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© 2009 International Monetary Fund
January 2009
IMF Country Report No. 09/5
Senegal: Second Review Under the Policy Support Instrument, Request for a Twelve-Month Arrangement Under the Exogenous Shocks Facility, and Request for Waivers and Modification of Assessment Criteria—Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Senegal
In the context of the second review under the Policy Support Instrument, request for a twelve-month arrangement under the Exogenous Shocks Facility, and request for waivers and modification of assessment criteria with Senegal, the following documents have been released and are included in this package:
The staff report for the Second Review Under the Policy Support Instrument, Request for a Twelve-Month Arrangement Under the Exogenous Shocks Facility, and Request for Waivers and Modification of Assessment Criteria, prepared by a staff team of the IMF, following discussions that ended on November 7, 2008, with officials of Senegal on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on December 5, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A staff statement of December 19, 2008 updating information on recent developments.
A Press Release summarizing the views of the Executive Board as expressed during its December 19, 2008 discussion of the staff report that completed the review and requests.
A statement by the Executive Director for Senegal.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Senegal*
Memorandum of Economic and Financial Policies by the authorities of Senegal*
Technical Memorandum of Understanding*
*Also included in the Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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Front Matter Page
INTERNATIONAL MONETARY FUND
SENEGAL
Second Review Under the Policy Support Instrument, Request for a Twelve-Month Arrangement Under the Exogenous Shocks Facility, and Request for Waivers and Modification of Assessment Criteria
Prepared by the African Department
(In consultation with other departments)
Approved by Benedicte Vibe Christensen and Anthony R. Boote
December 5, 2008
Second PSI Review. Staff recommends completion of the review, notwithstanding significant concerns about budgetary slippages, the associated need for three waivers on assessment criteria (AC), and the related misreporting (see separate report). This is based on the authorities’ strong corrective actions to address the slippages, significant program commitments to address the identified weaknesses in the PFM systems and fiscal reporting, a reiteration of the program’s medium-term fiscal objectives, strong structural performance under the program, and the urgent need to reinvigorate economic activity and shore up donor support and FDI inflows in the current fragile international environment.
Access to ESF. The authorities request a one-year high-access-component ESF arrangement (30 percent of quota, equivalent to SDR 48.54 million) to help finance the balance of payments impact of higher oil and food prices, to be disbursed in two equal tranches at the completion of the second and third PSI reviews (the latter expected in June 2009). ESF program targets will parallel the PSI’s.
Program Discussions. They were held in Dakar during October 28–November 7, 2008, preceded by a fact-finding staff visit during September 16–22, 2008 and discussions in Washington prior to the Annual Meetings. The team comprised Messrs. Mueller (head), Lakwijk, Gitton (all AFR), Ms. Mitra (SPR), Ms. Sancak (FAD), Mr. Michel (PFM expert, FAD), and Mr. Segura-Ubiergo (resident representative). The team met with Finance Minister Diop, Budget Minister Sow, BCEAO National Director Sene, other senior government officials, and representatives of development partners, the private sector, and banks. The mission partially overlapped with a Fund TA mission on PFM arranged to provide a diagnostic of the budgetary slippages and recommend remedies.
Contents
Executive Summary
I. Background
A. A Difficult Environment
B. Program Performance and Impact of Budgetary Slippages
II. Economic Outlook and Risks
A. Economic Outlook
B. Economic Risks
III. Program Discussions
A. Overview
B. Fiscal Policy
C. Structural Reforms
D. ESF Request
E. Misreporting
IV. Staff Appraisal
Twelve-Month Arrangement Under the Exogenous Shocks Facility
Appendix I. Letter of Intent
Attachment I. Memorandum on Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
Boxes
1. Budgetary Slippages
2. PSI Conditionality and Budget Slippages
3. Possible Effects of the Global Economic and Financial Crisis
4. Conclusions and Recommendations of TA Mission on PFM
5. The Impact of the Food and Energy Price Surge
Figures
1. Recent Macroeconomic Developments, 2002–08
2. Senegal, WAEMU, and SSA: Macroeconomic Developments and Outlook, 2004–09
3. Medium-Term Outlook, 2007–13
4. Millennium Development Goals, 1990–2015
Tables
1. Selected Economic and Financial Indicators, 2004–13
2. Balance of Payments, 2004–13
3. Government Financial Operations, 2006–13
4. Government Financial Operations, 2006–13
5. Monetary Survey, 2004–08
6. Millennium Development Goals
7. Financial Soundness Indicators for the Banking Sector, 2003–08
8. Quantitative Assessment Criteria and Indicative Targets, 2007–08
9. Structural Conditionality, May 2008–March 2009
10. Indicators of Capacity to Repay the Fund, 2007–19
Executive Summary
The second PSI review is taking place in a difficult context arising from exogenous and domestic factors. Rising food and energy prices presented a shock to the balance of payments of 5¼ percent of GDP in 2008. These difficulties have been compounded by significant policy slippages in the form of government payment delays to the private sector—accumulated over 2006-08—which are impacting the real economy. Finally, the global financial crisis may affect Senegal in the next few months.
Program performance under the PSI has been mixed. On the positive side, all structural conditionality for the second PSI review has been met, including a new electricity tariff structure. By contrast, significant fiscal slippages (equivalent to 5 percent of GDP) have been uncovered. Program conditionality has been instrumental in identifying a large stock of unpaid government bills and extrabudgetary spending. The payment delays are due in part to the past cost of food and energy subsidies. The unpaid bills and their resolution require three waivers, which staff recommends be granted in light of the strong corrective actions, which will also help remedy the fiscal reporting deficiencies that gave rise to misreporting.
The authorities intend to address with urgency the payment delays and root causes of the budgetary slippages, as also announced by the President. Payment delays are expected to be eliminated by mid-2009. The authorities have already sharply cut spending in the context of a supplementary budget for 2008 and under the 2009 budget law to be adopted in mid-December. They have also committed to reinforcing their PFM systems, based on the diagnostics and recommendations of Fund TA. Among other things, the authorities will improve budget preparation procedures, modify key budget execution practices that have given rise to the slippages, and strengthen fiscal reporting. Three prior actions that achieve immediate and significant improvements in the budgetary area demonstrate the authorities’ commitment. The program also includes a strong reiteration by the authorities to pursue a prudent fiscal policy stance, aimed at preserving debt sustainability.
To help address the balance-of-payments impact of the food and energy price shock, the authorities request access to the ESF. They have already taken steps to contain imports, including by eliminating costly and untargeted subsidies for food and energy products, broadening agricultural production, and embarking on energy sector reform. The remaining subsidy on butane gas will be eliminated by mid-2009.
On balance, staff supports completion of the second PSI review and the ESF request. Staff considers that the economy should be in a better position to weather the impact of the global financial downturn with the strong remedial actions under the program to address the impact of both the food and fuel price shocks and the budgetary slippages.
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INTERNATIONAL MONETARY FUND
SENEGAL
Second Review Under the Policy Support Instrument, Request for a Twelve-Month Arrangement Under the Exogenous Shocks Facility, and Request for Waivers and Modification of Assessment Criteria—Informational Annex
Prepared by the African Department
(In collaboration with other departments)
Approved by Benedicte Vibe Christensen and Anthony R. Boote
December 8, 2008
Relations with the Fund. Describes financial and technical assistance by the IMF and provides information on the safeguards assessment and exchange system. Outstanding purchases and loans amounted to SDR 17.33 million (10.7 percent of quota) at end-October 2008.
Relations with the World Bank. Describes Bank and Fund work program.
Article VIII Status. Senegal accepted the obligations of Article VIII of the Fund’s Articles as of June 1, 1996 and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions.
Statistical Issues. Data provision has some shortcomings, but is broadly adequate for surveillance and program monitoring. There are weaknesses in data on national accounts, production, and social indicators.
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December 19, 2008
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Press Release No. 08/334
FOR IMMEDIATE RELEASE
December 19, 2008
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
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December 19, 2008
