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Senegal: Staff Report for the 2004 Article IV Consultation and Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Requests for Waiver of Nonobservance of Performance Criteria and Rephasing of the Arrangement

Author(s):
International Monetary Fund
Published Date:
July 2006
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I. Introduction

1. Executive Board consideration of the second review, the first PRSP progress report, and the Joint Staff Assessment (JSA), originally scheduled for June 30, 2004,1 was delayed due to a serious breach of budgetary discipline and transparency. The government signed contracts for infrastructure projects in Thiès, the second largest city, without budgetary appropriation. Work on the projects, valued at 1 percent of GDP, started in 2003 and continued in 2004. Contractors were promised payment with future budgetary resources, and provided with letters of comfort to facilitate borrowing from banks.

2. The Board meeting was postponed to allow the staff to reach understandings with the authorities on remedial actions to restore discipline and prevent similar problems in the future. Discussions on these issues were held in Washington in August 2004 but were not conclusive. As a result, it was not possible to complete the review before end-October 2004. The delay in the completion of the second review meant that the Article IV consultation had to take place earlier than at the end of the usual 24-month cycle (ending in April 2005).

II. Recent Economic Developments and Program implementation

3. Economic performance in 2003 and the first nine months of 2004 was satisfactory. Real GDP growth reached 6.5 percent in 2003 and consumer price inflation was virtually absent (Table 4), as the recovery of agricultural output dampened food prices, and the appreciation of the exchange rate reduced import prices. Preliminary data indicate that economic performance during the first nine months of 2004 was broadly in line with the macroeconomic and structural reform objectives and policies agreed with the staff earlier in the year, with strong economic growth and subdued inflation (Figure 1).

Table 4.Senegal: Selected Economic and Financial Indicators, 2001-06
200120022003200420052006
Prog. 1/Est.Target 2/Prog.Prog.Prog.
(Annual percentage change, unless otherwise indicated)
National income and prices
GDP at constant prices4.71.16.66.56.06.06.45.2
Of which : nonagriculture GDP4.94.95.74.45.46.46.15.2
GDP deflator0.02.72.50.71.41.92.02.0
Consumer prices
Annual average3.02.32.00.00.80.41.61.9
End of period3.91.52.0−1.41.30.61.61.9
External sector
Exports, f.o.b. (in CFA francs)5.41.11.6−1.75.95.16.25.5
Imports, f.o.b. (in CFA francs)10.06.87.87.42.64.42.35.5
Export volume2.91.6−0.5−1.94.84.44.34.3
Import volume12.07.47.84.16.02.05.44.6
Terms of trade (deterioration -)4.20.21.9−2.94.4−1.84.10.7
Nominal effective exchange rate 3/1.22.45.21.6
Real effective exchange rate 3/1.82.82.80.0
(Changes in percent of beginning-of-year broad money, unless otherwise indicated)
Money and credit
Net domestic assets4.3−6.45.75.41.71.03.84.2
Domestic credit6.6−4.96.45.73.61.34.24.4
Credit to the government (net)2.7−8.3−0.3−4.3−2.9−2.80.2−0.9
Credit to the economy (percentage growth)4.94.79.514.39.15.95.77.7
Broad money (M2)14.57.68.814.67.87.48.56.3
Velocity (M2/GDP; end of period)3.73.63.63.33.53.43.43.4
Interest rates (end of period; in percent)
Discount rate6.506.505.004.50
Money market rate4.954.954.954.95
(In percent of GDP)
Government financial operations
Revenue18.019.118.819.319.119.219.319.3
Grants1.81.82.72.12.11.71.92.2
Total expenditure and net lending22.421.022.822.823.823.624.122.9
Overall fiscal surplus or deficit (-)
Payment order basis, excluding grants−4.3−1.9−4.0−3.5−4.8−4.4−4.8−3.5
Payment order basis, including grants−2.5−0.1−1.3−1.4−2.6−2.7−2.9−1.4
Primary fiscal balance 4/−1.61.0−0.3−0.2−1.5−1.6−1.9−0.4
Basic fiscal balance, program definition 5/−0.82.01.51.31.31.40.70.8
Gross domestic investment19.216.720.220.721.022.423.422.6
Gross domestic savings9.55.69.77.710.910.012.111.6
Gross national savings14.510.814.614.215.316.217.917.5
External current account deficit (-)
Excluding current official transfers−6.3−8.0−7.6−8.6−7.4−8.2−7.1−6.9
Including current official transfers−4.6−5.9−5.6−6.5−5.6−6.2−5.4−5.1
External public debt (nominal) 6/67.366.145.954.537.641.438.335.4
(In percent of exports of goods and nonfactor services, unless otherwise indicated)
External public debt service 6/9.09.28.88.37.55.16.47.1
In percent of government revenue15.314.813.112.311.37.49.09.6
GDP at current market prices (in billions of CFA francs)3,3433,4733,8813,7254,0494,0244,3644,682
Sources: Senegalese authorities; and staff estimates and projections.

Request for a three-year PRGF arrangement, April 14, 2003 (Country Report No. 03/167).

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

First 10 months in 2004.

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

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, temporary costs of structural reforms and expenditure financed with HIPC Initiative assistance.

After HIPC debt relief.

Sources: Senegalese authorities; and staff estimates and projections.

Request for a three-year PRGF arrangement, April 14, 2003 (Country Report No. 03/167).

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

First 10 months in 2004.

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

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, temporary costs of structural reforms and expenditure financed with HIPC Initiative assistance.

After HIPC debt relief.

Figure 1.Senegal: GDP Deflator and Real GDP, 1994–2005

(Annual Percentage Change)

Source: Senegalese authorities; and staff estimates and projections.

4. Economic growth has been associated with a widening of the current account deficit since the 1994 devaluation (Figure 2), driven by strong domestic demand, mainly from the private sector (Table 5), and lackluster export performance. In 2003, problems in the export sector, including lack of inputs for groundnut production, and a high level of food and oil imports, led to an increase in the current account deficit (including official transfers) from 5.9 percent of GDP in 2002 to 6.5 percent in 2003 (Table 10). However, substantial private capital inflows, combined with debt relief, led to an increase of 36 percent in the net international reserves of the central bank (Table 9).2

Figure 2.Senegal: Public, Private and External Sector Balance, 1994–2004

Source: Senegalese authorities; and staff estimates and projections.

Table 5.Senegal: Savings-Investment Balances and National Accounts 2001-06
Composition
of GDP.
in 1999200120022003200420052006
(In percent)Prog. 1/Est.Target 2/Proj.Prog.Prog.
(Annual percentage change at constant prices, unless otherwise indicated)
Primary sector18.13.3−20.610.819.88.62.37.33.8
Agriculture9.93.0−32.218.036.311.62.09.55.3
Livestock5.14.5−6.44.04.25.05.05.04.0
Forestry0.83.02.33.34.04.04.03.03.0
Fishing2.42.3−6.42.54.95.5−5.04.0−5.0
Secondary sector18.74.39.87.96.47.06.76.26.5
Mining1.30.711.318.328.08.0−5.24.34.0
Industry11.66.111.56.81.46.27.44.35.0
Oil milling0.26.2−9.6−21.4−22.8−3.0−16.110.010.0
Energy1.96.7−2.713.518.45.03.45.05.7
Construction and public works3.6−1.012.411.910.510.013.013.011.6
Tertiary sector63.25.24.85.13.75.06.76.25.1
Transportation and telecommunications6.314.15.87.27.07.410.69.07.5
Commerce18.51.75.95.44.25.06.76.74.0
Public administration19.77.53.02.72.27.85.25.44.8
Other18.72.95.14.43.54.16.75.35.3
GDP100.04.71.16.66.56.06.06.45.2
Nonagriculture GDP90.14.94.95.74.45.46.46.15.2
GDP deflato0.02.72.50.71.41.92.02.0
Consumer price index (period average)3.02.32.00.00.80.41.61.9
(In percent of GDP)
Gross domestic investment19.216.720.220.721.022.423.422.6
Government 3/6.97.98.79.19.29.29.78.9
Nongovernment12.28.811.511.611.813.213.713.7
Gross domestic savings9.55.69.77.710.910.012.111.6
Government8.813.46.310.16.310.010.09.8
Nongovernment0.7−7.83.4−2.44.60.02.11.8
Savings - investment balance−9.7−11.2−10.5−13.0−10.1−12.4−11.2−11.0
Government1.95.5−2.41.0−2.80.80.30.9
Nongovernment−11.5−16.6−8.1−14.0−7.2−13.2−11.5−11.9
External current account balance 4/−4.6−5.9−5.6−6.5−5.6−6.2−5.4−5.1
Gross national savings14.510.814.614.215.316.217.917.5
Memorandum item:(In billions of CFA francs)
GDP at current prices3,3433,4733,8813,7254,0494,0244,3644,682
Sources: Senegalese authorities; and staff estimates and projections.

Request for a three-year PRGF arrangement, April 14, 2003 (Country Report No. 03/167).

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

Includes capital expenditure financed with HIPC Initiative assistance.

Includes current official transfers.

Sources: Senegalese authorities; and staff estimates and projections.

Request for a three-year PRGF arrangement, April 14, 2003 (Country Report No. 03/167).

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

Includes capital expenditure financed with HIPC Initiative assistance.

Includes current official transfers.

Table 9.Senegal: Monetary Survey, 2001-06
200120022003200420052006
Prog. 1/Est.SeptDec.Prog.Prog.
Est.Target 2/Proj.
(In billions of CFA francs)
Net foreign assets169.6296.8309.9386.5447.2419.0457.5513.2540.5
Central Bank of West African States (BCEAO)66.7137.7165.8187.3247.5227.1243.3289.5305.6
Commercial banks102.9159.1144.1199.2199.7191.9214.1223.8235.0
Net domestic assets735.6677.4756.6729.8735.0754.7741.0786.7841.7
Net domestic credit837.4793.0857.0848.8821.1887.7863.2913.5970.2
Net credit to the government182.0106.5105.164.218.932.632.735.123.9
Central bank221.0188.7177.4175.5105.3159.8138.9104.790.7
Commercial banks−42.0−82.9−75.2−117.2−95.7−128.0−112.1−75.5−72.7
Other institutions3.00.72.95.99.30.85.95.95.9
Credit to the economy655.5686.5751.9784.6802.2855.1830.6878.3946.3
Of which : crop credit5.00.98.03.62.82.22.22.22.4
Other items (net)−101.8−115.6−100.4−119.0−86.1−133.0−122.2−126.8−128.5
Broad money (M2)905.2974.21,066.51,116.31,182.21,173.71,198.51,299.91,382.3
Currency outside banks217.8192.7218.2173.2155.1182.7185.3199.2211.7
Total deposits687.4781.5943.11,027.1991.11,013.21,100.81,170.6
Demand deposits323.5372.6424.6503.472.5483.1524.8558.1
Time deposits363.9408.9423.7439.518.5530.1576.0612.5
(Change in percentage of beginning-of-period broad money stock)
Net foreign assets10.214.13.19.25.46.06.44.72.1
BCEAO9.17.82.15.15.45.45.03.81.2
Commercial banks1.16.21.04.10.00.61.30.80.9
Net domestic assets4.3−6.45.75.40.51.71.03.84.2
Net credit to the government2.7−8.3−0.3−4.3−4.1−2.9−2.80.2−0.9
Credit to the economy3.83.46.710.11.66.54.14.05.2
Other items (net)−2.3−1.5−0.7−0.32.9−1.9−0.3−0.4−0.1
Broad money (M2)14.57.68.814.65.97.87.48.56.3
Memorandum items:(in units indicated)
Velocity (GDP/M2; end of period)3.73.63.63.33.53.53.43.43.4
Nominal GDP growth (percentage growth)4.73.99.37.38.57.48.08.57.3
Credit to the economy (percentage growth)4.94.79.514.32.29.15.95.77.7
Credit to the economy/GDP (in percent)19.619.319.421.119.121.120.620.120.2
Variation of net credit to the government (since the beginning of the year; in billions of CFA francs)21.8−75.5−2.5−42.3−45.3−31.7−31.52.5−11.3
Sources: Senegalese authorities; and staff estimates and projections.

Request for a three-year PRGF arrangement, April 14, 2003 (Country Report No. 03/167).

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

Sources: Senegalese authorities; and staff estimates and projections.

Request for a three-year PRGF arrangement, April 14, 2003 (Country Report No. 03/167).

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

Table 10.Senegal: Balance of Payments, 2001-06
200120022003200420052006
Prog. 1/Est.Target 2/Proj.Prog.Prog.
(In billions of CFA francs, unless otherwise indicated)
Current account−155−206−216−244−228−249−236−238
Balance on goods−312−375−393−470−391−486−466−492
Exports, f.o.b.735743777731819768815860
Imports, f.o.b.−1,047−1,118−1,170−1,201−1,210−1,253−1,282−1,352
Services and incomes (net)−67−91−79−87−109−89−97−94
Credits341365367400387398414429
Of which: tourism128132141121137128134140
Debits−408−456−446−487−496−487−512−522
Of which : interest on public debt−24−35−32−40−39−39−38−36
Unrequited current transfers (net)223260256313272325327348
Private (net)173192182241207251260270
Public (net)5068747265756778
Of which: budgetary grants02291813221529
Capital and financial account217315206294194208186176
Capital account6466786779537480
Private capital transfers26377778
Project grants6260756073466772
Debt cancellation00000000
Financial account15324912922711515511296
Direct investment2931612960496370
Portfolio investment102−713963−20
Other investment11421675185451004646
Public sector (net)473532203114241
Of which: disbursements1081139691156131151130
program loans6142004205527
project loans4371919110912993101
other50505222
amortization 3/−62−79−64−72−125−118−127−128
Private sector (net)411284313314862245
Errors and omissions26530320000
Overall balance62109−1050−35−41−50−62
Financing−62−109−10−5035415062
Net foreign assets (BCEAO)−72−71−21−50−55−56−46−16
Net use of Fund resources−2−133−20−18−23−17−13
Purchases228−2438367
Repurchases−23−210−23−26−26−24−20
Other−71−58−24−30−38−33−29−3
Deposit money banks−9−56−9−40−6−15−10−11
Payments arrears (reduction -)00000000
Exceptional financing 4/191820409711210689
Residual financing gap002000000
Memorandum items:
Current account balance
As percentage of GDP (incl. current official transfers)−4.6−5.9−5.6−6.5−5.6−6.2−5.4−5.1
As percentage of GDP (excl. current official transfers)−6.3−8.0−7.6−8.6−7.4−8.2−7.1−6.9
Gross official reserves (in billions of CFA francs)339404402413440443473480
(in months of imports of GNFS)3.03.33.23.23.43.33.43.3
Nominal GDP (in billions of CFA francs)3,3433,4733,8813,7254,0494,0244,3644,682
Sources: Central Bank of West African States (BCEAO); and staff estimates and projections.

Request for a three-year PRGF arrangement, April 14, 2003 (Country Report No. 03/167).

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

2004 includes scheduled repayment of KWD 30 million (equivalent to CFAF 52 billion) loan.

HIPC Initiative debt relief is recorded as a grant for the IMF, and as exceptional financing for the World Bank, the African Development Bank and Paris Club creditors. 2004 assumes debt relief on KWD 30 million (CFAF 52 billion) loan principal repayment falling due in late 2004. Negotiations are going on between the authorities of Kuwait and Senegal.

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

Request for a three-year PRGF arrangement, April 14, 2003 (Country Report No. 03/167).

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

2004 includes scheduled repayment of KWD 30 million (equivalent to CFAF 52 billion) loan.

HIPC Initiative debt relief is recorded as a grant for the IMF, and as exceptional financing for the World Bank, the African Development Bank and Paris Club creditors. 2004 assumes debt relief on KWD 30 million (CFAF 52 billion) loan principal repayment falling due in late 2004. Negotiations are going on between the authorities of Kuwait and Senegal.

5. The real effective exchange rate (REER) appreciated by about 12 percent during November 2000-October 2004, reflecting mainly the appreciation of the euro (to which the CFA franc is pegged) against the U.S. dollar (Figure 3). However, since 1994 (when the CFAF was devalued), Senegal’s REER has depreciated by about 8 percent, compared to an appreciation of the REER in almost all other countries of the West African Economic and Monetary Union (WAEMU).

Figure 3.WAEMU: Real Effective Exchange Rates, 1994–October 2004

(Index, 1994=100)

Sources: WAEMU authorities; and staff estimates and projections.

6. The overall fiscal deficit (including grants) widened from 0.1 percent of GDP in 2002 to 1.4 percent of GDP in 2003, driven by a substantial increase in expenditures. Revenue performance strengthened throughout the period. Tax revenue increased slightly but remained below the program objective (Tables 6 and 7).

Table 6.Senegal: Government Financial Operations, 2001-06

(In billions of CFA francs)

200120022003200420052006
Prog. 1/Est.Target 2/Proj.Prog.Prog.
Total revenue and grants664.4726.7832.6797.8857.0839.7922.41,006.1
Revenue602.7664.6728.3720.1771.6771.6841.0905.1
Tax revenue576.8629.2698.5677.0737.2736.2802.1862.7
Nontax revenue25.935.429.843.134.435.438.942.4
Grants61.762.1104.477.785.468.181.4101.0
Budgetary0.01.929.417.612.821.814.829.1
Budgeted development projects61.760.275.060.172.646.366.671.9
Total expenditure and net lending748.1730.3883.6850.1964.2948.71,049.81,071.2
Current expenditure516.6478.2509.8529.5556.5559.5600.4647.5
Wages and salaries177.3199.4207.4203.7225.9223.9247.3267.1
Interest due30.339.838.944.645.844.643.247.0
Of which: external23.735.430.640.038.238.937.936.0
Other current expenditure309.0239.0263.5281.2284.8291.0309.9333.5
Transfers and subsidies178.5131.0140.9138.5138.5142.9152.9
Goods and services130.5132.5140.3146.3146.3157.0180.6
HIPC current spending6.210.00.0
Capital expenditure232.3275.9342.8338.5370.8370.8422.9415.7
Domestically financed133.6147.9192.8190.3205.3211.6279.0259.0
HIPC financed15.14.132.428.435.638.749.630.5
Non HIPC financed118.5143.8160.4161.9169.7172.9229.4228.6
Externally financed98.7128.0150.0148.2165.5159.2143.9156.7
Treasury special accounts and correspondents (net)3.8−18.28.0−11.10.80.80.00.0
Net lending−4.6−5.68.0−6.86.36.38.08.0
Lending5.72.716.02.716.016.028.030.0
Reimbursements−10.3−8.3−8.0−9.5−9.7−9.7−8.0−8.0
Temporary costs of structural reforms0.00.015.00.029.811.318.50.0
Primary fiscal balance 3/−53.436.2−12.1−7.7−61.3−64.4−84.2−18.1
Overall fiscal balance (including grants)−83.7−3.6−51.0−52.3−107.1−109.0−127.5−65.1
Overall fiscal balance (excluding grants)−145.4−65.7−155.4−130.0−192.5−177.1−208.8−166.1
Basic fiscal balance (program definition) 4/−25.969.158.149.354.354.329.237.1
Financing83.73.651.052.3107.1109.0127.565.1
External financing54.968.450.260.9147.1129.1127.192.4
Drawings103.3112.791.090.8150.8128.9148.6127.8
Program loans60.642.20.00.041.90.055.327.0
Project loans42.770.591.090.8108.9128.993.3100.8
Amortization due−64.2−81.0−65.5−73.9−125.9−119.2−127.1−128.4
Debt relief and HIPC Initiative assistance 5/15.836.724.744.0103.0119.4105.793.1
Domestic financing17.4−70.7−19.1−8.5−40.0−20.10.3−27.3
Banking system21.8−75.4−2.5−42.3−31.7−31.52.5−11.3
Of which : issuance of new treasury bills23.015.03.118.93.6−19.7
Nonbank financing 6/−4.44.7−16.633.8−8.311.4−2.2−16.1
Of which : privatization−44.11.11.11.11.11.11.11.1
Of which : T-bills issued in WAEMU region0.00.00.08.019.23.412.1−14.4
Errors and omissions11.45.90.0−0.20.00.00.00.0
Financing gap0.00.019.90.00.00.00.00.0
Memorandum items:
HIPC Initiative expend 7/15.14.132.428.435.644.959.630.5
Gross domestic product3,342.73,472.73,881.13,725.44,049.34,023.74,364.34,682.1
Sources: Senegalese authorities; and staff estimates and projections.

Request for a three-year PRGF arrangement, April 14, 2003 (Country Report No. 03/167).

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

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

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, cost of structural reforms and HIPC expenditure.

Includes from 2000 to 2003 interim HIPC Initiative debt relief accorded by the IMF, the World Bank, the African Development Bank, and Paris Club. 2002 and 2003 figures include the deferral of debt payments to Paris Club creditors in anticipation of the HIPC completion point in 2004. 2004 assumes debt relief on KWD 30 million (CFAF 52 billion) loan principal repayment falling due in late 2004. Negotiations are going on between the authorities of Kuwait and Senegal.

Includes offsetting adjustements for movements in net bank credit to account for the coverage discrepancy between fiscal and monetary data.

Refers to HIPC-financed current spending in 2000 and 2001, and, for 2002-06, HIPC-financed capital and other expenditure authorized in the supplementary budgets of 2001, 2003 and 2004, and expenditures expected in 2005-06.

Sources: Senegalese authorities; and staff estimates and projections.

Request for a three-year PRGF arrangement, April 14, 2003 (Country Report No. 03/167).

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

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

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, cost of structural reforms and HIPC expenditure.

Includes from 2000 to 2003 interim HIPC Initiative debt relief accorded by the IMF, the World Bank, the African Development Bank, and Paris Club. 2002 and 2003 figures include the deferral of debt payments to Paris Club creditors in anticipation of the HIPC completion point in 2004. 2004 assumes debt relief on KWD 30 million (CFAF 52 billion) loan principal repayment falling due in late 2004. Negotiations are going on between the authorities of Kuwait and Senegal.

Includes offsetting adjustements for movements in net bank credit to account for the coverage discrepancy between fiscal and monetary data.

Refers to HIPC-financed current spending in 2000 and 2001, and, for 2002-06, HIPC-financed capital and other expenditure authorized in the supplementary budgets of 2001, 2003 and 2004, and expenditures expected in 2005-06.

Table 7.Senegal: Government Financial Operations, 2001-06

(In percent of GDP)

200120022003200420052006
Prog. 1/Est.Target 2/Proj.Prog.Prog.
Total revenue and grants19.920.921.521.421.220.921.121.5
Revenue18.019.118.819.319.119.219.319.3
Tax revenue17.318.118.018.218.218.318.418.4
Nontax revenue0.81.00.81.20.80.90.90.9
Grants1.81.82.72.12.11.71.92.2
Total expenditure and net lending22.421.022.822.823.823.624.122.9
Current expenditure15.513.813.114.213.713.913.813.8
Wages and salaries5.35.75.35.55.65.65.75.7
Interest payments0.91.11.01.21.11.11.01.0
Other current expenditure9.26.96.87.57.07.27.17.1
Goods and services3.93.43.83.63.63.63.9
Transfers and subsidies5.33.43.83.43.43.33.3
Capital expenditure6.97.98.29.18.79.29.78.9
Domestically financed4.04.34.35.14.65.36.45.5
Externally financed3.03.73.94.04.14.03.33.3
Treasury special accounts and correspondents (net)0.1−0.50.2−0.30.00.00.00.0
Net lending−0.1−0.20.2−0.20.20.20.20.2
Temporary costs of structural reforms0.00.00.40.00.70.30.40.0
Primary fiscal balance 3/−1.61.0−0.3−0.2−1.5−1.6−1.9−0.4
Overall fiscal balance
Payment order basis, excluding grants−4.3−1.9−4.0−3.5−4.8−4.4−4.8−3.5
Payment order basis, including grants−2.5−0.1−1.3−1.4−2.6−2.7−2.9−1.4
Basic fiscal balance (program definition) 4/−0.82.01.51.31.31.40.70.8
Financing2.50.11.31.42.62.72.91.4
External financing1.62.01.31.63.63.22.92.0
Domestic financing0.5−2.0−0.5−0.2−1.0−0.50.0−0.6
Errors and omissions0.30.20.00.00.00.00.00.0
Financing gap0.00.00.50.00.00.00.00.0
Memorandum items:(In percent of GDP, unless otherwise notified)
Basic fiscal balance (WAEMU definition) 5/−1.21.90.30.6−0.30.0−1.10.1
HIPC Initiative expenditure0.50.10.80.80.71.11.40.7
Health expenditure1.31.61.82.2
Education expenditure3.83.94.94.9
Wages and salaries (in percent of fiscal revenue)29.430.029.728.330.629.029.429.5
Gross domestic product (in billions of CFA francs)3,3433,4733,8813,7254,0494,0244,3644,682
Sources: Senegalese authorities; and staff estimates and projections.

Request for a three-year PRGF arrangement, April 14, 2003 (Country Report No. 03/167).

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

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

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, cost of structural reforms and HIPC expenditure.

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

Sources: Senegalese authorities; and staff estimates and projections.

Request for a three-year PRGF arrangement, April 14, 2003 (Country Report No. 03/167).

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

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

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, cost of structural reforms and HIPC expenditure.

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

7. The end-December 2003 performance criterion on the basic fiscal balance (program definition) was not observed (Table 1). The breach of this performance criterion was foreseen at the time of the first review (February 2004).3 It was attributed to a fiscal stimulus introduced in mid-2003—and supported by the Executive Board—involving additional drought-related expenditure and accelerated spending of resources accumulated in the government’s HIPC Initiative account. As foreseen at the time of the first review, the authorities have requested a waiver for the nonobservance of this criterion. The staff supports this request, given that the fiscal outcome involved a minor deviation from the original target and resulted from an appropriate fiscal stimulus.

Table 1.Senegal: Quantitative Performance Criteria and Indicative Targets for 2003 1/

(In billions of CFA francs, cumulative from the beginning of the year; unless otherwise specified)

March 31, 2003June 30, 2003September 30, 2003December 31, 2003
-Indicative TargetIndicative Target after adjustersActualStatusPerformance criteriacriteria after adjustersActualStatus-Indicative TargetIndicative Target after adjustersActualStatusPerformance criteriacriteria after adjustersActualStatus
Performance Criteria and Indicative Targets
Floor on the basic fiscal balance, excluding temporary costs of structural
reforms and spending financed with HIPC-related resources 2/12.240.9yes45.283.5yes61.868.3yes58.149.3no
Ceiling on the cumulative change in net bank credit to the government7.815.2−29.6yes−12.2−10.8−74.2yes−11.7−5.4−65.1yes3.5−17.1−42.3yes
Ceiling on government domestic payments arrears 3/0.00.0yes0.00.0yes0.00.0yes0.00.0yes
ceiling on government external payments arrears 3/0.00.0yes0.00.0yes0.00.0yes0.00.0yes
Ceiling on the contacting or guaranteeing of new nonconcessional
external debt by the government 3/ 4/0.00.0yes0.00.0yes0.09.0no0.09.0no
Ceiling on the stock of arrears of SENELEC0.03.8no0.00.0yes0.00.0yes0.00.0yes
Indicative Targets
Floor on tax revenue166.1156.3no353.2343.3no521.7498.6no698.5677.0no
Ceiling on the amount of current non-wage non-interest expenditures
and domestically financed capital expenditures executed through
exceptional procedures28.223.9yes28.226.6yes28.231.8no28.217.1yes
Ceiling on the wage bill51.850.2yes103.6100.8yes154.4151.7yes207.4203.7yes
Floor on the creditor flow in the treasury accounts of the postal service−2.0−0.9yes−2.00.6yes0.0−2.5no0.02.0yes
Ceiling on the stock of net deposits in the correspondent accounts of the
treasury, excluding the correspondent accounts of local authorities, public
agencies, SN La Poste, IPRES, and deposit and guarantee accounts20.022.2no20.028.8no20.033.8no20.014.8yes
Ceiling on guarantee deposits of the government2.54.5no2.54.5no0.04.5no0.03.0no
Ceiling on the stock of debt of SONACOS 5/22.316.1yes11.010.2yes0.00.0yes0.010.9yes
Floor on the basic balance of SENELEC7.04.0no14.15.8no22.517.9no30.131.6yes
Memorandum items:
External budgetary assistance, excluding IMF7.40.012.60.022.11.343.217.6
Grants7.40.012.60.022.11.329.417.6
Loans0.00.00.00.00.00.013.90.0
Programmed spending of HIPC debt relief1.51.43.11.412.32.432.428.3

Criteria, indicative targets and adjusters are defined in the Technical Memorandum of Understanding (TMU) (Country Report No. 03/167).

Overall fiscal balance, excluding foreign-financed investment expenditure and on-lending. Fiscal revenue excludes privatization receipts, which are treated as a financing item.

This criterion will be monitored on a continuous basis.

At end-July 2003, the electricity parastatal SENELEC contracted a CFAF 9 billion nonconcessional loan from the West African Development Bank (BOAD). On the occasion of the first review in February 2004, the Executive Board granted a waiver for this breach of the zero ceiling on the contacting or guaranteeing of new nonconcessional external debt by the government

The ceiling relates to the financing of the 2002/03 crops, which had been fully repaid by end-September 2003. The CFAF 10.9 billion at end-December 2003 are financing for the 2003/04 crop season.

Criteria, indicative targets and adjusters are defined in the Technical Memorandum of Understanding (TMU) (Country Report No. 03/167).

Overall fiscal balance, excluding foreign-financed investment expenditure and on-lending. Fiscal revenue excludes privatization receipts, which are treated as a financing item.

This criterion will be monitored on a continuous basis.

At end-July 2003, the electricity parastatal SENELEC contracted a CFAF 9 billion nonconcessional loan from the West African Development Bank (BOAD). On the occasion of the first review in February 2004, the Executive Board granted a waiver for this breach of the zero ceiling on the contacting or guaranteeing of new nonconcessional external debt by the government

The ceiling relates to the financing of the 2002/03 crops, which had been fully repaid by end-September 2003. The CFAF 10.9 billion at end-December 2003 are financing for the 2003/04 crop season.

8. On the monetary front, banks’ excess reserves increased during the first three quarters of 20044and net domestic credit contracted slightly, owing to a reduction in government net indebtedness to the banking sector (Table 9). In an effort to stimulate credit growth, the BCEAO lowered its key lending rates by two percentage points during July 2003-March 2004. Banks’ interest rates remained practically unaffected, however, because banks’ large excess reserves obviated their need for central bank credit.

9. The staff estimates the NPV of debt-to-export ratio at about 114 percent, following the attainment of the completion point and after enhanced HIPC Initiative relief. The ratio is well below the HIPC Initiative threshold of 150 percent and the ratio projected at the decision point.5 In its meeting of June 2004, the Paris Club revised downward the NPV of Senegal’s debt to the Paris Club as of end-1998, and agreed to grant Senegal debt relief of US$ 94 million in NPV terms, compared to US$ 126 million committed to at the Decision Point. However, the Paris Club creditors also agreed to provide additional debt relief of US$ 336 million in NPV terms. The authorities have initiated contacts with all creditors with a view to increasing the rate of participation in the Initiative and securing greater debt relief (Table 14).

Table 14.Senegal: Follow-up on HIPC Assistance

(As of November 15, 2004)

Assistance agreed at the decision point (June, 2000)Interim Assistance granted after the decision pointAssistance granted after the completion point (April, 2004)Comments
Multilateral creditors
IMFyesyesyes
IDAyesyesyes
BAD/FADyesyesno
EUyesyesyes
BIDlimitednono
FIDAyesnoyes
BOADyesyesno
BADEAlimitednoyes
BCEAOyesnono
ECOWASlimitednono
OPEC FundyesyesyesRefinancing assistance
Nordic Fundyesnoyes
Paris Club Creditors
FranceyesyesyesFinalized agreement awaiting signature
Germanyyesyesno
ItalyyesyesyesFinalized agreement awaiting signature
JapanyesnoyesFinalized agreement awaiting signature
Spainyesyesno
United StatesyesyesyesFinalized agreement awaiting signature
NorwayyesyesyesFinalized agreement awaiting signature
Denmarkyesnono
The NetherlandsyesyesyesCorrespondence received for debt cancellation
Belgiumyesyesno
CanadayesyesyesAgreement signed
United Kingdomyesyesno
Swedenyesnono
Bilateral creditors—Non Paris Club members
KuwaitnonoyesFinalized agreement awaiting signature
Saudi Arabianonono
Chinanonono
Taiwan, Prov.n/an/ano
Emiratesnonono
Algerianonono
Omannonono
Iraqnonono
Source: Senegalese authorities.
Source: Senegalese authorities.
Senegal: Key Debt Indicators after HIPC Assistance (end-2004) 1/
HIPC CompletionUpdated DSA
Point document
Est.Est.
NPV of external debt
In percent of GDP29.031.4
In percent of exports114.8113.6
In percent of government revenue150.7141.9
Debt service ratio
In percent of exports13.16.9
In percent of government revenue18.519.5
Sources: HIPC Completion Point Document (IMF Country Report No. 04/130) and staff estimates.

The difference between the two data sets mainly reflects updated national accounts, differences in export projections, and revised exchange rates.

Sources: HIPC Completion Point Document (IMF Country Report No. 04/130) and staff estimates.

The difference between the two data sets mainly reflects updated national accounts, differences in export projections, and revised exchange rates.

10. The implementation of structural reforms in 2004 was uneven. A new investment code was introduced, the real estate registry was digitized, and the audited accounts of the state-owned electricity company were published (Table 3). However, the submission of budgets to the Audit Court for verification was delayed and monthly reports on taxes due and collected were not issued. Most other reforms in the area of public expenditure management were implemented on time, but the spending irregularities in Thiès (para. 1) constituted a setback in fiscal governance.

Table 3.Senegal: Proposed Structural Conditionality for the Program Under the PRGF Arrangement in 2004 1/
MeasuresTimetableStatus
Prior actions for the second review
  • Issue the decree and circular for the implementation of the investment code that are compatible with the principles of rationalization, nondiscrimination and public finance sustainability.
Implemented
  • Link the Treasury to the data-sharing system used in the Budget Directorate and the Debt and Investment Directorate, and produce a report on commitments, payment orders and payment reports by major spending lines for the month of March 2004, with a maximum lag of 45 days.
Implemented
Benchmarks
  • Submit the end-year budget and treasury accounts of fiscal years 1999–2002 to the Audit Court by end-July 2004.
July 31, 2004Not implemented
  • Publish audited financial accounts of SENELEC as of June 30, 2004 with a maximum lag of three months.
September 30, 2004Implemented
  • Activate the network connection between the Tax and Customs Directorates and the Treasury and produce a report on taxes due and collected, for the month of September 2004, with a maximum lag of 30 days.
October 31, 2004Not implemented
  • Install the software "Système Intégré de Gestion des Finances Publiques" (SIGFIP), and produce a report on commitments and payment orders by major spending lines for the month of July 2004, with a maximum lag of 30 days.
August 31, 2004Implemented
  • Produce a report on the execution of capital expenditures at end-June 2004, with a maximum lag of 60 days. This report will include the total of credits from the capital expenditure budget for which payments are authorized by the Debt and Investment Directorate and made to the investment projects accounts opened in the banking system; the external funding allocated to these projects (grants, loans); and the amounts of money deposited in these accounts.
August 31, 2004Not implemented
  • Complete the digitization of the real estate registry for the largest 40 urban zones before end-December 2004.
December 31, 2004Implemented

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

11. Some progress has been made on the implementation of the poverty reduction strategy since early 2003. The business environment has been improved through regulatory reform (para. 41), the administrative capacity has been strengthened, project implementation accelerated, and structural reforms in the water, telecommunication, and electricity sectors implemented, albeit with delays. However, few policy initiatives targeting vulnerable groups have been introduced and the establishment of committees monitoring PRSP implementation has been delayed. Although spending for social sectors increased in 2003, health expenditure declined, owing to low implementation capacity. While recent poverty data are not available, the latest household survey (2001-02) suggests that poverty decreased from 68 percent in 1994 to 57 percent in 2001. The decrease was larger in urban centers than in rural areas.6

III. Policy Discussions

12. The discussions focused on the implementation of the program in 2004,7the annual program for 2005, and the medium-term objectives, policies, outlook, and risks.

A. Macroeconomic Outcome and Program Implementation in 2004

13. The macroeconomic outcome for 2004 is expected to have been favorable. Real GDP growth is estimated to have reached about 6 percent, despite a locust invasion, with an average annual CPI inflation rate below ½ percent. Despite oil price increases, the external current account deficit (including official transfers) is estimated to have declined slightly owing to a pick-up in exports, while capital inflows are estimated to have declined. The resulting overall balance of payments deficit is estimated to have been more than financed by exceptional financing, including debt relief under the HIPC Initiative, allowing an increase in net international reserves (Table 10 and Figure 4).

Figure 4.Senegal: External Balance, 1994–2005

(In percent of GDP)

Source: Senegalese authorities; and staff estimates and projections.

14. The overall fiscal deficit (including grants) is likely to have almost doubled to about 2.7 percent of GDP in 2004 (Tables 6 and 7). The deterioration is explained by the postponement to 2004 of costs associated with structural reforms that had been initially programmed for 2003, lower grants, and higher HIPC-related expenditures on rural development and locust eradication. Moreover, the supplementary budget enacted in September 2004 allocated additional resources to fund fully the irregular expenditure in Thiès. With external financing exceeding the deficit, net government position with the banking sector is estimated to have improved (Table 9).

15. The basic fiscal balance—the fiscal objective subject to program conditionality—is estimated to have remained at the 2003 level. The authorities committed to ensuring that the additional financing of Thiès-related expenditures included in the 2004 supplementary budget (CFAF 9 billion) would have no effect on the basic fiscal balance.8 To this end, they took a number of compensatory measures, including cutbacks in non-priority expenditure and reduction of domestically-financed capital expenditures.

16. The revenue target for 2004 is estimated to have been attained. The authorities expected the tax policy measures implemented in 2004 to be revenue-neutral9 but direct tax collections for the year as a whole are estimated to have been higher than expected because of the ongoing improvements in administration of the large tax payer unit.

17. The ceiling on non-concessional borrowing (continuous performance criterion) was not observed. In October 2004, the Port of Dakar (a public enterprise) contracted a nonconcessional loan from the regional development bank (BOAD). The authorities have requested a waiver for the breach of this performance criterion. The staff supports the request on the grounds that: (a) urgent repairs were needed as the dilapidated state of the port had become a major bottleneck for export and import activities, and (b) the authorities’ request is consistent with the staff’s proposal to exclude CFAF loans from the institutions within the WAEMU region from the ceiling on nonconcessional borrowing under the program.

B. The Macroeconomic Framework for 2005

18. The macroeconomic objectives for 2005 include real GDP growth of about 6.5 percent and CPI inflation of about 1.5 percent on average, barring any major supply shocks. The external current account (including official transfers) deficit is projected to narrow to about 5.5 percent of GDP, partly reflecting favorable terms of trade developments. The projected primary deficit of about 1.9 percent of GDP and a relatively low level of domestic and external debt (6 percent and 41 percent of GDP, respectively, at end 2004), indicate that fiscal sustainability will not be an issue in 2005. Senegal will also comfortably meet all but one of the WAEMU fiscal convergence criteria.10 The main risks to the short-term economic outlook include the continuing and sustained rise in oil prices, lower recovery of the agricultural sector from the locust invasion, and the slackening of political resolve to follow through with the reform agenda and implement appropriate macroeconomic policies.

C. Fiscal Policy and Reform

19. The overall fiscal deficit (including grants) is expected to increase slightly to about 3 percent of GDP in 2005, almost entirely financed by external resources (Figures 5 and 6). Given the favorable macroeconomic conditions, low debt levels, absence of central bank financing, and little risk of crowding out the private sector from the credit market,11 the projected larger fiscal deficit can be accommodated without undermining macroeconomic stability.

Figure 5.Senegal: Government Revenue and Expenditure 2000–05

(In percent of GDP)

Sources: Senegalese authorities; and staff estimates and projections.

Figure 6.Senegal: Budget Deficit and its Financing, 2000–05

(In percent of GDP)

Sources: Senegalese authorities; and staff estimates and projections.

20. The increase in the government’s net indebtedness to the banking system will be contained in 2005 as the government repays statutory advances from the central bank falling due in 2005 (Figure 6). The authorities intend to issue government securities on the WAEMU regional market to finance specific projects. The staff encouraged the authorities to issue government securities to repay the statutory advances ahead of schedule and provide liquidity to the government securities market. The authorities were not prepared to do so at this stage in view of the likely increase in the cost to the budget.

21. Capital outlays are projected to rise by 0.5 percent of GDP. The 2005 budget includes an ambitious list of projects to improve the country’s physical infrastructure,12 which, if implemented in their entirety, could pose a risk to the fiscal outlook. The authorities have agreed to scale back the 2005 capital expenditure in line with the country’s expected projects implementation capacity. Therefore, the 2005 fiscal program assumes that investment spending will not exceed 75 percent of the amounts budgeted. This rate is slightly higher than the historical implementation ratio and assumes an expansion of the capacity to implement projects.

22. Current expenditure is projected to decline by 0.1 percent of GDP. The new compensation policy for the civil service, announced recently, together with the expected increase in recruitment will raise the wage bill relative to GDP, but this increase will be compensated by a reduction in interest expenditure and transfers. The public sector wage bill would rise to 29 percent of fiscal revenue.13

23. The staff welcomed the authorities’ intention to link salary increases to performance, but expressed concern about the delays in the recruitment of new civil servants for priority sectors. As of end-October 2004, net recruitment reached no more than 70 percent of the target. The authorities indicated that they did not intend to use the margin provided by delayed recruitment to raise salaries.

Revenue reforms

24. The staff urged faster implementation of the long overdue improvements in tax administration. The authorities noted that the electronic data sharing between the customs administration, the tax administration, and the Treasury—which is essential for monitoring tax evasion and assessing the performance of each tax agency—is expected to become fully operational before end-June 2005. Implementation of a new software for management of the property tax base and the digitization of land and forest registry are proceeding (MEFP para. 33). These improvements would allow proper assessment of property tax and may facilitate mortgage lending.

25. The transfer of direct tax collection responsibilities from the Treasury to the Tax Administration Agency (recommended by FAD technical assistance missions) has not been achieved yet. The authorities expressed concern that combining the responsibilities for tax collection and tax assessment could provide opportunities for corruption. However, they agreed to revisit the issue once the computer link between the three tax agencies (including the Treasury) becomes effective.

26. No progress has been made on the harmonization and reduction of excises for oil products. The authorities argued, and the staff agreed, that reducing the excise tax would induce undesirable revenue losses in the short term. However, given the possible benefits of a lower excise tax for the economy, they agreed to consider the measure at a later stage.

Public expenditure management and fiscal transparency

27. The agenda of fiscal structural reforms focuses on improvements in public expenditure management, fiscal transparency and reporting, and public procurement.14 The specific reforms will be based on the recommendations of (i) the World Bank’s Country Financial Accountability Assessment (CFAA) and the review of Country Procurement Practices (CPAR), (ii) the Assessment and Action Plan (AAP) of April 2004, and (iii) the fiscal ROSC of January 2005.

28. The procurement laws, regulations, and procedures will be revamped with the assistance of the World Bank, to ensure transparency and good governance, and prevent budgetary irregularities (MEFP, para. 43-44). In the meantime, the following measures have been taken or planned: (a) the 2005 budget law—which was enacted in December 2004—includes a provision (drafted with IMF assistance) that permanently limits the scope of any provision in the State’s Obligations Code and other laws that allow firms to get compensation for work performed under invalid contracts; (b) the share of contracts signed under special provisions that bypass competitive tender procedures will be subject to a ceiling (proposed as a quantitative performance criterion—PC, MEFP, Table 1); and (c) no government contracts will be signed before the required budget allocations are approved by the parliament (proposed PC).

29. The government agreed with the staff’s recommendation that the use of any funds received for the preparation of the Islamic Conference in Dakar in 2006 or from the U.S.-funded Millennium Challenge Account (MCA) should be subject to the usual budgetary procedures. These resources are expected to be in the form of grants, but their amounts and specific nature (cash or non-cash) were not known at the time of the preparation of the 2005 Budget Law. Therefore, a supplementary budget will be prepared to reflect the projected use of any cash grants in a transparent manner.

30. Expenditure tracking and fiscal reporting are other areas of concern. The recent introduction of the SIGFIP software could ameliorate tracking of expenditure, but a number of technical problems remain.15 The delays in the preparation of the monthly Treasury balances exceed two months (one of the longest in the WAEMU zone). The Government Financial Operations Table (TOFE)—the main instrument of budgetary control—is not prepared on a monthly basis, and the quarterly table is frequently revised, sometimes after several months. These deficiencies make it difficult to verify fiscal data and monitor fiscal developments on a timely basis. The authorities attribute these delays to technical problems. However, they have now committed to the preparation of a monthly TOFE beginning with the January 2005 accounts (proposed PC).

31. There have been delays in the transmittal of Treasury accounts and budget execution laws to the Audit Court and the review of the documents by the Court prior to transmittal to the Parliament has been slow. Owing to these delays, the last budget execution law voted by the Parliament is that of 1996. The authorities have now committed to send the 2003 accounts to the Audit Court in early February 2005 (prior action). The ability of the Audit Court to properly exercise its ex-post review role and impose accountability on the Treasury is constrained by a lack of resources. The authorities noted that the Court’s resources will be augmented with the support of international partners.

32. Progress has been made with the preparation of a medium-term expenditure framework in four ministries. The framework will be gradually extended to all ministries, but it needs to be improved, particularly to permit reconciliation of PRSP priorities with the annual budget. The staff pointed out that the rising level of capital expenditure made it more urgent to put in place effective procedures for medium term investment planning and the assessment of recurrent costs associated with capital expenditure.

D. Monetary Policy and Financial Sector Issues

33. The authorities noted that the current monetary arrangement within the WAEMU has served Senegal well. The staff agreed that the elimination of central bank financing of the budget, the repayment of the BCEAO’s statutory advances over the next nine years, and adherence to WAEMU convergence criteria should contribute to monetary stability in the WAEMU region and help enhance the effectiveness of monetary policy. It pointed out, however, that the existence of substantial excess reserves in the banking system impedes the ability of the central bank to influence interest rates, and the differentiated reserve requirement system inhibits financial integration within the region. It encouraged the authorities to raise these issues at the WAEMU Council of Ministers’ meetings.

34. The recent FSAP mission found that the banking system is reasonably sound (Table 15), but vulnerable to excessive credit concentration and a large stock of nonperforming loans.16 At end-June 2004, gross non performing loans amounted to 14 percent of total loans. Some banks are also in noncompliance with the prudential norms. To address these weaknesses, the staff proposed raising the capital adequacy ratio above 8 percent to account for the specific risks inherent in the Senegalese economy. The staff stressed that the regulatory framework for loan recovery and collateral seizure should be simplified and the efficiency of the judicial system enhanced, along the lines recommended by the FSAP report, to facilitate the reduction of nonperforming loans. These measures, together with stringent enforcement of prudential norms, will enhance the soundness of the system and reduce banking risks, thereby improving credit availability.

Table 15.Financial Soundness Indicators for the Banking Sector, 2000–04
20002001200220032004
DecemberMarchJune
(In percent, unless otherwise indicated)
Capital Adequacy
Capital to risk weighted assets20.616.816.012.112.713.3
Regulatory capital to risk weighted assets20.616.815.511.712.113.0
Capital to total assets9.99.710.37.88.18.4
Asset composition and quality
Total loans to total assets62.859.458.359.657.657.0
Concentration: loans to 5 largest borrowers to capital177.3107.7104.9141.0150.7111.3
Sectoral distribution of loans
Industrial31.333.136.441.137.534.5
Retail and wholesale trade28.623.622.219.919.820.1
Services, transport and communications14.916.317.517.222.224.8
Gross NPLs to total loans18.117.818.513.314.714.2
Provisions to NPLs67.670.270.575.370.473.0
NPLs net of provisions to total loans6.75.65.53.64.44.3
NPLs net of provisions to capital51.334.330.727.834.429.0
Earnings and Profitability
Average cost of borrowed funds2.22.42.21.8
Average interest rate on loans10.110.19.78.7
Average interest margin 1/7.97.77.66.7
After-tax return on average assets1.71.61.81.8
After-tax return on average equity 2/20.318.621.122.1
Noninterest expenses/net banking income45.744.545.448.9
Salaries and wages/net banking income21.319.920.621.8
Liquidity
Liquid assets to total assets65.166.566.4
Liquid assets to total deposits82.981.082.0
Total deposits to total liabilities81.575.578.582.080.980.7
Source: Senegalese authorities.

Excluding the tax on banking operations.

Estimate for 2003.

Source: Senegalese authorities.

Excluding the tax on banking operations.

Estimate for 2003.

35. The authorities were not prepared to commit to the measures proposed by the staff and the recent FSAP report to enhance the soundness of banks and the development of the financial market. They argued that some of the measures had to be endorsed by the WAEMU regional authorities before they could commit to them. The staff urged the authorities to put forward these reforms at the WAEMU Council of Ministers’ meetings. To this end, the authorities will prepare an action plan for financial sector development to be agreed with the staff during the third review. Regarding measures to combat money laundering and the financing of terrorism (AML/CFT), the authorities explained that a draft law criminalizing the financing of terrorism is under preparation at the WAEMU level with a view to its adoption in 2005, and that a financial intelligence unit is being set up, in order to strengthen implementation of AML legislation.

36. The staff urged caution in the establishment of the postal savings bank. It argued that this new agency should be created only with majority private capital. The authorities explained that even if the postal bank is created, it will not extend credit until the majority of its capital is privately owned. In the meantime, they expect to recapitalize the Post Office and separate its financial operations (deposit collection) from postal services. The staff urged the authorities to complete the separation in 2005.

37. The authorities disagreed with the staff’s advice against the establishment of a subsidiary for the Regional Solidarity Bank (BRS).17 They argued that the BRS could play a useful role in making credit available to clients without access to bank credit. The staff pointed out, and the authorities agreed, however, that the main mechanism for channeling credit to these groups should be the microfinance institutions, which already exist and are expanding their operations.

E. Public Enterprise Reforms and Governance

38. After two failed privatization attempts in 1995 and 1999, and following several months of negotiation, the authorities have decided to sell the groundnut processing and vegetable oil refining company (SONACOS) to the only bidder that made an offer in June 2004. The transfer of ownership will be completed by end-June 2005. The staff will follow up on this commitment during the next review mission and, if needed, agree on steps to ensure the completion of privatization. The authorities agreed that, while it remains in public ownership, SONACOS will not have recourse to budgetary transfers, and its borrowing and arrears will be subject to ceilings.18 The preliminary results of an FAD study presented in the accompanying Selected Issues Paper indicate that privatization of SONACOS would have little adverse impact on the net income of groundnut farmers. The authorities also agreed to eliminate the tax on vegetable oil protecting SONACOS to provide a level playing field for the operators in this sector. The revenue impact of this measure is negligible.

39. Despite some improvements, the financial position of the electricity company (SENELEC) remains fragile, constituting a serious contingent liability for the government.19 Its profitability has been affected by the 5 percent cut in electricity prices announced in July 2004, in application of a rigid pricing formula (which is based on historical prices and weights, and is applied once a year), administered by the electricity sector regulatory commission. The authorities are committed to adopting a new market-oriented formula by October 2005 in consultation with the World Bank (structural benchmark). They also agreed that SENELEC will not receive any current budgetary transfers and both its arrears and indebtedness to the banking system will be subject to ceilings. The company’s financial position and prospects will be monitored by the World Bank. The authorities indicated that their medium-term strategy for SENELEC, agreed with the World Bank, consisted in attracting a partner to take over its management.

40. The government intends to tighten surveillance of the companies in which the state holds substantial equity, to better monitor and control contingent liabilities.20 The 28 public enterprises, in which the government is the majority owner, have a combined outstanding debt of about 3 percent of GDP (Table 16). In 2005, the authorities will launch a tender to privatize the state lottery company, LONASE, which had accumulated losses amounting to 0.6 percent of GDP by end December 2003. The Industries Chimiques du Sénégal (ICS), the largest company in which the state owns a substantial minority stake, made losses amounting to about 1 percent of GDP in 2003 and has accumulated debt equivalent to 3 percent of GDP. The government has agreed not to make any budgetary transfer to the company in 2005 and to press for cost cutting, management improvement, and other remedial measures that would entail little impact on public finances in later years.

Table 16.Senegal: Public Enterprises, 2003

(In millions of CFAF, unless otherwise indicated)

CompanyCapitalGovt’s share in capital 1/TurnoverValue addedDebtEmployees
Electricity (SENELEC)119,433100119,13436,086103,5371,723
Groundnuts (SONACOS)22,6278785,73310,42317,169922
Radio and television (RTS)7,000100n.an.an.a
Social housing (HLM)6,0001001,678881n.a
Port authority (SN PAD)5,00010018,1699,4943416
Water (SONES)3,927100n.an.an.a
Postal services (La Poste)2,900100n.an.an.a
Housing (SICAP)2,743903,9943,78472030
Agricultural services (SAED)2,50010058n.a300
Ship repair (SIRN)1,92899102n.a40
Urban transport (DAKAR DEM DIK)1,500772,576673135n.a
Engineering (CEREEQ)1,23910039827956
Sanitation (ONA)1,2001003,0132,676222119
Tourism (SAPCO)1,2009993353760
Petroleum holding (PETROSEN)1,200995672846,93840
Agricultural services (ISRA)411100n.an.an.a
Vocational training (CNQP)39310048n.an.a
Vocational training (ONFP)228100389n.a22
Car insurance trust fund (FGA)20050n.an.an.a
Trade promotion (CICES)14059n.an.an.a
Agricultural services (SODAGRI)120541590773
Lottery (LONASE)110100n.an.an.a
Rural training (ANCAR)9151n.an.an.a
Press (SSPP Soleil)27551,689942165
Credit collection (SNR)25100n.an.a62
Press agency (APS)23100n.an.an.a
Craft manufacturing (MSAD)1710025n.a62
Food technology (ITA)5100n.an.an.a
Total182,188238,52066,966128,7234,090
Source: Senegalese authorities.

In percent.

Source: Senegalese authorities.

In percent.

41. The staff welcomed the steps taken to improve the business environment and urged further simplification of regulations affecting private sector activities. On the recommendation of the Presidential Investors’ Council (PIC), a new corporate income tax code and a streamlined investment code became effective in 2004. A law on build-operate-transfer (BOT) procedures for large projects was adopted in February 2004. Steps are also being taken to accelerate the administrative process for registration under the investment code and, more generally, for business authorization and licenses, with the Investment Promotion Agency (APIX) serving as a facilitator for investors. The authorities noted that the recent creation of the National Council Against Corruption and Extortion should also alleviate investors’ concerns. The staff pointed out that the Council should propose credible reforms soon to correct the persistent perception of a high level of corruption in Senegal.21

F. External Competitiveness, Trade, and Payments

42. The authorities agreed with the staff on the need for reinforcing Senegal’s external competitiveness. Senegal’s export performance has not been a major impetus to economic growth, even since the devaluation of 1994, mainly because of structural weaknesses that have raised export production costs and the absence of export diversification (Box 1). Going forward, the authorities consider the agriculture and agro-food industry, fishing, tourism, telecommunications, and textile as promising export sectors. However, the development of these sectors is impeded by the problems of soil erosion, depletion of fish stocks, and inefficiencies in the groundnut, and electricity sectors. The staff emphasized and the authorities agreed that, apart from addressing these impediments, the key element of the government strategy should be creating an environment that would promote private sector activities in these sectors.

43. Senegal continues to maintain an exchange system free of restrictions on making payments and transfers for current international transactions, and its trade regime broadly conforms to the provisions of the WAEMU common regional trade policy. Intraregional trade is essentially free, whereas imports from third countries are subject to the common external tariff (CET). The authorities reiterated their strong commitment to the process of WAEMU economic convergence and their support of the regional integration efforts, in particular in the areas of tax harmonization and the implementation of the customs union.

44. The staff stressed the need for further trade liberalization. It noted that Senegal should take a leading role in trade liberalization efforts, rather than await other WAEMU countries to join the effort. The authorities expressed concern that the subsidies in the industrial countries dampened the political will for liberalization. The staff agreed that the subsidies were not helpful, but noted that they did not eliminate the benefits of further trade liberalization. It encouraged adherence to the revised timetable for the phase-out of the temporary taxe dégressive de protection (TDP), and urged that the number of imported commodities for which the import duty is calculated on the basis of administrative prices be brought in line with WAEMU rules. The authorities noted their intention to apply the procedure to fewer products from July 2005, when the WTO’s temporary approval of the number of administrative prices expires.

Box 1.Senegal’s Export Performance and External Competitiveness

Senegal’s export performance has been relatively weak over the past ten years, with the share of exports in GDP remaining relatively constant (Figure 7). Exports grew by about 3 percent in volume terms, on an average annual basis during 1995-2003. Furthermore, the concentration of exports—as measured by Gini coefficient—has remained broadly stable over the period, indicating that export diversification has been minimal.

Figure 7.Senegal: Exports of Goods, 1994–2003

Sources: Senegalese authorities; and IMF, Direction of Trade Statistics (DTTS).

Senegal’s export performance has been weaker than most other WAEMU countries (Figure 8), although it is the only country in WAEMU where the REER has persistently depreciated relative to its post 1994 devaluation level (Figures 3 and 9). This development would imply that structural weaknesses, common to all WAEMU countries, may have affected Senegal’s export performance more than the other WAEMU members These weaknesses—highlighted by the authorities and the private sector—include erratic electricity supply, large production costs arising from high electricity, water, telecommunication, labor, and real estate costs, Dakar’s saturation as an industrial production site, burdensome administrative procedures, and the inefficient judicial system.

Figure 8.Senegal’s and WAEMU Countries’ Export Volume Growth

(1994 = 100)

Source: WAEMU authorities; and staff estimates.

Figure 9.Senegal: Terms of Trade, Export Prices and Effective Exchange Rates, 1994–2003

(Index 1994=100)

Sources: Senegalese authorities; and staff estimates.

The declining trend in the terms of trade and export prices indicates that the profitability of the sector may have also been a factor constraining export growth during 1998–2003 (Figure 9).

Export market share developments (Figure 7) suggest that during 2000–03, competitiveness may not have been affected by the appreciation of the REER resulting from the depreciation of the U.S. dollar against the euro. Nevertheless, the continuation of the euro appreciation is likely to be detrimental to competitiveness. In this light, ameliorating the structural weaknesses noted above has taken on more urgency as a means to prevent the erosion of competitiveness.

G. Medium-Term Outlook and Policies

45. With monetary and exchange rate policies determined at the regional level, fiscal policy will remain the main instrument of macroeconomic policy in Senegal, supported by structural reforms. Over the recent years, fiscal policy has been conducted in a prudent manner, leading to low primary deficits. This fiscal stance has been buttressed by the cautious monetary policy of the BCEAO, which is aimed at underpinning the exchange rate anchor, and delivering low inflation. On the structural front, reforms have been implemented with delays and occasional backtracking on initial plans, hindering the realization of the country’s growth potential and its poverty reduction goals. Nevertheless, the government has privatized many public enterprises, enhanced the environment for private sector activities, and made some improvements in the country’s infrastructure. Looking forward, the authorities agreed with the staff that the prudent fiscal stance should continue, and priority should be given to addressing the structural bottlenecks in order to enhance the efficiency of the economy, particularly in the export sector.

46. The staff’s medium-term scenario is based on real GDP annual growth of about 5 percent and continued low inflation during 2006-2010 (Table 11).22 This growth rate is about one percentage point higher than the average growth rate since the devaluation of the CFAF in 1994 (Box 2).23 Its attainment would require implementation of sound macroeconomic policies, market-oriented structural reforms, and an efficient government investment program.

Table 11.Senegal: Selected Medium-Term Economic and Financial Indicators, 2003-10
20032004200520062007200820092010
Est.Proj.Prog.Prog.Proj.
(Annual percentage change, unless otherwise indicated)
National income and prices
GDP at constant prices6.56.06.45.25.04.95.04.9
Of which : nonagriculture GDP4.46.46.15.25.14.95.15.0
GDP deflator0.71.92.02.02.02.02.02.0
Consumer prices
Annual average0.00.41.61.91.91.91.91.9
End of period−1.40.61.61.91.91.91.91.9
External sector
Exports, f.o.b. (in CFA francs)−1.75.16.25.55.95.86.49.2
Imports, f.o.b. (in CFA francs)7.44.42.35.56.65.45.85.9
Export volume−1.94.44.34.34.14.54.74.6
Import volume4.12.05.44.65.14.24.44.1
Terms of trade (deterioration -)−2.9−1.84.10.70.60.30.32.5
Nominal effective exchange rate5.1
Real effective exchange rate2.8
(In percent of GDP)
Government financial operations
Revenue19.319.219.319.319.419.519.619.7
Grants2.11.71.92.22.22.22.32.3
Total expenditure and net lending22.823.624.122.923.323.724.123.9
Overall fiscal surplus or deficit (-)
Commitment basis, excluding grants−3.5−4.4−4.8−3.5−3.8−4.2−4.5−4.2
Commitment basis, including grants−1.4−2.7−2.9−1.4−1.6−1.9−2.3−1.9
Primary fiscal balance 1/−0.2−1.6−1.9−0.4−0.7−1.0−1.3−1.0
Basic fiscal balance, program definition 2/1.31.40.70.80.60.30.00.0
Gross domestic investment20.722.423.422.622.722.822.922.8
Gross domestic savings7.710.012.111.611.712.012.413.0
Gross national savings14.216.217.917.517.317.517.718.1
External current account deficit (-)
Excluding current official transfers−8.6−8.2−7.1−6.9−7.0−6.8−6.7−6.1
Including current official transfers−6.5−6.2−5.4−5.1−5.4−5.3−5.2−4.6
External public debt (nominal) 3/54.541.438.335.433.031.129.628.6
(In percent of exports of goods and nonfactor services, unless otherwise indicated)
External public debt service 3/8.35.16.47.17.77.06.65.8
In percent of government revenue12.37.49.09.69.89.28.57.4
GDP at current market prices (in billions of CFA francs)3,7254,0244,3644,6825,0135,3615,7416,144
Sources: Senegalese authorities; and staff estimates and projections.

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

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, temporary costs of structural reforms and expenditure financed with HIPC Initiative assistance.

After HIPC debt relief.

Sources: Senegalese authorities; and staff estimates and projections.

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

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, temporary costs of structural reforms and expenditure financed with HIPC Initiative assistance.

After HIPC debt relief.

47. The baseline scenario allows for a narrowing of the resource gap over the medium term. Private savings should strengthen moderately, facilitated by rising real per capita income and financial sector development. Reflecting these trends, the external current account deficit (including official transfers) would decline marginally from the projected 5 percent of GDP in 2005 to around 4.5 percent by 2010 (Table 12). The current account deficit is relatively large and has been on a rising trend in recent years, but it does not constitute a serious sustainability risk over the medium term, assuming the policies outlined in this report, including the stance of medium-term fiscal policy, and continued flow of development and budgetary aid. The pooling of reserves by WAEMU member countries and the convertibility guarantee by the French Treasury further diminish the risk of external current account sustainability.24

Table 12.Senegal: Medium-Term Balance of Payments, 2003-10
20032004200520062007200820092010
Est.Proj.Prog.Prog.Proj.
(In billions of CFA francs, unless otherwise indicated)
Current account−244−249−236−238−270−283−297−284
Balance on goods−470−486−466−492−530−555−582−583
Exports, f.o.b.73176881586091196310251119
Imports, f.o.b.−1,201−1,253−1,282−1,352−1,441−1,519−1,607−1,702
Services and incomes (net)−87−89−97−94−96−97−100−99
Credits400398414429445463482504
Debits−487−487−512−522−541−560−582−604
Unrequited current transfers (net)313325327348357370384398
Private (net)241251260270280291303314
Public (net)7275677876798184
Capital and financial account294208186176217258280312
Capital account675374808795104114
Private capital transfers77788999
Project grants60466772788695104
Financial account22715511296131163176199
Direct investment2949637074778083
Portfolio investment1363−202221
Other investment1851004646558494114
Public sector (net)20142417162646
Of which: disbursements91131151130137148160175
program loans00552725252527
project loans9112993101110121133146
other02222222
amortization−72−118−127−128−130−132−134−129
Private sector (net)13386224548686868
Errors and omissions320000000
Overall balance50−41−50−62−53−25−1828
Financing−504150624816−4−50
Net foreign assets (BCEAO)−50−56−46−16−26−57−76−120
Deposit money bank−40−15−10−11−12−12−13−14
Exceptional financing 1/401121068985858583
Residual financing gap0000592222
Memorandum items:
Current account balance
As percentage of GDP (incl. current official transfers)−6.5−6.2−5.4−5.1−5.4−5.3−5.2−4.6
As percentage of GDP (excl. current official transfers)−8.6−8.2−7.1−6.9−7.0−6.8−6.7−6.1
Gross official reserves413443473480507564640760
(in months of imports of GNFS)3.23.33.43.33.33.53.84.2
Nominal GDP (in billions of CFA francs)3,7254,0244,3644,6825,0135,3615,7416,144
Sources: Central Bank of West African States (BCEAO); and staff estimates and projections.

Interim HIPC Initiative debt relief is recorded as a grant for the IMF, and as exceptional financing for the World Bank, the African Development Bank, and Paris Club creditors. 2004 assumes debt relief on KWD 30 million (CFAF 52 billion) loan principal repayment falling due in late 2004. Negotiations are going on between the authorities of Kuwait and Senegal.

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

Interim HIPC Initiative debt relief is recorded as a grant for the IMF, and as exceptional financing for the World Bank, the African Development Bank, and Paris Club creditors. 2004 assumes debt relief on KWD 30 million (CFAF 52 billion) loan principal repayment falling due in late 2004. Negotiations are going on between the authorities of Kuwait and Senegal.

Box 2.Senegal : Contribution to Growth

1997-03 1/2004-10Difference
(In percent)
Real GDP growth4.25.31.1
Contribution to real GDP growth
Primary sector0.40.70.3
Secondary sector1.01.20.1
Tertiary sector2.73.40.7
Consumption4.44.3−0.1
Private4.23.6−0.6
Public0.20.60.5
Gross fixed investment1.11.30.1
Private 2/0.70.80.1
Public0.40.40.0
Net exports−1.3−0.31.0
Exports of goods and non-factor services1.21.1−0.1
Imports of goods and non-factor services−2.6−1.51.2
Labor force 3/1.51.50.0
Physical capital 3/1.82.40.6
Total factor productivity 3/0.81.30.5
Source: Senegales authorities, Staff estimates and projections.

Reference period choosen as the new SNA National Accounts are only available from 1996.

Including change in inventories.

Growth accounting assuming a standard Cobb-Douglas production function with the elasticity of output with respect to the capital input equal to 40 percent.

Source: Senegales authorities, Staff estimates and projections.

Reference period choosen as the new SNA National Accounts are only available from 1996.

Including change in inventories.

Growth accounting assuming a standard Cobb-Douglas production function with the elasticity of output with respect to the capital input equal to 40 percent.

48. Senegal exits from the enhanced HIPC Initiative with a good basis for maintaining sustainable external debt levels over the medium term, especially if borrowing remains at concessional terms. This result, which is consistent with the analysis underlying the HIPC completion point document, is confirmed by the preliminary conclusions of the authorities’ first post completion point debt sustainability analysis (DSA) (Box 3) and the staff’s updated assessment of external debt sustainability (Appendix I).

49. The authorities are committed to maintaining a prudent borrowing policy in the post-HIPC Initiative period, and to strengthening their debt management capacity. The need for efficient domestic debt management procedures has heightened, given growing reliance on issuance of government securities for budgetary financing and increasing borrowing by public enterprises on the regional market. The staff emphasized that the capacity to identify, measure, and monitor existing and future contingent liabilities—including those arising from public enterprise borrowing—should be strengthened. The staff noted, and the authorities agreed, that the proposed Public-Private Partnerships (PPP) for the implementation of large projects could also entail contingent liabilities for the government and need to be carefully assessed.

50. In support of the medium-term objectives, the staff suggested that the basic fiscal balance (excluding HIPC expenditure) should be kept positive in the medium term and the overall fiscal deficit contained to 2–2.5 percent of GDP (Table 11). While a larger fiscal deficit could still be consistent with fiscal sustainability, a more prudent fiscal stance is warranted in light of the country’s limited absorptive capacity and the government’s growing contingent liabilities. To this end, the strong tax performance should be sustained through improvements in tax administration and continued fight against tax evasion and fraud. The baseline scenario assumes that capital expenditure will return to the trend in 2006, increasing gradually in later years to accommodate higher spending in the infrastructure, health and education sectors. The wage bill is assumed to stabilize at 5.6 percent of GDP, taking into account the compensation policy recently announced, while other current expenditure would rise to accommodate higher recurrent costs of investment projects.

51. The medium-term outlook is subject to a number of downside risks. Senegal’s economy remains vulnerable to exogenous shocks, including higher oil prices, severe droughts, and locust invasion, and severe political strife in the WAEMU region.25 There is also a risk that the political resolve to continue with key structural reforms would slacken. Moreover, the steady flow of external financing—on which the robust growth of the economy depends26—will largely hinge on the authorities’ ability to maintain a high level of credibility in formulating their fiscal policy and implementing structural reforms. The authorities saw little risk in this regard. They pointed to the increase in private sector investment projects approved by the investment promotion agency since 2001, the rising level of remittances (about 6.5 percent of GDP in 2003), and their recent qualification for the U. S. MCA as indications of confidence in the Senegalese economy and government policies.

Box 3.First Post HIPC Completion Point Debt Sustainability Analysis

The authorities’ first post HIPC completion point debt sustainability analysis (DSA) concludes that Senegal’s external public debt remains sustainable over the medium to long term. The DSA was carried out by the National Committee on Economic Policy with the support of Debt Relief International. It is based on a loan-by-loan exercise for the end-2003 debt stock. The report presents three different scenarios. The key debt indicators (after debt relief) are reported in the table below.

The baseline scenario assumes unchanged debt relief compared with the HIPC completion point and an average annual real GDP growth rate of 6 percent.

The optimistic scenario envisages debt relief beyond HIPC completion point terms (including bilateral debt cancellations), real GDP growth rate of 7 percent, and larger borrowing over the medium term.

The pessimistic scenario, which serves as a stress test, rests on more unfavorable assumptions regarding debt relief received and real economic growth (averaging 3 percent per year), and allows for terms of trade shocks.

Senegal: Authorities’ Debt Sustainability Analysis

(In percent)

20042005200620072008200920102020
Baseline
NPV of debt-to-exports131.7117.8115.3112.2109.3106.3103.384.6
NPV of debt-to-revenue171.7160.0154.6148.8143.3137.9133.0105.3
Debt service-to-exports5.96.15.86.35.65.15.24.0
Pessimistic
NPV of debt-to-exports140.0128.5127.7127.8129.3131.5132.3146.8
NPV of debt-to-revenue182.5178.1176.7180.0179.1179.2179.0188.3
Debt service-to-exports5.86.06.17.06.56.47.18.7
Optimistic
NPV of debt-to-exports110.2100.499.497.897.096.294.794.5
NPV of debt-to-revenue143.7136.4133.4130.4127.5124.3120.8111.4
Debt service-to-exports4.94.74.55.14.64.24.63.7
Source: Senegalese authorities.
Source: Senegalese authorities.

H. Relations with the Fund, Capacity to Repay, and Program Monitoring

52. The authorities indicated that they would not request an extension of the current PRGF arrangement (beyond its current expiration date of April 2006) to compensate for the delays in the completion of the first and second reviews. They expressed preference for exiting from the PRGF in favor of an arrangement without access to Fund resources for signaling purposes. The staff explained that the Fund’s current procedures preclude a no-access arrangement. However, alternative options could be discussed during future review missions based on the outcome of the Board discussions on the financial instruments for Fund support to low-income countries. The authorities further requested that the remaining resources committed under the current PRGF arrangement be rephased to allow drawing of the full amount on the completion of the remaining three reviews. The staff supports the request as the program is now broadly on track to achieve the original macroeconomic and structural reform objectives, including the privatization of SONACOS, rehabilitation of SENELEC, and strengthening of public expenditure management.

53. The program will be monitored by quantitative and structural performance criteria, structural benchmarks, and indicative targets as indicated in the MEFP, Tables 1 and 3 (see also Box 4 below). Progress under the program will be further assessed in the context of the third and fourth reviews (Table 17), which will include the examination of an action plan to strengthen the financial sector.

Table 17.Senegal: Schedule of Projected Reviews and Disbursements Under the PRGF Arrangement, 2003–06 1/
DateActionDisbursement
April 2003Executive Board consideration of request for a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) and conclusion of the 2002 Article IV consultation.SDR 3.47 million
End-June 2003Quantitative performance criteria. Test date for the first review.
End-December 2003Quantitative performance criteria. Test date for the second review.
February 2004Executive Board consideration of the first review under the PRGF arrangement.SDR 3.47 million
March 2005Executive Board consideration of the second review under the PRGF arrangement and conclusion of the 2004 Article IV consultation.SDR 3.47 million
End-March 2005Quantitative performance criteria. Test date for the third review.
August 2005Executive Board consideration of the third review under the PRGF arrangement.SDR 5.00 million
End-September 2005Quantitative performance criteria. Test date for the fourth review.
February 2006Executive Board consideration of the fourth review under the PRGF arrangement.SDR 8.86 million

As the authorities do not intend to request an extension of the current arrangement after the delay in completing the second review, the last review of the program will be the 4th review scheduled for the first quarter of 2006, and the remaining PRGF resources committed to Senegal have been rephased over the remaining period of the arrangement.

As the authorities do not intend to request an extension of the current arrangement after the delay in completing the second review, the last review of the program will be the 4th review scheduled for the first quarter of 2006, and the remaining PRGF resources committed to Senegal have been rephased over the remaining period of the arrangement.

54. Senegal has an excellent record in meeting its debt obligations to the Fund. Given the trajectory of its external and fiscal positions, Senegal should not have any difficulty discharging its future obligations to the Fund (Table 13) in a timely manner.

Table 13.Senegal: Fund Position During the Period of the PRGF Arrangement, 2003-06 1/
2003200420052006
Jan.-Mar.Apr.-JuneJul.-Sep.Oct.-Dec.TOTALJan.-Mar.Apr.-JuneJul.-Sep.Oct.-Dec.TOTALJan.-Mar.Apr.-JuneJul.-Sep.Oct.-Dec.TOTALJan.-Mar.Apr.-JuneJul.-Sep.Oct.-Dec.TOTAL
(In millions of SDRs)
Disbursements under PRGF0.03.50.00.03.53.50.00.00.03.53.50.05.00.08.58.90.00.00.08.9
IMF HIIPC assistance0.01.41.91.85.10.52.83.53.210.03.62.62.11.710.02.80.61.20.65.2
Repurchases/repayments7.65.57.67.327.97.69.07.69.033.37.49.07.47.431.27.45.08.85.026.2
Ordinary resources0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.0
SAF / PRGF and SBA7.65.57.67.327.97.69.07.69.033.37.49.07.47.431.27.45.08.85.026.2
Charges and interests0.10.50.10.51.20.10.50.10.41.10.10.40.10.41.00.10.30.10.30.8
Ordinary resources0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.0
SAF / PRGF and SBA0.00.40.00.40.90.00.40.00.30.70.00.30.00.30.60.00.20.00.20.4
SDR charges0.10.10.10.10.40.10.10.10.10.40.10.10.10.10.40.10.10.10.10.4
Total Fund credit outstanding
(end of period)178.2176.2168.5161.3161.3157.1148.1140.5131.5131.5127.6118.5116.2108.8108.8110.3105.396.591.591.5
Ordinary resources0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.0
SAF / PRGF and SBA178.2176.2168.5161.3161.3157.1148.1140.5131.5131.5127.6118.5116.2108.8108.8110.3105.396.591.591.5
Quota161.8161.8161.8161.8161.8161.8161.8161.8161.8161.8161.8161.8161.8161.8161.8161.8161.8161.8161.8161.8
(In percent of quota)
Total Fund credit outstanding
(end of period)110.1108.9104.299.799.797.191.586.881.381.378.873.371.867.267.268.265.159.656.556.5
Ordinary resources0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.0
SAF / PRGF110.1108.9104.299.799.797.191.586.881.381.378.873.371.867.267.268.265.159.656.556.5
Sources: International Monetary Fund, Finance Department; and staff projections.

As the authorities do not intend to request an extension of the current arrangement after the delay in completing the second review, the last review of the program will be the 4th review scheduled for the first quarter of 2006, and the remaining PRGF resources committed to Senegal have been rephased over the remaining period of the arrangement.

Sources: International Monetary Fund, Finance Department; and staff projections.

As the authorities do not intend to request an extension of the current arrangement after the delay in completing the second review, the last review of the program will be the 4th review scheduled for the first quarter of 2006, and the remaining PRGF resources committed to Senegal have been rephased over the remaining period of the arrangement.

Box 4.Senegal: Structural Conditionality

Coverage. Structural conditionality proposed for the 2005 program (MEFP, Annex, Table 3) focuses on (i) tax administration, public expenditure management and control, and fiscal transparency and (ii) completion of reforms in the groundnut sector, which is critical for safeguarding public finances and enhancing conditions for economic growth and poverty reduction.

Prior actions not yet implemented comprise the submission of the end-year budget and treasury accounts of fiscal years 2002 and 2003 to the Audit Court.

Performance criteria comprise (i) the preparation of monthly tables of government’s financial operations (TOFE); and (ii) the elimination of the tax on vegetable oil.

The four structural benchmarks refer to tax administration, public expenditure management and fiscal transparency.

Structural areas covered by World Bank lending. The World Bank’s Country Assistance Strategy for the fiscal years 2003–05 envisages conditionality in infrastructure, electricity sector development, rural development, health, education, private sector development, and public financial management. The Bank has taken the lead role in supporting technical and policy work, including with technical assistance and investment lending, for envisaged reforms in the electricity and groundnut sectors, and for postal and pension systems; all these reforms have a systemic impact on the public finances and on macroeconomic stability and are also included in the PRGF-supported program. The Bank and Fund staffs also coordinate their approach in the area of public expenditure reform.

Structural areas for future conditionality. In the context of subsequent reviews of the program, conditionality will be also considered in the area of financial sector reform.

I. Statistical Issues and Disclosure

55. Overall, Senegal’s economic database is comprehensive and adequate for program monitoring, but there are weaknesses in the data on national accounts, production, international trade, and social indicators. The authorities are committed to improving the quality and availability of economic, financial, and social indicators, with technical assistance from the Fund and other international organizations. To strengthen the quality of Senegal’s statistical database, a National Statistical Institute is being set up, as recommended by a 2001 STA mission.

56. Senegal participates in the General Data Dissemination System (GDDS). Its metadata have been posted on the Fund’s Dissemination Standards Bulletin Board since September 2001, but should be updated for virtually all sectors.

IV. Staff Appraisal

57. Senegal has attained macroeconomic stability and debt sustainability, accompanied by robust economic growth, but the economy remains fragile and vulnerable to shocks. In the short term the staff does not foresee any substantial risk on the macroeconomic front—barring supply shocks, and assuming the policies outlined above. However, the financing need and rising recurrent costs of the large infrastructural projects, the limited scope for tax revenue growth (in light of the strong performance in recent years), and the growing contingent liabilities of the government could pose a problem in the medium term, especially if the flow of aid tapers off.

58. The fiscal stance for 2005 is in line with the macroeconomic objectives. The fiscal program allows for modest increases in current expenditure, keeps the investment outlays in line with the absorptive capacity of the economy and foreign financing, and aims at an ambitious, but feasible, revenue target. The staff welcomes the planned measured increase in the wage bill relative to GDP.

59. Over the medium term, fiscal policy should be focused on maintaining the trends in the past two years, with low budget deficits, a strong revenue effort, and tight control on current expenditure. This strategy would allow measured increases in capital and pro-poor spending. The authorities should ensure that capital spending remains consistent with the absorptive capacity and fiscal sustainability.

60. Improving public expenditure management and fiscal transparency remains a key program objective. There have been substantial delays in implementing reforms in these areas, and the Thiès-related budgetary irregularities amounted to a serious set back in fiscal transparency and governance. The staff urges the authorities to move forcefully to enhance transparency and good governance, particularly in procurement. It also stresses the need to ensure that the use of any funds received from the MCA or Islamic Conference Organization is subject to transparent budgetary procedures.

61. The privatization and rehabilitation of public enterprises are essential for improving the efficiency of the economy, enhancing export prospects, and reducing the contingent liabilities of the government. The staff welcomes the sale of the state-owned groundnut processing company, after many years of delay, and urges the completion of the transfer of ownership by end June 2005. The fragile financial position of other enterprises also needs urgent attention. The authorities should take steps to improve the efficiency of the electricity company, and modify the procedures for setting its electricity prices to take into account costs and market conditions in a timely fashion. The government’s capacity to identify, measure, and monitor existing and future contingent liabilities—including those arising from public enterprise borrowing—should be strengthened.

62. Preserving competitiveness will pose a challenge in the period ahead. So far, the appreciation of the euro against the U.S. dollar has not had a major impact on Senegal’s external competitiveness, but further appreciation could pose a problem. Structural reforms and infrastructural development are essential to lower the cost of production, raise the productivity of the export sector, and prevent the erosion of competitiveness.

63. The staff welcomes the plans for the issuance of additional government securities on the WAEMU regional market. This initiative could spearhead the development of the securities market. To further encourage financial market development (and improve the effectiveness of monetary policy) the excess liquidity in the banking system should be reduced and the country-specific reserve ratios unified.

64. The large nonperforming loans and credit concentration in the banking system are potential sources of vulnerability. The staff urges the authorities to simplify the loan recovery procedures to allow a reduction in bad loans. Consideration should also be given to raising the capital adequacy ratio above 8 percent to account for the specific risks inherent in the Senegalese economy. The authorities should remain vigilant in detecting fragility in the banking system and impose timely corrective action on banks facing difficulties or in noncompliance with prudential norms. These and other measures should be included in the government’s action plan for the financial sector, to be agreed with the staff during the next review.

65. The staff commends the authorities for the production of their first post HIPC completion point DSA. This analysis and that of the staff indicate that there is little risk to debt sustainability over the medium term, assuming the policies outlined in this report.

66. Policy credibility is critical for the continued support of the development partners on which the success of the growth and poverty reduction policies depend. Repeated slippages in the reform agenda and in fiscal governance, such as the fiscal irregularities in 2003, would erode policy credibility and serve as a disincentive to the flow of aid and investment.

67. The staff recommends the completion of the second review under the PRGF arrangement. It also recommends that waivers be granted for the non observance of the floor on the end-December 2003 basic fiscal surplus and the continuous ceiling on the contracting of non-concessional debt. The staff also supports the request for rephasing of the arrangement, as the program is now back on track to achieve the original macroeconomic and structural reform objectives. The main risk to the program stems from the possibility of policy reversals if the political will for reform slackens. However, against this risk should be set the strength of the authorities’ 2005 program—including the steps being taken to improve governance and ensure budgetary discipline—and their commitment to take additional measures as needed.

68. It is expected that the next Article IV consultation with Senegal will be held in 24 months subject to provisions applying to countries under Fund arrangements.

Table 2.Senegal: Proposed Quantitative Conditionality for 2004 1/

(In billions of CFA francs, cumulative from the beginning of the year; unless otherwise specified)

March 31June 30Sept 30Dec. 31
Targets 2/Targets after adjustersActualStatusTargets 2/Target after adjustersActual prov.StatusTargets 2/Target after adjustersActual prov.StatusTargets 2/
Targets 2/
Floor on the basic fiscal balance, excluding temporary costs of structural
reforms and spending financed with HIPC-related resources 3/19.320.8yes44.883.8yes39.857.8yes54.3
Ceiling on the cumulative change in net bank credit to the government2.50.23.3no−22.1−16.7−37.3yes−17.7−40.5−45.3yes−31.7
Ceiling on government domestic payments arrears 4/0.00.0yes0.00.0yes0.00.0yes0.0
Ceiling on government external payments arrears 4/0.00.0yes0.00.0yes0.00.0yes0.0
Ceiling on the contracting or guaranteeing of new nonconcessional
external debt by the government 4/5/0.00.0yes0.00.0yes0.06.0no0.0
Ceiling on the stock of arrears of SENELEC0.00.0yes0.00.0yes0.00.0yes0.0
Targets 2/
Floor on tax revenue170.0169.0no371.5377.0yes556.0549.3no737.2
Ceiling on the amount of current non-wage non-interest expenditures
and domestically financed capital expenditures executed through
exceptional procedures18.09.0yes18.015.8yes18.018.4no18.0
Ceiling on the wage bill53.152.4yes107.6105.6yes162.5158.7yes225.9
Floor on the creditor flow in the treasury accounts of the postal service0.0−2.3no0.0−4.8no0.0−3.0no0.0
Ceiling on the stock of net deposits in the correspondent accounts of the
treasury, excluding the correspondent accounts of local authorities, public
agencies, SN La Poste, IPRES, and deposit and guarantee accounts15.020.5no15.035.0no15.016.6no15.0
Ceiling on guarantee deposits of the government0.00.0yes0.00.0yes0.00.0yes0.0
Ceiling on the stock of debt of SONACOS15.815.2yes10.510.5yes5.36.9no0.0
Floor on the basic balance of SENELEC11.69.4no19.022.1yes31.8262no46.1
Memorandum items:
External budgetary assistance, excluding IMF0.00.010.90.010.922.154.7
Grants0.00.02.60.02.618.512.8
Loans0.00.08.30.08.33.641.9
Programmed spending of HIP debt relief2.00.05.00.016.10.035.6

Proposed by the authorities in their MEFP of May 18, 2004 but not considered by the Executive Board.

Targets and adjusters are defined in the Technical Memorandum of Understanding (TMU).

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

This criterion will be monitored on a continuous basis.

In October 2004, the Port of Dakar (a public enterprise) contracted a CFAF 6 billion non-concessional loan from the West African Development Bank (BOAD). The authorities are requesting a waiver for this breach of the continuous zero ceiling on the contacting or guaranteeing of new nonconcessional external debt by the government.

Proposed by the authorities in their MEFP of May 18, 2004 but not considered by the Executive Board.

Targets and adjusters are defined in the Technical Memorandum of Understanding (TMU).

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

This criterion will be monitored on a continuous basis.

In October 2004, the Port of Dakar (a public enterprise) contracted a CFAF 6 billion non-concessional loan from the West African Development Bank (BOAD). The authorities are requesting a waiver for this breach of the continuous zero ceiling on the contacting or guaranteeing of new nonconcessional external debt by the government.

Table 8.Senegal: Quarterly Government Financial Operations, 2004

(In billions of CFAF)

2004
MarchJuneSept.Dec.
Target 1/Est.Target 1/Est.Target 1/Est.Target 1/Proj.
(In billions of CFA francs, cumulative since the beginning of the year)
Total revenue and grants188.1191.1413.0422.0628.2642.7857.0839.7
Revenue173.6172.6377.7392.9574.8581.6771.6771.6
Tax revenue170.0169.0371.5377.0556.0549.3737.2736.2
Nontax revenue3.63.66.215.918.832.334.435.4
Grants14.518.535.329.153.461.185.468.1
Budgetary0.00.02.60.02.618.512.821.8
Budgeted development projects14.518.532.729.150.842.672.646.3
Total expenditure and net lending192.6200.7417.2403.8675.7676.4964.2948.7
Current expenditure124.9123.5275.3269.9425.1418.5556.5559.5
Wages and salaries53.152.4107.6105.6162.5158.7225.9223.9
Interest due9.38.825.724.133.235.045.844.6
Of which: external7.77.521.722.127.230.138.238.9
Other current expenditure62.562.3142.0140.2229.4224.8284.8291.0
Transfers and subsidies34.872.0115.2138.5138.5
Goods and services27.770.0114.2146.3146.3
HIPC current6.2
Capital expenditure68.876.9141.1148.4244.4253.5370.8370.8
Domestically financed33.033.368.065.4132.4120.6205.3211.6
Non HIPC financed31.033.363.065.4116.3120.6169.7172.9
HIPC financed2.00.05.00.016.10.035.638.7
Externally financed35.843.673.183.0112.0132.9165.5159.2
Treasury special accounts and correspondents (net)−1.1−2.6−2.2−21.0−0.8−7.70.80.8
Net lending0.02.90.06.54.012.16.36.3
Temporary costs of structural reforms0.00.03.00.03.00.029.811.3
Overall fiscal balance (including grants)−4.5−9.6−4.218.2−47.5−33.7−107.1−109.0
Overall fiscal balance (excluding grants)−19.0−28.1−39.5−10.9−100.9−94.8−192.5−177.1
Primary balance 2/4.8−0.821.542.3−14.31.3−61.3−64.4
Basic fiscal balance (program definition) 3/19.320.844.883.839.857.854.354.3
Financing4.59.64.2−18.247.533.7107.1109.0
External financing12.321.837.950.857.391.8147.1129.1
Drawings21.830.451.965.679.1113.6150.8128.9
Program loans0.00.08.30.08.33.641.90.0
Project loans21.830.443.665.670.8110.0108.9128.9
Amortization due−12.6−12.0−35.3−33.7−47.5−57.0−125.9−119.2
Debt relief and HIPC Initiative assistance 4/3.10.321.37.625.720.6103.0119.4
Domestic financing−3.8−15.2−29.7−73.8−29.0−56.0−40.0−20.1
Banking system2.53.3−22.1−37.3−17.7−45.3−31.7−31.5
Of which: issuance of new treasury bills−7.5−7.5−7.5−7.53.118.93.118.9
Nonbank financing−10.2−18.5−11.6−36.57.9−10.7−8.311.4
Of which: privatization receipts0.00.00.00.01.10.01.11.1
Of which: Treasury bills issued in WAEMU−4.0−4.0−4.0−4.019.23.419.23.4
Errors and omissions0.03.00.04.80.0−2.10.00.0
Financing gap0.00.00.00.00.00.00.00.0
Memorandum items:
Total HIPC spending 5/2.00.05.00.016.10.035.644.9
Basic fiscal balance (WAEMU definition) 6/17.320.836.883.820.757.8−11.0−1.9
Sources: Senegalese authorities; and staff estimates and projections.

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

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

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, cost of structural reforms and HIPC expenditure.

Assumes debt relief on KWD 30 million (CFAF 52 billion) loan principal repayment falling due in late 2004. Negotiations are going on between the authorities of Kuwait and Senegal.

Refers to HIPC-financed capital expenditures authorized in the supplement budgets of 2001 and 2003 and expenditures authorized in the supplement budget of 2004.

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

Sources: Senegalese authorities; and staff estimates and projections.

Proposed by the authorities in their MEFP of May 18, 2004, but not considered by the Executive Board.

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

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, cost of structural reforms and HIPC expenditure.

Assumes debt relief on KWD 30 million (CFAF 52 billion) loan principal repayment falling due in late 2004. Negotiations are going on between the authorities of Kuwait and Senegal.

Refers to HIPC-financed capital expenditures authorized in the supplement budgets of 2001 and 2003 and expenditures authorized in the supplement budget of 2004.

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

Table 18.Senegal: Millennium Development Goals
19901995200120022015
Goal 1. Eradicate extreme poverty and hunger
Target 1: Halve between 1990 and 2015, the proportion of people whose income is less than one dollar a day
1. Population below US$1 a day (percent..26.3....
2. Poverty gap at US$1 a day (percent)..7.0....
3. Share of income or consumption held by poorest 20 (percent..6.4....
Target 2: Halve between 1990 and 2015, the proportion of people suffering hunger
4. Prevalence of child malnutrition (% of children under 5)21.622.322...[10.8]
5. Population below minimum level of dietary energy consumption (percent)23.025.024.0..
Goal 2. Achieve universal primary education
Target 3: Ensure that, by 2015, children will be able to complete a full course of primary schooling
6. Net primary enrollment ratio (percent of relevant age group)48.153.957.9..
7. Percentage of cohort reaching grade 5 (percent)84.585.467.5..
8. Youth literacy rate (% ages 15-24)40.145.451.852.9
Goal 3. Promote gender equality and empower women
Target 4: Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education by 2015
9. Ratio of girls to boys in primary and secondary education (percent)68.875.385...[100.0]
10. Ratio of young literate females to males (percent ages 15-24)60.465.571.572.5
11. Share of women employed in the nonagricultural sector (percent)28.1......
12. Proportion of seats held by women in national parliament (percent..12.0....
Goal 4. Reduce child mortality
Target 5: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate
13. Under 5 mortality rate (per 1,000)148.0143.0139.0138.0[49.3]
14. Infant mortality rate (per 1,000 live births)90.084.080.079.0
15. Immunization, measles (percent of children under 12 months)51.080.048.054.0
Goal 5. Improve maternal health
Target 6: Reduce by three-quarters, between 1990 and 2015, the maternal mortality rate
16. Maternal mortality ratio (modeled estimate, per 100,000 live births....690...[300]
17. Births attended by skilled health staff..47.257.8..
Goal 6. Combat HIV/AIDS, malaria and other diseases
Target 7: Halt by 2015, and begin to reverse, the spread of HIV/AIDS
18. Prevalence of HIV, female (percent ages 15-24....0.5..
19. Contraceptive prevalence rate (percent of women ages 15-49)7.112.910.5..
20. Number of children orphaned by HIV/AID....15000.0..
Target 8: Halt by 2015, and begin to reverse, the incidence of malaria and other major diseases
21. Prevalence of death associated with malaria........
22. Share of population in malaria risk areas using effective prevention and treatment........
23. Incidence of tuberculosis (per 100,000 people)....167.0241.8
24. Tuberculosis cases detected under DOTS (percent)..67.085.054.3
Goal 7. Ensure environmental sustainability
Target 9: Integrate the principles of sustainable development into policies and programs. Reverse the loss of environmental resources
25. Forest area (% of total land area)34.6..32.2..
26. Nationally protected areas (% of total land area..11.311.311.6
27. GDP per unit of energy use (PPP $ per kg oil equivalent)3.74.04.8..
28. CO2 emissions (metric tons per capita)0.40.40.4..
29. Proportion of population using solid fuels
Target 10: Halve by 2015 proportion of people without access to safe drinking water
30. Access to an improved water source (percent of population)72.0..78.0..
Target 11: Halve by 2020 significant improvement for at least 100 million slum dwellers
31. Access to improved sanitation (percent of population)57.0..70.0..
32. Access to secure tenure (percent of population)
Goal 8. Develop a Global Partnership for Development
Target 12: Develop and implement strategies for productive work for youth
33. Youth unemployment rate (percent of total labor force ages 15-24)........
34. Fixed line and mobile telephones (per 1,000 people)6.09.855.077.2
35. Personal computers (per 1,000 people)2.57.218.419.8
Sources: World Bank; and Fund estimates.
Sources: World Bank; and Fund estimates.
APPENDIX I: Assessing Senegal’s External Debt Sustainability1

1. External debt sustainability is preserved under the baseline scenario, and is robust to a series of plausible shocks, including a worsening of borrowing terms. There are little risks of unfavorable debt dynamics, especially if the authorities remain committed to a prudent debt management strategy in the post-HIPC period. The updated DSA yields estimates for the key debt indicators that are broadly consistent with those calculated at the time of the HIPC Completion Point.

2. The long-term macroeconomic scenario underlying the DSA is more conservative than the baseline of the April 2004 HIPC Completion Point document. The key assumptions underlying the long-term macroeconomic framework are: (i) real GDP growth averaging 5.2 percent annually, or about ½ percentage point lower than in the HIPC baseline; (ii) export volume growth averaging 4.9 percent per year, compared to 5.6 percent in the HIPC document; (iii) a doubling of the fiscal deficit (averaging 2.8 percent of GDP) against 1.5 percent of GDP for the HIPC scenario; and (iv) larger new borrowing, reflecting the more expansionary fiscal stance.

3. Under this macroeconomic scenario, Senegal can maintain a sustainable external debt with ratios well below the reference thresholds. Senegal’s key debt ratios would continue to decline over the medium to long term (Table 1a and Figure 1).

Table 1a.Senegal: External Debt Sustainability Framework, Baseline Scenario, 2000-2024 1/

(In percent of GDP. unless otherwise indicated)

ActualHistorical Average 6/Standard Deviation 6/Est.Projections
2000200120022003200420052006200720082009201020242010-2024 Average
External debt (nominal) 1/69.567.366.154.541.438.335.433.031.129.628.622.926.1
o/w public and publicly guaranteed (PPG)69.567.366.154.541.438.335.433.031.129.628.622.926.1
Change in external debt−4.7−2.3−1.2−11.6−13.1−3.1−2.9−2.4−1.9−1.5−1.0−0.5−0.4
Identified net debt-creating flows10.12.7−0.8−8.92.21.71.72.32.32.31.91.11.5
Non-interest current account deficit3.53.34.95.43.61.75.44.94.64.94.94.84.22.93.5
Deficit in balance of goods and services8.49.711.213.012.411.211.011.110.810.59.75.87.8
Exports30.530.730.628.527.626.926.325.825.425.125.318.821.8
Imports38.840.441.741.540.138.137.236.936.235.535.024.629.5
Net current transfers (negative = inflow)−5.1−6.7−7.5−8.4−4.92.2−8.1−7.5−7.4−7.1−6.9−6.7−6.5−4.0−5.2
Other current account flows (negative = net inflow)0.30.31.30.81.11.21.11.01.01.00.91.10.9
Net FDI (negative - inflow)−1.4−0.9−0.9−0.8−0.91.4−1.2−1.4−1.5−1.5−1.4−1.4−1.4−0.8−1.1
Endogenous debt dynamics 2/7.90.3−4.8−13.5−2.0−1.8−1.4−1.2−1.1−1.0−0.9−1.0−0.9
Contribution from nominal interest rate1.61.41.01.20.80.50.40.40.40.40.40.203
Contribution from real GDP growth−2.4−3.2−0.7−3.4−2.8−2.3−1.8−1.7−1.5−1.4−1.4−1.2−1.3
Contribution from price and exchange rate changes8.82.2−5.1−11.
Residual (3-4) 3/−14.8−5.0−0.4−2.7−15.3−4.8−4.7−4.7−4.3−3.8−2.9−1.6−1.9
o/w exceptional financing−69.0−418.5−360.1−620.5−1467.6−1204.3−946.1−842.6−791.9−733.8−672.8−209.3−380.6
NPV of external debt 4/35.531.428.227.126.025.024.123.313.818.7
In percent of exports124.7113.6104.7103.1100.698.596.292.473.5853
NPV of PPG external debt35.531.428.227.126.025.024.123.313.818.7
In percent of exports124.7113.6104.7103.1100.698.596.292.473.5853
Debt service-to-exports ratio (in percent)12.711.511.210.26.95.66.06.25.95.85.23.44.5
PPG debt service-to-exports ratio (in percent)12.711.511.210.26.95.66.06.25.95.85.23.44.5
Total gross financing need (billions of U.S. dollars)0.30.30.40.50.50.40.40.50.50.60.50.90.7
Non-interest current account deficit that stabilizes debt ratio8.25.56.117.018.58.07.57.46.86.25.23.43.9
Key macroeconomic assumptions
Real GDP growth (in percent)3.04.71.16.54.13.36.06.45.25.04.95.04.95.35.1
GDP deflator in US dollar terms (change in percent)−10.5−3.08.320.72.415.811.98.32.02.02.02.02.12.32.1
Effective interest rate (percent) 5/2.02.01.62.32.50.71.71.41.21.31.31.41.50.813
Growth of exports of G&S (US dollar terms, in percent)−7.82.38.919.93.412.515.012.14.85.35.35.77.95.85.4
Growth of imports of G&S (US dollar terms, in percent)−3.35.613.127.84.564.814.59.64.86.14.95.35.55.04.8
Grant element of new public sector borrowing (in percent)44.351.449.649.949.449.249.149.849.5
Memorandym item:
Nominal GDP (billions of US dollars)4.54.65.06.47.68.89.410.110.811.612.433.7213
Source: Staff simulations.

Includes both public and private sector external debt

Derived as [r − g − ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and p = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that NPV of private sector debt is equivalent to its face value.

Current-year interest payments devided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability, except for the GDP deflator in dollar terms, for which the average was calculated from 1996 in order to remove the bias introduced by the large 1994 devaluation.

Source: Staff simulations.

Includes both public and private sector external debt

Derived as [r − g − ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and p = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that NPV of private sector debt is equivalent to its face value.

Current-year interest payments devided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability, except for the GDP deflator in dollar terms, for which the average was calculated from 1996 in order to remove the bias introduced by the large 1994 devaluation.

Figure 1.Senegal: Indicators of Publics and Publicity Guaranteed External Debt Under Alternative Scenarios, 2004-2024

Source: Staff projections and simulations.

4. Senegal’s external debt remains sustainable over the long term, even in the presence of some exogenous shocks. Stress tests show that a shock to export growth—with exports falling by about 10 percent in 2005 and 2006—would be the main risk. However, the debt indicators would return to a sustainable level after a temporary hike (Figure 1 and Table 1b). Besides, neither lower economic growth (set at 0.6 percent in 2005 and 2006) nor lower nondebt inflows (with current transfers falling to 2 percent of GDP in 2005 and 2006 from 8 percent in 2004) would lead to unsustainable debt dynamics. Likewise, the debt sustainability path is robust to a combination of moderate shocks involving lower economic growth, lower nondebt inflows and a devaluation (Table 1b). It is also shown that a scenario based on key variables set at their historical averages—the historical scenario—would display a sustainable debt path, thereby suggesting that the results of the baseline scenario are robust.

Table 1b.Senegal: Sensitivity Analyses for Key Indicators of Public and Publicly Guaranteed External Debt, 2004-24

(In percent)

Est.Projections
200420052006200720082009201020142024
NPV of debt-to-GDP ratio
Baseline312827262524232114
A. Alternative Scenarios
A1. Key variables at their historical averages in 2004-23 1/313029272625242217
A2. New public sector loans on less favorable terms in 2004-23 2/312929282828282927
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2004-05313030292827262315
B2. Export value growth at historical average minus one standard deviation in 2004-05 3/313134333130292616
B3. US dollar GDP deflator at historical average minus one standard deviation in 2004-05313540383735343120
B4. Net non-debt creating flows at historical average minus one standard deviation in 200-05 4/313234323130292616
B5. Combination of B1-B4 using one-half standard deviation shocks313848464443413622
B6. One-time 30 percent nominal depreciation relative to the baseline in 2004 5/313937363533322919
NPV of debt-to-exports ratio
Baseline1141051031019996929073.5
A. Alternative Scenarios
A1. Key variables at their historical averages in 2004-23 1/114111110106103100969692
A2. New public sector loans on less favorable terms in 2004-23 2/114108110110112113112125145
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2004-051141051031019996929073
B2. Export value growth at historical average minus one standard deviation in 2004-05 3/114143186182178175168161122
B3. US dollar GDP deflator at historical average minus one standard deviation in 2004-051141051031019996929073
B4. Net non-debt creating flows at historical average minus one standard deviation in 200-05 4/11411712912612312111611184
B5. Combination of B1-B4 using one-half standard deviation shocks114139172169165162156149110
B6. One-time 30 percent nominal depreciation relative to the baseline in 2004 5/1141051031019996929073
Debt service ratio
Baseline766666553
A. Alternative Scenarios
A1. Key variables at their historical averages in 2004-23 1/767777778
A2. New public sector loans on less favorable terms in 2004-23 2/7667777812
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2004-05766666667
B2. Export value growth at historical average minus one standard deviation in 2004-05 3/77910101091111
B3. US dollar GDP deflator at historical average minus one standard deviation in 2004-05766666667
B4. Net non-debt creating flows at historical average minus one standard deviation in 200-05 4/766777678
B5. Combination of B1-B4 using one-half standard deviation shocks77899981010
B6. One-time 30 percent nominal depreciation relative to the baseline in 2004 5/766666667
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/484848484848484848
Source: Staff projections and simulations.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 3 percentage points higher than in the baseline, while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Source: Staff projections and simulations.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 3 percentage points higher than in the baseline, while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

5. Senegal’s external debt sustainability would also be preserved in the event of a measured deterioration of borrowing terms. A three-percentage point increase in nominal interest rates for new borrowing—implying a grant element falling to below 20 percent—would lead to a significant deterioration of the debt indicators (Table 1b and Figure 2), but they remain below the indicative thresholds over the long term.

Figure 2.Senegal: Alternative Scenario 2 - Less favorable financing terms 2004-2024

(In percent)

Source: Staff projections and simulations.

APPENDIX II

Mr. Rodrigo de Rato

Managing Director

International Monetary Fund

Washington, D.C., 20431

U.S.A.

Dakar, February 4, 2005

Dear Mr. de Rato,

1. The Executive Board of the International Monetary Fund on April 28, 2003 approved a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) in the amount of SDR 24.27 million, in support of Senegal’s economic growth and poverty reduction program for 2003–05. The first review under this arrangement was completed on February 13, 2004. The attached Memorandum on Economic and Financial Policies (the “Memorandum”) describes the results achieved in 2003 and during the first nine months of 2004, as well as the policies that the government of Senegal will pursue in 2005 to meet the program’s objectives. It includes the measures taken to correct the shortcomings noted in the implementation of infrastructure works in Thiès in 2003 and 2004, which led to a postponement of the completion of the second review, initially scheduled for June 2004.

2. As stated in paragraph 5 of the Memorandum, all of the program’s quantitative performance criteria were met as at end-December 2003, with the exception of the floor on the basic fiscal balance (program definition). This criterion was not met because of the emergency spending program adopted to cope with the adverse effects of the 2002 drought. In addition, the Autonomous Port of Dakar, faced with the looming breakdown of essential infrastructure, contracted a nonconcessional external loan of CFAF 6 billion from the West African Development Bank in October 2004 to carry out essential works, thereby exceeding the ceiling on nonconcessional public sector external borrowing. The extraordinary circumstances that led to the nonobservance of these criteria are explained in the attached Memorandum. Therefore, the government of Senegal hereby requests a waiver for the nonobservance of these two performance criteria.

3. The government of Senegal believes that the policies and measures set forth in the attached Memorandum, as well as the policies presented in the previous Memoranda of April 10, 2003, January 26, 2004, and May 18, 2004, will permit the achievement of its program objectives; however, it will promptly take any additional measures deemed necessary in this connection. The government of Senegal will consult the Managing Director of the IMF on the adoption of these measures and before making any amendments to the policies described in the Memorandum.

4. To facilitate the attainment of the objectives and the implementation of the above-mentioned policies, the government of Senegal hereby requests the completion of the second review and the disbursement of the third loan under the three-year arrangement, in an amount equivalent to SDR 3.47 million.

5. It is expected that the third review under the PRGF-supported program, which will make available the disbursement of the fourth loan, be completed by end-August 2005. This review will include, among others, the examination of an action plan to strengthen the financial sector. The fourth and last program review, which will make available the disbursement of the fifth loan, is expected to be completed no later than end-February 2006.

6. In spite of the delay in concluding the second review, the government does not wish to extend the current arrangement under the PRGF beyond its expiration on April 27, 2006. It requests that the remaining PRGF resources committed to Senegal be rephased over the remaining period of the arrangement.

7. The government of Senegal consents to the publication of this letter, the memorandum on its economic and financial policies, and the report of Fund staff on the second review of the program.

Sincerely yours,

/s/

Abdoulaye Diop

Minister of Economy and Finance

Attachment: Memorandum on the Economic and Financial Policies of Senegal.

APPENDIX II ATTACHMENT

SENEGAL: Memorandum on Economic and Financial Policies for 2004–05

Dakar, February 4, 2005

I. Introduction

1. Senegal’s commitment to achieving the Millennium Development Goals is spelt out in its Poverty Reduction Strategy Paper (PRSP). The medium-term economic and financial growth and development objectives will continue to be framed by the guidelines set out in the PRSP, in particular, the need to meet the strong demand for social services. The growth targets, which the government has set itself, fall within the framework of the Accelerated Growth Strategy, which seeks to raise the growth rate of real GDP, in the medium and long terms, to an annual average of 7 percent. A recent joint study by the government of Senegal and the World Bank showed that the incidence of poverty had declined by 16 percent between 1994 and 2002, as a result of the robust growth of the economy.

2. A national framework for monitoring and evaluation is in place to facilitate the implementation of the poverty reduction strategy. The report on the first year of PRSP implementation distributed to the IMF and World Bank Executive Boards in May 2004, takes account into the comments of the development partners. The procedure for updating the PRSP will be launched at the beginning of 2005. The new document will incorporate the new priorities, namely the development of infrastructure and the improvement of mobility in the capital, and the conclusions of the first and second annual PRSP progress reports. The second progress report will be completed by end-March 2005.

3. This memorandum updates the information in the memorandum of May 18, 2004 that describes the performance of financial policies and the implementation of structural reforms in 2003 and the program for 2004. The current memorandum reviews performance during the first nine months of 2004 and assesses the outlook for the rest of the year. It also presents the financial program for 2005, including the fiscal outlook.

A. Program Implementation in 2003

4. The quantitative performance criteria for end-December 2003 were met, except for the floor on the basic fiscal balance (program definition). Net credit to government declined by CFAF 42.3 billion more than expected; SENELEC did not accumulate any arrears to suppliers; and no government domestic or foreign payments arrears were accumulated; SENELEC incurred a new nonconcessional external loan from the West African Development Bank (BOAD) in July 2003, for which the IMF Executive Board granted a waiver. A government circular was issued in November 2003, requiring all public enterprises wishing to contract foreign debt to seek the prior consent of the Ministry of Economy and finance, which will verify the concessionality of the loan.

5. All quantitative indicators for end-December 2003 were observed, except for the floor on tax revenue and the ceiling on guarantee deposits. Tax revenue target was not achieved because of unfavorable trends in the tax base. Outstanding guarantee deposits slightly exceeded the program ceiling, mainly because of cash management problem at SENELEC, which prevented repayment of the remainder of a bank loan guaranteed by the government until March 2004. The other indicators, the ceilings on the wage bill, expenditure executed through exceptional procedures (cash advances and early payments), the stock of correspondent accounts (program definition), and the stock of SONACOS debt were all met. Similarly, the floors on credit flows in the correspondent accounts of the postal service and the Treasury were observed and the SENELEC met its basic balance target.

B. Structural Reforms

6. In the second half of 2003, the government implemented major reforms, in particular, in the tax system, recruitment policy, and public expenditure management. It also launched an ambitious program to build capacity in the energy and groundnut sectors and to make the regulatory framework and administrative procedures less burdensome for private sector operators.

7. Considerable progress was made in the selection of an Independent Power Producer (IPP) and the privatization of SONACOS. The call for bids on an IPP concession was sent out to potential bidders on November 5, 2003. Likewise, for the privatization of SONACOS, the tender documents were submitted to pre-qualified investors on January 13, 2004.

8. A key element of the first program review was formulating a medium-term civil service recruitment policy, to allow the government to accelerate compliance with the PRSP targets. These involve a 23 percent increase in staff over the level in 2002. Following the adoption of the plan in October 2003, a first wave of 1,356 employees was recruited in 2003, for the Education and Justice ministries.

II. economic and financial developments and program performance in 2004

A. Economic and Financial Developments in 2004

9. The economic and financial environment in 2004 was marked by a spike in oil prices, which exceeded US$50 per barrel in September 2004, and swarms of locusts invading Senegal. Despite these exogenous factors, the level of activity held steady. The impact of the locust infestation was contained through mobilization of domestic and external resources (both material and financial), effective protection of large production areas, especially those in the south, and the dynamism of the industry and services sectors. Nevertheless, primary sector is estimated to have grown by only 2 percent compared to 11.6 percent originally expected, reflecting a sharp decline in grain production. The secondary sector, affected by rising oil prices, is estimated to have grown a little less than expected in the program. The tertiary sector, which benefited from the effects of the good 2003 harvest, the development of the electronic industry, and increased employment in the civil service, is estimated to have grown slightly more than planned. In the first nine months of 2004, the Industrial Production Index (IPI) rose more than 10 percent, the private service turnover index climbed to 20 percent, and the trade margin index grew by 8 percent. Real GDP is estimated to have grown by 6 percent as programmed.

10. Given the relatively high price of the barrel of oil on the world market, the inflation rate, measured by the GDP deflator, is expected to have been higher than originally expected. At end-November 2004, the Harmonized Index of Consumer Prices (HIPC) increased by 0.4 percent on a year-on-year basis.

11. At end-September 2004, the basic fiscal balance was better than expected despite a small underperformance in tax revenues. The tax revenue target for the year is estimated to have been reached thanks to higher expected performance of indirect taxes (particularly VAT on the Thiès projects) during the last quarter.

12. A supplementary budget law was adopted in September 2004 to allocate CFAF 31.5 billion in resources from debt relief under the enhanced HIPC Initiative. In conformity with PRSP guidelines, resources from the enhanced HIPC Initiative were allocated to the priority sectors (agriculture, education, health, sewerage and rural electrification) and to projects that impact poverty reduction (microfinance and creation of artisans’ villages). CFAF 26.5 billion (i.e., 83 percent) has been allocated to rural areas. The supplementary budget law also allocated resources for completing the infrastructure work in Thiès, which had not been provided for in the initial appropriations of 2004 budget (see paragraph 18).

13. At end-December 2004, the basic fiscal balance (excluding HIPC expenditure and temporary structural reform costs) is registered to have a surplus of 1.4 percent of GDP and the overall fiscal deficit (including grants) is expected to amount to 2.7 percent of GDP.

14. Net foreign assets are estimated to have grown by CFAF 71 billion, and domestic credit to have increased by 14 billion, reflecting a tangible improvement in the government’s net position and a 6-percent increase in credit to the rest of the economy. The money supply is expected to have therefore grown by 7 percent, or just a little less than the growth in nominal GDP.

15. The current deficit on the balance of payments (including current official grants) should be 6.2 percent of GDP, less than in 2003, the improvement in some export sectors, notably mining, and the decrease in food imports being stronger than the increase in imports of petroleum products.

B. Structural Reforms in 2004

16. The implementation of the reforms undertaken since 2003 continued in 2004. These reforms concern mainly the computerized management of fiscal operations, tax policy, hiring policy, the compensation strategy in the civil service, the groundnut and electricity sectors, and a less burdensome regulatory framework and administrative procedures for private operators. The process of privatizing SONACOS was delayed. But the government has now accepted an offer for its sale. The transfer of ownership will be implemented by June 2005.

17. The government paid off the end-2002 arrears in social security contributions amounting to CFAF 11.3 billion owed by liquidated or bankrupt enterprises and local governments to the Senegalese pension institute (IPRES) (CFAF 8.2 billion) and social security fund (CSS) (CFAF 3.1 billion).

18. The government had expected that the infrastructure work in Thiès in 2004, totaling CFAF 40.1 billion, would be completed before April 4 2004 for the Independence Day celebration. Given the urgency, contracts with private-sector companies were signed in 2003 before budgetary appropriations were approved. The companies began work in 2003 based on bank pre-financing, prior to approval of the contracts by the competent authorities. The companies incurred CFAF 11 billion in expenditures in 2003 that were not invoiced until 2004. The 2004 budget included CFAF 31 billion of appropriations for the works in Thiès. However, to ensure full funding of the projects, the government included the remaining CFAF 9.1 billion in the draft 2004 supplementary budget voted by the assembly in October. The review of the compliance of contracts for the work in Thiès with the procurement code, conducted with assistance from the World Bank, showed that because of the urgency, some deadlines were shortened, raising the risk of errors in assessing the quality and cost of the offers.

19. The projects carried out in Thiès form part of the government’s policy to create new regional focal points of development. Under this policy, starting in 2004 the government initiated an infrastructure investment program in the country’s secondary cities. This investment program falls under the wealth creation policy, which is one of the priorities in the PRSP. The works in the secondary cities would (i) reduce the large economic development gap between these cities and the capital; (ii) create infrastructure that can help attract investors to these localities; (iii) develop public infrastructure that enables local government agencies to upgrade to the same level as the capital; and (iv) create conditions for local development through productive activities that help reduce poverty in these areas and excessive demographic pressures on the capital.

C. Performance Relative to Program Targets in 2004

20. At end-June 2004, all the quantitative objectives of the program had been met, except for the floor on net credit flows in the correspondent accounts of the SN La Poste at the Treasury. At end-September all the targets that had previously been proposed as PCs (but not established as such by the Board) were met. However, indicative targets for tax revenue, the stock of deposits in correspondent accounts, expenditures executed through exceptional payment procedures, the basic balance of SENELEC, and the stock of debt of SONACOS, were breached by small amounts. The Autonomous Port of Dakar borrowed CFAF 6.1 billion at an interest rate of 8.5 percent per year over 10 years with three years’ grace from the West African Development Bank in October 2004. This loan was needed to make the necessary urgent repairs to prevent the closing of the port, which would have had serious repercussions on the national economy.

21. The government took the prior actions initially envisaged for the second review including publication of the implementing decree and circular for the investment code, and production of a report on tracking expenditure execution by major line items. It also installed the SIGFIP software and published the audited accounts of SENELEC in the projected time frame. By contrast, the Treasury accounts for FY 2002 were not forwarded to the Audit Court on time, and the interconnection between the Tax Administration, the Customs Administration and the Treasury is still not functional due to delays in the computerization of the Treasury’s aggregate database. A detailed report on public investment project execution is still to be produced.

III. Key Targets and Components of the 2005 Economic and Financial Plan

22. In 2005, the poverty reduction strategy will be pursued on two levels in a context of maintaining financial stability. On the one hand, the government will seek to improve quality and expand availability of basic social services through its recruitment policy, particularly in the education and health sectors, and the compensation policy for the civil service. On the other hand, the government will continue its infrastructure investment program and the strategy to promote the growth of private investment.

23. The transparent and competition-friendly regulatory framework, established since February 2004 with the adoption of the Build-Operate-Transfer (BOT) law, will facilitate private sector involvement in building quality infrastructure. This law seeks to grant concessions in a transparent and competitive manner. An Infrastructure Council was created in February 2004, with representatives from civil society, government, parliament, and experts. It will be responsible for ensuring consensus during the management stage of major infrastructure projects. The government will pay special attention to the type of risk assumed in public/private partnership (PPP) operations, especially in the context of financing major infrastructure projects. Each PPP operation should clearly explain all financial liabilities, implicit or explicit, assumed by the government. To ensure that major projects are effectively managed, the government will request support from the World Bank for feasibility assessments. It will also request the staff of the International Monetary Fund to ensure that these projects are consistent with the macroeconomic framework of the program.

24. The new Investment Code, which took effect in 2004, and the new legislation on corporate taxation will introduce simpler regimes. The government will keep up close communication with the private sector, in particular through the Presidential Investment Council (CPI) and will continue its strategy of enhancing good governance.

25. Based on these policies, the 2005 program aims to: (i) achieve a real growth rate of about 6.4 percent; (ii) maintain price stability in line with the WAEMU multilateral surveillance targets; and (iii) keep the fiscal and current balance of payments deficits at a sustainable level.

26. Real GDP growth in 2005 should reflect a sustained expansion of all sectors. Primary sector growth is expected to rise as a result of recovery of grain production after the decline in 2004. The growth of the secondary sector should be led mainly by construction and public works thanks to the implementation of a major program to improve urban mobility in Dakar and continued infrastructure development in the secondary towns.

27. The external current account deficit (including official transfers) should improve. Export growth will be sustained mainly by an increase in the volume of groundnut-based products and the recovery of phosphoric acid production.

A. Fiscal Policy, Tax Reform, Government Expenditure Management, Recruitment and Compensation Policy

Fiscal policy

28. Efforts to strengthen the structure of the budget will be continued and consolidated in 2005. The basic fiscal balance (program definition) will stand at 0.7 percent of GDP in 2005 compared with 1.4 percent of GDP in 2004. The overall deficit, including grants, will move from 2.7 percent of GDP in 2004 to 2.9 percent of GDP in 2005. The fiscal program is based on the following principal parameters: (i) tax revenue projected at CFAF 802.2 billion, a tax burden of 18.4 percent of GDP; (ii) a wage bill of CFAF 247.3 billion, incorporating the moderate financial impact of the recruitment program and compensation policy; (iii) the growth in other current expenditures (CFAF 309.9 billion) and capital expenditure from domestic resources (CFAF 279 billion); and (iv) the temporary costs of structural reforms are estimated at CFAF 18.5 billion, mainly to cover the recapitalization of the postal service (CFAF 15.5 billion).

29. The social (HIPC) expenditure that was the subject of a supplementary budget law in previous years was incorporated into the initial budget law in 2005, to accelerate the pace of expenditure on the social sectors. The expenditure under the HIPC Initiative in 2005 will amount to CFAF 59.6 billion, of which 49.6 billion was allocated to capital expenditure, and 10 billion to operating expenditure. Financing for these expenditures will include: (i) expected HIPC relief for 2005 of CFAF 51.1 billion; and (ii) CFAF 8.5 billion remaining from the supplementary budget laws of 2001 and 2003.

30. In executing the budget, the government will take into account revenue performance relative to program targets. Consequently, if there is a revenue shortfall, the government will take fiscal measures to keep the deficit in line with the program, including reductions in non-priority spending, if necessary.

31. Resources that may be received within the framework of the Millennium Challenge Account (MCA) program and the preparation of the summit of the Organization of Islamic Countries are not reflected in the 2005 budget. The amounts and procedures for spending these resources are still not known. In the interest of strengthening fiscal discipline and transparency, the government will adopt a supplementary budget law to present the external funds made available to the government and all of its agencies, to finance any expenditure associated with these initiatives.

32. Starting with the 2006 budget, the government will ensure the consistency of the capital expenditure budget with the capital expenditure shown in the TOFE. In addition, in the process of preparing the public investment program under the budget law, the government will take account of capacity constraints, recurrent expenditures, such as operating and maintenance costs and the level of domestic and external debt that is compatible with public debt sustainability.

33. The government will keep up its efforts to expand the tax base and to improve efficiency in tax collection. The ongoing tax reform should support a lasting and sustainable level of fiscal revenue collection in 2005, while fostering a flexible and attractive environment for private enterprise. To this end, in step with the reform of the General Tax Code, the government has introduced several capacity-building measures in the Directorate General of Taxes and Government Property (DGID). These measures include recruitment of at least 105 employees (55 tax officers and 50 assessors) per year at the DGID during 2004–05; continuing computerization of the DGID, and digitizing the Land Registry. The electronic data-sharing system will become fully operational by June 2005. It will make it possible to prepare monthly reports on taxes assessed and collected with a maximum lag of one month. The digitization of the Land Registry will enhance the efficiency of land and government property management. The numerical mapping of the 40 largest urban areas was finished in December 2004.

34. Under the recent tax reforms, efforts have been stepped up to fight tax fraud and tax evasion. The key elements of the reform include a more proactive investigation of tax offenses, on-site audits in processing VAT reimbursement claims, a better control of exemptions, penalties for purchases made without delivery of an invoice, and enforcement of the use of the single taxpayer ID number (NINEA).

35. At the same time, the government has carried out a reform of the corporate tax, including the new Investment Code. Implementation decrees and a circular were issued in May 2004 with the objective of preserving fiscal neutrality and simplifying the tax regime.

36. With a view to liberalizing the oilseed industry, in particular the privatization of SONACOS, the special tax on imports of vegetable oils was suspended in June 2004 and the law eliminating the tax on vegetable oil protection was voted in July 2004. After agreement with the World Bank, the law was promulgated in December 2004. The tax will be completely phased out by December 31, 2005.

37. The government has decided to increase the percentage of gross wages that is exempted from the calculation of the tax base on earned income for the contribution to the retirement fund (the exempted wages pass from 10 to 13.2 percent) starting in January 2005, thereby reducing the tax burden on wages. The negative impact of this measure on projected revenue collection in 2005 amounts to CFAF 5 billion (about 0.01 percent of GDP).

Public expenditure management

38. The draft 2005 budget was prepared in the context of a series of fiscal and financial reforms that were a necessary part of PRSP implementation. These reforms revolve around three pillars. First, a medium-term fiscal framework was prepared for four ministries. With this new expenditure planning system, the budgets were prepared for the Health, Education, Environment, and Justice sectors based on their sectoral programs. Second payment orders procedures were also decentralized for these four line ministries. Lastly, a single budget document was prepared, containing both the government’s current and capital expenditure, based on a harmonized system of classification. The government will also take measures to reconcile current and capital expenditures with PRSP priorities, paying particular attention to Regional Operation Plans (POR) and the priority actions in the PRSP for vulnerable groups.

39. With a view to strengthening the decentralization process and improving absorptive capacity, the government plans to decentralize the consolidated investment budget (BCI) from 2006. To that end, it will take action in 2005 on the different standards (laws, conventions, and interministerial decrees), allowing fiscal decentralization to be implemented in 2006, after the testing done in 2005 in the education and health ministries. The goal in 2007 is to extend the decentralization of management of the BCI’s internal resources to all the departments of the spending ministries with projects that the government has entrusted to local authorities.

40. The government will continue to implement the ambitious program of budgetary and public financial management reforms through action plans validated in July 2003 and designed to reinforce fiscal management (CFAA) and procurement procedures (CPAR).

41. With a view to computerizing the management of fiscal operations, the government installed the Integrated Government Finance management System (SIGFIP) in July 2004. The government is committed to increasing the effectiveness of this budget execution tracking system with an automatic link with personnel expenses. Similarly, in order to better track public expenditure execution and enhance fiscal transparency, the SIGFIP system will be modified in two ways. First, information on expenditure execution will be presented with the same level of detail as in the TOFE, making it possible to monitor the differences in the levels of payment orders and actual payments. Second, SIGFIP will also be used to track expenditure that have been committed and verified but for which no payment order has been issued. This procedure will help to reduce the duration of the expenditure cycle. All these changes should take effect in the first half of the year. This system is fully capable of interfacing with the ASTER accounting software that will be installed in the Treasury. The government has signed an agreement with France to install ASTER before January 1, 2007. The agreement includes a plan for training and technical assistance, given the operational complexity of the system.

42. To better monitor public finances, the DGCPT will produce a monthly TOFE based on monthly consolidated account balances, with a 60-day lag starting in 2005. The January 2005 TOFE will be prepared no later than March 31, 2005. Furthermore, the government will make the TOFE more transparent by: (i) establishing a correspondence table between the Treasury balance and the broad TOFE aggregates; (ii) improving the presentation of the Treasury’s correspondent accounts in the TOFE; and (iii) ensuring the consistency between the net government position with the banking system derived from the monetary data and derived from the TOFE. All these measures will become effective by end-June 2005.

43. To limit the use of contracts granted to a single bidder, annual procurement plans will be established in the large spending ministries. The government will reduce the percentage of contracts granted to single bidders to 20 percent of the total contracts granted by government ministries. This performance criterion will be reexamined on the occasion of the third review on the basis of the most recent information about contracts signed by all ministries and government agencies.

44. The government will conduct a study by end-March 2005 to harmonize the Government Obligations Code and the Procurement Code and to improve the legal framework for procurement. The government has included in the draft budget law for 2005 an article limiting the terms of application of Article 45 of the Code of Government Obligations, which was approved with the passage of said budget law. This Article enables contracting parties with the government to benefit from financial compensation, even if the contracts were not approved by the competent authorities. Article 19 of the 2005 budget law has the legal hierarchy so as to amend Article 45 of the Obligations Code as the budget law has the same rank as the Code of Government Obligations, and may therefore amend the latter’s provisions. Consequently, this article of the budget law permanently replaces the provisions of Article 45 of the Code of Government Obligations. Furthermore, there are currently no other provisions (in other laws) that permit contracting parties with the government to receive financial compensation under the terms set forth in Article 45 of the Government Obligations Code.

45. The government intends conduct a systematic audit of budget execution. The internal audit structures have been reorganized and revitalized. External audits of the government’s management accounts by the Audit Court will continue and the parliamentary review of the budget execution laws will be enhanced. The treasury accounts for the year 2000 were submitted to the Audit Court in April 2004, while those of 2001 were submitted in July 2004, in compliance with the initial program timetable. However, the accounts for 2002 were submitted in November 2004, with a three-month delay. The accounts for 2003 will be submitted no later than end–February 2005. The government will also support the Audit Office in submitting the revised budget laws to the National Assembly by the deadlines set in the WAEMU directives. Capacity building in the Audit Office includes financing from the Multi-Donor Trust Fund managed by the World Bank to recruit assistants for auditing these accounts.

Civil service recruitment and compensation policy

46. A key component of the first program review was the formulation of a policy of recruiting 15,000 new employees into the civil service over three years. The objectives pursued are greater efficiency in the public service, to improve the quality and scope of basic social services, in addition to strengthening judiciary, security services, and revenue offices. Appointments in the first wave of hiring for 2003 were completed in June 2004. The final proposals for 2004 have already been made. The implementation of the recruitment strategy has suffered some delays. The hiring of 5,000 employees, planned initially for the last quarter of 2003, was staggered over 2003 (1,356 employees) and the first quarter of 2004 (3,186 employees). The final proposals for 2004 were made and the staff hired should be available to the units that need them by end-June 2005. As projected, 5,000 additional employees will be recruited to start work in the last quarter of 2005. The government will continue and accelerate the special recruitment program to meet all staff needs and improve the provision of public services in compliance with PRSP objectives.

47. The government has also implemented a new compensation strategy in the civil service, effective October 2004. The strategy seeks to make wage increases performance-related, provide additional incentives to staff to make civil service employment more attractive, and strengthen the quality of public services. This new compensation policy has been taken into account in the wage bill envelope for the 2005. A technical and financial audit of the payroll is under way and the final report is expected in June 2005.

B. Postal Service

48. The Government’s sectoral policy letter, adopted in February 2003, set out the development objectives and strategy for the postal system. The objectives are to (i) improve the overall performance of the postal sector by opening it up to the private sector; (ii) upgrade the legal and regulatory framework of the sector and strengthen sectoral regulation; (iii) safeguard the right of citizens to communication; (iv) transform Post Office into a modern and effective enterprise by implementing a strategic plan; and (v) promote the sustainable development of postal financial services by creating a subsidiary bank. The implementation of the action plan attached to the policy letter, which includes recapitalization of the postal service, was delayed, but will be completed in 2005, except for the postal bank, which is scheduled to be established in 2006. The postal bank will not undertake any credit operations until private shareholders hold a majority interest.

C. Financial Sector Reform

49. After the success of the Treasury bill issue, the government will continue to issue securities on the regional financial market to meet its needs. It is also continuing to explore the possibility of deepening the government securities market in Senegal under the WAEMU Community Directives. In particular, it plans to resort to the bond market to finance the program to improve urban mobility in Dakar in 2005.

50. The improvement in access to credit for the establishment and growth of enterprises, in particular small and medium-sized enterprises, is a priority of the government’s action program. A broad-based dialogue was launched in 2004 between the government, the private sector, the central bank, banks and financial institutions, microfinance institutions, and the regional stock market (BRVM), to foster the contribution of the financial sector to the development of economic activity. An action plan is being elaborated. It revolves around the following pillars: development of local financial intermediation; improvement of the framework, monitoring governance of enterprises; promotion of new financial products and nonbank financial intermediation (investment companies, risk capital companies, mortgage funds, etc.); reform of the legal and judicial environment; and tax incentives to increase the credit supply and mobilize long-term resources.

51. The government’s actions will also include initiatives at the regional level to increase bank financing to the economy, promote the regional financial market, and enhance the soundness of the financial sector, and follow up the findings of the Financial Sector Assessment Program (FSAP) update. The action plan will be discussed during the third review program. Meanwhile, the government has already decided to hire 60 magistrates and to build the capacity of the courts through specialized training in economic and financial matters, to improve the enforcement of financial contracts and reduce the cost of financial intermediation.

52. The government will continue to actively participate in consultations with the BCEAO in the reform of the legal framework applicable to microfinance in WAEMU. The reforms consist of: tightening prudential standards with a view to consolidating the microfinance sector; intensifying the involvement of the BCEAO in inspection of the institutions and granting of licenses; and standardization of financial statements to reduce reporting lags and increase transparency of accounts.

53. The recent mission to update the FSAP confirmed the soundness of the financial system. The policy aimed at financial sector development and supervision will be continued in order to consolidate the gains so far. The authorities will continue to pay special attention to the exposure of banks to large enterprises, which is the main vulnerability facing the banking system.

54. To combat money laundering and the financing of terrorism, a law was adopted in July 2003 to implement the rules derived from the 40 FATF recommendations. A decree creating the National Financial Information Processing Unit (CENTIF) was also adopted in August 2004. A standard community law against financing terrorism is being prepared within WAMU for adoption by the community in 2005.

D. External Debt Policy

55. The government will not contract any guarantee foreign borrowings on nonconcessional terms (where the grant element is less than 35 percent of the actual amount borrowed) and it will not accumulate any arrears. The instructions regarding prior authorization by the Minister of Finance for any foreign borrowing by public entities, as defined in the circular from the Prime Minister’s Office dated November 24, 2003, will be strictly enforced. The government will also improve the management and monitoring of external public debt by: (i) making sufficient professional staff and logistical resources available to the Public Debt Division; and (ii) implementing an action plan of ongoing training in modern debt management techniques. To guarantee the reliability of the database on external public debt, cross checking data with all donors will be a priority task. The government will put in place a monitoring mechanism to ensure that public enterprises take due account of profitability and sustainability concerns before borrowing, within the framework of the close surveillance modalities described below

56. Incorporation of the debt sustainability analysis into the macroeconomic framework is now one of the responsibilities of the National Economic Policy Committee (CNPE). The first analysis has been available since October 2004 and will be updated every six months. These frequent analyses will continue to help define a borrowing policy consistent with the medium- and long-term macroeconomic framework. The preliminary results of the debt sustainability analysis confirm that the debt profile remains sustainable. The analysis also shows that high growth over the long term and a prudent fiscal policy will preserve sustainability and provide impetus towards attaining the millennium development goal of poverty reduction.

57. Under the HIPC Initiative, the government will continue its efforts to raise the rate of participation of its creditors in the initiative.

E. Public Enterprises

Groundnuts

58. Government policy for the groundnut industry was defined in the Policy Letter for Development of the Groundnut Industry (LPDFA) adopted in May 2003. Its main aim is to revitalize and diversify production, so as to increase the revenue of small farmers and reduce the vulnerability of growing a single crop, groundnuts. The policy deepens and consolidates the liberalization policy adopted, in particular by privatizing SONACOS and assigning responsibilities for production, collection, storage, distribution, transportation, and marketing of groundnut seeds to professionals, and rationalizing the judicial and regulatory framework.

59. The government has taken a decision to privatize SONACOS, and is taking the following steps to transfer ownership of the company:

  • provisional sale to the buyer no later than one week after the government’s decision on privatization of the company’s announced;
  • launch negotiations with the buyer one week after notification of the provisional sale;
  • negotiation of all transaction documents (specifications, contract transferring shares, etc.) to clearly specify all the buyer’s obligations;
  • sign the share transfer contract, which officially establishes the actual privatization of the company;
  • call the general assembly of shareholders of the privatized company; and
  • convene the board of directors of the privatized company.

60. The privatization of SONACOS could give rise to social costs estimated at CFAF 3 billion. These charges will have to be charged to the budget in 2005.

61. The government intends to finalize this process by June 30, 2005. Pending the conclusion of the process of privatizing SONACOS, the government will grant no subsidies to the company, will ensure that it does not accumulate any payment arrears, and will limit its bank borrowing to the amount SONACOS needs to finance the 2004–05 harvest.

62. To guarantee the activity of the vegetable oil factories after privatization, the government has laid down a sectoral development strategy, which hinges on; (i) a seed policy tailored to the newly liberalized processes of production, harvesting, and marketing; and (ii) the replenishment of the stock of improved groundnut seeds. This policy is based on assigning responsibility for the production of certified seeds to associations of producers and farmers, capacity building in the planning and production of seeds by seed producers and their organizations, and building the supervisory and certification capacity of the seed control division of the Agriculture Department.

Electricity

63. In 2004, the monitoring of SENELEC was reinforced by the regular production of its financial statements. The audited accounts at December 31, 2003 and June 30 2004 were published, and the quarterly provisional statements at end-September 2004—which are subject to limited review by the auditors—were announced to the public in December 2004. The government is committed to continuing to publish the half-yearly audited accounts and to announcing the release of examined quarterly provisional statements within 60 days. SENELEC will furnish the IMF every quarter with all the data needed to closely monitor its financial situation.

64. The government will not make transfers to SENELEC for its current operation. It will ensure that the SENELEC does not accumulate payment arrears and that its indebtedness to banks remains below the level deemed reasonable by the Ministry of Economy and Finance. An action plan has also been prepared as part of the financial rehabilitation of SENELEC. This plan, which focuses on restoring short-term cash flow and profitability, rebuilding the company’s image, and gradually meeting demand, will be implemented in 2005. In the medium term, the government will take action to restructure the company by progressively separating production activities from transportation and distribution functions. The government also intends to divest from SENELEC gradually and invite the private sector to manage and invest in SENELEC.

65. The Electricity Regulatory Commission lowered electricity prices by 5 percent starting in August 2004, based on a formula in effect since 1999 that expired on December 31, 2004. The process of revising the formula, which started in November 2003, has been delayed owing to the late receipt of the necessary documents. The new formula will be compatible with operator profitability and established in close collaboration with the World Bank. The new formula will be effective by July 1, 2005 or (October 1, 2005, in case an objection is raised by an interested party, as permitted under the regulations).

66. In keeping with the objectives of the PRSP, the government will implement a rural electrification policy to raise electricity coverage in the rural areas from 8 percent in 2003 to 15 percent in 2005. In that connection, the government will act on the guidelines listed in the development policy letter for the rural electricity sector and a SENELEC subsidiary for rural electrification has just been created. Most of the fixed capital expenditure of operators will be financed by the rural electrification fund, which will be established in 2005. This fund will receive contributions from donors and limited transfers from the government.

Other public enterprises

67. To prevent any adverse consequences for government finances, supervision of the financial situation of public enterprise will be tightened. The Government Portfolio Management and Supervision Unit, has already established a quarterly trend chart of management indicators to closely monitor the management of those enterprises and to alert the authorities if need be. One monitoring indicator will be the total debt of public enterprises, which will be the subject of a quarterly report available with a lag of no more than 45 days. The unit’s resources will be increased for that purpose. These quarterly reports will include a clear opinion on the financial health of public enterprises and any recommended corrective measures needed, as well as a complete inventory of all financial obligations and guarantees extended by the government to these enterprises. In the case of public/private partnerships, a framework for assessment will be set up in 2005 to clarify the nature of the government’s conditional obligations.

68. The government has placed the Senegal National Lottery (LONASE) on the list of enterprises to be privatized. The losses of the lottery have led the government to cancel the company’s accumulated tax liabilities of CFAF 24 billion.

69. Although the Chemical Industries of Senegal (ICS) is not a public enterprise (the state holds 47 percent of the capital), the company will be closely monitored by the Government Portfolio Management and Supervision Unit. The company made losses amounting to CFAF 35 billion (0.9 percent of GDP) in 2003. The government will not to make any budgetary transfer to the company in 2005 and will press for cost cutting, management improvements, and other remedial measures that would entail little impact on public finances in later years.

F. Private Sector Development and Governance

70. The projects registered under the Investment Code increased in value from CFAF 196 billion in 2001 to CFAF 412 billion in 2002 and CFAF 579 billion in 2003. The APIX (Agency for Investment Promotion and Major Projects) will continue to play a key role in facilitating access by private sector operators to investment incentives, and coordinating the related administrative processes. To shorten the response time of the public institutions involved in applications for business licenses, a draft law on administrative procedure will be submitted to the Parliament in the first quarter of 2005. In keeping with the objective to improve the quality of the services offered to investors, APIX launched the procedure for one-stop-shop certification under the ISO 2000 standard.

71. The Presidential Investment Council has become a forum for effective dialogue and an instrument of reform, thanks to its close follow-up of implementation of the recommendations adopted by the government. An interministerial working group chaired by the Secretary General of the government is in charge of weekly tracking and presentation of a report on the measures adopted at the Council’s half-yearly sessions. In particular, its efforts led to measures in 2003, which have relaxed the regulatory and administrative conditions that apply to the private sector.

72. Regarding the national program for good governance, the National Assembly passed a law in 2003 creating the National Council against Corruption and Extortion, which has been in place since April 2004. The Commission organized a workshop in December 2004, to launch its activities.

G. External Competitiveness and Trade Policy

73. Membership in the franc zone has enabled Senegal to consolidate its macroeconomic stabilization gains, in particular moderate inflation and low public deficits. Despite the sharp appreciation of the euro against the dollar in recent months, the competitiveness of the Senegalese economy has been relatively unaffected. The government intends to emphasize strengthened competitiveness, especially through structural reforms to reduce production costs, such as utility, transportation, and communications costs.

74. The government also plans to promote economic diversification, a determining factor in the success of sustained growth policy in the medium term. The sectors identified as potential engines of growth are, in particular, agriculture and agroindustry, telecommunications, tourism, manufacturing, textiles, and fisheries. Measures will be taken in these sectors to strengthen their competitiveness with a view to greater integration into the world economy.

75. Regarding trade policy, the government is committed to continuing its efforts to harmonize its practices with WAEMU regulations. In particular, the government will limit the number of products subject to reference values, as of July 1, 2005.

IV. Program Monitoring

76. To ensure effective implementation of the program, the government has reached understandings with Fund staff on the prior actions described in Table 3 of the annexed TMU concerning program monitoring. Implementation of Senegal’s program during 2005 will be monitored using quantitative performance criteria (end-March and end–September, 2005) and indicators (end-June and end-December 2005), as well as structural performance criteria and benchmarks listed in Tables 1 and 3 of the TMU. It is expected that the third and fourth reviews, which would make available the disbursements of the fourth and fifth loans, respectively, be completed by end-August 2005 and end-February 2006, respectively.

APPENDIX II ATTACHMENT ANNEX

SENEGAL: Technical Memorandum of Understanding

Dakar, February 4, 2005

1. This technical memorandum of understanding (TMU) defines the quantitative and structural performance criteria, indicative targets and structural benchmarks on the basis of which the implementation of the program supported by the Three-Year Arrangement under the Poverty Reduction and Growth Facility for Senegal will be monitored. in 2005. The TMU also establishes the terms and time frame for transmitting the data that will enable Fund staff to monitor program implementation.

I. Definition

2. Unless otherwise specified below, the government is defined as the central administration of the Republic of Senegal and does not include any local administration, the central bank, or any government-owned entity with separate legal personality.

II. Quantitative Performance Criteria

3. Quantitative performance criteria are proposed for March 31, 2005 and September 30, 2005 for: (i) the basic fiscal balance (program definition, see paragraph 4); (ii) the change in net bank credit to the government; (iii) the share of public contracts granted outside the normal tender procedures on a no-bid basis; (iv) the indebtedness of SENELEC to the banking system; and (v) the indebtedness of SONACOS to the banking system. For June 30, 2005, and December 30, 2005, indicative targets are proposed for the same items. The following performance criteria are proposed for monitoring on a continuous basis: (vi) the domestic payments arrears of the government; (vii) the external payments arrears of the government; (viii) the contracting or guaranteeing of new non concessional external debt by the government ; (ix) the government contracts signed without budgetary appropriation; (x) the budgetary transfers to SENELEC; (xi) the budgetary transfers to SONACOS; (xii) the payment arrears of SENELEC; and (xiii) the payment arrears of SONACOS.

A. Basic Fiscal Balance, Program Definition

Definition

4. The basic fiscal balance (program definition) is the difference between the government’s budgetary revenue and total expenditure and net lending, excluding capital expenditure financed from abroad and drawings on loans to be on-lent, and the costs of structural reforms (as defined in Table below) and spending financed with HIPC-related resources. It includes the balance of special and correspondent accounts at the Treasury.

Indicative Costs of Structural Reforms in 2005

(In billions of CFA francs, cumulative from the beginning of the year)

3/31/056/30/059/30/0512/31/05
Groundnut Sector
Recapitalization of SONACOS prior to sale
Severance pay3.03.0
Other costs pertaining to the privatization of
SONACOS
SN La Poste
Recapitalization prior to measures to make the Post
office autonomous from the treasury15.515.515.5
correspondent account
Other costs
IPRES and CSS
Payment of social security contribution
arrears to IPRES
Payment of social security contribution
arrears to CSS
Judicial system
Specific training program for judges and clerks
in commercial matters
Other costs
TOTAL15.518.518.5
Basic Fiscal Balance (Program Definition)

(In billions of CFA francs, cumulative from the beginning of the year)

12/31/043/31/056/30/059/30/0512/31/05
EstimateCriterionIndicativeCriterionIndicative
TargetTarget
I. Budgetary revenue771.6179.2392.1628.5841.0
II. Total expenditure and net lending948.7207.6485.5753.51,049.8
III. Capital expenditure externally financed159.236.074.8107.9143.9
IV. Drawings on loans to be on-lent16.00.08.38.316.0
V. Basic fiscal balance = I – (II–III–IV)−1.97.6−10.3−8.8−48.9
VI. Temporary costs of structural reforms11.30.015.518.518.5
VII. Expenditures financed with HIPC-related resources44.95.927.534.359.6
VII. Basic fiscal balance, excluding temporary costs of structural reforms and spending financed with HIPC-related resources= V + VI + VII54.313.532.744.029.2

Performance criteria

5. The performance criteria for the basic fiscal balance (program definition) are floors set at CFAF 13.5.8 billion for March 31, 2005 and CFAF 44 billion for September 30, 2005. The indicative targets for June 30, 2005 and December 31, 2005 are floors set at CFAF 32.7 and CFAF 29.2 billion, respectively.

Adjusters

6. The floor for the basic fiscal balance (program definition) will be increased by the amount by which the stock of net deposits in correspondent accounts of SN La Poste at the Treasury could increase, as a consequence of its recapitalization by the government.

Reporting requirements

7. During the program period, the authorities will report monthly to Fund staff provisional data on the basic fiscal balance (program definition) with a lag of no more than 45 days. The data on: revenues, expenditures, special accounts and correspondent accounts that are included in the calculation of the basic fiscal balance; expenditure financed with HIPC-related resources; and costs of structural reforms incurred will be drawn from preliminary treasury account balances. The costs of structural reforms incurred will also be provided by the authorities in the form of a table similar to the one above with a lag of no more than 45 days. Final data will be provided as soon as the final balances of the treasury accounts are available, but not later than two months after the reporting of provisional data.

B. Change in Net Bank Credit to the Government

Definitions

8. The definition of government for the purpose of calculating net bank credit to the government is the one applied by the BCEAO. It is broader than the definition of government in paragraph 2. Net bank credit to the government reflects the net credit position of the government—including postal checking accounts (CCP)—vis-à-vis the central bank and commercial banks. Net bank credit to the government is the difference between the government’s gross indebtedness to the banking system and its claims on the banking system. Government claims include all deposits at the central bank and commercial banks, and secured claims (obligations cautionnées), as well as (for reporting purposes) Treasury cash holdings. The government’s debt to the banking system includes central bank credit (mainly statutory advances, IMF net credit, refinancing of secured liabilities, the deposit by Kuwait, and government securities held by the central bank), commercial bank credit (including government securities held by resident commercial banks), ex-ONCAD securities, and private deposits at the CCP. Government securities held outside the Senegalese banking system are not included in net bank credit to the government. The net bank credit to the government as calculated by the BCEAO serves as the basis for program monitoring.

9. The change in net bank credit to the government as of the date for the quantitative performance criterion or benchmark is defined as the difference between the stock on the date indicated and the stock on December 31 of the preceding year.

Net Bank Credit to the Government

(In billions of CFA francs)

12/31/043/31/056/30/059/30/0512/31/05
EstimateCriterionIndicativeCriterionIndicative
TargetTarget
I. Net bank credit to the government32.716.68.25.435.1
II. Change in net bank credit to the government, cumulative from beginning of the year−31.5−16.1−24.5−27.32.5

Performance criteria

10. The amounts set in the above Table on Net Bank Credit to Government for March 31, 2005 and September 30, 2005 are ceilings and constitute performance criteria. The amounts set in the above table for June 30 and December 31, 2005 are ceilings and constitute indicative targets.

Adjusters

11. The ceiling on the cumulative change in net bank credit to the government will be lowered (raised) by the amount by which disbursements of external budgetary assistance (defined as budgetary grants, program disbursements, and debt relief, excluding Fund resources, and HIPC Initiative debt relief) exceed (fall short of) program projections as set out in the Table 2. The adjustment will be for the full amount of any excess disbursement but will be limited to CFAF 20 billion in the event of a shortfall.

Table 2.Senegal: Quarterly Government Financial Operations, 2005
2005
MarchJuneSept.Dec.
Prog.Prog.Prog.Prog.
(In billions of CFA francs, cumulative since the beginning of the year)
Total revenue and grants199.5434.4689.5922.4
Revenue179.2392.1628.5841.0
Tax revenue176.5385.1601.6802.1
Nontax revenue2.77.026.838.9
Grants20.342.361.081.4
Budgetary3.77.711.114.8
Budgeted development projects16.734.650.066.6
Total expenditure and net lending207.6485.5753.51,049.8
Current expenditure145.3303.5432.3600.4
Wages and salaries58.6118.6179.0247.3
Interest due9.223.831.043.2
Of which : external7.921.027.137.9
Other current expenditure77.5161.1222.4309.9
o/w: HIPC current expenditure2.55.27.510.0
Capital expenditure62.3162.3298.5422.9
Domestically financed26.487.5190.6279.0
Non HIPC financed23.065.2163.8229.4
HIPC financed3.422.326.849.6
Externally financed36.074.8107.9143.9
Treasury special accounts and correspondents (net)0.00.00.00.0
Net lending0.04.24.28.0
Temporary costs of structural reforms0.015.518.518.5
Overall fiscal balance (including grants)−8.1−51.1−64.0−127.5
Overall fiscal balance (excluding grants)−28.4−93.4−125.0−208.8
Primary balance 1/1.2−27.3−33.0−84.2
Basic fiscal balance (program definition) 2/13.532.744.029.2
Financing8.151.164.0127.5
External financing42.271.580.1127.1
Drawings48.482.199.9148.6
Program loans29.133.633.655.3
Project loans19.348.566.393.3
Amortization due−12.4−35.7−49.4−127.1
Debt relief and HIPC Initiative assistance 3/6.225.129.6105.7
Domestic financing−34.1−20.3−16.10.3
Banking system−16.1−24.5−27.32.5
Of which : issuance of new treasury bills−17.0−17.03.63.6
Nonbank financing−18.04.211.2−2.2
Of which : privatization receipts0.00.01.11.1
Of which: Government bonds issued in WAEMU−5.75.312.112.1
Errors and omissions0.00.00.00.0
Financing gap0.00.00.00.0
Memorandum items:
Total HIPC spending5.927.534.359.6
Basic fiscal balance (WAEMU definition) 4/7.6−10.3−8.8−48.9
Sources: Senegalese authorities; and staff estimates and projections.

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

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, cost of structural reforms and HIPC expenditure.

Assumes debt relief on KWD 30 million (CFAF 52 billion) loan principal repayment falling due in late 2004. Negotiations are going on between the authorities of Kuwait and Senegal.

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

Sources: Senegalese authorities; and staff estimates and projections.

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

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, cost of structural reforms and HIPC expenditure.

Assumes debt relief on KWD 30 million (CFAF 52 billion) loan principal repayment falling due in late 2004. Negotiations are going on between the authorities of Kuwait and Senegal.

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

Table 1.Senegal: Quantitative Performance Criteria and Indicative Targets for 2005

(In billions of CFA francs, cumulative from the beginning of the year; unless otherwise specified)

March 31June 30Sept. 30Dec. 31
Performance Criteriaindicative TargetsPerformance Criteriaindicative Targets
Performance Criteria and Indicative Targets 1/
Floor on the basic fiscal balance, excluding temporary costs of structural
reforms and spending financed with HIPC-related resources 2/13.532.744.029.2
Ceiling on the cumulative change in net bank credit to the government−16.1−24.5−27.32.5
Ceiling on government domestic payments arrears 3/0.00.00.00.0
Ceiling on government external payments arrears 3/0.00.00.00.0
Ceiling on the contracting or guaranteeing of new nonconcessional
external debt by the government 3/ 4/0.00.00.00.0
Ceiling on the amount of government contracts signed without budgetary allocation 3/0.00.00.00.0
Ceiling on the share of government contracts signed by single tender (in percent)20.020.020.020.0
Ceiling on budgetary transfers to SONACOS 3/0.00.00.00.0
Ceiling on budgetary transfers to cover SENELEC operating losses 3/0.00.00.00.0
Ceiling on the stock of arrears of SONACOS 3/0.00.00.00.0
Ceiling on the stock of arrears of SENELEC 3/0.00.00.00.0
Ceiling on SONACOS’ debt to the banking system35.525.014.54.0
Ceiling on SENELEC’s debt to the banking system52.548.446.642.5
Indicative Targets 1/
Floor on tax revenue176.5385.1601.6802.1
Ceiling on the amount of current non-wage non-interest expenditures
and domestically financed capital expenditures executed through
exceptional procedures21.021.021.021.0
Ceiling on the wage bill58.6118.6179.0247.3
Floor on the difference between the net creditor flow in the treasury accounts of the postal service
and the net creditor flow in the deposit accounts at the Centre de Cheques Postaux (CCP)
and the saving accounts at the Caisse Nationale d’Epargne (CNE)0.00.00.00.0
Ceiling on the stock of net deposits in the correspondent accounts of the
treasury, excluding the correspondent accounts of local authorities, public
agencies, SN La Poste, IPRES, and deposit and guarantee accounts18.018.018.018.0
Ceiling on guarantee deposits of the government0.00.00.00.0
Memorandum items:
External budgetary assistance, excluding IMF32.841.244.670.0
Grants3.77.711.114.8
Loans29.133.633.655.3
Programmed spending of HIPC debt relief5.927.534.359.6

Performance criteria, indicative targets and adjusters are defined in the Technical Memorandum of Understanding (TMU).

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

This criterion will be monitored on a continuous basis.

This criterion excludes governement or governement-guaranteed CFAF borrowing from financial institutions within WAEMU.

Performance criteria, indicative targets and adjusters are defined in the Technical Memorandum of Understanding (TMU).

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

This criterion will be monitored on a continuous basis.

This criterion excludes governement or governement-guaranteed CFAF borrowing from financial institutions within WAEMU.

Programmed External Budgetary Assistance

(In billions of CFA francs, cumulative from the beginning of the year)

3/31/056/30/0509/30/0512/31/05
Budgetary grants3.77.711.114.8
Program disbursement29.133.633.655.3
Debt relief00051.9
Total32.841.344.7122.0

12. The ceiling will be adjusted for the difference between programmed HIPC-related resources and actual HIPC-related resources. HIPC-related resources consist of debt relief under the HIPC Initiative received during the period under consideration and of the stock of resources in the Treasury’s HIPC account at the BCEAO at the end of the preceding year. The ceiling will be lowered (raised) for HIPC-related resources exceeding (falling short of) programmed amounts as set out in Table 2.

13. The ceiling will be raised (lowered) for HIPC-related spending exceeding (falling short of) programmed amounts (as set out in Table 2). HIPC-related spending consists of expenditures in priority sectors that have been financed with HIPC-related resources.

14. The ceiling will be lowered (increased) for expenditures on structural reforms that fall short of (exceed) the programmed amount (as set out in Table above). The ceiling will be raised only when these additional costs are not covered by additional, unforeseen, external budgetary assistance as defined in paragraph 12.

15. In addition, the ceiling on net bank credit to the government will be lowered (raised) for government paper issued in 2005 held by an entity or person outside the Senegalese banking system that exceed (fall short of) the programmed amount.

16. Moreover, the ceiling on net bank credit to the government will be lowered by the amount by which the stock of net deposits in correspondent accounts of SN La Poste at the Treasury could increase, as a consequence of its recapitalization by the government.

Reporting requirements

17. The BCEAO will report the provisional data on the net bank credit to the government to Fund staff on a monthly basis, with a lag of no more than one month after the end of each observation period. Final data will be reported with a maximum lag of two months.

C. Domestic Payments Arrears

Definition

18. Domestic payments arrears are duly certified domestic expenditure commitments cleared for payment (dépenses ordonnancées) but not paid during a period of 90 days after the date the payment order (ordonnancement) was cleared.

Performance criterion

19. Under the program, the government will not accumulate any domestic payments arrears. This performance criterion will be monitored on a continuous basis.

Reporting requirements

20. The authorities will report to Fund staff any accumulation of domestic payments arrears as defined above as soon as incurred. The government will also report to Fund staff on a monthly basis and with a 60 day delay all committed expenditure (dépenses engagées) and all certified but not yet cleared for payment expenditure (dépenses liquidées non encore ordonnancées).

D. External Payments Arrears

Definition

21. External payments arrears are defined as the sum of payments due but unpaid on outstanding external debt (as defined in paragraph 25) that has been contracted or guaranteed by the government, with the exception of external payment arrears arising from government debt being renegotiated with creditors including Paris Club creditors.

Performance criterion

22. Under the program, the government will not accumulate any external payments arrears. This performance criterion will be monitored on a continuous basis.

Reporting requirements

23. The government will report to Fund staff any accumulation of external payments arrears as soon as the due date has been missed.

E. Ceiling on the Contracting or Guaranteeing of New Non concessional External Debt by the Government

Definition

24. This performance criterion applies not only to debt as defined in Point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Executive Board Decision No. 6230-(79/140), last amended by Executive Board Decision No. 12274-(00/85), adopted August 24, 2000, but also to commitments contracted or guaranteed by the government for which value has not been received. It does not apply to government or government-guaranteed CFAF borrowing from WAEMU residents.

25. The definition of debt as specified in Point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt reads as follows:” (a) For the purposes of this guideline, the term “debt” will be understood to mean a current, i.e., not 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, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, including: (i) 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, 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 funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and (iii) 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 the 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. (b) Under the definition of debt set out in point 9(a), arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.”

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

27. For purposes of this performance criterion, government is understood to include the government as defined in paragraph 2 above, as well as public institutions of an industrial and commercial nature (EPIC), public administrative institutions (EPA), public institutions of a scientific and technical nature, public institutions of a professional nature, public health institutions, local administrations, public enterprises, and government-owned or controlled independent companies (i.e., public enterprises with financial autonomy of which the government holds at least 50 percent of the capital).

Performance criterion

28. The government as defined in paragraph 27 will not contract or guarantee nonconcessional external debt as defined in para. 26. This performance criterion is monitored on a continuous basis. It does not apply to: debt rescheduling and restructuring operations; import-related credit and pre-export financing secured on export contracts of less than one year maturity; and government or government-guaranteed CFAF borrowing from WAEMU residents.

Reporting requirements

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

F. Government Contracts Signed without Budgetary Appropriation

Definition

30. Government contracts are written contracts signed by the government to buy goods and services or to execute works.

Performance criterion

31. The government will not sign any contracts which create a financial obligation for the government without budgetary appropriation. This performance criterion is monitored on a continuous basis

Reporting requirements

32. The government will immediately report to Fund staff any contract signed without budgetary appropriation.

G. Government Contracts Signed by Single Tender

Definition

33. Government contracts are considered single-bid contracts when the government contracting agent, guided by the provisions of articles 76 to 79 of the Government Procurement Code, signs the contract with the contractor that he chooses without competitive tender.

Performance criteria

34. The share of government single-bid contracts granted by all the ministries will not exceed 20 percent of the total value of contracts signed by these ministries. This ceiling constitutes performance criteria for end-March and end-September 2005, and indicative targets for end-June and December 2005.

Reporting requirements

35. The government will report quarterly to the Fund staff, with a lag of no more than one month, the total value of contracts signed by all ministries as well as the total value of all single-bid contracts signed by these ministries, which are examined by the National Commission on the Administration’s Public Contracts (CNCA).

H. Subsidies to SONACOS

Definition

36. Subsidies to SONACOS are current transfers paid by the government to that company.

Performance criterion

37. Until the finalization of the privatization of SONACOS, the government will not pay any subsidy to the company. This criterion will be monitored on a continuous basis as long as the government holds at least 50 percent of SONACOS’s capital.

Reporting requirements

38. Until SONACOS is privatized, the government will immediately report to Fund staff any subsidy paid to SONACOS.

I. Subsidies to SENELEC

Definition

39. Subsidies to SENELEC are current transfers paid by the government to that company except those for fixed capital investment.

Performance criterion

40. The government will not pay any subsidy to SENELEC. This criterion will be monitored on a continuous basis.

Reporting requirements

41. The government will immediately report to Fund staff any subsidy paid to SENELEC.

J. Stock of Arrears of SONACOS

Definition

42. The stock of arrears of SONACOS includes all payments due by SONACOS and not paid within 60 days.

Performance criterion

43. The stock of arrears of SONACOS will remain nil at all times as long as the government holds at least 50 percent of SONACOS’s capital. This performance criterion will be monitored on a continuous basis.

Reporting requirements

44. The government will immediately report to Fund staff any outstanding payment arrears of SONACOS, until it is privatized.

K. Stock of Arrears of SENELEC

Definition

45. The stock of arrears of SENELEC includes all payments due and not paid within 60 days.

Performance criterion

46. The stock of arrears of SENELEC will remain nil at all times. This performance criterion will be monitored on a continuous basis.

Reporting requirements

47. The government will immediately report to Fund staff any payment arrears incurred by SENELEC.

L. Stock of Debt of SONACOS

Definition

48. The stock of debt of SONACOS includes all loans contracted with local and foreign banks for the crop year 2004/05 as well as all other bank loans unrelated to that or subsequent crop years.

Performance criteria

49. The stock of debt of SONACOS will not exceed CFAF 35.5 billion on March 31, 2005, CFAF 25 billion on June 30, 2005, CFAF 14.5 billion on September 30, 2005, and CFAF 4 billion on December 31, 2005. The ceilings for March 2005 and September 2005 are performance criteria; those for June 2005 and December 2005 are indicative targets. These criteria and targets will apply as long as the government owns at least 50 percent of the capital of SONACOS.

Reporting requirements

50. The government and the BCEAO will report the stock of debt of SONACOS to Fund staff, on a monthly basis, with a lag of no more than one month.

M. Stock of Debt of SENELEC

Definition

51. The stock of debt of SENELEC includes all loans contracted with banks within the WAEMU region.28

Performance criteria

52. The stock of debt of SENELEC will not exceed CFAF 52.5 billion on March 31, 2005, CFAF 48.4 on June 30, 2005, CFAF 46.6 billion on September 30, 2005, and CFAF 42.5 billion on December 31, 2005. The ceilings for March 2005 and September 2005 are performance criteria; those for June 2005 and December 2005 are indicative targets.

Reporting requirements

53. The government and the BCEAO will report the stock of debt of SENELEC to Fund staff, on a monthly basis, with a lag of no more than one month.

III. Indicative Targets

Program indicative targets

(In billions of CFA francs, cumulative from the beginning of the year, unless otherwise indicated)

3/31/056/30/059/30/0512/31/05
IndicativeIndicativeIndicativeIndicative
targettargettargettarget
Tax revenue176.5385.1601.6802.1
Wage bill58.6118.6179.0247.3
Current nonwage non-interest expenditures and domestically financed capital expenditure executed through exceptional payments procedures21.021.021.021.0
Difference between the creditor flow in the treasury accounts of SN la Poste (postal service) and that in the deposit accounts at CCP and the saving accounts at CNE0.00.00.00.0
Stock of net deposits in the correspondent accounts of the Treasury, excl. local authorities, public agencies, SN La Poste, IPRES and deposit and guarantee accounts18.018.018.018.0
Stock of guarantee deposits of the government0.00.00.00.0

A. Tax Revenue

Definition

54. Tax revenue is defined as reported in the government financial operations table (TOFE).

Indicative targets

55. Tax revenue will not fall below CFAF 176.5 billion for March 31, 2005, CFAF 385.1 billion for June 30, 2005, CFAF 601.6 billion for September 30, 2005, and CFAF 802.1 billion for December 31, 2005. These amounts are considered indicative targets under the program, for the respective dates.

Reporting requirements

56. The government will report to Fund staff preliminary tax revenue data monthly, with a lag of no more than one month, on the basis of actual collections as recorded in treasury accounts. Final data will be provided once the final treasury accounts are available, but not later than two months after the reporting of preliminary data.

B. Wage Bill

Definition

57. The wage bill is defined as all government expenditure on wages, other compensation, bonuses, allowances, and social benefits granted to or paid for the benefit of civil servants and other public employees.

Indicative targets

58. The wage bill will not exceed CFAF 58.6 billion for March 31, 2005, CFAF 118.6 billion for June 30, 2005, CFAF 179.0 billion for September 30, 2005, and CFAF 247.3 billion for December 31, 2005. These amounts are considered indicative targets for the respective dates.

Reporting requirements

59. The government will report the wage bill data on a monthly basis to Fund staff, with a lag of no more than 45 days after the end of the month under consideration.

C. Ceiling on the Amount of Current Nonwage Non interest Expenditures and Domestically Financed Capital Expenditures Executed Through Exceptional Budgetary Procedures

Definition

60. Current nonwage non-interest expenditures are all current expenditures other than wage and interest payments as reported in the TOFE. Domestically financed capital expenditures are all capital expenditures that have not been financed using external resources. Exceptional payments procedures are treasury advances (avances de trésorerie).

Indicative targets

61. The sum of current non-wage non-interest expenditures and domestically financed capital expenditures executed through exceptional budgetary procedures will not exceed CFAF 21 billion on March 31, June 30, September 30, and December 31, 2005. These amounts will be considered indicative targets for the respective dates.

Reporting requirements

62. During the program period, the authorities will report to Fund staff, provisional data on a monthly basis on current non-wage non-interest expenditures and domestically financed capital expenditures executed through advance payments and treasury advances, with a lag of no more than 45 days. The data will be drawn from preliminary treasury account balances. Final data will be provided as soon as the final balances of the treasury accounts are available, but no more than two months after the reporting of provisional data.

D. Ceiling on the Stock of Net Deposits in the Correspondent Accounts of the Treasury, Excluding the Correspondent Accounts of Local Authorities, of Public Agencies, of SN La Poste, of IPRES and the Deposit and Guarantee Accounts

Definition

63. The stock of net deposits in the correspondent accounts of the Treasury is defined as the sum of the net credit balance in the entry balance sheet (balance d’entrée) of the year in question and the net inflows in those accounts during the same period. The following correspondent accounts are excluded from this benchmark: the accounts of local authorities (numbered 431 through 436); the accounts of public agencies (numbered 442); the accounts of SN La Poste (numbered 440-001); the account of IPRES with the number 462.01; and the deposit and guarantee accounts (numbered 466.13).

Indicative targets

64. The net deposits in the correspondent accounts of the Treasury as defined above will not exceed CFAF 18.0 billion on March 31, June 30, September 30, and December 31, 2005. These amounts are considered indicative targets for the respective dates.

Reporting requirements

65. During the program period, the authorities will report to Fund staff provisional data on a monthly basis on net deposits in the correspondent accounts of the Treasury, as defined above, with a lag of no more than 45 days. The data will be drawn from preliminary treasury account balances. Final data will be provided as soon as the final balances of the treasury accounts are available, but no more than two months after the reporting of provisional data.

E. Difference between the Creditor Flow in the SN La Poste (Postal Service) Treasury Accounts and the Creditor Flow in the Deposit Accounts at the CCP and the Saving Accounts at the CNE

Definition

66. The net creditor flow on any date is defined as the difference between the cumulative amounts deposited on the accounts of SN La Poste at the Treasury and cumulative withdrawals from the same accounts since the beginning of the year under consideration. The net creditor flow of the deposit accounts at the Postal Check Office (CCP) and the saving accounts at the National Saving Office (CNE) on any date is defined as the difference between the cumulative amounts deposited on these accounts and cumulative withdrawals from the same accounts since the beginning of the year under consideration.

Indicative targets

67. The difference between the net creditor flow of the SN La Poste treasury accounts and the net creditor flow of the deposit accounts at the CCP and the saving accounts at the CNE will not become negative on March 31, June 30, September 30, and December 31, 2005. These amounts are considered indicative targets for the respective dates

Adjusters

68. The above amounts will be increased by the amount by which the stock of net deposits in correspondent accounts of SN La Poste at the Treasury could increase, as a consequence of its recapitalization by the government.

Reporting requirements

69. The government will report to Fund staff the provisional flows of the SN La Poste accounts and the flows of the deposit accounts at the CCP and the saving accounts at the CNE on a monthly basis, with a lag of no more than 45 days. Final data will be provided as soon as the final balances of the treasury accounts are available, but no more than two months after the reporting of provisional data.

F. Ceiling on Government Guarantee Deposits

Definition

70. Government guarantee deposits are defined as government deposits in local and foreign banks used to guarantee bank loans.

Indicative targets

71. The stock of guarantee deposits will be nil on March 31, June 30, September 30, and December 31, 2005. This amount is considered indicative target for the respective dates.

Reporting requirements

72. The government will report the stock of government guarantee deposits to Fund staff on a monthly basis, with a lag of no more than one month after the end of each observation period.

IV. Prior Actions and S