November 3, 2000

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler:

1.  In the past few years, the Republic of Congo experienced a series of armed conflicts that inflicted considerable loss of human life, displaced almost one-third of its population, and seriously damaged basic infrastructure and much of the country's productive capacity.

2.  The cease-fire agreements signed at end-1999 have brought the prospect of peace and economic recovery to the Congolese society. To date, progress in normalizing the political situation and initiating economic recovery has been significant. Security has been largely restored, the key rail link between Pointe Noire and Brazzaville is functioning again, and basic infrastructure is being rehabilitated. To consolidate the peace process, preparations are under way to hold a constitutional referendum, and presidential and legislative elections in the second quarter of 2001. To create the conditions that would allow the population to fully participate in this process, the government has drawn up a social and economic post-conflict program.

3.  The program for 2000–01, described in detail in the attached memorandum of economic and financial policies of the government of the Republic of Congo, targets two broad sets of objectives: on the one hand, the immediate goals of providing for security, humanitarian assistance, and restoration of basic infrastructure, and, on the other, the strengthening of the country's administrative capacity and the macroeconomic framework in order for growth in the non-oil sector to resume. The initiation of the normalization of relations with the Congo's creditors and enhanced transparency, especially in the oil sector, also constitute important objectives. Implementation of the post-conflict program should pave the way for the adoption of a medium-term program that would target poverty reduction and strong and sustained economic growth, and which could be supported by resources under a PRGF arrangement from the International Monetary Fund (IMF).

4.  In support of the post-conflict program, the government of the Congo herewith requests assistance from the IMF under its emergency post-conflict assistance policy, in an amount equivalent to SDR 10.575 million, or 12.5 percent of quota. If by June 15, 2001 there are insufficient prospects for moving toward a Poverty Reduction and Growth Facility (PRGF) arrangement from the IMF, the government of the Republic of Congo intends to request an additional SDR 10.575 million.

5.  The government of the Republic of Congo believes that the economic and financial policies outlined in the memorandum are adequate to address the difficulties facing the Congolese economy and achieve the program objectives. It will, in any case, consult with the IMF on the introduction of any additional measures that may become necessary for this purpose during the program period. In addition, the government will provide the IMF with such information as the IMF requests in connection with progress in implementing the policies and reaching the objectives of the program.

Sincerely yours,

Republic of Congo
Memorandum on Economic and
Financial Policies for 2000–01

November 3, 2000

I.  Introduction

1.  Recurring armed conflicts in recent years have inflicted large losses of human life, displaced almost one-third of the Congolese population, seriously damaged basic infrastructure, and destroyed much of the productive base. When the 1997 conflict ended, the cost of reconstruction was estimated at CFAF 500 billion. Taking into account the clashes since December 1998, the cost is estimated to have increased to CFAF 1,600 billion, well exceeding the size of 1999 GDP. The civil wars have had a dramatic effect on output. As oil drilling is almost entirely offshore, trends in non-oil GDP provide a more meaningful picture of the effects of the civil wars on the Congolese economy and the living conditions of the population than developments in overall GDP. During 1997–99, non-oil real GDP contracted by 19 percent, and poverty increased significantly. Over the same period, prices fluctuated widely because of shortages and the damage to transport and communication facilities.

2.  The social situation remains precarious because of the large number of people that are resettling, the weak economy, and widespread unemployment, estimated at more than 50 percent of the labor force, especially among the young. Moreover, large numbers of refugees from the Democratic Republic of the Congo have created additional tensions, particularly over land use. Despite the government's mobilization of substantial resources to meet urgent peace-related needs, much remains to be done both in terms of the reconstruction of basic infrastructure, and the resettlement and reintegration of displaced persons.

3.  The agreements to end the hostilities in the Republic of Congo signed on November 16 and December 20, 1999 paved the way for a return to peace. Progress to date in implementing the government's disarmament, demobilization, and rehabilitation (DDR) program, including collection of arms and ammunition, and reintegration into society of former militia members, has been significant. This progress will be consolidated by a return to democracy, after adoption of a new constitution and following presidential, legislative, and local elections in the second quarter of 2001. To this end, and to create the social conditions that would allow the population to participate fully in the political normalization process, the government has prepared an interim post-conflict program (PIPC) for 2000–02 that has been adopted by the National Transition Council (parliament). The main objectives of the program are (a) rebuilding and strengthening the government's administrative and institutional capacity while laying foundations for good governance and transparency; and (b) improving the macroeconomic framework and the social climate to enhance production capacity and promote growth.

4.  To achieve these objectives, the government intends to (a) restore macroeconomic stability; (b) implement structural reforms, especially civil service reform and privatization of commercial banks and the largest state enterprises; (c) rehabilitate basic infrastructure; (d) combat poverty by creating employment opportunities (especially for the young) and increasing investment in health and education; (e) revitalize agriculture and improve food security; and (f) promote economic diversification and regional integration. These objectives and aspirations find their origin in the following political and societal choices: (a) political pluralism, democracy, and freedom of speech; (b) the state's withdrawal from productive sectors; and (c) free enterprise and open competition. To implement the program, the government is seeking support from the international community. The Congo has already entered into in-depth discussions on the post-conflict program with the staffs of the IMF, the World Bank, and the African Development Bank.

II.  Objectives and Strategy of the
2000–01 Post-Conflict Program

5.  In its program for 2000–01, for which it is seeking support from the Fund under its emergency post-conflict assistance policy, the government will focus mainly on the provision of emergency humanitarian and peace-related assistance, repairing basic infrastructure, restoration of macroeconomic equilibria, rehabilitation of institutions essential to a functioning economy, in particular the banking system and the civil service, and the pursuit of liberalization, with a view to enhancing economic efficiency.

6.  The medium-term scenario assumes that the world oil prices retreat from the 2000 average of US$29 per barrel to US$28 per barrel by 2001 before leveling off at about US$25 per barrel in 2002–05. Oil output will continue to increase somewhat until 2001, but thereafter a declining trend is projected. Non-oil real GDP, after dropping by almost 9 percent in 1999, should grow by about 7 percent in 2000, as the wood, transportation, trade, and construction sectors rebound. Following this initial catch-up effect, real GDP growth is projected to decelerate to almost 6 percent in 2001. Since investment is expected to rise as a result of structural reforms and an improvement in the business climate, non-oil real GDP growth is projected to edge up to 6.8 percent by 2005. Despite rapidly increasing imports of goods and services, the external current account deficit (excluding grants) would narrow significantly, from 18 percent of GDP in 1999 to 6–7 percent of GDP in 2000–02, mainly reflecting oil export trends.

7.  The medium-term scenario shows financing gaps in the 2000–05 period despite the assumption of continued adjustment after the expiration of the post-conflict program and a Paris Club rescheduling on Naples terms in the fourth quarter of 2001. During the period for which the government seeks support from the Fund for its post-conflict program—October 1, 2000–September 30, 2001—the gap amounts to CFAF 52 billion (US$73 million). Such a scenario points to the need for additional assistance. Successful implementation of the post-conflict program for 2000–01 should pave the way for the formulation of a medium-term program aimed at achieving rapid, sustainable economic growth and further reducing poverty. Such a program would also allow the Congo to benefit from substantial external debt relief, critical for alleviating the present heavy debt burden, which seriously hampers its economic and social development.

A.   Macroeconomic Policies for 2000–01

Fiscal policy

8.  In implementing its 2000–01 program, the government will make every effort to meet the massive financing requirements for emergency humanitarian aid, reconstruction, and reintegration of displaced persons. However, it will also take into account the constraints on available resources and the need to normalize relations with external creditors. Achievement of these goals should be facilitated by sustained high international oil prices and the appreciation of the U.S. dollar, as well as by support from the international community.

9.  The primary fiscal surplus is targeted to rise from almost 6 percent of GDP in 1999 to approximately 12 percent in 2000, before dropping slightly in 2001. The wage bill will be limited through a general wage freeze and a moratorium on recruitment in sectors other than health and education to CFAF 106 billion in 2000 (5.5 percent of GDP), and then fall to CFAF 104 billion in 2001. Nonwage, noninterest current expenditure will be capped at CFAF 110 billion (5.7 percent of GDP) in 2000. This amount, which includes about one-third (CFAF 18 billion) of the government's DDR program, implies a 50 percent increase over the initial budget for that year, so as to help consolidate the peace process. With the improvement in the security and the political situation, this expenditure category would be expected to contract significantly in 2001. The actual decline will be limited, however, since the 2001 projections contain two provisions of CFAF 5 billion each for the upcoming elections and the rebuilding of a national police force, respectively. Investment outlays are projected to rise from 6.5 percent of GDP in 1999 to almost 10 percent of GDP in 2001. To revive financial and technical cooperation with its development partners, the government has resumed, as of September 1, 2000, debt service payments to multilateral institutions, as well as on post-cutoff-date debt to Paris Club creditors. A supplementary budget, including various adjustments to the initial budget for 2000, has been prepared by the government and adopted by the National Transition Council (parliament) on September 29, 2000.

10.  As a result of higher output and prices, and the appreciation of the dollar vis-à-vis the CFA franc, fiscal oil revenue should reach an exceptionally high level of about 23 percent of GDP in 2000. For the year 2001, fiscal oil revenue would fall slightly to 21.5 percent of GDP, in line with lower oil prices. The recent founding of the Société Nationale des Pétroles du Congo (SNPC) to conduct commercial activities in the oil sector on behalf of the government, has been accompanied by measures to enhance transparency in relations between the government and the oil companies in general, and between the government and the SNPC in particular, and should ensure maximum revenues for the treasury. In addition, the government has entered into discussions with the oil companies to resolve certain contentious issues, including the collection of the maritime tax paid by the petroleum companies. The use of any revenue resulting from these negotiations will be subject to consultation with Fund staff.

11.  Non-oil revenues are expected to reach CFAF 152  billion (7.9 percent of GDP) in 2000 and then rise to 9.2 percent of GDP in 2001 because of the envisaged economic upturn and strong measures to upgrade tax and customs administration. Assessments, with Fund assistance, of the functioning of the tax and customs directorates will provide a basis for their subsequent reorganization. The customs department has already prepared a training program; managerial staff in major cities (Pointe Noire and Brazzaville) have been reshuffled; and the practice of employing unqualified staff from other departments has been terminated. Furthermore, strengthening the monitoring of imports and the surveillance of oil and wood exports by the BIVAC company should lead to a significant improvement in the collection of customs revenues. BIVAC will submit a monthly progress report to the Minister of Finance, which will include statistics on revenue collected on verified imports and exports. In turn, BIVAC's activities will be monitored by ICS/SWIPCO. In addition, exceptional tax exemptions will no longer be granted, and the consolidated cash management principle at the treasury will be strictly applied: all earmarked revenues will henceforth be collected by the treasury and subsequently recorded as budget transfers.

12.  Consistent with the objectives of the post-conflict program, public investment will focus on the restoration of basic infrastructure (including the setting up of a nationwide system of basic health care facilities), and on projects in agriculture, fishing, and forestry. For the 2000–01 period, total investment outlays are projected at CFAF 348 billion (9.2 percent of combined 2000–01 GDP), the bulk of which will be of an emergency nature. Included in this amount is about two-thirds (CFAF 36 billion) of the government's DDR program, which seeks to employ about 25,000 ex-militia men in some 140 small projects in the sectors referred to above, and the reconstruction of security-related infrastructure (e.g., police stations) for the police force (CFAF 21 billion). Available domestic resources are projected at about CFAF 260 billion over the 2000–01 period and identified foreign financing at only CFAF 35 billion, leaving a gap of about CFAF 52 billion (US$73 million). At a donors' consultative meeting on October 5–6, this amount was pledged by the World Bank (US$27.4 million in program lending), the European Union (US$16.2 million in project grants), France (US$26.4 million in project lending) and other donors (US$3 million in project lending).

13.  The government has begun to put in place a system to significantly strengthen the mechanisms for controlling and monitoring expenditure. In early 2000, the organic budget law was adopted by the National Transition Council, and the government accounting decree was signed on August 10,  2000. Implementation of these legislative and regulatory measures, combined with partial rehabilitation of computer systems, has already contributed to a significant improvement in the quality and timeliness of budget data. Expenditure data on a payments order basis (ordonnancements) are now available with a two-month lag. Until 1999, these data were provided only on a cash basis, with a three-month lag. Further improvements will be needed to produce the data on a functional and a commitment basis and strengthen the monitoring of treasury payments. The Fund has been requested to provide technical assistance for this purpose. Furthermore, to minimize the risks of error and fraud, the government will fully computerize budgetary procedures and establish electronic links among the principal departments of the Ministry of Finance, particularly the treasury and the budget, taxes, and customs directorates.

Monetary policy and banking system rehabilitation

14.  The regional monetary policy goal of the Bank of Central African States (BEAC) continues to be the achievement of a stable currency by targeting low inflation and a high foreign reserve coverage of the currency issue. For the Congo, this policy will also take into account the withdrawal of the state from the banking system. Despite pressing economic needs, credit expansion is projected to be limited as the newly privatized banks are likely to be very cautious in their lending operations.

15.  The conflict that started in late 1998 interrupted the restructuring and privatization of banks that was envisaged in the 1998 post-conflict program. All three Congolese public commercial banks were already insolvent prior to the outbreak of the 1997 conflict and, with the exception of the CAIC (Agricultural, Industrial and Commercial Credit Bank), barely in a position to continue operations. In 2000, following negotiations with the World Bank, the regional banking supervisoin agency (COBAC), and private foreign partners, the government was able to prepare a firm bank restructuring and privatization schedule. Concerning the largest bank (the UCB), the COFIPA group is scheduled to open a new bank, the COFIPA Investment Bank, on December 1, 2000 after signing the necessary agreements with COBAC. The performing assets of the second-largest bank, the BIDC, will be incorporated in a new entity on December 31, 2000. Finally, the performing assets of the third-largest bank, the well-functioning and profitable CAIC, will be taken over by the Groupe des Banques Populaires in late December 2000. During this crucial process of regaining public confidence, the BEAC and COBAC will exercise control in their respective areas to ensure that the new banks remain financially sound. Both institutions will be uncompromising in ensuring that all information necessary for the monitoring of banking activities is received in a timely manner.

16.  To bolster public confidence and the credibility of the financial system, the government is committed to restoring normal relations with its domestic suppliers and creditors. It initiated an audit of all commercial arrears and requested all legitimate creditors to confirm their claims within three months. After the government held discussions with these creditors, agreement was reached as follows: (a) payment in 2000 of an amount of CFAF 6.4 billion, representing approximately one-third of the CFAF 20 billion of cash earmarked for payments to all creditors for the first CFAF 10 million of their claims (the remaining two-thirds is scheduled for payment in 2001); (b) a reduction of 50 percent of all loan amounts in excess of CFAF 10 million; and (c) the issue of negotiable bonds for the remaining amount by end-2000.

17.  Regarding social debt, in addition to paying three months of arrears from 1992 due to pensioners and survivors of deceased civil servants, the government has undertaken a comprehensive study (to be completed in mid-2001), with a view to implementing an arrears clearance program in line with its financial capacity.

B.   Structural Reforms

18.  In addition to bank restructuring, the government intends to resume and accelerate the implementation of structural reforms that were halted by the resurgence of the war in 1998. The highest priority will be given to the public service and the privatization of, or granting of management contracts for, the major public enterprises.

19.  Following a broad-based dialogue at the national level, the government has decided to implement a large-scale public service reform program designed to create a modern and efficiently managed public service. The initial stage involves an update of the government personnel database through a census of civil servants. Pending the completion of the census, salaries have been frozen across-the-board, and new recruitment, with the exception of the health and education sectors, has been suspended. The census will be completed in late December 2000, and its results will provide a basis for implementation of the reform program in early 2001. An important element of the reform program will involve a reduction in staffing to levels that ensure efficient delivery of governmental services and a merit-based system of salary scales and promotions, to be introduced in early 2002.

20.  The government has completed preparations to put in place regulatory frameworks for the main sectors that, henceforth, will be open to competition. The forestry, water, and electricity codes, which incorporate the World Bank's inputs, will be presented to the National Transition Council in December 2000. The telecommunications code is being evaluated by the World Bank and will be submitted to the National Transition Council in March 2001. To further promote competiton, the government will revoke by November 30, 2000 the license that grants a monopoly to the Intels Company to provide shiphandling services in the port of Pointe Noire.

21.  Privatization is implemented under the authority of the head of government and is coordinated by a privatization committee charged with managing the bidding process—invitations to bid, evaluating the bids, and recommending successful bidders as foreign partners for privatized enterprises. Considerable investment and productivity gains are expected from privatizations that have been prepared with assistance from the World Bank. First, the management of the Société Nationale de Distribution de l'Eau (SNDE, water utility) will be outsourced in March 2001. Second, a management contract will be signed in June 2001 for the Société Nationale d'Electricité (SNE, electricity company). Third, the Office Nationale des Postes et des Telecommunications (ONPT, postal and telecommunications services) will be reorganized with the postal service and the Savings Bank being separated from the telecommunications division; the latter will become SOTELCO (Congo Telecommunications Company), to be privatized in June 2001. Fourth, the downstream activities of Hydro-Congo (petroleum company) will be privatized before end-2000, while the national oil company (SNPC) has already assumed Hydro-Congo's upstream activities. Following a long period of inactivity, the CORAF oil refinery has won a processing contract in advance of its privatization scheduled for June 2002. Finally, the Agence Transcongolaise de Communications (ATC, port and railroad authority) has been spun off into the following three separate bodies: the PAPN (Pointe Noire Independent Port Authority), the CFCO (Congolese Ocean Railway Authority), and the VNPTF (Navigable Waterways, Ports and River Transport Authority). The PAPN is already under independent management; a concession contract for the CFCO will be awarded after completion of ongoing repair works.

22.  In addition, the government intends to privatize 11 smaller enterprises.¹ Privatization of the public enterprises is projected to generate CFAF 25.4 billion in gross revenue. Gross receipts will be kept in a special treasury account with the BEAC. This revenue will be used primarily to cover the social cost of privatization. Any net revenue will be used to reduce the government's social debt.

III.  Technical Assistance

23.  With the improvements in the expenditure control and monitoring system (paragraph 13), the government has taken an important step toward improving its administrative and institutional capacity. Further steps to improve the government's capacity to effectively govern the country, including the provision of adequate security, are necessary. The government needs technical assistance to further rehabilitate its financial administration and overhaul its economic and financial statistics. In particular, the government would like to proceed with technical and organizational assessments of the Directorate-General of Customs, the Directorate-General of Taxes, and the Treasurer/Paymaster General. These assessments, for which the Fund will provide technical assistance, are designed to lay the groundwork for a reorganization of their administration, rendering them more efficient and strengthening the collection of non-oil revenue. Technical assistance from France also will target customs and tax administration, and the treasury. Strengthening expenditure control and monitoring, with technical assistance from the Fund as has been requested, will complete the support program for financial administration.

24.  The government has requested technical assistance from France to fully computerize the Ministry of Finance. All its departments will be electronically linked to strengthen monitoring and supervision of budget execution. In order to monitor wages and salaries, payroll computerization should go hand in hand with computerization of the public service, so as to allow database sharing.

25.  Public investment policy and monitoring constitute another critical area, for which the government has requested assistance from the World Bank.

26.  The statistics department enjoys support from the regional statistical office, AFRISTAT, and the United Nations Development Program (UNDP). In the first half of 2001, a mission from the IMF Statistics Department will assist the government in identifying statistical development priorities.

27.  Finally, the government already receives technical and financial assistance from France for the creation of a small but effective police force that will comprise all segments of the Congolese society.

IV.  Progam Monitoring

28.  The variables presented in Table 1 of this memorandum constitute the program's quantitative performance indicators. They comprise (a) a ceiling on net credit to the government from the banking system; (b) a ceiling on new medium- and long-term nonconcessional debt (including leasing) contracted or guaranteed by the government; (c) a ceiling on new nonconcessional debt (including leasing), with the exception of normal commercial credit, of less than one year; (d) a ceiling on cumulative net external payments arrears for the duration of the program; (e) a minimum level for the reduction of domestic arrears; (f) a floor for the primary fiscal balance; and (g) a ceiling on central government wages and salaries. The definitions of the performance indicators are presented in the attached technical memorandum of understanding.

29.  Given the degree of uncertainty concerning the evolution of international oil prices and oil production, the program includes a specific adjustment clause relating to oil revenues for 2000 and 2001. Any revenue in excess of the projected revenue, either deriving from ongoing negotiations with the oil companies or from higher-than-projected oil output and prices, will be deposited with the BEAC, and the quantitative indicators will be reviewed in consultation with IMF staff. The excess should be used in principle to reduce outstanding external debt and accelerate the reduction of external arrears. Conversely, should oil revenues fail to meet the projected amounts, up to 50 percent of the shortfall could be offset via higher-than-programmed net borrowing, subject to an overall cap of CFAF 20 billion (1 percent of GDP). The balance would be covered by higher non-oil tax revenues and/or by a larger-than-programmed reduction in budgetary expenditure.

30.  The structural measures listed in Table 2 of this memorandum will be considered to be structural performance indicators.

Republic of Congo

1.  This memorandum spells out the understandings for the monitoring of program implementation, the reporting requirements, and the purchase schedule and terms under the emergency post-conflict assistance policy of the International Monetary Fund. It defines (a) the quantitative and structural performance indicators; (b) the adjusters for the quantitative performance indicators; and (c) the key assumptions used in the formulation of the program for 2000–01 presented in the memorandum on economic and financial policies (MEFP) of the government of the Congo attached to the letter from the Minister of Economy, Finance, and the Budget to the Managing Director of the International Monetary Fund dated November 3, 2000 (Appendix II).

2.  Monitoring of the implementation of the program, which will cover the period October 1, 2000–September 30, 2001, will be done through (a) quarterly staff visits/missions;¹ and (b) an assessment of the observance of the quantitative and structural performance indicators at specified dates.

Quantitative criteria

3.  The quantitative performance indicators are specified in Table 1 of the MEFP. The performance indicators are as follows:

a. A ceiling on the net claims of the banking system on the central government;

b. A ceiling on new medium- and long-term nonconcessional external debt (including leasing) contracted or guaranteed by the government, with maturities of 1 to 12 years, as of October 1, 2000;

c. A ceiling on new nonconcessional debt (including leasing) with an original maturity of less than one year, as of October 1, 2000;

d. A limit on the net accumulation of external arrears through end-September 2001;

e. A floor on the net reduction of domestic public payments arrears through end-September 2001;

f. A floor on the primary fiscal balance (on a payments order basis); and

g. A ceiling on the government wage bill.

4.  The program includes adjusters for the quantitative performance indicators as specified in paragraphs 14 and 15 below and in footnote 2 to Table 1 of the MEFP.

Definitions and computation

5.  The outstanding amount of the net claims of the banking system on the central government is measured in accordance with the accounting practice of the central bank, the Bank of Central African States (BEAC), along the lines of the IMF format—as specified below. As of December 31, 1999, the outstanding amount was CFAF 107 billion, and its breakdown was as follows:

6.  The performance indicators on new external debt are cumulative ceilings on new nonconcessional debt, including leasing, contracted or guaranteed by the government. Debt with maturities of 1 year to and including 12 years is defined as new loans with an original maturity of more than 1 year and of up to and including 12 years, as specified in the initial contractual agreement. Cumulative ceilings are also set on new debt (including leasing) contracted or guaranteed by the government with an original maturity of up to and including one year, except for those loans related to normal import-related transactions or petroleum exports. The concessional element of the loan will be calculated on the basis of the reference interest rates for the specific currency of denomination used, as established by the OECD. A loan is deemed to be on concessional terms if, at the time of the initial disbursement date, the ratio of the present value of the loan calculated on the basis of the reference interest rate to the face (nominal) value of the loan is less than 65 percent (i.e., a concessional element of at least 35 percent). As an example, the reference interest rates for the period July 15, 2000–August 14, 2000, were as follows:

7.  The accumulated amount of external arrears is calculated as the difference between (a) the gross amount of all maturities falling due on account of contractual external debt-service obligations (consisting of interest, principal, and penalty interest, where applicable) and (b) the amount of actual payments made during the period under consideration. The outstanding amount of external debt arrears is valued at the end of the period under consideration, with the foreign-currency-denominated debts converted into CFA francs on the basis of the exchange rates published by the International Monetary Fund. The program includes an accumulation of external payments arrears on account of the maturities on external debt-service falling due between October 1, 2000 and September 30, 2001, excluding maturities due to the multilaterals and nonreschedulable maturities due to Paris Club creditors. The outstanding amount of external debt-service arrears was CFAF 1,279.4 billion at end-December 1999 and is estimated at CFAF 1,485.4 billion at end-September 2000. Over the program period, a further increase in arrears of CFAF 147.6 billion to CFAF 1,633.0 billion is projected. External debt-service obligations over the same period are projected at CFAF 338.5 billion, implying debt-service payments of CFAF 190.9 billion (including penalty interest).

8.  During the program period, there will be no accumulation of domestic arrears (defined as arrears on commercial agreements). At end-June 2000, the existing stock of domestic arrears amounted to CFAF 178 billion. In 2000, this stock will be reduced by CFAF 164.4 billion through a cash payment of CFAF 6.4 billion, the issue of bonds (CFAF 79 billion) and a write-off of the same amount. In the first and third quarters of 2001, two cash payments of CFAF 6.8 billion each will be made.

9.  Fiscal revenue is recorded on a cash basis and is specified in Table 1 of this technical memorandum. Total fiscal revenue in 1999 amounted to CFAF 384.3 billion, and is targeted at CFAF 597.3 billion for 2000 and CFAF 603.0 billion for 2001, based on the assumptions specified in paragraph 17 below.

10.  Total fiscal expenditure is defined on a payments order (ordonnancements) basis, adjusted for treasury advances and paiements par anticipation.² Total fiscal expenditure will be limited to CFAF 524.6 billion (27.4 percent of GDP) in 2000 and to CFAF 538.6 billion (27.4 percent of GDP) in 2001. Total expenditure, excluding interest obligations, will be limited to CFAF 372.1 billion (19.4 percent of GDP) in 2000 and to CFAF 402.0 billion (20.4 percent of GDP) in 2001. These amounts include expenditures on the basis of earmarked receipts (recettes affectées) that were integrated in the budget with the adoption of the revised Finance Law for 2000 on September 29, 2000.

11.  Monitoring of fiscal revenue and expenditure and their respective components will be made on the basis of Table 1 of this technical memorandum.

12.  The primary fiscal surplus is on a payments order (ordonnancements) basis, and is defined as the difference between (a) total revenue (excluding grants) and (b) total noninterest current expenditure plus public investment (including foreign-financed investment). The primary fiscal surplus is programmed to increase from CFAF 76.9 billion (5.6 percent of GDP) in 1999 to CFAF 225.2 billion (11.8 percent of GDP) in 2000, before dropping slightly to CFAF 201.0 billion (10.2 percent of GDP) in 2001.

13.  The government wage bill is defined on a commitment basis³ for all personnel (whether on a permanent or a temporary basis) of the civil service and the security and defense forces. The government wage bill in 1999 was CFAF 100.7 billion and should not exceed CFAF 106 billion and CFAF 104 billion in 2000 and 2001, respectively. It comprises all remunerations, including social contributions, housing allowances, and other statutory allowances.

Adjusters

14.  Given the importance of oil for the Congolese economy and the uncertainties regarding oil prices and output, a specific contingency mechanism for oil revenue is established for 2000–01, as specified in paragraph 29 of the MEFP and footnote 2 of Table 1 of the MEFP. If oil revenue exceeds the projections in a given quarter, the surplus will be deposited at the central bank. Its eventual use will be discussed with the staff of the International Monetary Fund. The surplus should be used in principle to reduce the public debt (including early settlement of external arrears, where applicable). If oil revenue is lower than programmed, owing to actual oil prices and/or output being lower than projected in the baseline scenario, 50 percent of the shortfall up to a maximum of CFAF 20 billion (1 percent of GDP) could be offset by additional net borrowing from the banking system (subject to the observance of the BEAC statutory ceiling), with the balance compensated for by additional fiscal tightening (higher non-oil revenue and/or lower noninterest current expenditure). If the oil revenue shortfall exceeds 2 percent of GDP, the quarterly fiscal targets will be reassessed in consultation with Fund staff.

15.  The program also includes adjusters for the quantitative performance indicators for greater-than or lower-than-programmed debt relief, nonproject external financing disbursements, and net reduction of external arrears, as specified in footnote 2 of Table 1 of the MEFP. The program assumes (a) nonproject external financing disbursements of CFAF 2 billion in 2000 and CFAF 19.6 billion in 2001; and (b) disbursements on project-related external financing for a total of CFAF 18.8 billion in 2000 and CFAF 32.8 billion in 2001.

16.  The structural indicators are specified in Table 2 of the MEFP.

17.  The main assumptions of the program are the following:

In computing the value of oil exports, oil output is reduced by 200,000 tons a year, corresponding to the input of the domestic oil refinery (CORAF).

E.  Reporting Requirements

18.  To facilitate monitoring of program implementation, the government will prepare monthly reports within eight weeks following the end of the preceding month, which it will send promptly to the Fund. In addition, the Interministerial Committee for the Coordination and Implementation of Economic Policy will communicate each month to the Fund's African Department by fax and/or letter and by e-mail the data and information required to monitor the implementation of the program. Such data and information will include (but are not limited to) the following:

a. The monetary survey, the central bank balance sheet, and consolidated balance sheet of the commercial banks, respectively;

b. The net financial position of the government at the BEAC (PNG);

c. The table of central government financial operations (tableau des opérations financières de l'Etat) on a payments order basis—Table 1 of this technical memorandum;

d. The detailed breakdown of tax and nontax revenue, as defined in paragraph 9;

e. The detailed breakdown of the central government expenditures, on a payments order basis as defined in paragraph 10, as well as on a cash basis;

f. Details of domestic and external debt-service obligations, as well as the stock of external arrears, on a contractual and actual payments basis, respectively, with a breakdown into interest and principal, and by creditor;

g. The amount of new external debt (including leasing) contracted or guaranteed by the government, with the detailed information on the original terms and conditions (contracted amounts, interest rate, and currency denomination);

h. The actual disbursements on project and nonproject-related external financial assistance, including on newly contracted loans, and the amounts of debt relief granted to the Congo by foreign creditors;

i. Indicators and other data on recent economic developments, such as the consumer price index, merchandise imports and exports (in value and volume terms), oil and non-oil exports, oil output and export volume and prices, timber and wood-processing production and exports (volume and prices), and production indicators for processing and manufacturing industries, services, and mining, as well as monthly reports on economic activity prepared by the Centre National de la Statistique et des Etudes Economiques; and

j. A status report on the implementation of the structural reforms specified in Table 2 of the MEFP.

19.  The Interministerial Committee for the Coordination and Implementation of Economic Policy will supply to the African Department of the International Monetary Fund any other information that it may view as helpful or as may be required by the staff of the International Monetary Fund for the effective monitoring of the implementation of the program.

F.  Purchase Schedule and Terms

20.  A purchase of SDR 10.575 million will be available upon approval by the Executive Board of the International Monetary Fund of the authorities' request for use of Fund resources under the emergency post-conflict assistance policy.