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Senegal: First Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria

Author(s):
International Monetary Fund. African Dept.
Published Date:
January 2016
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Recent Developments and Outlook

1. Growth remains robust and in line with PSI targets. Economic activity strengthened during the first half of 2015 owing to good overall performance in industry and services. These developments mainly reflect initial implementation of the PSE, strengthened trade with Mali, and falling oil prices. The prospects for higher economic growth are strong, provided decisive action is taken to tackle rent seeking and accelerate reforms to encourage SMEs and foreign investment. The restructuring of the energy sector is ongoing with new and more efficient power plants expected to come on stream in 2016. This should improve supply, and may reduce the cost of electricity. With a relatively good rainy season, agriculture is expected to perform better than anticipated. As a result, the PSI growth target of 5.1 percent in 2015 and 5.9 percent in 2016 are well within reach.

2. Inflation remains low. Year-on-year inflation stood at 0.1 percent at end-August, largely driven by food inflation. Projections of average annual and end-of-period inflation for 2015 are -0.5 and 1.2 percent, respectively. Inflation is expected to remain within the 1–2 percent range over medium term. With the fall in the price of oil, the GDP deflator is revised to 0.2 percent in 2015 and 1.8 percent in 2016 (from 1.4 and 2.3 percent, respectively).

3. The current account balance has improved owing to favorable terms of trade developments. The trade balance improved at end-June with y-o-y exports increasing by more than imports. The terms of trade are projected to improve by 6.1 percent in 2015.1 The increased imports are almost entirely composed of intermediate and capital goods, a positive sign of structural change. Remittances are expected to reach about 12 percent of GDP in 2015 but are projected to gradually decline to about 10 percent of GDP by 2020.2 Foreign direct investment remains low relative to other developing countries but is projected to increase to 2.4 percent of GDP in 2015, owing partly to Chinese investment in Senegal and a capital injection in the phosphate industry.3

4. Senegal remains at low risk of debt distress. External public debt is projected at 39.3 percent of GDP in 2015, while total public debt amounts to 54.4 percent of GDP. Public debt ratios have been revised downwards in 2015, owing mainly to lower accumulation of domestic debt than previously estimated. Fiscal consolidation should result in declining debt ratios over the medium term. An updated DSA does not result in any breach of the policy dependent thresholds and the debt service profile is on a stable path, except for 2021 and 2024 when two Eurobonds will come to maturity.

5. The financial sector remains sound despite a higher end-June level of non-performing loans (NPLs). Net domestic credit (97 percent of which is credit to the private sector) expanded by about 7 percent y-o-y at end-June, on track to reach 9.1 percent in 2015. The sector expanded to 26 depository corporations including two new banks which began operations in June and July. Access to financial services rose to 10.4 percent in 2014 (from 8.6 in 2013) and reaches about 50 percent when including microfinance institutions. The relatively high level of NPLs at end-June 2015 (about 23 percent, gross) is partly due to a started but not yet finalized restructuring of loans linked to a few industries. Also, the largest share of these NPLs (provisions excluded) is concentrated in one major foreign bank. After the restructuring, NPLs should substantially decline to about 11 percent.

6. Program performance through October 2015 was satisfactory. All end-June assessment criteria (AC), including the budget deficit target, were met (Table 8). Of the three indicative targets, only the one on tax revenue was missed by about 0.4 percent of GDP. Moreover, all four structural benchmarks (SBs) were met (Table 9).4

Table 1.Senegal: Selected Economic and Financial Indicators, 2013–20
20132014201520162017201820192020
Act.Est.CR 15/273Proj.CR 15/273Proj.Projections
(Annual percentage change)
National income and prices
GDP at constant prices3.64.75.15.15.95.96.47.07.17.2
Of which: nonagriculture GDP3.94.75.05.35.85.86.47.07.17.1
GDP deflator−1.90.11.40.22.31.81.51.61.71.8
Consumer prices
Annual average0.7−1.1−0.9−0.51.51.31.31.31.31.3
End of period−0.1−0.80.81.21.41.31.31.31.31.3
External sector
Exports, f.o.b. (CFA francs)1.53.53.83.15.33.68.17.97.59.5
Imports, f.o.b. (CFA francs)0.8−1.14.12.45.65.86.46.77.06.1
Export volume9.35.76.05.97.35.56.66.55.97.7
Import volume2.13.96.89.65.76.46.17.17.26.5
Terms of trade (“-” = deterioration)−6.02.90.54.2−1.8−1.31.11.71.72.1
Nominal effective exchange rate4.12.5
Real effective exchange rate2.2−0.7
(Changes in percent of beginning-of-year broad money, unless otherwise indicated)
Broad money8.011.47.76.57.77.1
Net domestic assets8.86.17.34.510.28.4
Domestic credit11.32.89.49.47.57.1
Credit to the government (net)2.0−2.60.50.5−1.1−1.1
Credit to the economy (net) (percentage growth)12.66.49.09.19.28.7
(Percent of GDP, unless otherwise indicated)1
Government financial operations
Revenue22.524.224.324.424.224.324.324.324.424.4
Grants2.53.32.92.92.93.02.92.82.82.5
Total expenditure27.929.229.029.228.428.627.927.327.227.0
Net lending/borrowing (Overall Balance)
excluding grants−8.0−8.3−7.4−7.1−6.6−7.6−7.0−6.4−6.0−2.9
including grants−5.5−4.9−4.7−4.8−4.2−4.2−3.6−3.0−2.8−2.6
Primary fiscal balance−3.9−3.2−2.9−2.9−2.4−2.4−1.9−1.3−1.3−0.5
Savings and investment
Current account balance (official transfers included)−10.4−8.8−8.0−8.2−7.2−8.7−8.3−8.1−8.0−7.8
Current account balance (official transfers excluded)−11.1−9.6−9.1−9.2−8.4−9.7−9.3−9.1−8.9−8.6
Gross domestic investment27.927.926.926.927.127.027.727.927.127.5
Government16.17.46.86.87.37.17.57.47.36.4
Nongovernment21.820.520.120.219.819.920.120.619.821.0
Gross national savings17.519.118.818.719.918.319.419.819.119.7
Government0.61.72.42.42.82.73.84.44.54.3
Nongovernment16.917.416.516.317.115.515.515.414.715.3
Total public debt46.653.255.054.456.055.155.454.857.355.1
Domestic public debt 214.313.819.215.018.215.816.516.911.79.4
External public debt32.439.535.739.337.839.338.937.945.645.7
External public debt service
Percent of exports6.57.49.79.610.010.09.710.310.611.4
Percent of government revenue9.210.412.812.812.812.912.413.012.913.6
Memorandum item:
Gross domestic product (CFAF billions)27,3877,7428,2518,1578,9468,7929,49710,32211,24312,273
Sources: Senegal authorities; and IMF staff estimates and projections.

Reflects reclassification of public investment.

Domestic debt includes government securities issued in local currency and held by WAEMU residents.

Sources: Senegal authorities; and IMF staff estimates and projections.

Reflects reclassification of public investment.

Domestic debt includes government securities issued in local currency and held by WAEMU residents.

Table 2.Senegal: Balance of Payments, 2014–20(in Billions of CFAF)
20132014201520162017201820192020
Act.Est.Projections
(Billions of CFAF, unless otherwise indicated)
Current account−766−678−672−769−789−839−897−957
Balance on goods−1,471−1,390−1,414−1,530−1,603−1,689−1,797−1,839
Exports, f.o.b.1,4231,4731,5181,5731,7001,8341,9722,159
Imports, f.o.b.−2,893−2,863−2,932−3,103−3,303−3,523−3,768−3,998
Services and incomes (net)−216−257−282−313−324−341−357−445
Credits7978178348679049459891,034
Debits−1,013−1,074−1,116−1,179−1,227−1,286−1,346−1,479
Of which: interest on public debt−65−76−93−101−94−96−92−150
Unrequited current transfers (net)9219701,0231,0741,1371,1911,2571,326
Private (net)8789179649961,0531,1121,1741,240
Public (net)4353587785798386
Of which: budgetary grants2040455862667074
Capital and financial account7448977888228148789391,019
Capital account176218204209220232245257
Private capital transfers77778888
Project grants168213200204215227240252
Debt cancellation and other transfers1−2−3−3−3−3−3−3
Financial account569679584613594646694761
Direct investment152163196216208228203207
Portfolio investment (net)−813605942−43−4418−221
Of which: Eurobond issuance0250000000
Other investment498156329355429461473775
Public sector (net)20997205277255234217239
Of which: disbursements273207279358371366382398
program loans53546873798593100
project loans16754211214222230239248
other539807070505050
amor tization−80−109−74−81−116−132−165−160
Private sector (net)215−10512478173227256536
Errors and omissions74164000000
Overall balance−212201165225394261
Financing21−220−116−52−25−39−42−61
Net foreign assets (BCEAO)11−100−116−52−25−39−42−61
Net use of IMF resources−3−9−19−21−20−20−13−3
Purchases/disbursements00000000
Repurchases/repayments−3−9−19−21−20−20−13−3
Other14−92−97−31−4−19−29−59
Deposit money banks10−119000000
Residual financing gap00000000
Memorandum items:
Current account balance
Including current official transfers (percent of GDP)−10.4−8.8−8.2−8.7−8.3−8.1−8.0−7.8
Excluding current official transfers (percent of GDP)−11.1−9.6−9.2−9.7−9.3−9.1−8.9−8.6
Gross official reserves (imputed reserves, billions of US$)2.22.12.12.22.32.42.52.6
(percent of broad money)33.132.633.732.830.929.327.726.3
WAEMU gross official reserves (billions of US$)13.613.2
(percent of broad money)40.641.8
Gross domestic product7,3877,7428,1578,7929,49710,32211,24312,273
Sources: Central Bank of West African States (BCEAO); and IMF staff estimates and projections.
Sources: Central Bank of West African States (BCEAO); and IMF staff estimates and projections.
Table 3.Senegal: Balance of Payments, 2013–20(in Percent of GDP)
20132014201520162017201820192020
Act.Est.Projections
(Percent of GDP, unless otherwise indicated)
Current account−10.4−8.8−8.2−8.7−8.3−8.1−8.0−7.8
Balance on goods−19.9−18.0−17.3−17.4−16.9−16.4−16.0−15.0
Exports, f.o.b.19.319.018.617.917.917.817.517.6
Imports, f.o.b.−39.2−37.0−35.9−35.3−34.8−34.1−33.5−32.6
Services and incomes (net)−2.9−3.3−3.5−3.6−3.4−3.3−3.2−3.6
Credits10.810.610.29.99.59.28.88.4
Debits−13.7−13.9−13.7−13.4−12.9−12.5−12.0−12.1
Of which: interest on public debt−0.9−1.0−1.1−1.2−1.0−0.9−0.8−1.2
Unrequited current transfers (net)12.512.512.512.212.011.511.210.8
Private (net)11.911.811.811.311.110.810.410.1
Public (net)0.60.70.70.90.90.80.70.7
Of which: budgetary grants0.30.50.60.70.70.60.60.6
Capital and financial account10.111.69.79.38.68.58.48.3
Capital account2.42.82.52.42.32.22.22.1
Private capital transfers0.10.10.10.10.10.10.10.1
Project grants2.32.82.52.32.32.22.12.1
Debt cancellation and other transfers0.00.00.00.00.00.00.00.0
Financial account7.78.87.27.06.36.36.26.2
Direct investment2.12.12.42.52.22.21.81.7
Portfolio investment (net)−1.14.70.70.5−0.4−0.40.2−1.8
Of which: Eurobond issuance0.03.20.00.00.00.00.00.0
Other investment6.72.04.04.04.54.54.26.3
Public sector (net)2.81.32.53.12.72.31.91.9
Of which: disbursements3.72.73.44.13.93.53.43.2
program loans0.70.70.80.80.80.80.80.8
project loans2.30.72.62.42.32.22.12.0
other0.71.30.00.80.70.50.40.4
amortization−1.1−1.4−0.9−0.9−1.2−1.3−1.5−1.3
Private sector (net)2.9−1.41.50.91.82.22.34.4
Errors and omissions1.02.10.00.00.00.00.00.0
Overall balance−0.32.81.40.60.30.40.40.5
Financing0.3−2.8−1.4−0.6−0.3−0.4−0.4−0.5
Net foreign assets (BCEAO)0.2−1.3−1.4−0.6−0.3−0.4−0.4−0.5
Net use of IMF resources0.0−0.1−0.2−0.2−0.2−0.2−0.10.0
Purchases/disbursements0.00.00.00.00.00.00.00.0
Repurchases/repayments0.0−0.1−0.2−0.2−0.2−0.2−0.10.0
Other0.2−1.2−1.2−0.40.0−0.2−0.3−0.5
Deposit money banks0.1−1.50.00.00.00.00.00.0
Residual financing gap0.00.00.00.00.00.00.00.0
Memorandum item:
Gross domestic product (CFAF billions)7,3877,7428,1578,7929,49710,32211,24312,273
Sources: Central Bank of West African States (BCEAO); and IMF staff estimates and projections.
Sources: Central Bank of West African States (BCEAO); and IMF staff estimates and projections.
Table 4.Senegal: Central Government Operations, GFSM 2001 Classification, 2014–201(in Billions of CFAF)
2014201520162017201820192020
Act.BudgetCR 15/273Prog.Proj.Projections
(in CFAF billions)
Revenue1,8771,9782,0041,9912,1412,3042,5112,7392,994
Taxes1,4831,6021,5951,5831,7201,8682,0492,2432,471
Taxes on income, profits, and capital gains402444437432488541619708776
Taxes on payroll and workforce211818182020222534
Taxes on property272525242526252623
Taxes on goods and services7868448388358879611,0401,1271,255
Taxes on international trade and transactions219243226222244263273289309
Other taxes282852525757696774
Gran ts253229240240262277293310305
Budget403540405862667053
Projects213194200200204215227240252
Other revenue141147169168158159168187218
Expenditure2,2582,3532,3932,3802,5132,6482,8233,0563,308
Expense1,4001,3911,4171,4071,4901,4691,5501,6931,896
Compensation of employees490510526526556570619675736
Use of goods and services361371375368375361392427466
Interest131148151151164164173172258
Foreign6374777786798279137
Domestic6874747479859194122
Subsidies 2/6079403200000
of which: subsidies to SENELEC financed by FSE2247130200000
of which: SENELEC from budget01927300000
of which: Fuel subsidies12130000000
Grants (current excl. FSE)174177177198206189171199200
Social benefits302626262729323537
Other expense15480122135142156163185198
Net acquisition of nonfinancial assets8589629769741,0231,1791,2731,3631,412
Net lending/borrowing (Overall balance)−381−376−389−389−372−344−312−317−314
Transactions in financial assets and liabilities (Financing)−381−376−389−389−372−344−312−317−314
Net acquisition of financial assets120−64−87−584161687910
Domestic120−64−87−584161687910
Currency and deposits96−74−88−881010101010
Debt securities13100000000
Loans000000000
Other accounts receivable110029315158690
Net incurrence of liabilities501312301331413405380396324
Domestic−109−8−108−108−15−268−9151
FMI and SDRs−21−27−27−30−29−29−22−11
Debt securities (net)24−39−3915236−6962
Loans46−36−42−4200000
Other accounts payable−159−990000000
Foreign610320410439428431372488273
Debt securities (net)34110519324115117613827135
T-bills and bonds issued in WAEMU9119324115117613827135
Eurobond2500000000
Loans112215217205277255234217238
Program loans54686873798593100
Project loans54211211214222230239248
Nonconcessional loans9800564212−83
Other−94−62−74−67−88−94−106−113
Other accounts payable1570−700000
Errors and omisions000000000
Memorandum items:
Change in net worth: Transactions4775875875846518359611,0461,098
Net lending /borrowing (excluding grants)4775875875846518359611,0461,098
Nominal GDP7,7428,2298,2518,1578,7929,49710,32211,24312,273
Sources: Ministry of Finance; and IMF staff estimates and projections.

Government Finance Statistics Manual (http://www.imf.org/external/pubs/ft/gfs/manual/).

On projections, subsidies do not reflect reclassification changes, which will be done during the mission.

Sources: Ministry of Finance; and IMF staff estimates and projections.

Government Finance Statistics Manual (http://www.imf.org/external/pubs/ft/gfs/manual/).

On projections, subsidies do not reflect reclassification changes, which will be done during the mission.

Table 5.Senegal: Central Government Operations, GFSM 2001 Classification, 2014–201(in Percent of GDP)
2014201520162017201820192020
Act.BudgetCR 15/273Prog.CR 15/273Proj.Projections
(Percent of GDP, unless otherwise indicated)
Revenue24.224.024.324.424.224.324.324.324.424.4
Taxes19.219.519.319.419.519.619.719.920.020.1
Taxes on income, profits, and capital gains5.25.45.35.35.65.65.76.06.36.3
Taxes on payroll and workforce0.30.20.20.20.20.20.20.20.20.3
Taxes on property0.40.30.30.30.30.30.30.20.20.2
Taxes on goods and services10.210.310.110.210.010.110.110.110.010.2
Taxes on international trade and transactions2.83.02.72.72.82.82.82.62.62.5
Other taxes0.40.30.60.60.60.60.60.70.60.6
Grants3.32.82.92.92.93.02.92.82.82.5
Budget0.50.40.50.50.60.70.70.60.60.4
Projects2.82.42.42.52.32.32.32.22.12.1
Other revenue1.81.82.02.11.71.81.71.61.71.8
Expenditure29.228.629.029.228.428.627.927.327.227.0
Expense18.116.917.217.216.716.915.515.015.115.4
Compensation of employees6.36.26.46.46.26.36.06.06.06.0
Use of goods and services4.74.54.54.54.24.33.83.83.83.8
Interest1.71.81.81.81.81.91.71.71.52.1
Foreign0.80.90.90.91.01.00.80.80.71.1
Domestic0.90.90.90.90.90.90.90.90.81.0
Subsidies 2/0.81.00.50.00.20.20.00.00.00.0
of which: subsidies to SENELEC financed by FSE0.30.60.20.00.00.20.00.00.00.0
of which: SENELEC from budget0.00.20.30.00.20.00.00.00.00.0
of which: Fuel subsidies0.20.20.00.00.00.00.00.00.00.0
of which: Food subsidies0.10.00.00.00.00.00.00.00.00.0
other0.20.00.00.00.00.00.00.00.00.0
Grants (current excl. FSE)2.32.12.12.42.42.32.01.71.81.6
Social benefits0.40.30.30.30.30.30.30.30.30.3
Other expense2.01.01.51.71.51.61.61.61.61.6
Net acquisition of nonfinancial assets11.111.711.811.911.711.612.412.312.111.5
Domestically financed1.32.32.52.52.52.22.72.82.92.8
Government’s grants financed4.84.44.44.54.44.45.14.84.43.5
Externally financed5.04.94.95.04.95.04.64.74.85.2
Net lending/borrowing (Overall balance)−4.9−4.6−4.7−4.8−4.2−4.2−3.6−3.0−2.8−2.6
Transactions in financial assets and liabilities (Financing)−4.9−4.6−4.7−4.8−4.2−4.2−3.6−3.0−2.8−2.6
Net acquisition of financial assets1.6−0.8−1.1−0.70.10.50.60.70.70.1
Domestic1.6−0.8−1.1−0.70.10.50.60.70.70.1
Currency and deposits1.2−0.9−1.1−1.10.10.10.10.10.10.1
Debt securities0.20.10.00.00.00.00.00.00.00.0
Loans0.00.00.00.00.00.00.00.00.00.0
Other accounts receivable0.10.00.00.40.00.30.50.60.60.0
Net incurrence of liabilities6.53.83.74.14.34.74.33.73.52.6
Domestic−1.4−0.1−1.3−1.3−0.2−0.2−0.30.1−0.80.4
FMI and SDRs−0.3−0.3−0.3−0.3−0.3−0.3−0.3−0.2−0.1
Debt securities (net)0.3−0.5−0.50.20.20.00.3−0.60.5
Loans0.6−0.4−0.5−0.50.00.00.00.00.00.0
Other accounts payable−2.0−1.20.00.00.00.00.00.00.00.0
Foreign7.93.95.05.44.54.94.53.64.32.2
Debt securities (net)4.41.32.33.01.31.71.91.32.40.3
T-bills and bonds issued in WAEMU1.22.33.01.31.71.91.32.40.3
Eurobond3.20.00.00.00.00.00.00.00.0
Loans1.52.62.62.53.23.12.72.31.91.9
Program loans0.70.80.80.80.80.80.80.80.8
Project loans0.72.62.62.42.42.32.22.12.0
Nonconcessional loans1.30.00.00.60.60.40.1−0.10.0
Other−1.2−0.7−0.9−0.7−0.8−0.9−0.9−0.9−0.9
Other accounts payable2.00.0−0.10.00.00.00.00.00.0
Errors and omisions0.00.00.00.00.00.00.00.00.00.0
Memorandum items:
Change in net worth: Transactions6.27.17.17.27.57.48.89.39.38.9
Net lending /borrowing (excluding grants)6.27.17.17.27.57.48.89.39.38.9
Nominal GDP7,7428,2298,2518,156.708,9468,7929,49710,32211,24312,273
Sources: Ministry of Finance; and IMF staff estimates and projections.

Govern ment Finance Statistics Manual (http://www.imf.org/external/pubs/ft/gfs/manual/).

On projections, subsidies do not reflect reclassification changes, which will be done during the mission.

Sources: Ministry of Finance; and IMF staff estimates and projections.

Govern ment Finance Statistics Manual (http://www.imf.org/external/pubs/ft/gfs/manual/).

On projections, subsidies do not reflect reclassification changes, which will be done during the mission.

Table 6.Senegal: Monetary Survey, 2012–16
20122013201420152016
Act.Proj.
(Billions of CFAF)
Net foreign assets8798581,0781,1931,246
BCEAO7767648659801,033
Commercial banks10494213213213
Net domestic assets2,0162,2692,4072,5162,727
Net domestic credit2,2402,5652,6382,8863,089
Net credit to the government197151708646
Central bank−3821−75−14−54
Commercial banks130124142100100
Other institutions55131313
Credit to the economy2,1442,4142,5682,8003,044
Other items (net)−224−297−231−231−231
Broad money2,8963,1273,4853,7093,973
Currency outside banks585620685627623
Total deposits2,3102,5072,7992,8803,075
Demand deposits1,1921,3581,4301,5741,711
Time deposits1,1181,1501,3701,3061,364
(Change in percentage of beginning-of-period broad money stock)
Net foreign assets−1.9−0.77.03.31.4
BCEAO1.8−0.43.23.31.4
Commercial banks−3.7−0.33.80.00.0
Net domestic assets8.78.84.43.15.7
Net credit to the government1−2.02.0−2.60.5−1.1
Credit to the economy6.99.34.96.76.6
Other items (net)3.7−2.52.10.00.0
Broad money6.88.011.46.57.1
Memorandum items:(Units indicated)
Velocity (GDP/broad money; end of period)2.52.42.22.22.2
Nominal GDP growth (percentage growth)5.31.74.85.47.8
Credit to the economy (percentage growth)9.612.66.49.18.7
Credit to the economy/GDP (percent)29.832.733.236.237.3
Variation of net credit to the government (yoy; CFAF billions)−53.7151.1−81.315.845.9
Central bank refinance rate (eop; percent)4.03.52.5
Sources: BCEAO; and IMF staff estimates and projections.

Net domestic credit to the government may differ from what appears in the fiscal table, as bonds issued on the WAEMU markets are treated as external financing for the purpose of the monetary survey.

Sources: BCEAO; and IMF staff estimates and projections.

Net domestic credit to the government may differ from what appears in the fiscal table, as bonds issued on the WAEMU markets are treated as external financing for the purpose of the monetary survey.

Table 7.Senegal: Financial Soundness Indicators, 2008–14
20082009201020112012201320142015
Dec.June
(Percent, unless otherwise indicated)
Capital Adequacy
Capital to risk-weighted assets13.816.318.016.016.716.416.416.4
Regulatory capital to risk-weighted assets13.916.518.215.916.315.915.915.9
Capital to total assets9.19.310.09.89.69.49.08.6
Asset Composition and Quality
Total Loans to Total Assets62.859.557.560.661.460.158.357.3
Concentration: loans to 5 largest borrowers to capital100.971.770.669.8196.7137.4166.0155.2
Sectoral distribution of loans
Industrial19.527.526.422.223.825.523.120.4
Retail and wholesale trade18.524.523.819.221.623.823.723.6
Services, transportation and communication31.134.141.934.030.635.941.040.4
Ratio of non-performing loans (NPLs) to total loans17.418.720.216.218.419.120.823.0
Of which: without ICS14.215.815.813.215.114.817.620.4
Ratio of provisions for NPLs to total NPLs51.553.154.954.056.155.858.152.7
Of which: without ICS65.764.765.368.363.066.860.753.1
NPLs net of provisions to total loans9.39.79.18.18.28.69.011.3
Of which: without ICS5.46.26.14.66.35.67.710.7
NPLs net of provisions to capital63.962.352.350.451.454.757.875.3
Of which: without ICS35.338.441.535.738.843.353.874.1
Earnings and profitability
Average cost of borrowed funds2.83.42.22.02.11.92.01.0
Average interest rate on loans113.915.48.18.48.68.17.88.0
Average interest margin211.112.05.96.46.66.25.17.0
After-tax return on average assets1.41.31.62.21.71.30.65.3
After-tax return on average equity13.016.015.422.617.413.76.858.6
Noninterest expenses/net banking income51.360.356.756.057.057.658.668.4
Salaries and wages/net banking income21.123.024.823.824.425.225.030.1
Liquidity
Liquid assets to total assets31.739.836.137.042.140.840.6
Liquid assets to total deposits49.852.476.752.362.961.260.2
Total deposits to total liabilities70.374.976.062.870.767.066.767.4
Source: BECAO.

Break in the series in 2010 due to a methodological change.

Excluding the tax on banking operations.

Source: BECAO.

Break in the series in 2010 due to a methodological change.

Excluding the tax on banking operations.

Table 8.Senegal: Quantitative Assessment Criteria and Indicative Targets for 2015–16(GSFM 2014)
20152016
Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.
Assessment Criteria (AC)ITACITACITAC
Act.Prog.Act.StatusProg.Prog.Prog.Prog.Prog.Proj.
(CFAF billions, unless otherwise specified)
Assessment criteria1
Floor on net lending/borrowing2−144−138met−255−389−52−137−244−372
Ceiling on the contracting or guaranteeing of new
nonconcessional external debt by the public sector (US$
millions)31,0000met
Ceiling on spending undertaken outside normal and
simplified procedures300met000000
Ceiling on public sector external payment arrears (stock)300met000000
Ceiling on the amount of the budgetary float5028met505050505050
Indicative targets
Quarterly ceiling on the share of the value of public sector
contracts signed by single tender (percent)155met151515151515
Floor on social expenditures (percent of total spending)3541met353535353535
Floor on tax revenue825796not met1,1811,5833968891,2831,720
Maximum upward adjustment of the overall deficit
ceiling owing to
Shortfall in program grants relative to program
projections150151515151515
Memorandum items:
Program grants151528405214058
Sources: Senegal authorities; and IMF Staff estimates.

Indicative targets for March and September, except for the assessment criteria monitored on a continuous basis. See Technical Memorandum of Understanding for definitions.

GFSM 2014 definition. Cumulative since the beginning of the year.

Monitored on a continuous basis. The PC is not applicable starting from December 2015.

Sources: Senegal authorities; and IMF Staff estimates.

Indicative targets for March and September, except for the assessment criteria monitored on a continuous basis. See Technical Memorandum of Understanding for definitions.

GFSM 2014 definition. Cumulative since the beginning of the year.

Monitored on a continuous basis. The PC is not applicable starting from December 2015.

Table 9.Senegal: Structural Benchmarks for 2015 and 2016
MeasuresTarget dateStatus
Conduct an ex-ante, midterm, and ex post evaluation of all projects financed under a public-private partnership (PPP)ContinuousOngoing
Sign performance contracts for eight agenciesDecember 2015Ongoing
Eliminate cash tax payments above CFAF 100,000June 2015Completed
Operationalize the connection between the DGI and the DGID to facilitate the exchange of data based on the unique identification NINEA.December 2015Ongoing
Submit at least ten investment projects listed in the 2016 budget for cost–benefit analysisOctober 2015Completed
For the 2016 budget, announce the debt ratio sustainable over five years with the commitment that, in case thresholds are exceeded, corrective measures (over four years) would be taken in the budget that followsDecember 2015Ongoing
Expand the precautionary reserve envelope for the 2016 budgetDecember 2015Completed
Collect at least 50 percent of taxes left unpaid in 2014December 2015Ongoing
Implement the agency reform plan by limiting budget resources, and restricting their use to the payment of wages, for the 16 agencies pending dissolution.December 2015Ongoing
Institutionalize the precautionary management reserveSeptember 2015Completed
Finalize the government flow-of-funds table according to Government Finance Statistics Manual 2001/14December 2015Ongoing
2016
Establish a platform (integrated projects bank) which describes the lifecycle of the projectsJune 2016
Develop a management strategy for government and public enterprise investment portfoliosMarch 2016
Extend the first-generation TSA system to all of the bank accounts of the network of accounting officials of public agencies and institutionsJune 2016
2017
Establish accrual basis accounting with the initiation of the government’s opening balanceJanuary 2017
Introduce a medium-term budget frameworkMarch 2017

7. Risks relate to the implementation of structural reforms and fiscal policy. There could be delays in expenditure rationalization as well as revenue shortfalls, if tax reform aimed at improving incentives fails to be revenue neutral. External downside risks include continued volatility in oil prices, which may affect revenue targets and subsidies; more pronounced spillovers from regional shocks, including extremism; and spillovers from slower growth in trading partners, which may affect exports. Furthermore, natural disasters could adversely affect agriculture. The Precautionary Reserve Envelope (PRE), which should be complemented by contingency plans to counter larger fiscal shocks, and the proposed debt anchor should mitigate the impact of these risks on the fiscal balance and preserve the low risk debt position.

Status of Structural Benchmarks for the First PSI Review
MeasuresTest DateStatus
Conduct an ex ante, midterm, and ex post evaluation of all projects financed under a public-private partnership (PPP)ContinuousOngoing
Eliminate cash tax payments above CFAF 100,000June 2015Met
Institutionalize the precautionary management reserveSeptember 2015Met
Submit at least 10 investment projects listed in the 2016 budget for cost-benefit analysisOctober 2015Met

Policy Discussions

A. Fiscal Policies

Fiscal policies for 2015

8. The authorities are committed to achieving the 2015 fiscal deficit programmed under the PSI of CFAF 389 billion while continuing streamlining spending on public consumption to boost investment in human capital and infrastructure (MEFP ¶5–7). However, due to lower nominal GDP, as a result of oil price induced reductions in the deflator, the deficit is expected to be 4.8 percent of GDP versus 4.7 percent previously projected. Moreover, the revenue projections for 2015 have been revised downwards by 0.2 percent of GDP. The shortfall is due to (i) the impact of the introduction on 1 January 2015 of the Common External Tariff of the Economic Community of Western African States (ECOWAS); (ii) lower value added tax (VAT) from oil due to the fall in international prices; (iii) under-estimation of VAT credits to telecoms; and (iv) higher tax expenditures in Customs. The authorities are freezing the level of pay supplements at the 2014 level, tightening controls on overtime, capping the number of teachers integrated into the civil service at 4,000, consistent with available budgetary space, and freezing recruitment in non-priority areas. This allows limiting the wage bill to 6.3 percent of GDP in 2015. The deficit target will be achieved by reducing PRE expenditure by 0.2 percent of GDP. A reduction in direct subsidies to SENELEC of 0.2 percent of GDP because of lower oil prices will be offset by higher spending than initially budgeted on integration of teachers (corps émergent) into the Civil Service.

9. The Precautionary Reserve Envelope (PRE) has been institutionalized (MEFP ¶8) and will provide flexibility to accommodate revenue shortfalls. The envelope for 2015, set at 0.7 percent of GDP, was reported in the investment part of the 2015 initial budget law, and 0.5 percent of GDP has been mobilized to fund priority investments that are sufficiently mature (the Route des Niayes, the high-speed regional rail network, low-cost housing, integrated tourist zones). The remaining 0.2 percent of GDP will be used to offset the projected revenue shortfall.

Box 1.Tax Expenditure

Tax expenditures are defined as revenue losses due to preferential tax provisions that provide incentives for economic and social policies, e.g. special exemptions, allowances, deductions, credits, deferrals, reduced tax rates that shield certain taxpayers from tax rules. In Senegal, tax expenditures aim at funding poverty reduction programs and public investment projects under the Investment Code, Mining Code, and development programs.

Senegal is ahead in WAEMU in documenting and publishing tax expenditures. To achieve greater transparency, Senegal publishes tax expenditures and information has been compiled up to 2013). As a consequence the elements are in place to better assess costs and benefits and reform where required.

Since 2010 tax reforms in Senegal have aimed at making the tax system more effective and simpler. In January 2013 a new Code Général des Impôts came into force that eliminated almost all separate codes and enclosed tax incentives inside the general provisions of the tax code. However, while the new Tax Code represents a significant improvement from the previous patchwork of tax incentives, significant tax expenditures remain.

Tax expenditure has increased in recent years. After a decline in 2008–09, tax expenditures in 2013 reached 40 percent of revenue and 7.3 percent of GDP. About 60 percent of exemptions target social objectives, 26 percent target economic development, and about 8 percent are benefits granted under the Mining Code.

Tax Expenditures (bn FCFA)Percent of Revenue CollectedPercent of GDP
200820092013200820092013200820092013
Direct Tax20214420822.617.515.63.42.42.8
Indirect Tax31412433.45.018.20.50.73.3
Custom Duties5625616.23.04.61.00.40.8
Other Taxes713230.81.51.70.10.20.3
Total29622353433.027.040.05.03.77.3

It is more efficient for Senegal to improve the investment climate rather than granting tax exemptions. Despite generous incentives and large tax expenditure, FDI and productive private investment are low in Senegal compared with similar developing countries. This indicates that the benefit of each tax expenditure should be evaluated relative to the cost and reform of broader incentives (logistics, infrastructure and regulatory framework) contemplated. Paradoxically, such reforms could be largely financed by eliminating the tax expenditures which have failed to contribute to investment, jobs and growth.

Fiscal Policies for 2016

10. The 2016 budget deficit target is 4.2 percent of GDP, in line with the program. The budget submitted to the National Assembly is in line with the program. Public consumption is expected to decline from 17.2 percent of GDP in 2015 to 16.9 in 2016. Lowering public consumption would allow for more productive public investment in both human capital and public infrastructure and crowding in private investment, which in turn would boost growth. This is sufficient to achieve PSI growth targets but less than required to achieve PSE growth objectives which are about 1 percentage point higher. The wage bill will remain at 6.3 percent of GDP while the rest of current and capital expenditure will amount to 10.6 and 11.6 percent of GDP, respectively. Tax base control will be strengthened and revenue collection optimized (MEFP ¶16–17). The authorities will review implementation of the new General Tax Code (Code général des impôts) with support from an IMF technical assistance mission. In parallel, they are reviewing tax expenditures to see how these can be rationalized over the next three years to provide more effective incentives. These reviews will make it possible to further streamline and refine the Tax Code. The implementation of the single taxpayer identification number (NINEA) through direct involvement of the Direction Générale des Impôts et Domaines (DGID) will facilitate compliance.

11. Streamlining expenditure will continue in 2016 (MEFP ¶19). To control the wage bill, the authorities are (i) cleaning up allowances; (ii) conducting ad hoc audits of sensitive sectors, (iii) eliminating unjustified payments, (iv) computerizing payroll management, (v) taking steps to allow the introduction of performance-based pay, and (vi) strengthening oversight of public hospitals.

12. The PRE will be expanded to include both current and capital expenditure (MEFP ¶23). In the 2016 budget, the PRE amounts to 0.8 percent of GDP and includes both current (0.5 percent of GDP) and capital expenditure (0.3 percent of GDP). Access to these resources is subject to the ministerial departments implementing reforms in their respective areas, particularly higher education, national education, health and social welfare. For the investment budget, the PRE will only be utilized for projects where a feasibility study suggests net social/economic benefits.

13. Investment efficiency, including PPPs, will be strengthened (MEFP ¶20–22). The authorities will focus on improving feasibility studies and socio-economic assessments by establishing an integrated data-bank which will allow following and scrutinizing the lifecycle of all investment projects from ex-ante to ex-post assessments. On PPPs, the authorities will conduct ex-ante assessments of all projects financed under a PPP. Also, a database of existing projects will be compiled and FAD’s PPPs Fiscal Risk Assessment Model (P-FRAM), transferred to the authorities during a staff visit, will be used to analyze the fiscal implications of PPP projects.

14. The implementation of the Treasury Single Account (TSA) will be accelerated in 2016 (MEFP ¶27). In the first quarter of 2016, the authorities plan to extend the first-generation TSA, which is limited to the bank accounts of the Treasury. Consolidation of the accounts of other public institutions (second-generation TSA) will be finalized in December 2017.

15. With the elimination of limits on external debt in the program, debt management capacity will be further strengthened (MEFP ¶25). The authorities will: (i) continue to develop a medium-term debt strategy to be appended to the budget; (ii) announce, for the 2016 budget, the planned central government debt ratio path over five years with a commitment to take corrective actions in the following budget (over four years) in case thresholds are exceeded; and (iii) introduce a database and establish a mechanism for monitoring all external and domestic debt by public enterprises.

16. The authorities will continue relying on non-concessional loans to close the financing gap (MEFP ¶24). The preferred course of the authorities is to borrow from development partners, including the AfDB and the World Bank, which not only has the advantage of lower costs and more flexibility on terms but could be accompanied by technical assistance to better prepare PSE projects. However, if these do not materialize or the sums are insufficient to meet the financing needs within the framework of the PSI, loans could be mobilized on international and/or regional financial markets. The resources are expected to be earmarked to investment projects in road infrastructure, energy, water and sanitation. To minimize exchange rate risk, the staff encourages the authorities to issue debt in local currency or Euro wherever possible.

Box 2.Reforms of the Energy Sector

A reform plan was approved in 2015 for the energy sector. It consists of three programs: (i) updating the plan for the generation, distribution and transport of electricity, (ii) reconfiguring the capital of the African Refining Company (SAR), and (iii) rural electrification.

With the appointment of a new CEO of SENELEC the reform plan is being updated with development partners who are expected to finance it. It comprises a new performance contract, a large-scale program of recruitment and voluntary departures and a restructuring of the departments and creating a fuels directorate to prepare a new rational framework for the purchase of petroleum products at the lowest cost. The provisional estimate for the new plan is CFAF 225 billion over three years. This three-year plan has already started with the implementation of an emergency program of almost CFAF 100 billion for the distribution and transport networks for electricity. The plan, combined with lower oil prices, means no direct subsidies to SENELEC next year and a halving of the budgeted subsidy this year, which was already about half the previous level.

The Société Africaine de Raffinage (SAR) is running its refinery operations at a loss. It receives budgetary subsidies through forgone customs duties on oil products and a margin of support from the Petroleum Product Imports Security Fund (FSIPP). The government, via Petrosen, is currently the major shareholder with 40 percent, followed by the Saudi Ben Laden group with 34 percent and Total with 26 percent. SAR produces only 0.8 million tons of oil products to meet a local demand of 1.8 million tons. An investment project is in preparation to increase its production capacity from 1.2 million tons to 1.6 million tons and SAR intends to call on the government to maintain the margin of support to fund this extension project. Over the last ten years it has only been able to export about CFAF 20 billion a year of distillates while there is a captive annual re-export market to the region of CFAF 200 billion that is has failed to capitalize on.

The program for rural electrification will gain new momentum as part of the Emergency Program for Community Development (EPCD). Coverage in rural areas currently stands at 30 percent, but should reach 60 percent in 2017 and 100 percent by 2025.

B. Financial Sector Policies

17. The financial sector is broadly sound and discussions focused on facilitating access to bank lending, supporting Small- and Medium-Sized Enterprises (SMEs), and ensuring overall stability and deepening of the sector (MEFP ¶30–33). The authorities are committed to (i) developing and implementing a financial education program for SMEs; (ii) putting in place a national financial inclusion strategy in 2016; (iii) continuing to promote the use of banking facilities and non-cash methods of payments; (iv) finalizing the introduction of credit information bureaus in 2015; (v) consolidating the gains made in supporting SMEs through increased involvement of the recently created National Economic Development Bank (Banque Nationale de Développement Économique – BNDE) and the Priority Investment Guarantee Fund (Fonds de Garantie des Investissements Prioritaires – FONGIP) in supporting SMEs; and (vi) starting to present financial stability indicators on the basis of the latest version of the Manual of Financial and Banking Statistics. The new indicators will improve transparency, allow better monitoring of the stability of the sector and non-performing loans, and prevent unexpected banking difficulties.

18. The authorities were encouraged to accelerate the steps being taken to upgrade the regulatory framework to international standards and to enhance prudential supervision. The steps are aimed at strengthening the resilience of the financial sector including micro-finance institutions. Staff also reinforced the recommendation made by the 2015 regional consultation mission with WAEMU institutions that the authorities proceed expeditiously with plans to raise banks’ capital requirements and subject bank holding companies incorporated in the WAEMU to appropriate banking regulation and consolidated supervision. The authorities also should make the deposit insurance operational as a matter of priority and establish a single and independent administrative resolution mechanism to ensure prompt and effective resolution of banks with negative capital.

C. Structural Reforms

19. Progress has been made on key structural reforms under the program but more decisive measures are required if the PSE growth targets are to be met (Box 3). The government agreed in July to take over the troubled Senegal Airlines, largely owned by the private sector, with potential impact on the budget. The authorities will take a decision by end-November 2015 (MEFP ¶12) that will involve either setting up a new airline and liquidating Senegal Airlines or developing a restructuring plan which does not compensate private shareholders for their losses, nor will they receive a share of the company beyond their new capital contribution. Furthermore, the government will look for strategic partners to ensure the successful operation and profitability of the restructured or newly created airline. Such restructuring, or the creation of a new airline, would not involve any fiscal outlay in 2016 and beyond, unless the Government takes responsibility for operational losses, which further argues for a market-based solution.

20. With the objective of strengthening the effectiveness of the public sector, the agency restructuring plan will be updated and strengthened (MEFP ¶9–10). The closure of the 16 agencies identified in the initial reform plan and the merger of 8 other agencies into 3 agencies has not been implemented. Currently, a decree caps the level of pay by category for directors general and executives. By end-December 2015, the authorities will set the maximum levels of pay for the rest of agency staff and update the agency restructuring measures. For those that are to be maintained, agency performance contracts (PCs) will be introduced by 2020. With support from the World Bank, at least (8) PCs will be signed by December 2015 and their implementation will be closely monitored by the authorities. By end-2015, staff at the agencies earmarked for closure will be redeployed and useful functions transferred to other agencies.

Box 3.Reforms Required to Achieve PSE Growth Targets

Senegal’s PSE seeks to promote sustained strong growth through economic reforms designed to boost private investment in key strategic sectors. This box highlights key reforms targeted under the PSE and the role that the IMF and World Bank can play in supporting these steps. The (non-exhaustive) list of reforms provided below could add as much as 3–4 percentage points to Senegal’s growth potential, setting the country on the path to high, sustained and inclusive growth. Sustained strong growth is feasible, but will require a determined implementation of the PSE and a break with the status quo. Partial implementation of the package could result in a low impact on growth, as a critical mass of reforms is required to unlock the growth rates targeted by the PSE.

Reforms supported by the PSI

  • Foster the macroeconomic stability needed for higher levels of private investment.

  • Create budget space for required public investment in human capital and public infrastructure. Savings can be found, for example, by reducing subsidies for loss-making enterprises, such as Senegal Airlines and Agencies.

  • Improve PFM to promote the effectiveness of public investment.

  • Promote reforms to the tax system designed to make it simple and easy to comply with. This will encourage informal SMEs to join the formal sector and will support overall investment and job creation.

Reforms to be supported by the World Bank and other development partners

  • Reform the energy sector by: (i) accelerating the restructuring of SENELEC to increase the level of electricity supply and reduce the costs of production; (ii) reorganizing and clarifying the status of the African Refining Company (Société Africaine de Raffinage—SAR); and attracting more private investment by making the structure of the sector more transparent.

  • Reform the peanut sector in accordance with the development objectives of the PSE and PRACAS (Accelerated Program for Agriculture in Senegal), by rebuilding a competitive oil milling sector involving the introduction of increased competition, the structuring and regulation of smallholders, bringing small-scale oil manufacturing units up to standard, and the implementation of seed legislation to promote the creation of small processing companies and curb exports of unprocessed seeds. The potential ways and means of achieving these outcomes are outlined in the following World Bank study: “Etude diagnostique de la chaîne de valeurs arachide au Sénégal: Proposition de réformes”.

  • Pass a comprehensive land reform, based on best practices but adapted to the realities of the country, in order to establish property rights that would encourage loans and private investment in the agricultural sector. Introduce additional measures to mobilize resources for irrigation and mechanization.

  • Labor market reform to protect workers instead of jobs by making it easy to rotate labor for economic reasons whilst supporting job search and training and an unemployment benefit system. Create an investment regime that is based on rules and that emphasizes ex-post verification over ex ante approval so that FDI and SMEs can flourish.

  • Finalize the implementation of the tourism sector’s reforms, including (i) diversifying supply through the development and enhancement of the tourism potential, (ii) improving the quality of services and labor (iii) improving the promotion of Senegal as popular tourist destination, (iv) developing micro tourism; and (v) improving connectivity to targeted markets.

21. The authorities’ oil price policy is to stabilize pump prices. As long as oil prices remain in the range of USD 40 to USD 60 per barrel, the authorities plan not to change prices at the pump. They fixed the margins for intermediaries at the January 2015 level. Price fluctuations outside this band will be passed on to consumers. Staff encourages the authorities to bring transparency to the taxation of petroleum products by abolishing special levies in favor of transfers transparently shown in the budget. These proposals will be discussed at the next review.

22. Finalization of land reform will be expedited (MEFP ¶34) and local governments will be supported to promote investment opportunities. Comprehensive land reform proposals are expected by year end from an independent commission. Meanwhile, the Program for the Inclusive and Sustainable Development of Agribusiness (Programme de développement inclusif et durable de l’agrobusiness – PDIDAS) provides for technical assistance for rural communities to enable them to allocate land to private operators according to an inclusive, transparent, and competitive process.

23. Implementation is supported through peer-learning. The authorities have begun working with peer countries to learn from their successes and failures. They have had meetings with their Mauritian counterparts to identify reforms that would help attract FDI and have also signed an agreement in this area with the Board of Investment of Mauritius. In January 2016, Fund staff will facilitate a continuation of the dialogue with Cape Verde, Mauritius and Seychelles, and perhaps extend this to other middle-income countries if authorities and IMF funding is available.

Program Monitoring

24. Quantitative ACs for 2015 and 2016 remain broadly as initially programmed and understandings were reached with the authorities on new SBs as well as on modification of existing SBs. The new SBs relate to establishing an integrated projects bank that will cover the lifecycle of projects (end-June 2016 SB), and the introduction of a medium-term budget framework (end-March 2017 SB). The benchmarks on PPP evaluations and on the establishment of the Treasury Single Account (TSA) have also been clarified to remove ambiguities of interpretation.

25. In line with the Fund’s new debt limits policy, the authorities are requesting to remove the AC on external non-concessional borrowing (ENCB). Senegal remains at low risk of debt distress, has adequate debt monitoring capacity, and comprehensive and reliable fiscal data for monitoring the program. The authorities are committed to gradually lowering the overall deficit, which is subject to an AC. Moreover, a debt anchor will be enshrined in the budget process starting with the 2016 budget (end-December 2015 SB). Furthermore, no government guarantee can be authorized without the signature of the Minister of Finance and all information on guaranteed external debt is available and published by the Ministry of Finance. Staff recommends a better recognition and control of contingent liabilities arising from PPP projects.

26. The authorities propose to eliminate the continuous benchmark on evaluation of PPP projects going forward. Risks from PPPs remain an area of concern and the authorities are committed to ensuring that PPP projects are properly evaluated. Consistent with the benchmark, the authorities have evaluated one PPP project, the Train Express Regional, and are committed to continuing the practice. To support this goal, the government has adopted the IMF’s new P-FRAM tool for analyzing the fiscal impact of PPPs. This tool will be applied to new PPPs, including in the context of the newly introduced PRE. Given these institutional advances, the broad goals of the benchmark have been achieved, and staff will continue to discuss and support the implementation of the PPP evaluation policy rather than requiring continuous monitoring of its application. This will free up resources for other PFM goals, including the establishment of an integrated project bank which describes the lifecycle of the projects and the introduction of the medium-term budget framework.

27. On finalizing the TSA, the authorities propose to modify the benchmark to better reflect the practicality of its implementation. Finalizing the TSA requires multiple steps, and the earlier benchmark to “finalize” the TSA in December 2015 referred only to the start of the process. The authorities intend to accelerate implementation of the TSA to the extent possible. More specifically, in the first quarter of 2016, the authorities plan to extend the first generation TSA, which is limited to the bank accounts of the Treasury: As a result, by end-June 2016, TSA coverage will include the bank accounts of the network of accounting officials of public agencies and institutions. Consolidation of the accounts of other public institutions (second-generation TSA) will be finalized in December 2017.

Staff Appraisal

28. Senegal’s macroeconomic performance has been favorable and the PSI objectives are within reach. Growth has begun to break with the historical average of 3–3.5 percent of the last 30 years to stand at 4.7 percent in 2014 and 5.1 percent in 2015. The 5.9 percent growth rate targeted under the PSI is realistic provided action on tackling rents and opening up the economy can be accelerated. Inflation remains contained and fiscal deficits are declining and expected to reach the WAEMU convergence criteria of 3 percent of GDP by 2018, a year ahead of schedule.

29. Staff welcomes the authorities’ intention to keep the 2015 and 2016 fiscal deficit targets in line with the program. For 2015, the commitment to use the space created by the PRE to adjust expenditure in the event of an end-year shortfall in tax revenue is welcome and the authorities are encouraged to continue with their prudent execution of the budget. The shortfall in tax revenue registered at end-June suggests that strong policy responses to raise revenue and control expenditure are needed to ensure continued fiscal consolidation. Action on tax expenditures will be important to safeguard revenues and to open up the economy to achieve the high growth targets of the PSE. For the 2016 budget, the measures envisaged to raise revenue and control expenditure will need to be solidified to ensure meeting the 4.2 percent of GDP deficit target. Energy subsidies should be kept at the level realized through June 2015 and eliminated altogether in 2016.

30. The authorities’ decision to expand and institutionalize the PRE, adopt a debt anchor, and operationalize the P-FRAM toolkit is commendable. These instruments will ensure more efficient public investment, better productivity, and overall macroeconomic stability. However, their successful implementation will require concerted efforts involving all concerned departments within the key ministries. Also, the collaborative hands-on work started on the PRE, the P-FRAM toolkit and debt anchor between Fund staff and the authorities will need to continue so as to sustain the gains achieved so far in program implementation and monitoring.

31. It is critical to tackle rent seeking and continue to reform agencies, the energy sector and enterprises in difficulty. The success of fiscal consolidation plans and achieving the growth targets of the PSE will partly depend on the transparency and accountability under which government agencies and other public enterprises function. It will also depend on whether the ailing energy sector becomes efficient and viable to fully be at the service of promoting the growth of SMEs and FDI. The plan to restructure Senegal Airlines needs to be implemented forcefully and as announced. Effectively resolving the issue without imposing an unnecessary burden on taxpayers will have a positive impact on public finances and enhance the authorities’ credibility on governance.

32. Staff recommends completion of the first PSI review and supports the authorities’ request for modification of the Assessment Criterion on external non-concessional borrowing.

Figure 1.Senegal: Recent Developments: High Frequency Indicators

Sources: Senegal authorities; and IMF staff calculations.

Figure 2.Senegal: Recent Developments

Sources: Senegal authorities; and IMF staff calculations.

Figure 3.Senegal: Near and Medium-Term Projections

Sources: Senegal authorities; and IMF staff calculations.

Appendix I. Letter of Intent

Dakar, Senegal

November 24, 2015

Madame Christine

Lagarde Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, D.C. 20431

USA

Madame Managing Director:

1. The Government of Senegal requests completion of the first review of its 2015–17 macroeconomic program supported by the Policy Support Instrument (PSI). The details of this program were set forth in the initial Memorandum of Economic and Financial Policies (MEFP) of May 8, 2015. In support of this request, the attached Memorandum of Economic and Financial Policies (MEFP) reviews the implementation of the program over the past six months and updates the government’s short- and medium-term objectives and policies under the program.

2. These policies are consistent with the new economic and social policy reference framework for the medium to long term referred to as the Plan Sénégal Emergent (PSE). The PSE focuses on three strategic pillars: (i) structural transformation of the economy and growth; (ii) human capital, social protection, and sustainable development; and (iii) strengthening of governance, promotion of peace and security, and consolidation of the rule of law.

3. The program is intended to guide Senegal in implementing its new development strategy (PSE), which relies on high, sustainable, and inclusive growth to substantially reduce poverty while safeguarding macroeconomic stability and debt sustainability. The program responds to growth impediments, and will, in the short and medium term, result in the initiation of bold actions to stimulate private initiative and creativity in order to realize the people’s aspirations towards well-being. Reforms are aimed at restoring the government’s fiscal space and creating a more attractive business environment for private-sector development.

4. All end-June assessment criteria were met but the end-June indicative target on tax revenue was missed because of a shortfall in customs revenue. This shortfall was due to higher than anticipated tax expenditure, the January 2015 introduction of the ECOWAS common external tariff and lower oil prices. Continued rationalization and better control of public expenditure helped meet the fiscal deficit target despite the shortfall in revenue. All structural benchmarks were met.

5. The government believes that the policies and measures set forth in the attached MEFP are appropriate for achieving the objectives of the PSI-supported program. Given its commitment to macroeconomic stability, the government will promptly take any additional measures needed to achieve the program objectives. It will consult with the IMF—at its own initiative or whenever the Managing Director requests such consultation—before adopting any such measures or in advance of revisions to the policies contained in the attached MEFP. Moreover, the government will provide the IMF with such information as the IMF may request in connection with the progress made in implementing the economic and financial policies and achieving the program objectives.

6. The government authorizes the IMF to publish this letter, the attached MEFP, and the related Staff Report, which includes a debt sustainability analysis.

Sincerely yours,

/s/

Amadou BA

Minister of Economy, Finance, and Planning

Attachments: I. Memorandum of Economic and Financial Policies (MEFP)

II. Technical Memorandum of Understanding (TMU)

Attachment I. Memorandum of Economic and Financial Policies, 2015–17

1. This Memorandum updates the Memorandum of May 8, 2015, on our economic and financial program supported by the Policy Support Instrument for 2015-17. It outlines the policies that we intend to pursue for the remainder of 2015 and during 2016 to achieve the objectives of Senegal’s development strategy (Plan Sénégal EmergentPSE).

Recent Economic Developments

2. The domestic economy benefitted from the initial implementation of the PSE. Economic activity consolidated during the first quarter of 2015, with GDP growth at 4.6 percent in the first quarter and 5.2 percent in the second quarter. This favorable development is attributable notably to the strong performance of the chemical industries, sugar production, refining, cement, construction and energy. We expect growth to exceed 5 percent in the course of this year and to be close to 6 percent in 2016. Inflation, measured in respect of average prices during the first six months of 2015 over those during the corresponding period of 2014, amounted to -0.7 percent and will stay below 2 percent. With the fall in the price of oil, the GDP deflator stands at 0.2 percent in 2015 and should be 1.8 percent in 2016. This has led to downward revisions of nominal GDP for 2015 and 2016.

Program Implementation remains satisfactory

3. Overall, all of the program’s quantitative assessment criteria for end-June 2015 were achieved, including the budget deficit target. The indicative target for tax revenues was missed by 0.4 percent of GDP on account of higher than expected tax expenditures which impacted customs revenue. Progress was also recorded in structural reforms, with the achievement of three planned structural benchmarks. In particular, payments of tax amounts over CFAF 100,000 in cash have been eliminated (structural benchmark June 2015). We have institutionalized the Precautionary Reserve envelope in the draft budget 2016 (structural benchmark September 2015) and carried out cost-benefit analyses for more than ten projects that will be included in the 2016 budget (structural benchmark October 2015). As regards the other structural benchmarks to be achieved in 2015, some important milestones have been laid down, particularly with respect to establishing the TOFE in accordance with GFSM 2001/2014, but also in terms of assessing projects financed by public-private partnerships (PPP), thanks to the information now available, which will allow us to perform an assessment at the latest before the end of the second half of this year.

4. Regarding the other structural reforms, a mechanism designed to monitor whether public investment projects have been carried through to completion was created by decision of the Minister for the Economy, Finance and Planning. Furthermore, as part of measures to strengthen our staff’s capacities in implementing and monitoring the program supported by the Policy Support Instrument (PSI), the Fund provided high-level training for experts from the Macroeconomic Framework Committee on the use of DMX platform for the management of macroeconomic data pertaining to projections and program monitoring.

Macroeconomic Policy and Structural Reforms for the Remainder of 2015

A. Fiscal Policy

5. The budget deficit target of CFAF 389 billion (4.8 percent of the revised GDP) for 2015 remains unchanged. The gap in revenue may amount to 14 billion, attributable notably to customs revenue. To close the gap and keep the same level of deficit, the government will take measures that will include reducing tax expenditures. If, at end-year, revenue fails to reach the programmed levels, the deficit objective will be achieved by controlling expenditure, in particular expenditure related to the precautionary reserve. The government will undertake a comprehensive examination of parafiscal taxes, including those on petroleum products. These taxes will ultimately be included in the budget and, as a counterpart, the amounts of transfers will be treated as a subsidy.

6. The government will continue to streamline spending on public consumption to boost investment in human capital and public infrastructure. In 2015, the government froze pay supplements at the current level, tightened controls on overtime, capped the number of staff hired under the “corps émergents” recruitment program for integration into the civil service at 4,000, and froze recruitment in selected, non-priority areas (excluding security and front-line staff in the fields of education and health). As a result of these measures, it will be possible to limit the wage bill to CFAF 526 billion in 2015.

7. Streamlining of tax expenditure will continue. The government will take measures to reduce tax expenditure on the basis of the 2013 report on tax expenditure and the recommendations of the IMF Technical Assistance.

8. The precautionary reserve, already established, will be institutionalized. For 2015 an amount of CFAF 52 billion, reported in the investment part of the 2015 initial budget law, has been mobilized, of which CFAF 38.6 billion to fund priority investments that are sufficiently mature (the Route des Niayes, the high-speed regional rail network, low-cost housing, integrated tourist zones). The remaining CFAF 13.4 billion relates to projects that cannot be completed in 2015 because of incomplete technical, economic and financial studies (tramway, dredging of the Sine-Saloum delta, business park, “Green cities for jobs” special program). The available resources could be redirected towards other growth-enhancing projects provided that the revenue allows it. For 2016, the Reserve will also include a part linked to current expenditure, which will be mobilized on the basis of the progress made in implementing the reforms agreed with the technical ministries.

B. Remainder of the Reforms for 2015

9. We undertake to increase efforts to speed up the structural reforms.

10. We will update the agency restructuring plan. A decree caps the level of pay, according to category, for Directors General and members of the decision-making bodies. By end-December 2015, the Ministry of Economy, Finance and Planning will adopt a decision setting the maximum levels of pay for the rest of agency staff. A technical committee will be instituted to update the agency restructuring measures. For those that are to be maintained, agency performance contracts (PCs) will be widely used by 2020. With support from the World Bank, at least (8) PCs will be signed by December 2015 (structural benchmark) and their implementation will be closely monitored by the authorities. By end-2015, staff at the agencies earmarked for closure (in accordance with the decision taken) will be redeployed and useful functions transferred to other agencies.

11. We will continue efforts to improve accounting, fiscal and financial information. Thanks to a joint venture by the Directorate General of Taxes and Government Property (Direction générale des impôts et domains—DGID), the Directorate General of Customs (Direction générale des douanes—DGD) and the National Statistics and Demographics Agency (Agence Nationale de la Statistique et de la Démographie—ANSD), the national registration number for enterprises and associations (NINEA) will be finalized by end-2015 (structural benchmark December 2015).

12. The government undertakes to take a decision regarding Senegal Airlines by end-November 2015. This involves either setting up a restructuring plan that does not compensate private shareholders or, alternatively, closing Senegal Airlines and creating another airline. Private shareholders will, under no circumstances, be compensated for their losses, nor will they receive a share of the company beyond their new capital contribution. Furthermore, the government will look for strategic partners to ensure the successful operation and profitability of the restructured or newly created airline.

13. The government undertakes to establish, by end-December 2015, three working groups tasked with: (i) examining tax expenditures, (ii) analyzing troubled companies, and (iii) reviewing government subsidies to enterprises. In the first quarter of 2016, these working groups will put forward appropriate and fully transparent measures to provide suitable solutions to the problems identified. Any new tax exemption will be granted in line with the prevailing rules.

Macroeconomic Policy and Structural Reforms for 2016

14. The main objective is to establish conditions conducive to stronger, more inclusive growth for meaningful poverty reduction. Growth is expected to pick up to 5.9 percent in 2016 as reforms take hold. In fact, growth could be higher than 6 percent in 2016 with an acceleration, which the government is aiming at, in the implementation of major agriculture, mining, energy, infrastructure and tourism reforms set forth in the PSE. Inflation is expected to remain within the 1–2 percent range. The current account deficit (as a percentage of GDP) is expected to reach 8.7 percent of GDP in 2016 and decline thereafter.

15. To enable Senegal to build on the recovery in global growth and on the more buoyant subregional environment, the IMF-supported authorities’ program will revolve around the following three aims: (i) rebuild the government’s fiscal space; (ii) strengthen public financial management and governance; and (iii) improve the business environment.

C. Rebuild the Government’s Fiscal Space

16. The target for the fiscal deficit is 4.2 percent in 2016. This target remains feasible in light of the developments noted (changes in the international environment, particularly in terms of barrel and commodity prices). It is essentially dependent on good revenue collection, proper current expenditure control, and higher investment spending to support growth. The DGID will mobilize revenue primarily by taking further steps to control the tax base. This will involve, first, a restructuring of the relevant units to focus them on the desired objective; to this end, a new organization chart for the DGID has been drafted and submitted to all domestic partners, and their recommendations are now being considered. The draft text, as validated, will be available by the end of the first quarter of 2016. This reform will constitute a reorganization of the DGID, involving:

  • transforming the Large Taxpayers Center (CGE) into the Large Taxpayers Directorate (DGE), with subsequent elimination of the Specialized Tax Services Directorate;

  • creating the Medium-Sized Taxpayers Directorate (DME), and at the same time

    • i) reducing the eligibility threshold for the Medium-Sized Taxpayers Center (CME) from CFAF 200,000,000 to CFAF 50,000,000;

    • ii) creating one or two new CMEs;

  • More effective control, with the gradual transfer of tax controls from the Fiscal Control and Intelligence Directorate to the operational directorates (DGE, DME); the DCFR will now focus on defining the fiscal control policy and strategy, as well as on intelligence gathering. To this end, a data processing center will be implemented to provide input to a tax database (the tax database and the data processing center are in the course of implementation);

Improving revenue mobilization will also require other actions to reinforce revenue collection efforts:

  • formation of a group of prosecution officers [agents de poursuites]: the officers have been recruited and are now being trained. They will be operational by March 2016 at the latest;

  • other means of payment (e-cash [monétique]) now under study. These reflect the intention of the DGID to integrate into its network all the payment instruments in circulation in the monetary system. In the short term, the DGID is seeking to give effect to payment by bank transfer. This measure will initially apply to taxpayers covered by the CGE, within six months after the accounting units of the DGCPT become effectively connected to the Automated Interbank Clearing System of WAEMU (SICA–UEMOA) and the Regional Real-Time Gross Settlement System (STAR–UEMOA), planned for the end of 2015.

The government will also deepen the reflection on the establishment of an independent accounting network in the DGID with the creation of a Senior Accountant who would be in charge of, inter alia, direct taxes, and payments of back taxes controlled by the DGID following tax audits.

17. Lastly, with respect to fiscal policy, the authorities are planning to review the implementation of the new General Tax Code (Code général des impôts) with the help of an IMF technical assistance mission. This review will make it possible to further streamline and refine the new Code. Discussions on the tax system in the financial and telecommunications sectors as well as on the imposition of a business license tax (patente) on factories and industrial facilities will be finalized in the first quarter of 2016. They should lead to the introduction, by September 2016 at the latest, of legislation designed to streamline taxation on telecommunications and in the financial sector.

18. The DGD will focus on simplifying tax revenue collection procedures. Each commitment is made operational by a series of reforms and measures. The DGD will become increasingly involved in the actual implementation of the NINEA, the governance of which is ensured by the ANSD, and the interconnected network of the financial agencies. To support the Senegal government’s key investment projects, the DGD will establish simplified and personalized procedures for enterprises to whom contracts have been awarded.

19. Spending on public consumption will continue to be streamlined. Regarding the wage bill, in addition to control measures, the following will be transferred to current expenditure (heading 4): on the one hand, expenditure for staff of the institutions, and on the other, the “seed funds” of the military. Moreover, the necessary measures will be taken to clean up the records on allowances by eliminating amounts computed in error. Ad hoc audits will be conducted in certain sensitive sectors to ensure the proper functioning of the system established following the civil service audit. Finally, in 2016, the government intends to: (i) review the legal basis and eliminate unjustified payments; (ii) streamline the procedures for preparing and implementing administrative acts with a view to reducing the time elapsing between their date of signature, the date they come into force, and the date on which they are effectively implemented in the pay system; (iii) reform payroll management; rationalize consumption of goods and services and reallocate savings to operation and maintenance; (iv) reallocate wage bill savings in part; and (v) strengthen the oversight of public hospitals.

20. The government intends to increase investment effectiveness. To this end, actions will focus on improving feasibility studies and socio-economic assessments by establishing a platform (integrated projects bank) which describes the lifecycle of the projects. This platform will have the functionalities and interface necessary for communication between sectoral ministries and the Ministry of the Economy, Finance and Planning. The entire project assessment chain will be duly addressed, from the ex-ante assessment through to the ex post assessment.

21. Improved efficiency of investments in financial and nonfinancial assets is also one of the concerns identified by the authorities. Although the government portfolio includes many strategic assets, it is not managed holistically. To rectify this, a management strategy for government and public enterprise portfolios will be defined in the first quarter of 2016 (structural benchmark). Work to collect information has already begun with a census of financial assets held in the country. However, in the interests of ensuring overall consistency, a comprehensive review of assets held abroad will also be carried out.

22. The government will assess ex ante all projects financed under a public-private partnership (PPP), pursuant to Article 38 of Law No. 2014–09 on partnership contracts and in accordance with the decree implementing this law. These midterm assessments will be carried out periodically, at least once a quarter. The government will use the PFRAM, an instrument for analyzing the fiscal implications of PPP-type projects. The government will compile a database of existing projects, analyze their fiscal costs and integrate them in the fiscal projections. All new projects financed as PPPs will be subject to an analysis of the fiscal costs.

23. The government will introduce the precautionary management reserve for 2016. In the 2016 budget, the reserve, amounting to 45 billion, will included both current expenditure (including wages and salaries, goods and services, transfers and other expenditure) and capital expenditure. The precautionary reserve in the operating budget will be CFAF 10 billion. The mobilization of these resources is subject to the ministerial departments implementing the reforms in their respective economic sectors, particularly higher education, national education, health and social action. For the investment budget, the precautionary reserve, amounting to CFAF 35 billion, will only be mobilized for projects whose profitability has been demonstrated by a feasibility study.

24. The government will consider the possibility of mobilizing nonconcessional external loans in 2016. The government could intervene in international financial markets or use the nonconcessional facilities of multilateral donors, which are equipped to finance large projects within short timeframes. The resources would be earmarked for financing investment projects, particularly those involving road infrastructure, the energy sector, urban water, and sanitation.

25. Senegal is now recognized as a country with the capacity to autonomously manage its debt. To improve debt management capacity in the absence of debt limits in the program, the government will: (i) continue to develop a medium-term debt strategy to be appended to the budget; (ii) announce, for the 2016 budget, the central government debt ratio, sustainable over five years, with a commitment in case thresholds are exceeded; corrective measures (over four years) would be taken in the budget that follows; and (iii) introduce a database and establish a mechanism for monitoring all external and domestic debt by public enterprises and all collateral set aside by the government on this debt. The National Public Debt Committee (Comité National de la Dette PubliqueCNDP) will also be strengthened and expanded to cover other government departments.

D. Strengthen Public Financial Management

26. In the field of budget management, the government intends to organize high-level meetings between government members to discuss budget issues before the final budget decisions are made. Moreover, strict performance criteria for the allocation of additional budget resources will be defined in the circular letter on budget preparation.

27. The implementation of the Treasury Single Account (TSA) will be achieved. The plan for the first quarter of 2016 is to extend the first-generation TSA—limited to the bank accounts of direct Treasury accounting officers (Comptables Directs du Trésor—CDT)—to all bank accounts within the network of accounting staff in public institutions and agencies (second-generation TSA). The second-generation TSA will be deployed and operational in June 2016 (structural benchmark). The TSA will be finalized in December 2017 and the assessment criteria of the accounts that are to be “repatriated” will be established.

28. The National Governance Strategy (Stratégie nationale de bonne gouvernance) will continue to be implemented. The new reforms are based, in particular, on an inclusive mechanism for monitoring public transparency, one that involves instituting a national committee the tasks, organization and functioning of which will be defined by a decree (now circulating within the administration in draft form) and strengthening legislation and mechanisms on access to information. On this last point, the government will move to adopt a general law on access to information, in a manner complementary to the provisions of the transparency code.

E. Promote the Private Sector

Energy Sector

29. The government will continue to reform SENELEC. The cost of the reforms is estimated at CFAF 225 billion between 2016 and 2018. The reform plan will be submitted by end-November 2015 for technical support and financing from Senegal’s development partners, in particular the World Bank and the African Development Bank.

Financial Sector

30. To promote the use of banking services and facilitate access to bank lending, the government is also committed to: (i) developing and implementing a financial education program for small- and medium-sized enterprises (SMEs); (ii) putting in place a national financial inclusion strategy in 2016; and (iii) Study the possibility of extending to the private sector and to equivalent employees the measure concerning the payment of wages in excess of CFAF 100,000 by direct deposit to their bank accounts or by any electronic means of payment. Furthermore, the effectiveness of introducing credit information bureaus (bureaux d’informations sur le crédit—BIC) in 2015 will help establish a healthy lending environment, promote the credit culture, contain bank indebtedness, and safeguard financial stability.

31. The gains made in supporting SMEs/SMIs will be consolidated. The government has created a unit for labeling SMEs in order to provide information and rating system for the banking system. From 2016, the National Economic Development Bank (Banque nationale de Développement économique—BNDE) will take all steps necessary to increase its contribution to the financing of SMEs/SMIs. Moreover, the BNDE will commit to providing, over time, the highest quality banking terms in the SME-SMI subsector (in particular an average annual rate of around 6.5 percent, below the local domestic market rate). As regards the Priority Investment Guarantee Fund (Fonds de Garantie des Investissements Prioritaires—FONGIP), in 2015–16, the guarantee activities it already has in place for SMEs/SMIs will be consolidated. In the context of its medium-term development, FONGIP must highlight the leverage stemming from the use of resources allocated to it by the government.

32. The government will continue to diversify financial instruments that are not necessarily bank-related. To that end, particular focus will be placed in 2016 on (i) producing an action plan for the development of factoring in Senegal, (ii) promoting the development of Islamic finance in Senegal, notably by establishing an Islamic microfinance institution, and (iii) developing capital markets. With a view to improving SME access to public procurement, the government will launch a strategy to establish a procurement fund.

33. The authorities are going to start to present financial stability indicators on the basis of the latest version of the Manual of Financial and Banking Statistics. With this aim in mind, the Central Bank of West African States (BCEAO) will compile and publish financial soundness indicators (FSIs) and complete the templates for FSM (metadata), FSD (FSIs), as well as FS1 (institutional coverage of FSIs) and FS2 (sectoral financial statements of the institutions). This will make it possible to improve transparency in the financial and banking sectors, monitor better the stability of the financial sector and nonperforming loans, and prevent banking difficulties.

Business climate

34. The government plans to expedite the finalization of work being carried out by the commission in charge of land reform. The government will erect investment platforms to support local governments in promoting investment opportunities in Senegal’s eco-geographical areas. The Program for the Inclusive and Sustainable Development of Agribusiness (Programme de développement inclusif et durable de l’agrobusiness—PDIDAS) provides for technical assistance for rural communities to enable them to allocate land to private operators according to an inclusive, transparent, and competitive process.

New Program Monitoring Indicators

35. Quantitative assessment criteria have been defined for 2015 and 2016. Quantitative assessment criteria for end-December 2015, end-June 2016, and end-December 2016, as well as indicative targets for end-March 2016 and end-September 2016 have been proposed to monitor program implementation in 2015–16 (see Table 1 of the MEFP below). The government and Fund staff have reached understandings on structural benchmarks presented in Table 2 of the MEFP. Reviews will take place every six months. The second review is expected to be completed by end-June 2016, the third by end-December 2016, and the fourth by end-June 2017.

Table 1.Senegal: Quantitative Assessment Criteria and Indicative Targets for 2015–16(GSFM 2014)
20152016
Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.
Assessment Criteria (AC)ITACITACITAC
Act.Prog.Act.StatusProg.Prog.Prog.Prog.Prog.Proj.
(CFAF billions, unless otherwise specified)
Assessment criteria1
Floor on net lending/borrowing2−144−138met−255−389−52−137−244−372
Ceiling on the contracting or guaranteeing of new nonconcessional external debt by the public sector (US$ millions)31,0000met
Ceiling on spending undertaken outside normal and simplified procedures300met000000
Ceiling on public sector external payment arrears (stock)300met000000
Ceiling on the amount of the budgetary float5028met505050505050
Indicative targets
Quarterly ceiling on the share of the value of public sector contracts signed by single tender (percent)155met151515151515
Floor on social expenditures (percent of total spending)3541met353535353535
Floor on tax revenue825796not met1,1811,5833968891,2831,720
Maximum upward adjustment of the overall deficit ceiling owing to
Shortfall in program grants relative to program projections150151515151515
Memorandum items:
Program grants151528405214058
Sources: Senegal authorities; and IMF Staff estimates.

Indicative targets for March and September, except for the assessment criteria monitored on a continuous basis. See Technical Memorandum of Understanding for definitions.

GFSM 2014 definition. Cumulative since the beginning of the year.

Monitored on a continuous basis. The PC is not applicable starting from December 2015.

Sources: Senegal authorities; and IMF Staff estimates.

Indicative targets for March and September, except for the assessment criteria monitored on a continuous basis. See Technical Memorandum of Understanding for definitions.

GFSM 2014 definition. Cumulative since the beginning of the year.

Monitored on a continuous basis. The PC is not applicable starting from December 2015.

Table 2.Senegal: Structural Benchmarks for 2015 and 2016
MeasuresTarget dateStatus
Conduct an ex-ante, midterm, and ex post evaluation of all projects financed under a public-private partnership (PPP)ContinuousOngoing
Sign performance contracts for eight agenciesDecember 2015Ongoing
Eliminate cash tax payments above CFAF 100,000June 2015Completed
Operationalize the connection between the DGI and the DGID to facilitate the exchange of data based on the unique identification NINEA.December 2015Ongoing
Submit at least ten investment projects listed in the 2016 budget for cost-benefit analysisOctober 2015Completed
For the 2016 budget, announce the debt ratio sustainable over five years with the commitment that, in case thresholds are exceeded, corrective measures (over four years) would be taken in the budget that followsDecember 2015Ongoing
Expand the precautionary reserve envelope for the 2016 budgetDecember 2015Completed
Collect at least 50 percent of taxes left unpaid in 2014December 2015Ongoing
Implement the agency reform plan by limiting budget resources, and restricting their use to the payment of wages, for the 16 agencies pending dissolution.December 2015Ongoing
Institutionalize the precautionary management reserveSeptember 2015Completed
Finalize the government flow-of-funds table according to Government Finance Statistics Manual 2001/14December 2015Ongoing
2016
Establish a platform (integrated projects bank) which describes the lifecycle of the projectsJune 2016
Develop a management strategy for government and public enterprise investment portfoliosMarch 2016
Extend the first-generation TSA system to all of the bank accounts of the network of accounting officials of public agencies and institutionsJune 2016
2017
Establish accrual basis accounting with the initiation of the government’s opening balanceJanuary 2017
Introduce a medium-term budget framework in line with WAEMU directives.March 2017

36. In line with the Fund’s new debt limits policy, the authorities are requesting elimination of the assessment criterion for nonconcessional external debt. Senegal remains at a low risk of debt distress, its debt management capacity is adequate, and its data for debt surveillance are comprehensive and reliable. Additional measures linked to the monitoring of possible liabilities in PPP projects and government guarantees have also been taken.

37. To improve program monitoring, the departments of the Ministry of the Economy, Finance and Planning have the DMX platform. The platform will be used to analyze data, sharing with the Fund and the forecasts of the program’s key indicators.

Attachment II. Technical Memorandum of Understanding

1. This Technical Memorandum of Understanding (TMU) defines the quantitative assessment criteria, indicative targets, and structural benchmarks necessary to monitor the Fund-supported program under the Policy Support Instrument (PSI) in 2015–17. It also establishes the terms and timeframe for transmitting the information that will enable Fund staff to monitor the program.

Program Conditionality

2. The assessment criteria for end-June 2015, end-December 2015 and end-June 2016 and the indicative targets for end-March 2015 and end-September 2015 and end-March 2016 are set out in Table 1 of the Memorandum of Economic and Financial Policies (MEFP). The structural benchmarks established under the program are presented in Table 2.

Definitions, Adjusters, and Data Reporting

A. The Government and Public Sector

3. Unless otherwise indicated, “government” in this TMU means the central government of the Republic of Senegal. It excludes the central bank and the non-government public sector (see paragraph 4).

4. Unless otherwise indicated, “public sector” in this TMU means the government, local governments and all majority government-owned or controlled entities.

B. Net Lending/Borrowing (Program Definition)

Definition

5. Net lending/borrowing (program definition), or the overall fiscal balance, is the difference between the government’s total revenue and total expenditure (costs and acquisition net of nonfinancial assets). The operations of the Energy Sector Support Fund (FSE) are integrated in the TOFE. The definition of revenues and expenditures is consistent with that in the 2001/14 Government Financial Statistics Manual (GFSM). Government expenditure is defined on the basis of payment orders accepted by the Treasury, as well as those executed with external resources. This assessment criterion is set as a floor on the overall fiscal balance as of the beginning of the year.

Sample Calculation

6. The floor on net lending/borrowing (program definition) as of December 31, 2014 is minus CFAF 381 billion. It is calculated as the difference between revenue (CFAF 1,877 billion) and total expenditure (CFAF 2,258 billion).

Adjustment

7. The floor including grants is adjusted downward by the amount that budget grants fall short of program projections up to a maximum of CFAF 15 billion at current exchange rates (see MEFP, Table 1).

Reporting Requirements

8. During the program period, the authorities will report provisional data on the overall fiscal balance (program definition) and its components monthly to Fund staff with a lag of no more than 30 days after the end of the relative month. Data on revenues and expenditure that are included in the calculation of the overall fiscal balance will be drawn mainly from preliminary Treasury account balances. Final data will be provided as soon as the final balances of the Treasury accounts are available, but no later than two months after the reporting of the provisional data.

C. Social Expenditure

Definition

9. Social spending is defined as spending on health, education, the environment, the judicial system, social safety nets, sanitation, and rural water supply (as contained in the table on social expenditure).

Reporting Requirements

10. The authorities will report semiannual data to Fund staff within two months following the end of each period.

D. Budgetary Float

Definition

11. The budgetary float (instances de paiement) is defined as the outstanding stock of government expenditure for which bills have been received and validated but not yet paid by the Treasury (the difference between dépenses liquidées and dépenses payées). The assessment criterion is set as a ceiling on the budgetary float, monitored at the end of the quarter.

Reporting Requirements

12. The authorities will transmit to Fund staff on a weekly basis (i.e., at the end of each week), and at the end of each month, a table from the expenditure tracking system (SIGFIP) showing all committed expenditure (dépenses engages), all certified expenditures that have not yet been cleared for payment (dépenses liquidées non encore ordonnancées), all payment orders (dépenses ordonnancées), all payment orders accepted by the Treasury (dépenses prises en charge par le Trésor), and all payments made by the Treasury (dépenses payees). The SIGFIP table will exclude delegations for regions and embassies. The SIGFIP table will also list any payments that do not have a cash impact on the Treasury accounts.

E. Spending Undertaken Outside Simplified and Normal Procedures

13. This assessment criterion is applied on a continuous basis to any procedure other than the normal and simplified procedures to execute spending. It excludes only spending undertaken on the basis of a supplemental appropriation order (décret d’avance) in cases of absolute urgency and need in the national interest, pursuant to Article 12 of the Organic Budget Law. Such spending requires the signatures of the President of the Republic and the Prime Minister.

14. The authorities will report any such procedure, together with the SIGFIP table defined in paragraph 12, to Fund staff on a monthly basis with a maximum delay of 30 days.

F. Public Sector External Payments Arrears

Definition

15. External payment arrears are defined as the sum of payments owed and not paid when due (in accordance with the terms of the contract) on the external debt contracted or guaranteed by the public sector. The definition of external debt given in paragraph 19 is applicable here. The assessment criterion on external payments arrears will be monitored on a continuous basis.

Reporting Requirements

16. The authorities will promptly report any accumulation of external payments arrears to Fund staff.

G. Contracting or Guaranteeing of External Debt by the Public Sector

Definition

17. Debt. The definition of debt is set out in Executive Board Decision No. 6230-(79/140), Point 9, as revised on August 31, 2009 (Decision No. 14416-(09/91).

  • a) The term “debt” will be understood to mean a direct, i.e., non-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, according to a given repayment schedule; these payments will discharge the principal and/or interest. Debts can take a number of forms, the primary ones being as follows:

    • i. Loans, i.e., 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, i.e., contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided; and

    • iii. Leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually 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.

  • b) Under the definition of the debt above, arrears, penalties, and judicially awarded damages and interest 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.

18. Debt guarantees. The guarantee of a debt arises from any explicit legal obligation of the public sector to service a debt in the event of nonpayment by the debtor (involving payments in cash or in kind.)

19. External debt. External debt is defined as debt borrowed or serviced in a currency other than the CFA franc, regardless of the residency of the creditor.

H. Public Sector Contracts Signed by Single Tender

Definitions

20. Public sector contracts are administrative contracts, drawn up and entered into by the government or any entity subject to the procurement code, for the procurement of supplies, delivery of services, or execution of work. Public sector contracts are considered “single-tender” contracts when the contracting agent signs the contract with the chosen contractor without competitive tender. The quarterly indicative target will apply to total public sector contracts entered into by the government or by any entity subject to the procurement code. The ceiling on contracts executed by single tender will exclude classified purchases and fuel purchases by SENELEC for electricity production reflected in a new regulation that allows SENELEC to but fuel from SAR on the basis of the current price structure.

Reporting Requirements

21. The government will report quarterly to Fund staff, with a lag of no more than one month from the end of the observation period, the total amount of public sector contracts and the total value of all single-tender public sector contracts.

I. Tax Revenues

Definition

22. Tax revenues are the sum of revenues from taxes and levies on income, profits and capital gains, salaries and labor, on assets; taxes on goods and services; on foreign trade and international transactions; and other tax revenues. The indicative target will be assessed on the basis of data for these revenues provided in the quarterly TOFE.

23. Specifically, petroleum revenues are the subject of specific monitoring in connection with international price trends. These are the VAT on oil, excise taxes on oil, customs duties on oil, vehicle taxes, and the Petroleum Product Imports Security Fund (FSIPP).

Additional Information for Program Monitoring

24. The authorities will transmit the following to Fund staff, in electronic format if possible, with the maximum time lags indicated:

  • a) Three days after adoption: any decision, circular, edict, supplemental appropriation order, ordinance, or law having economic or financial implications for the current program. This includes in particular all acts that change budget allocations included in the budget law being executed (for instance: supplemental appropriation orders (décrets d’avance), cancellation of budget appropriations (arrêtés d’annulation de crédit budgétaires), and orders or decisions creating supplemental budget appropriations (décrets ou arrêtés d’ouverture de crédit budgétaire supplémentaire). It also includes acts leading to the creation of a new agency or a new fund.

  • b) Within a maximum lag of 30 days, preliminary data on:

    • i) Tax receipts and tax and customs assessments by category, accompanied by the corresponding revenue on a monthly basis;

    • ii) The monthly amount of expenditures committed, certified, or for which payment orders have been issued;

    • iii) The monthly situation of checks issued by agencies from their deposit accounts at the Treasury but not paid to beneficiaries, with the dates of issuance of the checks.

    • iv) The quarterly report of the Debt and Investment Directorate (DDI) on the execution of investment programs;

    • v) The monthly preliminary government financial operations table (TOFE) based on the Treasury accounts;

    • vi) The provisional monthly balance of the Treasury accounts; and

    • vii) Reconciliation tables between the SIGFIP table and the consolidated Treasury accounts, between the consolidated Treasury accounts and the TOFE for “budgetary revenues and expenditures,” and between the TOFE and the net treasury position (NTP), on a quarterly basis; and

  • c) Final data will be provided as soon as the final balances of the Treasury accounts are available, but not later than one month after the reporting of provisional data.

25. During the program period, the authorities will transmit to Fund staff provisional data on current nonwage noninterest expenditures and domestically financed capital expenditures executed through cash advances on a monthly basis with a lag of no more than 30 days. The data will be drawn from preliminary consolidated Treasury account balances. Final data will be provided as soon as the final balances of the Treasury accounts are available, but no more than one month after the reporting of provisional data.

26. The central bank will transmit to Fund staff:

  • viii) The monthly balance sheet of the central bank, with a maximum lag of one month;

  • ix) The monthly consolidated balance sheet of banks with a maximum lag of two months;

  • x) The monetary survey, on a monthly basis, with a maximum lag of two months;

  • xi) The lending and deposit interest rates of commercial banks, on a monthly basis; and

  • xii) Prudential supervision and financial soundness indicators for bank financial institutions, as reported in the table entitled Situation des Établissements de Crédit vis-à-vis du Dispositif Prudentiel (Survey of Credit Institution Compliance with the Prudential Framework), on a quarterly basis, with a maximum delay of two months.

27. The government will update on a monthly basis on the website established for this purpose the following information:

  • Preliminary TOFE and transition tables with a delay of two months;

  • SIGFIP execution table, the table for the central government and a summary table including regions, with a delay of two weeks;

  • The amount of the airport tax collected, deposited in the escrow account, and used for the repayment of the loan financing the construction of the new airport, with a delay of one month. Full information on i) the operations of the Energy Sector Support Fund (FSE); ii) investment projects in the power sector; iii) planning and execution of these projects; iv) details of financing and updated costs.

The strong export performance is mainly driven by an increase in volume rather than in prices. Exports of cement—one of the most important exports—is projected to increase at around 10-15 percent per year, thanks to new investment (Dangote cement opened a new plant in Pout in 2015 to expand its operations in Senegal). Exports of fish products, another important export, are projected to contract in 2016 because of lower prices and then to grow at moderate rates (3–5 percent) thereafter.

The declining path of remittances is consistent with Senegal becoming closer to an emerging market and therefore receiving less remittances.

Senegal averaged about 2.1 percent of GDP in FDI over 2010–14. Over the same period, the average for 47 LICs was 6.1 percent of GDP while that for 20 Sub-Saharan African LICs was 7 percent of GDP.

The continuous benchmark related to assessing projects financed by public-private partnerships (PPPs) involves assessing at least one project every 6 months starting on 1 July 2015. This is underway and expected to be met for the second review.

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