, is not yet operational because the representatives of certain key administrations, including the Office of the President of the Republic, have not yet been appointed.

32. Restructuring of the GECAMINES mining company. The objective is to split GECAMINES into two companies within a reasonable period of time. The new company will receive the productive assets and partnership agreements, whereas the existing company will keep the remaining assets and sell them to settle as many of its liabilities as possible. Substantial progress has been made in this area: the Ministry of Mines has examined the partnership agreements and forwarded its report to the government. However, the hiring of experts (to perform legal, technical, and financial assessments of these partnership agreements and prepare the by-laws of the new company) has been delayed.

33. Regulation of the diamond sector. Diamonds account for more than 60 percent of the country's exports. To improve the regulation of diamond exports, we joined the Kimberley Process. For two years now, the certification of diamonds has been handled by the Ministry of Mines and the Center for Analysis and Evaluation of Precious and Semi-Precious Minerals (CEEC). The Minister of Mines created a Support Committee in August 2003 to implement and monitor the Kimberley Process. The Committee is responsible for (a) ensuring the conformity of national practices with international standards; (b) traceability in the diamond sector, from mine to export; (c) control of the certification of export diamonds; and (d) implementation by the DRC of all provisions required by the Kimberley Process. Our participation in the Kimberley Process is beginning to yield convincing results in the fight against fraudulent exports, particularly between the DRC and the Republic of Congo.

Forestry sector

34. Forestry reform—and in particular, the new Forestry Code—is intended to (a) enhance the transparency and fairness of access to forest resources, and (b) promote durable development of the sector through sustainable exploitation of forestry resources.

35. The decree of March 2004 calls for the gradual reduction of ONATRA rates during 2004-06 (from US$16 per cubic meter in 2004 to US$10 in 2005 and US$5 in 2006) and gradually increasing the area tax during 2004-07 (from US$0.0625 per hectare in 2003 to US$0.10 in 2004, US$0.20 in 2005, US$0.30 in 2006, and US$0.50 in 2007). DGRAD collected the area tax at the rate of US$0.0625 per hectare in 2003. The April 2004 report on collection indicates that 44 companies have failed to pay a total of US$506,113. This implies that nearly 7 million hectares of concessions are still allocated to holders who are incapable of honoring the contracts negotiated with the government. The report on collection has been forwarded to the Ministry of Environment for cancellation of the noncomplying contracts, pursuant to Article 8 of the Forestry Code.

36. Conversely, the other reforms we intended to undertake were delayed and had to be postponed, particularly the implementation of the Program to Secure Forestry Revenue, the transfer of 40 percent of the area tax receipts to local governments, the preparation and adoption of regulations implementing the Forestry Code (awarding of concessions, exploitation and development, and combating illegal operations), and the submission to Parliament of the draft Law on the Conservation of Nature. Moreover, contrary to the moratorium on such contracts, in early 2003 concessions covering 6-9 million hectares were allocated by mutual agreement (allocation de gré à gré), and certain contracts that had been canceled in April 2002 were reinstated, by way of exception, in early 2004.

Health sector

37. The health sector strategy will be prepared with World Bank assistance and based on the findings of the Poverty/Health Status Report (RESP). A preliminary report was presented to the donors' round table in May 2004. Implementation of the eight contracts for health infrastructure rehabilitation signed with the authorities (Maîtres d'Ouvrage Délégués - MOD) is progressing satisfactorily.

Education sector

38. Preparation of the overall framework for development of the education sector will be based on the Status Report on the National Education System (RESEN). The preliminary version of this report was finalized and discussed in a workshop in March 2004. The refurbishment of 126 schools—financed by the World Bank in the provinces of Kinshasa, Bas-Congo, Kasaï Occidental, and Katanga—is progressing far more slowly than expected (40 schools have been renovated to date) because of procurement delays and capacity constraints of suppliers.

Program for the demobilization and reintegration of ex-combatants

39. The government has defined a National Disarmament, Demobilization, and Reintegration Program (DDR) for Congolese armed groups that signed the Lusaka Agreement. The program comprises three components: (i) demobilization and reintegration of combatants from the above-mentioned groups, estimated at between 150,000 and 200,000 individuals; (ii) assistance for the socioeconomic reintegration of ex-combatants; and (iii) special aid for vulnerable groups. The national DDR program is to be financed primarily by an IDA grant of US$100 million and a grant from the Multi-Country Demobilization and Reintegration Program (MDRP), also in the amount of US$100 million. The World Bank has agreed to help the DRC seek additional financing under the MDRP, if necessary.

40. The government has defined the institutional framework for the DDR in consultation with donors and lenders. This framework consists of (i) the National DDR Commission, responsible for developing strategic guidelines, and (ii) the Executive Secretariat, responsible for implementing those guidelines. The institutional framework of the DDR, established by two presidential decrees, includes (i) the Interministerial Committee for the DDR, responsible for overseeing DDR activities at the national level; (ii) the National Commission for the DDR (CONADER), created by decree in December 2003, which will coordinate the preparation and implementation of the national program; and (iii) the Committee for the Management of Financial Resources and the Coordination of DDR Financing (CGFDR) of December 2003. The implementing decrees are being prepared. The government has appointed the General Coordinator and Deputy General Coordinator of CONADER.

Poverty reduction strategy

41. All activities programmed since October 2003 to prepare for the launch of the process of formulating the full Poverty Reduction Strategy Paper (PRSP) by end-October 2005 have been completed. These include (a) launch in mid-December 2003 of the information, education, and communication campaign (IEC) on the process of formulating the full PRSP, currently under way in the media; (b) organization in January 2004 of the workshop to launch the PRSP formulation process; (c) finalization, in an international seminar held in Kinshasa in January 2004, of the questionnaire and the methodology for the participatory consultations to be organized at all levels (national, provincial, local, and community-based), which led to the selection of the participatory methods to be applied and the poverty survey; and (d) the appointment of provincial and local committees, as well as sectoral focal points.

42. In addition, by April 2004, preparations had ben made for participatory consultations, units responsible for participatory consultations had been selected, and four experts were hired to enhance the operational capacities of the PRSP Steering Group. The PRSP Technical Committee has been expanded to 25 members, and in March 2004 the terms of reference for the thematic and sectoral consultations were finalized.

43. The 1-2-3 poverty survey was launched in May 2004 with the support of the National Capacity Building Secretariat (SENAREC), AFRISTAT, and the African Development Bank. The survey is being conducted initially in Kinshasa (326 districts) before being extended to the other provinces. The establishment of mechanisms for the management of the Trust Fund for PRSP formulation was delayed because of donors' insistence that it be managed in accordance with the procedures suggested by the World Bank. However, following the preparation of the procedures manual and the hiring of an administrative and financial manager, the mechanisms were put in place in May 2004. The Trust Fund Management Unit is also operational. Participatory consultations are expected to begin in June 2004. The terms of reference and structure of the committee responsible for monitoring poverty reduction expenditure will be modified to increase its independence and enable it to exercise greater ex-post control of the use of resources intended to finance pro-poor expenditure.

II. Policies and Measures for 2004

44. Consistent with the medium-term economic framework, which has been revised to take account of the updated estimates of the impact of the changing international environment, the preparations for the 2005 elections, the implementation of our national DDR plan, the successful reunification of our country, and the servicing of our external debt, we have finalized the following objectives for the year, which remain broadly in line with the preliminary objectives approved at the time of the third review of our program with Fund staff: (a) an economic growth rate of 6.3 percent; (b) an average inflation rate of 5 percent; and (c) an external current account deficit (including grants and after external debt service relief) of 2 percent of GDP, associated with the substantial increase in investment financed by international assistance (Table 1). We will take advantage of the obtained external debt service relief to increase the share of pro-poor spending in our budget and to strengthen the international reserves of the BCC, which guarantee the stability of our national currency.

Fiscal policy

45. Macroeconomic stability will continue to be supported by a prudent fiscal policy, while steps are taken to ensure that the composition of expenditure reflects our poverty reduction objectives described in our interim PRSP. The 2004 budget, adopted by Parliament in March 2004, did not take account of the establishment of our national DDR program, the repayment of domestic debt, the cost of preparing the elections, and the cost (domestically financed) of the liquidation of a number of commercial banks. To take account of the immediate impact of these programs, the government will adopt a supplementary budget in June 2004 that will be prepared in accordance with the new classification and submitted to the National Assembly in July 2004. A preliminary survey of the situation of the revenue-collecting agencies (régies financières) and Treasury branches in all reunified provinces has been prepared. Before the new Law on Decentralization is adopted by Parliament, we plan to carry out a comprehensive study on its financial implications with the help of an IMF technical assistance mission. We will continue to work toward implementation of the tax reform program launched with the help of IMF staff, as well as the enforcement of the tax laws throughout the national territory. We will also continue to make the necessary efforts to ensure that revenue collected in the mining sector and in the reunified provinces is transferred as quickly as possible to the general account of the Treasury.

46. With the pursuit of the revenue-generating measures introduced in the first quarter of 2004, the projected increase in the producer prices of oil, and improved expenditure control, especially through strict monitoring of the cash-flow plan, total revenue (excluding external grants) for 2004 is expected to reach 9.2 percent of GDP, while total expenditure should increase by 2 percent of GDP as compared to the original program. Pro-poor spending will increase from 1.5 percent of GDP in 2003 to 6.6 percent in 2004, while security spending will remain at 2.1 percent. The consolidated domestic primary balance on a cash basis is expected to show a surplus of 1 percent of GDP, and the overall consolidated balance, including the net balance of BCC operations, is expected to show a cash-basis deficit of 3.2 percent of GDP (Table 2B). It is anticipated that net credit to the government will be negative by an amount equivalent to 0.6 percent of GDP.

47. On the revenue side, reforms will be pursued with a view to introducing a value-added tax (VAT) in 2006. Efforts will continue, with IMF technical assistance, to increase the effectiveness of the administrations responsible for revenue collection. A plan for the redeployment of the revenue-collecting agencies throughout the country is being formulated, and the government is seeking support from the international community to strengthen the administrative capacity of these agencies at the provincial level. Within this framework, the revenue-collecting agencies will maintain their current operating procedures, and oil production revenue will not be included in the calculation of the amount (rétrocession) to be transferred to them. In addition, the concept of the fiscal franc (franc fiscal) will no longer be used by the revenue-collecting agencies. The DGI will pursue its reform plan, ensuring that (a) the three draft laws and the draft regulatory decree necessary for the establishment of the tax office for medium-sized enterprises are adopted by the government by mid-June 2004; and (b) the computer link between the LTU and the BCC become fully operational in early August. With respect to customs, OFIDA will also continue with its modernization program, in particular with the computerization of the East Kinshasa customs office by end-September 2004. A memorandum of understanding between the Congolese Control Office (OCC) and OFIDA on the harmonization of the valuation of imports will be signed by end-July 2004.

48. In addition, the following measures will be introduced to increase revenue mobilization: (a) maintenance of the turnover tax rate on services at 18 percent; (b) revision of the tax agreement (convention) between MIBA and the government by end-September 2004; (c) adoption by the government of the draft laws necessary for the establishment of the tax office for medium-sized enterprises, scheduled for July 1, 2004; (d) adoption by the government of the regulations confining turnover tax deductibility to large enterprises by end-July 2004; (e) finalization of the complete inventory of tax exemptions granted by the Ministry of Finance and the oversight ministries, as well as their rationalization, by end-September 2004; (f) completion by the Ministry of Finance of the audit of the principal entities receiving duties and fees not collected by the DGRAD (OCC, ONATRA, OGEFREM) by end-December 2004; (g) review of the taxes on money transfers to prevent double taxation, by end-June 2004; and (h) application of the tax sticker (vignette) on tobacco throughout the country, as of end-June 2004.

49. In the 2004 supplementary budget, the increase in the wage bill covers the following: (a) the salary increases and the doubling of transportation allowances provided for in the 2004 budget; (b) the later-than-planned demobilization of former combatants—this operation will not begin until October 2004 and will affect only 50,000 soldiers out of the estimated total of 150,000; and (c) the retirement of 10,000 employees during the last quarter of 2004, with World Bank assistance. The civil service reform will be launched, with priority given to (a) the implementation of the short-term recommendations of the payroll system audit (assignment of payment officers to the Treasury, return of initialed payrolls to the payment officers, and adequate budgetary control of the use of resources); (b) the continued elimination of ghost workers from the payroll, with the validation of personnel lists by all Ministers and officials responsible for affected budgets annexes, cross-checking of the lists by the Ministry of Civil Service, and verification by the Payroll Directorate in the Ministry of Budget by end-July 2004; and (c) the selection of consultants in September 2004 to launch the census of government employees throughout the country, the results of which are expected by end-April 2005. There will then be another screening of the staff lists; personnel and payroll files will be created; and a list of employees eligible for the retirement program will be drawn up. The second phase of this retirement program, affecting some 62,000 employees, will occur only during the second half of 2005.

50. The control of operating expenditures will improve, with strict observance of the cash-flow plan and special attention paid to official travel, transportation costs, and aircraft charters. For centralized expenditures, a lump sum, financed with World Bank assistance, was negotiated with SNEL and REGIDESO for electricity and water consumption in 2004.

51. The government undertakes to pursue resolutely the reforms aimed at increasing the transparency of fiscal management. Budget tracking statements (ESBs) will be available no later than the tenth day of the following month, starting with those for July 2004. These ESBs will include (a) expenditure resulting from the three protocols (payroll, public debt, and external resources); (b) all expenditure that by-passed the expenditure procedures; and (c) specific pro-poor spending. In addition, the following measures will be implemented in 2004: (a) adoption in September 2004 of regulations governing the eligibility and management of the budgets annexes, with a view to their rationalization in the preparation of the 2005 budget; and (b) adoption by the government of the criteria developed by the Treasury and Payment Authorization Directorate for the opening of government accounts at the BCC and at commercial banks, and the closing of unauthorized bank accounts by end-December 2004. The work related to the implementation of a double-entry accounting framework for the government is under way, and a schedule has been drawn up for the introduction of the simplified framework by January 1, 2005 and the implementation of the government chart of accounts by January 2006.

52. Pending finalization of the study on the financial implications of the new Law on Decentralization submitted to Parliament, the government has decided to respect the following principles: (a) provincial budgets must be balanced; (b) decentralized government entities (EADs) will not contract external debt without the prior approval of the Minister of Finance and the prior consent of the BCC and OGEDEP; (c) EADs will not contract domestic debt; (d) EADs will be unable to create new taxes without the approval of the Minister of Finance; (e) revenue-collecting agencies—Customs in particular—will operate solely under the authority of the central government; and (f) the current level of transfers to the provinces will be maintained, while any increase in transfers will be accompanied by corresponding spending authority. Each provincial governor will prepare a diagnostic study of his province and a roadmap of measures for implementation. A list of technical assistance needs and priorities to strengthen administrative capacity in the provinces will be drawn up. In this context, the government will request assistance from the international community to strengthen fiscal management in the provinces, starting with the province of Kinshasa.

Monetary policy

53. The BCC will pursue a monetary policy that aims at price stability in the context of the floating exchange rate system. To this end, broad money is expected to increase by 29 percent (Table 1), a rate exceeding that of nominal GDP growth, to take account of the increase in the demand for money. Net banking system credit to the government will decrease by 14 percent of the beginning-of-period money stock, which will make it possible to satisfy the upswing in private sector demand for credit and boost the net foreign assets of the BCC to US$-598 million. Also, gross foreign assets will grow from three weeks of imports at end-2003 to more than six weeks at end-2004.

54. The BCC plans to adopt a much more active policy of net foreign exchange purchases on the exchange market. Without running counter to economic fundamentals, this approach will enable the BCC to consolidate its international reserves while at the same time responding to the increased demand for Congo franc. In addition, the BCC will ensure strict enforcement of the requirement to surrender export earnings after 60 days, as prescribed in the legislation.

55. The government undertakes to safeguard the full independence of the BCC in the pursuit of monetary policy, in particular its interventions on the exchange market and the issuance of higher denomination Congo franc banknotes. It is expected that the study undertaken with BNB assistance on the volume and structure of Congo franc banknotes will be completed by end-July 2004. Issues of new banknote denominations will be prepared carefully and preceded by a public awareness campaign, as was the case for the highly successful introduction of CGF 200 and CGF 500 banknotes. The BCC will continue to strengthen its monetary policy management, in particular by streamlining its financing instruments while limiting the risk of its interventions. To this end, a new instruction on refinancing operations and related collateral will be adopted by end-July 2004. Lastly, the monetary authorities undertake to ensure transparency in their operations and functioning, in conformity with the IMF Code of Good Practices on Transparency in Monetary and Financial Policies.

56. The BCC will continue its restructuring through the implementation of its action plan prepared with Fund staff. The improvement of the BCC computer system remains a key component of the action plan. Guided by the Information Technology (IT) Committee established in April 2004, the BCC will select appropriate computer applications, especially in the areas of accounting and foreign exchange transactions, and will launch a call for bids by end-September 2004. A commission of independent experts will be appointed to improve the monitoring and control of IT purchases. In addition, the BCC will adopt its IT sector plan by end-September 2004. This restructuring is primarily intended to modernize the BCC's infrastructure, as well as its operational systems and procedures, having in mind the conduct of monetary policy and control and supervision of the banking system. To achieve this, the BCC, assisted by the BNB, will also complete a study on its recapitalization by end-September 2004. This study will be based on the ongoing external audit of the BCC financial accounts at end-2003 and on the consolidation of its operating account through a series of specific actions aimed at improving its revenues and better controlling its expenditure. Nevertheless, it will take some time before the financial position of the BCC improves because of the financial disintermediation in the country. In the short term, this restructuring and the redeployment of BCC agencies throughout the country are causing costs that will continue to be covered by the government budget—the government being the sole shareholder of the BCC—and external financing that is being sought. The BCC is implementing a plan for the redeployment of its agencies throughout the country, which it intends to present at a donors' meeting at end-2004.

57. The BCC will strictly implement its cash-flow plan, whose deficit for 2004 is estimated at 0.6 percent of GDP. In this context, it will strictly limit official travel and stress transparency, good practices in the conduct of its business, and anticorruption efforts at all levels. The principle of transparent bidding procedures will be strictly observed, and the responsible committee will be enlarged to ensure better preparation of projects and greater transparency, including in ex-post control and monitoring.

58. Banking supervision. The BCC will continue to strengthen banking supervision with the assistance of Fund staff. This involves, in particular, (i) the computerization of supervision (to be completed by end-December 2004), which will facilitate improved off-site supervision; (ii) introduction of the plan for the verification of on-site inspections by end-September 2004; and (iii) adoption of the new chart of accounts for commercial banks and the electronic transmission of periodic statements by banks, starting in August 2004. In the area of microfinance, the BCC will conduct a survey of microfinance institutions and draft a new law to replace the existing instruction by end-December 2004.

59. The BCC will closely monitor the restructuring of the banking system, which is essential for financial reintermediation. It will also supervise the redeployment of the commercial banks in the provinces. It will improve the content of the monetary statistics and their dissemination to banks, as well as the risk control statistics. The government is committed to taking all necessary steps to ensure that the social plans of the three public commercial banks in liquidation are quickly completed and result in actual payments to the laid-off staff (by end-December 2004), financed by the World Bank. Finally, the government has launched a reform of the tax and legal framework for commercial banks to make it more transparent and more in line with good international practice. The decree amending the chart of accounts to facilitate the reconstitution of equity capital was adopted in early 2004. In addition, draft laws introducing tax deductibility of statutory loan-loss provisions, the reduction of the personal property tax (from 6 percent to 1 percent), and a more attractive investment regime for the financial sector will be completed by end-December 2004.

Structural and sectoral reforms

Anticorruption initiatives, the judiciary, and procurement

60. Anticorruption efforts will be expanded to cover the entire country and all decentralized government entities and public enterprises. The action plan on procurement reform is expected to be adopted by end-October 2004, concurrently with the appointment of officials responsible for its implementation. Meanwhile, to improve transparency, the government will ensure strict enforcement of the procedures manual, in particular through the use of bidding procedures for any contract valued at more than US$10,000. It is anticipated that the final version of the action plan to strengthen the judiciary will be available by end-June 2004 and implemented by end-December 2004.

Private sector development

61. Taxation. The action plan for reform of the tax regime applicable to enterprises is expected to be completed by end-December 2004. Preparation of the implementing decrees for the Labor Code will continue, and on the legal side, the government, with the assistance of external consultants, will continue the process of accession to the OHADA Treaty (including the adoption of the national legislation to the OHADA Treaty).

62. Domestic debt. Our efforts will focus on the preparation and implementation of the strategy for the settlement of net cross-arrears between the government and the private sector. Agreement on this, expected by end-2004, will establish a discount for each type of creditor. An invitation to bid will be launched to select a commercial bank to make the payments once the discounts have been agreed with creditors representing 75 percent of the amount of the cross-arrears. The repayment plan, which is included in the draft supplementary budget for 2004, will be implemented with World Bank financing.

Reform of public enterprises

63. Based on the audit of the Public Enterprise Council (Conseil Supérieur du Portefeuille-CSP), it is expected that the plan to restructure the CSP and strengthen its capacity to monitor and supervise public enterprises will be completed by end-September 2004. The draft laws on the reform of public enterprises and government divestiture will be adopted by the government for submission to the National Assembly by end-October 2004. The government will adopt the plans to restructure ONATRA, SNEL, Regideso, RVA, Citytrain, SNCC, LAC, and OCPT by end-December 2004. A plan to restructure the oil distribution company (COHYDRO) will be completed by end-September 2004 on the basis of a financial audit and the adjustment of its accounts. The program of voluntary separations from OCPT, financed by the World Bank, could be completed by end-December 2004, following a six-month delay. The restructuring plan for GECAMINES will be submitted to the National Assembly in 2005.

Mining sector

64. The Mining Code will be disseminated throughout the country during the second half of 2004, with assistance of experts selected by a call for bids. During the second quarter of 2004, the preparation of the new by-laws of the Mining Registry (CAMI) will be completed, and a call for bids will be launched for the recruitment of its new management team. In addition, an organizational audit and a financial audit, which will serve as the basis for the restructuring of CAMI, will be undertaken. We will ensure that (a) the auditors are selected through a public call for bids by end-August 2004; (b) work will start in early September 2004; and (c) the results will be available by end-December 2004. The results of this audit will be used to establish efficient financial management and supervision procedures, as well as to monitor and assess the performance of CAMI, in the interest of safeguarding the credibility of the new legal framework for the mining sector. Our aim is to complete the restructuring of CAMI by end-March 2005. The Commission for the Validation of Mining Titles is expected to become fully operational by end-June 2004, so that decisions can be made by end-September 2004 regarding 85 percent of the various titles identified.

65. Given the delay in the recruitment of experts, the final restructuring strategy for GECAMINES will be adopted by end-June 2005 and submitted to the National Assembly soon afterwards. However, the government has authorized the hiring of a firm with an excellent international reputation in mining to manage GECAMINES until the new company is formed, with the specific objective of boosting production and protecting the company's equity. The selection of this firm in an international call for bids is under way and is expected to be completed by end-June 2004.

66. With respect to the diamond sector, we continue to be concerned by the fact that export growth has not led to a subsequent increase in tax revenue, which is still very low. We therefore hope to receive assistance from the international community for formulating a sectoral approach to combating fraud in the diamond sector, starting with audits-by an international firm and in accordance with international accounting standards—of the principal enterprises and institutions in the sector (in particular, MIBA, SENGAMINES, and CEEC), as well as the artisanal sector. The terms of reference are being drawn up, and by end-September 2004 we will launch an international call for bids for an audit financed by the European Union. The net claims of these enterprises on the government will be settled on the same terms as the claims of other creditors, as defined in the overall strategy for the settlement of cross-arrears between the government and the private sector, currently being developed with World Bank assistance.

67. Certification of exports and tax revenue. To minimize the losses of foreign exchange and tax revenue resulting from fraudulent practices, we are introducing procedures to control the quantity, value, and quality of exports in terms of ore grade. In this regard, we have awarded a tender to a specialized company to check the grade and weights of exports. We also intend to set up a program to secure mining revenue, similar to the one proposed in the forestry sector. At the same time, the government will establish a one-stop window for mining exports in Katanga, consistent with the provisions of the Mining Code. To that end, the government will, by end-October 2004, organize joint training programs for staff of the Ministry of Mines and the Ministry of Finance on the tax collection procedures described in the new Mining Code. We expect that the one-stop window for mining exports will be operational by end-December 2004.

Forestry sector

68. In the forestry sector, the following five measures will be taken by end-September 2004. First, the government plans to resume strict enforcement of the moratorium on forestry concessions allocated by mutual agreement, pending completion of the process of converting canceled contracts and implementation of the new procedures for awarding concessions. All applications for forestry concessions will be considered within the framework of the conversion process. Second, we will ensure strict enforcement of the new tax regime set out in the interministerial decree of March 2004, particularly the reduction of the ONATRA tariff from US$16 to US$10 per cubic meter and the increase in the area tax from US$0.0625 to US$0.10 per hectare. In this regard, we plan to create a joint monitoring committee, with participation of all parties involved and donor representatives as observers. Third, by June 2004 we will publish the report on the collection of the area tax for 2003 and enforce the contractual provisions requiring automatic cancellation of the concessions of those companies that have not paid the tax (Article 8 of the Code). Fourth, 40 percent of the area tax collected for 2003 will be transferred to decentralized local entities. Fifth, we will launch the program to convert canceled contracts into "sustainable management concessions", in accordance with the new Forestry Code. This program will be carried out with the help of an independent observer and will be completed within 12 months following its launch. Lapsed or noncomplying contracts will be canceled, and the new list of valid concessions will be published.

69. By March 2005, the government will have introduced the Program to Secure Forestry Revenue, to be managed jointly by the Ministry of Finance and the Ministry of the Environment. It will continue to apply the tax and quasi-tax provided for in the decree of March 2004 (ONATRA tariff reduced to US$5.00 per cubic meter as of January 1, 2005, and area tax increased to US$0.20 per hectare). Regulations implementing the new Forestry Code (awarding of concessions, sustainable management, logging, combating illegal operations, and community forestry) will be adopted after consultation with the parties involved. Also, the government will have launched the process of forestry zoning, and to the extent that it wishes to award new concessions, will have first consulted with neighboring villages. Finally, an independent mechanism for the on-site inspection of logging operations and sustainable development will be introduced. Meanwhile, the draft law on the Conservation of Nature will be prepared for adoption by the government by end-2005.

70. Social sectors. The diagnostic reports on health, education, and welfare currently being prepared will be completed with World Bank support. They will serve as the basis for preparation of the sectoral strategies that are triggers for the HIPC Initiative completion point.

71. Health sector. It is anticipated that the final version of the RESP will be available by end-October 2004. During the period 2004-05, discussions on the regulatory and fiscal reforms for the sector and the preparation of a sectoral project with the help of the World Bank are expected to begin. By September 2004, the accelerated implementation of eight MOD contracts is expected to improve perceptibly the delivery of basic services to the population, especially in the area of infant mortality.

72. Education sector. It is expected that the final Status Report on the National Education System (RESEN) will be available by end-August 2004, following inclusion of the analysis of data from the eastern part of the country, and it will be widely disseminated by end-September 2004. The RESEN report will be a key input for (i) the drafting of the education section of the full PRSP and the preparation, by August 2006, of the sectoral strategy, which, as in the case of the health sector, is a trigger for the enhanced HIPC Initiative completion point; (ii) the finalization of the action plan, now under preparation, for the "Education for All" (Education Pour Tous) program, which we hope to submit to the international community as soon as possible after completion of the RESEN and in any event by end-December 2004; and (iii) the preparation of the World Bank education sector project by March 2005. Lastly, the refurbishing of 126 schools will be completed by end-January 2005.

73. In the area of infrastructure rehabilitation, all projects financed by the first tranche of the World Bank Emergency Multisectoral Rehabilitation and Reconstruction Program (EMRRP) will be completed in 2005, and an overall reconstruction and rehabilitation policy will be finalized.

74. Welfare sector. A comprehensive program for the reform of this sector will be developed on the basis of studies carried out in 2002-03. The program could be finalized by end-June 2004, and will include actions to be taken by the government and its partners in the area of welfare, as well as the budget and sources of finance. Financing for activities benefiting "vulnerable groups" will be sought. The project to establish a Social Fund, supported by the World Bank, is expected to begin in the course of 2004 and be completed by end-2005. External financing for an audit of the National Social Security Institute will be actively sought.

75. Program for the demobilization and reintegration of former combatants. By end-September 2004, the government is expected to (i) adopt the national DDR program in the Council of Ministers; (ii) finalize the implementing regulations for the decrees signed in December 2003 to establish the National Commission for the DDR (CONADER) and the Committee for the Management of Financial Resources and the Coordination of DDR Financing (CGFDR); (iii) complete the preparation of the joint operating plan that brings together the program for the restructuring of the army and the national DDR program; and (iv) appoint the key staff of CONADER. The disarmament and demobilization phase could begin in August 2004 and could continue for 18 months, followed by the reintegration phase, which could begin in September 2004 and last three years.

76. Poverty reduction strategy. The participatory consultations will be carried out in the period June-August 2004. The reports on the sectoral and community consultations will be drafted and forwarded to the technical ministries and communities for feedback in August and September 2004. Based on the consultations and the thematic work, the thematic groups and sectoral ministries will prepare their contributions to the PRSP by end-October 2004. The initial version of the PRSP, without the complete statistical data, will be finalized in December 2004.

77. Concurrently with the qualitative poverty survey to be conducted on a participatory basis, a survey on household consumption, employment, and the informal sector (1-2-3 Survey) is planned for both urban and rural areas and is to be finalized by February 2005. It will be conducted jointly by the Poverty Reduction Strategy Technical Committee (CTSRP) and the National Statistics Institute (INS), to give the latter a pivotal role in the collection, analysis, and dissemination of data on poverty. It is expected that the 1-2-3 Survey will be returned in May 2005 and that it will be incorporated into the second version of the PRSP in June 2005. The full PRSP will be delivered and returned to the country's national and international partners in July and adopted by the government by end-August 2005.

Statistical apparatus

78. The government, with assistance from the international community, and in particular with the help of the IMF resident expert who will take up his duties shortly, intends to strengthen its statistical apparatus, specifically with a view to improving public debt management, the national accounts, and the balance of payments. The government will seek the support of the international community to help build administrative capacity for the collection and processing of statistical data within the central government and in all provinces. The governors of the provinces will perform a quick diagnostic analysis of the statistical apparatus of the provinces and identify the immediate measures to be adopted as well as technical assistance needs. In addition, in April 2004 the government joined the IMF's General Data Dissemination System (GDDS).

III. Monitoring, Prior Actions, Performance Criteria and Indicators

79. The Interministerial Committee Responsible for Monitoring Programs Concluded with the Bretton Woods Institutions (CISPI), chaired by the Minister of Finance, and the Interministerial Commission Responsible for Formulation of the Poverty Reduction Strategy, chaired by the Minister of Planning, will continue to implement the measures of the Government Economic Program (PEG) and the poverty reduction strategy. The two interministerial commissions will continue reporting to the Economic and Financial Commission, the role of which is to ensure the coordination of all programs. The latter will, in particular, ensure the establishment of the rule of law, including the strict enforcement of the applicable legislation and codes, and will ensure that any new agreement or contract with the government (or guaranteed by it), including public enterprises and the provinces, is consistent with them. The same will also apply to any loan contracted (or guaranteed) by the government (including the decentralized entities (EADs)), the terms of which must respect the concessionality defined in the technical memorandum of understanding. The circular stipulating that any new external borrowing must be approved in advance by the Minister of Finance (with the prior consent of the BCC and OGEDEP) will be widely disseminated among the sectoral ministries and EADs. All new external debt contracted (or guaranteed) by the government, including EADs, will be recorded by OGEDEP. The government's letter of intent and memorandum on economic and financial policies will be broadly disseminated to the concerned units.

80. To ensure the success of the program, the government will implement the following three prior actions: (a) adoption by the government of the 2004 supplementary budget, reflecting the broad aggregates agreed with IMF staff and presented according to the new classification (June 2004); (b) adoption by the government of the new Customs Code (June 2004); and (c) adoption by the government of the Anticorruption Law (June 2004) (Table 5).

81. Program implementation in 2004 will continue to be monitored by means of semiannual reviews, semiannual quantitative performance criteria (September 2004), and quarterly benchmarks (June, September, and December). As shown in Table 4 and defined in the technical memorandum of understanding, this involves (a) a floor on the net foreign assets of the BCC; (b) a ceiling on the net domestic assets of the BCC; (c) a ceiling on net bank credit to the government; (d) a ceiling on BCC credit to nonfinancial public enterprises; (e) a ceiling on BCC credit to the nonfinancial private sector; (f) a ceiling on new nonconcessional external debt (with a grant element of less than 35 percent) contracted or guaranteed by the government (or EADs) with maturities of more than one year (excluding IMF credit); (g) a ceiling on new nonconcessional external debt with an initial maturity of less than one year (with the exception of normal import credits) contracted or guaranteed by the government; and (h) no accumulation of civil service, police, military, or BCC arrears on wages (including all forms of compensation). The program will include three continuous performance criteria: (a) the BCC will not finance any budgetary expenditure not previously authorized by the Ministry of Finance; (b) the BCC will not purchase domestic and foreign currency banknotes on the market at a premium against bank money payments; and (c) the government will not accumulate external arrears on debt service for which a rescheduling agreement has been concluded with its creditors or on any new borrowing. Finally, the BCC will continuously maintain SDR 8 million in its accounts with the IMF to ensure the regular payment of its obligations to the Fund.

82. The program also includes a structural performance criterion for end-September 2004 (Table 5), namely, the selection of an international firm to conduct the external audit of MIBA. The structural benchmarks for the period June-December 2004 include the following:

    (i) finalization of the COHYDRO reorganization plan (June 2004);

    (ii) completion of the strategic audit of the Public Enterprise Council (Conseil Supérieur du Portefeuille) (June 2004);

    (iii) adoption of a simplified, double-entry accounting framework for the government (June 2004);

    (iv) finalization of the Law Governing Public Institutions and the Law Governing Divestment by the State of Public Enterprises (December 2004); and

    (v) reorganization of the procedures for paying civil service servants based on the recommendations of the external audit of the payroll system (December 2004).


Technical Memorandum of Understanding

Kinshasa, June 24, 2004

1. This memorandum covers the agreements on monitoring the implementation of the program supported by the Poverty Reduction and Growth Facility (PRGF) of the International Monetary Fund (IMF). It establishes the information to be reported and the deadlines for its submission to the IMF staff for program monitoring. It defines the quantitative performance criteria and benchmarks, as well as the structural performance criteria and benchmarks presented in the memorandum on economic and financial policies (MEFP) of the government of the Democratic Republic of the Congo (DRC), which is attached to the letter of June 24, 2004 to the Managing Director of the International Monetary Fund.

A. Monitoring Program Implementation

2. Implementation of the program covering the period April 1, 2002-July 31, 2005 will be monitored on the basis of the performance criteria and benchmarks described in paragraphs 81 and 82 and Tables 4 and 5 of the MEFP of June 24, 2004.

B. Definition of Quantitative Performance Criteria and Indicators

3. The quantitative performance criteria and benchmarks described in Table 4 of the MEFP are as follows:

    a. floor on net foreign assets of the central bank (BCC);

    b. ceiling on net domestic assets of the BCC;

    c. ceiling on net bank credit to the government;

    d. ceiling on BCC credit to nonfinancial public sector enterprises;

    e. ceiling on BCC credit to the nonfinancial private sector;

    f. ceiling on new nonconcessional external debt contracted or guaranteed by the government or the BCC, with maturities of more than one year, except borrowing for debt rescheduling purposes, and IMF credit;

    g. ceiling on new nonconcessional external debt contracted or guaranteed by the government or the BCC, with maturities of one year or less, except borrowing for debt rescheduling purposes, IMF credit, and normal import credits (suppliers' credits), excluding petroleum imports; and

    h. ceiling on wage arrears (including all forms of compensation) for the civil service (civilian and military) and the BCC.

The following quantitative criteria will be monitored on a continuous basis:

    i. the BCC will not finance government expenditure that has not been authorized in advance by the Ministry of Finance;

    j. the BCC will make no purchase of Congo franc banknotes or foreign currency in the market at a premium against payment in bank money; and

    k. the government will not accumulate external payments arrears on debt service for which a debt rescheduling agreement has been concluded with the government's creditors, or on any new borrowing.


4. Net foreign assets of the BCC are defined as the difference between the BCC's gross foreign assets and all its external obligations, as shown in the "Integrated Monetary Survey" prepared by the BCC. The net foreign assets and all the foreign currency accounts of the BCC, as well as the Integrated Monetary Survey, will be valued at the program exchange rates, which are as follows: SDR 1 = US$1.26537; US$l = CGF 313.6; and EUR 1 = CGF 357.62.

5. The net domestic assets of the BCC are equal to the sum of the following line items, as they appear in the BCC balance sheet:

    a. net claims on the government;

    b. claims on nonfinancial public enterprises;

    c. claims on the nonfinancial private sector;

    d. claims on banks (net of billets de trésorerie obtained by deposit money banks);

    e. claims on other banking and nonbank institutions; and

    f. "other items net," defined as other assets minus other liabilities (including capital and valuation accounts, and billets de trésorerie obtained by the public).

6. Net banking system credit to the government is defined as the sum of net claims of the central bank and of deposit money banks on the government, as defined in the "Integrated Monetary Survey" prepared by the BCC (excluding deposits linked to project-related assistance), plus the BCC's net cash deficit.

7. Fifty percent of any surplus (shortfall) over (under) the programmed amount of external budgetary assistance (excluding project assistance), net of debt service and including external debt service rescheduling, that has not been used to finance poverty-reducing expenditure, public enterprise restructuring, and domestic debt repayment (limited to cross-arrears certified by the World Bank staff) will be used to reduce (increase) net banking system credit to the government, and the corresponding performance criterion will be adjusted downward (upward) accordingly. The criteria on net foreign assets and net domestic assets will be adjusted upward (downward) and downward (upward), respectively, by the same amount. However, the criterion regarding net foreign assets will be adjusted downward without letting the stock of net foreign assets fall below the level achieved at end-December 2002. Expenditures related to the National Disarmament, Demobilization, and Reintegration Program (DDR), elections, civil service retirements, and domestic debt are considered projects. This adjustment does not apply to HIPC resources, which will be deposited in a special account at the BCC. The procedure for using this account is described in the Fund staff report on the decision point under the HIPC Initiative (EBS/03/103).

8. BCC credit to nonfinancial public sector enterprises is equal to BCC claims on nonfinancial public enterprises, as defined in the "Integrated Monetary Survey" prepared by the BCC.

9. BCC credit to nonfinancial private sector enterprises (excluding loans to BCC personnel and advances on orders of goods and services) is equal to BCC claims on nonfinancial private enterprises, as defined in the "Integrated Monetary Survey" prepared by the BCC.

10. Wage arrears are defined as validated personnel expenses not paid for more than 30 days. Wages include all compensation paid to employees (civil service personnel, including the military, national police, members of Cabinet, and BCC staff), including bonuses and allowances. Under the program, these arrears will be assessed cumulatively and partly based on the balances of the accounts of the provincial delegated payment authorization officers (ODs) in the Treasury's general account at the BCC.

11. The government will not accumulate any payments arrears on external debt, except on debt being rescheduled with creditors.

12. The definition of external debt can be found in Decision No. 6230-(79/140), para. 9, amended on August 24, 2000 (Annex I).

13. The grant element of borrowing will be calculated on the basis of currency-specific rates based on the OECD commercial interest reference rates (CIRR) on the date the contract is signed, as specified in the Annex. A loan is defined as concessional if, on the date the contract is signed, the ratio of the present value of the loan, calculated on the basis of the reference interest rate, to its nominal value is less than 65 percent (i.e., including a grant element of at least 35 percent).

14. Base money is defined as the sum of the following:

    a. currency in circulation (in and outside banks);

    b. deposits of banks with the BCC;

    c. deposits of public enterprises with the BCC;

    d. deposits of private enterprises and individuals with the BCC; and

    e. deposits of other financial institutions, other than deposit money banks, with the BCC.

Note: "Base money" excludes all billets de trésorerie issued by the BCC.

15. The following concepts are used in the letter of intent and the memorandum on economic and financial policies:

    a. Budget: annual law authorizing the government's financial operations. Transfers to the provinces are included, but the provinces' own revenues are not covered. The social security system is not consolidated in the budget;

    b. Special budgets (budgets pour ordre): autonomous agencies and entities receiving earmarked revenues that, like their expenditures, are covered in the budget;

    c. Extrabudgetary accounts: accounts receiving government revenue not tracked by the Treasury Management and Payment Authorization Directorate. The consolidation of these accounts with those that are regularly monitored by the Treasury Management and Payment Authorization Directorate is necessary for a complete picture of budget execution; and

    d. Poverty-reduction expenditure: "pro-poor" spending as defined in the new nomenclature on the basis of the priorities set forth in the I-PRSP and detailed in Annex II.

C. Structural Performance Criteria and Benchmarks

16. The structural performance criteria and benchmarks are described in Table 5 of the memorandum on economic and financial policies.

D. Reporting

17. The authorities will forward to the IMF's African Department, as soon as possible and preferably by e-mail or fax, the data and information needed to monitor program implementation. These data and information must be duly reconciled so as to ensure their internal consistency. Following are the data or documents to be submitted:

Exchange system

    a. Volume of purchases and sales of foreign exchange on the interbank market, between commercial banks and their customers, and by exchange bureaus;

    b. Volume of purchases and sales (interventions) by the BCC on the interbank market;

    c. Average Congo franc/U.S. dollar reference exchange rate of the BCC (indicative rate);

    d. Average Congo franc/U.S. dollar exchange rate on the interbank market;

    e. Average Congo franc/U.S. dollar exchange rate offered by commercial banks to their customers; and,

    f. Average Congo franc/U.S. dollar exchange rate used by exchange bureaus.

Note: The above information is to be submitted with a time lag of one day.

Banking system

    a. Integrated monetary survey, with a breakdown into domestic currency and foreign currency;

    b. Monetary survey of the BCC, with a breakdown into domestic currency and foreign currency;

    c. BCC operating account;

    d. BCC investment budget;

    e. Implementation of the BCC's cash flow plan;

    f. Statement of wage arrears owed to BCC staff;

    g. Monetary survey of deposit money banks, with a breakdown into domestic currency and foreign currency;

    h. Net banking system credit to the government;

    i. Net banking system credit to public sector enterprises;

    j. Structure of nominal and real interest rates of deposit money banks;

    k. Reserves (voluntary and required) of deposit money banks;

    l. Structure of BCC interest rates;

    m. Structure of billets de trésorerie rates; and

    n. Premium on Congo franc banknotes purchased in the market against bank money.

Note: The above monthly information is to be submitted not later than three weeks after the end of each month.

Public sector

    a. Implementation of Treasury cash flow plan;

    b. Expenditure execution by type and by ministry/institution;

    c. Validated wage bill by category of payee, region (Kinshasa/provinces), and activity status (active/retired);

    d. Wage bill debited from the Treasury General Account by category of payee, region, and activity status;

    e. Paid wage bill by category of payee, region, and activity status;

    f. Paid employees, by category of payee, region, and activity status;

    g. Civil service pay scale (if changed);

    h. Issues, redemptions, and stocks of treasury bills (including maturity and interest charges), by category of creditor (commercial banks, public enterprises, and other);

    i. Public sector domestic debt, by category of creditor (commercial banks, private entities, etc.): collect and report data related to domestic public debt as soon as they are available; and

    j. Payments arrears on centralized expenditures.

Note: The above information is to be submitted not later than three weeks after the end of each month.

Starting in August 2004, and following implementation of the new expenditure procedures, the budget tracking statements mentioned in Annex III will also be forwarded

Real sector

Report as soon as possible indicators on recent economic developments and other related data, such as the consumer price index, once a week; merchandise exports (in value and volume) of crude oil, copper, cobalt and zinc, and industrial and artisanal diamonds; imports (in value and volume), if possible by principal product and showing petroleum products separately; and output indicators of the manufacturing, mining, and services sectors, published in the BCC's monthly reports on economic activity. Monthly tax base (imports) prepared by the Customs and Exercise Office (OFIDA).

External debt

    a. Actual disbursements of external assistance, whether or not to finance projects, including those associated with new contracted loans (on a monthly basis, with a lag of three weeks);

    b. Monthly breakdown by interest and principal, and classification by creditor, of debt service payments made;

    c. Composition of monthly external debt-service obligations, by maturity (including after debt rescheduling by the Paris Club, other bilateral creditors, and multilateral creditors, commercial debt, and short-term debt), and the stock of external arrears, taking into account actual payments, with a breakdown by principal and interest, and classification by creditor (to be provided quarterly by the Public Debt Management Office (OGEDEP)); and

    d. Copies of the debt rescheduling agreements with the Paris Club, non-Paris Club bilateral creditors, commercial creditors, and multilateral creditors, as soon as such agreements have been concluded. Also, all individual loan information is essential for the debt sustainability analysis in the context of the HIPC Initiative, and also for debt management purposes during the interim period.

Note: The above monthly information is to be provided three weeks after the end of each month.

A progress report on implementation of the structural reforms will be submitted to Fund staff each month. In addition, information on the legal and regulatory environment as it affects the business environment (new decrees, circulars, and laws) and price policy, as well as the official gazette, will also be reported to Fund staff.


Masangu Mulongo

Central Bank of the Congo

M.F. Muamba

Minister of Budget


Minister of Finance

Kinshasa, June 24, 2004

Annex I. Definition of External Debt

1. The definitions of "debt" and "concessional borrowing" for the purposes of this memorandum of understanding are as follows:


As set out in Point 9 of the Guidelines on Performance Criteria with Respect to Foreign Borrowing adopted by the IMF's Executive Board on August 24, 2000, debt is understood to mean a current, that is, not contingent, liability created under a contractual agreement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services at some future points in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debt can take a number of forms, the primary ones being as follows: (i) loans, that is, advances of money to the obligor by the lender on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans, under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, that is, contracts where the supplier permits the obligor to defer payment until some time after the date on which the goods are delivered or services are provided; and (iii) leases, that is, arrangements under which property is provided that the lessee has the right to use for one or more specified period(s) of time, which are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the arrangement, excluding those payments that cover the operation, repair, or maintenance of the property. Under the definition of debt set out above, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.


A loan is considered concessional if, on the date the contract is signed, the ratio of the present value of the loan, based on the reference interest rates to the nominal value of the loan is less than 65 percent (i.e., a grant element exceeding 35 percent). The reference interest rates used in this assessment are the commercial interest reference rates (CIRRs) established by the Organization for Economic Cooperation and Development (OECD). For debts with a maturity exceeding 15 years, the ten-year reference interest rate published by the OECD is used to calculate the grant element. For shorter maturities, the six-month market reference rate is used.

Annex II. Definition of Poverty-Reducing Spending

1. The concept

Poverty-reducing spending comprises all actions by the government for the good and well-being of the people, in the spirit of the priorities set out in the Interim Poverty Reduction Strategy Paper.

2. Criteria

To identify poverty-reducing spending in the budget, the government has based its choices on the classification by the general functions of government defined as targets in favor of the people.

From this point of view, spending on the following functions and sub-functions shall be considered to be poverty-reducing spending:





Reintegration of demobilized soldiers







Economic Affairs



Agriculture, livestock






Hunting and fishing



Rural development



Electricity (in the provinces)






Sea, river and lake transport





Environmental protection



Waste management






Pollution control



Protection of fauna and flora


Public Housing



Development of housing



Development of community facilities



Water supply



Electricity supply





Medicines, prostheses, and medical equipment and supplies



Local medical services



Hospital services



Public health services



Research and development in the field of health





Basic Education



Secondary Education



Higher education (only equipment and rehabilitation of infrastructure)



Other educational matters (only SECOPE: Wages of Primary and Secondary School Teachers)



Continuing professional education





Targeted protection



Unemployment programs



Housing and housing conditions



Social exclusion programs

Annex III. Budget-Tracking Statements

Statement 1: Main budget-tracking statement. Monthly, starting in August 2004.

This statement describes expenditures according to the four phases of the expenditure chain (commitment, verification, payment order, payment), on the one hand, and by type of expenditure, on the other, and cumulatively from the start of the fiscal year.

This statement should also have two intermediate columns for payment authorizations sent to the BCC and payment authorizations pending transmission to the BCC.

A specific column for automatic payments (décaissements d'office) will also be placed next to the column for payment orders.

The last column of the main budget tracking statement is the "Balances Outstanding" column, which is the difference between payment orders signed by the responsible payment authorizing officer and actual payments by the BCC (not the difference between payment authorizations sent to the BCC and actual payments by the BCC).

Statement 2: Main budget-tracking statement by administrative classification. Monthly, starting in August 2004.

Based on the main statement, this document will present expenditures by administrative classification (2003 revised nomenclature rather than classification by type). Additionally, the statement will keep expenditures initiated by, and earmarked for, the Offices of Ministers (Cabinets) separate from those initiated by, and earmarked for, the administrations.

Statement 3: Main budget-tracking statement by geographical distribution. Monthly, starting in August 2004.

Based on the balances of the main statement, this document will present expenditures by type, distinguishing between expenditures in Kinshasa and those in the provinces.

Computer tools and training permitting, separate service codes will be assigned for Kinshasa and for each province; this will permit tracking of the distribution of expenditures among the ten provinces and Kinshasa.

Statement 4: Main budget-tracking statement, "Poverty-Reducing Expenditures." Monthly, starting in August 2004.

Based on Statement 2, expenditures will be presented by type, with one line indicating the share of expenditures identified as poverty-reducing expenditures.

Statement 5: Main budget-tracking statement, "Major Government Functions." Monthly, starting in August 2004.

Based on Statement 2, this document will present expenditures by major government functions (as defined in the 2002 revised nomenclature).