Statement by Mr. Assimaidou and Mr. Diallo on Senegal Executive Board Meeting, December 20, 2013

The Senegalese authorities have embarked on a critical phase of reforms, with the objective of helping the country reach an emerging market status through the acceleration of growth, the creation of jobs, and the improvement in the living standards of the population. In this endeavor, they have been designing and implementing a wide range of policies and reforms in close collaboration with the country’s development partners and benefited from the valuable policy advice of the Fund and its staff for which they are grateful.

Abstract

The Senegalese authorities have embarked on a critical phase of reforms, with the objective of helping the country reach an emerging market status through the acceleration of growth, the creation of jobs, and the improvement in the living standards of the population. In this endeavor, they have been designing and implementing a wide range of policies and reforms in close collaboration with the country’s development partners and benefited from the valuable policy advice of the Fund and its staff for which they are grateful.

The Senegalese authorities have embarked on a critical phase of reforms, with the objective of helping the country reach an emerging market status through the acceleration of growth, the creation of jobs, and the improvement in the living standards of the population. In this endeavor, they have been designing and implementing a wide range of policies and reforms in close collaboration with the country’s development partners and benefited from the valuable policy advice of the Fund and its staff for which they are grateful.

Despite the progress made toward the objectives of Senegal’s Policy Support Instrument (PSI), a number of unanticipated events in recent months, caused some reform measures to be implemented behind the program’s original schedule. These events include longer-than-expected consultations with private stakeholders on some critical actions, sporadic lack of coordination between reform actors, and a Cabinet reshuffle. The new government has signaled a strong political commitment to reforms and reaffirmed its determination to accelerate their implementation. Looking ahead, implementation of the PSI program will proceed in line with the authorities’ commitments, focusing notably on the need to sustain progress toward program objectives, advance the fiscal policy and reform agenda, and promote private sector development.

Securing Good Performance under the PSI

In recent months, the authorities’ economic program supported by the PSI registered noticeable progress. All quantitative assessment criteria and indicative targets set for end-June 2013 were met, reflecting the authorities’ attachment to prudent macroeconomic management. In particular, the authorities achieved the mid-year program target for the fiscal deficit in spite of the significant revenue shortfalls partly triggered by recent reforms of the tax system. In addition, public debt management proceeded in line with program commitments. In fact, recent initiatives taken on this latter front and reported in our previous Board statements were instrumental in strengthening the country’s debt management practices, thus motivating the Fund’s recent decision to upgrade Senegal to the category of LICs with higher macroeconomic and public financial management capacity.

On the structural front, progress was made toward the program objectives of strengthening public financial management, improving and modernizing revenue collection, and enhancing the business environment. Specific steps taken to this end included the finalization of a plan for restructuring public agencies, the establishment of the Treasury single account, cabinet’s adoption of a new customs code and its submission to the parliament, and the launch of electronic filing and payment systems.

Going forward, the reform agenda will be implemented unwaveringly with a view to achieving program objectives. As part of their efforts to further improve public financial management, a new payroll management system is expected to be launched at the beginning of next year. Following recent efforts to build the capacity of sectoral ministries to conduct costs-benefit analyses, increased recourse to such analyses is also anticipated. These practices will go a long way toward improving fiscal transparency and the efficiency of public spending. In this connection, the authorities envisage to annex those carried out on the five largest investment projects to the 2015 draft budget law when the latter is submitted to the parliament.

Advancing the Fiscal Policy and Reform Agenda

In 2014, the authorities will continue to ensure prudent fiscal management with a view to preserving macroeconomic stability and debt sustainability. The downward path followed by the fiscal deficit in recent years is expected to be sustained, as the authorities aim to contain its share of GDP below 5 percent. In order to achieve this objective, efforts will be made to strengthen revenue performance while reining in current expenditure and improving its efficiency.

On the revenue side, resolute reforms to customs and tax administrations will be pursued, thereby perpetuating their significant contribution to the country’s relatively strong revenue performance. Opportunities for increasing tax revenues are expected to be created bycontinuous capacity building within these entities as well as actions aimed at improving tax collection and broadening the tax base. In line with the objectives of the new tax code, the authorities will carry out necessary actions to finalize the process of modernizing tax legislation, begin implementation of the recent reform to the VAT credit refund, and streamline tax expenditures.

With regard to public expenditures, arrangements have been made with concerned providers to curb the increasing trend of public sector’s phone and utility bills. At the same time, additional fiscal space is poised to be created by the audit of the civil service based on which a Cabinet’s decision was taken last week to suspend the salaries of about 11,000 unaccounted civil servants pending authentication of their employment status. Though likely to be associated with long-term payoffs, implementation of the recently approved restructuring plan for agencies should generate significant savings, notably through the announced merger and elimination of some of them, alignment of their staff’s remuneration with the average salary of other civil servants.

Beyond savings considerations, the authorities’ reform program with respect to public agencies is also driven by their strong desire to improve efficiency and transparency in the management of public finance. For this reason, the use of performance contracts is expected to be increasingly prevalent with a view to securing agencies’ progress toward their strategic objectives. In addition, the rationale for creating any new agencies will be expected to be supported by well-evidenced cost-benefit analyses.

Furthermore, it is the authorities’ intention to consolidate recent improvements in public financial management notably by exerting better control over the wage bill, implementing the single Treasury account, and expanding the scope of the budget management system. As the new payroll management system will be operational next year, capacities in terms of forecasting and monitoring of the wage bill will be concomitantly built.

The authorities will remain vigilant about the need to protect vulnerable households while working to reduce gradually the deficit over the medium term. As a result, measures aimed at strengthening the social safety net will continue to rank high among their priorities, including the broadening of basic health insurance coverage, assistance to farmers, and propoor allocation of conditional cash transfers. In addition to the projected deficit reduction, macroeconomic stability and debt sustainability will also continue to be served by continued implementation of the medium-term debt management strategy along with continued emphasis on strengthening debt management capacities.

Promoting Private Sector Development

In support of the authorities’ private sector development agenda and accelerated growth strategy, the ongoing strategic investments in the energy sector will play an instrumental role. Indeed, the sharp increase in the country’s power generation and distribution capacities that these investments will help build up in the medium term is anticipated to drive down production costs in a significant manner. In turn, this is expected to have positive effects on social welfare, public finance, and economic performance notably by making electricity consumption more affordable for households and businesses, improving competitiveness, and reducing fiscal risks and energy subsidies.

Furthermore, the authorities’ long-standing goal of reducing fiscal risks arising from the energy sector will be served by the increased focus being put on strengthening the accountability of the electricity company, SENELEC, through regular issuance of monitoring reports on its performance contract with the State. The firm intention to put these monitoring reports in the public domain and to maintain close consultations with key non-governmental stakeholders in the design and implementation of the energy sector reform strategy also signal the high premium put by the authorities on securing efficiency and transparency in the sector.

Several other aspects of the authorities’ structural reform agenda will continue to be implemented with a view to strengthening the private sector-led economy. These include financial sector reforms embodied by the updated comprehensive action plan that was originally designed in consultation with concerned stakeholders, notably with the aims of improving financial deepening, access to credit, banking intermediation, and the business environment in which financial institutions operate. Other structural reforms defined over a three-year horizon are also designed to boost private sector development and improve competitiveness by enhancing the framework for public-private partnerships, reducing red tape, further securing property and contractual rights, and strengthening the legal framework for land tenure and transactions.

Conclusion

The objectives of Senegal’s Policy Support Instrument (PSI) reflect the emphasis put by the country authorities on the importance of preserving macroeconomic stability, creating space for pro-poor and pro-growth spending, and promoting private sector development. In this regard, they have continued to implement steadfastly the policies and reforms designed to achieve these objectives and Fund’s assistance has been critical in support of their efforts. However, much more needs to be done despite these achievements. The authorities remain fully committed to pursuing the reform process and implementing a transformative growth strategy.

In light of Senegal’s program performance and the strong commitment of the Senegalese authorities to the program objectives, we call on Directors to support the Senegalese authorities’ request for the completion of the sixth review under the PSI.

Senegal: Sixth Review Under the Policy Support Instrument and Request for Modification of an Assessment Criterion—Staff Report; Informational Annex; Press Release and Executive Director’s Statement
Author: International Monetary Fund. African Dept.