In the immediate period ahead, the government's strategy is to reconcile the country's security needs with the requirement to finance both the emergency programs for reconstruction and demobilization and to improve priority public services, all within a sustainable fiscal framework. The government envisages that a rapid recovery in nonmilitary core expenditure would accelerate investment spending. The revenue strategy calls for an increase in tax revenue of 2.5 percentage points during the three-year period. Tax policy reforms will focus on streamlining income taxes, improving the efficiency of the incentive system, and strengthening indirect taxation. These actions would culminate in the introduction of a value-added tax in January 2003.
Monetary policy attaches high priority to keeping inflation in the low single digits.
Progress in fiscal consolidation, supported by substantial disbursements of foreign aid, would allow for adequate growth in domestic credit to the private sector, which, in turn, would set the stage for private sector-led growth and facilitate the rebuilding of international reserves. The net domestic assets of the national bank would be the key aggregate in steering monetary policy, but developments in other monetary aggregates would also be followed closely. The structural reforms under the program focus on financial and external sector reforms in addition to capacity building, and judicial and civil reforms. The country's integration into the global economy will be fostered by taking mutually reinforcing steps to further liberalize the foreign trade and exchange regimes, allow market determination of the exchange rate, and promote export development. Balance of payments projections assume a reversal of the recently unfavorable conditions.