1. Significant policy developments have occurred since the Staff Report was issued. The authorities are taking measures to address a number of problem areas highlighted in the staff appraisal. Staff welcomes these measures, while noting that several important issues remain to be addressed.
2. On June 15, the government signed with the regional central bank a convention for the use of the 2009 general SDR allocation. The government used the proceeds to clear CFAF 90 billion of its CFAF 98.3 billion payment obligations to the oil refinery, SONARA. To ensure a reduction of SONARA’s exposure to banks, the Treasury in early July made direct transfers to the commercial banks involved, in amounts proportionate to each bank’s exposure to SONARA. The remaining government overdue obligations to SONARA are to be cleared in the coming days. With this operation, a source of systemic risk to the banking system has been mitigated.
3. The authorities are developing a revised 2010 budget that incorporates several recommendations of the staff. They have revised down current spending on goods and services; made a realistic budgetary provision for subsidies to the oil refinery; postponed the start of some non-priority capital projects; and included a provision for government participation in the recapitalization of a distressed bank. These planned revisions go in the direction recommended by staff, but there is still a projected financing gap of 1.6 percent of GDP, down from 1.9 percent in the staff report. When the revised budget has been finalized, the authorities intend to adopt it by Presidential Decree and present it later to the National Assembly for ratification. Staff is collaborating closely with the authorities, and continues to encourage them to further reprioritize spending programs; to keep a tight control over budget execution; and to conduct a comprehensive audit of all outstanding government obligations.