Senegal: Staff Report for the 2016 Article IV Consultation and Third Review under the Policy Support Instrument—Informational Annex

Implementation of the 'Plan S�n�gal Emergent' (PSE) is beginning to pay dividends, contributing to projected growth of over 6 percent for the second year in a row. However, for growth to be sustained, further reforms are needed to improve the business environment and create economic space for private domestic and foreign investment. The challenge of meeting infrastructure development objectives without undermining debt sustainability will require continuing efforts to improve the quality of investment while pursuing a prudent debt strategy that keeps the cost of borrowing at reasonable rates. Failure to strengthen debt management and master treasury operations may jeopardize the rating of low risk of debt distress.

Abstract

Implementation of the 'Plan S�n�gal Emergent' (PSE) is beginning to pay dividends, contributing to projected growth of over 6 percent for the second year in a row. However, for growth to be sustained, further reforms are needed to improve the business environment and create economic space for private domestic and foreign investment. The challenge of meeting infrastructure development objectives without undermining debt sustainability will require continuing efforts to improve the quality of investment while pursuing a prudent debt strategy that keeps the cost of borrowing at reasonable rates. Failure to strengthen debt management and master treasury operations may jeopardize the rating of low risk of debt distress.

Relations with the Fund

(As of September 30, 2016)

Membership Status: Joined: August 31, 1962; Article VIII

General Resources Account:

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SDR Department:

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Outstanding Purchases and Loans:

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Latest Financial Arrangements:

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Formerly PRGF.

Projected Payments to Fund2

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When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

Implementation of HIPC Initiative:

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Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

Implementation of Multilateral Debt Relief Initiative (MDRI):

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The MDRI provides 100 percent debt relief to eligible member countries that qualify for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end-2004 that remains outstanding at the time the member qualifies for such debt relief.

Implementation of Catastrophe Containment and Relief (CCR): Not Applicable

As of February 4, 2015, the Post-Catastrophe Debt Relief Trust has been transformed to the Catastrophe Containment and Relief (CCR) Trust.

Exchange System:

Senegal, a member of the West African Economic and Monetary Union (WAEMU), accepted the obligations under Article VIII, Sections 2(a), 3 and 4 of the Fund’s Articles of Agreement, and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions. The WAEMU’s exchange regime is a conventional peg to the euro.

The union’s common currency, the CFA franc, had been pegged to the French franc at the rate of CFAF 1 = F 0.02. Effective January 12, 1994, the CFA franc was devalued and the new parity set at CFAF 1 = F 0.01. Effective December 31, 1998, the parity was switched to the euro at a rate of CFAF 655.96 = €1.

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

Aspects of the exchange system were also discussed in the report “WAEMU: Common Policies for Member Countries” (Country Report No. 14/84).

Article IV Consultations:

The previous consultation discussions were held during September 16–26, 2014. The Article IV consultation was completed by the Executive Board on December 15, 2014 and the staff report was published on January 14, 2015 (Country Report No. 15/2). In concluding the 2014 Article IV consultation, Executive Directors noted that satisfactory program implementation has helped Senegal preserve macroeconomic stability. However, due to internal and external factors, the economy has continued to underperform and unemployment and poverty remain high. The large current account deficit and increasing exposure of the external position to shifting market sentiment pose additional risks to the outlook. Directors stressed that prudent policies and ambitious structural reforms are critical to boosting growth and reducing poverty. In this regard, they welcomed the authorities’ new development strategy as outlined in “Plan Sénégal Emergent” (PSE) and looked forward to its steadfast and timely implementation.

Directors emphasized that accelerating the pace of structural reforms will be key to achieving the PSE objectives. They agreed that reform efforts should be aimed at improving governance and the business climate in order to promote private sector development and to attract foreign direct investment. Priority should also be given to making delivery of public services more efficient, improving the impact of public spending through PFM reforms, containing public consumption to generate the fiscal space for investment in human capital and public infrastructure, and strengthening social safety nets. A comprehensive restructuring of the energy sector and increasing export competitiveness will also be important. Directors welcomed the authorities’ plans to engage with a few comparator countries to develop an active peer learning effort to roll out the required reforms.

Directors encouraged the authorities to anchor fiscal policy on long-term debt sustainability within a medium-term budget framework and reach the WAEMU convergence criteria on the fiscal deficit of 3 percent of GDP by 2019. They noted that attaining this goal will require further strengthening of tax and expenditure policy measures. While supporting the PSE priorities, Directors emphasized that all related investment should be consistent with the authorities’ earlier fiscal consolidation plans and Senegal’s absorptive capacity. In addition, decisions to contract nonconcessional financing should be carefully weighed.

Directors welcomed the initiative to improve the quality of public investment by establishing a precautionary reserve envelope from which funding would only be released for projects with proper feasibility studies. Directors encouraged the authorities to extend this in the 2016 budget.

Directors stressed that continued efforts will be needed to improve public financial management, budget institutions, and economic governance. They underscored that reforms should focus on key areas such as macro-fiscal policy design, development of a medium-term expenditure framework and improved fiscal discipline in budget execution.

Directors highlighted the importance of addressing financial sector vulnerabilities, especially the quality of bank assets. They encouraged continued vigilance of the high level of non-performing loans in close cooperation with the BCEAO and WAEMU Banking Commission. Directors supported the strategy to improve access to financial services.

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

A joint team of the World Bank and the IMF conducted a mission under the FSAP program in 2000 and 2001. The Financial System Stability Assessment (FSSA) was issued in 2001 (IMF Country Report No. 01/189). An FSAP update was undertaken in 2004, focusing on development issues (in particular nationwide supply of basic financial services and access of SMEs to credit, in line with the priorities defined in the PRSP (IMF Country Report No. 05/126). A regional FSAP for the WAEMU was undertaken in 2007 and the FSSA was issued in May 2008 (SM/08/139). A ROSC on the data module was published in 2002. An FAD mission conducted a ROSC on the fiscal transparency module in 2005.

Technical Assistance (2010–16):

A. Afritac West

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B. Headquarters

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C. Resident Representative

Stationed in Dakar since July 24, 1984; the position has been held by Mr. Boileau Loko since September 2013.

D. Anti-Money Laundering/Combating the Financing of Terrorism

The onsite visit for Senegal’s AML/CFT evaluation took place in July/August 2007 in the context of ECOWAS’s Inter-Governmental Action Group Against Money Laundering in West Africa (GIABA). The report was adopted in early May 2008 by the GIABA Plenary held in Accra, Ghana. The report highlighted several areas of weaknesses in the AML/CFT system, confirmed by a score of 12 non-compliant and 16 partially compliant ratings out of the 40+9 FATF AML/CFT recommendations. In May 2009 Senegal joined the Egmont Group of Financial Intelligence Units (FIUs). The FIU publishes on its website statistics on suspicious transaction reports received, the number of cases transmitted to the judiciary, and the number of convictions. Senegal’s eighth follow-up report was discussed at GIABA’s May 2016 Plenary. It acknowledged the progress achieved in its legal, regulatory and institutional framework, including the efforts to revise the AML/CFT legal framework in line with the 2012 FATF standard, and encouraged Senegal to continue making improvements. Senegal was removed from the follow-up process and will be assessed under the 2012 FATF standard in early 2017.

Joint Management Action Plan Implementation World Bank and IMF Collaboration

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Statistical Issues

Statistical Issues Appendix

As of October 31, 2016

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Senegal: Table of Common Indicators Required for Surveillance

(As of October 31, 2016)

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

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

Foreign, domestic bank, and domestic nonbank financing.

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

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

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

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

Same as footnote 8, except referring to international standards concerning (respectively) source data, statistical techniques, assessment and validation of source data, and revision studies.

Estimate.

Reported to staff during mission.