Since the issuance of the staff report, the authorities have informed the staff on the following recent developments. These developments do not alter the thrust of the staff appraisal.
1. In a referendum held on May 26, 2003, a new constitution was approved, clearing the way for presidential and legislative elections as early as August—September 2003. As of end-May 2003, donor pledges to cover the cost of the referendum and elections amounted to US$6.2 million, of which US$2.7 million have been disbursed.
2. As part of his audit of the 2002 operations of the Ministry of Defense, the Auditor General has completed, in May 2003, a review of government spending associated with the withdrawal of Rwandan troops from the Democratic Republic of the Congo, The review confirmed that spending on activities directly related to the troop withdrawal, amounting to RF 10.9 billion, followed budgetary regulations and was correctly registered in the government accounts. Moreover, the associated goods and services were received and suppliers were paid.
3. Reflecting the inconsistent rains at the start of the agricultural season, food prices rose markedly during the first quarter of 2003, with the 12-month rate of increase reaching 4.5 percent in April 2003. Consumer price inflation was slightly above 8 percent over the same period. It is expected that food prices and inflation will moderate substantially during the next few months, as the food supply improves.
4. Central government finances through end-March 2003 were broadly in line with program targets. Cumulative revenue collections amounted to 99 percent of the targeted level, while total outlays were 0.3 percent of GDP lower than envisaged, largely because of delays in the execution of exceptional expenditures. The quantitative benchmarks for end-March 2003 for the domestic fiscal deficit, recurrent priority spending, and the net accumulation (settlement) of domestic arrears appear to have been met.
5. During the first quarter of 2003, the central bank intervened to limit the impact on the money supply of the increase in net credit to government from the banking system, both through foreign exchange sales and open market operations. As a result, the quantitative benchmark for reserve money at end-March 2003 was met. However, the benchmarks for net foreign assets of the National Bank of Rwanda (NFA) and for the net banking system credit to the government (NCG) were missed. While a full explanation for the higher-than-programmed increase in NCG is not yet available, an unanticipated net reduction in government obligations to the nonbank private sector, together with a slightly higher-than-programmed net reduction in domestic arrears contributed to this outcome, as well as to the shortfall in NFA, which was modest. Beginning in May, the central bank substantially reduced its foreign exchange sales and preliminary information for early June suggests that the end-June performance criterion for NFA is well within reach. The authorities have taken steps to strengthen the management of government debt to the nonbank private sector and, based on available data, the end-June performance criterion for NCG appears also to be within reach.
6. While substantial progress has been made in negotiating bilateral agreements under the Cologne flow rescheduling agreement signed last year, the authorities requested a further extension of the deadline to enable the conclusion of all bilateral agreements with Paris Club creditors. They have also requested an extension of the consolidation period for the Paris Club rescheduling. The authorities have confirmed that as of May 31, 2003 there were no outstanding nonreschedulable arrears, which is a continuous performance criterion.
7. To strengthen the administration of the central bank, and in line with recommendations made by a recent Fund safeguards mission, on May 22, 2003, the Minister of Finance issued instructions for the conduct of annual audits of the National Bank of Rwanda (a prior action for completing the first review under the Poverty Reduction and Growth Facility).