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
Author:
International Monetary Fund
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Publication Date:
13 Jan 2009
eISBN:
9781451834109
Language:
English
Keywords:
ISCR; CR; authority; SDR; financing; ESF arrangement; payment delay; fiscal policy; debt service; economic growth; Senegalese authorities; Budget planning and preparation; Global; government financial operations
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Senegal’s second review under the Policy Support Instrument and request for a Twelve-Month Arrangement under the Exogenous Shocks Facility, and request for Waivers and Modification of Assessment Criteria are assessed. Rising food and energy prices have 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 and accumulated over 2006–08, which are impacting the real economy.

Abstract

Senegal’s second review under the Policy Support Instrument and request for a Twelve-Month Arrangement under the Exogenous Shocks Facility, and request for Waivers and Modification of Assessment Criteria are assessed. Rising food and energy prices have 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 and accumulated over 2006–08, which are impacting the real economy.

I. Background

A. A Difficult Environment

1. Senegal’s economy has been buffeted by dual shocks at a time when the world economic and financial crisis is further raising its vulnerability. First, the sharp run-up in international food and energy prices during 2006-08 has increased the import bill. Second, partially related to the high budgetary costs of untargeted subsidies the government had introduced as a first response to the price increases, the government has accumulated sizable payment delays to the private sector, which are affecting the economy. Although the global economic and financial crisis has so far had limited impact on Senegal, its effects may be felt in the months ahead through various channels (see Box 3 below). This provides a difficult context for completing the second PSI review while presenting a basis for access to the ESF.

B. Program Performance and Impact of Budgetary Slippages

2. Senegal’s PSI program is being tested by the uncovering of major budgetary slippages (Box 1). They comprise a large stock of unpaid bills vis-à-vis the private sector and large extrabudgetary spending. They have caused some donors to suspend their budget support and, including as a result of corrective actions, also led to the nonobservance of three ACs (on domestic arrears, the budgetary float, and nonconcessional external borrowing).

Budgetary Slippages

Since early 2006 (when the last PRGF arrangement expired), government payment delays to the private sector and extrabudgetary spending have occurred. This was largely caused by energy and food subsidies introduced in 2006 and significantly expanded in 2007, accounting for a total of 7 percent of GDP during 2006–08. Other spending, especially under the ambitious investment program, was not reigned in until well into 2008.

This reflected unrealistic budgets and a weak budget execution. Unsettled payment orders were carried over to the next year for payment, which in turn crowded out resources for spending committed in that year—a snowballing effect. Heavy reliance on Treasury advances (avances de trésorerie) to pay for unscheduled spending also crowded out regular payments.1 Moreover, several line ministries and other public entities contracted goods and services without budgetary appropriations. Ultimately, the stock of unpaid bills became unmanageable.

After a lengthy stocktaking exercise, the authorities identified the following slippages:

  • A stock of payment delays to the private sector within the expenditure chain estimated at CFAF 225 billion (3¾ percent of GDP) at end-October 2008, of which CFAF 50 billion owed through agencies.

  • Extrabudgetary spending—without budgetary appropriations—of CFAF 74 billion (1¼ percent of GDP) identified by the Ministry of Finance’s audit inspectorate (IGF), of which CFAF 11 billion by line ministries and CFAF 63 billion by agencies and universities.

1 A Treasury advance is a ministerial instruction to pay that bypasses regular checks and balances.

3. Program conditionality was instrumental in uncovering the extent of budgetary slippages (Box 2). In August 2008, preliminary IGF audit results became available and the end-June budgetary float under the broadened definition was reported with a level more than three times above the relevant AC (Table 8). The Budget Minister was dismissed.

Table 1.

Senegal: Selected Economic and Financial Indicators, 2004–13

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Sources: Senegalese authorities; and Fund staff estimates and projections.

Defined as total revenue and grants minus total expenditure and net lending, excluding interest expenditure.

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, and expenditure financed with HIPC Initiative and MDRI assistance.

Debt outstanding at year-end.

After HIPC and MDRI (from 2006) debt relief.

Table 2.

Senegal: Balance of Payments, 2004–13

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Sources: Central Bank of West African States (BCEAO); and Fund staff estimates and projections.

Includes receipts from sale by the government to a Sudanese operator of a telecom license for US$200 million in 2007.

Reflects MDRI stock debt relief in 2006. Debt relief from the Fund is recorded as a capital transfer. Debt relief from the IDA and the AfDF on the amounts falling due in 2006 is shown as exceptional financing, while debt relief on amounts due in 2007 and beyond is recorded as a capital transfer.

Until 2005, HIPC Initiative flow debt relief granted by the IMF is recorded as a grant, and that granted by the World Bank, the African Development Bank, Paris Club creditors, and Kuwait is recorded as exceptional financing.

Table 3.

Senegal: Government Financial Operations, 2006–13

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Sources: Senegalese authorities; and Fund staff estimates and projections.

Excludes project-related wages and salaries, which are included in capital spending, and the salaries of autonomous agencies and health and education contractual workers, which are included in transfers and subsidies.

From 2006, reflects post-MDRI debt service schedule.

Excludes subsidies aimed at sector development policies, which are included in capital spending.

Local governments, autonomous public sector entities (e.g., hospitals, universities), and the civil servants’ pension fund (FNR).

Defined as total revenue and grants minus total expenditure and net lending, excluding interest expenditure.

Total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, and HIPC/MDRI expenditure.

Until 2005, includes HIPC Initiative debt relief accorded by the IMF, the World Bank, the African Development Bank, and Paris Club Creditors.

Includes receipts from sale of telecom license for $200 million in late 2007.

Refers to HIPC-financed capital and other expenditure.

Defined as expenditures on health, education, environment, the judiciary, social development, sewage and rural irrigation.

Table 4.

Senegal: Government Financial Operations, 2006–13

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Sources: Senegalese authorities; and Fund staff estimates and projections.

From 2006, reflects post-MDRI debt service schedule.

Local governments, autonomous public sector entities (e.g. hospitals, universities), and the civil servants’ pension fund (FNR).

Defined as total revenue and grants minus total expenditure and net lending, excluding interest expenditure.

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, and HIPC/MDRI expenditure.

Defined as expenditures on health, education, environment, the judiciary, social development, sewage and rural irrigation.

Table 5.

Senegal: Monetary Survey, 2004–08

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Sources: Senegalese authorities; and Fund staff estimates and projections.
Table 6.

Senegal: Millennium Development Goals 1/

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Sources: World Bank staff and World Development Indicators.

The data in italics refer to periods earlier than shown.

Data listed under 2000 are for 2001-02.

Table 7.

Financial Soundness Indicators for the Banking Sector, 2003–08

(Percent, unless otherwise indicated)

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Source: BCEAO.

NPL changes in 2006 due to ICS. In 2008, ICS was recapitalized and the government guarantee for its bank loans was lifted. However, the loans in question remain classified as non-performing for the time being, although without the need to provision.

Excluding the tax on banking operations.

Table 8.

Quantitative Assessment Criteria and Indicative Targets, 2007–08 1/

(Billions of CFA francs, unless otherwise specified)

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Data for March are indicative targets, with the exception of the assessment criteria monitored on a continuous basis.

Defined as total revenue (excluding privatization receipts and sales of mobile telephone licenses) minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, and HIPC and MDRI spending. Cumulative since the beginning of the year. The 2007 floor has been adjusted upwards because the recapitalization of La Poste (for CFAF15.5 bn) did not take place in 2007; floor will be adjusted downwards by this amount in 2008 from the time it is implemented.

Cumulative since approval of first program review in June 2008; continuous before that time.

Excludes government or government-guaranteed CFAF borrowing from financial institutions within WAEMU and external loans contracted by the airport project company (AIDB) to finance the construction of the new Dakar Airport.

Monitored on a continuous basis.

September 15, 2008.

Defined as expenditure for which a bill has been received and recognized (depense liquidee) and which has not been paid; before the approval of the first program review in June 2008, defined as the expenditure for which a payment order has been issued and not yet paid.

For budget year 2008.

PSI Conditionality and Budget Slippages

Tight monitoring under the PSI, including through conditionality adjustments at the first review, brought the budgetary slippages to the surface:

  • The program included one quantitative AC on domestic arrears (the narrow WAEMU definition) and a broader one on the budgetary float, out of a total of five quantitative ACs. The budgetary float, originally defined as payment orders not yet paid, was broadened at the first review to verified bills not yet paid.

  • Coverage of the expenditure tracking software SIGFIP was extended to payments beginning in 2008 (a structural AC) to allow monitoring of the entire expenditure chain and determination of all unpaid spending.

  • At the first review, staff was able to identify a stock of payment delays of about 2 percent of GDP and the possibility of extrabudgetary spending (see IMF Country Report No. 08/209). Since it was suspected that the problem could be larger, the IGF audit was included as a structural benchmark for end-September 2008.

4. The authorities rapidly designed and are implementing an action plan to eliminate the unpaid bills (see text table). They sharply curtailed expenditure in a supplementary budget, eliminated costly and untargeted subsidies—consistent with Fund policy advice from the Article IV discussions earlier this year—and raised rapid financing from France, albeit at nonconcessional terms (see below). The supplementary budget also regularized all Treasury advances. The authorities will shortly launch technical audits for the extrabudgetary spending as a basis for a decision on whether such spending should be honored. In addition, they have committed to the sale of government assets to help complete the settling of all budgetary slippages in the first half of 2009.

Senegal: Key Measures under Authorities’ Action Plan

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5. All structural conditionality for the second PSI review was met (Table 9):

  • A new electricity tariff structure was introduced with reduced rates for low-income consumers (structural assessment criterion), coupled with a 17 percent rise in rates;

  • An implementation decree for the special economic zone (DISEZ) was adopted (structural assessment criterion);

  • A two-year program of issuing government securities was prepared (structural benchmark), although 1½ months late;

  • The IGF audit of payment delays was completed (structural benchmark);

  • Tax collections were consolidated in one department (structural benchmark); and

  • An administrative order was issued to strengthen investment planning and evaluation (structural assessment criterion).

Table 9.

Senegal: Structural Conditionality, May 2008–March 2009

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II. Economic Outlook and Risks

A. Economic Outlook

6. The budgetary slippages have begun to affect the economy (Figures 1 and 2). Activity in certain sectors, including construction and real estate, is slowing, banks’ nonperforming loans are on the rise, and tax collections are lagging.1 Together with the effect of higher oil and food prices on consumption, this may lower economic growth in 2008 to 3.9 percent.

Figure 1.
Figure 1.

Senegal: Recent Macroeconomic Developments, 2002-08

Citation: IMF Staff Country Reports 2009, 005; 10.5089/9781451834109.002.A001

Sources: BCEAO; and IMF staff estimates.1 Difference between actual and required reserves, which are a percentage of deposits, short-term credit, and gross foreign claims.
Figure 2.
Figure 2.

Senegal, WAEMU, and SSA: Macroeconomic Developments and Outlook, 2004-09

Citation: IMF Staff Country Reports 2009, 005; 10.5089/9781451834109.002.A001

Sources: WEO; and IMF staff estimates.1 For 2006, fiscal balance excluding grants for WAEMU and non-oil SSA to eliminate effect of MDRI relief.

7. Senegal’s medium-term economic outlook nonetheless remains broadly favorable (Figure 3). This hinges on the government quickly normalizing its financial relations with the private sector:

  • Economic growth. Supported by the recovery of Industries Chimiques du Sénégal (ICS)2 and continued strong FDI inflows,3 economic growth is expected to average 5½ percent during 2009–13, concentrated in construction, telecommunications, and transportation.

  • MDGs. Despite some progress, some MDGs will be difficult to achieve (Figure 4, Table 6, and JSAN).

  • Inflation. Headline inflation is projected at 6 percent in 2008, reflecting high input prices for food and energy products, with relatively subdued core inflation of 2–3 percent. Inflation is expected to return to historical levels over the medium term.

  • Balance of payments and external debt. The current account impact of high food prices will be mitigated by ICs’s recovery, but some deterioration is expected over the medium term due to FDI-related imports. FDI inflows, projections of which are so far holding up, should help Senegal maintain its low debt ratios, and the risk of debt distress remains low.4 Reserves should hover around 3½ months of imports.

Figure 3.
Figure 3.

Senegal: Medium-Term Outlook, 2007-13

Citation: IMF Staff Country Reports 2009, 005; 10.5089/9781451834109.002.A001

Sources: BCEAO; and IMF staff estimates.
Figure 4.
Figure 4.

Senegal: Millennium Development Goals, 1990-2015

Citation: IMF Staff Country Reports 2009, 005; 10.5089/9781451834109.002.A001

Sources: World Bank, WBDI (World Bank Development Indicators);United Nations, UNSTATS (United Nations Statistical division); and Senegal’s National Statistical Agency.
uA01fig01

CPI Inflation

(%; YoY)

Citation: IMF Staff Country Reports 2009, 005; 10.5089/9781451834109.002.A001

B. Economic Risks

8. Should payment delays not be settled speedily, Senegal may enter a pronounced economic downturn. This may be exacerbated by the global economic and financial crisis (Box 3).

Possible Effects of the Global Economic and Financial Crisis

The international crisis comes at a time when economic activity has been affected by domestic policy slippages. It may be transmitted through the following channels, which the authorities indicated they would monitor closely and proactively:

Aid flows: Budget constraints in donor countries resulting from domestic bailout packages could reduce aid (which recently amounted to 2 percent of GDP annually for Senegal). Senegal may be at a disadvantage in the future allocation of aid, as some budget aid is currently suspended.

Remittances: A pronounced economic downturn in Europe would likely dampen remittances (running at 8 percent of GDP per year) and affect economic activity, such as in construction.

FDI: A delay or cancellation of FDI (projected to rise from ½ percent of GDP in 2005 to 5 percent of GDP in 2010—see Box 4 in IMF Country Report No. 08/209) could affect financing of the current account and lower Senegal’s growth and employment prospects.

Financing flows: While Senegal relies mostly on concessional borrowing, large investment projects developed under Public-Private Partnerships (e.g., new airport, toll highway) may be delayed should financing conditions remain adverse, and fresh financing could dry up. The private sector could experience a drying up of trade finance.

Exports: Phosphoric acid exports should rise in 2009–10 due to the recovery of ICS, but other exports—especially tourism, processed fish products, and groundnut products—could suffer from a decline in demand in international markets.

Financial sector: The authorities are confident that banks in Senegal may be less affected as they are generally independent subsidiaries with their own capital base and limited credit lines from parent banks abroad. Existing capital controls also make large-scale withdrawals of funds difficult. However, the global economic crisis could lead to deteriorating domestic loan quality.

9. Other risks also need to be carefully monitored. These include: (i) exogenous shocks, such as unpredictable price developments in commodities markets and adverse weather and pest conditions affecting agriculture; and (ii) the political and economic costs of cleaning up the budgetary slippages, which could lead to backtracking in implementing the economic and structural program.

III. Program Discussions

A. Overview

10. The budgetary slippages and misreporting pose a challenge for completion of the second PSI review. The authorities recognized the need to commit to a strong package that would return Senegal to a prudent fiscal policy, speedily eliminate the payment delays to the private sector, address the extrabudgetary spending, and put in place far-reaching reform measures to restore the integrity of the budget framework and prevent a repeat of the slippages. They recognized the considerable urgency needed for these corrective actions, given that the private sector has been severely impacted and the country risked entering a pronounced economic downturn unless the private sector is repaid.

11. Senegal’s main development partners strongly prefer a continued program relationship between the Fund and Senegal. They urged the authorities to implement their action plan and agree with staff on strong commitments to bring the program back on track. This would unfreeze budget support from several donors, including France, the Netherlands, and the African Development Bank.

12. In mid-November, the President publicly discussed the authorities’ plans. He emphasized that they center on expenditure control and the mobilization of internal and external resources. The firm goal was to settle all payment delays as soon as possible in 2009. At around the same time, the Minister of Finance provided further details to parliament.

13. In line with the views of the authorities, the program will continue to be based on four pillars: (i) containing the fiscal deficit to underpin macroeconomic stability and safeguard debt sustainability; (ii) improving fiscal governance and transparency so as to enhance policy credibility and sustain external assistance; (iii) encouraging private sector activity by improving the business environment and addressing structural impediments to higher economic growth; and (iv) limiting financial sector vulnerabilities and raising the sector’s contribution to the economy. Given the urgency of correcting the fiscal slippages, emphasis is placed in this review on the first two pillars.

B. Fiscal Policy

14. The medium-term fiscal deficit target of 4 percent of GDP remains valid. This deficit level would keep debt sustainable and contribute to domestic stability within the context of the regional monetary union. However, the availability of financing will have to be carefully considered in the period ahead, and lower deficit targets may be needed if financing cannot be obtained.

MEFP ¶ 10

uA01fig02

NPV of debt-to-GDP ratio

Citation: IMF Staff Country Reports 2009, 005; 10.5089/9781451834109.002.A001

1/ This is the most extreme stress test.

15. The authorities are tightening fiscal policy in 2008 and 2009 to help settle all payment delays to the private sector. The mid-November supplementary budget for 2008 included expenditure cuts of around 3 percent of GDP—of which half reflected spending reductions implemented under an administrative order earlier in the year (a first-review prior action). The 2009 budget expected to be passed by parliament by December 15, 2008 (prior action) is in line with the macroeconomic framework developed with the staff—a first for Senegal.56 Notwithstanding the tighter budgetary envelope, the authorities committed to safeguarding priority spending.

MEFP ¶ 11-13

16. A significant reduction in unpaid bills is envisaged for 2008, with the remainder scheduled for the first half of 2009. The repayment schedule depends on available financing, with some possibly disbursed only after the completion of the second PSI review. This requires raising the AC on the budgetary float for end-December 2008 from CFAF 30 billion to CFAF 92 billion. To make meaningful progress in 2008 with eliminating payment delays and reinvigorate economic activity, the authorities requested rapid financial assistance from France, on nonconcessional terms.7 This became necessary as other donors had suspended their budget support, the WAEMU market lacks sufficient liquidity, and borrowing in global markets was unattractive.8

C. Structural Reforms

17. Structural conditionality focuses on preventing recurrence of the fiscal slippages. The key objective is to forcefully address their root causes and strengthen PFM systems. Commitments are also included to make progress in implementing the authorities’ Accelerated Growth Strategy and the WAEMU FSAP to help the private sector play its intended role as engine of growth and employment.

18. Conditionality reflects the recommendations of the PFM TA mission. This mission was arranged at short notice to urgently help find a way out of the budgetary problems (Box 4). Some improvements require immediate implementation and became prior actions; their completion would also illustrate the authorities’ commitment to, and ownership of, the program. Overall, in the staff’s view, structural conditionality in the fiscal area—if properly implemented—is sufficiently strong to warrant granting the three requested waivers and correct the fiscal reporting deficiencies that have given rise to misreporting.

Conclusions and Recommendations of TA mission on PFM

The TA mission stressed the generally satisfactory budgetary legal and regulatory framework, the good quality of Ministry of Finance staff, and the well-developed capacity for macroeconomic and budgetary analysis. The expenditure tracking software SIGFIP is also an important asset, although further refinements are warranted.

However, the budgetary framework is weakly applied in three areas:

  • Preparation of the annual budget lacks a meaningful top-down constraint, a calendar that is conducive for setting budgetary priorities, and flexibility for unforeseen spending.

  • Budget execution is complex, with multiple modifying procedures (budget transfers, credits, and Treasury advances), inefficient expenditure controls, and an absence of account closure; for example, 2007 payment orders were still issued in November 2008.

  • Accounting, with substantial delays in the submission of accounts and budget closure laws to the audit court, and no reconciliation of budgetary and Treasury systems.

The authorities broadly agreed with the TA mission’s diagnostics and expressed interest in implementing the key recommendations and incorporating them in the budget reform matrix that has been developed with donors. Program conditionality was selected in each of the three areas, focusing on achieving quick results in restoring budgetary discipline.

Objective: Enhance budget preparation and ensure consistency of budget with macroeconomic conditions and available financing.

  • Formulate realistic budgets. The authorities will issue a decree to fix a budget preparation calendar, effective with the 2010 budget, strengthen analysis of the budget’s macroeconomic underpinnings, determine the authorities’ budgetary priorities and a top-down constraint early in the process, and include early consultations with parliament (structural AC).9 In addition, the 2009 budget should be consistent with the macroeconomic framework elaborated with staff (prior action). The envisaged adoption of two supplementary budgets around mid-year and near year-end will contribute to enhanced budget realism.

MEFP ¶ 12, 19, 20

Objective: Strengthen budget execution, improve cash-flow planning, and facilitate fiscal policy monitoring.

  • Eliminate Treasury advances. A decree has eliminated Treasury advances (completed prior action). A continuous zero ceiling for spending undertaken outside the normal and streamlined expenditure procedure (including Treasury advances) will apply from the time of the second PSI review (quantitative AC).10

MEFP ¶ 15, 21

  • Limit spending carryover to next fiscal year. A decree will limit carryovers to 5 percent of total spending (structural AC). The government also committed to adjusting spending in the following year to maintain consistency with the macro framework.

MEFP ¶ 22

  • Ensure timely closure of fiscal year. A recent administrative order has set out the deadlines for expenditure commitments, verifications, payment orders, and payments. The 2008 accounts will be closed by end-April 2009 through freezing the SIGFIP system and publishing accounts on the internet (structural AC).

MEFP ¶ 23

  • Reconcile budgetary and accounting data. The authorities reconciled above- and below-the-line fiscal data from various budgetary and accounting systems and issued a manual outlining the reconciliation procedure (completed prior action). This was necessary to restore confidence in the fiscal data and allow fiscal policy monitoring, including under the program.11

MEFP ¶ 24

Objective: Address extrabudgetary spending.

  • Conduct technical audits of extrabudgetary spending. Based on terms of reference to be agreed with staff, the authorities will contract an external audit to assess all terms and conditions of the goods and services delivered under past extrabudgetary spending (structural benchmark). This will form the basis for decisions to either regularize such spending in a supplementary budget in 2009 or reject it.

MEFP ¶ 26

Objective: Reinforce fiscal governance and assess functioning of new procurement framework.

  • Complete and publish first annual report on implementation of procurement framework. The new procurement framework is widely considered a major achievement, but a possible single-tender purchase of a coal power plant by the public electricity company (SENELEC) has raised concerns. The report will assess implementation of the framework (structural benchmark).

MEFP ¶ 28

Objective: Support fiscal policy stance, shore up macroeconomic stability, and strengthen fiscal governance.

  • Ringfence revenue impact of special economic zone (DISEZ). Memoranda of understanding will identify the respective roles and responsibilities of the entities (zone administrator, revenue authority, and customs authority) involved in the tax administration of the zone (structural benchmark). This measure, set already at the first review, completes a series of structural program conditions related to DISEZ.

MEFP ¶ 30

Objective: Increase financial intermediation and access to credit.

  • Complete creation of new legal and regulatory framework for microfinance. The sector accounts for one-tenth of credits and, while expanding rapidly, suffers from insufficient supervision and a proliferation of unviable institutions. The new microfinance law (a structural benchmark of the first PSI review) will be made operational by decree (structural benchmark).

MEFP ¶ 37

D. ESF Request

19. The authorities request access to the ESF high-access component, at 30 percent of quota, to help absorb the food and energy price shocks (Box 5).12 Senegal’s capacity to repay the Fund is good (Table 10). The ESF will cover only a fraction (½ percent of GDP) of the total exogenous shock.

Table 10.

Senegal: Indicators of Capacity to Repay the Fund, 2007-19

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Sources: BCEAO; and Fund staff estimates and projections.

Assuming two disbursements of SDR 24.27 million (15 percent of quota) each under the ESF, in December 2008 and after third review in 2009.

The Impact of the Food and Energy Price Surge

Recent global surges of food and fuel prices have weakened Senegal’s external position. Senegal imports all of its fuel and most basic staples, including rice and wheat. The price effect is worsening Senegal’s 2008 current account by 5¼ percent of GDP, corresponding to a decline of 1½ months of reserves. Taking into account mitigating factors, reserves are expected to fall to 3¼ months of imports in 2008 (Table 2).

The temporary price subsidies to help shield the population cost 3 percent of GDP in 2008. The recent decision to rescind most subsidies helps reduce budgetary pressures.

ESF access and measures taken by the authorities will facilitate countering the shock. The ESF (30 percent of quota equally tranched in two disbursements at the completion of the second and third reviews) will finance food and fuel imports of ½ percent of GDP and may catalyze donor support once the current budgetary slippages have been resolved.

Food and Fuel Price Impact 1/

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Measured as 2008 prices relative to 2007 (October 2008 WEO data). Volumes kept constant at 2007 levels.

20. The authorities are addressing the exogenous shocks as part of their action plan. Consistent with Fund policy advice,13 they recently discontinued the rice subsidy, reinstated taxes on core food products, and ended the protective tax on vegetable oil—the latter a longstanding Bank and Fund staff recommendation. This phasing out of subsidies and tax suspensions on food and energy will help contain demand and improve the balance of payments. Energy sector reform supported by the World Bank and France should diversify energy production, reduce costs, and enhance governance. The butane gas subsidy will be eliminated by mid-2009. Structural policies, including to enhance agricultural production, will be implemented to reduce Senegal’s vulnerability to exogenous shocks.

MEFP ¶ 14, 31-33

E. Misreporting

21. A separate report on misreporting has been issued. The authorities misreported data related to the basic fiscal balance and the budgetary float for end-2007 under the PSI.14 The misreporting partially reflects budget monitoring and execution deficiencies, which are being addressed under the program. Strong corrective actions are incorporated in the program to prevent a repeat of the misreporting.

Senegal: Misreporting for end-December 2007

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IV. Staff Appraisal

22. The Senegal program supported under the PSI is at a crossroad. Against the backdrop of a difficult international environment, past budgetary slippages need to be cleaned up and prevented going forward. The budgetary slippages that the program helped uncover have undermined the soundness of the private sector and seriously affected economic activity. With the associated misreporting, they have raised concerns about the authorities’ credibility and ability to implement their economic program under the PSI. On the other hand, the transparency and cooperation shown in uncovering the slippages, as well as the expeditious design of a strong action plan to eliminate the payment delays and begin the restoration of the integrity of the budget framework, are commendable and represent a solid basis for completing the second review.

23. A quick resolution of the budgetary slippages is of paramount importance to shore up economic growth in an unsupportive external environment. The elimination of payment delays to which the authorities are committed under the program should lead to a recovery of private sector activity and have a positive impact on the banking system and tax collections. It should also help reassure donors and shore up investor confidence—which is key in light of the important role of FDI for medium-term growth.

24. The prudent fiscal policy stance for 2009-10 should help promote domestic stability and safeguard debt sustainability. The adoption of the 2009 budget consistent with the macroeconomic framework developed with staff is particularly noteworthy. Notwithstanding the tight budgetary environment, the authorities need to preserve budgetary allocations to priority social sectors so as to help bring about a further reduction in poverty and progress toward meeting the MDGs.

25. Staff welcomes the loan from France to assist Senegal in these exceptionally difficult circumstances. Its impact on debt sustainability is negligible, given in particular its one-off character and terms comparable to those in the WAEMU financial market. The limited regional liquidity and the current turmoil in global financial markets left the Senegalese authorities with no alternative to provide urgently needed relief to the ailing private sector. Staff therefore recommend granting a waiver for the nonobservance of the AC on nonconcessional external borrowing due to the contracting of the French loan. Staff would suggest that the authorities reserve the proceeds from asset sales currently being contemplated for early repayment of this loan and the loan for the toll highway, as well as a possibly accelerated settlement of extrabudgetary spending following the technical audit.

26. The PFM measures included in the program need to be forcefully implemented. They are fundamental to restoring the integrity of the budget system by improving fiscal accounting and monitoring, strengthening budget formulation and execution, and discontinuing practices inconsistent with Senegal’s overall satisfactory budgetary legal and regulatory framework and administrative capacity. Staff call on the authorities to take appropriate and immediate decisions following completion of the independent technical audit of past extrabudgetary spending to rapidly and fully normalize financial relations with the private sector. The strong corrective actions in the PFM area, together with the envisaged return to a prudent fiscal policy stance, justify granting waivers for the ACs on domestic arrears and the budgetary float.

27. ESF access should provide important relief for Senegal’s balance of payments. The authorities’ decision to rescind most of the untargeted subsidies for food and energy products was instrumental in restoring sustainability, as are the reforms in the energy and agricultural sectors. The end to the butane gas subsidy by mid-2009 is also welcome.

28. Staff recommends, on balance, completion of the second PSI review. While the seriousness of the budgetary slippages made it difficult to arrive at this recommendation, the authorities’ corrective actions and program commitments are sufficiently strong to warrant it. This strength is especially important given that, in the current difficult global environment, Senegal needs to rapidly reinvigorate economic growth and shore up aid and FDI flows. It is now up to the Senegalese authorities to regain their credibility with the international community.

Senegal—Twelve-Month Arrangement Under the Exogenous Shocks Facility

Attached hereto is a letter dated December 5, 2008 (the “Letter”) from the Minister of Budget, with its attached Memorandum of Economic and Financial Program (the “MEFP”) and the Technical Memorandum of Understanding (the “TMU”), requesting from the International Monetary Fund, as Trustee of the Poverty Reduction and Growth Facility and Exogenous Shocks Facility Trust (the “Trustee”), a twelve-month arrangement under the Exogenous Shocks Facility (“ESF”) (the “Arrangement”), and setting forth:

(a) the objectives and policies of the program that the authorities of Senegal intend to pursue during the twelve-month period of this Arrangement;

(b) understandings of Senegal with the Trustee regarding reviews that will be made of progress in realizing the objectives of the program.

To support these objectives and policies, the Trustee grants this requested twelve-month Arrangement in accordance with the following provisions, and subject to the provisions applying to assistance under the PRGF-ESF Trust.

1. For a period of twelve months from December 19, 2008, Senegal will have the right to obtain disbursements from the Trustee in a total amount equivalent to SDR 48.54 million, subject to the availability of resources in the PRGF-ESF Trust.

2. During the period of this Arrangement:

(a) the first disbursement, in an amount equivalent to SDR 24.27 million, will be available upon approval of this Arrangement, at the request of Senegal;

(b) the second disbursement, in an amount equivalent to SDR 24.27 million, will be available on or after May 10, 2009, at the request of Senegal and subject to paragraphs 3 and 4 of the Arrangement below.

3. Senegal will not request:

A. the second disbursement under this Arrangement specified in paragraph 2(b) above:

(a) if the Managing Director of the Trustee finds that, with respect to the second disbursement, the data as of December 31, 2008, indicate that:

  • (i) the floor on the basic fiscal balance, as set out in Table 1 of the MEFP and further specified in the TMU, or

  • (ii) the ceiling on the amount of the float at the Treasury, as set out in Table 1 of the MEFP and further specified in the TMU, was not observed;

(b) until the Trustee has determined that, with respect to the second disbursement, the first program review, referred to in paragraph 38 of the MEFP, has been completed.

4. Senegal will not request any disbursement under this Arrangement, if at any time during this Arrangement:

(a) (i) the ceiling on the contracting or guaranteeing of new nonconcessional external debt by the government, or

  • (ii) the ceiling on the stock of external payment arrears by the government, or

  • (iii) the ceiling on spending undertaken outside normal and simplified procedures, as specified in Table 1 of the MEFP and further set out in the TMU, is not observed; or

(b) if Senegal

  • (i) imposes or intensifies restrictions on payments and transfers for current international transactions, or

  • (ii) introduces or modifies multiple currency practices, or

  • (iii) concludes bilateral payments agreements that are inconsistent with Article VIII, or

  • (iv) imposes or intensifies import restrictions for balance of payments reasons.

5. When Senegal is prevented from requesting disbursements under this Arrangement because of paragraphs 3 and 4 of the Arrangement above, such disbursements may be made available only after consultation has taken place between the Trustee and Senegal and understandings have been reached regarding the circumstances in which Senegal may request the disbursements.

6. In accordance with paragraph 4 of the Letter, Senegal will provide the Trustee with such information as the Trustee requests in connection with the progress of Senegal in implementing the policies and reaching the objectives of the program supported by this Arrangement.

7. During the period of this Arrangement, Senegal shall remain in close consultation with the Trustee. In accordance with paragraph 4 of the Letter, Senegal shall consult with the Trustee on the adoption of any measures that may be appropriate at the initiative of the government or whenever the Managing Director of the Trustee requests such a consultation. Moreover, after the period of this Arrangement and while Senegal has outstanding financial obligations to the Trustee arising from loan disbursements under this Arrangement, Senegal will consult with the Trustee from time to time, at the initiative of the government or whenever the Managing Director of the Trustee requests consultation on Senegal’s economic and financial policies. These consultations may include correspondence and visits of officials of the Trustee to Senegal or of representatives of Senegal to the Trustee.

Appendix I Letter of Intent

Dakar, Senegal

December 5, 2008

Mr. Dominique Strauss-Kahn

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, D.C., 20431

Dear Mr. Strauss-Kahn,

1. The attached Memorandum of Economic and Financial Policies (MEFP) reviews implementation to date of the government of Senegal’s macroeconomic and structural program under the country’s three-year Policy Support Instrument (PSI), approved by the IMF Executive Board on November 2, 2007. Details of this program were set out in the initial MEFP of October 3, 2007 and in the MEFP of May 30, 2008. The attached MEFP builds on the two previous Memoranda, with particular emphasis on measures and objectives for the remainder of 2008 and the first half of 2009.

2. The government requests access to the Exogenous Shock Facility (ESF) for 30 percent of quota, the equivalent of SDR 48.54 million, in two tranches. The MEFP outlines the government’s policies to respond, in a sustainable manner, to the oil and food price shock that has severely affected Senegal. In particular, the government aims to strengthen agricultural production and implement energy sector reform. It has also eliminated virtually all subsidies and tax suspensions that had been introduced on a temporary basis in the immediate wake of the price shock, and will remove the remaining subsidy on butane gas by mid-2009.

3. Three quantitative assessment criteria for the second review under the PSI were not met, namely those on domestic arrears, budgetary float, and nonconcessional external borrowing. As described in the attached MEFP, the government is taking strong corrective measures to address the underlying weaknesses. In light of these actions and the observance of the other quantitative criteria and structural conditionality under the program, the government requests waivers of the missed criteria.

4. The government believes that the policies and measures set forth in the attached MEFP are sufficiently strong to achieve the objectives of the PSI program and ESF arrangement. In the government’s view, the PSI remains the appropriate vehicle to maintain a close policy dialogue with the IMF, signal commitment to sound policies to the international community, and move the structural reform agenda forward. It will promptly take any additional measures necessary for the achievement of the objectives of the program. The government will consult with the IMF—at its own initiative or whenever the Managing Director of the IMF requests such a consultation—before the adoption of any such measures or changes to the policies described in the attached Memorandum.

5. The government will provide the Fund with such information as the Fund may request in connection with the progress made in implementing the economic and financial policies and achieving the objectives of the program.

6. The government authorizes the IMF to publish this letter, the attached Memorandum, and the related Staff Report.

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Attachment: Memorandum of Economic and Financial Policies

Attachment I Memorandum of Economic and Financial Policies

Dakar, December 5, 2008

I. Introduction

1. The government remains determined to preserve macroeconomic stability, strengthen private sector-driven growth in a sustainable way, and make quick progress toward achieving the Millennium Development Goals. To meet these objectives, the government will implement its economic and financial program, which is based on prudent macroeconomic policies and an acceleration of structural reforms. The commitments made by the government in the Memorandum of Economic and Financial Policies (MEFP) of October 3, 2007, and the MEFP of May 30, 2008, continue to anchor the policies and reforms being pursued. However, these commitments are strengthened in this MEFP, given the observed budgetary weaknesses, so as to prevent such weaknesses in the future and normalize the government’s financial relations with the private sector. This MEFP describes recent economic developments, program performance, and the specific measures and objectives envisaged for the remainder of 2008 and the first half of 2009.

II. Recent Economic Developments and Program Performance

2. Macroeconomic developments in 2008 were less positive than expected. Despite a sound performance of the agricultural sector, the most recent estimates put GDP growth in 2008 at about 3.9 percent as a result of several factors: (i) the impact of the rise in food and energy prices on real domestic consumption; (ii) the delayed resumption of the operations of Industries Chimiques du Sénégal (ICS); and (iii) a slowdown in private sector activity, especially in the construction sector, related to government payment delays. Inflation is expected to be 6 percent and the current account deficit about 12¼ percent of GDP in 2008, mainly because of the large increases in international food prices and, to a lesser extent, energy prices. It is also anticipated that foreign direct investment (FDI) and aid will be adequate to finance a large portion of the balance of payments and maintain a level of reserves to cover around 3½ months of imports.

3. Budget execution has run into major problems. The difficulties became apparent as a result of Policy Support Instrument (PSI) program measures, in particular: (i) the structural assessment criterion on extending the coverage of the integrated expenditure tracking system (SIGFIP) to the payment phase, (ii) the structural benchmark concerning the audit of payment delays by the financial audit inspectorate (IGF) of the Ministry of Finance, and (iii) the broadening of the definition of the quantitative assessment criterion on the budgetary float. Follow-up work by Ministry of Finance staff has allowed the authorities to estimate that the stock of payment delays at end-October 2008 amounted to CFAF 174.9 billion (3 percent of GDP) for the regular budget, CFAF 50 billion (¾ percent of GDP) in Treasury corresponding accounts (comptes de correspondants du Trésor), and CFAF 74 billion (1¼ percent of GDP) of extrabudgetary expenditures, of which by the line ministries CFAF 11 billion, agencies CFAF 31.3 billion, public health institutions CFAF 12.1 billion, and universities CFAF 19.1 billion.

4. The government acknowledges that these amounts result from expenditures that were too high considering the availability of financing and the macroeconomic circumstances prevailing in the country during 2006–08. Three factors explain the problems:

  • First, after the surge in oil and food prices the government decided to maintain high energy subsidies (for electricity and butane gas) to protect household purchasing power and, in July 2007, to suspend duties and taxes on some basic staples. This sharply reduced the budgetary room for maneuver. In March 2008, direct subsidies were introduced on rice and cooking oil. All in all, the subsidies on oil and food products represented 7 percent of GDP for the years 2006 to 2008 combined.

  • Second, despite the crowding-out pressures from the financial support for oil and food products, the government maintained the implementation speed of its wide-ranging public investment program during the period. This program centers on infrastructure development as an essential pillar for the promotion of growth and success of the poverty reduction strategy (PRSP); it helped sustain economic activity and employment.

  • Finally, the frequent use of Treasury advances to undertake spending that not been initially budgeted helped exacerbate cash flow pressures during the budget year. All in all, public expenditure representing 5½ percent of GDP was executed through Treasury advances in 2006–08, thus reducing available resources for other expenditure.

5. Because of these problems, the government was unable to observe three quantitative assessment criteria: on domestic arrears, the budgetary float, and nonconcessional external borrowing. The nonobservance of the first two criteria resulted directly from the budgetary slippages, while the criterion on nonconcessional external borrowing was intentionally breached to implement the action plan (see paragraph 14) and correct the budgetary slippages. Given the low liquidity in the regional financial market, the government had to resort to nonconcessional external financing to repay the private sector quickly and, thereby, boost economic activity. The government had to do this as the alternative of maintaining a large stock of payment delays would have been harmful to the economy in an already difficult period and would, at any rate, have led to the nonobservance of another assessment criterion, on the budgetary float at end-December 2008. The government is seeking waivers from the IMF Executive Board for the noncompliance with these three assessment criteria in view of the strong corrective measures proposed below.

6. The government confirms, however, that it has observed the other quantitative criteria of the program. It has not accumulated external arrears throughout the program period. The basic fiscal balance was observed at end-September 2008, as was the indicative ceiling on the share of public sector contracts awarded by single tender, which was contained at 17 percent by end-June and 19 percent by end-September.

7. In 2008, the government continued its efforts to safeguard social sector spending.1 The fiscal adjustment measures that reduced expenditure by CFAF 191 billion relative to the appropriations approved by the National Assembly in the context of the initial 2008 Budget Law did not affect social sectors. The government plans to increase the total social sector share of the national budget from 32.6 percent in 2007 to 35.9 percent in 2008. It also intends to request technical expertise from the World Bank and other development partners with sectoral expertise to help improve its analysis of the efficiency of social sector spending.

8. The government has made significant progress in implementing its structural reform program. All structural assessment criteria and benchmarks had been observed by end-October 2008:

  • A plan for issuing treasury bills and government securities was finalized in mid-August, six weeks later than scheduled. The plan is expected to help the Ministry of Finance improve its forecasting of cash flow needs and accustom the market to regular issuances;

  • A new electricity tariff structure was adopted at the beginning of August. This is expected to help the national electricity company, SENELEC, restore its financial equilibrium and encourage consumers to save electrical power. The rate increases, which averaged 17 percent, were asymmetrical and relatively small for low-income consumers;

  • An audit of domestic payment delays was completed by IGF on September 30, as planned;

  • The Council of Ministers adopted, by end-October, all laws and regulations to ensure the effective transfer of direct tax collection responsibilities from the Treasury to the Revenue Authority (DGID);

  • In addition, a Prime Minister’s circular aimed at improving the system for planning, monitoring, and evaluating public investment was sent to all sectoral ministries and independent executing agencies on November 13, 2008. The circular sets out procedural and institutional rules to ensure: (i) consistency among the various investment projects and between them and strategic objectives; (ii) compatibility between the investment programs and the medium-term macroeconomic framework; and (iii) the establishment and observance of project analysis rules that vary depending on the size of the project, with the aim of selecting the best among them.

III. Macroeconomic Policies for 2009–10

9. The 2009–10 macroeconomic outlook is framed by a relatively unfavorable international environment. This includes a slowdown in global growth, problems on the financial markets, and the continued rise in food prices. Nevertheless, the government anticipates that the specific structure of the Senegalese economy, combined with the economic policy intentions described below, as well as the elimination of payment delays, will offset the effects of the negative international environment.

  • Real GDP growth is projected to average about 5½ percent over the next two years. This projection is based on the gradual resumption of ICs’s production, recovery in private sector activity linked to the elimination of payment arrears, and FDI-related economic growth.

  • Inflation is expected to return to its historical level of 2 percent over the medium term. Given the pressures, albeit abating, on food prices over the short term, the government forecasts an inflation rate of 3¼ percent in 2009. The subregional framework governing monetary and foreign exchange policies will continue to help keep inflation low, based on the peg to the euro. Although the sound performance of the agricultural sector is expected to help reduce inflationary pressures, a prudent fiscal policy will remain the key instrument for achieving macroeconomic stability in Senegal and contributing to the WAEMU’s external stability.

  • The external current account deficit is projected to fluctuate between 11 percent and 12 percent of GDP and be increasingly financed by FDI flows. External and domestic public debt would increase slightly to about 23 percent and 7 percent of GDP, respectively, by 2010.

A. Fiscal Policy
Fiscal stance

10. The government reiterates its commitment to limiting the overall fiscal deficit to 4 percent of GDP over the medium term. A deficit of this size will help ensure continued debt sustainability. This will be key for supporting investment and growth, as well as for helping to maintain domestic stability while containing demand pressures and preventing crowding out of the private sector.

11. The deficit will be temporarily lowered to 3.3 percent of GDP in 2008 because of the need to settle payment delays related to 2007 expenditure. The deficit target will be consistent with a basic fiscal deficit of CFAF 21 billion in 2008 (revised quantitative assessment criterion).

12. The government will keep the 2009 fiscal deficit to less than 3 percent of GDP. Parliament will pass a 2009 Budget Law that is consistent with the budgetary projections of the macroeconomic framework agreed with the IMF under the PSI (prior action). This will help ensure that appropriations for each ministry (or any other spending body) are consistent with available resources and other macroeconomic objectives of the program. In line with the overall deficit target for 2009, the basic fiscal surplus is expected to exceed CFAF 5 billion at end-June 2009 (quantitative assessment criterion). This surplus is necessary to complete the settlement of all past payment delays.

13. Despite the envisaged fiscal adjustment, expenditure in priority sectors will continue to grow. This should enable the government to increase social spending to 39.2 percent of total expenditure, or 10.5 percent of GDP, by 2010. Social sector spending will reach 9.2 percent of GDP in 2008 and 9.9 percent of GDP in 2009. Expenditure for rural parts of the country and on infrastructure will also be increased. Finally, to facilitate the monitoring of HIPC and MDRI expenditure, the government has expanded the mechanism for identifying such expenditure, which should allow better monitoring in 2009.

Elimination of payment delays

14. Given the negative impact on private sector activity of the payment delays, in August 2008 the government adopted an action plan aimed at rapidly turning the situation around. The action plan has since been strengthened and now covers several key aspects:

  1. The 2008 supplementary budget law passed on November 27, 2008, (i) regularized Treasury advances executed during the year and transfers of appropriations that exceeded the 10 percent threshold authorized by the Organic Budget Law; and (ii) reduced by CFAF 191 billion the appropriations initially approved by parliament to take account of revenue shortfalls and incorporate the effect of the expenditure reductions announced by the Prime Minister’s circular of May 2008 and the additional reductions of CFAF 100 billion described in the action plan.

  2. The government is currently formulating financing options to reduce the budgetary float.

  3. To create budgetary room, the government has eliminated all budgetary subsidies on food products. This includes elimination of the subsidy on rice as of October 29, 2008; reinstitution of the previously suspended duties and taxes on other food products as of September 15, 2008; and removal of the specific tax on vegetable oils as of September 15, 2008.

  4. The government has undertaken to curtail and then completely eliminate the subsidy on butane gas by end-June 2009, as well as to revise the electricity pricing method (see paragraph 33a).

  5. The increase in the levy on alcohol and cigarettes is expected to take effect by end-December 2008.

  6. The government will launch tenders for the privatization of Hotel Méridien Président in the first quarter of 2009 and expects to finalize renegotiation of the second mobile telephone license in 2009.

  7. The government will launch technical audits of all extrabudgetary expenditure by end-December 2008, as described in paragraph 26 below.

  8. A major exercise of data reconciliation and verification has been completed by the Treasury, as described in paragraph 24. It will enable the Ministry of Finance to reconcile its data with those of the private sector.

  9. As stated below, the government has also committed to taking strong corrective measures to restore the quality and transparency of the budgetary system, prevent new budgetary slippages and, more generally, make public financial management systems compliant with best international practices over the medium term.

15. With a view to quickly regularizing its financial relations with the private sector and preventing the recurrence of budgetary slippages, the government undertakes to:

  1. Eliminate domestic payment arrears, as defined by the WAEMU, by end-December 2008 and continuously maintain a zero balance thereafter;

  2. Limit the stock of the budgetary float, defined as expenditure for which bills have been received and validated but not yet paid by the Treasury, to a ceiling of CFAF 92 billion at end-2008 (quantitative assessment criterion);

  3. Limit the stock of committed expenditure for which bills have not yet been validated, and strengthen the link between monthly commitments at the level of the sectoral ministries and the availability of cash; and

  4. Meet the new quantitative assessment criterion under the program envisaging a zero limit on Treasury advances (to be observed continuously). Expenditures that are not subject to regular budget execution procedures, but are authorized by Advance Decree in line with paragraph 11 of the TMU, are not considered Treasury Advances

Debt management

16. To ensure debt sustainability, the government will continue to adhere to the general principle of not contracting or guaranteeing external loans on nonconcessional terms. However, as the government has not yet managed to raise funds totaling about CFAF 80 billion for the Dakar-Diamniadio toll highway because of the difficult situation on international markets, this amount will be raised in the first half of 2009 so that donor resources can be quickly supplemented with the government’s financial contribution under the public-private partnership (quantitative assessment criterion). Several feasibility studies, in particular by the World Bank and the French development agency, have shown that the yield of this project is higher than the cost of the government’s nonconcessional borrowing. The government will consult with IMF staff well in advance for any further exceptions to this quantitative assessment criterion. Any proceeds from asset sales will in the first place be used to accelerate the settlement of payment delays, extrabudgetary spending accepted by the Ministry of Finance on the basis of technical audits, and repayment of nonconcessional external loans contracted in 2008-09.

17. In accordance with earlier commitments, other aspects of debt management will also be strengthened. First, every quarter or after each issuance, the government will, in consultation with the BCEAO, update the rolling two-year government securities issuance program. Based on the macroeconomic framework of the PSI, the government plans to issue CFAF 30 billion in securities in December 2008 and in each quarter of 2009; it will also update its rolling two-year plan after each issuance. Second, as of December 2008, the half-yearly public debt sustainability analysis will include a study of the risks from contingent liabilities—related to guarantees issued by the government, to PPPs, and to the operations of public enterprises. Finally, the government has requested assistance from the U.S. Treasury to strengthen its debt management capacity. It has also asked the major rating agencies (Standard and Poor’s, Fitch, and Moody’s) to rate Senegal’s country risk so that it can identify the principal sources of weakness and take appropriate remedial measures.

IV. Structural Reforms

A. Fiscal Reforms

18. The government recognizes that the shortcomings in budget planning, execution, and monitoring, as revealed by recent budgetary slippages, must be urgently corrected. This is key to preserving macroeconomic stability, enhancing the efficiency of public spending, ensuring the integrity of the budgetary and accounting systems, and increasing fiscal transparency. The measures described below, based on an IMF technical assistance mission, aim at meeting those objectives and are expected to help prevent the reappearance of past problems. The government will make every effort to implement the recommendations of the technical assistance report, which will be integrated in its public finance reform framework.

Budget planning

19. Before January 31, 2009, the government will establish by decree the timetable and the main methods for budget formulation, which will be used for the first time for the preparation of the 2010 budget (structural assessment criterion). This will involve, in particular: (i) the preparation of an initial macroeconomic framework by end-March; (ii) the formulation of the government’s major economic and fiscal priorities (previous year’s budget execution figures, growth forecasts, government revenue and expenditure projections, estimated civil service staffing developments, and other relevant budgetary and financial aggregates) for the fiscal policy debate in parliament, which is to take place by June at the latest; (iii) the establishment of medium-term sectoral expenditure frameworks with a top-down constraint (i.e., expenditure ceilings by ministry and any other administrative unit receiving budgetary appropriations); and (iv) the preparation of a second (updated) macroeconomic framework by end-August for the formulation of the draft budget law.

20. In 2009 the government will introduce two supplementary budgets, one in the middle of the year and one towards the end, or at least one supplementary budget at mid-year. This will make it possible to regularize transfers of appropriations (see paragraph 22) and any extrabudgetary expenditures that the government decides to recognize on the basis of technical audits (see paragraph 26). These supplementary budgets will also regularize all decrees issued for implementation of articles 12, 15, and 18 of the 2001 Organic Budget Law, and revise the estimated use of appropriations (crédits évaluatifs) based on the latest available information. The extent of regularization of extrabudgetary spending accepted by the government based on technical audits will also take into account the availability of resources in 2009; in any case, any remaining regularizations will be undertaken in 2010. The government plans to implement the procedure of two supplementary budgets every year.

Budget execution

21. As stated earlier, Treasury advances, which have no legal basis and were one of the reasons for the recent budgetary problems, will be eliminated. The government issued a decree to supplement the general regulation on public accounting (RGCP). The decree limits expenditure execution to the normal and simplified procedures only and prohibits the use of any other type, in particular Treasury advances (completed prior action).

22. The government will simplify the system for reopening and carrying over budgetary appropriations and commitments by issuing an implementation decree for articles 17 and 18 of the organic budget law before the end of the complementary period on February 28, 2009 (structural assessment criterion). The current system is excessively complex and too widely used, to the detriment of the principle of annual budgeting and the preservation of macroeconomic stability. The decree will abolish the possibility to reopen appropriations and will set out the system for carrying them over as follows: (i) any capital budget appropriations for which a payment order has not been issued at the end of the complementary period may be carried forward to the subsequent budget year, by order issued no later than 30 days after the end of the complementary period, within an overall ceiling of 5 percent of the total capital budget for the current year (leaving open the choice between carrying out investment planned for the previous year and the current year); (ii) appropriations (crédits de paiement) that are carried over are canceled in the initial budget year and added to the appropriations for the subsequent budget year; (iii) appropriations related to expenditure for which bills have already been received and validated (dépenses liquidées) are automatically carried forward, within the above-mentioned ceiling; and (iv) appropriations not carried forward become unusable. The mid-year supplementary budget law will ensure conformity with the macroeconomic framework agreed with the IMF. In addition, within this new framework, the government will issue an administrative order by March 31, 2009, to definitively settle the reopened and carried-over amounts of appropriations from all budget years prior to 2008, to be borne in the 2009 budget year.

23. To more systematically implement closure provisions for budget execution and accounting, the government issued a circular recalling the deadlines. A failure to effectively and expeditiously stop budgetary operations for a given year complicates management of the government’s financial position. It also delays compilation of account statements, prevents the accurate assessment of amounts carried forward from one year to the next, undermines the budgeting for subsequent years, and complicates the government’s cash flow management. To be able to comply with the required deadlines for the production of documents monitoring the implementation of fiscal policy, the government undertakes to reduce the time allowed for commitments (engagements) by setting the cutoff date at November 30. The complementary period stipulated in the laws, which halts the administrative phase of budget execution (issuance of payment orders) on December 31, and the accounting phase at end-February of the subsequent year, will be applied. Beyond February 28, any operation from the previous budget year with an impact on government cash flow must be imputed to the accounts for the current year. A reminder of these measures was issued in a Ministry of Finance circular. The SIGFIP data will be frozen and published in detail on the Ministry of Finance website by April 30 (structural assessment criterion). Any accounting adjustments made after April 30 must be recorded in the following budget year.

Accounting system and budgetary monitoring

24. The government, in consultation with the IMF, established a detailed procedures manual for reconciling data between the fiscal reporting table (TOFE), the Treasury accounts, the net government position (NGP), and SIGFIP, and between the Treasury accounts and SIGFIP, and published the reconciliation tables for December 2007 and March, May, June, July, August, and September 2008 (completed prior action). This reconciliation will facilitate the rapid detection of budget management problems and increase the accuracy and reliability of the entire budget execution monitoring system. The reconciliation tables were shared with IMF staff and published on the Ministry of Finance website as soon as they were completed. This exercise of reconciliation and publication will subsequently be carried out on a quarterly basis.

25. The government will make every effort to improve SIGFIP as a key budget monitoring system. To that end, the government will undertake an audit of SIGFIP during the first half of 2009 to ensure that each type of expenditure is thoroughly tracked in the system and with the aim of establishing genuine administrative accounting (comptabilité administrative), based on SIGFIP. The government may request technical assistance from the IMF for this audit.

Extrabudgetary expenditure

26. The IGF audit that led to the identification of CFAF 74 billion in extrabudgetary expenditure will be followed up. An independent external audit will analyze the circumstances under which these commitments were generated. The audit will also analyze the possible existence of additional spending without budgetary lines in addition to the amounts identified by the IGF audit. The terms of reference of this audit will be drawn up in consultation with IMF staff. The audit report will be submitted to IMF staff by end-March 2009 (structural benchmark). No payments will be made to the private sector for any extrabudgetary expenditure before the audit has established the nature of claims and specified the goods and services that were provided and their unit cost. To prevent a recurrence of such spending, the government will impose sanctions on employees found to be at fault and apply a discount factor to the claims of private firms that agreed to provide goods or services on unlawful terms. The government will pay claims recognized on the basis of the audit only after authorization by a budget law providing for simultaneous reductions of appropriations for other expenditure items.

27. The compilation of the government’s Treasury accounts and budget review laws will be accelerated. For this purpose:

  • The Treasury accounts for FY 2006 will be forwarded to the Audit Court by end-January 2009, those for FY 2007 by end-March 2009, and those for FY 2008 by end-July 2009, as legally stipulated; and

  • The draft budget review laws for FY 2004, FY 2005, FY 2006, and FY 2007 will be sent to the Audit Court by, respectively, end-December 2008, end-February 2009, end-May 2009, and end-June 2009.

Government procurement

28. A new government procurement framework has been in place since January 1, 2008. The government is determined to apply it rigorously. The principles described in the previous Memorandum remain valid. In particular:

  1. The government will meet the quarterly indicative target on the share of government contracts awarded by single tender, set at 20 percent of all contracts, including those entered into by agencies and other government bodies;

  2. The government will continue to publish the list of contracts awarded each quarter on the website of the central directorate for public procurement (DCMP);

  3. No public procurement will be allowed unless it has been included in the procurement plans submitted to the DCMP; and

  4. The procurement regulatory agency (ARMP) will conduct audits and surveys of government contracts, as stated in the previous MEFP. The first audit report for 2008 will be published by May 31, 2009 (structural benchmark).

Large investment projects

29. The government intends to continue to ensure transparency and efficiency in the implementation of large public investment projects. It deems them essential for increasing the growth potential of the Senegalese economy.

30. Earlier commitments regarding the airport project and the Dakar integrated special economic zone (DISEZ) will be met. In particular, the government will prepare memoranda of understanding spelling out the respective rights and duties of APIX, DGID, and DGD with respect to the management of DISEZ, including conflict resolution rules. They will also describe, among other things, specific measures for combating fraud and tax evasion (structural benchmark for end-March 2009).

Social safety net for the rise in prices

31. Helping the population deal with the rise in food and energy prices is a national priority. The government is therefore adopting a balanced approach between the preservation of macroeconomic stability and emergency measures for the needy. This follows the government’s decision to eliminate the subsidies and reverse the suspension of customs duties and taxes on certain staples, and to remove the special tax on vegetable oils. More specifically, the government will help the most underprivileged segments of the population through the following measures:

  • Expansion of the school meals program. This measure will have a positive impact on the purchasing power of households as well as on enrollment rates and the performance of children in school;

  • Feasibility study regarding the introduction of a subsidy on public transportation; and

  • Request for technical expertise from the World Bank to analyze the operational feasibility of introducing a targeted program of cash transfers to the poorest households, as recommended by the IMF’s Poverty and Social Impact Analysis (PSIA) mission.

32. In the long run, the government will focus on improving the supply and reducing the costs of energy and food products. The agricultural sector is also important for poverty reduction. The government deems it important to increase domestic agricultural production, in particular of high-yield products such as rice. It will therefore work with farmers to improve infrastructure, especially irrigation and storage systems; increase competition; and restructure subsidies with a view to enhancing agricultural productivity. Similarly, energy sector reform aims at boosting production and generating cost reductions that the government plans to gradually pass on to consumers.

Energy sector reform

33. Energy sector reform is crucial for improving the supply of energy to the economy and containing fiscal risks. The government has started implementing its program of reforms, supported by the World Bank and other donors, as stated in the sectoral policy letter. The government will apply the principle of market-based pricing and of implementing energy saving and efficiency measures. In support of this program, the government will:

  1. Modify the structure of electricity tariffs every three months and adjust the institutional price setting process;

  2. Complete the recapitalization of SENELEC by mid-2009; CFAF 9 billion will be appropriated in 2009 for this purpose; and

  3. Eliminate the subsidy on butane gas by end-June 2009. To this end, butane gas prices will be adjusted, so that the annual subsidy can be limited to CFAF 32 billion in 2008 and CFAF 8 billion in 2009.

B. Accelerated Growth Strategy and Development of the Private Sector

34. The Accelerated Growth Strategy (AGS) will remain the anchor for the agenda of reforms and priority actions to enhance the growth potential of the Senegalese economy. The government will continue to adopt a participative approach in the implementation of this strategy, especially with respect to the five cluster sectors. To this end, as stated in the implementation decree of the AGS law, the monitoring committee chaired by the Prime Minister will meet every six months, and the technical committee chaired by the Minister of Finance will meet every three months.

35. Since the seventh meeting of the Presidential Investment Council (CPI) in November 2007, Senegal has carried out significant reforms to improve the business climate. The most salient of these have been: (i) simplifying import and export procedures, simplifying customs clearance procedures, and reducing the time and costs for formalities; (ii) simplifying property transfer procedures, with wait times reduced from 114 days to 18 days; (iii) simplifying the procedures for granting building permits, certificates of compliance and other requirements, with wait times reduced from 217 days to 78 days; (iv) passing the law on the promotion and development of small and medium-sized enterprises; (v) improving the legal and judicial framework, especially by increasing the number of magistrates and court clerks; (vi) improving the legal framework applicable to PPPs, for the implementation of infrastructure projects, with the amendment of the law on construction contracts, operations, and infrastructure transfers; (vii) adopting the regulations for implementation of the Labor Code; and (viii) creating new technical and vocational education centers.

36. In the context of the November 2008 CPI, the government has committed to taking action in several key areas. These include: (i) updating and modernizing labor legislation, (ii) strengthening vocational education, and (iii) taking stock of the tax system and incentives for the emergence of new methods of financing the private sector, such as leasing, factoring, and venture capital.

C. Financial Sector Reforms

37. The government is determined to safeguard the soundness of the financial system and enhance its contribution to the economy. In accordance with its previous commitments, the government therefore intends to:

  1. Implement all the decisions and recommendations of the WAEMU Banking Commission;

  2. Act in close cooperation with the BCEAO and the WAEMU Banking Commission to limit the impact of the ICS restructuring plan on the banking system and the budget;

  3. Carefully monitor all the potential effects of the global financial crisis on the soundness and liquidity of the Senegalese banking system and the regional financial markets, in close cooperation with the BCEAO, the regional Banking Commission, and the banks’ home-country supervisors;

  4. Adopt, by end-January 2009, the implementation decree for the new law on microfinance institutions that became effective on September 3, 2008 (structural benchmark), and continue to strengthen the supervision unit of the Ministry of Finance;

  5. Submit to Parliament the new legislation on combating the financing of terrorism by end-December 2008; and

  6. Continue establishing a legal framework to encourage private sector access to a diversified supply of credit.

VI. Program Monitoring

38. Quantitative assessment criteria for end-December 2008 and end-June 2009 and quantitative indicative targets for end-March and end-September 2009 were set to monitor program implementation in 2008-09 (see Table 1 in the attached technical memorandum of understanding (TMU)). These program targets will also apply to the ESF. The government and IMF staff also agreed on the prior actions, structural assessment criteria, and structural benchmarks listed in Table 2 of the TMU. The third and fourth reviews under the PSI are scheduled to take place, respectively, by end-June 2009 and end-December 2009, and the first review under the ESF by end-June 2009. The government understands that completion of the third review of the program is contingent upon observance of the assessment criteria set for end-December 2008 and the structural assessment criteria for the period through April 30, 2009.

Attachment II Technical Memorandum of Understanding

Dakar, December 5, 2008

1. This technical memorandum of understanding (TMU) defines the quantitative and structural assessment criteria, indicative targets, and structural benchmarks on the basis of which the implementation of the Fund-supported program under the Policy Support Instrument (PSI) will be monitored in 2008 and 2009. The quantitative program targets will also serve as performance criteria under the ESF. The TMU also establishes the terms and timeframe for transmitting the data that will enable Fund staff to monitor program implementation.

I. Program Conditionality

2. The quantitative assessment criteria for December 31, 2008 and June 30, 2009 and the quantitative indicative targets for March 31, 2009, are shown in Table 1. The prior actions, structural assessment criteria, and structural benchmarks established under the program are presented in Table 2.

MEFP Table 1.

Senegal: Quantitative Assessment Criteria (Performance Criteria) and Indicative Target for 2008–09 1/

(Billions of CFA francs, unless otherwise specified)

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Data for March and September 2009 are indicative targets, with the exception of the assessment criteria monitored on a continuous basis.

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, and HIPC and MDRI spending. Cumulative since the beginning of the year. Total revenue excludes privatization receipts and sales of mobile telephone licenses.

This criterion excludes government or government-guaranteed CFAF borrowing from financial institutions within WAEMU. It also excludes external loans contracted by the airport project company (AIDB) to finance the construction of the new Dakar Airport.

Monitored on a continuous basis.

Discontinued as of the time of second review, since the broader AC on the budgetary float applies.

This target is defined on a cumulative basis since the approval of the first program review. The ceiling was raised to CFAF 80 billion in the fourth quarter of 2008, to finance exclusively the Dakar-Diamniadio toll highway project. The CFAF 80 billion ceiling will be adjusted downward by the amount of any receipt from a privatization, a sale of a telecommunications license, or any other State asset (such as Sonatel shares) during 2008.

This target is defined on a cumulative basis since the approval of the second program review. The amount of up to CFAF 80 billion is to finance exclusively the Dakar-Diamniadio toll highway project.

Criterion applies from the time of the second PSI review.

The budgetary float is defined as all the expenditure for which a bill has been received and recognized (depense liquidee) but which has not yet been paid by the treasury.

Table 2 of the MEFP:

Structural Conditionality, December 2008-June 2009

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II. Definitions, Adjusters, and Data Reporting

A. The Government

3. Unless otherwise specified below, the government is defined as the central administration of the Republic of Senegal and does not include any local administration, the central bank, or any government-owned entity with a separate legal personality (e.g., public universities and hospitals).

B. Basic Fiscal Balance (Program Definition)
Definition

4. The basic fiscal balance (program definition) is the difference between the government’s budgetary revenue and total expenditure and net lending, excluding externally-financed capital expenditure (financed by donors), drawings on on-lent loans (except on-lent loans to the energy sector financed through donor budget support), and expenditure funded with HIPC- and MDRI-related resources. Budgetary revenue excludes privatization receipts and sales of mobile telephone licenses or other government assets. Government expenditure is defined on the basis of payment orders accepted by the Treasury (dépenses prises en charge par le Trésor). The assessment criterion is set as a floor on the cumulative basic fiscal balance since the beginning of the year.

Example

5. The floor for the basic balance (program definition) as at December 31, 2008 is minus CFAF 21 billion. It is calculated as the difference between budgetary revenue (CFAF 1209 billion) and total expenditure and net lending (CFAF 1541 billion), excluding externally financed capital expenditure (CFAF 226 billion), drawings on on-lent loans (CFAF 5 billion), and expenditure funded with HIPC- and MDRI-related resources (CFAF 79 billion).

Reporting requirements

6. During the program period, the authorities will report monthly to Fund staff provisional data on the basic fiscal balance (program definition) and its components with a lag of no more than 30 days. Data on revenues and expenditure that are included in the calculation of the basic fiscal balance, and on expenditure financed with HIPC- and MDRI-related resources, will be drawn from preliminary treasury account balances. Final data will be provided as soon as the final balances of the treasury accounts are available, but not later than two months after the reporting of the provisional data.

C. Government Domestic Payment Arrears
Definition

7. In line with the WAEMU definition, domestic payment arrears are government expenditures cleared for payment (dépenses ordonnancées) but not paid during a period of 90 days after the date the payment order (ordonnancement) was cleared. The assessment criterion on domestic payment arrears will be monitored until the time of the second PSI review on a continuous basis and discontinued thereafter.

Reporting requirements

8. The authorities will report to Fund staff any accumulation of domestic payment arrears, as defined above, as soon as incurred.

D. Budgetary Float
Definition

9. 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 non encore ordonnancées and dépenses payées). The assessment criterion is set as a ceiling on the budgetary float, monitored at the end of the quarter.

Reporting requirements

10. The authorities will report 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 expenditures (dépenses engagées), 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 payées). The SIGFIP table will exclude delegations for regions and embassies and treasury advances (separating regularized and nonregularized), which will be provided in a separate table. The SIGFIP table will also list any payments that do not have a cash impact on the Treasury accounts.

E. Spending Undertaken Outside of Simplified and Normal Procedures

11. This criterion is applied on a continuous basis to any procedure other than simplified and normal procedures to execute spending, including in particular Treasury advances. It only excludes spending undertaken on the basis of an advance decree for absolute urgency and need in the national interest, based on Article 12 of the Organic Budget Law. Such spending requires signatures by the President and Prime Minister. The criterion is monitored effective the time of the second PSI review.

12. The authorities will report to Fund staff on a monthly basis and with a maximum delay of 30 days any such procedure, together with the SIGFIP table defined in paragraph 10.

F. Government External Payment Arrears
Definition

13. External payment arrears are defined as the sum of payments owed and not paid on the external debt contracted or guaranteed by the government. The definition of external debt given in paragraph 15 is applicable here. The assessment criterion on external payment arrears will be monitored on a continuous basis.

Reporting requirements

14. The authorities will report to Fund staff any accumulation in external payment arrears as soon as the due date is passed.

G. Contracting or Guaranteeing of New Nonconcessional External Debt by the Government
Definition

15. This assessment criterion applies not only to debt as defined in Point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Executive Board Decision No. 6230-(79/140), last amended by Executive Board Decision No. 12274-(00/85), adopted August 24, 2000, but also to commitments contracted or guaranteed by the government for which funds have not been received. The criterion does not apply to:

(i) CFAF debt contracted or guaranteed by the government with WAEMU residents;

(ii) CFAF debt initially contracted or guaranteed by the government with WAEMU residents subsequently acquired by nonresidents;

(iii) CFAF government or government-guaranteed debt where the agreement is between the government and a resident WAEMU entity and there is no ensuing contractual obligation between the government and a nonresident entity, regardless of whether the resident WAEMU entity resells the debt to a non-resident;

(iv) debt rescheduling transactions of debt existing at the time of the approval of the PSI; and

(v) external debt contracted by the airport project company (AIDB) to finance construction of the new Dakar Airport.

16. This criterion is measured on a cumulative basis since the approval of the second program review and applies continuously. The ceiling is raised to accommodate CFAF 80 billion to finance exclusively the Dakar-Diamniadio toll highway project. No adjuster will apply to this criterion.

17. For purposes of this assessment criterion, government is understood to include the government as defined in paragraph 3 above, as well as public institutions of an industrial and commercial nature (EPIC), public administrative institutions (EPA), public institutions of a scientific and technical nature, public institutions of a professional nature, public health institutions, local administrations, public enterprises, and government-owned or controlled independent companies (sociétés nationales) (i.e., public enterprises with financial autonomy where the government holds at least 50 percent of the capital), and government agencies.

18. Any external debt of which the present value, calculated with the reference interest rates mentioned hereafter, is greater than 65 percent of the nominal value (grant element of less than 35 percent) is considered nonconcessional, with the exception of IMF lending under the Poverty Reduction and Growth Facility, which is considered concessional even if it does not meet the 35 percent grant element threshold. For debt with a maturity of more than 15 years, the ten-year reference market interest rate, published by the OECD, is used to calculate the grant element. The six-month reference market rate is used for debt with shorter maturities.

Reporting requirements

19. The government will report any new external borrowing and its terms to Fund staff as soon as external debt is contracted or guaranteed by the government.

H. Public Sector Contracts Signed by Single Tender
Definition

20. Public sector contracts are administrative contracts, drawn up and entered into by government entities 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 or award. The quarterly indicative target will apply to public sector contracts examined by the Commission Nationale des Contrats de l'Administration (CNCA) until December 31, 2007, and to those examined by the Direction Centrale des Marchés (DCM) thereafter.

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 value of contracts signed by all ministries and agencies and the total value of all single-tender contracts signed by these ministries and agencies.

III. Additional Information for Program Monitoring

22. The authorities will report to Fund staff the following, with the maximum time lags indicated:

  • (a) Effective immediately: any decision, circular, edict, decree, ordinance, or law having economic or financial implications for the current program;

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

    • Tax receipts and tax and customs assessments by categories, accompanied by the corresponding revenue collected by the Treasury on a monthly basis;

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

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

    • The monthly preliminary government financial operations table (TOFE), based on the Treasury accounts (balances de compte);

    • The provisional balance of the Treasury accounts; and

    • A reconciliation table between the fiscal reporting table (TOFE), the Treasury accounts (identifying the relevant accounts and amounts), the net government position (NGP), and the SIGFIP on a quarterly basis.

  • (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.

23. During the program period, the authorities will report to Fund staff provisional data on a monthly basis on current nonwage non-interest expenditures and domestically financed capital expenditures executed through advance payments and treasury advances, 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.

24. The government will report to Fund staff:

  • The monthly balance sheet of the Central Bank, with a maximum lag of one month;

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

  • The monetary survey, on a quarterly basis, with a maximum lag of two months;

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

  • Prudential supervision and financial soundness indicators for bank and nonbank financial institutions, as reported in the Table entitled Situation des Etablissements de Crédit vis-à;-vis du Dispositif Prudentiel [Survey of Credit Institutions in Relation to the Prudential Framework], on a quarterly basis.

The government will update monthly on the website used for this purpose the amount of airport tax—redevance de développement des infrastructures aéroportuaires (RDIA)—collected, deposited in the escrow account, and used for the repayment of the loan financing the construction of the new airport.
1

Additional reasons for reduced revenues in 2008 are lower petroleum imports and a change in their composition.

2

ICS, Senegal’s largest company which produces phosphoric acid, was successfully rehabilitated in March 2008 and is projected to impact 2009 growth. The foreign majority owner has injected US$100 million.

3

Box 4 in IMF Country Report No. 08/209 provides background on the projected rise in FDI.

4

See the most recent DSA (IMF Country Report No. 08/209, Supplement 1).

5

Current spending in annual budget laws has generally matched the macroeconomic framework agreed with staff, but the investment budget always exceeded program projections. This may have weakened budget discipline, as line ministries could bypass expenditure cuts undertaken through administrative orders.

6

In violation of existing procedures, the authorities issued 2007 payment orders as late as November 2008. This led to an upward revision of the 2007 fiscal deficit to 3.7 percent of GDP and misreporting on the basic fiscal balance (see separate misreporting report).

7

The loan is for €125 million (CFAF 82 billion), with a maturity of 5 years and an interest rate of 6.2 percent, with 70 percent disbursed in 2008 and the remainder at the time of the third PSI review.

8

The borrowing spread over comparable US government bonds would have exceeded 10 percentage points.

9

MEFP Table 2 lists structural conditionality, including prior actions.

10

To keep the number of ACs constant, the existing AC on domestic arrears (WAEMU definition) will be discontinued at the time of the second PSI review, as a broader AC (on the budgetary float) applies and a new AC on Treasury advances is being introduced.

11

Weekly SIGFIP reports on budget spending have been provided to staff since August.

12

The ESF will be a twelve-month arrangement with program targets identical to the PSI’s.

13

See Box 5 in IMF Country Report No. 08/209 and Chapter II in IMF Country Report No. 08/221.

14

No indications for misreporting were found regarding the previous PRGF.

1

Social sector spending, as defined in the program, is PRSP expenditure. It includes expenditure on health, education, justice, social development, environmental affairs, rural water works, and sanitation.

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Cover IMF Staff Country Reports
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
Author:
International Monetary Fund
Volume/Issue:
Volume 2009: Issue 005
Publisher:
International Monetary Fund
ISBN:
9781451834109
ISSN:
1934-7685
Pages:
83
DOI:
https://doi.org/10.5089/9781451834109.002
Figure 1.

Senegal: Recent Macroeconomic Developments, 2002-08
Figure 2.

Senegal, WAEMU, and SSA: Macroeconomic Developments and Outlook, 2004-09
Figure 3.

Senegal: Medium-Term Outlook, 2007-13
Figure 4.

Senegal: Millennium Development Goals, 1990-2015

CPI Inflation

(%; YoY)

NPV of debt-to-GDP ratio