Senegal: Fifth Review Under the Policy Coordination Instrument, Second Reviews Under the Stand-By Arrangement and the Arrangement Under the Standby Credit Facility, and Requests for Augmentation of Access, Waiver of the Nonobservance of a Performance Criterion, and Modification of a Performance Criterion and Quantitative Targets-Press Release; Staff Report; and Statement by the Executive Director for Senegal
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International Monetary Fund. African Dept.
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Publication Date:
27 Jun 2022
eISBN:
9798400214219
ISBN:
9798400214219
Language:
English
Keywords:
gas revenue management framework; accounts payable; financing requirement; IMF obligation; core inflation; Food prices; Government debt management; Global
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1. Senegal is confronted with higher global oil and food prices at a time where policy buffers are rapidly shrinking. This new shock comes at a time when Senegal already grapples with scars from the pandemic, rising social demands, regional insecurity, and depleted policy buffers. Retail prices for fuel, electricity, and key staple food are administered and socially sensitive, resulting in sizeable fiscal pressures. Fiscal space has narrowed rapidly as public debt has increased to over 73 percent of GDP in 2021, up by 10 percentage points since 2019.

Abstract

1. Senegal is confronted with higher global oil and food prices at a time where policy buffers are rapidly shrinking. This new shock comes at a time when Senegal already grapples with scars from the pandemic, rising social demands, regional insecurity, and depleted policy buffers. Retail prices for fuel, electricity, and key staple food are administered and socially sensitive, resulting in sizeable fiscal pressures. Fiscal space has narrowed rapidly as public debt has increased to over 73 percent of GDP in 2021, up by 10 percentage points since 2019.

Context

1. Senegal is confronted with higher global oil and food prices at a time where policy buffers are rapidly shrinking. This new shock comes at a time when Senegal already grapples with scars from the pandemic, rising social demands, regional insecurity, and depleted policy buffers. Retail prices for fuel, electricity, and key staple food are administered and socially sensitive, resulting in sizeable fiscal pressures. Fiscal space has narrowed rapidly as public debt has increased to over 73 percent of GDP in 2021, up by 10 percentage points since 2019.

2. The war in Ukraine and, to a lesser extent, ECOWAS sanctions against Mali, are significantly affecting Senegal (Annex I). Deteriorating terms of trade and lower external demand are expected to dampen growth prospects, increase inflationary pressure, widen energy subsidies, and worsen the trade balance. Food insecurity is becoming a serious concern, which could affect about 5 percent of the population. Financial spillovers, however, are expected to be limited.

3. Given the current difficult context, the authorities responded by providing support to the economy while preserving debt sustainability. New emergency measures were adopted that will (i) stabilize staple food prices, (ii) allow for additional resources for energy subsidies, (iii) accommodate additional cash transfers to protect the vulnerable, and (iv) allocate new spending for security and public wages. While debt levels will increase in 2022, the authorities remain committed to their medium-term fiscal consolidation strategy, which is critical to maintaining debt on a sustainable path.

4. The compounded effect of the deteriorating economic and social environment has prompted the authorities to seek assistance from their main international partners. To that effect, they have requested an augmentation of access under the Stand-By Arrangement (SBA) and the arrangement under the Standby Credit Facility (SCF) of SDR 129.44 million (40 percent of quota), which will help in addressing the higher balance of payments need in 2022. Other partners, including the World Bank and the African Development Bank, are also increasing their budget support this year.

5. In contrast, the Covid-19 pandemic has fallen off public concern, though a significant part of the population remains unvaccinated. Only 15 percent of the population (15 years and older) is fully vaccinated, raising vulnerabilities to future variants of the virus. Whereas the vaccination campaign has stalled due to vaccine hesitancy and the perception of an abating pandemic (Text Figure 1).

Text Figure 1.
Text Figure 1.

Senegal: Recent Economic Developments and Evolution of the Covid-19 Pandemic

Citation: IMF Staff Country Reports 2022, 197; 10.5089/9798400214219.002.A001

Source: Senegalese authorities, John Hopkins University and IMF Staff calculations.

6. Senegal is in the midst of a busy political period. The long-delayed local elections were held in January 2022. The political attention is now turning to legislative elections slated for July 31, 2022. The social climate is somewhat tense, forcing the government to grant pay increases to end teachers and health workers’ strikes.

Recent Economic Developments

7. Economic activity exceeded expectation in 2021 with the momentum enduring early this year. Growth rebounded to 6.1 percent- higher than the projected 5 percent. While non-agriculture growth exceeded expectations (+7.1 percent) driven by a dynamic secondary (+10.9 percent) and tertiary sectors (+5.7 percent), agricultural production declined (-2 percent) following last years’ bumper harvest. High frequency activity indicators suggest last year’s growth momentum continued during 2022Q1 (MEFP ¶4).

8. Inflation was under control in 2021 before shooting up in early 2022. Average annual inflation stood at 2.2 percent in 2021 but picked up to 7.0 percent y-o-y by April 2022, mainly driven by food prices, which increased by 11.3 percent y-o-y. Soaring global food and fertilizers prices, and higher shipping cost, compounded by the war in Ukraine, have begun to pass-through to domestic food prices (Annex II). Core inflation, excluding food and energy prices, rose by less than 2 percent y-o-y, but still exceeded pre-pandemic levels (Text Figure 1).

9. The external position weakened. The current account deficit is estimated to have significantly widened to 13.3 percent of GDP in 2021, primarily driven by a surge in FDI-financed services imports related to the hydrocarbon projects. The trade deficit deteriorated to 21.1 percent of GDP, while remittances amounting to 10.6 percent of GDP continued to support incomes (MEFP ¶5).

10. The banking system remained resilient. Broad money grew by 15.6 percent in 2021, buoyed by increasing credit to the economy (+12 percent), which persisted in 2022Q1 (13.9 percent y-o-y). The stock of nonperforming loans declined as of end-March to 11.3 percent, while the banking sector’s capital adequacy ratio remained comfortable (12 percent) (MEFP ¶8).

11. The fiscal deficit in 2021 stood at 6.3 percent of GDP, in line with the program target (Text Table 1). Adjustments to externally financed investment spending compensated shortfalls in project grant disbursements and domestic revenues. The underperformance of tax revenues was mostly driven by indirect taxes, partly offset by exceptional dividends from the electricity utility company following the clearance of cross-debt with the central government. The SDR allocation was partially used for the health sector, social protection, and to support economic recovery (Text Table 2). Fiscal developments during 2022Q1 suggest a strong revenue performance and rapid spending execution (MEFP ¶6).

Text Table 1.

Senegal: Recent Fiscal Developments

(In billions CFAF, unless otherwise indicated)

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Source: Senegalese authorities and IMF staff calculations.
Text Table 2.

Senegal: Use of the SDR Allocation

(In billions of CFAF unless otherwise indicated)

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Source: Senegalese authorities and IMF staff calculation.

12. Public debt stood at 73 percent of GDP at end-2021. The increase in the stock of debt was driven by the fiscal deficit, investments in oil and gas production, and pre-financing. The clearance of pre-2020 unmet obligations,1 a core program objective, brought total repayments between 2019 and 2021 to 3 percent of GDP.2 In April 2022, a state-owned enterprise issued Sukuks (2 percent of GDP), which will be used to finance the purchase of currently leased public office buildings (MEFP ¶7).

Program Performance

13. Program performance through end-December 2021 was broadly satisfactory (MEFP ¶10-¶12).

  • All but one quantitative performance criteria (PCs/QTs) were met.3 PCs/QTs on the deficit, net financing requirement, debt ceiling, and the non-accumulation of external arrears were met. Tax revenues fell short by 0.6 percent of GDP, half of which due to the off-budget treatment of revenues related to the road fund (TUR), whereas the remainder is related to a weak performance of the VAT and the weaker-than-expected yield of a mid-2021 package of revenue measures.

  • One out of three indicative targets (ITs/QTs) were met. The floor on social spending was met with a significant margin. However, the ceiling on the share of contracts awarded through single-source procurement was breached, owing to the persistence of direct awarding of unsolicited offers, tied aid practices, and the waiving of regular procurement procedures for general interest purposes. The ceiling on the use of simplified procedures for non-personalized services exceeded the program target temporarily due to the large clearance of unmet obligations in 2021Q4.

  • Four out of eight December structural benchmarks (SBs) were met. The four unmet SBs included: (i) the work on digitalizing the land management system, which will become operational later this year, (ii) setting up an online collateral registry, for which a pilot is expected to become operational by November, (iii) reducing tax exemptions for a gain of 0.2 percent of GDP, now expected in the 2023 budget, and (iv) merging all funds that support youth and women employment and entrepreneurship in a single fund, which was completed from a budgetary perspective but awaits the legal acts to close the nonoperational agencies, due before year-end.

  • Governance measures regarding COVID-19 spending have been mostly implemented with the publication of two key reports prepared by the Fonds Force COVID-19 monitoring committee and the Public Procurement Regulatory Authority.4 The audit court is in the process of finalizing its special report and has transmitted it to the government for comments. Publication is now expected in July instead of March as the period covered by the report was extended to also cover the first quarter of 2021. The authorities should follow-up on the findings of the COVID-19 related audits and investigate any potential misuse of funds, including by preparing an action plan once the report by the audit court is finalized (MEFP ¶13).

Policy Discussions

Discussions focused on appropriate policies to (i) address the impact of higher food and fuel prices, (ii) promote fiscal and debt sustainability, and (iii) foster private sector-led growth.

A. Outlook and Risks

14. Senegal’s near-term outlook is impacted by the war in Ukraine, the terms of trade shock, and the ECOWAS sanctions against Mali; however, medium term prospects should remain robust provided appropriate policies are implemented (Text Figure 2) (MEFP ¶17, ¶18).

  • Growth: The economy entered 2022 with a strong growth momentum. However, as a result of the various shocks, growth this year has been revised down to 5 percent (-0.5 percentage point compared to the 4th review), slightly below the estimated medium-term non-oil trend growth of 6 percent. Growth in 2023 and 2024 will receive a temporary boost from oil and gas production and is expected to average around 10 percent before leveling off around 5 percent.

  • Inflation: Inflation is projected to pick up to 5.5 percent this year (+3 percentage points compared to the 4th review) driven by higher food and energy prices before declining to 2 percent over the medium term.

  • External position: The current account deficit is expected to remain at about 13 percent of GDP in 2022. The significant deterioration in the terms of trade will be broadly offset by lower services imports as the hydrocarbon projects near their production phase. Over the medium term, the current account deficit will narrow significantly to about 4 percent of GDP, benefitting from oil and gas exports starting in late 2023.

Text Figure 2.
Text Figure 2.

Senegal: Macroeconomic Indicators, 2021–2024

Citation: IMF Staff Country Reports 2022, 197; 10.5089/9798400214219.002.A001

Sources: Senegalese authorities; and IMF staff calculations.

15. The baseline outlook is subject to considerable uncertainty and risks are tilted to the downside (Annex IV). Higher oil and gas prices over the medium-term and European efforts to reduce reliance on Russian energy imports, could increase hydrocarbon-related investments and create upside risks. On the downside, a protracted war in Ukraine and sanctions against Russia combined with supply disruptions could lead to a sharper slowdown in global economic growth or further volatility in commodities prices. A prolonged freeze on trade with Mali -Senegal’s main trading partner in the region- could negatively affect production and exports. Further risks include a renewed flare-up of the COVID-19 pandemic, including lockdowns in key manufacturing and trade hubs, a deterioration of the regional security situation, rising social tensions, slower reform implementation in the run up to the July parliamentary elections, a severe tightening of external financial conditions, and adverse weather conditions (MEFP 1119).

B. Balancing Act: Addressing the Fallout from the War in Ukraine While Preserving Debt Sustainability

16. Fiscal pressures have been building since the adoption of the 2022 budget. In response, the authorities decided to recalibrate their fiscal stance given the weaker economic outlook, the social burden associated with soaring food and energy prices, rising social demands amid prolonged strikes in the health and education sector, and heighted regional insecurity.

17. In particular, higher global energy prices are exerting significant pressure on the budget (Annex III). The 2022 budget included 0.9 percent of GDP for energy subsidies based on an average price of US$75 per barrel of oil and a commitment to keep energy subsidies below 1 percent of GDP in 2022 (SB, June 2022). At current oil prices and unchanged fuel and electricity prices, staff estimates that subsidies would triple to 3 percent of GDP, thereby crowding out priority spending. An immediate increase in fuel and electricity prices of about 60 percent and 55 percent, respectively, would be required to eliminate the need for subsidies going forward, which would be devastating for a large part of the population and the economy.

18. Faced with these challenges, staff and the authorities agreed on a supplementary budget, which was approved by Parliament in May (Text Table 3). The revised budget targets an overall deficit of 6.2 percent of GDP—1.4 percentage point higher than the commitment made at the time of the last review. The temporary relaxation balances the short-term needs for higher spending with medium-term sustainability. The budget reflects direct deficit-increasing measures to cope with the food and energy price shock (1.7 percent of GDP), public sector wage increases (0.6 percent of GDP), and additional security-related spending (0.4 percent of GDP) (MEFP ¶20). To contain the deficit, the authorities identified savings of 0.7 percent of GDP and revenue enhancing measures of 0.4 percent of GDP.5

Text Table. 3.

Senegal: Accommodating Fiscal Pressure while Preserving Debt Sustainability

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Source: Senegalese authorities and IMF staff calculations.

19. Given the soaring energy bill, staff and the authorities agreed that containing wasteful subsidies should be a priority this year, while protecting the most vulnerable (Text Figure 3). The authorities decided to adjust selected energy prices , which will generate savings of about 0.4 percent of GDP while shielding lower income households. In addition, the authorities agreed to: (i) allocate additional resources to subsidies (+0.9 percent of GDP) in the supplementary budget; (ii) further adjust prices (0.3 percent of GDP), if needed; and (iii) commit to tapping into the budgetary reserves, consisting largely of pre-identified investment projects that could be postponed (about 0.5 percent of GDP) (MEFP ¶20).

Text Figure 3.
Text Figure 3.

Senegal: Energy Subsidies in 2022

(In percent of GDP)

Citation: IMF Staff Country Reports 2022, 197; 10.5089/9798400214219.002.A001

Source: IMF staff calculations.

20. With food inflation exceeding 11 percent in April (y/y), food insecurity has become a serious concern (Annex II). To address it, the authorities have adopted a mix of measures that includes: (i) lifting customs duties and VAT on selected staple foods6 (0.4 percent of GDP), (ii) conducting an emergency, one-off cash transfer operation to support the income of about 25 percent of the population (0.3 percent of GDP), and (iii) increasing subsidies for local food production (0.1 percent of GDP) (MEFP ¶21).7

21. Given the heightened uncertainty associated with the spillovers from the war in Ukraine, the authorities have underpinned the supplementary budget with several new measures in order to contain the overall deficit at 6.2 percent of GDP (MEFP ¶¶22–23):

  • Revenue: Despite the shocks, domestic revenue8 projections were maintained based on an exceptional revenue from a land sale and the encouraging results from ongoing reforms to expand the tax base.9 Additional new measures include a slight increase of the personal income tax on high earners, bolstering cooperation between the tax and customs departments, and strengthening controls at customs.

  • Expenditure: The authorities identified savings of 0.6 percent of GDP by postponing investment projects, mainly in infrastructure, digitalization, and transport services by a year and reducing transfers to public agencies.

  • Budgetary reserve: A reserve of 0.5 percent of GDP will serve to guard against fiscal risks and to cover possible additional energy subsidy needs.10

22. Additional financing needs are mostly covered by external concessional support. The World Bank and the African Development Bank are expected to provide higher than programmed budget support this year of 0.5 percent of GDP. Together with the augmentation of Fund financing (0.6 percent of GDP), the total will cover about 2/3 of the additional financing needs. The remainder is expected to be raised on the regional market (MEFP 1124).

C. Strengthening Medium-Term Fiscal Resilience and Debt Sustainability

23. The authorities and staff agreed that a more efficient and growth-friendly fiscal framework is needed to set public debt on a downward trajectory (MEFP 1F25). The framework will be anchored around a credible fiscal consolidation plan with the aim of reaching a fiscal deficit of 3 percent of GDP by 2024, thus requiring a sizeable annual improvement in the primary balance of 1.5 percent of GDP in 2023 and 2024. To limit the impact on the economy and enhance fiscal resilience going forward, a growth friendly consolidation strategy will be pursued, which will focus on (i) strengthening debt management, (ii) gradually phasing out energy subsidies, (iii) strengthening domestic revenue mobilization, (iv) enhancing fiscal transparency and procurement, and (v) implementing the new oil and gas revenue management framework.

Public Debt Sustainability and Management

24. Senegal remains at moderate risk of debt distress with limited space to absorb future shocks (see DSA). In addition to the higher fiscal deficit, new borrowing by state-owned enterprises is expected to increase the debt/GDP ratio to 75 percent by end-2022. The updated DSA shows that Senegal has limited space to absorb future shocks and is vulnerable to growth and external sector shocks. Staff emphasized the importance of refraining from any additional external borrowing in 2022 and starting in 2023 to limit new borrowing to concessional financing unless the investment is associated with high returns. Over the medium-term, public debt-to-GDP is expected to steadily decline, driven by robust growth and a revenue-based fiscal adjustment towards the regional deficit target (MEFP ¶26).

Text Figure 4.
Text Figure 4.

Senegal: Public Sector Debt Projections

(%ofGDP)

Citation: IMF Staff Country Reports 2022, 197; 10.5089/9798400214219.002.A001

Source: Senegalese authorities and IMF staff calculations.

25. Staff emphasized the importance of continuing to strengthen the effectiveness of debt management practices. Efforts in recent years to strengthen the oversight of public debt by the national debt committee (CNDP) are starting to bear fruit but require ongoing vigilance to ensure that the framework is systematically implemented in practice.11 The implementation of the authorities’ action plan to follow-up on last year’s debt audit is needed to strengthen the quality and timeliness of debt data provided by state-owned enterprises (MEFP ¶27).

Phasing out Energy Subsidies

26. Staff and the authorities agreed on the importance of phasing out energy subsidies. Moving towards flexible fuel and electricity prices would limit fiscal risks and have important distributional and environmental benefits. Current investments in the energy sector –e.g. gas-to-power strategy and the upgrading of the domestic refinery—have the potential to durably lower domestic energy production costs. Together with the initiated price adjustments, they are expected to lead to a significant reduction of the subsidy bill starting 2023 even if global oil prices remain elevated. However, staff emphasized that price liberalization should be accompanied by targeted support to vulnerable households and selected industries. Hence, the importance of the publication of the roadmap for the gradual elimination of subsidies starting in 2023 (SB, June 2022), which should include a clear path towards automatic price adjustment, targeted and durable social protection measures, and a comprehensive communication plan (MEFP ¶25).

Strengthening Domestic Revenue Mobilization

27. Efforts are underway to strengthen domestic revenue mobilization, but more needs to be done. Reaching a non-oil tax to non-oil GDP ratio of 20 percent by 2024 requires a decisive break with past performance. Progress has been made with regard to increasing the number of registered taxpayers (SB, June 2022), digitalizing processes, improving coordination between the tax and customs directorates, setting up the medium-term revenue strategy (MTRS) implementing unit, and strengthening the MTRS monitoring by setting up a quantitative evaluation framework (SB, June 2022) (MEFP ¶25).

28. However, tax policy lacks strategic direction. Proposals are currently developed at various levels in the administration without clear coordination. Progress on the reduction of regressive tax exemptions has fallen short of expectations and taxpayer compliance remains unsatisfactory due to the limited effectiveness of controls and the incomplete implementation of the automatic customs fee for importers not current on their tax obligations. The communication within the administration and to taxpayers should be stepped up to better convey the strategic objectives of the MTRS and to strengthen ownership.

Enhancing Fiscal Transparency and Procurement

29. The authorities are progressing on the PFM reform agenda. The updating of the 2018 PFM reform strategy to reflect recommendations from donor-provided technical assistance (TA) should support reform momentum going forward and should be finalized quickly. The implementation of the treasury single account (TSA) is ongoing, with the closure of 65 percent of non-necessary general government accounts and progress is ongoing to gradually close the remaining accounts. The transition to program budgeting has been completed for the central government. Budget preparation and execution should be supported by the systemic use and the strengthening of commitment, procurement, and cash plans (MEFP, ¶28-¶30).

30. Efforts to limit single-sourced procurement is ongoing and should be stepped up to increase efficiency and reduce the scope for corruption. The share of single-sourced projects remains above the program target of 15 percent, driven by the continued direct awarding of major projects following unsolicited offers, the persistence of tied aid practices by some donors, and discretionary decisions to waive standard procurement procedures by invoking public interest exceptions. To further limit single-sourced procurement, the authorities intend to update the procurement code by strictly limiting unsolicited offers (SB, June 2022). Staff underscored the importance to further strengthening safeguards in the new code, including by requesting stronger justifications for the overruling of procurement legislation for general interest purposes and strengthening ex post controls of such decisions. Staff also strongly recommended to continue monitoring the share of single-sourced contracts based on the value of contracts rather than on the number of contracts as proposed by the authorities. The former provides a better indication of the importance of these contracts relative to overall spending.

Implementing the New Oil and Gas Revenue Management Framework

31. The fiscal framework for transparent oil and gas revenue management is being finalized. The hydrocarbons revenue management law was adopted and is now complemented with implementing decrees to set up a committee for revenue forecasting that follows a clearly established methodology and the intergenerational savings and stabilization funds (MEFP, ¶31). The non-oil fiscal anchor established in the law will become operational as part of the 2023–26 medium-term fiscal framework (SB, June 2022). Fund staff continue to provide the necessary capacity development in this area.

D. Financial Stability and AML/CFT

32. There is a renewed attention to addressing long-standing weaknesses of the three non-systemically ailing banks and the postal group. Staff noted that the restructuring of the three small banks is overdue and recommended that banks that are unable to meet minimum solvency requirements by the agreed timeframe should be liquidated. Regarding the post office group (“La Poste”), given its increasingly dire financial situation, staff underlined the importance of strictly enforcing administrative measures agreed upon to limit budgetary risks and quickly reviewing and implementing the restructuring roadmap (MEFP ¶37, ¶38).

33. Additional efforts are necessary to address the strategic deficiencies in the anti-money laundering and combating the financing of terrorism (AML/CFT) framework. While progress has been noticeable regarding technical compliance with the adoption of thirteen legal and regulatory acts, further efforts are needed, including with respect to targeted financial sanctions. The authorities are working on strengthening the effectiveness of the AML/CFT framework, notably to raise awareness and strengthen the supervision and technical capacities of designated non-financial businesses and professions (DNFBPs). Staff reiterated the importance of completing the implementation of the action plan by the September 2022 deadline to avoid possible negative macroeconomic repercussions should Senegal remain on the enhanced oversight list of the Financial Action Task Force (FATF) (MEFP ¶¶41–42).

E. Social Protection and Inclusive Growth

34. The authorities aim to expand the social safety net, address youth unemployment, and improve the business environment, which are key to withstanding external shocks, attracting investment, and generating high and inclusive growth. Efforts are underway to double the coverage of the national database for social protection (RNU) to one million households (almost half of the population) but gathering all required information will require more time and is now expected to be finalized by June 2023. Cash transfers can now be executed via mobile money instead of the national post office and the authorities committed to switching to digital payments by November 2022 (proposed new SB for November 2022). The three-year emergency program for youth employment, launched last year, continues to be implemented with an annual envelope of about 1 percent of GDP. A new strategy for private sector development bundles the government’s efforts to support businesses and develop value chains (MEFP, ¶¶32–33-35).

Program Modalities and Capacity Development

35. The authorities have requested an augmentation of access to cover the additional short-term balance of payments needs. The external position has deteriorated since the last review owing to higher commodity and food prices, resulting in an additional short-term balance of payments needs. The proposed augmentation of 40 percent of quota with a 2:1 ratio SBA/SCF as specified in the letter of intent (0.6 percent of GDP) will help cope with rising and volatile food and oil prices and bolster food security. As is normally the case for WAEMU member countries, disbursements will be on-lent from the central bank for direct budget support. Fund financing will catalyze additional financing from the World Bank and the African Development Bank, which are increasing their budget support by 0.5 percent of GDP in 2022. In addition, there are good prospects for additional financing from a major bilateral partner.12 To maintain the reform momentum, the proposed augmentation would be equally spread over the last two reviews. Fund financing would cover about 46 percent of the financing over the program period (Text Table 4).

Text Table 4.

Senegal: Financing 2021 and 2022

(In percent of GDP)

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Source: IMF staff calculation Sources: Senegalese authorities and IMF staff calculation.

36. The program is fully financed, with firm commitments for the remainder of the program. Concessional donor financing is firmly committed. Senegal has access to the regional securities market at relatively favorable conditions. Senegal has also access to the Eurobond market, though spreads increased following the tightening of monetary conditions in advanced economies (Text Figure 5).

Text Figure 5.
Text Figure 5.

Senegal: Financing Conditions

Citation: IMF Staff Country Reports 2022, 197; 10.5089/9798400214219.002.A001

Sources: Bloomberg and IMF staff calculation.

37. Staff supports the authorities’ requests for a waiver of non-observance of one PC based on corrective actions and for modification of one June 2022 PC/QT. The authorities included the revenues collected by the road fund in the budget perimeter and increased personal income taxes in the supplementary budget. In addition, the strong revenue performance in 2022Q1 suggests MTRS implementation is yielding positive results. It is proposed to modify the June PC/QT on the deficit in line with the revised budget.

38. A new structural benchmark is proposed to support social protection. Cash transfers are currently made via the national post office, which has at times kept funds destined for beneficiaries to cover its liquidity needs. The authorities will modernize the payment modalities of their flagship cash transfer program by relying on mobile payments (new SB, November 2022), which will replace the SB to extend the national registry to one million households; the latter will not be completed before 2023. The structural benchmark regarding energy subsidies for June is proposed to be removed as it is no longer realistic in light of the magnitude of the shock that Senegal is facing, and the steps taken in June to limit energy subsidies. The authorities request more time to complete the structural benchmarks regarding the adoption of a fiscal framework reflecting upcoming oil and gas revenues, the publication of the roadmap to gradually eliminate energy subsidies, and the update of the database for PPPs and power purchase agreements.

39. Senegal’s capacity to repay the Fund remains adequate. With the proposed augmentation, repayments to the Fund will peak at 4.6 instead of 3.8 percent of government revenues and 3.4 instead of 2.7 percent of exports of goods and services in 2026 (Table 9). While Senegal has a strong record of timely repayment of Fund obligations, the materialization of risks to the program could affect repayment capacity (see ¶40).

Table 1.

Senegal: Selected Economic and Financial Indicators, 2020–271

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Sources: Senegal authorities; and IMF staff calculations.

Domestic debt includes government securities issued in local currency and held by WAEMU residents.

Table 2.

Senegal: Balance of Payments, 2020–27

(Billions of CFAF)

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Sources: Central Bank of West African States (BCEAO); and IMF staff calculations.

This is not indicative of the country’s impact on WAEMU’s aggregate external position or the pooled WAEMU reserves since the data contains intra-WAEMU flows from the current, capital and financial account.

Table 3.

Senegal: Balance of Payments, 2020–27

(Percent of GDP)

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Sources: Central Bank of West African States (BCEAO); and IMF staff calculations.

This is not indicative of the country’s impact on WAEMU’s aggregate external position or the pooled WAEMU reserves since the data contains intra-WAEMU flows from the current, capital and financial account.

Table 4.

Senegal: Budgetary Central Government Operations, GFSM 2001 Classification, 2020–271

(Billions of CFAF)

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Sources: Ministry of Finance; and IMF staff calculations.

Suspended debt service under the debt service suspension initative (DSSI).

Table 5.

Senegal: Central Government Operations, GFSM 2001 Classification,1 2020–27

(Percent of GDP)

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Sources: Ministry of Finance; and IMF staff calculations.

Suspended debt service under the debt service suspension initative (DSSI).

Table 6.

Senegal: Monetary Survey, 2020–23

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Sources: BCEAO; and IMF staff calculations.

Net domestic credit to the government may differ from what appears in the fiscal table, as bonds issued on the WAEMU markets are treated as external financing for

Table 7.

Senegal: Financial Soundness Indicators for the Banking Sector, 2015–21

article image
Source: BCEAO.

First year of data reporting in accordance with Basel II/III prudential standards and the new banking chart of account.

Declared to central risk registry.

Based on semi-annual income statements.

Excluding tax on bank operations.

Including saving accounts.

Table 8.

Senegal: External Financing Requirements and Sources, 2021–27

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Sources: Senegalese authorities; and IMF staff calculations.

This is not indicative of the country’s impact on WAEMU’s aggregate external position or the pooled WAEMU reserves since the data contains intra-WAEMU flows from the current, capital and financial account.

For 2020 RFI/RCF disbursement. SBA/SCF in 2021/22; only undisbursed amounts.

Table 9.

Senegal: Capacity to Repay the Fund 2022–32

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Source: IMF staff calculations.

40. The program faces material but manageable risks. Potential risks include subsequent waves of COVID-19, fiscal risks including high energy subsidy needs and possible tax revenue shortfalls, social unrest, and delays to the reform agenda given upcoming legislative and presidential elections. Risks are mitigated through policy actions, including reforms to moderate energy subsidies, increase domestic revenue, and improve debt and expenditure management.

41. The BCEAO has implemented all recommendations provided in the 2018 safeguards assessment. The assessment found that the BCEAO has broadly appropriate governance arrangements and a robust control environment. In line with the safeguards policy’s four-year cycle for regional central banks, an update assessment of the BCEAO is due in 2022.

42. Capacity development is well-aligned with the program objectives (Annex VI). It supports the implementation of the MTRS, public financial management reforms, the fiscal framework to manage oil and gas revenue, as well as efforts to improve the quality and timeliness of macroeconomic data.

Staff Appraisal

43. Senegal’s economy recovered well from the pandemic. Growth in 2021 exceeded expectation, helped by a swift and decisive policy response. The health impact of the pandemic remained relatively contained with comparatively low cases and fatality numbers.

44. However, Senegal’s economic outlook is highly uncertain. The economy is now confronted with soaring global energy and food prices and a less favorable external environment, compounded by the war in Ukraine. As a result, in the near term growth prospects have deteriorated, inflationary pressure has increased, the fiscal and external current account deficits are set to widen, and food insecurity is rising. This comes at a time when Senegal grapples with the legacy of the pandemic, shrinking policy buffers, rising social demands, and heightened regional insecurity.

45. The authorities’ response to the new challenges is appropriate and carefully calibrated to protect the most vulnerable households. Staff supports the relaxation of the fiscal deficit this year to accommodate the temporary and targeted measures to support the most vulnerable and to stabilize food prices consumed by lower and middle-income households.

46. However, policy buffers have significantly shrunk and could limit Senegal’s capacity to address future shocks. Public debt has risen steadily over the last decade, most recently propelled by the COVID-19 pandemic and this year by the war in Ukraine. As a result, debt has reached elevated levels. Going forward, it will be essential to steadfastly implement a credible medium-term fiscal consolidation strategy, restrain the borrowing capacity of public sector entities beyond the central government, and ensure that the fiscal deficit converges to 3 percent of GDP by 2024.

47. In this context, streamlining energy subsidies remains an urgent priority. If left unchecked, energy subsidies would triple in 2022, thereby crowding out priority expenditures. The authorities’ decision to increase selective electricity and fuel prices, carefully designed to protect the vulnerable, is welcome. Over the medium term, the authorities should gradually phase out energy subsidies while drawing on their improved social safety net to provide targeted support to vulnerable households.

48. Reforms to bolster fiscal resilience will need to continue. Growth friendly fiscal consolidation will hinge on domestic revenue mobilization, energy subsidy reform, and sound management of oil and gas revenues. Further efforts are also needed to improve spending transparency and efficiency as well as to limit fiscal risks, including from the state-owned Post company.

49. Greater urgency is needed to address pockets of vulnerability in the banking sector and improve the AML/CFT framework. Tackling the three undercapitalized banks is overdue and timely decision-making will help limit fiscal and economic costs. Full implementation of the AML/CFT action plan by September 2022, notably with regard to targeted financial sanctions, will be critical to avoid possible negative macroeconomic repercussions from the enhanced oversight by the Financial Action Task Force.

50. Based on the program performance, the additional balance of payment needs, the strength of the authorities’ response to recent shocks and policy program, and their commitment to medium-term fiscal sustainability, staff supports the completion of the fifth review under the PCI, second reviews under the SBA and SCF, and the augmentation of access. Staff supports the request for a waiver of non-observance of the end-December 2021 PC on the floor on tax revenue based on corrective actions and the modification to the June PC on the floor on net lending/borrowing. The policies outlined in the attached LOI are adequate to achieve the program’s goals.

Figure 1.
Figure 1.

Senegal: Real and External Sectors, 2015–21

Citation: IMF Staff Country Reports 2022, 197; 10.5089/9798400214219.002.A001

Sources: Senegal authorities and IMF staff calculations.
Figure 2.
Figure 2.

Senegal: Fiscal and Financial Indicators, 2015–21

Citation: IMF Staff Country Reports 2022, 197; 10.5089/9798400214219.002.A001

Sources: Senegal authorities and IMF staff calculations.
Figure 3.
Figure 3.

Senegal: Economic Outlook, 2021–27

Citation: IMF Staff Country Reports 2022, 197; 10.5089/9798400214219.002.A001

Sources: Senegalese authorities and IMF staff calculations.
Table 10a.

Senegal: Schedule of Reviews Under the Policy Coordination Instrument, 2020–22

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Table 10b.

Senegal: Proposed Schedule of Reviews and Disbursements Under the Stand-by Arrangement and the Arrangement Under the Stand-by Credit Facility, 2021–22

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Source: IMF.

Annex I. Macroeconomic Spillovers from the War in Ukraine and Sanctions against Mali1

Higher global oil and food prices coupled with reduced external demand are expected to weigh on growth, increase inflationary pressure, and worsen the external and fiscal positions. Financial spillovers are expected to be less important. Over the medium-term, Senegal can benefit from higher oil and gas prices and a re-orientation of Europe’s demand for gas, given unexploited oil and gas reserves.

1. Sanctions against Mali and the impact of the war in Ukraine are affecting Senegal. ECOWAS countries decided in January to close their borders with Mali, suspend commercial and financial transactions, except for basic goods such as medicine, fuel and food, and freeze Malian assets. It is uncertain how long these sanctions will remain in place. The war in Ukraine has led to soaring global commodity prices and a deteriorating global economic outlook. Senegal will be affected via direct trade disruptions with Mali, Russia, and Ukraine, reduced global supply of key commodities, price increases for oil and food, reduced external demand, and a tightening of external financial conditions.

Annex I. Text Figure 1.
Annex I. Text Figure 1.

Senegal: Imports from Russia and Ukraine

Citation: IMF Staff Country Reports 2022, 197; 10.5089/9798400214219.002.A001

Source: WTO, and IMF Staff calculations.

Senegal has close commercial ties with Mali, Russia, and Ukraine.

  • Exports to Mali: They account for 20 percent of total exports (or 3.8 percent of GDP) and include petroleum products, food, and cement. Trade of about 1 percent of GDP is affected by the sanctions, notably cement.

  • Imports from Russia and Ukraine: They account for 7 percent of total imports (or 2.5 percent of GDP consisting of refined petroleum products, wheat, fertilizers, and iron bars). Trade disruptions are affecting these imports, which could be difficult to substitute in the short-term.

2. Higher oil and food prices will weigh on the trade and fiscal balances. Senegal is a major importer of crude oil and refined products as well as food, especially rice, wheat, corn, sugar, and edible oil. Higher import prices and currency depreciation, adding to the price increase of imports in domestic currency, will lead to an increase in the trade balance deficit. The fiscal position will come under increasing pressure as subsidies rise steeply to limit domestic price increases for fuel, electricity, and staple foods.

3. Lower external demand dims export prospects. Growth projections in Senegal’s main trade partners have been lowered. This could reduce the demand for some of Senegal’s key exports, notably for travel and tourism-related services.

4. The exposure of the Senegalese financial system to Mali, Ukraine, and Russia is, however, limited. Mali has defaulted on sovereign bonds issued on the regional market. Senegalese banks hold a relatively small share of these bonds and do not have significant claims against Mali’s banking system, or non-financial corporations.2 There are minimal direct financial linkages with Ukraine and Russia.

Annex I. Text Figure 2.
Annex I. Text Figure 2.

Senegal: Exports and Imports to Mali, Russia and Ukraine 2021

(Percent of GDP)

Citation: IMF Staff Country Reports 2022, 197; 10.5089/9798400214219.002.A001

Source: ANSD and IMF staff calculations.

5. Senegal is expected to become an oil and gas producer in 2023 and has unexploited reserves. Two projects, Sangomar (oil) and GTA (LNG-jointly with Mauritania), are expected to start production in 2023 and 2024, respectively. Preparation for exploiting a third field, Yakaar Teranga, is advanced. Higher global gas prices and increased demand for LNG as European countries diversify their energy supply bode well for future investments.

Annex I. Text Figure 3.
Annex I. Text Figure 3.

Senegal: Shocks Transmission and Mitigation Measures

Citation: IMF Staff Country Reports 2022, 197; 10.5089/9798400214219.002.A001

Source: IMF Staff Calculations.

Annex II. Food Inflation in Senegal: Impact and Policies1

1. Global food prices reached a multi-decade high, mainly accelerated by the war in Ukraine. Global food prices were up 23.5 percent in April 2022 from its level a year earlier. Russia and Ukraine together account for about 25 percent of global wheat exports, 75 percent of sunflower oil exports, and 15 percent of corn exports. Export bans by major producers of key imports for Senegal such as palm oil and wheat further reduce global supply. In addition, rising costs for fuel and fertilizer2 add to price pressures.

2. Senegal is particularly exposed to these price swings, given the large share of imported food in the consumption basket and caloric intake. Over 70 percent of rice and all wheat are imported, of which 64 percent from Russia and Ukraine3. Rice, millet, sorghum, wheat, and maize are the foundations of the Senegalese diet, which derive 60 percent of their calories from cereals and grain consumption.

Drivers and Impact of Food Inflation in Senegal

3. Domestic food prices in Senegal have mirrored international price developments and pushed up headline inflation (see annex II Text figure 1). The pass-throughs from world food prices and exchange rate depreciation to domestic food prices are estimated to be 25 and 36 percent, respectively.4 Food inflation stood at 11.3 percent in April 2022 (10.6 percent in February and 10.1 percent in March) and the price for bread increased by 17 percent, reflecting the rise in the international price of wheat. As food accounts for almost half of the CPI basket,5 food price inflation had a direct impact on annual headline inflation (7.0 percent y-o-y in April 2022, from 2.2 percent at end-December 2021).

4. Other conjunctural and structural factors contribute to the food prices surge in Senegal. Due to low natural soil fertility, Senegal relies heavily on chemical fertilizers, whose price and availability are heavily impacted by the war in Ukraine and rising energy costs (Annex II Text figure 1). The prices of imported beef and lamb -key livestock sourced mainly from Mali- have already increased by 15.7 percent and 12.6 percent in the last quarter of 2021, respectively, and are expected to further increase in 2022 due to the entry into force of the economic and financial sanctions against Mali.

5. Increasing food prices will have an impact on food security. Food accounts on average for 44.1 percent of overall consumption and the share is even higher for poor households, which spend 53.4 percent of their income on food and have little margin to cope with rising prices.6 Poorer households could thus increasingly be exposed to food insecurity.7

6. Higher food prices could also jeopardize hard-won progress in reducing poverty and inequality. Poverty is still pervasive and concentrated in rural areas. In 2019, the poverty rate was 53.6 percent in rural areas, as opposed to 29.9 percent in urban areas. The rural poor are most vulnerable to external shocks, such as food prices spikes or climate conditions, which affect their income negatively. That said, over the last two decades the poverty rate in Senegal has fallen from 57 percent in 2001 to 37.8 percent in 2019. In the same period, income inequality has slightly improved– the Gini index has dropped from 35.6 percent in 2011 to 35.1 percent in 20198.. Food inflation could quickly undo such progress.

7. For a small open economy dependent on food imports like Senegal, higher food prices could set the stage for second-round inflationary pressures. Rising food and fuel prices have pushed Senegal through its second most severe terms-of-trade (ToT) shock of the last two decades. After a deterioration of 2.4 percent in 2021, Senegal’s ToT are projected to deteriorate further by 2.2 percent in 2022. An additional indirect effect of higher food and fuel inflation could trigger second-round effects on core inflation when, for example, wage bargaining is indexed to inflation.

Policy Responses

8. Like in 2007/2008,9 the governments’ policy response consisted of a series of measures to limit pass-through from higher global food prices to domestic prices (Annex II Text Table 1). A first package of revenue measures was adopted in September 2021, including the reduction/suspension of VAT and customs duties on several key staple foods (wheat, corn, vegetable oil, sugar) mostly consumed by the poor. A second package of measures-was adopted in February 2022, covering revenue and expenditure side, and price regulation measures. The additional revenue measures consisted of the extension of the suspension of customs duties to staples like rice. On the expenditure side, higher subsidies were adopted for local rice production (32 CFAF per kg to lower price for consumers) and agricultural inputs. The government lowered the administrative prices for vegetable oil, rice, and sugar10. The expected fiscal impact in 2022 is about 0.5 percent of GDP.

Annex II. Table 1:

Measures to Stabilize Food Prices and Help the Vulnerable

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Source : Senegalese authorities and IMF staff calculation.

9. The government could consider a mix of short- and medium-term policies to alleviate the cost on the poorest of higher food prices and increase agricultural production.

  • Short term policies. Given the threat to food security and imperfect social safety nets, the current tax reduction measures could be maintained for an interim period, as they target key staple foods mostly consumed by the poorest population. However, cash transfers could provide a more targeted option to provide social assistance to the most vulnerable.

  • Medium term policies. The existing social safety net (SSN) in Senegal should be strengthened by : (i) updating and broadening the social registry “Registre National Unique” to include not only the poor but also those who are vulnerable to shocks, and (ii) prioritizing digital tools for the targeting and delivery of income support. As the SSN is strengthened, it would be important to gradually pass-through international prices to domestic prices to promote efficiency, mitigate the impact of higher commodity prices on the balance of payments, and reduce negative externalities and smuggling. Structural measures should also be taken to boost productivity in the agricultural sector, for example by strengthening the efficiency of programs to support agricultural inputs, especially for small and medium-sized farmers.

10. Extensive communication strategy associated with transparency measures will be instrumental for the successful implementation of these short- and medium-term policy options. Communication should focus on the current magnitude of tax reduction and subsidies, their current distribution between rich and poor11 and the crowding out effect on other priority spending (e.g., health and education). The communication strategy should aim to build a broad consensus on the benefits of the pass-through of international prices to domestic prices combined with targeted measures to protect the most vulnerable.

Annex II. Text Figure 1.
Annex II. Text Figure 1.

Food Inflation in Senegal

Citation: IMF Staff Country Reports 2022, 197; 10.5089/9798400214219.002.A001

Source : Harver, ANSD and IMF Staff Calculations.

Annex III. Energy Subsidy Reform1

1. The current oil price environment has considerably raised the subsidy bill for 20222 and could threaten the authorities’ commitment to a gradual phase out of energy subsidies starting next year absent any adjustment measures. The initial 2022 budget included an envelope of 0.9 percent of GDP, in line with an oil price of US$75 per barrel.3 Based on a forecast of US$110.8 per barrel, subsidies in 2022 are expected to reach CFAF 500 billion (3 percent of GDP) according to the authorities’ estimates. Global oil prices were already 15 percent higher than the budgeted level for 2022 before the war in Ukraine. At this level of price, staff estimates that the 2022 subsidy bill would have reached 1.8 percent of GDP absent any adjustment.

2. Limiting subsidies to the program commitment of CFAF 150 billion in 2022 is no longer attainable. Immediately eliminating subsidies would require increasing fuel prices by 60 percent across the board (see text figure 1 for a product-by-product analysis of required price hikes). Electricity tariffs would need to be adjusted by 55 percent across all tariff categories excluding the social tranche (lifeline tariff). Staff concurred with the authorities that such drastic price hikes, if not carefully planned and gradually implemented, would have devastating consequences on vulnerable households in the current context.

3. The authorities and staff concurred on the need to limit the subsidy increase. The authorities increased the budget allocation for energy subsides by 0.9 percent of GDP in the supplementary budget bringing the total to close to 2 percent of GDP. Such a level would de facto accommodate the portion of the shock that is attributable to the war in Ukraine while partly adjusting prices to initiate a reform momentum.

4. Given the current political and social context, a successful energy pricing reform strategy would need to focus on achievable outcomes while sending a strong signal on the authorities’ willingness to durably reform prices. Thus price increases will need to strike the right balance between a gradual reform and one-off adjustments. A more gradual reform would expose the authorities to a build-up of resistance over time. Thus focusing price increases on lower-priority products and higher consumption tranches as a first step would increase the chances of success of the reform.

5. Staff argued that successful energy price reform requires targeted compensatory measures and a strong communication strategy.

  • Targeted measures to protect the poor: support measures should preferably go through existing social safety nets (drawing on the dedicated database RNU) to ensure timely and targeted support. Doubling the existing budgetary envelope for cash transfers would cost 0.2% of GDP annually. The authorities can also consider short-term non-recurrent support to other stakeholders during the transition period (e.g., transportation support in urban areas, support to selected industries).

  • Extensive communication strategy associated with transparency measures: communication should focus on the current magnitude of energy subsidies, their current distribution between rich and poor4 and the crowding out effect on other priority spending (e.g., health and education). The communication strategy would aim to build a broad consensus on the benefits of the reform. Clear and transparent information on the projected use of savings may also support acceptability, especially when savings are redirected towards areas with immediate and tangible benefits to affected populations and should be clearly outlined in budget documents.

6. Gradually phasing out energy subsidies over the medium term will be critical. The authorities intend to publish a policy roadmap for a full energy subsidy reform, which should include among other things a clear path towards automatic price adjustment and targeted and durable social protection measures. To ensure durable success of the reform, the following aspects would be important:

  • Automatic and depoliticized price adjustment mechanism: price setting should rely on existing regulations and institutions (price setting decrees for fuel products and for electricity, and prices determined by the regulators Comité National des Hydrocarbures and Commission de Régulation du Secteur de l”Electricité), and limit government interventions to legal changes to the framework rather than ad hoc price freezes. Under automatic price setting, prices can go upwards or downwards depending on world prices.

  • Durable measures to support the poor: the authorities can set up transparent and automatic increases in cash transfers when automatically set prices exceed a certain threshold.

  • A credible plan for the use of the generated fiscal space and a wider energy sector perspective: beyond compensatory measures, savings should be reinvested in initiatives that would durably decrease energy costs (and therefore prices) down the road. A credible plan to durably reduce energy costs in the country from their currently high levels, articulating upcoming oil and gas production, the gas-to-power strategy and other investments in the sector (including in the refinery and in renewable power generation) would have broad benefits to all segments of the population and would improve the acceptability of the reform. Energy investment plans should be laid out transparently in budget documents. A redirection of the generation fiscal space towards energy investments would in turn eliminate the need for subsidies (see IMF, 2022).

  • Improved efficiency of SOEs to reduce producer subsidies: efforts to limit price increases in times of high global oil prices should also include measures to strengthen the financial position of Senelec and the Société africaine de raffinage (SAR), including through efficiency gains and regular revisions of the regulated price formulas.

Annex III. Figure 1.
Annex III. Figure 1.

Senegal: Energy Subsidies

Citation: IMF Staff Country Reports 2022, 197; 10.5089/9798400214219.002.A001

Source: Senegalese authorities and IMF staff calculation Source: Senegalese authorities and IMF staff calculation.

Annex IV. Risk Assessment Matrix1

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Source: IMF.

Annex V. Debt Holder Profile Table

Annex V. Table 1.

Senegal: Decomposition of Public Debt and Debt Service by Creditor, 2021–231

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1 As reported by Senegalese authorities according to their classification of creditors, including by official and commercial. Debt coverage is the same as the DSA. 2/ Debt is collateralized when the creditor has rights over an asset or revenue stream that would allow it, if the borrower defaults on its payment obligations, to rely on the asset or revenue stream to secure repayment of the debt. Collateralization entails a borrower granting liens over specific existing assets or future receivables to a lender as security against repayment of the loan. Collateral is”unrelated” when it has no relationship to a project financed by the loan. An example would be borrowing to finance the budget deficit, collateralized by oil revenue receipts. See the joint IMF-World Bank note for the G20 “Collateralized Transactions: Key Considerations for Public Lenders and Borrowers” for a discussion of issues raised by collateral. 3/ Includes other-one off guarantees not included in publicly guaranteed debt (e.g. credit lines) and other explicit contingent liabilities not elsewhere classified [e.g. potential legal claims, payments resulting from PPP arrangements). Source: Senegalese authorities.

Annex VI. Capacity Development

The FY2021 Capacity Development (CD) strategy remains appropriate, and its implementation is proceeding well despite the COVID-19 pandemic.

1. Capacity development priorities remain well aligned with program objectives under the PCI and the concurrent SBA/SCF, including revenue mobilization, improved public financial management, sound debt management and establishing a sound fiscal and legal framework for upcoming hydrocarbon revenues.

2. Capacity development activities have continued despite the pandemic. In recent years, TA activity has supported the implementation of Senegal’s development strategy through work on revenue administration, tax policy, public financial management, debt management, and better and more timely compilation of macroeconomic statistics which resulted in Senegal reaching SDDS status. Overall, the track record of implementing recommendations is good. Recent missions supported:

  • The design of the legal framework for the management of hydrocarbon revenues and the set-up of a model to forecast hydrocarbon-related revenues,

  • The preparation of the medium-term revenue strategy and revenue administration

  • PFM reforms such as better fiscal risk analysis, the implementation of program budgeting and improved public investment management,

  • Debt management including the operationalization of the national committee for public debt.

  • The compilation of key macroeconomic statistics such as national accounts and fiscal accounts for the entire public sector.

3. Two long-term experts support capacity development on revenue mobilization and PFM.

4. Engagement strategy. Senegal is an intensive technical assistance user with relatively strong institutional capacity. There is good ownership and absorption capacity for relevant CD in priority areas. To optimize traction of TA recommendations it will be important to pay close attention to the political economy of reforms and support reform-minded officials. Low staffing levels, high turnover and capacity limitations could also pose risks to achieving reform objectives. An intensification of hands-on training could mitigate this risk as well as CD delivery through resident advisors. Peer learning could also be a way to increase traction and overcome resistance to reforms.

Priorities by Department

A. FAD

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B. MCM

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C. STA

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Appendix I. Letter of Intent/Program Statement

Dakar, Senegal

June 07, 2022

Ms. Kristalina Georgieva

Managing Director

International Monetary Fund

Washington, D.C. 20431

Dear Madam Managing Director,

1. In 2021, Senegal’s economic growth returned to its pre-pandemic level. Program performance at end-December 2021 was satisfactory. All quantitative performance criterion were met, except the floor on tax revenues. Tax revenues fell short of the program target due to the non-integration in the budget of the road tax, the poor performance of the VAT and fiscal measures taken to stabilize the prices of certain staple foods mostly consumed by the most vulnerable population. Corrective measures were adopted, including the integration of the road tax into the budget, a slight increase of the personal income tax for top incomes in the 2022 Supplementary Budget Law, as well strengthened implementation of the medium-term revenue strategy to improve domestic revenue mobilization in 2022. The government is requesting a waiver for not meeting this performance criterion.

2. Two of the three indicative targets were not met, including the ceiling on single-sourced procurement contracts. To remedy this, the government has undertaken to revise the public procurement code to better regulate the use of single-sourced procurement contracts. Four out of eight structural benchmarks for end-December 2021 were met. The publication of the special report of the Audit Court regarding COVID-19 related spending has been delayed until July 2022 instead of end-March 2022, as the scope has been extended to include COVID-19 related spending in the first quarter of 2021. The government is committed to implementing the key recommendations from this report.

3. As the economy recovers from the COVID-19 pandemic, Senegal is facing a combination of new shocks. Soaring global energy and food prices and continued disruption of supply chains, compounded by the war in Ukraine and containment measures in China, are weighing on economic activity and fueling inflationary pressures. In addition, there is the impact of sanctions imposed by the Economic Community of West African States (ECOWAS) against Mali, Senegal’s largest trading partner.

4. The government approved a 2022 Supplementary Budget Law in May to mitigate the impact of these shocks on the economy and the population, notably the most vulnerable. The supplementary budget law incorporates an increase of the budgetary envelope for energy subsidies of 1 percent of GDP to soften the impact of higher oil prices on the economy and households since the global oil price increased by 50 percent compared to the assumption in the initial budget. Furthermore, additional measures including cash transfers and removal of taxes on certain staple foods have been adopted.

5. The government decided to limit energy subsidies to a maximum of 2 percent of GDP in 2022. If needed, the government will make gradual and targeted adjustments to fuel and electricity prices. Despite the challenging economic environment, the government maintains the revenue targets in the Supplementary Budget Law based on additional measures to improve the performance of the tax administration and the mobilization of exceptional revenues.

6. The government reiterates its determination to maintain debt sustainability by pursuing fiscal consolidation through a rigorous implementation of the Medium-Term Revenue Mobilization Strategy (MTRS) in 2023–2024 and a gradual phasing out of regressive energy subsidies. The ongoing effort to improve and expand the single national registry will allow to deliver rapid and targeted support to households in the event of food and fuel prices shocks.

7. The government will pursue a prudent debt policy. To this end, it will give preference to concessional borrowing and will use non-concessional borrowing only to finance projects with a high internal rate of return. It will also continue to strengthen debt management, by improving the collection, monitoring and management of debt contracted by public and quasi-public entities as well as public-private partnerships. Finally, the government will complete the fiscal framework for a transparent and sustainable management of hydrocarbon revenues before 2023 and will continue implementing the action plan to remove Senegal from the enhanced monitoring by the Financial Action Task Force (FATF).

8. In line with the revised macroeconomic framework, the government is requesting a modification of the performance criterion on the net lending/borrowing floor or overall fiscal balance. To cover additional short-term balance of payments needs resulting from the deterioration in the terms of trade, the government is requesting an increase in access equal to 40 percent of Senegal’s quota (SDR 129.44 million), two-thirds under the Stand-By Arrangement (SDR 86.29 million) and one-third under the Stand-By Credit Facility (SDR 43.15 million), to be disbursed in two equal tranches of 20 percent (SDR 64.72 million), which, in line with procedures for existing access, will be on-lent to the Government via the central bank .

9. In view of the achievements under the program and considering the commitments made in the Memorandum of Economic and Financial Policies, the government requests the conclusion of the fifth review under the Policy Coordination Instrument, as well as the second review under the Stand-By Credit Facility/Stand-By Arrangement and the disbursement of 50 percent of the quota, i.e., SDR 161.82 million. The government is confident that the policies and measures outlined in the Memorandum of Economic Policies will help to achieve the program’s objectives.

10. Given its commitment to macroeconomic stability, the government will take whatever additional measures are necessary to reach these objectives. It will consult with the IMF, on its own initiative or whenever requested by the Managing Director, before adopting such measures or in the event of changes to the policies contained in the Memorandum of Economic and Financial Policies. Finally, in accordance with the Technical Memorandum of Understanding (TMU), the government will regularly provide the IMF with the information requested as part of the program monitoring and evaluation.

11. The government authorizes the IMF to publish this letter, the Memorandum, the Technical Memorandum of Understanding, and the Staff Report on this program.

Sincerely yours,

/s/

Abdoulaye Daouda Diallo

Minister of Finance and Budget

Attachments:

  • I. Supplement to the Memorandum of Economic and Financial Policies/Economic Policy Statement for 2022

  • II. Technical Memorandum of Understanding

Attachment I. Supplement to the Memorandum of Economic and Financial Policies/Program Statement for 2022

Introduction

1. The Senegalese economy is facing multiple shocks. At the international level, the war in Ukraine has led to a surge in oil and food prices. In addition, financial conditions have tightened in response to inflationary pressures. At the regional level, the situation is characterized by political instability and the impact of the Economic Community of West African States’ sanctions against Mali. Domestically, wage demands by unions representing teachers and healthcare workers are exerting pressure on public finances. These shocks have occurred as the economy was beginning to recover from the COVID-19 pandemic.

2. This difficult context has led the government to reset the parameters of the economic and financial program supported by the Policy Coordination Instrument (PCI), the Stand-By Arrangement (SBA), and the Standby Credit Facility Arrangement (SCF). The government’s priority is now to preserve social cohesion and security in the country. It will continue the efforts to achieve the program objectives to (i) consolidate macroeconomic stability; (ii) promote robust, sustainable, inclusive, and private sector-led growth; and (iii) prepare a sustainable, transparent framework for the hydrocarbon sector.

3. This Supplement to the Memorandum/Policy Statement describes the achievements at end-December 2021 compared to the program objectives and presents the economic policy priorities and objectives for 2022, as well as the medium-term outlook.

Economic Developments in 2021

A. Recent Developments

4. The economic recovery in 2021 exceeded expectations. Economic growth is estimated at 6.1 percent, against a forecast of 5 percent. Nonagricultural activity rebounded by 7.1 percent, reflecting the renewed dynamism of the secondary (+10.9 percent) and tertiary (+5.7 percent) sectors, while overall growth was mitigated by the decline in agricultural production (-2.0 percent) after a bumper year in 2020–2021. Inflation averaged 2.2 percent and 2.9 percent for food products.

5. At end-December 2021, a higher trade deficit contributed to a deterioration of the current account deficit to 13.3 percent of GDP from 10.9 percent of GDP in 2020. The trade deficit for goods improved slightly, returning to 11.2 percent of GDP in 2021, as opposed to 11.4 percent of GDP in 2020. The increase in international commodity prices during the last quarter of 2021 contributed to the dynamic performance of goods exports, and particularly phosphoric acid (+75.0 percent), oil products (+25.5 percent), and groundnut products (+39.7 percent). Goods imports increased by 18.3 percent in 2021, driven by higher oil (+30.5 percent) and food (+9.6 percent) bills. By contrast, the trade deficit for services widened to 9.7 percent of GDP in 2021 from 7.2 percent of GDP in 2020, driven by imports for hydrocarbon projects. Remittances remained dynamic, accounting for 10.6 percent of GDP in 2021, consolidating the secondary income account surplus.

6. Budget execution at end-December 2021 resulted in a deficit of 6.3 percent of GDP. Total revenue (excluding grants) amounted to CFAF 2850 billion, CFAF 23 billion below the projected level. Tax revenues fell short by CFAF 67 billion, reflecting the poor performance of taxes on goods and services (CFAF 128.9 billion below projections), including CFAF 45.6 billion due to the off-budget treatment of the road use tax (TUR) and CFAF 14 billion from the suspension of the value-added tax (VAT) on wheat flour, partially offset by the sound performance of taxes on international trade. The payment of exceptional dividends by Senelec (state-owned power utility) contributed to an overperformance of nontax revenues (by CFAF 73 billion). Total expenditures reached CFAF 3945 billion, approximately 97 percent of the target, including expenditure related to the SDR allocation which was used for health and social spending as well as the clearing of unmet obligations.

7. Total public debt stood at 73.2 percent of GDP at end-2021, of which central government debt stood at 67.2 percent of GDP and that of state-owned enterprises and other public agencies represented 5.9 percent of GDP. Central government debt grew by 15.6 percent in 2021, from CFAF 8903.3 billion to CFAF 10297.6 billion. It is still dominated by external debt, that accounts for 74 percent of the total (CFAF 7623.3 billion), against 78.0 percent at the end-2020 (CFAF 6946.3 billion), while domestic debt is estimated at 26 percent (CFAF 2673.7 billion), in comparison with 21.9 percent at the end-2020 (CFAF 1597.1 billion). Debt of state-owned enterprises and other public agencies increased by 7 percent from CFAF 849.7 billion to CFAF 909.9 billion; it is largely composed of foreign debt, which represents 54.5 percent of the total (CFAF 495.8 billion).

8. Money supply grew by 15.3 percent, driven by an improved external position and an increase in domestic claims. The BCEAO’s net foreign assets (NFA) were buoyed by the resources mobilized by the government of Senegal on the international financial market (Eurobonds) and IMF assistance (special drawing rights (SDR) allocation and other assistance). Trends in domestic claims reflect the increase in net claims of deposit institutions on the central government (an increase of CFAF 424.1 billion; +29.6 percent) and loans to other economic sectors (an increase of CFAF 444.2 billion; +9.5 percent).

9. The banking sector strengthened in 2021. Compared to end-December 2020, banks’ equity increased by 6.4 percent. However, the solvency ratio deteriorated slightly from 12.4 percent at end-December 2020 to 12.0 percent at end-December 2021. Gross non-performing loans (NPLs) ratio decreased at the end of December 2021 to 11.5 percent, against 13.3 percent at end-December 2020. The provisioning rate stood at 68.2 percent. The stock of deferred principal payments granted by banks to their customers and overdue payments amounted to CFAF 3.8 billion and CFAF 10.7 billion respectively at the end of January 2022. The residual principal of deferred claims accounted for 0.2 percent of banking sector loans. At end-January 2022, credit institutions have posted a solvency ratio above the minimum threshold of 11.3 percent, except for three institutions which account for a small share of the banking sector.

B. Program Performance

10. All of the program performance criteria for end-December 2021 were met, with the exception of the floor on tax revenues. Net lending/borrowing (fiscal deficit) amounted to CFAF 965 billion, against a target of CFAF 967 billion. No external arrears were accumulated. Net government financing amounted to CFAF 965 billion, against a target of CFAF 997 billion. Total nominal public debt, at the program exchange rate, was CFAF 10997 billion, against a target of CFAF 11270 billion. By contrast, tax revenue was CFAF 67 billion below the target of CFAF 2661 billion. The government is requesting a waiver for the non-observance of the performance criterion. Corrective measures were implemented, particularly in the context of the 2022 Supplementary Budget Law (LFR), and by accelerating the implementation of the Medium-Term Revenue Strategy (MTRS), which has already produced encouraging results for the first quarter of 2022.

11. One of the three indicative targets was met. Social spending accounted for 40 percent of total spending, compared to a floor of 35 percent. By contrast, spending through simplified procedures for non-personalized government services represented 5 percent of total transfer spending, compared to a ceiling of 3 percent, mainly due to additional transfers for clearing unmet obligations as budgeted for in the second Supplementary Budget Law of 2021. The share of government contracts concluded outside of open tenders exceeded the program ceiling (25 percent, compared to 15 percent), due to the conclusion of contracts for the supply of firefighting and medical equipment, as well as for the design and construction of the Regional Express Train (TER) terminal at Blaise Diagne International Airport (AIBD). A review of the public procurement rules is expected to provide a better framework for the use of spontaneous bidding and direct contracting in line with international best practices (structural benchmark, end-June 2022).

12. Four of the eight structural benchmarks/reform targets were achieved as of end-December 2021.

  • The semi-annual report on the linking and exchange of information between the Directorate General of Taxes and Government Properties (DGID) and the Directorate General of Customs (DGD) has been produced.

  • Sufficient budgetary appropriations to cover energy subsidies (fuel and electricity subsidies due 90 days after validation) were included in the second 2021 Supplementary Budget Law, due to the decision to suspend the application of the decree for revising fuel prices and electricity rates.

  • The study to identify all bank accounts belonging to public entities having own resources was completed to determine which accounts could be closed at end-June 2022, and to propose a roadmap for the gradual closing of all accounts of public entities covered by the Treasury Single Account (TSA), including the identification of workable solutions for any legal obstacles that may be encountered as the result of the autonomy under the current provisions for certain units.

  • A statement of budget risks was appended to the 2022 Budget Law. By contrast:

  • The 2022 Initial Budget Law did not include measures to reduce tax expenditure by at least CFAF 25 billion; however, some measures are included in the annexes to the Supplementary Budget Law passed at the end of May 2022.

  • The digitalization of land management procedures is not yet effective. However, the application has been delivered in May 2022 and its deployment is underway.

  • The single collateral registry of guarantees, that is accessible online, and that can combine data on movable collateral and mortgages in collaboration with the Central Bank of West African States (BCEAO), will become operational for pilot centers in November 2022.

  • The merging of all funds to finance youth and women entrepreneurship into a single fund is effective from a fiscal standpoint. However, legal acts to dissolve the remaining funds have not yet been taken and are expected by the end of 2022.

13. Progress has been made in meeting the commitments on transparency and accountability for the expenditure of the Force COVID-19 Fund.

Economic and Financial Program in 2022 and in the Medium-Term

C. Macroeconomic Framework

14. The economic recovery that began in 2021 continued into the first quarter of 2022. On average during the first three months of 2022, the composite index of economic activity, excluding agriculture and forestry, increased by 5.6 percent driven by the strong performance of the secondary (+5 percent) and tertiary (+7.5 percent) sectors, mitigated by the livestock (-4.5 percent) and fishing (-3.1 percent) sectors. However, at the beginning of 2022, concerns persist over geopolitical tensions, specifically the war in Ukraine and the ECOWAS sanctions against Mali, which could have a negative impact on supply chains.

15. Inflation accelerated in early 2022, mainly driven by the increase in food prices. Inflation reached 6.3 percent at the end of March (year-on-year), after having peaked at 6.5 percent at the end of February. Rising global commodity prices have led to higher domestic food prices, that reached 10.1 percent in March after peaking at 10.6 percent in February (year on year). Core inflation, excluding energy and food, that had averaged 1.3 percent in 2021, also increased to 2.1 percent in March 2022 (year-on-year).

16. Budget execution during the first quarter of 2022 was in line with the target. Total revenue collection (excluding grants) was CFAF 693.3 billion, exceeding the objective by CFAF 32.7 billion. Revenues at end-March 2022 increased by CFAF 194 billion in absolute terms compared to last year, and 40 percent in relative terms. Total expenditure amounted to CFAF 1441.8 billion. At the end of March 2022, spending for wages was CFAF 227.2 billion against an annual forecast of CFAF 952 billion, an execution rate of 24 percent. These payments were made to 162,457 public officials. In terms of current spending, it can be noted that out of the allocated CFAF 1170.3 billion, CFAF 456.6 billion were executed, equivalent to an execution rate of 39.8 percent. Capital expenditure amounted to CFAF 626 billion, compared with an allocation in the Initial Budget Law of CFAF 1819.5 billion, equivalent to an execution rate of 34.4 percent.

17. The difficult environment, owing to the spillovers from the war in Ukraine, has clouded the macroeconomic outlook for the rest of 2022. Accordingly, economic growth for 2022 has been revised downward by one half of a percentage point to approximately 5 percent, from an initial forecast of 5.5 percent, to reflect the impact of rising world oil and food prices on private consumption, as well as the economic slowdown in Senegal’s major trading partners. Inflation is projected at approximately 5.5 percent in 2022, driven by the sharp rise in food prices. The current account deficit is expected to be approximately 13 percent of GDP as a result of the deterioration in the terms of trade.

18. The medium-term economic outlook remains favorable. Economic growth is expected to average 10 percent during the period 2023–24 due to the start of hydrocarbon production. Inflation should gradually return to its medium-term target of 2 percent. The current account deficit is expected to improve substantially over the medium term with the start of hydrocarbon production and the sharp reduction in imports of related services, as well as the resumption of activities in the tourism sector.

19. The outlook is highly uncertain, with risks titled to the downside. A further spike in global oil and food prices could lead to social unrest and add pressure on the external and fiscal balances. A further slowdown in global economic growth and a more aggressive tightening of monetary policies would further compress external demand and adversely affect growth. Similarly, a resurgence of the pandemic, a deteriorating regional security situation, and climate shocks (droughts and floods) could pose risks to economic activity.

D. Improving Fiscal Resilience

2022 Supplementary Budget Law: Balancing Short-Term Spending Needs with Fiscal Sustainability

20. A Supplementary Budget Law (LFR) was approved by parliament in May, which aims to mitigate the impact of global headwinds, meet commitments to the social partners, and enhance the country’s security in light of regional terrorism. The LFR includes CFAF 323.5 billion in additional expenditure, covering the following, inter alia:

  • Energy subsidies. The budget envelope for energy subsidies (fuel and electricity) has been revised upwards by CFAF 150 billion, bringing the total amount for 2022 to CFAF 300 billion, to cope with the surge in global oil prices. To contain the subsidies to the planned budget envelope, the government decided on June 5 to adjust some energy prices . The government will undertake further targeted price adjustments if necessary.

  • Wage bill. The LFR supports the government’s commitments to the social partners, designed to make the remuneration system for public officials fairer, particularly those serving in the education, health, and defense and national security sectors. The fiscal cost of these measures is approximately CFAF 100 billion.

  • Security. An additional budget allocation of CFAF 73.5 billion is devoted to strengthening defense and national security resources.

21. The LFR also includes measures to support the most vulnerable population. Accordingly, the government has forgone CFAF 72.2 billion in tax revenue to stabilize the prices of certain staple foods. It also made an exceptional cash transfer of CFAF 43 billion supported by highly concessional financing from the World Bank. Last, it increased the agricultural subsidies envelope by CFAF 10 billion to address the increase in fertilizer prices.

22. Despite the current difficult context, the LFR is projecting an increase in revenue (including grants) of CFAF 37.1 billion as a result of exceptional revenue and intensified tax collection efforts by the tax administrations. Globally, this increase derives from exceptional revenues from the national refinery (SAR) (CFAF 48.9 billion), the cross-debt settlement between border control management and civil aviation company Sécuriport and the government (CFAF 5.2 billion), and an upward revision of projected proceeds from the road use tax (TUR) of CFAF 13 billion. However, this increase is mitigated by the decline in project grants of CFAF 30 billion. The tax collection targets for the tax administrations are provided below:

  • The revenue collection target for the Directorate General of Customs (DGD) was maintained at CFAF 997 billion, despite the spillovers from the war in Ukraine and the customs measures taken to stabilize prices of certain staple foods (suspension of customs duty on broken rice and oilcake maize and the cyclical import tax (TCI) on 22,000 tons of granulated sugar and import adjustment tax on wheat and maize). The customs revenue target should be achieved through an improved governance of valuations, better control of exemptions, and the permanent availability of the GAINDE software, which is becoming more effective and robust thanks to the investments made within the framework of the implementation of the Program to Modernize the Customs Administration (PROMAD).

  • The tax collection target assigned to the Directorate-General of Taxes and Government Properties (DGID) is set at CFAF 2110 billion. This target will be achieved through the uptick in current revenue observed at the end of April 2022, an effective implementation of the administrative measures, with an estimated impact of CFAF 22.5 billion, and exceptional revenues amounting to CFAF 88.7 billion, expected primarily from the sale of the former airport land and from the national refinery (SAR).

  • The revenue collection target of the Directorate General of Public Accounting and Treasury (DGCPT) is CFAF 125 billion.

23. To limit the budget deficit to CFAF 1055 billion, the LFR includes measures to save CFAF 104.1 billion in the following areas:

  • Externally financed investments through project loans are lowered to CFAF 515 billion from CFAF 580 billion in the 2022 Initial Budget Law, a reduction of CFAF 65 billion.

  • Investments financed with domestic resources are being revised downward by CFAF 30 billion.

  • Current transfers. A saving of CFAF 9.1 billion was obtained for this line.

  • In addition, to cover fiscal risks, the LFR includes a precautionary reserve of CFAF 50 billion and a general reserve of CFAF 30 billion.

24. Government financing needs are expected to amount to CFAF 1963.8 billion. This financing requirement will be covered by:

  • Project loans amounting to CFAF 515 billion;

  • CFAF 107 billion in program loans;

  • A 2021 financing surplus carried forward to 2022 of CFAF 120.7 billion;

  • IMF disbursements of CFAF 254 billion; and

  • Recourse to financing in the regional market in the amount of CFAF 967 billion.

Medium-Term Fiscal Framework: Gradually Reducing the Deficit to 3 Percent Of GDP

25. Fiscal policy remains anchored by the target of a fiscal deficit of 3 percent of GDP by 2024, in accordance with the decision of the Council of Ministers of the West African Economic and Monetary Union (WAEMU). For that purpose, the government intends, inter alia, to:

  • Accelerate implementation of the medium-term revenue mobilization strategy (MTRS). The government is preparing to launch a series of measures to improve the internalization of the MTRS by all stakeholders in accordance with the commitments made during the previous program review. The government will continue implementing reforms to strengthen administration, in particular by achieving the digitalization of tax collection by 2023. The SENFINANCES solution that is currently being developed, will:

  • Generalize the use of the unique identifier based on the national identification number so that taxpayers can be monitored individually through the establishment of a unified, integrated, readily available, and secure portal for tele-declaration, telepayment, and online requests in connection with all public taxes;

  • Integrate a management tool to monitor times required for processing requests and supervision initiatives;

  • Interconnect the tax, customs, treasury, and budget administrations with a unified, integrated system supported by the portal that enables collection, processing, and use of the transaction data for supervision purposes, in support of a more effective fight against fraud and the expansion of the informal sector.

  • The redrafting of the regulatory framework on the Joint Tax-Customs Control Brigade, in light of its specialization, beginning in June 2022, in monitoring effective implementation of investment commitments by the beneficiaries of preferential systems is being finalized, in accordance with the commitments under the MTRS.

  • The reform of the Evaluation Committee for tax exemptions is also progressing. The aim is to create conditions for permanent monitoring of developments of the most significant exemptions and to monitor effective implementation of streamlining decisions that are adopted. As a result of the automation of the data collection system in SENFINANCES, the annual report on tax exemptions should be published within six months after the end of the fiscal year.

  • The performance monitoring framework for the tax administrations, including clear indicators, is being finalized with support from IMF technical assistance (structural benchmark, end-June 2022). The decree establishing the mechanisms for monitoring the activities of the administrations involved in the MTRS was adopted in April 2022. The content and format of the monitoring statements have been specified in that decree.

  • Gradual phasing out of energy subsidies beginning in 2023. Considering the spike in global oil prices and the high cost of subsidies in 2022, the government plans to gradually phase out energy subsidies beginning in 2023. This phase out will be implemented with the updating and application of the existing decrees on fuel and electricity price adjustment and intensifying efforts to sustainably reduce the costs of electricity and fuel production (including the gas-to-power strategy and planned investments in the national refinery). The government intends to rely on targeted support to the most vulnerable population in the event of shocks levering on the existing social safety net and temporary support measures, rather than generalized subsidies where most benefits go to rich and large consumers. In this connection, a roadmap including a clear path towards automatic price adjustment, a communication phase and support measures for vulnerable households is being developed (structural benchmark, end of June 2022).

Maintaining Public Debt Sustainability

26. The government is committed to preserving debt sustainability. The Debt Sustainability Analysis shows that Senegal is still at a moderate risk of debt distress, with a very limited buffer to absorb shocks. The debt profile is vulnerable to economic growth slowdowns and deteriorating external conditions. Against this backdrop, the government will give priority to concessional external borrowing and will use non-concessional borrowing only to finance projects having high internal rates of return. The CFAF 330 billion Sukuk issued by a new state-owned enterprise, SOGEPA, in April 2022 is part of this framework, as it is denominated in local currency. The Sukuk was carried out in three tranches, the first of which has a maturity of seven years, in the amount of CFAF 51.6 billion; the second, a maturity of 10 years, in the amount of CFAF 57.5 billion; and the third, a 15-year maturity and a two-year grace period, in the amount of CFAF 220.9 billion. The bulk of the proceeds will be used to buy back the property that was transferred by the government to SOGEPA for use as collateral for the Sukuk. SOGEPA will use the remainder to make further property investments on behalf of the state. In addition, the issue of external commercial debt by the Blaise Diagne International Airport in Dakar (AIBD), scheduled for 2022, will finance an air hub project (the expansion of the AIBD and construction of regional airports).

27. The government will continue its efforts to improve debt management through the implementation of the action plan reflecting recommendations from the audit of the debt database management platform. This plan is being implemented with the updating of access rights in the Debt Management Platform (DAIDA), redrafting of DAIDA add-on modules, implementation of a data quality management process supported by the ISO 9001:2015 certification of the Public Debt Directorate, and implementation of a business continuity plan, including the strengthening of production, backup, and network servers. Actions to strengthen parametric security against threats such as malicious accesses are also in progress. At the functional level, capacity-building for debt managers and deployment of staff are in progress; and at the technical level, resources are made available to the Public Debt Directorate to cover the support function. Looking forward the debt-monitoring platform will be required to incorporate debt of state-owned enterprises and other public agencies. The developments required for that purpose are being evaluated to assess the scope of these activities and the collection and centralization mechanisms required, and to determine the related costs.

Strengthening Public Financial Management

28. The government will launch the implementation of the public financial management strategy. The initial matrix of the public financial management reform strategy has been updated to reflect developments since its introduction in 2018 and the various public financial management assessments. Globally, the six strategic areas of the initial matrix were kept unchanged. The main updates involved the expected results, interim results, and actions to be undertaken. The updated matrix is shared with the concerned services. A technical validation workshop will be organized no later than June 30, 2022. Accordingly, with the new dates and targets to be decided at the end of this workshop, implementation of the strategy should be effective from the second half of 2022.

29. The government intends to continue the effective implementation of the Treasury Single Account. Of the 276 bank accounts identified in 2020, 100 were closed by December 31, 2021. The study found 87 bank accounts to be closed by June 30, 2022, 11 of which for public industrial and commercial institutions (EPIC) operating in the commercial sector with own resources, for which they receive banking services not provided by the treasury. On this basis, 76 bank accounts will be closed on June 30, 2022. For the remaining 89 accounts belonging to organizations operating in the financial, higher education, and health sectors, a gradual, participatory approach is envisaged, in light of the social sensitivity of these sectors as well as their specialized activities. To close the bank accounts of these institutions, discussions have been undertaken to ensure that their concerns are properly addressed, and these matters will be covered in a progress report by the end of July 2022.

30. The government will pursue the reforms aimed at improving budget execution.

  • The decentralization of spending authorizations has been effective since January 2022 in all constitutional institutions and ministries, in accordance with the Organic Budget Law. Decree 2021–1799 appointing the delegated and secondary authorizing officers signed on December 31, 2021. To support the process, training sessions were organized for the new stakeholders on the budget execution procedure in the SYSBUDGEP information system. A SYSBUDGEP user guide and a user manual for authorizing officers were made available to the new stakeholders. It was observed in the initial assessment carried out at the end of the first quarter of 2022 that the new stakeholders have gained a proper understanding of the process.

  • The budget documentation for the 2022 Budget Law was supplemented with a cash flow plan. A budget module was designed in SYSBUDGEP to enable the stakeholders in the expenditure workflow to prepare commitment plans that are coordinated with the procurement plan in SYSBUDGEP and the cash flow plan. All ministries and institutions were able to prepare 2022 commitment plans in the information system. A workshop was organized during the last quarter of 2021 to share the different infra-annual planning instruments for budget execution and the preparation of quarterly expenditure ceilings in line with the estimated cash flow plan. The draft decree on intra-annual planning was subject to consultation with the various stakeholders and validated at the technical level. Its signature will formally establish the framework for management dialog at the level of the Minister of Finance and the Budget as well as at the various key authorizing officers.

  • Significant progress has been made in the reclassification of transfer expenditure, including subsidies, undertaken by the Directorate General of Budget, Public Accounting, and Treasury. Accordingly, specific budget lines for transfers to the agricultural and energy sectors were identified to be reclassified as subsidies as soon as they are programmed, to facilitate the proper classification for execution purposes. Technical exchanges should be finalized in 2022 for the new classification to be considered in the budgetary programming from 2023. The reclassification of capital transfers into investments executed by the government in the budget continued in 2022. As an accompanying measure, the delegated project management instruction was signed in May 2022. This instruction describes the procedure for the execution of capital expenditure carried out in project management delegated by the implementing agencies. It specifies the roles of the different stakeholders and the mechanisms for effective public expenditure execution.

  • Significant progress has been observed during the past few years in the process of selecting investment projects and programs. The number of projects and programs evaluated annually increased from 12 in 2015 to 50 in 2020, and to 86 in 2021. Projects evaluated in 2021 correspond to a total volume of CFAF 3059 billion. These projects are covered in an annex to the 2022 Draft Budget Law. In 2022, approximately 90 feasibility studies are planned.

  • Budgeting for investment projects with a prior commitment authorization and payment appropriation (AE/CP) approach has been in place since 2020. The SYSBUDGEP information system takes into account the presentation of the capital expenditure with the AE/CP approach. Guidelines have been provided in the 2023/2025 budget framework circular to ensure that public investments are optimally budgeted, and that their physical and financial execution is subject to infra-annual monitoring. For that purpose, information collection tools for more effective programming and monitoring are being validated by the technical services of the Directorate General of Budget and will be used in connection with the preparation of the 2023 Draft Budget Law.

  • Making SIGIF operational. All the technical issues mentioned during the audit of the Integrated Financial Information Management System (SIGIF) conducted by the General Finance Inspectorate have been resolved, including the issues of change management and user training in the regions. The next steps will be to:

  • Make all shared ministerial and regional service centers operational and establish management control units in all ministries and institutions;

  • Identify and appoint all stakeholders in the new management workflow (persons responsible for actions and activities, delegated authorizing officers, secondary authorizing officers, funds and assets accountants, order accountants, and materials accountants) in all ministries and institutions;

  • Start budget preparation activities in all ministries and institutions exclusively through the SIGIF platform completely under the results-based management approach;

  • In the shared ministerial and regional service centers, organize real twofold control of 2021 budget execution, using the SIGIF production function in all activities carried out on the SYSBUDGEP and ASTER platforms. Take advantage of this twofold control to make all stakeholders in the SIGIF expenditure chain operational. Some stakeholders in the Directorate General of Public Accounting and Treasury, such as the treasury general revenue or general treasury cash authorities, might obtain statements and information to which they currently do not have access.

  • Ensure that SIGIF is used exclusively for budget execution as soon as the budget is prepared exclusively with SIGIF by the stakeholders in the new management workflow.

  • Publication of the Table of Government Financial Operations. Since 2016, Senegal has been regularly preparing the consolidated statement of government financial operations. This positive development is a result of Senegal joining the Special Data Dissemination Standard (SDDS), that requires some degree of compliance with international transparency standards in public financial management. Accordingly, in addition to budgetary central government, financial operations are expanded to extrabudgetary entities, local units of government, and social security agencies. At the same time, with the support of the IMF Technical Assistance Center for West Africa (AFRITAC West), drafts of the statement of government financial operations are available with the inclusion of public companies. The government will begin to publish this statement on September 30, 2022.

  • Strengthening the management of budget risks related to public-private partnerships (PPP). Substantial progress is being made in the process of strengthening budget risk management in connection with PPPs, with the implementation of the new PPP framework. The identification and prioritization phase for the first potential PPP projects is in progress with the firm CPCS recruited by the World Bank. In addition to capacity development with PPP experts recruited by the PPP Unit (UNAPPP), this selection phase is an essential step in managing PPP budget risk. At the end of this phase, a fiscal sustainability study will be conducted for each project that is selected. The budget impact in the preparation phase will be covered primarily by project preparation funds, provided that the initial allocation of US$1 million under the Growth and Employment Acceleration Program (PACE) is available. The projects authorized by the interministerial committee will not be launched until the preliminary assessment has been completed, along with the opinion on budget sustainability. In accordance with the new law, it is a requirement that each project of the contracting authorities must be incorporated into the public expenditure budget cycle, including the government budget projections. This activity will be initiated in connection with the review of the portfolio of potential PPP projects planned by July 2022 between the Directorate General of Budget and the PPP Support Unit. In this context, the mechanisms will be agreed to establish a database to monitor budget and contingent commitments in connection with PPPs. This database may be initialized with the new PPP projects envisaged, as well as by incorporating the results of an inventory of existing PPP projects through requests to the sector ministries in the framework of the budget programming exercise.

Completing the Operational Framework for The Management of Revenue from the Exploitation of Hydrocarbons

31. The government will complete the operational framework for the transparent, sustainable management of future revenue from the exploitation of hydrocarbons before 2023. The Draft Law on Management of Revenue from the Exploitation of Hydrocarbons (LGRH) was promulgated on April 19, 2022. The various provisions of the law are being made operational. The initial work to target a non-oil fiscal balance has been finalized at end of May 2022. The methodology for benchmark revenue forecasting provided in the draft law will be determined by decree. The legal and operational frameworks for the governance and management of the Intergenerational Fund will be specified in the new rules establishing the organization and operation of the Sovereign Strategic Investment Fund (FONSIS), the implementing decrees, and more specifically, the decree establishing the duties, composition, and operating procedures of the Forecasting and Evaluation Committee and provisions establishing the management and administration mechanisms for each Fund will be submitted to the Council of Ministers by August 31, 2022.

E. Promotion of Inclusive Growth Driven by the Private Sector

Strengthening the Population’s Resilience to Shocks

32. The government has undertaken to expand the coverage of social safety nets. The exercise to update the Single National Register (SNR) has been completed with the data reconciliation phase in the Sédhiou regions. The updated SNR database is being used for the program to provide emergency cash assistance to households affected by COVID-19, which is being funded by the World Bank. Regarding the extension of the SNR from 542,956 to one million (1,000,000) households, the poverty map was validated with the National Agency for Statistics and Demography (ANSD) in conjunction with World Bank experts. This extension process, which was scheduled to be completed in October 2022, has experienced delays. The target (1,000,000 households) will not be achieved in 2022. The second half of 2022 will be used for community targeting, however. The expansion to 1,000,000 households will be completed by June 2023. Concerning the implementation of Decree No. 2021–1052 of August 2, 2021, on the Single National Register (SNR), the draft order establishing the Monitoring Committee is in the process of being signed. An action plan has been developed with an extensive communication component. In addition, the General Directorate for Social Protection and National Solidarity (DGPSN) has undertaken the digitization of the payment of transfers with the implementation of an integrated computer platform that allows for the interoperability of the PNBSF database with the systems of money transfer operators. The government is committed to moving to the digital payment of regular cash transfers by November 30, 2022.

33. The government will continue to implement the Emergency Socio-Economic Integration and Youth Employment Program, which is a key social support program. The XËYU NDAW NI (youth employment) program is now in its second year. For the 2022 fiscal year, an envelope of CFAF 150 billion has been allocated to this program. As of May 3, 2022, it had reported expenditures of CFAF 78.5 billion, which represents an implementation rate of 52.3 percent. This spending includes the continuation of programs to recruit security personnel, teachers (5,000 people), volunteers for cleaning public spaces, environmental protection (reforestation activities), sports (stadium workers), health, culture, and tourism sectors, as well as support to productive activities through government/employer agreements, and support for the socio-economic integration of young people and women, through integrated farm development programs, urban renewal operations (street paving, road repair and maintenance) and through credits granted by the General Directorate for Rapid Entrepreneurship among Women and Youth (DER/FJ) and Islamic microfinance.

34. The reform of the governance and management of the program has been delayed. The government does, however, remain committed to establishing a unique identifier and a database of recipients of public funding; taking action to dissolve the entrepreneurship funds whose budgetary allocations have been cut; finalizing the assessment report on the existing system of support for women, young people, and small and medium-sized enterprises (SMEs); and continuing the establishment of employment and entrepreneurship hubs in the form of a one-stop shop in the country’s 46 departments.

35. The government will accelerate the implementation of programs to strengthen the resilience of the agricultural sector and improve the country’s food security. These are large-scale priority programs such as the Support for the Implementation of the National Horticulture Recovery Program and Improvement of Agricultural Productivity in the South and Southeast Regions of Senegal, the cereal development program (wheat, millet, sorghum, maize, fonio), the national rice self-sufficiency program, and the large-scale initiative to develop plant proteins in Africa (fruits and vegetables, dry vegetables, etc.). In addition, the Ministry of Agriculture and Rural Equipment has finalized an Agricultural Program for Food Autonomy and Sustainability (PASAD) as a means of leveraging sectoral policy, with the aim of increasing agricultural production and productivity, diversifying crops and agricultural production systems, strengthening agricultural services, and improving governance of the agricultural sector. Specifically, this will involve:

  • Implementation of a research program to propose appropriate varieties and effective technical methods for the development of crops in the targeted agro-ecological areas;

  • Application of appropriate supportive measures for the introduction and accelerated development of wheat farming in Senegal;

  • Development of a sub-program for technology transfer and training of producers in wheat-growing techniques;

  • Increasing horticultural production to ensure food autonomy in horticultural products for mass consumption in the Niayes area (Dakar, Thiès, Louga, and Saint-Louis regions) and the groundnut basin;

  • Optimization of agricultural productivity and production in the southern and southeastern regions of Senegal (administrative regions of Kolda, Sédhiou, Ziguinchor, Kédougou, and Tambacounda, except for the Department of Bakel);

  • Strengthening the hydro-agricultural infrastructure in both the river valleys and secondary lowlands;

  • Increasing the production of appropriate seeds for different agro-ecological areas;

  • Facilitating access to inputs and equipment;

  • Significantly increasing investments in sustainable food production and resilient agricultural value chains.

Support for Private Sector Development

36. The government has developed a National Private Sector Development Strategy (SNDSP). The SNDSP is the overall framework for all actions taken by the Senegalese government to promote a robust domestic private sector, competitive industries, and sustainable private sector-led growth. The work was carried out through a participatory and inclusive process involving representatives of the government, the private sector, and development partners. The SNDSP aims to achieve the following three (3) strategic objectives by 2035:

  • 3,000,000 formal jobs;

  • 300,000 formal companies;

  • 300 leading companies.

37. To do this, it will be structured around five (5) programs, broken down into specific projects, with a five-year action plan, as follows:

  • Program 1: Support for national companies

  • Program 2: Competitiveness strategies for the different sectors

  • Program 3: A pro-business government

  • Program 4: Attraction and development of regional and multinational firms

  • Program 5: Public-private Dialogue and partnerships.

38. Reforms are under way to improve the business environment:

  • One-stop shop at the Agency for the Development and Support of SMEs (ADEPME). The principle underlying the implementation of the SME one-stop shop is to contribute to the streamlining of the SME support system, through the implementation of an integrated information system for the management of SMEs’ data and information (SIGIPME). In practice, this will involve digitizing the key processes related to supporting SMEs in accessing finance. Discussions are underway to harmonize and streamline recent initiatives related to the establishment of Employment and Training Hubs and the government’s decision to make the General Directorate for Rapid Entrepreneurship the one-stop shop for youth and women’s empowerment.

  • Hybrid Investment Fund. The OYASS Capital Fund was incorporated as a joint-stock company in November 2021. The recruitment process for a fund manager is under way. The pre-qualification phase has been approved and the second phase of the tender will be launched as soon as discussions on the legal structuring of the fund with the KFW and the World Bank have been completed. In light of this, it is expected to be operational by June 2022.

  • Land reforms and single collateral registry available online. The establishment of the online registry of property collateral is formalized by Decree No. 2021–420 of April 2, 2021, on the operating procedures of the Trade and Personal Property Credit Registry. Nevertheless, the unified collateral registry will be complete only after the digitization of the land registry, allowing for the interconnection of the real estate under mortgage with the collateral database. The digitization of the land registry is slated for the first half of 2023 for the entire territory and the pilot phase covering the centers of Dakar, Ngor-Almadies, Rufisque, and Mbour is scheduled for end-November 2022 at the latest.

  • Revision of the investment code. The revision is under way, coordinated by a steering committee and a technical committee, bringing together all the private and public stakeholders. A document containing an overview of the legal framework for private investments was adopted by the steering committee in July 2022. The Reform Steering Committee held a workshop on December 13 and 14, 2021, to review the assessment report submitted by the consultant. The finalization and adoption of the new investment code are expected by June 30, 2022.

Stabilizing the Financial Sector

39. The process of restructuring three distressed non-systemic banks is continuing. An audit mission from the Banking Commission visited two of the three targeted institutions in the first quarter of 2022. For these two banks, the restructuring process is ongoing. One of them, whose largest share of capital is held by the country’s main microfinance institution, has taken the necessary steps to complete the second phase of its capital increase before the end of 2022. The first phase, involving CFAF 15 billion, has already been completed. The second bank, whose financial situation has deteriorated significantly, has presented a restructuring plan that requires government intervention given the risks identified in its liabilities, particularly those related to customer deposits. A government intervention in the form of a subordinated loan could be considered, subject to the participation of certain institutional depositors in the recapitalization. The conclusions of the Banking Commission’s audit missions on these two institutions should provide a definitive quantification on capital requirements. The third bank has received support from the government to complete the increase in its capital. At end-December 2021, the bank had a solvency ratio of 9.6 percent, compared to the required minimum of 11.3 percent. At end-February 2022, the solvency ratio stood at 14.2 percent, owing to the capital increase.

40. The government intends to accelerate the restructuring of the national company La Poste. A new roadmap will be developed by the Inter-Ministerial Restructuring Subcommittee no later than June 30, 2022, to reflect new strategic guidance from the Head of State regarding the recapitalization, restructuring, recovery plan, restoring the financial situation, and institutional transformation of Poste Finance. In the meantime, with a view to restoring the company’s financial equilibrium, the cost accounting system for determining fair remuneration for the public service, developed by an internationally recognized firm, was the subject of a workshop sponsored by the Telecommunications and Postal Regulatory Authority (ARTP). In order to reinforce the separation of the different entities and to avoid the use of Poste Finance cash by the national company La Poste, intra-group transactions, in particular those between La Poste and Poste Finance, are subject to a financial agreement which provides for monthly reconciliation and joint balancing of the amounts, as well as the settlement of the balance within the first 10 days of the following month by the debtor entity. This agreement will be signed no later than June 30, 2022.

Remove Senegal from Enhanced Surveillance by the Financial Action Task Force (FATF) for Strategic Deficiencies in Combating Money Laundering and Terrorist Financing

41. A number of deficiencies identified by the FATF have already been corrected, particularly in terms of technical compliance. Senegal has adopted thirteen (13) major legislative and regulatory acts, the most significant ones are:

  • A broader legal regime for the collection, updating, and storage of information on beneficial owners through the amendment of the General Tax Code;

  • The complete criminalization of the financing of terrorism and establishment of the National Office for the Recovery of Criminal Assets (ONRAC) through the amendment of the Criminal Code and Code of Criminal Procedure;

  • The organization and operation of the National Office for the Recovery of Criminal Assets. The General Director of the ONRAC was appointed in early December 2021;

  • The appointment of the chairperson of the Administrative Freeze Advisory Commission (CCGA) in October 2021. The CCGA held its first meeting on December 1, 2021.

42. At the regional level, the Inter-African Conference on Insurance Markets (CIMA) updated its AML/CFT procedures applicable to insurance companies with the adoption of Regulation No. 001/CIMA/PCMA/PCE/SG 2021 of March 3, 2021. By a decision dated September 23, 2021, the West African Monetary Union (WAMU) Council of Ministers adopted the uniform law on stock market offenses in the regional financial market. The Regional Council for Public Saving and Financial Markets (CREPMF) also adopted texts subsequent to Instruction No. 59/2019/CREPMF of September 30, 2019, on AML/CFT issues concerning organization of the internal control system for the financial markets of the WAMU area.

43. The National Committee, supported by an international firm recruited and made available by the European Union, launched the update of the National Risk Assessment for Money Laundering and Terrorist Financing in accordance with FATF Recommendation 1. Work is scheduled to take place over ninety (90) days beginning the last week of December 2021. The results, which will be accompanied by an action plan, will strengthen the understanding of risks among all stakeholders.

  • In addition, progress was noted in terms of training on AML/CFT issues, the number of reports filed by reporting entities, which totaled 371 suspicious transaction reports, on-site inspections by supervisors despite the public health situation (53 missions carried out by supervisors), and investigations and criminal prosecutions (24 reports sent to the Public Prosecutor by the National Financial Intelligence Unit (CENTIF), as well as 66 prosecutions initiated by the Public Prosecutor for AML/CFT crimes, some of which were the result of parallel investigations (police and gendarmerie).

44. The government is committed to continuing implementation of the action plan to remove Senegal from enhanced surveillance by the FATF. The most pressing challenges include:

  • Reviewing the WAEMU uniform law to fill in the remaining gaps;

  • Strengthening judicial cooperation;

  • Strengthening the oversight and supervision of reporting entities in general and non-financial institutions in particular;

  • Launching the operation of the Administrative Freeze Advisory Board for effective targeted financial sanctions;

  • Operationalization of the register of beneficial owners;

  • Direct access by the CENTIF to national databases.

Program Monitoring

45. Program monitoring. Under the Policy Coordination Instrument (PCI), the program will be monitored using quantitative targets, continuous targets, and reform targets. Quantitative targets for end-June 2022 and a quantitative target to be monitored on an ongoing basis are proposed (Tables 1a and 1b). The government and IMF staff also agreed on the reform targets shown in Table 2. The sixth review under the PCI should be completed by December 31, 2022. Under the Stand-By Credit Facility/Stand-By Arrangement, the program will undergo semi-annual reviews and will be monitored using performance criteria, indicative targets, and structural benchmarks as shown in Tables 1c and 2. The definitions are provided in the Technical Memorandum of Understanding that is attached to this Memorandum.

Table 1a.

Senegal: Quantitative Targets 2021–22

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Sources: Senegalese authorities; and IMF staff calculations.

GFSM 2001 definition. Cumulative since the beginning of the year.

This QT allows for the net financing needs of the central government to be larger than the floor on net lending/borrowing to clear the pre-2019 stock of the comptes de depot and to make deposits for the liquidity support scheme. From 2021 onwards, it incorporates a potential additional financing need to prepay for external operations that are repayed with a delay by international organizations.

US$ debt converted at program exchange rate at the end of the year.

This constitutes a standard continuous target.

Table 1b.

Senegal: Continuous Targets

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Table 1c.

Senegal: Performance Criteria and Indicative Targets 2021–22

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Sources: Senegalese authorities; and IMF Staff calculations.

GFSM 2001 definition. Cumulative since the beginning of the year.

This PC allows for the net financing needs of the central government to be larger than the floor on net lending/borrowing to cover potential additional financing needs to prepay for external operations that are repayed with a delay by international organizations.

This constitutes a standard continuous target.

US$ debt converted at program exchange rate at the end of the year.

Table 2.

Senegal: Structural Benchmarks/Reform Targets for 2021–22

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Attachment II. Technical Memorandum of Understanding

This technical memorandum of understanding (TMU) defines the quantitative performance criteria and indicative targets (quantitative targets under the Policy Coordination Instrument) and continuous targets described in the memorandum of economic and financial policies to monitor the arrangement under the Standby Credit Facility and Stand-By Arrangement for the period June 2021 – December, 2022 and under the IMF-supported program under the Policy Coordination Instrument (PCI) for the period January 10, 2020 – January 9, 2023. It also establishes the terms and timeframe for transmitting the information that will enable Fund staff to monitor the program. Reviews will assess quantitative performance criteria, indicative targets and quantitative targets as of specified test dates and on a continuous basis. Specifically, the first review (fourth review under the PCI) will assess the end-June 2021 test date, the second review (fifth review under the PCI) will assess the end-December 2021 test date and the third review (sixth review under the PCI) will assess the end-June 2022 test date.

Definitions

1. Unless otherwise indicated, “Government” in this TMU means the budgetary central Government of the Republic of Senegal. It excludes the central bank and the public sector outside the budgetary central government (paragraph 3).

2. Unless otherwise indicated, “public sector” in this TMU means the government, local governments and all majority government-owned or controlled entities.

3. Debt. The definition of debt is set out in paragraph 8(a) of the Guidelines on Public Debt Limits in Fund-Supported Programs attached to the Executive Board Decision No. 16919-(20/103), adopted October 28, 2020.

  • The term “debt” will be understood to mean a direct, i.e., non-contingent, liability created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, according to a given repayment schedule; these payments will discharge the principal and/or interest. Debts can take a number of forms, the primary ones being as follows:

    • Loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds (including Treasury Bills), debentures, commercial loans, and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the borrowed funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements.);

    • Suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided; and

    • Leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair, or maintenance of the property.

  • Under the definition of debt above, arrears, penalties, and judicially awarded damages and interest arising from the failure to make payment under a contractual obligation that constitutes debt is a debt.

  • Debt guarantees. The guarantee of a debt arises from any explicit legal obligation of the public sector to service a debt in the event of nonpayment by the debtor (involving payments in cash or in kind).

  • External debt. External debt is defined as debt borrowed or serviced in a currency other than the CFA franc, regardless of the residency of the creditor.

Quantitative Performance Criteria (Quantitative Program Targets Under the PCI)1

A. Floor on Net Lending/Borrowing (Program Definition)

4. Definition. Net lending/borrowing, or the overall fiscal balance, is the difference between the Government’s total revenue and total expenditure (costs and acquisition net of nonfinancial assets). The definition of revenues and expenditures is consistent with that in the 2001/14 Government Financial Statistics Manual (GFSM). Government expenditure is defined on a payment order basis accepted by Treasury, as well as those executed with external resources. This quantitative performance criterion is set as a floor on the overall fiscal balance as of the beginning of the year.

5. Adjustment. The floor including grants is adjusted upward or downward by the amount that budget grants exceed or fall short of program projections up to a maximum amount as specified in Table 1 of the memorandum of economic and financial policies. If budget grants exceed their projected level, the floor on net lending/borrowing, or the overall fiscal balance, will be reduced by up to a maximum amount as specified in Table 1 of the memorandum of economic and financial policies.

6. Reporting Requirement. During the program period, the authorities will report provisional data on the overall fiscal balance (program definition) and its components monthly to Fund staff with a lag of no more than 6 weeks after the end of the relative month. Data on revenues and expenditure that are included in the calculation of the overall fiscal balance will be drawn mainly from preliminary Treasury account balances. Final data will be provided as soon as the final balances of the Treasury accounts are available, but no later than two months after the reporting of the provisional data.

B. Ceiling on Central Government’s Overall Net Financing Requirement

7. Definition. The central Government’s net overall financing requirement is defined as the sum of the following two components: i) the overall fiscal balance, as defined for the quantitative performance criterion on net lending/borrowing; and ii) the additional borrowing by the Treasury to finance accounts payable, comprising spending by ministries out of unutilized appropriations from past budgets (drawdown of the “comptes de dépôt”), offsets for illiquid revenues (“recettes d’ordre”) and other below-the-line operations. For end-December 2021, this quantitative performance criterion would need to be lower or equal to the amount indicated in Table 1 of the memorandum of economic and financial policies.

8. Adjustment. The ceiling is adjusted downward or upward by the amount that budget grants exceed or fall short of program projections up to a maximum amount as specified in Table 1 of the memorandum of economic and financial policies. If budget grants exceed their projected level, the floor on net lending/borrowing, or the overall fiscal balance, will be reduced by up to a maximum amount as specified in Table 1 of the memorandum of economic and financial policies.

C. Reporting Requirements

9. Data related to the additional borrowing by the Treasury to finance accounts payable will be sent quarterly within a period of one month from the end of the quarter. This comprises: spending by ministries out of unutilized appropriations from past budgets (drawdown of the “comptes de dépôt”) and offsets for illiquid revenues (“recettes d’ordre”) and for other below-the-line operations and a reconciliation between the budgetary balance (see section “Floor on net lending / borrowing” above for the definition) and the financing made available during the respective quarter.

10. Data related to the overall financing requirement will be sent quarterly within a period of one month from the end of the quarter, starting from the end of December. These data must include: (i) total gross Government debt; (ii) total debt principal repaid by the Government; and (iii) all guarantees granted by the Government for domestic or external loans to its suppliers and contractors and any other public or private entity. The details regarding any Government borrowing (including amounts on-lent and any guarantee granted by the Government for domestic or external loans to its suppliers and contractors and any other public or private entity) will be reported monthly within six weeks of the end of the month. The data on borrowings will be grouped together as short-term (less than one year) or long-term (one year or more). This rule will also apply to amounts on-lent and guarantees granted by the Government for domestic or external loans to its suppliers and contractors and any other public or private entity. Data on projected principal and interest payments will be reported on a commitment and a disbursement basis.

D. Floor on Tax Revenues

11. Definition. Tax revenues are the sum of revenues from taxes and levies on income, profits and capital gains, salaries and labor, on assets; taxes on goods and services; on foreign trade and international transactions; and other tax revenues. The quantitative performance criterion will be assessed based on data for these revenues provided in the quarterly TOFE. Specifically, petroleum revenues are the subject of specific monitoring in connection with international price trends. These are the VAT on oil (on domestic consumption and imports), excise taxes on oil, customs duties on oil, vehicle taxes, the PSE, and the Petroleum Product Imports Security Fund (FSIPP).

12. Reporting Requirement. Reporting requirements are the same as for the quantitative performance criterion on net lending/borrowing.

E. Ceiling on Total Nominal Public Debt

Definition. Debt for this quantitative performance criterion is defined as in paragraph 4 above, comprises external and domestic debt of the public sector (i.e. general government and public nonfinancial corporations as defined in paragraph 3), and is measured at its nominal value. The ceiling will be monitored on an annual basis. To evaluate this target, debt denominated in foreign currency will be converted at the exchange rate for the projection of the debt stock, notably for 2020 CFAF/US$ 598 and CFAF/SDR 817 for 2021 CFAF/US$ 534.5 and CFAF/SDR 775.8.

13. Reporting Requirements. The authorities will report quarterly data to Fund staff within two months following the end of each quarter.

  • As part of the program, the authorities will transmit quarterly to IMF staff, within six weeks after the end of the quarter in question, provisional data relating to the debts of the following public enterprises: LONASE, SN La Poste, RTS, SN PAD, SONES, SENELEC, APIX, SN HLM, SAED, SNR, SOGIP SA, SAPCO, SODAGRI, CICES, SSPP SOLEIL, PETROSEN, SIRN, SICAP, DDD, MSAD, ONFP, ONAS, CNQP, OFOR, OLAG, FONSIS, AIBD, FERA, ASER, FSE, ANAM, AGPBE, COUD, ACMU, CDC, Dakar Dem Dik, ITA, MIFERSO, CEREEQ, Air Senegal and SONACOS. Any debt contracted during the year by a public enterprise not included in the above list and which is greater than 5 billion CFA francs, will also be communicated, and this public enterprise will be added to the list for future reporting.

  • The stock of debt at end December of the current and previous year of all these public enterprises, as well as information on newly contracted debt during the year and principal payments, will be communicated to IMF staff within two months after the end of the year.

  • All retroceded or guaranteed debt emanating from the central administration and from which these public enterprises benefit will be communicated, as well as any retroceded or guaranteed debt benefiting enterprises in the private sector. The data made available to IMF staff will distinguish between guarantees and debt on-lent to public enterprises and those issued to private sector actors.

  • All commitments by comfort letter will be communicated quarterly to IMF staff within six weeks after the end of the quarter. If some of these comfort letters are already counted in another category (for example, guarantees), this will be explicitly mentioned in the data.

F. Ceiling on Public Sector External Payments Arrears (Continuous)

14. Definition. External payment arrears are defined as the sum of payments owed and not paid when due (in accordance with the terms of the contract) on the external debt contracted or guaranteed by the public sector. The definition of external debt given in paragraph 4 is applicable here. The quantitative performance criterion on external payments arrears will be monitored on a continuous basis.

15. Reporting Requirements. The authorities will promptly report any accumulation of external payments arrears to Fund staff.

Indicative Targets (Quantitative Targets Under the PCI) and Memorandum Item2

G. Ceiling on The Share of The Value of Public Sector Contracts Signed by Single Tender (Percent)

16. Definition. Public sector contracts are administrative contracts, drawn up and entered into by the Government or any entity subject to the procurement code, for the procurement of supplies, delivery of services, or execution of work. Public procurement is considered “non-competitive” when the contracting authority awards the contract to the successful candidate without open competitive tender and without an open inquiry and open price. The semiannual indicative target will apply to total public sector contracts entered into by the Government or by any entity subject to the procurement code. The ceiling on contracts executed by single tender will exclude classified purchases and fuel purchases by SENELEC for electricity production reflected in a new regulation that imposes on SENELEC to buy fuel from SAR on the basis of the current price structure. The ceiling also excludes administrative amendments. Also excluded are riders whose execution with the supplier is a necessary condition for the final delivery of goods and services which are included in the original contract provided that they comply with the provisions of the procurement code.

17. Reporting Requirements. The Government will report semi-annually to Fund staff, with a lag of no more than one month, the total amount of public sector contracts and the total value of all single-tender public sector contracts.

H. Floor on Social Expenditure

18. Definition. Social spending is defined as spending on health, education, the environment, the judicial system, social safety nets, sanitation, and rural water supply (as contained in the table on social expenditure). The floor will be evaluated on a semiannual basis.

19. Reporting Requirements. The authorities will report semiannual data to Fund staff within two months after each semester.

I. Ceiling on Spending Through Simplified Procedures for Non-personalized Services

20. Definition. This indicative target is defined as the share of central government expenditures for non-personalized services executed through simplified procedures in total transfers. These procedures relate to “Demandes de mise en règlement immédiat » or DMRI and “Dépenses sans ordonnancement préalable » or DSOP.

21. Reporting Requirements. The government will report semi-annually to Fund staff the total amount of spending on transfers, and the total amount of spending for non-personalized services executed through transfers on treasury deposit accounts, within six weeks of the end each semester.

J. Net Domestic and Regional Financing of the Government (memorandum item)

22. Definition. Net domestic and regional financing of the government is defined on the basis of the TOFE as the sum of the net accumulation of liabilities including (i) securities issued on the regional market (WAEMU), including T-bills, T-bonds, and Sukkuk) and (ii) direct domestic loans in CFAF (including other loans and excluding the counterpart of IMF financing). The accumulation of other accounts payable does not correspond to domestic or regional financing for this memorandum item. The indicative target will be monitored annually for the budgetary central government.

23. Reporting Requirements. Data on net domestic and regional financing will be transmitted quarterly with the TOFE and a maximum delay of two months.

K. Additional Information for Program Monitoring

24. The authorities will transmit the following to Fund staff, in electronic format, if possible, with the maximum time lags indicated:

  • Three days after adoption: any decision, circular, edict, supplemental appropriation order, ordinance, or law having economic or financial implications for the current program. This includes in particular all acts that change budget allocations included in the budget law being executed (for instance: supplemental appropriation orders (décrets d’avance), cancellation of budget appropriations (arrêtés d’annulation de crédit budgétaires), and orders or decisions creating supplementary budget appropriations (décrets ou arrêtés d’ouverture de crédit budgétaire supplémentaire). It also includes acts leading to the creation of a new agency or a new fund.

  • Within a maximum lag of 30 days, preliminary data on:

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

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

  • The monthly situation of checks issued by agencies from their deposit accounts at the Treasury but not paid to beneficiaries, with the dates of issuance of the checks.

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

  • The monthly preliminary Government financial operations table (TOFE) based on the Treasury accounts;

  • The provisional monthly balance of the Treasury accounts;

  • Reconciliation tables between the SIGFIP table and the consolidated Treasury accounts, between the consolidated Treasury accounts and the TOFE for “budgetary revenues and expenditures,” and between the TOFE and the net treasury position (NTP), on a quarterly basis; and

  • A quarterly report on FSE operations in terms of revenues and expenditures;

  • A monthly report on the price structure of fuel products, including an estimate of the necessary subsidy for the rest of the year based on the latest price structure; no later than 4 weeks after the publication of the price structure. If domestic prices are higher than international prices, authorities will communicate in which part of the TOFE the benefits are accounted for.

  • 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.

25. During the program period, the authorities will transmit to Fund staff provisional data on current nonwage noninterest expenditures and domestically financed capital expenditures executed through cash advances on a monthly basis 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.

26. A monthly table from the expenditure tracking system (SIGFIP, or SIGIF once it becomes operational) showing all committed expenditure (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. The SIGFIP table (or SIGIF once it becomes operational) will also list any payments that do not have a cash impact on the Treasury accounts. Balances outstanding are broken down by payer and spending category, as well as by maturity and length of time overdue.

27. Regarding expenditures using derogatory procedures, the authorities will report to IMF staff at the end of each quarter: (i) the status of ‘waiting and provisional imputation’ accounts (comptes d’attentes et d’imputation provisoire) showing the stock of transactions awaiting regularization from the general balance of accounts of the state; (ii) the status of the derogatory expenditures presented by expenditure category; (iii) the status of deposit accounts (comptes de dépôt) by identifying the nature of the beneficiaries ((i) agencies in the broad sense (legal entity governed by public law, or independent of the State); (ii) legal entities governed by private law (e.g. companies with public or private capital, beneficiaries of subsidies or equity); (iii) private individuals (recipients of social assistance and grants); (iv) non-personalized state services; and (v) commitments related to comfort letters. The authorities will also present an assessment of the regularization of such expenditures from one quarter to the next.

28. The central bank will transmit to Fund staff:

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

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

  • The lending and deposit interest rates of commercial banks, on a semi-annual basis; and

  • Prudential supervision and financial soundness indicators for bank financial institutions, as reported in the table entitled Situation des Établissements de Crédit vis--à-vis du Dispositif Prudentiel (Survey of Credit Institution Compliance with the Prudential Framework), on a semiannual basis, with a maximum delay of four and a half months after the closing of accounts for prudential ratios and six months for the financial soundness indicators.

29. The Government will update on a monthly basis on the website established for this purpose the following information:

  • Preliminary TOFE and transition tables with a delay of two months;

  • SIGFIP execution table, the table for the central Government and a summary table including regions, with a delay of two weeks;

  • The amount of the airport tax collected, deposited in the escrow account, and used for the repayment of the loan financing the construction of the new airport, with a delay of one month. Full information on (i) the operations of the Energy Sector Support Fund (FSE); (ii) investment projects in the power sector; (iii) planning and execution of these projects; and (iv) details of financing and updated costs.
1

Unmet obligations are defined as on- and off-budget spending of the central government vis-à-vis third parties for which no resources were set aside in original budget appropriations.

2

See Text Table 3 in IMF Country Report No. 20/11.

3

Under the PCI, 5 out of 8 quantitative targets were met.

4

Summary of main findings in Box 1 of IMF country report no. 22/08.

5

The 0.2 percentage points discrepancy between the increase of the fiscal deficit of 1.4 percentage points and the net impact of deficit-enhancing (+2.7 percentage points) and deficit-reducing measures (-1.1 percentage points) is due to the upward revision of nominal GDP.

6

These include wheat, flour, vegetable oil, rice, and sugar.

7

See Annex II Text Table 1 for a list of measures to stabilize food prices and support the vulnerable.

8

Domestic revenues increased by 29 percent through April (y-o-y).

9

The number of registered companies increased by 80 percent since end-2020.

10

Of which 0.2 percent of GDP general reserve and 0.3 percent of GDP pre-identified domestically and externally financed investment projects annexed to the revised budget.

11

The recent sukuk issuance of CFAF 330bn did not go through the regular CNDP procedures.

12

Staff incorporated only firmly committed financing in the baseline.

1

Prepared by Moustapha Mbohou Mama and David Stenzel (both AFR).

2

Malian banks hold the majority of the countries’ debt issued on the regional market (60.3 percent) and have limited participation in the regional interbank market.

1

Prepared by Moustapha Mbohou Mama (AFR).

2

Russia and Belarus account for about one fifth of global fertilizer exports.

3

The shares of wheat imports from Russia and Ukraine account for 52 percent and 14 percent of total wheat imports of Senegal, respectively.

4

We followed the methodology used by Alper et al. (2016) to estimate pass-throughs from world food price, oil price and exchange rate variation to domestic food inflation in Senegal. We regressed quarterly domestic food inflation on current and 4 lags of : quarterly world food inflation, quarterly world oil price inflation and quarterly nominal exchange rate depreciation (FCFA/USD) and control for 4 lags of domestic food inflation and energy inflation. We also include a time trend and quarterly dummies to control for seasonal variation. The sample period spans form 2003Q1 to 2022Q1.

5

While the average for SSA and EMs is 40 and 30 percent, respectively.

6

Source: ANSD’s Report of the 2019 Household Survey in Senegal.

7

According to the 2019 Household Survey, 35 percent of the population faces food insecurity in Senegal – this rate being higher in rural areas where 41.5 percent of the population faces food insecurity.

8

Source: ANSD’s Report of the 2019 Household Survey in Senegal.

9

In 2007–08, to keep the food prices down, the government suspended VAT and customs duties on a number of important consumer food items (rice, wheat, powdered milk and bread) in July 2007. The revenue loss caused by the tax and duty suspensions was estimated at CFAF 29 billion (0.5 percent of GDP) in 2007. An assessment of the impact of those measures on household welfare showed that they were not well targeted overall. Specifically, while the poor had gained the most from the tariff suspension on rice, the tariff suspension on powdered milk and bread proved to have benefited the most to the richer groups of the population, since the poorest 20 percent of the population consumed relatively little powdered milk and bread in Senegal.

10

In February, the government announced lower prices for vegetable oil from CFAF 1,200 to 1,100 per liter, for rice from CFAF 15,000 per bag of 50 kg to CFAF 13,750, and for sugar from 625 CFAF to CFAF 600 per kg.

11

According to IMF estimates, subsidies benefit on average the richest 20 percent of households six time more than the poorest 20 percent. See IMF (2022), Selected Issues Paper: Transforming Senegal’s energy sector for sustained and inclusive growth.

1

Prepared by Nabil Hamliri (FAD).

2

Senegal currently subsidizes both electricity and fuel products. In any given month, the existing legal framework for energy pricing gives the option to the authorities to either maintain constant prices, in which case they are required to compensate distributors, or to set prices in line with market prices. The state has kept fuel products prices constant since 2019 and compensates fuel importers for incurred losses according to a formula defined by law. Public utility Senelec charges electricity tariffs that are under cost recovery levels (also defined by law and monitored by electricity regulator CRSE) and receives a compensation for that.

3

The initial budget assumed an oil price of $75/barrel, in line with December 2021 prices. The October 2021 WEO projected prices at $66/barrel and the January 2022 WEO (posterior to the budget estimate) projected prices at $78/barrel.

4

According to IMF estimates, subsidies benefit on average the richest 20 percent of households six time more than the poorest 20 percent. See IMF (2022), Selected Issues Paper: Transforming Senegal’s energy sector for sustained and inclusive growth.

1

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability of 30 percent or more). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.

1

References to “quantitative performance criteria” under this section, which relate to the SBA/SCF arrangements, also encompass “quantitative targets” under the PCI.

2

References to “indicative targets” under this section, which relate to the SBA/SCF arrangements, also encompass “quantitative targets” under the PCI.

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Cover IMF Staff Country Reports
Senegal: Fifth Review Under the Policy Coordination Instrument, Second Reviews Under the Stand-By Arrangement and the Arrangement Under the Standby Credit Facility, and Requests for Augmentation of Access, Waiver of the Nonobservance of a Performance Criterion, and Modification of a Performance Criterion and Quantitative Targets-Press Release; Staff Report; and Statement by the Executive Director for Senegal
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2022: Issue 197
Publisher:
International Monetary Fund
ISBN:
9798400214219
ISSN:
1934-7685
Pages:
113
DOI:
https://doi.org/10.5089/9798400214219.002
Text Figure 1.

Senegal: Recent Economic Developments and Evolution of the Covid-19 Pandemic
Text Figure 2.

Senegal: Macroeconomic Indicators, 2021–2024
Text Figure 3.

Senegal: Energy Subsidies in 2022

(In percent of GDP)
Text Figure 4.

Senegal: Public Sector Debt Projections

(%ofGDP)
Text Figure 5.

Senegal: Financing Conditions
Figure 1.

Senegal: Real and External Sectors, 2015–21
Figure 2.

Senegal: Fiscal and Financial Indicators, 2015–21
Figure 3.

Senegal: Economic Outlook, 2021–27
Annex I. Text Figure 1.

Senegal: Imports from Russia and Ukraine
Annex I. Text Figure 2.

Senegal: Exports and Imports to Mali, Russia and Ukraine 2021

(Percent of GDP)
Annex I. Text Figure 3.

Senegal: Shocks Transmission and Mitigation Measures
Annex II. Text Figure 1.

Food Inflation in Senegal
Annex III. Figure 1.

Senegal: Energy Subsidies