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.
1. This statement summarizes developments in Senegal since the issuance of the staff report. The information does not change the thrust of the staff appraisal.
2. Inflation sharply dropped in November 2008. End-of-period inflation fell to 4.2 percent in November, after 7.5 percent in October, in part on account of lower food prices related to the good harvests. This bodes well for the projected average inflation projections for 2008 and 2009 underlying the macroeconomic framework.
3. The remaining prior action on the adoption of the 2009 budget in line with the macroeconomic framework was met. This measure completes a series of upfront measures that are intended to remove spending pressures, provide relief to the government’s cash-flow situation, and illustrate the government’s commitment to give utmost priority to the expeditious settlement of the unpaid bills. The other measures already taken include: (i) the adoption of the 2008 supplementary budget in November 2008, bringing the expenditure cuts to close to 3½ percent of GDP relative to the initial budget (prior action); (ii) the elimination of all food and energy subsidies, except for the butane gas subsidy which will be eliminated by mid-2009; and (iii) the discontinuation of Treasury advances, one of the root causes of the budgetary slippages (prior action).
4. Over the last two weeks, the authorities have raised domestic financing in line with the macroeconomic framework. Among other things, they sold their freely tradable shares in the telecommunications company SONATEL at the Abidjan stock exchange and issued T-bills in the WAEMU regional market. However, the latest SIGFIP table of December 12, 2008 indicates that the stock of unpaid bills has not yet been affected by the financing operations; the authorities reiterated to staff that the stock’s reduction by more than half by end-2008 remains nonetheless feasible.
5. The government finalized the terms of reference for the technical audit of extrabudgetary spending. The terms of reference fully reflect the staff’s comments and are consistent with MEFP paragraph 26. They specify that the exercise is to be conducted by a reputable international audit company with experience in public sector accounting and should be completed by end-March 2009.
6. The authorities already met the end-January 2009 structural benchmark on the implementation decree for the microfinance law. This measure will enhance the supervision of this rapidly growing sector (which accounts for one-tenth of credit to the economy), introduce stricter licensing and accounting standards, and likely lead to a welcome consolidation in the sector. It follows an earlier benchmark on the microfinance law itself.
7. The following additional information on the balance-of-payments (BOP) shock is provided as further justification for the ESF request. The first table below illustrates additional indicators on the 2008 BOP impact, going beyond the methodology preferred by the staff as a measure of the exogenous shock for ESF purposes and included in the staff report. This methodology based on the assumption of constant 2007 trade volumes measured the shock at 5.2 percent of GDP. Using trade volumes for 2008 (which reflect the full income (cash) effect—including potentially forced adjustment—and substitution effect) or for the average of 2007 and 2008 (which allow for some income and substitution effects), the BOP impact still amounts to 4.4–4.8 percent of GDP. Overall, Senegal is projected to spend 2.4 percent of GDP more for food and fuel products on a net basis in 2008 than in 2007, with rice accounting for three-fourths of this increase.1 Although rice represents a key staple for Senegalese poor households, the volume of rice imports declined by more than 10 percent in 2008. This likely represents both a substitution and an income effect, likely reflecting some forced adjustment, which occurred in spite of the temporary government subsidy on rice.
8. The detailed calculations for 2009 (second table below) show an abating food and fuel price shock, implying that it may be temporary in nature. The BOP impact ranges within 1.4–4.9 percent of GDP, and Senegal would spend broadly the same amount relative to GDP for food and fuel on a net basis as in 2007. Given the temporary nature of the shock, the financing under the ESF appears to be the appropriate response, as a further adjustment to the shock would have severely impacted the food supply to the poor and the energy supply to the economy. The ESF would allow Senegal’s international reserves to recover and average 3½ months over the medium term, still below the end-2007 level.
Senegal. Food and Fuel Price Impact, 2008
Reflects price change between 2007 and 2008 (from latest WEO), using volumes that are kept constant as indicated. Relative to projected 2008 GDP (CFAF 5,993 billion).
Change in CFAF value, relative to projected 2008 GDP.
Senegal. Food and Fuel Price Impact, 2008
| At 2007 volumes 1/ | At average 2007-08 volumes 1/ |
At 2008 volumes 1/ | Actual change 2/ | Volume change (2008 over 2007) |
||||
|---|---|---|---|---|---|---|---|---|
| Percent of 2008 GDP | Percent | |||||||
| Net food and fuel impact | -5.2 | -4.8 | -4.4 | -2.4 | … | |||
| Food | -2.8 | -2.6 | -2.5 | -2.0 | … | |||
| Exports | 0.1 | 0.0 | 0.0 | 0.2 | 6.4 | |||
| Groundnuts | 0.1 | 0.1 | 0.1 | 0.1 | -9.4 | |||
| Fish | -0.1 | -0.1 | -0.1 | 0.2 | 9.4 | |||
| Imports | 2.8 | 2.7 | 2.5 | 2.2 | -6.3 | |||
| Rice | 2.4 | 2.2 | 2.1 | 1.9 | -10.6 | |||
| Wheat | 0.3 | 0.3 | 0.3 | 0.3 | -5.4 | |||
| Other | 0.1 | 0.1 | 0.1 | 0.1 | -5.5 | |||
| Fuel | -2.5 | -2.2 | -1.9 | -0.4 | … | |||
| Exports | 1.0 | 1.0 | 1.0 | 1.0 | 2.2 | |||
| Imports | 3.4 | 3.1 | 2.9 | 1.4 | -16.8 | |||
Reflects price change between 2007 and 2008 (from latest WEO), using volumes that are kept constant as indicated. Relative to projected 2008 GDP (CFAF 5,993 billion).
Change in CFAF value, relative to projected 2008 GDP.
Senegal. Food and Fuel Price Impact, 2008
| At 2007 volumes 1/ | At average 2007-08 volumes 1/ |
At 2008 volumes 1/ | Actual change 2/ | Volume change (2008 over 2007) |
||||
|---|---|---|---|---|---|---|---|---|
| Percent of 2008 GDP | Percent | |||||||
| Net food and fuel impact | -5.2 | -4.8 | -4.4 | -2.4 | … | |||
| Food | -2.8 | -2.6 | -2.5 | -2.0 | … | |||
| Exports | 0.1 | 0.0 | 0.0 | 0.2 | 6.4 | |||
| Groundnuts | 0.1 | 0.1 | 0.1 | 0.1 | -9.4 | |||
| Fish | -0.1 | -0.1 | -0.1 | 0.2 | 9.4 | |||
| Imports | 2.8 | 2.7 | 2.5 | 2.2 | -6.3 | |||
| Rice | 2.4 | 2.2 | 2.1 | 1.9 | -10.6 | |||
| Wheat | 0.3 | 0.3 | 0.3 | 0.3 | -5.4 | |||
| Other | 0.1 | 0.1 | 0.1 | 0.1 | -5.5 | |||
| Fuel | -2.5 | -2.2 | -1.9 | -0.4 | … | |||
| Exports | 1.0 | 1.0 | 1.0 | 1.0 | 2.2 | |||
| Imports | 3.4 | 3.1 | 2.9 | 1.4 | -16.8 | |||
Reflects price change between 2007 and 2008 (from latest WEO), using volumes that are kept constant as indicated. Relative to projected 2008 GDP (CFAF 5,993 billion).
Change in CFAF value, relative to projected 2008 GDP.
Senegal. Food and Fuel Price Impact, 2009
Reflects price change between 2007 and 2009 (from latest WEO), using volumes that are kept constant as indicated. Relative to projected 2009 GDP (CFAF 6,450 billion).
Change in CFAF value, relative to projected 2009 GDP.
Senegal. Food and Fuel Price Impact, 2009
| At 2007 volumes 1/ |
At average volumes of 2007 and 2009 1/ |
At 2009 volumes 1/ | Actual change 2/ | Volume change (2009 over 2007) |
||||
|---|---|---|---|---|---|---|---|---|
| Percent of 2009 GDP | Percent | |||||||
| Net food and fuel impact | -4.9 | -1.7 | -1.9 | 0.2 | … | |||
| Food | -2.6 | -1.9 | -2.1 | -0.7 | … | |||
| Exports | 0.0 | -0.8 | -0.9 | 0.5 | 49.5 | |||
| Groundnuts | 0.1 | 0.0 | 0.0 | 0.0 | 5.6 | |||
| Fish | -0.1 | -0.7 | -0.9 | 0.5 | 57.7 | |||
| Imports | 2.6 | 1.2 | 1.2 | 1.2 | 3.6 | |||
| Rice | 2.2 | 1.1 | 1.1 | 1.0 | -1.2 | |||
| Wheat | 0.3 | 0.0 | 0.0 | 0.0 | 4.5 | |||
| Other | 0.1 | 0.1 | 0.1 | 0.1 | 4.4 | |||
| Fuel | -2.3 | 0.2 | 0.2 | 0.9 | … | |||
| Exports | 0.9 | -0.1 | -0.1 | 0.2 | 14.6 | |||
| Imports | 3.2 | -0.3 | -0.3 | -0.7 | -4.9 | |||
Reflects price change between 2007 and 2009 (from latest WEO), using volumes that are kept constant as indicated. Relative to projected 2009 GDP (CFAF 6,450 billion).
Change in CFAF value, relative to projected 2009 GDP.
Senegal. Food and Fuel Price Impact, 2009
| At 2007 volumes 1/ |
At average volumes of 2007 and 2009 1/ |
At 2009 volumes 1/ | Actual change 2/ | Volume change (2009 over 2007) |
||||
|---|---|---|---|---|---|---|---|---|
| Percent of 2009 GDP | Percent | |||||||
| Net food and fuel impact | -4.9 | -1.7 | -1.9 | 0.2 | … | |||
| Food | -2.6 | -1.9 | -2.1 | -0.7 | … | |||
| Exports | 0.0 | -0.8 | -0.9 | 0.5 | 49.5 | |||
| Groundnuts | 0.1 | 0.0 | 0.0 | 0.0 | 5.6 | |||
| Fish | -0.1 | -0.7 | -0.9 | 0.5 | 57.7 | |||
| Imports | 2.6 | 1.2 | 1.2 | 1.2 | 3.6 | |||
| Rice | 2.2 | 1.1 | 1.1 | 1.0 | -1.2 | |||
| Wheat | 0.3 | 0.0 | 0.0 | 0.0 | 4.5 | |||
| Other | 0.1 | 0.1 | 0.1 | 0.1 | 4.4 | |||
| Fuel | -2.3 | 0.2 | 0.2 | 0.9 | … | |||
| Exports | 0.9 | -0.1 | -0.1 | 0.2 | 14.6 | |||
| Imports | 3.2 | -0.3 | -0.3 | -0.7 | -4.9 | |||
Reflects price change between 2007 and 2009 (from latest WEO), using volumes that are kept constant as indicated. Relative to projected 2009 GDP (CFAF 6,450 billion).
Change in CFAF value, relative to projected 2009 GDP.
As domestic production accounts for only one-tenth of total rice consumption, the surge in the rice price severely affected Senegal’s BOP in 2008. The WEO’s rice price index rose from 100 in 2005 to a peak of 331 in mid-2008 and is now at 196.