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

Brazzaville, March 31, 2004

Ms. Anne O. Krueger
Acting Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear. Ms. Krueger,

On behalf of the government of the Republic of Congo, I am pleased to send you herewith the memorandum on economic and financial policies. This memorandum describes recent economic developments, the implementation of the 2003 staff-monitored program (SMP), and the measures that the government undertakes to implement in 2004 with a view to strengthening macroeconomic management.

The government recognizes that, despite encouraging results, the overall implementation of the 2003 SMP was weak, especially in the fiscal area and governance in the oil sector. The government remains, nevertheless, convinced that an improvement of the country's economic and financial position is indispensable to attain the strong and lasting growth necessary for poverty reduction, and that the implementation of a program supported by resources from the Poverty Reduction and Growth Facility (PRGF) is the best way to achieve those objectives. As a result, the government has decided to adopt another SMP, which it intends to implement rigorously during the first half of 2004 in order to strengthen the framework that would permit an agreement to be reached on an arrangement that can be supported by the PRGF.

The two principal objectives of this new program are to strengthen fiscal discipline and enhance transparency in fiscal management, particularly in the oil sector. The gradual improvement in administrative capacity and the commitment of the government to avoid the slippages of the past constitute assurances that this program will succeed. The government requests the support of Fund staff for the monitoring of the proposed program.

The government is aware that the satisfactory implementation of the new SMP will be necessary but not sufficient for embarking on a PRGF arrangement. Indeed, in addition to its own efforts, the government is also counting on the support of its development partners for assistance in addressing the budgetary financing gap, which is largely attributable to the external debt burden. In this context, the government believes that an exceptional treatment of the country's external debt payment arrears by the international community will be necessary, including on arrears to multilateral institutions and Paris Club creditors on post-cutoff-date debt.

An interim poverty reduction strategy is being drafted on the basis of broad civil society participation. The government plans to adopt this strategy in a timely manner and to submit it to its development partners to seek their support for its implementation, including debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative.

The government will provide the Fund with any information it may request for monitoring the implementation of economic and financial policies and the achievement of the program objectives, as described in the technical memorandum of understanding attached to the memorandum on economic and financial policies. The government is committed to disseminating this memorandum and authorizes the Fund to publish it on its website.

Sincerely yours,

/s/ Rigobert R. Andély Minister of Economy, Finance, and Budget

Memorandum of Economic and Financial Policies

I. Introduction

1. The Republic of Congo, a post-conflict country, is determined to strengthen its economic and financial medium-term framework in order to achieve sustained growth and initiate lasting poverty reduction. The government recognizes that performance in the implementation of previous Fund-supported programs has generally been below expectations. The reasons for this disappointing performance include (i) the inherited sluggishness of the planned economy, which has long had a negative impact on the private sector; (ii) the civil wars of the 1990s which disrupted the economy, weakened the institutions, and undermined the rule of law; (iii) the weakness of economic management during the transition period that followed the war; and (iv) insufficient ownership of program implementation by the government.

2. With the completion of the democratization process in 2002 and the signing of the peace agreements with the rebel groups in 1999 and 2003, the government began implementing its Nouvelle Espérance (New Hope) economic and social program based on consolidating economic management and poverty reduction, strengthening institutional capacity, and improving transparency and governance.

3. In 2003, the government adopted and implemented a staff-monitored program (SMP) that was geared to lead to a program supported under the International Monetary Fund's (IMF's) Poverty Reduction and Growth Facility (PRGF). Despite encouraging results, there have generally been major weaknesses in the implementation of this program, especially as regards fiscal discipline and transparency in oil sector management. Conscious of the need to build a sound economic basis for achieving sustainable poverty reduction, the government has decided to adopt a new SMP covering the first half of 2004. This memorandum on economic and financial policies describes the objectives of that program and the actions envisaged for achieving them.

4. After five years of domestic efforts to reconstruct the country destroyed by war, the Congolese government is seeking the support of the international community in the form of technical assistance, further financing, and rescheduling of the country's external debt on exceptional terms, including the arrears that are nonreschedulable.

II. Improved Security

5. The Congo is emerging from some ten years of political instability, marked by three civil wars that have led to enormous human loss, the exodus of a portion of the population, and the destruction of entire villages, buildings, infrastructure, and units of production. These wars have exacerbated the preexisting shortcomings in public management, particularly in fiscal and oil revenue management. In the social sectors, many facilities and much equipment were destroyed or looted. The socioeconomic fabric has been seriously torn, and the proportion of the population living below the poverty line rose sharply.

6. Recent developments on the political and security fronts have involved considerable improvements. The political transition period, which began at the end of the war in 1997, was completed in August 2002 after the presidential, legislative, and communal elections. Out of an interest in consolidating peace, the government and representatives of the remainder of the rebellion signed a peace agreement on March 17, 2003, pursuant to which demilitarization, demobilization, and reintegration operations started, with support from the international community. The speed with which the country is being rebuilt and democratic institutions are being installed, using only domestic resources, raises much hope, and the government is making efforts to restore sound macroeconomic management and promote transparency.

7. The overall debt situation has worsened because a portion of the spending on reconstruction and elections was financed through oil-backed borrowing. In addition, during the period 1999-2001, the oil revenue reported by the treasury fell short by about CFAF 174 billion of the oil companies' fiscal liabilities to the government, as stipulated in the production-sharing contracts. This was related to the use of extrabudgetary resources to finance reconstruction and humanitarian projects, as well as sovereignty-related outlays, such as elections, security, and national reconciliation.

III. Recent Economic Developments

8. The return of peace has stimulated economic activity in the non-oil sector, particularly in agriculture, forestry, trade, and transportation. Non-oil real GDP grew by about 6 percent in 2003. The consumer price inflation rate decelerated to 1.6 percent in 2003 from 3.1 percent in 2002 as a result of the strengthening of the euro and the regular supply of consumer goods, attributable to the resumption of rail traffic between Pointe-Noire and Brazzaville. In the oil sector, high world prices have offset the decline in production, thereby increasing government oil revenue. These additional resources have helped finance an appreciable expansion of the public investment program. In 2003, for the first time in three years, credit to the private sector grew faster than non-oil GDP, partly as a result of a catch-up to more normal activities.

9. The fiscal position improved in 2003 compared with 2002, but by less than the approved budget suggested. The basic primary fiscal surplus increased from 1.2 percent of GDP in 2002 to 6.8 percent in 2003 (the 2003 budget had targeted a surplus of 9.3 percent). The improvement in the fiscal balance in 2003 is essentially attributable to the reduction of total expenditure and higher-than-expected oil revenue. The main budget execution weaknesses included, inter alia, weak tax revenue collection, larger-than-expected transfers, and unbudgeted payments for domestic arrears related to both the social sector and reconstruction investment. However, for the first time in two decades, the government did not resort to collateralized borrowing against future oil revenue, and, as a result of payments made in 2003, the stock of such debt is now smaller. In light of the exceptionally high debt service related to those loans in 2003, the government was, however, obliged to defer to 2004 a number of payments due.

10. The external current account was in broad balance in 2003; indeed, oil exports, expressed in CFA francs, fell only slightly compared with 2002, as the decline in oil production was offset by the rise in oil prices, while public sector imports and external debt service decreased. Faced by the deterioration in the Congo's rate of external reserves coverage (and even though for all Central African Economic and Monetary Community—CEMAC—countries combined the rate was 64 percent), the regional head office of the Bank of Central African States (BEAC) in Yaoundé tightened its control of private sector current transfers and gradually reduced, to zero in June 2003, the threshold above which its prior authorization is required. Nevertheless, the BEAC head office decided to relax this policy as of January 2004, and the rate of acceptance of transfer requests has increased.

11. The large volume of external debt arrears remains an obstacle to the full normalization of relations between the Republic of Congo and its creditors. Indeed, on December 31, 2003, the stock of public external debt totaled approximately US$7 billion (185 percent of GDP), about 65 percent of which represented arrears. However, efforts were made in 2003 to (i) ensure the regular and timely payment of the current maturities of service on the debt that is not eligible for rescheduling (except for one Paris Club creditor who received only a portion of the service due on its post-cutoff-date debt), and (ii) begin paying off the stock of external arrears to multilateral creditors.

IV. Implementation of the Staff-Monitored Program in 2003

12. The Congolese government recognizes that, overall, performance under the SMP covering the period January-September 2003 was unsatisfactory. The program was implemented vigorously in the first quarter of 2003, but performance deteriorated steadily in the following two quarters.

13. Fiscal performance was generally weak (Table 1); indeed, the basic primary fiscal surplus, adjusted to take account of favorable trends in oil prices compared with program estimates, fell short of the program objective by about CFAF 57 billion between January and September 2003 (2.8 percent of annual GDP). This shortfall was primarily a result of five factors: (i) the shortfall in nonoil revenue; (ii) transfers to the national oil refinery (CORAF) not foreseen under the program; (iii) failure by the national oil company (SNPC) to transfer to the state treasury on a timely basis oil revenue due to the government; (iv) higher-than-programmed subsidization of petroleum products; and (v) prices realized by the SNPC on the sale of the fiscal oil it received on behalf of the government that were below the reference price. In addition, the exceptional oil revenue derived from the settlement of a dispute between the Congolese government and private oil companies (representing 1.3 percent of GDP) and unprogrammed oil bonus and dividend yields (equivalent to 0.4 percent of GDP) were used for the unplanned clearance of large amounts of domestic arrears related to the social sector and public reconstruction projects.

14. On the structural side, performance was mixed (Tables 2 and 3). Noteworthy progress was achieved with the completion in July 2003 of the audit of the SNPC's 1999-2001 accounts. Considerable efforts were made to centralize public revenue and expenditure in the budget; to stop incurring debt collateralized by future oil revenue; and, for the first time in two decades, to publish in the interest of transparency, oil sector data and improve the macroeconomic statistics. In addition, the external payment arrears owed to a few multilateral institutions were cleared. On the other hand, the Congo paid only about 80 percent of the current service due on the 2003 debt not eligible for rescheduling; the privatization of Crédit pour Agriculture, l'Industrie, et le Commerce (CAIC) was not completed; and certain other measures planned for end-September 2003 to increase oil sector transparency (the publication of production-sharing contracts, the SNPC's 2003 budget, and the audit report on the SNPC's 2001 accounts) were not implemented.

V. Developments in the Fourth Quarter of 2003

15. The government took measures to stabilize the fiscal position, and progress was made in the implementation of structural measures in the last quarter of 2003 (Tables 4 and 5). The basic primary fiscal balance target was slightly exceeded as a result of higher oil revenue and the savings on transfers and investment expenditure. However, unprogrammed expenses were made in the fourth quarter, in particular for the payment of pension arrears and to cover the costs of structural reforms (CFAF 8 billion). The certification by an external auditor of government oil revenue for the period January-September 2003 is an important step toward oil sector transparency. Other structural reforms in the fiscal area have been implemented, including the following: (i) the appointment of new directors in the General Directorates of Budget, Customs, and Taxes, as well as at the General Inspectorate of Finance, to reinvigorate the revenue departments and strengthen control; (ii) the signing of the government/SNPC/CORAF agreement, which drastically reduced the subsidies to be paid to CORAF; and (iii) the production of the 2000 budget review law (Loi de règlement).

VI. Poverty Reduction Framework and Medium-Term Strategy

16. The government is determined to place poverty reduction at the center of its strategy. The primary objectives of this policy can be found in the interim poverty reduction strategy paper (I-PRSP) being drafted by the government. To achieve these objectives, the government is targeting an average real growth rate of about 3½-4 percent during the period 2004-06. The expected upturn in oil production and sound performance by the non-oil sectors, in particular agriculture, forestry, and the processing industries, will contribute to this growth. The rate of inflation is projected at 2 percent on average over the period, assuming sound fiscal policy, the pursuit of a prudent monetary policy by the BEAC, and a smooth traffic flow between Pointe-Noire and Brazzaville. Following the expected increase in oil and non-oil exports, the current account balance should improve over the medium term.

17. The government will in the future avoid procyclical fiscal expenditure related to oil revenue. It expects to achieve this objective, starting in 2005, by adopting a rule for forecasting oil revenue that is based on prudent price assumptions and by gradually establishing a medium-term public expenditure framework consistent with the objectives of the I-PRSP. Clear rules for the allocation of budgetary resources will be established, and special attention will be paid to the fiscal deficit, with a view to reducing government borrowing gradually. In addition, nonpriority current expenditure will be better controlled through (i) the revival of the mechanism of quarterly ceilings for each ministry, strengthened as of 2004 by a new budgetary commitment procedure based on the weekly availability of resources, and (ii) the ongoing enhancement of the tracking of "service performed."

18. In the next few years, the public investment program financed with domestic resources will be dominated by a few major projects with the following priority objectives: (i) to ensure a regular supply of electricity in the country (the building of Imboulou Dam and restoration of the Mokoukoulou Dam); (ii) to strengthen the public infrastructure and open up the interior of the country (road networks and Ollombo Airport); (iii) to improve basic social services; and (iv) to enhance infrastructure in local communities (safe water, schools, and dispensaries).

19. In order to ensure the financing of its development and poverty reduction program, the government plans to maximize the mobilization of domestic resources. In this regard, the ratio of non-oil revenue to non-oil GDP is expected to rise from 17.6 percent in 2003 to 19.5 percent by 2007. In addition, the government plans to undertake the regular and efficient monitoring of oil receipts due by oil companies to the state treasury. The government will ensure that all the revenue generated by the settlement of the disputes with the oil companies is transferred to the treasury and shown in the budget. In 2003, exceptional oil revenue from the settlement of the disputes with one oil company totaled US$215 million, US$145 million of which was paid during the year in cash and in increased oil rights.

VII. Objectives for 2004

20. The principal quantitative targets for 2004 are as follows: (i) real economic growth of 3.6 percent, (ii) an annual average inflation rate of 2 percent, (iii) a basic primary fiscal balance representing 5.8 percent of GDP, and (iii) a current account deficit equal to 1.5 percent of GDP.

21. The government program agreed with the Fund was prepared on the basis of revenue estimates totaling CFAF 585.6 billion (27.3 percent of GDP). The petroleum sector revenue estimate is based on the assumption of a volume of oil production totaling 84.3 million barrels, a world price of US$28.7 dollars a barrel, and an exchange rate of CFAF 515.5 = US$1. The government is committed to using additional oil receipts resulting from higher-than-programmed prices to finance the budgetary gap, as well as to accelerating external arrears payments in its efforts to normalize relations with creditors. Non-oil revenue is estimated to reach CFAF 200 billion (18.2 percent of nonoil GDP). In the event that the oil price or the non-oil revenue is lower than envisaged, the government will take the necessary actions to lower expenditures via a revised budget law.

22. Efforts are under way to make poverty reduction and the strict control of unproductive expenditures the main aim of public expenditure policy. The expected rise in the wage bill (approximately CFAF 4 billion more in 2004 than in 2003) is a result of social sector recruitment plans and the reintegration into the civil service payroll of employees of the former General Directorate of Credit and Financial Relations. Total traditional transfer payments are expected to increase considerably relative to 2003, principally owing to the establishment of institutions in support of democratization, including the Audit Office, the High Court of Justice, the National Commission on Human Rights, and the Economic and Social Council.

23. Domestic payment arrears are to be settled in an equitable and transparent manner. All domestic payment arrears of a commercial nature as of end-2002 have been audited. The government plans to complement this work with an audit of social debt and the adoption and publication of a policy and settlement plan for all domestic arrears. The implementation of this plan will follow budgetary procedures and will depend on the availability of financial resources. To improve the social environment for productive activity, the government signed with the unions a "social truce," whereby gradual payment of wage and retirement pension arrears will begin in 2004. To this end, the 2004 budget law provides for the payment of CFAF 23.3 billion to wage earners and retirees and a package of CFAF 15 billion for the settlement of other domestic priority arrears.

24. For 2004, a residual financing gap is projected (excluding treatment of the stock of external arrears and current service due on reschedulable external debt), totaling CFAF 30.2 billion. The government expects that this gap will be financed through (i) budgetary support from development partners; and (ii) the release of residual resources from the legal settlement of disputes with a private oil company. In the event that these resources are not all forthcoming or prove insufficient to bridge the gap, the government has drawn up a contingency list of expenditure items, the execution of which will be deferred.

VIII. Staff-Monitored Program

25. The new SMP covers the period January-June 2004. The two principal pillars of the new program relate to the strengthening of fiscal discipline and transparency in fiscal management, particularly in the oil sector (Tables 6 and 7; see paras. 23-29 of the technical memorandum of understanding for the technical details of the structural measures).

A. Fiscal Policy

26. Fiscal policy is being implemented in line with the spirit of the 2004 budget law, that is, it will seek to increase non-oil revenue and ensure strict expenditure management.

27. As regards oil revenue, the government is committed to ensuring that all revenue payable to the state is immediately transferred to the treasury. Oil revenue estimates and the sums actually received by the treasury will be systematically cross-checked. To this end, the size of the staff of the Oil Revenue-Monitoring Unit in the Ministry of Finance is to be increased.

28. Measures are being taken to achieve a sustained increase in non-oil revenue. In this regard, the implementation of a customs warehouse and exemption control program has already started. In addition, by end-July 2004, the principal measures envisaged are as follows: (i) establishment of the single taxpayer identification number; (ii) introduction of new computerized customs clearance procedures (SYDONIA); and (iii) establishment of a computer link between the revenue departments in Pointe Noire and Brazzaville.

29. Expenditures are to be executed in conformity with normal budgetary procedures. Accordingly, advance payments and the awarding of contracts by mutual agreement (gré à gré) will be reduced to a strict minimum. Over time, it is planned that all contracts above CFAF 10 million will be awarded through a competitive bidding process. In addition, the Treasury is being strengthened through the assignment by the French Cooperation of public accounting experts; the January 2004 provisional balance will be available at end-March 2004. Finally, the government will gradually introduce a functional classification system for expenditure that will permit the earmarking of a greater portion of public spending for poverty reduction programs. Preliminary versions of this system for classifying operating and capital expenditure will be available by June 2004.

B. Oil Sector Reform

30. The government is convinced that transparency and accountability in oil sector operations are essential to the improvement of governance and sound fiscal management. Components of the reforms in this sector are as follows:

• Maximizing revenue collection. First, the government undertakes to continue the quarterly certification, by an internationally recognized audit firm with the collaboration of the Oil Revenue-Monitoring Unit in the Ministry of Finance, of oil revenues, a process started in 2003. Second, a clear policy on dividend payments to the public treasury by the SNPC will be adopted by the government by end-March 2004. The policy will ensure that the SNPC limits its costs and focuses on its core activities in order to produce the maximum return on public resources invested in the oil sector. Third, the government plans to regularly order independent audits of the costs of oil companies, so as to ensure that the latter pay all their financial liabilities to the Treasury.
  
  
• Monitoring the SNPC's operations. The external audit of the SNPC's 1999-2001 accounts and operations for the government pointed to shortcomings, including in accounting practices, internal controls, and the provision of information to the government on the marketing of government oil and financial transactions carried out for the government. To remedy these shortcomings, a comprehensive action plan is being drawn up, in consultation with World Bank and IMF staff. Progress made in the implementation of this plan will be checked through the conclusions of the recommendations made in the annual external audit reports. A strategy for restoring the focus of the SNPC on its basic activity will be drafted and adopted by the government by end-June 2004.
  
  
• Improving transparency. The government will continue to increase the amount of information made available to the public through internet sites, including the publication of the revenue certification reports, information on oil sector operations, and the external audit reports.

31. The government undertakes to carry out the reform of the CORAF, subsidies to which continue to be a drain on the government budget. The financial statements of the CORAF at end-2002 will be audited in 2004. The results of this audit will help in the preparation of a reform strategy for the company. Meanwhile, a ceiling of CFAF 8 billion has been set on budgetary subsidies to this company in the 2004 budget.

32. Finally, the subsidization of petroleum products will henceforth be established objectively and managed efficiently. A key objective is to gradually eliminate the subsidies, while being mindful of the impact on the poorest segments of the population. To this end, the government will seek the assistance of the World Bank to assess the cost and efficiency of the current system of setting prices at the pump, including the subsidy granted, and will propose alternative mechanisms. The study will analyze, among other things, the modalities of establishing a mechanism for automatic price adjustments, depending on world prices. Where applicable, it will propose a system of subsidies for the most underprivileged segments of the population, which are expected to be the most affected by these adjustments.

C. Other Structural Reforms

33. In the banking sector, the process of privatizing CAIC will be completed by end-June 2004; the participation of the strategic international investor, already approved by the regional banking supervisory commission (COBAC), is expected to be formalized with the payment of its capital share. In addition, with technical assistance from the World Bank, the government will begin discussions on the formulation of a reform policy for the insurance sector, which is facing serious financial problems. The government recognizes the importance of the reforms aimed at ensuring the continued growth in the microcredit sector and the recent expansion of credit to the private sector. To this end, the government will maintain the tax exemption for microfinance mutual associations, a subsector that has been flourishing in the postwar period.

34. Implementation of the program to restructure/privatize public enterprises will continue with World Bank assistance. The actions envisaged for the short term relate to an acceleration of the reforms in the water, electricity, telecommunications, and rail transport sectors. The aim is to improve the quality and lower the cost of these services, so as to make them more accessible, to promote economic activity, and to improve living conditions for the people. With respect to rail transport, the bids received for the award of the Chemin de Fer Congo-Océan (CFCO) concession are being assessed, and the government intends to divest the operation of this company to the private sector by end-2004.

IX. Technical Assistance

35. The capacity-building needs of the Republic of Congo are vast, given the destruction caused by several years of war. As a result, the implementation of the planned economic program cannot succeed without substantial assistance from development partners. The government welcomes the technical assistance already provided by the international community, including the IMF in the fiscal and statistics areas. However, given the enormous task at hand in the area of fiscal reform, the government needs long-term resident experts, including in the areas of tax and customs administration and expenditure programming and management. The other areas in which the needs are pressing include the following: (i) the formulation of a strategy to settle domestic and external arrears; (ii) support for the Program Technical Monitoring Committee, and the Oil Revenue-Monitoring Unit at the Ministry of Finance; and (iii) the strengthening of control procedures and structures and for inspection in the revenue departments.

X. Program Monitoring

36. The implementation of the program will be monitored on a quarterly basis by means of the quantitative and structural indicators described in Tables 6 and 7 and the attached technical memorandum of understanding.

Table 2. Republic of Congo: Structural Indicators, January-June 2003
Measures		Schedule	Status
Payment of all debt service due to multilateral creditors and of debt service due on nonreschedulable debt to Paris Club creditors.		Continuously	Not done. All payments effected on time, with the exception of arrears to the AFD (Agence Française de Développement).
Submission by the external auditors to the government of the draft report (as stipulated in contract) on the national oil company's (SNPC)'s 1999-2000 accounts and its 2001 consolidated accounts.		June 2003	Done.
Submission by the SNPC to the government of its 2002 consolidated financial statements, as required by law.		June 2003	Not done.
Completion of the privatization of the CAIC (commercial bank).		June 2003	Not done.
Report on an in-depth evaluation of the effectiveness of the June 2001 convention between the government and the SNPC (following the outline provided by IMF staff).		May 2003	Done.
Audit of the off-budget capital expenditures during 2000-02.		June 2003	Done.
Centralization of all government revenues in, and execution of all payments through, the treasury account.		Continuously	Not done. The national oil refinery (CORAF) did not pay for the government's oil while the SNPC withheld part of oil revenue due to the treasury.
No settlement of budget expenditures through the direct transfer of government revenue by oil companies.		Continuously	Done.
No contracting of any form of oil-collateralized debt (new or refinanced).		Continuously	Done.
Monthly provision to the IMF staff of all information necessary for the monitoring of the program.		Continuously	Done.

Table 3. Republic of Congo: Structural Indicators, July-September 2003
Measures		Schedule	Status
Cease payments of domestic arrears, with the exception of those relating to social debt (pensions, salaries, and small and medium-sized enterprises).1		Continuously	Done.
Put under the supervision of the Ministry of Finance a monitoring committee charged with reconciling data prepared by the preshipment inspection company (BIVAC) and customs declarations.		July 15, 2003	Done.
Communicate to oil companies a list of the official treasury bank accounts to which the transfer of oil revenue, including bonuses, should be made.		July 15, 2003	Done.
Adopt an action plan with measures for the national oil company (SNPC) to bring its accounting practices up to international standards, including through the measures recommended by the financial audit undertaken by KPMG, with the objective of preparing financial accounts that would be approved without reservations by auditors.		August 31, 2003	Done.
Create a working group to examine and apply the recommendations of the IMF statistics multisector mission of May 2002.		August 31, 2003	Done.
Create a working group from relevant government departments and agencies (DGDDI, CNSEE, DGCRF, DGE, BEAC, and DG du Commerce) to harmonize external trade statistics.		August 31, 2003	Done.
Prepare a plan for monthly publication of data and information on petroleum-related activities.		August 31, 2003	Done.
Publish on an Internet site the SNPC's 1999 and 2000 balance sheets with annexes listing the company's holdings.		August 31, 2003	Done.
Prepare, for publication, a complete list of 2002 financial transactions carried out by the SNPC on behalf of the government.		August 31, 2003	Done.
Prepare a preliminary report on reconciliation, on a monthly basis, of payments owed to the government by oil companies and payments actually received by the treasury for the period January-June 2003.		September 30, 2003	Not done.
Publish on an Internet site the SNPC's 2003 budget.		September 30, 2003	Not done.
Publish on an Internet site the complete texts of the production-sharing agreements between oil companies and the government.		September 30, 2003	Not done.
Publish on an Internet site the SNPC's 2003 budget.		September 30, 2003	Not done.
Publish on an Internet site the SNPC's 2001 consolidated accounts, as well as the external audits (the opinion of the Auditor General, and the profit and loss statements) and an annex listing the company's holdings.		September 30, 2003	Not done..
Cease all investments by the SNPC unless explicitly approved by the SNPC's executive board.		Continuously	Done.
Pay all debt service due to multilateral creditors and debt service due on nonreschedulable debt to Paris Club creditors.		Continuously	Not done. All payments effected on time, with the exception of arrears to the AFD (Agence Francaise de Développement).
Centralize all government revenues in, and execution of all payments through, the treasury account.		Continuously	Not done. The national oil refinery (CORAF) did not pay for part of the government's oil while the SNPC withheld part of oil revenue due to the treasury.2
Do not settle budget expenditures through the direct transfer of government revenue by oil companies.		Continuously	Done.
Do not contract any form of oil-collateralized debt (new or refinanced).		Continuously	Done.
Provide monthly to the IMF staff all information necessary for the monitoring of the program.		Continuously	Done.
1The ceilings are as follows: pensions and salaries (CFAF 6 billion), and small and medium-sized enterprises (CFAF 2 billion). 2The authorities made a commitment to put in place a convention to regulate the financial relation between CORAF and its oil suppliers, including the government. They are also determined to make effective the rules on supplying oil to CORAF by all involved oil companies.

Table 4. Republic of Congo: Quantitative Indicators, 2002–03 (In billions of CFA francs, unless otherwise indicated; cumulative from January)
	Dec. 2002 Act.	Dec. 2003
		Init.	Rev.	Est.
		Proj.	Proj.1
Net claims of the banking system on the central government    (ceiling)2	163	157	162	169
New medium- and long-term nonconcessional external debt    (including leasing) contracted or guaranteed by the government    (ceiling)3,4	217	0	0	0
New nonconcessional debt (including leasing) with an original    maturity of less than one year (ceiling)4,5	0	0	0	0
Stock of external arrears6	2,394	2,542	2,539	2,559
Net reduction in domestic arrears (floor; – =increase)	10	0	43	39
Primary fiscal balance (floor)7	26	191	132	139
Central government wage bill (ceiling)	120	120	121	120
Memorandum items:
Oil revenue	398	375	419	422
Debt relief	11	0	1	1
Nonproject external financing	217	0	8	8
External debt arrears change (cumulative)	212	147	145	164
Payment of external arrears	6	0	6	6
Petroleum price (Brent; U.S. dollars per barrel), cumulative       average	25	22	28	29
Exchange rate (CFA francs per U.S. dollar)	697	670	588	553
Petroleum price (Brent; thousands of CFA francs per barrel),       cumulative average	17.4	14.7	16.7	16.3
1As revised in October 2003. 2Excluding IMF credit. The indicator will be adjusted downward for the higher-than-projected relief on scheduled debt-service payments. 3Excluding rescheduling arrangements and disbursements from the Fund, but including debt with maturities of more than one year. 4Concessional debt is defined as debt with a grant element of at least 50 percent, calculated on the basis of currency-specific discount rates, based on the OECD commercial interest reference rates (CIRRs). 5On a contracting or guaranteed basis. Excluding debt related to normal import transactions. 6The target will be adjusted downward to reflect higher-than-expected nonproject financing and debt relief, and upward for lower-than-expected nonproject financing and debt relief. 7Defined as revenue excluding grants, minus noninterest current expenditures, domestically financed capital expenditure, and net lending, on a commitment basis. It will be adjusted upward for higher-than-expected oil revenue, calculated as a ratio of projected oil revenue times actual oil price divided by projected oil price (in CFA francs).

Table 5. Republic of Congo: Structural Indicators, October-December 2003
Measures		Schedule	Status
Oil sector
Signing of the government/national oil company (SNPC)/national oil refinery (CORAF) agreement for the delivery of crude to CORAF.		December 2003	Done.
Certification by an external auditor of oil revenue for the period January-September 2003; based on the work of the oil revenue-monitoring unit, the external auditor will ascertain that all oil revenue legally due by oil companies (including the SNPC) was received by treasury.		December 2003	Done.
Adoption by SNPC's board of directors of a resolution establishing new procedures for the payment of dividends to the government by the SNPC.		December 2003	Not done.
Completion of internal study on the fuel sector.		December 2003	Done.
Government finance
Reorganization of agencies and departments DGI, CCA, and DGB, and treasury internal control.		December 2003	Done.
Transfer of DGI, DGD, CCA, and DGB personnel.		December 2003	Done.
Introduction of a functional budget classification module based on the IMF bridge table.		December 2003	Not done. 1
Reinforcement of treasury secondary centers.		December 2003	Done.
Production of a provisional treasury balance.		December 2003	Done.
1Coding, data entry, and regrouping already completed for the operating budget; work on the investment budget in progress.

Table 6. Republic of Congo: Quantitative Indicators, 2004 (In billions of CFA francs, unless otherewise indicated; cumulative from January)
	End-Mar. Prog.	End-Jun. Prog.	End-Sep. Proj.	End-Dec. Proj.
Main quantitative indicators
Primary fiscal balance (floor)1,2	12.3	54.4	86.0	125.2
Ceiling on the change in the banking system       credit to the central government net2,3	7.7	8.9	6.4	11.4
New medium- and long-term nonconcessional       external debt (including leasing) contracted or       guaranteed by the government (ceiling)4,5,6	0.0	0.0	0.0	0.0
New external debt (including leasing) with an       original maturity of less than one year (ceiling)5,6	0.0	0.0	0.0	0.0
New oil-based collateralized debt (ceiling)6	0.0	0.0	0.0	0.0
External arrears payment (floor)2	0.0	0.0	0.0	0.0
New external arrears on nonreschedulable debt6	0.0	0.0	0.0	0.0
Domestic arrears payment (ceiling)7	6.0	10.8	17.8	38.3
New domestic arrears6,7	0.0	0.0	0.0	0.0
Other quantitative indicators
Non-oil revenue	38.2	82.9	136.1	200.0
Central government wage bill (ceiling)	30.5	61.8	93.1	124.5
Domestically financed investment	34.7	59.5	95.3	120.1
Memorandum items:
Oil revenue	87.4	184.6	288.7	385.6
Nonproject external financing2	...	...	...	...
Petroleum price (Brent; U.S. dollars per barrel), quarterly average	30.0	28.7	28.4	27.6
Exchange rate (CFA francsper U.S. dollar), quarterly average	516.5	515.1	512.5	517.9
Petroleum price (Brent; thousands of CFA francs per barrel),       quarterly average	15.5	14.8	14.6	14.3
Oil production (millions barrels, quarterly average)	20.4	19.7	21.5	22.7
Of which: government's share traded by SNPC	6.7	4.6	5.1	4.3
1See paragraph 5 of the technical memorandum of understanding (TMU) for the definition. 2See paras. 20 and 21 of the TMU on the adjustors. 3Including IMF credit. 4Excluding rescheduling arrangements and disbursements from the IMF. 5See para. 11.b of the TMU for the definition of concessional debt. 6Continuous performance indicator. 7See paras. 17 and 18 of the TMU for the definition.

Table 7. Republic of Congo: Structural Indicators, October-December 2003
Measures		Schedule
Certification by an external auditor of oil revenue for the fourth quarter of 2003; based on the work of the oil-monitoring unit, the external auditor will ascertain that all oil revenue legally due by oil companies (including the SNPC) was received by treasury. 1		March 31, 2004
Publication by the government on an Internet site of the external auditor's full report on oil revenue reconciliation for the first half of 2003.		March 31, 2004
Adoption by the government of an action plan for the implementation of all the recommendations of the audit of the SNPC, prepared with the assistance of the World Bank and IMF.		March 31, 2004
Adoption by the government of a fully articulated and operational policy on the payment of dividends by the SNPC, prepared with the assistance of the World Bank and IMF; policy to be published on an Internet site.		March 31, 2004
Publication by the government, on an Internet site, of the August 1, 2003 summary of the report on the 1999-2001 audit of the SNPC prepared by the auditing firm, as well as (i) the 108 recommendations of the audit report, (ii) the action plan for the implementation of the recommendations from the SNPC audit (see above); (iii) Chapter 4 of the audit report, and (iv) the comments of the SNPC.		March 31, 2004
Preparation by the government of the consolidated fiscal treasury balance for January 2004.		March 31, 2004
Publication by the government, on an Internet site, of the production sharing agreements (PSAs) already published in the Official Gazette, a list of the PSAs that were not published, and an explanation of how these PSAs relate to the various production fields.		April 15, 2004
Publication by the government on an Internet site of a complete list of the financial transactions carried out by the SNPC on behalf of the government in 2002 and 2003 (including the dates of transactions, amounts, interest rates and commissions, and terms and conditions).		April 30, 2004
Preparation by the government of a preliminary strategy aimed at ensuring that the SNPC's activities are restricted to the oil sector.		June 30, 2004
Completion, by an international external auditing firm, of the 2002 external audit of the SNPC (according to the same terms of reference as the previous audit and with no qualifications related to access to information). 2		July 31, 2004
Signing by the government of a contract with an international auditing firm to perform the external financial audit of the 2002 operations of the national oil refinery (CORAF).		August 31, 2004
Signing by the government of a three-year contract with an international firm to perform the annual external audits of the SNPC for 2003-05 (using the same terms of reference as for the previous audit). 2		August 31, 2004
Quarterly certification, by an external auditor, of oil revenue in 2004, using the same terms of reference as for the 2003 certifications. Reports to be published on an Internet site on a timely basis.		With a one- quarter lag
Centralization of all government revenues in, and execution of all payments through, the treasury.		Continuous
No settlement of public expenditures through the direct transfer of government revenue by oil companies.		Continuous
1Using the same terms of reference as for the certifications in previous quarters of 2003. 2Financial audits of consolidated financial statements, review of financial flows, review of execution of the management contract, and review of internal control. Publication of the 2002 external audit report will follow the same modalities as the 1999-2001 report.

Table 8. Republic of Congo: Government Budgetary Operations, 2003-04 (In billions of CFA francs; cumulative from January)
	2003 Est.	2004
		End-Mar. Prog.	End-Jun. Prog.	End-Sep. Proj.	End-Dec. Proj.
Domestic revenue	603.6	125.6	267.5	424.8	585.6
Oil revenue	421.6	87.4	184.6	288.7	385.6
Non-oil	182.0	38.2	82.9	136.1	200.0
Primary expenditure	464.5	113.3	213.1	338.8	460.4
Current1	352.7	78.6	153.6	243.5	340.3
Capital2	111.8	34.7	59.5	95.3	120.1
Primary budget balance	139.1	12.3	54.4	86.0	125.2
Debt service due3	-111.1	-39.2	-83.2	-105.2	-128.5
Domestic	-23.4	-3.7	-7.4	-11.1	-14.8
External nonreschedulable debt service	-87.7	-35.5	-75.8	-94.1	-113.7
Multilaterals	-30.5	-9.3	-13.1	-23.1	-27.4
Paris Club, post-cutoff date	-10.0	-0.5	-11.7	-12.1	-23.8
Collateralized debt	-47.2	-25.7	-51.0	-59.0	-62.5
Balance after debt service	28.0	-26.9	-28.8	-19.2	-3.3
Identified financing	36.5	38.4	39.6	26.4	11.4
Domestic (net)	28.8	7.7	8.9	6.4	11.4
Banking system	1.0	7.7	8.9	6.4	11.4
Nonbank financing	27.8	0.0	0.0	0.0	0.0
Of which: exceptional oil receipts4	59.2	...	...	...	...
statistical float5	-3.3	0.0	0.0	0.0	0.0
External	7.7	30.7	30.7	20.0	0.0
Nonproject loans	7.7	...	...	...	...
Advance payment on oil shipment	...	30.7	30.7	20.0	0.0
Residual balance before arrears payment (+ = surplus)	64.5	11.5	10.8	7.2	8.1
Arrears payments	-64.6	-6.0	-10.8	-17.8	-38.3
Domestic	-57.6	-6.0	-10.8	-17.8	-38.3
External	-7.0	...	...	...	...
Residual balance	0.0	5.5	0.0	-10.7	-30.2
Sources: Congolese authorities; and staff estimates and projections. 1Excluding interest. 2Excluding foreign-financed investment. 3Nonreschedulable debt only. 4Revenue stemming from the settlement of legal dispute with a private oil company. 5Including errors and omissions.

Technical Memorandum of Understanding

1. This memorandum establishes the modalities for monitoring the staff-monitored program agreed between the International Monetary Fund (IMF) and the government of the Republic of Congo for the period from January 1 to June 30, 2004.

I. Quantitative Indicators

2. The primary quantitative indicators are the following:

1. a minimum basic primary fiscal balance, starting January 1, 2004;
   
   
2. a ceiling on the change in the banking system's net credit to the government (excluding net IMF credit), starting January 1, 2004;
   
   
3. no new medium- or long-term nonconcessional external debt (including leasing) contracted or guaranteed by the government, starting January 1, 2004 (indicator to be monitored continuously);
   
   
4. no new external debt (including leasing) with a maturity of less than one year contracted or guaranteed by the government, starting January 1, 2004 (indicator to be monitored continuously);
   
   
5. no new debt collateralized by crude oil deliveries, starting January 1, 2004 (indicator to be monitored continuously);
   
   
6. payment of a minimum amount of external arrears (floor), starting January 1, 2004;
   
   
7. no accumulation (in gross value) of new external payment arrears, excluding external debt service due that is eligible for rescheduling, starting January 1, 2004 (indicator to be monitored continuously);
   
   
8. a ceiling on payments of domestic debt arrears, starting January 1, 2004; and
   
   
9. no accumulation (in gross value) of new domestic arrears, starting January 1, 2004.

3. The other quantitative indicators are as follows:

1. a minimum threshold for non-oil and nontax revenues, starting January 1, 2004;
   
   
2. a ceiling on the government wage bill, starting January 1, 2004; and
   
   
3. a ceiling on public investments financed with domestic resources, starting January 1, 2004.

II. Definitions and Computation

A. Government, and Basic Primary Fiscal Balance

4. Unless otherwise indicated, "government" is defined as the central government of the Republic of Congo. The scope of the government's fiscal operations table (TOFE) includes the general budget, the special accounts of the treasury and the government debt management agency (Caisse Congolaise d'Amortissement, CCA).

5. The government's basic primary fiscal balance is equal to total revenue excluding grants, minus total expenditure excluding interest payments and capital expenditure financed with external resources. It is measured on the basis of the budget execution reported every month in the TOFE prepared by the Ministry of Finance. At end-2003, the basic primary fiscal balance was estimated at CFAF 139.1 billion, resulting from total revenue (excluding grants) of CFAF 603.7 billion and total expenditures (excluding interest on the debt and capital expenditure financed with external resources) of CFAF 464.6 billion.

6. The government's total revenue is valued on a cash basis. It includes all revenue (tax revenue, oil revenue, and nontax revenue collected by the treasury). Total revenue also takes into account the gross revenue of the special accounts. Oil revenue excludes all forms of prepayment and prefinancing (see definitions below).

7. Expenditure is valued on a payment order basis. It includes current expenditure, domestically financed capital expenditure, externally financed capital expenditure, and net lending. Current expenditure is defined as the difference between total expenditure and capital expenditure and net lending. Current expenditure is broken down into personnel expenditure, expenditure on goods and services, interest on the debt (domestic and external), transfers and subsidies, and other current expenditure.

B. Change in Net Position of the Government

8. The government's net position vis-à-vis the banking system (including net IMF credit) is defined as the balance between the central government's claims on, and debts to, domestic banking institutions. The claims of the central government include the cash balances of the treasury, deposits at the Bank of Central African States (BEAC), deposits at commercial banks, and central government deposits at the Caisse Nationale d'Épargne (CNE) and the Centre des Chèques postaux (CCP). Treasury liabilities with the banking system include BEAC lending (including statutory advances and consolidated advances), lending from commercial banks (including government securities held by the commercial banks), and CNE/CCP deposits.

9. The end-of-period stock of net bank claims on the government, excluding the counterpart of the use of Fund resources, is valued in accordance with the accounting framework currently used by the BEAC. At December 31, 2003, these claims amounted to CFAF 169 billion.

C. Debt and External Arrears

10. The definition of government used for the external debt performance criterion includes government, as defined in paragraph 4, and government agencies.

11. For the purposes of this memorandum, the definitions of "debt" and "concessional borrowing" are as follows:

1. As specified in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted by the Executive Board of the IMF on August 24, 2000,¹ debt will be understood to mean a current, that is, not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts 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 made 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 payments; and (iii) leases, that is, arrangements under which property is provided that the lessee has the right to use for one or more specified periods of time that are generally shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the 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 agreement, 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 the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.
   
   
2. Loan concessionality is assessed on the basis of the commercial interest reference rates (CIRRs) established by the OECD. A loan is said to be on concessional terms if, on the initial date of disbursement, the ratio of the present value of the loan, calculated on the basis of the reference interest rates, to its nominal value is less than 50 percent (i.e., a grant element of at least 50 percent). 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.

12. The indicator with respect to external debt applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Executive Board Decision No. 6230-(79/140), amended by Executive Board Decision No. 12274-(00/85) (8/24/00)), but also to commitments contracted or guaranteed for which no value has yet been received or on which only partial drawings have been made. However, this indicator does not apply to financing from the IMF or to treasury bills and bonds issued in CFA francs on the CEMAC regional market.²

13. For external debt with a contractual maturity of less than one year, loans associated with imports and exports are excluded from the scope of the indicator.

14. The accumulation of external payment arrears is the difference between (i) the gross amount of external debt service payments due (principal and interest, including penalty interest, as appropriate) and (ii) the amount actually paid during the period under consideration. Payment arrears to creditors for which the government is actively seeking debt relief in good faith are excluded from the external payment arrears for purposes of program monitoring. The stock of external debt payment arrears is assessed at the end of the period, and the amounts in foreign currency are converted to CFA francs based on the exchange rates published by the IMF. Under the program, the government undertakes not to accumulate external payment arrears on its debt, with the exception of external payment arrears arising from government debt being renegotiated with external creditors, including bilateral creditors who are not members of the Paris Club. The accumulation of new arrears is the amount due but unpaid on the due dates during the period of the program. Nonaccumulation of external payments arrears is an indicator to be continuously monitored.

D. Oil-Backed External Debt

15. Prefinancing is defined as a loan backed by oil, that is, advances of money to the debtor by the lender made on the basis of an undertaking that the debtor will surrender to the creditor at a future date the equivalent in oil of the loan plus interest and other fees; the loan is repaid by the sale of the oil in a different fiscal year. New prefinancing (excluding refinancing operations of the existing stock³ and/or deferral of the service due) is strictly prohibited under the program. The refinancing operation and/or deferrals should not give rise to the augmentation of the existing stock of oil-backed debt.

16. A prepayment is an advance of money (from the oil trader) to the government on oil cargoes intended purely for commercial purposes, with a maximum repayment period of six months. This type of financing is designed to enhance cash flow by offsetting any misalignments in receipts and disbursements of funds. Prepayment-related operations must be unwound in the calendar year to which they apply. They are recorded in the accounts as follows:

• At the time the prepayment is obtained, the amounts received are recorded as positive financing (drawings); the amounts corresponding to commissions are recorded as current expenditure.
  
  
• The advance is repaid by the sale of the oil; at the time of the repayment transaction, the revenue derived from the sale of the oil is recorded as final oil revenue accruing to the treasury and the amount of the repayment is posted as negative financing (repayment).

E. Arrears and Domestic Debt

17. Cumulative ceilings on domestic payment arrears are fixed. These arrears cover back pay, overdue payments to pension funds, and the audited domestic commercial debt. This latter category of debt is based on the complete list of arrears due at end-2003, which was provided to the IMF. The authorities intend to begin implementing the "social truce" negotiated with the labor unions; when it ends, the outstanding debt on wages and pensions will be settled. Budget appropriations to cover arrears are estimated at CFAF 23.3 billion in 2004—CFAF 14.5 billion for wages in arrears and CFAF 8.8 billion to pay the arrears owed to pension funds (treasury correspondents). Furthermore, a CFAF 15 billion envelope was budgeted for a partial payoff of the audited domestic commercial debt.

18. Net changes in the domestic payment arrears of the central government are equivalent to the difference over the period between the amount of payments authorized and the actual payments made (within 45 days). A net reduction in arrears is reflected in the TOFE as a negative amount and a net accumulation as a positive sum. Payments made by the government cover payments by the treasury, including through clearing operations.

F. Wage Bill

19. The wage bill is defined as the total of all government personnel expenditure, including the wages and statutory benefits of all civil service and military personnel, be they permanent or temporary. The annual wage bill in 2003 is estimated at CFAF 120.2 billion at December 31, 2003.

III. Adjustments

20. The basic primary fiscal balance (2a) will be adjusted upward if oil revenue is higher than projected. Oil revenue is adjusted by multiplying expected revenue by the ratio of the actual price to the expected price (in CFA francs). This is calculated on a quarterly basis.

21. If the basic primary budget surplus exceeds the quantitative program indicator (2a) and/or if additional nonearmarked budgetary support, over and above the program amount, becomes available, the authorities will use these extra resources to

• finance the residual budgetary gap;
  
  
• further reduce external payment arrears on debt not eligible for rescheduling; and/or
  
  
• reduce the net claims of the banking system on the government (excluding the counterpart use of Fund resources).

IV. Structural Indicators

22. The structural indicators are laid out in Table 7 of the memorandum on economic and financial policies.

23. The certification of oil revenues by an external auditor, based on the terms of reference of the certification for the third quarter of 2003, will include, inter alia, (i) verification of the tax declarations of the oil companies, (including compliance with the terms of production-sharing contracts—CPPs), (ii) reconciliation of the commercial transactions of the national oil company (SNPC) and the quantity of oil due to the government in settlement of the oil companies' tax liabilities (the SNPC included), and (iii) verification that the corresponding revenue has been transferred to the treasury.

24. The government's adoption of an action plan for implementing all the recommendations of the SNPC audit will be articulated in a letter addressed to the IMF Managing Director by the supervisory ministers, namely, the Minister of Economy, Finance, and Budget and the Minister of Hydrocarbons; a copy of the action plan will be attached thereto.

25. The government's adoption of a policy on the payment of dividends by the SNPC will be done by the supervisory ministers, namely, the Minister of Finance and the Minister of Hydrocarbons. An independent expert on the Organization for the Harmonization of Business Law in Africa (OHADA) matters will issue a legal opinion that the policy is consistent with the laws of the Republic of Congo and the rules and regulations applicable to the SNPC.

26. Work on the SNPC audit for fiscal-year (FY) 2002 is scheduled to begin no later than mid-May 2004, with a view to having the final report produced by end-July. For FY 2003, FY 2004, and FY 2005, a different contract from the one in effect for FY 2002 will be awarded by end-August 2004, with the terms of reference specifying that the auditors should submit their final reports for each fiscal year within two months after the SNPC produces its consolidated accounts. Furthermore, the authorities intend to request that the SNPC accelerate production of the consolidated accounts to meet the following deadlines: for FY 2003, by end-December 2004; for FY 2004, by end-November 2005; and for FY 2005, by end-October 2006.

27. The call for bids for the 2002 financial audit of the national oil refinery (CORAF) is scheduled for no later than April 15, 2004, and the contract is to be signed by August 31. In that case, work will start by September 15, and the final report will be submitted to the Ministry of Finance no later than December 15, 2004.

28. The consolidated provisional balance sheet of the treasury for January 2004, produced in March 2004, must show an opening and closing balance, as well as the details of activity for the period.

29. The privatization of the CAIC bank will be considered complete once all the capital of the new bank (La Congolaise des Banques) that will replace it is released and the new bank becomes operational.

V. Information for Program Monitoring

A. Oil Sector

30. The government will submit the following information to the staff of the International Monetary Fund:

• monthly data on oil production by oilfield, production costs, volume exported, export prices, and the operations of the SNPC;
  
  
• the breakdown of the share of crude oil that accrues to the government by oil well, distinguishing the type of taxation to which this share is submitted (royalties, "profit oil");
  
  
• any change in the tax parameters; and
  
  
• a breakdown of tax prices.

B. Government Finance

31. The government will submit the following information to the staff of the International Monetary Fund:

• A monthly table on government fiscal operations (TOFE) and its annexes; these data will be submitted monthly within four weeks after the end of the month. The annexed tables include the breakdown of oil revenue in value terms with the corresponding notes on computation, "excess oil" trends and any bonus payments, the breakdown of tax and nontax revenue, and the breakdown of central government expenditure, particularly transfers and common expenses.
  
  
• The monthly data on prices and taxation of petroleum products. These data will include (i) the price structure in effect during the month; (ii) the details of computation of the price structure, of the f.o.b. Mediterranean price at retail prices; (iii) amounts released for sale; and (iv) a breakdown of the tax revenue from oil products—customs duties and value-added tax (VAT)—and direct/indirect subsidies supported by the budget. These data are transmitted within four weeks after the end of the month.
  
  
• Data on implementation of the public investment program, including the breakdown of financing sources. If the data on the execution of investments financed with foreign grants and loans are not available on schedule, a linear estimate of execution in comparison with annual forecasts will be used. These data (preliminary for bank credit) will be reported on a quarterly basis within four weeks after the end of the quarter.
  
  
• Complete monthly data on domestic financing of the budget (net bank credit and net nonbank funding of the government). These data will be reported monthly within four weeks after the end of the month.

C. Monetary Sector

32. The government will submit on a monthly basis, within four weeks of the end of the month the following preliminary information:

• data on net bank credit to the government/net domestic financing of the government;
  
  
• the consolidated balance sheet of the monetary institutions, central bank, and commercial bank surveys;
  
  
• the provisional integrated monetary survey;
  
  
• lending and deposit rates; and
  
  
• the usual banking supervision indicators for banks and nonbank financial institutions, where necessary.

D. Balance of Payments

33. The government will submit the following to the staff of the IMF:

• any revised balance of payments data (including services, private transfers, official transfers, and capital and financial account transactions) as soon as the data are revised;
  
  
• foreign trade statistics (volume and price) prepared by the national statistics agency/BEAC, within three months after the end of the reporting month; and
  
  
• the preliminary annual balance of payments data, within nine months after the end of the reference year.

E. Debt

34. The government will submit the following to the staff of the IMF within four weeks of the end of the month:

• data on the stock, accumulation, and payment of domestic arrears;
  
  
• data on the stock, accumulation, and payment of external payment arrears;
  
  
• a breakdown of estimated domestic and external debt service, service due, and actual payments, including breakdowns of principal and interest and by creditor;
  
  
• the list and amounts of new external debt incurred or guaranteed by the government, with detailed information on the terms and conditions (currency, interest rate, grace period, and maturity) stated in the original agreement; and
  
  
• actual disbursements of foreign financial assistance (project and nonproject), including new borrowing and any external debt relief granted by foreign creditors (CCA tables).

F. Real Sector

35. The government will submit the following to the staff of the IMF:

• monthly itemized consumer price indices, on a monthly basis, within four weeks of the end of the month;
  
  
• provisional national accounts within nine months of the end of the year;
  
  
• any revision of the national accounts; and
  
  
• any other indicators and statistical data used to track overall economic developments, including information on activity in the forestry sector and wood-processing industry, as well as the monthly short-term economic bulletins prepared.

G. Structural Reforms and Other Information

36. The government will submit the following information:

• any study or official report on the economy of the Republic of Congo, within two weeks of its publication; and
  
  
• any decision, order, law, decree, ordinance, or circular having economic or financial implications, within two weeks from the time it is published or, at the latest, from its entry into force.