Request for a Three-Year Policy Support Instrument—Informational Annex
Author: International Monetary Fund
Publication Date:
07 Nov 2007
eISBN:
9781451834079
Language:
English
Keywords:
ISCR; CR; authority; Senegalese authorities; staff appraisal; target; donor commitment; public finance; Banque habitat du Sénégal; CFA franc; assistance strategy; Casamance Emergency construction support project; Government finance statistics; Balance of payments statistics; Real sector statistics; West Africa
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The staff report for the Request for a Three-Year Policy Support Instrument (PSI) on Senegal explains economic developments. Allocations for priority spending suffered, and cash-flow problems resulted in payment delays to the private sector. The authorities intend to tackle key policy challenges under a three-year PSI. Slippages in restructuring public enterprises could raise fiscal risks and endanger banking system soundness. Weakening political resolve to implement structural reforms and address governance concerns could undermine policy credibility and reduce aid flows.

Abstract

The staff report for the Request for a Three-Year Policy Support Instrument (PSI) on Senegal explains economic developments. Allocations for priority spending suffered, and cash-flow problems resulted in payment delays to the private sector. The authorities intend to tackle key policy challenges under a three-year PSI. Slippages in restructuring public enterprises could raise fiscal risks and endanger banking system soundness. Weakening political resolve to implement structural reforms and address governance concerns could undermine policy credibility and reduce aid flows.

Senegal: Relations with the Fund

(As of August 31, 2007)

I. Membership Status: Joined: August 31, 1962; Article VIII as of June 1, 1996.

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Latest Financial Arrangements:

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VI. Projected Payments to Fund:

(SDR Million; based on existing use of resources and present holdings of SDRs):

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VII. Implementation of HIPC Initiative:1

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VIII. Implementation of MDRI Assistance:

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II. Debt Relief by Facility (SDR Million)

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IX. Safeguards Assessments:

The Central Bank of West African States (BCEAO) is a common central bank of the countries of the West African Economic and Monetary Union that includes Senegal. The most recent safeguards assessment of the BCEAO was completed on November 4, 2005. The assessment indicated progress made in strengthening the bank’s safeguards framework since the 2002 assessment and a number of areas where further steps would help solidify it.

The BCEAO now publishes a full set of audited financial statements and improvements have been made to move financial reporting closer to International Financial Reporting Standards (IFRS). Furthermore, an internal audit charter has been put in place, mechanisms for improving risk management have been established and follow-up on internal and external audit recommendations has been strengthened.

The monitoring results of the first half of 2007 indicate certain vulnerabilities remaining in internal control systems, and some progress achieved in improving the external audit process (including adopting a multi year audit program), establishing an audit committee, expanding disclosures in the notes to financial statements on financial positions with the Fund by countries, including Senegal, and further strengthening the effectiveness of the internal audit function.

X. Exchange System:

Senegal is a member of the West African Economic and Monetary Union (WAEMU). The exchange system, common to all members of the union, is free of restrictions on the making of payments and transfers for current international transactions. The union’s common currency, the CFA franc, had been pegged to the French franc at the rate of CFAF 1 = F 0.02. Effective January 12, 1994, the CFA franc was devalued and the new parity set at CFAF 1 = F 0.01. Effective December 31, 1998, the parity was switched to the euro at a rate of CFAF 655.96 = €1.

The authorities confirmed that Senegal had not imposed measures that could give rise to exchange restrictions subject to Fund jurisdiction. They will inform the Fund if any such measure is introduced.

Aspects of the exchange system are also discussed in the recent report on economic developments and regional policy issues of WAEMU.

XI. Article IV consultations:

Senegal’s last PRGF expired in April 2006 and, therefore, the country is on a 12-month Article IV consultation cycle. The 2006 Article IV consultation was completed by the Executive Board on January 29, 2007 (IMF Country Report No. 07/335). In concluding the Article IV consultation, Executive Directors stressed that renewed efforts at macroeconomic stabilization and deepening of structural reforms would be critical to improve the economy’s resistance to shocks, address problems in budgetary discipline and fiscal transparency, and move toward the Millennium Development Goals. In this context, Directors urged speedy implementation of the authorities’ action plan for improving the business environment and reducing the cost of doing business, which would be crucial for enhancing growth prospects. More generally, Directors stressed that the authorities should use the opportunity provided by debt relief under the HIPC Initiative and the MDRI to address Senegal’s long-standing economic problems and further reduce poverty. Directors welcomed the authorities’ intention to lower fiscal deficits over the medium term in order to contain the external current account deficit and prevent debt distress and arrears. They highlighted that reducing energy subsidies should be the main component of this policy, supported by containment of the wage bill relative to GDP and limited increases in capital outlays. Directors also urged prompt elimination of domestic payment arrears.

XII. Financial Sector Assessment Program (FSAP) and Report on the Observance of Standards and Codes (ROSC) Participation:

A joint team of the World Bank and the International Monetary Fund conducted a mission under the FSAP program in November 2000 and January 2001. The Financial System Stability Assessment (FSSA) was issued in August 2001 (IMF Country Report No. 01/189). An FSAP update was undertaken in June 2004, focusing on development issues (in particular nationwide supply of basic financial services and access of SMEs to credit), in line with the priorities defined in the PRSP (IMF Country Report No. 05/126).

A ROSC on the data module, based on a September 2001 mission, was published on December 2, 2002. An FAD mission conducted a ROSC on the fiscal transparency module in January 2005.

XIII. Technical Assistance:

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XIV. Resident Representative

Stationed in Dakar since July 24, 1984. The position has been held by Mr. Alex Segura-Ubiergo since September 22, 2006.

XV. Anti Money Laundering / Combating the Financing of Terrorism

The onsite visit for Senegal’s AML/CFT evaluation took place in July/August 2007 in the context of ECOWAS Inter-Governmental Action Group Against Money Laundering (GIABA), based on which the AML/CFT framework will be updated.

XVI. Fourth Amendment of the Articles of Agreement and the Eleventh Quota Review

The authorities have indicated their agreement with the Fourth Amendment of the Articles of Agreement. The increase in Senegal’s quota under the Eleventh General Review of Quotas was completed on February 11, 1999.

Senegal: Relations with the World Bank8

(As of September 7, 2007)

Partnership in Senegal’s development

1. Senegal’s second PRSP and Joint IDA-IMF Advisory Note (JSAN) were discussed by the Bank’s Executive Directors on January 30, 2007. Building on the first PRSP, the second PRSP covers five years and emphasizes accelerated growth with macroeconomic stability. It sets out the following pillars of the Government’s strategy: (i) creation of wealth, with emphasis on the country’s Accelerated Growth Strategy, (ii) access to basic social services, (iii) protection of vulnerable groups and risk management, and (iv) good governance and participatory processes.

2. The Government has developed an Accelerated Growth Strategy which is at the center of the first pillar of the new PRSP and is based on two key objectives: (i) improving the overall investment climate of the economy by focusing on a series of cross-cutting issues (including in the areas of justice, taxes, infrastructure, and administrative barriers); and (ii) promoting the development of five cluster sectors with presumed good export growth and job creation potential, including through measures to enhance sectoral competitiveness.

3. The Accelerated Growth Strategy provides the framework for the Bank’s new Country Assistance Strategy (FY07-10), which was presented to the Board of Executive Directors on June 20, 2007. The CAS is articulated around three pillars: (i) accelerated growth/wealth creation; (ii) human development/shared growth; and (iii) rural and urban synergies. The Bank supported the Government’s efforts under the first PRSP to achieve sustained growth rates, reduce the incidence of poverty and improve access to basic social services.

4. Regarding the division of responsibilities between the Bretton Woods institutions, the IMF takes the lead in the policy dialogue on macroeconomic policies and monitors macroeconomic performance by way of quantitative performance criteria and indicators. In addition, the IMF’s last PRGF-supported program contained structural conditionality in areas such as electricity and groundnut sector reform, which have a direct bearing on macroeconomic stability and growth prospects.

World Bank Lending Portfolio

5. IDA has provided external assistance to Senegal since 1966. The main objective of the Bank’s assistance strategy for Senegal has been to reduce the incidence of poverty and improve employment. The Bank is working to (i) develop country ownership through policy dialogue; (ii) use public expenditure reviews with a focus on impacts at the levels of the consolidated central budget; (iii) monitor linkages between implementation and aggregate results; and (iv) emphasize investment in human capital through the lending and advisory services.

6. As of August 15, 2007, the World Bank had approved 143 loans and credits for Senegal totaling about US$3 billion. Past projects have supported agricultural diversification, irrigation, human resources development, institutional development, and expansion of the country’s infrastructure, particularly its transport system. In recent years, the emphasis has shifted to better utilizing and maintaining existing facilities and to helping the Government resolve some of the key issues hampering long-term development prospects. The current active portfolio has a commitment value of about US$791.7 million equivalent, with an undisbursed amount of about US$473.7 million. The ongoing portfolio is composed of 20 projects in various sectors (rural development; human development, including population, health, nutrition, education, social development, and HIV/AIDS; infrastructure, urban development, energy, water, industry, private sector development, and budget support including to strengthen public financial management).

7. Bank support to the health sector has been provided under a series of Poverty Reduction Support Credits. PRSC III, which was presented to the Bank’s Board on June 20, 2007, has continued to support the Government’s efforts, begun under PRSC I and II, to improve health infrastructure and the allocation of human and financial resources toward the regions. An HIV/AIDS Prevention and Control Project is assisting the Government in: (i) preventing the spread of HIV/AIDS by reducing transmission among high risk groups; (ii) expanding access to treatment, care, and support for people living with HIV/AIDS in Senegal, to serve as a pilot for the implementation of antiretroviral treatment in sub-Saharan Africa; and (iii) supporting civil society and community initiatives for HIV/AIDS prevention and care.

8. In 1999, the Government adopted a ten-year education program (PDEF) with the ultimate objective of ensuring universal primary education by the year 2008 (up from 60 percent of gross primary enrollment in 1999). A Quality Education for All Project (QEFA -Education SIP) supports the program in three phases, the second of which was approved on August 30, 2006. Key issues in education include the need to (i) consolidate gains in expanding access while addressing the needs of the under- and un-served areas; (ii) support quality improvements in education through interventions at the school and at local education structures; (iii) improve sector management (in particular, financial and personnel management); and (iv) prepare for smooth deconcentration, and eventual decentralization, to the regional and departmental levels.

9. A second Nutrition project is expanding access to, and enhancing nutritional conditions of vulnerable populations, in particular to promote the growth of children under five years of age in poor urban and rural areas.

10. Bank support to the urban sector is provided under the urban Mobility project, which aims to improve the safety, efficiency and environmental quality of urban mobility in the Dakar metropolitan area, especially for the urban poor, and to improve road safety in Thiès and Kaolack. Support to urban municipalities is also provided under the Local Authorities Development Program, which aims at (i) strengthening the capacity of urban municipalities to improve resource mobilization, and municipal and urban management; and (ii) increasing access to and quality of public infrastructure and services in urban areas.

11. Among the seven development partners involved in the urban water sector, the Bank has taken the lead in supporting the Long-Term Water Sector project, a large physical investment program that includes institutional reforms. The project has increased access to potable water in the Dakar area and improved overall management of the sector.

12. In terms of rural development and fisheries, the Bank provides support through several programs and projects. A second phase of the Agricultural Services and Producer Organizations Program aims at increasing access for smallholder producers to agricultural services and innovations, with a view to diversifying and stabilizing their productions and increasing food security. The first phase of the Agricultural Markets and Agribusiness Development project is helping increase non-traditional agricultural exports and farm revenues for project-supported producers. The Participatory Local Development project is assisting the Government in setting up an effective framework for participatory local development, decentralization, resource mobilization and transfer to local governments and communities, to efficiently deliver services in rural areas and targeted poorest cities. The Integrated Marine and Coastal Resources Management project aims to increase the sustainable management of marine and coastal resources in three pilot areas by communities and the Government.

13. Key issues in the transport sector include the need to strengthen institutional capacity, direct private sector involvement in investment and management of the sector, improve the condition of the priority road network and reduce the cost of road maintenance and rehabilitation. Capacity constraints are being addressed with a program of investments, especially in rehabilitating rail links between Senegal and Mali, as well as institutional reforms. The second Transport Sector project launched in 1999 with support from several donors, addressed these issues and is closing on June 30, 2007. The Bank is preparing a new project for FY08 to support the construction of a main communication axle between Dakar and Diamniadio in an effort to foster economic development of Senegal’s main economic center.

14. Due to global difficulties in the energy sector, the two “privatization” efforts conducted over the last five years to bring private sector expertise and private financing into SENELEC were not successful. Bank’s assistance to the Government takes into account the lessons learned and the overall international context where private sector interest in investing in Africa is reduced. The Bank is supporting the sector through two projects. The Electric Services for Rural Areas project aims to increase the rural population’s access to modern energy services and to ensure the environmental and social sustainability of wood fuels in urban and peri-urban areas. The objectives of the Electricity Efficiency Enhancement project are to (i) maintain and increase the electricity supply and the reliability of the services; (ii) reduce the costs of electricity services; and (iii) enhance the performance of key energy sector institutions. Support will be strengthened to assist the authorities in implementing their sector strategy by developing a new project in FY08, subject to the availability of additional IDA resources.

15. In terms of private sector development, the Private Investment Promotion project and the Private Sector Adjustment operation assist in creating the conditions to stimulate a sustained increase in private investment in Senegal through an improved investment climate, greater private participation in economic activities, and policy and sector reform.

16. The Casamance Emergency construction Support project approved in 2004 seeks to normalize social and economic activities in the region and prepare for future development programs in Casamance. Activities include demining, demobilization and reintegration of former combatants and their families, and rebuilding social and economic infrastructure.

17. The Bank also supports Senegal through several regional initiatives, including the OMVS Felou Hydroelectric project, the Senegal River Basin Multi-Purpose project, the Africa Emergency Locust project, and the recently approved West Africa Agricultural Productivity Program, which seeks to strengthen agriculture technologies in three participating countries (Ghana, Mali and Senegal), to allow countries to benefit fully from regional cooperation.

18. As of February 28, 2007, the International Finance Corporation’s (IFC) portfolio in Senegal totaled about US$47.9 million and included three large investments: (i) the Kounoune Power Company for the development, construction and operation of a diesel power generation plant; (ii) GTI-Dakar Power Plant, the first independent power producer of the country; (iii) and Ciments du Sahel, the country’s second cement producer. IFC’s activities in Senegal are focused on pro-active project development, especially in financial markets, micro, small and medium enterprises (MSMEs) development, technical assistance, tourism, agribusiness, information and communication technology, mining, infrastructure and housing. Through the Private Enterprise Partnership for Africa, IFC is focusing on investment climate, tourism initiatives, and access to MSMEs.

World Bank-IMF collaboration in specific areas

19. The IMF and the World Bank staff maintain a close working relationship, especially with respect to (i) the implementation of the Poverty Reduction Strategy; (ii) reforms in public finance management; and (iii) structural measures in specific sectors, such as electricity and groundnuts, which have systematic impact on the public finances and on macroeconomic stability.

20. The conditionality for the groundnut and electricity sectors in the most recent PRGF-supported program has been developed in close collaboration with World Bank staff, and the Bank takes the lead role in working out the technical details of the envisaged reforms. The IMF and the Bank also coordinate their activities and conditionalities in the area of public expenditure reform, an area in which both institutions have an interest.

Senegal: Statement of Loans/Credits/Grants

(as of August 15, 2007)

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Statement of IFC’s Held and Disbursed Portfolio

(As at September 20, 2006)

(In US$ million)

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BHS = Banque Habitat du Sénégal (local housing bank)CDS = Ciments du Sahel (cement factory)GTI-DAKAR = (power plant)SEF Royal Saly = Small Enterprise Fund (small tourist hotel)

Senegal: Statistical Issues

21. Overall, Senegal’s economic database is comprehensive and adequate for surveillance and program monitoring. However, there are weaknesses in data on national accounts, production, international trade, and social indicators. The authorities are strongly committed to improving the quality and availability of economic, financial and social indicators, partially relying on technical assistance from the Fund and other international organizations. A Report on the Observance of Standards and Codes—Data Module, a Detailed Assessment Using the Data Quality Assessment Framework (DQAF), and a Response by the Authorities were published on the IMF website on December 2, 2002.

22. Senegal has begun the process of regional harmonization of statistical methodologies within the framework of the West African Economic and Monetary Union (WAEMU).

23. Senegal participates in the General Data Dissemination System (GDDS), and its metadata were posted on the Fund’s Dissemination Standards Bulletin Board on September 10, 2001. Metadata were updated in July 2005. The authorities intend to subscribe to the Standard Data Dissemination System (SDDS) within two to three years. To this end, the May 2006 STA mission helped the authorities develop an action plan to meet SDDS requirements, noting that improvements are needed in several data dimensions on coverage, periodicity, and timelines.

Real sector

24. The compilation of the national accounts generally follows the System of National Accounts, 1993. Despite staff’s professionalism, the lack of adequate financial resources has constrained efforts to collect and process data. Data sources are deficient in some areas, particularly the informal sector. Owing to financial constraints, surveys of business and households are not conducted regularly, impeding the production of national account estimates (e.g., input-output tables and institutional sector accounts are not compiled annually). However, efforts are being made to improve data collection procedures, strengthen the coordination among statistical agencies, and reduce delays in data dissemination.

25. A regional advisor in real sector statistics covering the West AFRITAC countries, including Senegal, was posted for one year beginning December 2005, with a first assessment visit in March 2006 covering real sector statistics. Progress reported by the advisor includes: i) completion of a national accounts series for 1980-2004 with 1999 as the base year; ii) dissemination of the 1980-2003 series in hard copy and on the internet; iii) production of accounts by institutional sector; and iv) production of national accounts according to schedule. The authorities plan to start production of quarterly accounts in view of the country’s intention to subscribe to the SDDS.

26. The coverage of the harmonized consumer price index, introduced in January 1998, is limited to Dakar. Its weights are based on a household budget survey conducted during only three months in 1996, and the regular provision of financial resources required for the price collection is not assured. The authorities plan to extend the scope of the CPI to cover all 11 regions of the country.

Public finances

27. Government finance statistics (GFS) are compiled by the Ministry of Economy and Finance from customs, tax, and treasury directorate sources. Data last reported to STA for inclusion in the Government Finance Statistics Yearbook were for fiscal year 2001. Higher frequency data are not updated for publication in IFS, but the ministry compiles and disseminates reasonably detailed quarterly government financial operations tables (TOFE) in their own publications. However, the authorities do not have a good handle on domestic arrears data and other payment delays because of weaknesses in the treasury computerization system. These weaknesses are being addressed under the proposed program.

28. An AFR team worked with the authorities in February 2004 to improve fiscal reporting in the context of the last PRGF-supported program. The team focused on (i) public accounts that are outside of the direct purview of the treasury; (ii) the treatment of correspondents’ accounts in the TOFE; and (iii) ensuring consistency between treasury and banking system information concerning government transactions. The proposed changes are now being implemented. They will improve the presentation of government financial operations and are a first step toward bringing the TOFE in line with the extended WAEMU TOFE. Other steps will include implementing the WAEMU directives on public finances that are being revised.

29. A regional advisor in government finance statistics conducted several technical assistance missions to Senegal. Her terms of reference include improved fiscal reporting consistent with migration towards the reporting of data consistent with Government Finance Statistics Manual 2001 and a resumption of reporting for Government Finance Statistics Yearbook.

Monetary data

30. Preliminary monetary data for Senegal are compiled by the national agency of the Central Bank of West African States (BCEAO) and officially released by BCEAO headquarters. There has been an improvement in the timeliness of data provided on interest rates, monetary institutions, and deposit money banks. The authorities are now reporting monetary data to STA on a regular basis, with a reduction in the lag from about six months to about three to four months. An area-wide page for the WAEMU zone was introduced in the January 2003 issue of IFS.

31. In 2005, the BCEAO made substantial revisions to the estimates of banknotes in circulation in member states resulting from cross-border banknote movement. These revisions were due to changes in the method to estimate currency in circulation in the WAEMU countries. The revised method, based on updated sorting coefficients (“coefficients de tri”), has been applied retroactively from December 2003.

32. In August 2006, as part of the authorities’ efforts to implement the MFSM’s methodology, the BCEAO reported to STA monetary data for June 2006 for all member countries using Standardized Report Forms (1SR-central bank, 2SR-other depository corporations, and 5SR-monetary aggregates). These data were reviewed in STA and comments were provided to the authorities. An official response is pending.

Balance of payments data

33. Balance of payments data are compiled by the national agency of the BCEAO. With STA support, several steps have been taken to tackle deficiencies, including: (i) implementation of the Balance of Payments Manual, fifth edition; (ii) modified and simplified related surveys for companies and banks; (iii) improvement in the computerization of procedures; and (iv) significant strengthening of staff training. Although definitive balance of payments data can now be provided with a delay of less than one year, there are significant delays in reporting data to STA (nearly two years lag). Further efforts are required to enhance the quality and coverage of balance of payments data. In particular, the latest published data show inconsistencies between the balance of payments and the international investment position.

Senegal: Table of Common Indicators Required for Surveillance

(As of September 7, 2007)

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Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

Reflects the assessment provided in the data ROSC published in November 2002 and based on the findings of the mission that took place in September 2001 for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning (respectively) concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), not observed (NO), or not available (NA).

Same as footnote 7, except referring to international standards concerning (respectively) source data, statistical techniques, assessment and validation of source data, and revision studies.

Other IMF Content

Other Publishers

Cover IMF Staff Country Reports
Senegal: Request for a Three-Year Policy Support Instrument: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Senegal
Author: International Monetary Fund
Volume/Issue:
Volume 2007: Issue 358
Publisher:
International Monetary Fund
ISBN:
9781451834079
ISSN:
1934-7685
Pages:
88
DOI:
https://doi.org/10.5089/9781451834079.002