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Senegal: Third and Fourth Reviews Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria

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

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; end of period)

March 31June 30Sept. 30Dec. 31
Performance CriteriaPerformance Criteria after adjustersActual provisionalStatusIndicative TargetsIndicative Targets after adjustersActual provisionalStatusPerformance CriteriaPerformance Criteria after adjustersActual provisionalStatusIndicative Targets
Performance Criteria
Floor on the basic fiscal balance, excluding temporary costs of structural

reforms and spending financed with HlPC-related resources 1/
13.526.5met32.7118.3met44.0120.5met40.4
Ceiling on the cumulative change in net bank credit to the government−16.15.22.6met−24.5−24.0−81.0met−27.3−39.6−119.4met−17.5
Ceiling on government domestic payments arrears 2/0.00.0met0.00.0met0.00.0met0.0
Ceiling on government external payments arrears 2/0.00.0met0.00.0met0.00.0met0.0
Ceiling on the contracting or guaranteeing of new nonconcessional

external debt by the government 2/3/
0.00.0met0.00.0met0.00.0met0.0
Ceiling on the amount of government contracts signed without budgetary allocation 2/0.00.0met0.00.0met0.00.0met0.0
Ceiling on the share of the value of government contracts signed by single tender (in percent)20.019.3met20.031.9not met20.023.7not met20.0
Ceiling on

transfers to SONACOS 2/
0.00.0metn.a. 4/n.a. 4/n.a. 4/n.a. 4/n.a. 4/
stock of arrears of SONACOS 2/0.00.0metn.a. 4/n.a. 4/n.a. 4/n.a. 4/n.a. 4/
SONACOS’ debt to the banking system35.5n.a 4/n.a. 4/n.a. 4/n.a. 4/n.a. 4/n.a. 4/
Ceiling on budgetary transfers to cover SENELEC operating losses 2/0.00.0met0.00.0met0.00.0not met 5/0.0
the stock of arrears of SENELEC 2/0.00.9not met0.00.9not met0.01.0not met0.0
SENELEC’s debt to the banking system52.536.6met48.440.3met46.636.3met42.5
Indicative Targets
Floor on tax revenue176.5190.7met385.1435.6met601.6634.6met840.1
Ceiling on the amount of current non-wage non-interest expenditures

and domestically financed capital expenditures executed through

exceptional procedures
21.022.0not met21.014.0met21.032.6not met21.0
Ceiling on the wage bill58.661.3not met118.6124.2not met179.0185.9not met255.3
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 Chèques Postaux (CCP)

and the saving accounts at the Caisse Nationale d’Epargne (CNE) 2/
0.00.7met0.0−2.0not met0.011.9met0.0
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 accounts
18.035.9not met18.012.3met18.029.5not met18.0
Ceiling on guarantee deposits of the government0.00.0met0.00.0met0.00.0met0.0
Memorandum items:
External budgetary assistance, excluding IMF32.820.141.225.044.627.353.0
Grants3.70.07.74.911.16.311.5
Loans29.120.133.620.133.621.041.5
Programmed spending of HIPC debt relief5.96.827.518.534.326.269.0

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

This performance criterion or indicative target will be monitored on a continuous basis.

This criterion excludes government or government-guaranteed CF AF borrowing from financial institutions within WAEMU.

Not applicable: SONACOS was privatized in March 2005.

SENELEC received budgetary transfers amounting to CFAF 16 billion in December 2005.

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

This performance criterion or indicative target will be monitored on a continuous basis.

This criterion excludes government or government-guaranteed CF AF borrowing from financial institutions within WAEMU.

Not applicable: SONACOS was privatized in March 2005.

SENELEC received budgetary transfers amounting to CFAF 16 billion in December 2005.

Table 2.Senegal: Prior Actions, Structural Performance Criteria, and Benchmarks for the Program under the PRGF Arrangement in 2005
MeasuresTimetableStatus
Proposed prior actions for the combined third and fourth reviews
  • Promulgate a decree on transparency procedures for financing and construction of Dakar’s new airport.
Implemented
  • Improve the transparency of the Government’s Table of Financial Operations (TOFE) for October 2005 in line with the methodological Changes to the government operations table explained in the box of the memorandum of economic and financial policies in 2006.
Implemented
Structural performance criteria
  • Submit to the IMF staff the monthly table of the government’s financial operations (TOFE) for January 2005.
March 31, 2005Implemented
  • Eliminate the specific tax on refined vegetable oil.
December 31, 2005Implemented
Benchmarks
  • Produce a report on direct and indirect taxes due and collected in January 2005.
March 31, 2005Implemented with delay
  • Produce reports on the execution of capital expenditures at end-June, end-September and end-December 2004. The reports will include (i) the payments authorized by the Debt and Investment Directorate for each project; (ii) the funds transferred to the accounts of these projects in the banking system by the treasury; (iii) the external funding allocated to these projects (grants, loans); and (iv) the external funds deposited in these accounts.
March 31, 2005Implemented
  • Improve the transparency of the Government’s Table of Financial Operations (TOFE) in line with the recommendations of the AFR/FAD technical mission of February 2004 concerning the treatment of correspondent accounts and the different government definitions used in the TOFE and the net bank credit to government.
June 30, 2005Not implemented
  • Prepare a report on commitments, verification, payment orders, and payment by major spending lines for the months January– June 2005, using the software “Système Intégré de Gestion des Finances Publiques” (SIGFIP).
July 31, 2005Implemented with delay
  • Implement a new formula for electricity prices compatible with operator profitability.
October 1, 2005Gradual implementation, starting in November 2005

1. Executive Board consideration of the third review of the program was delayed owing mainly to ongoing discussions of transparency procedures for the implementation of Dakar’s new airport project. These discussions were completed in December 2005, when information for the test date for the fourth review (end-September 2005) also became available, making it possible to combine the third and fourth reviews.

2. Senegal has enjoyed high growth and low inflation in recent years (Figure 1 and Table 3). It has registered one of the lowest inflation rates in the West African Economic and Monetary Union (WAEMU) region since 1997. The PRGF arrangement aims at safeguarding these gains, while fostering an environment conducive to private sector-led growth and poverty reduction. Fiscal transparency and structural reforms constitute the two critical pillars of the authorities’ economic program.

Figure 1.Senegal: GDP Deflator and Real GDP, 1994–2006

(Annual Percentage Change)

Source: Senegalese authorities; and IMF staff estimates and projections.

Table 3.Senegal: Selected Economic and Financial Indicators, 2001–06
200120022003200420052006
Est.Prog. 1/Proj.Proj. 1/Rev. proj.
(Annual percentage change, unless otherwise indicated)
National income and prices
GDP at constant prices4.71.16.56.26.45.15.25.1
Of which: nonagriculture GDP4.94.94.46.36.14.75.24.8
GDP deflator0.02.70.71.92.02.62.02.3
Consumer prices
Annual average3.02.30.00.51.61.81.92.6
End of period3.91.5−1.41.71.62.11.92.2
External sector
Exports, f.o.b. (in CFA francs)12.31.1−1.76.16.28.65.56.5
Imports, f.o.b. (in CFA francs)10.06.87.49.02.39.55.56.7
Export volume8.73.20.13.64.33.14.34.1
Import volume12.56.64.15.95.41.94.63.4
Terms of trade (deterioration -)5.7−1.0−5.5−0.64.1−1.90.7−0.5
Nominal effective exchange rate 2/1.22.45.21.9−0.4
Real effective exchange rate 2/1.82.82.70.1−1.9
(Changes in percent of beginning-of-year broad money, unless otherwise indicated)
Money and credit
Net domestic assets4.3−6.45.43.13.811.74.28.3
Domestic credit6.6−4.95.72.54.211.54.48.4
Credit to the government (net)2.7−8.3−4.3−3.10.2−1.2−0.92.4
Credit to the economy (percentage growth)4.94.714.39.25.721.57.79.5
Broad money (M2)14.57.631.512.98.516.06.311.0
Velocity (GDP/M2; end of period)3.73.62.92.83.42.63.42.5
Interest rates (end of period; in percent)
Discount rate6.505.005.004.50
Money market rate4.954.954.954.95
(In percent of GDP)
Government financial operations
Revenue18.019.119.319.319.320.219.320.0
Grants1.81.82.12.21.91.82.21.9
Total expenditure and net lending22.321.623.124.524.125.622.925.8
Overall fiscal surplus or deficit (-)
Payment order basis, excluding grants−4.4−1.8−3.5−5.5−4.8−5.3−3.5−5.8
Payment order basis, including grants−2.60.0−1.4−3.3−2.9−3.5−1.4−4.0
Primary fiscal balance 3/−1.50.5−0.5−1.9−1.9−2.5−0.4−3.0
Basic fiscal balance, program definition 4/−0.82.11.30.80.70.90.80.0
Gross domestic investment19.216.720.723.423.423.422.623.7
Gross domestic savings9.55.67.79.812.19.311.69.8
Gross national savings14.510.814.116.717.915.717.516.1
External current account deficit (-)
Excluding current official transfers−6.3−8.0−8.6−8.7−7.1−9.2−6.9−9.1
Including current official transfers−4.7−6.0−6.6−6.7−5.4−7.6−5.1−7.6
Domestic public debt 6/9.27.26.86.56.57.05.66.6
External public debt (nominal) 5/6/67.366.154.546.338.342.835.439.9
NPV of external debt 5/7/33.728.232.227.131.9
NPV of external debt (in percent of exports) 5/7/121.2104.7116.4104.8117.1
(In percent of exports of goods and nonfactor services, unless otherwise indicated)
External public debt service 5/9.09.28.36.96.46.07.16.9
In percent of government revenue15.314.812.39.99.08.29.69.4
GDP at current market prices (in billions of CFA francs)3,3433,4733,7254,0294,3644,3464,6824,673
Sources: Senegalese authorities; and staff estimates and projections.

Staff Report for the 2004 Article IV consultation and the second review.

First 9 months in 2005.

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.

Debt outstanding at year-end.

Including programmed new debt.

Sources: Senegalese authorities; and staff estimates and projections.

Staff Report for the 2004 Article IV consultation and the second review.

First 9 months in 2005.

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.

Debt outstanding at year-end.

Including programmed new debt.

II. Economic Developments and Program Implementation During 2004 and the First Nine Months of 2005

3. Macroeconomic performance in 2004 and 2005 was broadly in line with program projections, with robust growth and low inflation in both years. However, real GDP growth in 2005 was lower than the program target by about one percentage point (Table 4), mainly due to the increase in world oil prices.

Table 4.Senegal: Savings-Investment Balances and National Accounts 2001–06
Composition
of GDP in 1999200120022003200420052006
(In percent)Est.Prog. 1/Proj.Proj. 1/Rev. proj.
(Annual percentage change at constant prices, unless otherwise indicated)
Primary sector18.13.3−20.619.84.37.37.43.86.0
Agriculture9.93.0−32.236.34.29.510.05.38.0
Livestock5.14.5−6.44.25.05.05.04.04.0
Forestry0.83.02.34.04.03.03.23.03.0
Fishing2.42.3−6.44.92.44.01.9−5.01.9
Secondary sector18.74.39.86.45.86.23.16.53.6
Mining1.30.711.328.0−11.94.3−13.04.03.5
Industry11.66.111.51.47.04.31.65.00.1
Oil milling0.26.2−9.6−22.8−17.910.026.810.015.0
Energy1.96.7−2.718.41.15.00.95.71.5
Construction and public works3.6−1.012.410.514.013.013.011.613.0
Tertiary sector63.25.24.73.76.76.25.35.15.4
Transportation and telecommunications6.314.15.57.313.39.010.47.59.0
Commerce18.51.75.94.26.36.74.64.04.0
Public administration19.77.53.12.24.75.45.44.85.4
Other18.72.95.13.56.75.33.45.34.9
GDP100.04.71.16.56.26.45.15.25.1
Nonagriculture GDP90.14.94.94.46.36.14.75.24.8
GDP deflator0.02.70.71.92.02.62.02.3
Consumer price index (period average)3.02.30.00.51.61.81.92.6
(In percent of GDP)
Gross domestic investment19.216.720.723.423.423.422.623.7
Government 2/6.97.99.110.29.79.88.910.1
Nongovernment12.28.811.613.213.713.613.713.6
Gross domestic savings9.55.67.79.812.19.311.69.8
Government5.49.08.98.810.06.59.86.6
Nongovernment4.2−3.4−1.10.92.12.81.83.3
Savings - investment balance−9.7−11.2−13.0−13.6−11.2−14.0−11.0−13.8
Government−1.61.0−0.2−1.30.3−3.30.9−3.5
Nongovernment−8.1−12.2−12.8−12.3−11.5−10.7−11.9−10.3
External current account balance 3/−4.7−6.0−6.6−6.7−5.4−7.6−5.1−7.6
Gross national savings14.510.814.116.717.915.717.516.1
Memorandum item:(In billions of CFA francs)
GDP at current prices3,3433,4733,7254,0294,3644,3464,6824,673
Sources: Senegalese authorities; and staff estimates and projections.

Staff Report for the 2004 Article IV consultation and the second review.

Includes capital expenditure financed with HIPC Initiative assistance.

Includes current official transfers.

Sources: Senegalese authorities; and staff estimates and projections.

Staff Report for the 2004 Article IV consultation and the second review.

Includes capital expenditure financed with HIPC Initiative assistance.

Includes current official transfers.

4. The balance of payments is estimated to have deteriorated slightly in 2005. The overall balance was in surplus in 2004, owing to strong inflow of private remittances and external assistance, but is estimated to have turned to a deficit in 2005 as the current account deficit widened with the rise in oil prices (Table 9, Figures 2 and 3).

Table 5.Senegal: Government Financial Operations, 2001–06
200120022003200420052006
Old 1/New 2/Old 1/New 2/Old 1/New 2/Old est. 1/New est. 2/Prog. 1/3/Proj. 2/Proj. 1/3/Rev. Proj. 2/
(In billions of CFA francs)
Total revenue and grants664.4664.4726.7726.7797.8797.8864.8864.8922.4957.01,006.11,022.4
Revenue602.7602.7664.6664.6720.1720.1776.8776.8841.0879.0905.1934.5
Tax revenue576.8576.8629.2629.2677.0677.0738.5738.5802.1840.1862.7892.1
Nontax revenue25.925.935.435.443.143.138.338.338.938.942.442.4
Grants61.761.762.162.177.777.788.088.081.478.1101.087.9
Budgetary0.00.01.91.917.617.618.518.514.811.529.116.0
Budgeted development projects61.761.760.260.260.160.169.569.566.666.671.971.9
Total expenditure and net lending748.1744.3730.3748.5850.1861.2962.7987.81,049.81,110.41,071.21,207.3
Current expenditure516.6516.6478.2478.2529.5529.5553.9553.9600.4658.2647.5700.7
Wages and salaries177.3177.3199.4199.4203.7203.7217.6217.6247.3255.3267.1266.3
Interest due30.330.339.839.844.644.646.746.743.243.747.046.3
Of which: external23.723.735.435.440.040.041.141.137.938.336.037.9
Other current expenditure309.0309.0239.0239.0281.2281.2289.6289.6309.9359.2333.5388.1
Transfers and subsidies178.5178.5140.9140.9135.4135.4142.9193.9152.9198.3
Of which: SAR0.00.00.00.00.00.09.29.29.243.09.235.0
Of which: SENELEC40.00.00.00.00.00.00.00.00.016.00.028.1
Goods and services130.5130.5140.3140.3148.0148.0157.0155.3180.6181.1
HIPC current spending6.26.210.010.00.08.6
Capital expenditure232.3232.3275.9275.9338.5338.5410.3410.3422.9425.2415.7473.1
Domestically financed133.6133.6147.9147.9190.3190.3221.3221.3279.0257.4259.0295.0
HIPC financed15.115.14.14.128.428.422.522.549.659.030.544.5
Non HIPC financed118.5118.5143.8143.8161.9161.9198.8198.8229.4198.4228.6250.5
Externally financed98.798.7128.0128.0148.2148.2189.0189.0143.9167.8156.7178.1
Treasury special accounts and correspondents (net)3.8−18.2−11.1−25.10.00.0
Net lending−4.6−4.6−5.6−5.6−6.8−6.812.312.38.023.08.018.0
Temporary costs of structural reforms0.00.00.00.00.00.011.311.318.54.00.015.5
Selected public sector entities balance 4/−5.821.911.5−8.70.00.0
Primary fiscal balance 5/−53.4−55.436.239.9−7.7−7.411.3−85.0−84.2−109.7−18.1−138.6
Overall fiscal balance (including grants)−83.7−85.7−3.60.1−52.3−52.0−97.9−131.7−127.5−153.3−65.1−184.9
Overall fiscal balance (excluding grants)−145.4−147.4−65.7−62.0−130.0−129.7−185.9−219.7−208.8−231.4−166.1−272.8
Basic fiscal balance (program definition) 6/−25.9−27.969.172.849.349.667.133.329.240.437.10.0
Financing83.785.73.6−0.152.352.097.9131.7127.5153.365.1184.9
External financing54.954.968.468.468.968.9142.3142.3139.2168.578.0145.5
Drawings103.3103.3112.7112.790.890.8156.6156.6148.6173.7127.8164.1
Program loans60.660.642.242.20.00.013.113.155.341.527.031.9
Project loans42.742.770.570.590.890.8143.5143.593.3132.2100.8132.2
Amortization due−64.2−64.2−81.0−81.0−73.9−73.9−126.9−126.9−127.1−129.7−128.4−132.0
Debt relief and HIPC Initiative assistance 7/15.815.836.736.744.044.0109.2109.2105.7112.493.198.4
T-bills and bonds issued in WAEMU0.00.00.00.08.08.03.43.412.112.1−14.415.0
Domestic financing17.410.8−70.7−74.4−16.5−11.6−42.3−8.4−11.8−15.2−13.039.3
Banking system21.839.9−75.4−67.0−42.3−13.9−40.2−49.22.5−17.5−11.341.0
Of which: T-bills and bonds15.015.018.918.936.636.62.815.0
Nonbank financing−4.4−29.14.7−7.425.82.2−2.140.8−14.32.3−1.7−1.7
Of which: privatization−44.1−44.11.11.11.11.11.11.11.16.41.11.1
correspondents’ accounts2.0−3.7−0.433.8
Errors and omissions11.420.05.95.9−0.2−0.4−2.1−2.20.00.00.00.0
Financing gap0.00.00.00.00.00.00.00.00.00.00.00.0
Memorandum items:
Airport travel tax earmarked for new airport (RDIA)11.516.1
HIPC Initiative expenditure 8/15.115.14.14.128.428.428.728.759.669.030.553.2
Banking deposits without counterpart in the fiscal accounts−18.1−8.4−28.49.0
Gross domestic product3,342.73,342.73,472.73,472.73,725.43,725.44029.24,029.24,364.34345.54,682.14,672.7
Sources: Senegalese authorities; and staff estimates and projections.

Before methodological changes presented in the box of the Memorandum of Economic and Financial Policies.

Incorporates methodological changes presented in the box 1 the Memorandum of Economic and Financial Policies.

Staff Report for the 2004 Article IV consultation and the second review.

Local governments, autonomous public sector entities (e.g. hospitals, universities), and the civil servants’ pension fund (FNR).

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 HIPC Initiative debt relief accorded by the IMF, the World Bank, the African Development Bank, Paris Club creditors and Kuwait.

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

Sources: Senegalese authorities; and staff estimates and projections.

Before methodological changes presented in the box of the Memorandum of Economic and Financial Policies.

Incorporates methodological changes presented in the box 1 the Memorandum of Economic and Financial Policies.

Staff Report for the 2004 Article IV consultation and the second review.

Local governments, autonomous public sector entities (e.g. hospitals, universities), and the civil servants’ pension fund (FNR).

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 HIPC Initiative debt relief accorded by the IMF, the World Bank, the African Development Bank, Paris Club creditors and Kuwait.

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

Table 6.Senegal: Government Financial Operations, 2001–06
200120022003200420052006
Old 1/New 2/Old 1/New 2/Old 1/New 2/Old est. 1/New est. 2/Prog. 1/3/Proj. 2/Proj. 1/3/Rev Proj. 2/
In percent of GDP
Total revenue and grants19.919.920.920.921.421.421.521.521.122.021.521.9
Revenue18.018.019.119.119.319.319.319.319.320.219.320.0
Tax revenue17.317.318.118.118.218.218.318.318.419.318.419.1
Nontax revenue0.80.81.01.01.21.21.01.00.90.90.90.9
Grants1.81.81.81.82.12.12.22.21.91.82.21.9
Total expenditure and net lending22.422.321.021.622.823.123.924.524.125.622.925.8
Current expenditure15.515.513.813.814.214.213.713.713.815.113.815.0
Wages and salaries5.35.35.75.75.55.55.45.45.75.95.75.7
Interest payments0.90.91.11.11.21.21.21.21.01.01.01.0
Other current expenditure9.29.26.96.97.57.57.27.27.18.37.18.3
Goods and services3.93.93.83.83.73.73.63.63.93.9
Transfers and subsidies5.35.33.83.83.43.43.34.53.34.2
Capital expenditure6.96.97.97.99.19.110.210.29.79.88.910.1
Domestically financed4.04.04.34.35.15.15.55.56.45.95.56.3
Externally financed3.03.03.73.74.04.04.74.73.33.93.33.8
Treasury special accounts and correspondents (net)0.1−0.5−0.3−0.60.00.0
Net lending−0.1−0.1−0.2−0.2−0.2−0.20.30.30.20.50.20.4
Temporary costs of structural reforms0.00.00.00.00.00.00.30.30.40.10.00.3
Selected public sector entities balance 4/−0.20.60.3−0.20.00.0
Primary fiscal balance 5/−1.6−1.51.00.5−0.2−0.5−1.3−1.9−1.9−2.5−0.4−3.0
Overall fiscal balance
Payment order basis, excluding grants−4.3−4.4−1.9−1.8−3.5−3.5−4.6−5.5−4.8−5.3−3.5−5.8
Payment order basis, including grants−2.5−2.6−0.10.0−1.4−1.4−2.4−3.3−2.9−3.5−1.4−4.0
Basic fiscal balance (program definition) 6/−0.8−0.82.02.11.31.31.70.80.70.90.80.0
financing2.52.60.10.01.41.42.43.32.93.51.44.0
External financing1.61.62.02.01.81.83.53.52.93.92.03.1
Domestic financing0.50.3−2.0−2.1−0.4−0.3−1.0−0.20.0−0.3−0.60.8
Errors and omissions0.30.60.20.20.00.0−0.1−0.10.00.00.00.0
financing gap0.00.00.00.00.00.00.00.00.00.00.00.0
Memorandum items:(In percent of GDP, unless otherwise notified)
Airport travel tax earmarked for new airport (RDI A)0.30.3
Basic fiscal balance (WAEMU definition) 7/−1.2−1.31.92.00.60.60.0−0.2−1.1−0.80.1−1.5
HIPC Initiative expenditure0.50.50.10.10.80.80.70.71.41.60.71.1
Health expenditure2.12.11.71.71.81.82.12.1
Education expenditure4.34.34.44.45.05.04.94.9
Wages and salaries (in percent of fiscal revenue)29.429.430.030.028.328.328.028.029.429.029.528.5
Gross domestic product (in billions of CFA francs)3,3433,3433,4733,4733,7253,7254,0294,0294,3644,3464,6824,673
Sources: Senegalese authorities; and staff estimates and projections.

Before methodological changes: see Table 5, footnote 1.

After methodological changes: see Table 5, footnote 2.

Staff Report for the 2004 Article IV consultation and the second review.

Local governments, autonomous public sector entities (e.g. hospitals, universities), and the civil servants’ pension fund (FNR).

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.

Before methodological changes: see Table 5, footnote 1.

After methodological changes: see Table 5, footnote 2.

Staff Report for the 2004 Article IV consultation and the second review.

Local governments, autonomous public sector entities (e.g. hospitals, universities), and the civil servants’ pension fund (FNR).

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.

Table 7.Senegal: Quarterly Government Financial Operations, 2005
2005
MarchJuneSept.Dec.
Old Est. 2/New Est. 3/Prog. 1/2/Old Est. 2/New Est. 3/Prog. 1/2/Old Est. 2/New Est. 3/Prog. 1/ 2/Proj.
Total revenue and grants205.5205.5434.4468.2468.2689.5706.6706.6922.4957.0
Revenue193.3193.3392.1442.0442.0628.5664.4664.4841.0879.0
Tax revenue190.7190.7385.1435.6435.6601.6634.6634.6802.1840.1
Nontax revenue2.62.67.06.46.426.829.829.838.938.9
Grants12.212.242.326.226.261.042.242.281.478.1
Budgetary0.00.07.74.94.911.16.36.314.811.5
Budgeted development projects12.212.234.621.321.350.035.935.966.666.6
Total expenditure and net lending223.1217.9485.5431.2455.9753.5696.9719.91,049.81110.4
Current expenditure141.3141.3303.5304.2304.2432.3453.7453.7600.4658.2
Wages and salaries61.361.3118.6124.2124.2179.0185.9185.9247.3255.3
Interest due6.26.223.813.613.631.029.629.643.243.7
Of which: external5.05.021.011.611.627.127.027.037.938.3
Other current expenditure73.873.8161.1166.4166.4222.4238.2238.2309.9359.2
Of which: HTPC current expenditure1.91.95.24.34.37.54.84.810.010.0
Capital expenditure75.175.1162.3147.1147.1298.5256.1256.1422.9425.2
Domestically financed31.131.187.568.168.1190.6146.1146.1279.0257.4
Non HTPC financed26.226.265.253.953.9163.8158.4158.4229.4198.4
HIPC financed4.94.922.314.214.226.821.421.449.659.0
Externally financed44.044.074.879.079.0107.9110.0110.0143.9167.8
Treasury special accounts and correspondents (net)5.20.0−24.70.0−23.00.0
Net lending1.51.54.24.64.64.210.110.18.023.0
Temporary costs of structural reforms0.00.015.50.00.018.50.00.018.54.0
Selected public sector entities balance 3/29.712.521.60.0
Overall fiscal balance (including grants)−17.617.3−51.137.024.8−64.09.78.3−127.5−153.3
Overall fiscal balance (excluding grants)−29.85.1−93.410.8−1.4−125.0−32.5−33.9−208.8−231.4
Primary balance 4/−11.423.5−27.350.638.4−33.039.337.9−84.2−109.7
Basic fiscal balance (program definition) 5/26.561.432.7118.3106.144.0120.5119.129.240.4
Financing17.6−17.351.1−37.0−24.864.0−9.7−8.3127.5153.3
External financing49.049.076.873.973.992.2109.0109.0139.2168.5
Drawings57.457.482.187.887.899.9111.9111.9148.6173.7
Program loans20.120.133.620.120.133.621.021.055.341.5
Project loans37.337.348.567.767.766.390.990.993.3132.2
Amortization due−9.8−9.8−35.7−30.2−30.2−49.4−43.5−43.5−127.1−129.7
Debt relief and HIPC Initiative assistance 6/7.17.125.122.022.029.622.022.0105.7112.4
T-bills and bonds issued in WAEMU−5.7−5.75.3−5.7−5.712.1−5.7−5.712.112.1
Domestic financing−32.8−66.3−25.6−111.7−99.5−28.2−120.7−119.3−11.8−15.2
Banking system2.6−9.1−24.5−81.0−79.8−27.3−119.4−94.02.5−17.5
Of which: T-bills and bonds−17.0−17.016.1−17.0−17.036.611.011.036.640.2
Nonbank financing−35.4−58.6−1.1−30.7−19.7−0.9−1.3−25.3−14.32.3
Of which: privatization receipts0.00.00.05.35.31.15.35.31.16.4
Of which: correspondents’ accounts−34.912.21.40.0
Errors and omissions1.40.00.00.80.80.02.02.00.00.0
Financing gap0.00.00.00.00.00.00.00.00.00.0
Memorandum items:
Airport travel tax earmarked for new airport (RDIA)3.23.26.36.311.5
Total HTPC spending6.86.827.518.518.534.326.226.259.669.0
Basic fiscal balance (WAEMU definition) 7/19.754.6−10.399.887.6−8.894.392.9−48.9−32.6
Banking deposits without counterpart in the fiscal accounts11.7−1.2−25.4
Sources: Senegalese authorities; and staff estimates and projections.

Staff Report for the 2004 Article IV consultation and the second review.

Before methodological changes: see Table 5, footnote 1.

After methodological changes: see Table 5, footnote 2.

Local governments, autonomous public sector entities (e.g. hospitals, universities), and the civil servants’ pension fund (FNR).

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 debt relief by Kuwait on KWD 30 million (CFAF 52 billion) loan principal repayment.

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.

Staff Report for the 2004 Article IV consultation and the second review.

Before methodological changes: see Table 5, footnote 1.

After methodological changes: see Table 5, footnote 2.

Local governments, autonomous public sector entities (e.g. hospitals, universities), and the civil servants’ pension fund (FNR).

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 debt relief by Kuwait on KWD 30 million (CFAF 52 billion) loan principal repayment.

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

Table 8.Senegal: Monetary Survey, 2001–06
200120022003200420052006
Est.Sept.Prog. 1/Proj.Proj. 1/Rev. proj.
(In billions of CFA francs)
Net foreign assets169.6296.8550.8676.3711.7513.2739.2540.5783.3
Central Bank of West African States (BCEAO)66.7137.7351.6477.1508.3289.5530.1305.6563.7
Commercial banks102.9159.1199.2199.2203.4223.8209.2235.0219.6
Net domestic assets735.6677.3729.8769.5781.0786.7938.6841.71,078.3
Net domestic credit837.4792.9848.8880.9925.7913.51047.3970.21,187.7
Net credit to the government182.0106.564.224.0−95.435.16.523.947.5
Central bank221.0188.7175.5107.91.4104.753.890.779.8
Commercial banks−42.0−83.0−117.2−93.7−104.3−75.5−57.1−72.7−42.1
Other institutions3.00.85.99.87.55.99.85.99.8
Credit to the economy655.5686.4784.6856.91021.1878.31040.8946.31,140.2
Of which: crop credit5.00.93.614.020.52.215.12.416.2
Other items (net)−101.8−115.6−119.0−111.4−144.7−126.8−108.7−128.5−109.4
Broad money (M2)905.2974.11,280.61,445.81,492.71,299.91,677.81,382.31,861.6
Currency outside banks217.8192.6337.5344.3323.2199.2349.7211.7372.5
Total deposits687.4781.5943.11,101.51,169.51,100.81,328.11,170.61,489.1
Demand deposits323.5372.6495.4563.1584.1524.8833.5558.1934.6
Time deposits363.9408.9447.7538.4585.4576.0494.6612.5554.5
(Change in percentage of beginning-of-period broad money stock)
Net foreign assets10.214.126.19.82.44.74.42.12.6
BCEAO9.17.822.09.82.23.83.71.22.0
Commercial banks1.16.24.10.00.30.80.70.90.6
Net domestic assets4.3−6.45.43.10.83.811.74.28.3
Net credit to the government2.7−8.3−4.3−3.1−8.30.2−1.2−0.92.4
Credit to the economy3.83.410.15.611.44.012.75.25.9
Other items (net)−2.3−1.5−0.30.6−2.3−0.40.2−0.10.0
Broad money (M2)14.57.631.512.93.28.516.06.311.0
Memorandum items:(in units indicated)
Velocity (GDP/M2; end of period)3.73.62.92.82.93.42.63.42.5
Nominal GDP growth (percentage growth)4.73.97.38.27.98.57.97.37.5
Credit to the economy (percentage growth)4.94.714.39.219.25.721.57.79.5
Credit to the economy /GDP (in percent)19.619.321.121.325.320.124.020.224.4
Variation of net credit to the government

(since the beginning of the year; in billions of CFA francs)
21.8−75.4−42.3−40.2−119.42.5−17.5−11.341.0
Sources: Senegalese authorities; and staff estimates and projections.

Staff Report for the 2004 Article IV consultation and the second review.

Sources: Senegalese authorities; and staff estimates and projections.

Staff Report for the 2004 Article IV consultation and the second review.

Table 9.Senegal: Balance of Payments, 2001–06
200120022003200420052006
Est.Prog. 1/Proj.Proj. 1/Rev. proj.
(In billions of CFA francs, unless otherwise indicated)
Current account−156−207−245−270−236−331−238−356
Balance on goods−312−375−470−533−466−591−492−632
Exports, f.o.b.735743731775815841860896
Imports, f.o.b.−1,047−1,118−1,200−1,308−1,282−1,432−1,352−1,528
Services and incomes (net)−67−92−87−98−97−102−94−99
Credits341365400401414417429434
Of which: tourism128132121128134135140141
Debits−408−457−487−499−512−518−522−532
Of which: interest on public debt−25−36−41−42−38−39−36−38
Unrequited current transfers (net)223260312362327361348374
Private (net)173192241287260297270309
Public (net)5068717567647865
Of which: budgetary grants02191915112916
Capital and financial account218316459294186282176306
Capital account8566677774748080
Private capital transfers26777788
Project grants6260607067677272
Debt cancellation210000000
Financial account13324939221711220896226
Direct investment2931295863597075
Portfolio investment1021311319−2022
Other investment942173501494613046129
Public sector (net)554320372447133
Of which: disbursements11712191162151175130164
program loans614201355412732
project loans43719114493132101132
other50022120
amortization−62−79−72−126−127−129−128−132
Private sector (net)411281339022834596
Errors and omissions−246197230000
Overall balance6210921424−50−50−62−50
Financing−62−109−214−2450506250
Net foreign assets (BCEAO)−72−71−214−126−46−53−16−34
Net use of Fund resources−2−13−20−23−17−22−13−10
Purchases2283363711
Repurchases−23−21−23−26−24−24−20−21
Other−71−58−194−102−29−31−3−24
Deposit money banks−9−56−400−10−10−11−10
Payments arrears (reduction -)00000000
Exceptional financing 2/1918401011061128994
Residual financing gap00000000
Memorandum items:
Current account balance
As percentage of GDP (incl. current official transfers)−4.7−6.0−6.6−6.7−5.4−7.6−5.1−7.6
As percentage of GDP (excl. current official transfers)−6.3−8.0−8.6−8.7−7.1−9.2−6.9−9.1
Gross official reserves (in billions of CFA francs)339404577668473707480732
(in months of imports of GNFS)3.03.34.54.83.44.73.34.6
Nominal GDP (in billions of CFA francs)3,3433,4733,7254,0294,3644,3464,6824,673
Sources: Central Bank of West African States (BCEAO); and staff estimates and projections.

Staff Report for the 2004 Article IV consultation and the second review.

HIPC Initiative debt relief granted by the IMF is recorded as a grant, and that granted by the World Bank, the African Development Bank, Paris Club creditors and Kuwait is recorded as exceptional financing.

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

Staff Report for the 2004 Article IV consultation and the second review.

HIPC Initiative debt relief granted by the IMF is recorded as a grant, and that granted by the World Bank, the African Development Bank, Paris Club creditors and Kuwait is recorded as exceptional financing.

Figure 2.Senegal: External Balance, 1994–2006

(In Percent of GDP)

Sources: Senegalese authorities; and IMF staff estimates and projections.

Figure 3.Senegal: Exports of Goods and Workers’ Remittances 1994–2006 Proj.

(In percent of GDP)

Sources: Senegalese authorities; and IMF staff estimates.

5. The real effective exchange rate (REER) remained relatively stable in 2004, but depreciated slightly in the first nine months of 2005, reflecting mainly the depreciation of the euro against the U.S. dollar (Figure 4). Since 1994 (when the CFA franc was devalued), Senegal’s REER has depreciated by about 12 percent, in contrast to an appreciation of the REER in almost all other countries of the WAEMU (Figure 5).

Figure 4.Senegal: Terms of Trade, Export and Relative Prices, and Effective Exchange Rates, 1994 – September 2005

(Index 1994=100) 1/

Sources: Senegalese authorities; and IMF staff estimates.

1/ Data available until September 2005 only for effective exchange rates. Terms of trade and price information available until December 2004.

2/ Consumer price index relative to external partners’.

Figure 5.WAEMU: Average Real Effective Exchange Rates, 1994–Sept. 2005

(Index, 1994=100)

Sources: WAEMU authorities; and IMF staff estimates and projections.

1/ Minimum and maximum values for WAEMU members, excluding Senegal.

6. Fiscal performance in 2004 and 2005 was in line with program targets (Tables 5, 6, and 7),1 with the basic fiscal surplus higher than programmed in the first nine months of 2005. The overall deficit is estimated to have increased slightly to 3.5 percent of GDP in 2005, but was over-financed through external resources (concessional loans).2 The government’s net position vis-à-vis the banking sector improved.

7. Revenue performance remained strong in 2004 and further improved in the first three quarters of 2005, owing to the higher revenues from corporate income tax and oil-related taxes (Figure 6).3 In April 2005, a new tax on air travel was introduced by Presidential decree to finance construction of Dakar’s new airport. The full year yield from this tax is estimated at 0.3 percent of GDP.

Figure 6.Senegal: Government Revenue and Expenditure 2000-06

(In Percent of GDP)

Sources: Senegalese authorities; and IMF staff estimates and projections.

8. Total expenditure increased by about one percent of GDP in both 2004 and 2005, reflecting the growth of capital outlays and current spending, respectively. The growth of spending in 2005 was mainly due to higher transfers to the electricity company (SENELEC) and the oil refinery (SAR), estimated at 1.3 percent of GDP in 2005, to compensate them for insufficient increases in electricity rates and butane gas prices. The wage bill also rose substantially in 2005 as the three-year recruitment program came close to completion.

9. On the monetary front, credit to the economy increased substantially in 2005, as short-term credit to oil suppliers and the chemical company (ICS) grew markedly (Table 8). Banks’ excess reserves have trended downward since mid-2004, but, at about 50 percent of required reserves, remained large at end-September 2005 (Figure 7). The BCEAO has tried to tailor reserve requirements to the liquidity situation in each WAEMU country, but it has not completely absorbed excess liquidity in the region (and in Senegal, in particular). As a result, banks’ interest rates have been largely unaffected by changes in the BCEAO’s lending rates, and remained broadly unchanged in 2005.

Figure 7.Senegal: Credit to the Economy and Banks’ Excess Reserves, March 2000–September 2005

(In percent of total deposits)

Sources: BCEAO; and IMF staff estimates.

1/ Difference between banks’ actual reserves and the required reserves. Required reserves are calculated by the BCEAO as a percentage of banks’ deposits, short-term credit and gross foreign claims.

10. Staff projections indicate that the ratio of the NPV of debt to exports would decline to about 116 percent by end-2005, following enhanced HIPC Initiative debt relief. The authorities have intensified contacts with all creditors with a view to increasing the rate of participation in the Enhanced HIPC Initiative and securing greater debt relief (Table 16). The ratio would fall to 72 percent after MDRI debt relief.

11. Program implementation during 2005 was mixed. Most of the quantitative performance criteria were met (Table 1). However, owing to the rapid increase in oil prices in 2005, the financial situation of the electricity company SENELEC deteriorated and the continuous PCs on arrears of, and budgetary transfers to, the company were missed. The performance criterion on no-bid public contracts was also exceeded at end-September. The authorities explained that the strategic nature of a few large contracts (digitized identification cards for the next election and military equipment) prevented recourse to the usual tender procedures. However, they agreed with staff that the excessive use of no-bid contracts was a recurring problem.

12. Staff supports the government’s request for a waiver for the nonobservance of the three PCs, in light of the authorities’ explanations and the remedial actions already taken and envisaged (MEFP, paras. 7 and 9). These include: (i) the decision to fully adjust electricity prices to oil price increases by end-2006, in accordance with the new market-oriented electricity price formula adopted in October 2005; (ii) repayment of the arrears by SENELEC; (iii) remedial actions taken by SENELEC to improve its profitability; and (iv) measures to improve procurement practices.

13. Compliance with structural conditionality was not fully satisfactory. One structural PC and four of the five structural benchmarks were met, two with some delay (Table 2). The only structural benchmark that was not met (improved presentation of the main fiscal table) is a prior action for the combined reviews. After two failed privatization attempts in 1995 and 1999, the groundnut processing company (SONACOS) was privatized in March 2005. The tax protecting SONACOS was eliminated by end-2005 as agreed. However, although this structural PC was observed in form, it has been already breached in spirit, as the authorities introduced another tax with the same protective effect in December 2005. The authorities explained that the tax conforms to the safeguard clauses of the WTO and WAEMU treaties (memorandum of economic and financial policies (MEFP, para. 14). They justified the imposition of the new tax on the basis of a surge in vegetable oil imports since 2004, which they believed had weakened SONACOS’ financial position and threatened its ability to buy the groundnut crop. Staff did not find these arguments convincing and regretted the introduction of the tax—to which it had expressed strong objections—on grounds that the new tax is regressive, creates wrong incentives, and does not resolve the company’s immediate financial problems.

14. Progress was made on the poverty reduction agenda and toward achievement of the MDGs, particularly in maternal and child mortality, and access to safe water, although not sufficient to reach the MDGs (Figure 8 and MEFP, para. 15). However, few policy initiatives targeting vulnerable groups have been introduced. The second PRSP progress report was completed at end-June 2005, and a new PRSP, building on the first PRSP and the accelerated growth strategy under elaboration in five sectors (MEFP, para. 31) is expected in early 2006.

Figure 8.Senegal: Progress Toward Millennium Development Goals, 1990–2015

(In percent, unless otherwise indicated)

Sources: World Bank, http://www.developmentgoals.org; and United Nations,http://unstats.un.org.

III. Policy Discussions

A. The Macroeconomic Outlook for 2006

15. The macroeconomic outlook for 2006 is broadly favorable, although somewhat weaker than anticipated before the recent rise in oil prices.4 Staff projections indicate that (a) real GDP growth in 2006 would be about 5 percent, as in 2005; (b) the average CPI inflation rate would rise by about one percentage point in 2006 to about 2.5 percent; and (c) the external current account deficit (including official transfers) would remain at about 7.6 percent of GDP in 2006. The main risks to the short-term economic outlook include a further sustained rise in oil prices and a slackening of political resolve to follow through with the reform agenda ahead of the elections in 2007, which could adversely affect the steady flow of external financing—on which the robust growth of the economy depends.

B. Fiscal Policy and Reform

16. Driven mainly by the increase in domestically financed capital expenditures, the rising trend in the overall fiscal deficit since 2000 will continue with a moderate increase in the deficit in 2006. While the 2006 budget projects an overall deficit (including grants) of 6.5 percent of GDP, the authorities agreed with staff that this level of deficit could pose a problem for macroeconomic stability. Therefore, they committed to keep the level of public investment—which has grown rapidly in recent years—below budget levels in order to contain the deficit to 4 percent of GDP.5 The basic balance would then remain positive, in line with the WAEMU convergence criterion, and there will be recourse to a moderate amount of net domestic financing in 2006, for the first time since 2001 (Figure 9). Given the low level of domestic and external public debt (7 percent, and 43 percent of GDP, respectively) and the concessional terms of the external debt, the composition of deficit financing, low inflation, and little likelihood of crowding out the private sector from the credit market, the fiscal outlook for 2006 is consistent with macroeconomic stability.6

Figure 9.Senegal: Budget Deficit and its Financing, 1999-2006

(In Percent of GDP)

Sources: Senegalese authorities; and IMF staff estimates and projections.

17. The authorities agreed that further increases in public investment (which has grown from 7 percent of GDP in 2001 to more than 10 percent of GDP in 2004) should be contained, until better project planning, evaluation, and monitoring are established.7 The need for a prudent public investment program is strengthened by the insufficient productivity of these outlays (as noted by the 2005 World Bank Public Expenditure Review).

Box 1.Senegal—Pass-Through of Oil Price Movements

Petroleum product prices at the pump, except for butane gas, are adjusted regularly to reflect changes in world oil prices. Domestic prices for petroleum products are set by the Conseil National des Hydrocarbures using a formula based on import prices, distribution, transportation, and retail margins, and taxes. Prices are reviewed every four weeks, and adjusted if the world oil price changes by at least 4 percent during that period. The price of butane gas is fixed and subsidized, for social and environmental policy reasons. However the subsidy is relatively large (0.8 percent of GDP) and poorly targeted, and will be phased out in line with WAEMU directives. The price of fuel purchased by the electricity company SENELEC from the oil refinery SAR was frozen during July–October 2005, necessitating a budgetary transfer of CFAF 3.8 billion (0.1 percent of GDP) to SAR.

Senegal: Domestic Gasoline Prices and Global Oil Prices

Source: Senegalese authorities; and IMF staff estimates

Higher petroleum prices have had a direct impact on demand for oil imports and reduced profitability of non-oil output. In the first three quarters of 2005, crude oil import volumes were about 15 percent lower than in the corresponding period in 2004, and year-on-year growth in the industrial production index was 2 percent, compared to 10 percent in the previous year. However, the impact of the oil price increases on growth and inflation have been mitigated by the relatively low intermediate oil consumption and administered prices of electricity, butane gas, and public transport.

18. Staff supported the significantly higher allocations for the justice and environment sectors in the recently approved 2006 budget law, but expressed concern that the allocations for the health sector have been decreased, while those for the Presidency and the Office of the Prime Minister continue to grow. The authorities noted that some projects in the health sector had been completed and new ones will take time to develop and implement, resulting in a temporary decrease in expenditure in that sector. They also explained that the allocations for the Presidency and Prime Minister’s Office had been increased because the implementation of some projects had been shifted to the agencies under their control. There was agreement that the medium-term expenditure framework had to be strengthened to prevent unwarranted decreases in priority expenditures, particularly in light of the uneven progress toward the MDGs. Staff also urged the authorities to take advantage of the savings associated with the MDRI to allocate more resources to the heath sector, other social services, and the Audit Court. The authorities noted that a supplementary budget will be prepared to account transparently for the MDRI savings and any other resources that may be received (including from the Islamic Conference Organization, the Millennium Challenge Account, and sale of communication licenses). The supplementary budget will allocate resources for the health and other priority sectors identified in the PRSP.

19. Agreement was reached on procedures that would ensure transparency and accountability in the use of the proceeds of the new air travel tax (RDIA), earmarked for Dakar new airport project.8 The authorities insisted that the proceeds of the RDIA should be kept off-budget. They did not provide a convincing justification for their preferences, but claimed that off-budget procedures would accelerate construction and facilitate financing of the project. They did not agree with staff’s strong preference for the transfer of the proceeds of the RDIA to the treasury and their use according to normal budgetary procedures. Given the authorities’ strong preferences, staff agreed to a second-best alternative that would ensure transparency and accountability in the use of these resources (MEFP, paras. 24–25, and Annex II). The authorities issued a decree to institute new procedures agreed with staff (a prior action for the combined review).

20. The authorities also agreed to ensure that risks associated with the airport project are fully accounted for. To this end (a) implementation will begin only when concerns raised by the World Bank about the project’s viability are addressed,9 and the views of the Council on Infrastructure (created by law) and the Parliament are taken on board;10 (b) the contract for the construction of the new airport will be drawn up in consultation with the World Bank and Fund staffs, and submitted to the Parliament for information; (c) the contract’s fiscal implications (both actual and contingent), determined in consultation with the World Bank and Fund staffs, will be reflected in the fiscal accounts; and (d) Parliamentary oversight is further assured through regular reports to the Parliament by the Minister of Finance regarding project implementation and financing (MEFP, paras. 24–25).

21. In support of the strategy to stimulate private sector activity, the corporate income tax was cut from 33 percent to 25 percent, effective in 2006, and a special sales tax (taxe d’égalisation) will be eliminated in 2007. Staff concurred with these policies in light of the strong revenue performance in the past two years and moderate revenue losses (0.3 percent of GDP) associated with these tax reforms.

22. The mission supported recent improvements in tax administration but urged faster implementation of the long-overdue transfer of the treasury’s tax collection responsibilities to the tax department. The authorities noted important technical difficulties in the implementation of this reform, but agreed to prepare a study on its feasibility. Staff stressed that, in the meantime, the data-sharing system between the three tax collecting agencies should be made fully operational, to allow better monitoring of tax evasion and more effective assessment of the performance of each tax agency. This would require completing the long-overdue installation of the necessary software at the treasury, which the authorities committed to achieve by end-March 2006.

Fiscal transparency

23. The authorities’ new action plan to address weaknesses in fiscal transparency (MEFP, Annex I)11 includes the following priority actions.

  • Procurement rules and practices will be strengthened with World Bank assistance (MEFP, para. 9). The measures include revision of the legal and institutional frameworks in order to limit noncompetitive bids, timely preparation of procurement plans by major spending ministries, introduction of annual audits, and sanctions for infractions.
  • Autonomous budget-execution agencies will be subject to strict control. A decree was issued in December 2005 to define the agencies’ legal status and regulatory framework. Transfers to each agency (whether through ministerial budget allocations or directly) are clearly identified in the 2006 budget law for the first time and the practice will continue in the future. The operations of the agencies will be subject to continuous monitoring and ex post controls.
  • The presentation of the table on government’s financial operations (TOFE)—the main source of information on budget execution—has been revised, starting with the October 2005 table. The revision improves the transparency of fiscal outcomes (MEFP, Box 1) and brings the TOFE closer to that recommended by the WAEMU.
  • The ability of the Audit Court to exercise control will be strengthened. Additional resources will be provided to the court in 2006 and 2007 to accelerate examination of budget review laws and the audit of treasury accounts (MEFP, Annex I).12
  • Public investment expenditure will be presented according to an economic classification beginning with the 2007 budget. The presentation will facilitate the measurement of recurrent costs and sharpen the distinction between capital and current expenditure.

Debt management

24. To improve domestic public debt management, the authorities are strengthening the debt unit of the Ministry of Finance. The unit will be responsible for identifying and monitoring government’s existing and future domestic and external contingent liabilities arising from the activities of public enterprises. It will produce a semiannual report, the first of which will be issued in January 2006.

C. Financial Sector Issues

25. The banking system remains reasonably sound, but sizeable nonperforming loans (NPLs) and excessive credit concentration raise the vulnerability of the system. As of end-September 2005, NPLs had grown to 13.4 percent of total loans and provisions had declined relative to NPLs (Table 13).13 Also, loans to the five largest borrowers amounted to the equivalent of 143 percent of banks’ capital. The capital adequacy ratio (CAR) for the system as a whole averaged 11.6 percent, but continued on a downward trend. The ratio for one bank slipped below the statutory 8 percent level. The mission stressed the need for a strict enforcement of prudential norms and urged the noncomplying bank be given a properly short deadline to raise its CAR.

Table 10.Senegal: Selected Medium-Term Economic and Financial Indicators, 2003–10
20032004200520062007200820092010
Est.Proj.
(Annual percentage change, unless otherwise indicated)
National income and prices
GDP at constant prices6.56.25.15.15.15.15.15.1
Of which: nonagriculture GDP4.46.34.74.85.35.25.35.2
GDP deflator0.71.92.62.32.02.02.02.0
Consumer prices
Annual average0.00.51.82.61.71.81.81.8
End of period−1.41.72.12.21.71.81.81.8
External sector
Exports, f.o.b. (in CFA francs)−1.76.18.66.53.93.93.93.9
Imports, f.o.b. (in CFA francs)7.49.09.56.72.92.84.14.7
Export volume0.13.63.14.13.43.23.13.3
Import volume4.15.91.93.44.44.54.64.5
Terms of trade (deterioration -)−5.5−0.6−1.9−0.51.61.81.30.4
Nominal effective exchange rate5.21.9−0.4
Real effective exchange rate2.70.1−1.9
(In percent of GDP)
Government financial operations
Revenue19.319.320.220.019.819.819.819.8
Grants2.12.21.81.92.01.92.02.0
Total expenditure and net lending23.124.525.625.825.225.225.225.3
Overall fiscal surplus or deficit (-)
Commitment basis, excluding grants−3.5−5.5−5.3−5.8−5.4−5.4−5.4−5.5
Commitment basis, including grants−1.4−3.3−3.5−4.0−3.4−3.4−3.4−3.4
Primary fiscal balance 1/−0.5−1.9−2.5−3.0−2.5−2.5−2.6−2.7
Basic fiscal balance, program definition 2/1.30.80.90.00.00.00.00.0
Gross domestic investment20.723.423.423.723.924.024.224.3
Gross domestic savings7.79.89.39.810.811.712.212.5
Gross national savings14.116.715.716.116.817.417.918.0
External current account deficit (-)
Excluding current official transfers−8.6−8.7−9.2−9.1−8.4−7.8−7.4−7.4
Including current official transfers−6.6−6.7−7.6−7.6−7.1−6.5−6.3−6.3
Domestic public debt 4/6.86.57.06.66.66.97.27.3
External public debt (nominal) 3/4/54.546.342.839.937.735.834.433.5
NPV of external debt 3/5/33.732.231.930.529.228.427.6
NPV of external debt (in percent of exports) 3/5/121.2116.4117.1115.6114.0114.1114.5
(In percent of exports of goods and nonfactor services, unless otherwise indicated)
External public debt service 3/8.36.96.06.97.97.76.96.7
In percent of government revenue12.39.98.29.410.110.08.68.2
GDP at current market prices (in billions of CFA francs)3,7254,0294,3464,6735,0125,3735,7626,179
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.

Debt outstanding at year-end.

Including programmed new debt.

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.

Debt outstanding at year-end.

Including programmed new debt.

Table 11.Senegal: Medium-Term Balance of Payments, 2003–10
20032004200520062007200820092010
Est.Proj.
(In billions of CFA francs, unless otherwise indicated)
Current account−245−270−331−356−355−351−361−390
Balance on goods−470−533−591−632−641−648−676−715
Exports, f.o.b.73177584189693196810061045
Imports, f.o.b.−1,200−1,308−1,432−1,528−1,572−1,616−1,682−1,760
Services and incomes (net)−87−98−102−99−97−98−95−99
Credits400401417434451470489509
Debits−487−499−518−532−548−568−583−608
Unrequited current transfers (net)312362361374382395409424
Private (net)241287297309321334347360
Public (net)7175646561616364
Capital and financial account459294282306342294336368
Capital account677774809097106116
Private capital transfers77788999
Project grants60706772828897107
Financial account392217208226252198230252
Direct investment2958597580848791
Portfolio investment1311192217172726
Other investment35014913012915597116135
Public sector (net)20374733556283103
Of which: disbursements91162175164186200224245
program loans013413234373942
project loans91144132132152163184203
other02100000
amortization−72−126−129−132−132−139−141−141
Private sector (net)13390839699353332
Errors and omissions19723000000
Overall balance21424−50−50−13−56−24−22
Financing−214−24505013562422
Net foreign assets (BCEAO)−214−126−53−34−57−16−48−45
Deposit money bank−400−10−10−11−12−12−13
Exceptional financing 1/401011129481848480
Residual financing gap00000000
Memorandum items:
Current account balance
As percentage of GDP (incl. current official transfers)−6.6−6.7−7.6−7.6−7.1−6.5−6.3−6.3
As percentage of GDP (excl. current official transfers)−8.6−8.7−9.2−9.1−8.4−7.8−7.4−7.4
Gross official reserves577668707732772775813852
(in months of imports of GNFS)4.54.84.74.64.74.64.64.6
Nominal GDP (in billions of CFA francs)3,7254,0294,3464,6735,0125,3735,7626,179
Sources: Central Bank of West African States (BCEAO); and staff estimates and projections.

HIPC Initiative debt relief is recorded as a grant for the IMF, and as exceptional financing for the World Bank, the African Development Bank, Paris Club creditors and Kuwait.

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

HIPC Initiative debt relief is recorded as a grant for the IMF, and as exceptional financing for the World Bank, the African Development Bank, Paris Club creditors and Kuwait.

Table 12.Senegal: Fund Position During the Period of the PRGF Arrangement, 2003–06
2003200420052006
Jan.-Apr.-Jul.-Oct-Jan.-Apr.-Jul.-Oct-Jan.-Apr.-Jul.-Oct-Jan.-Apr.-Jul.-Oct-
Mar.JuneSep.Dec.TOTALMar.JuneSep.Dec.TOTALMar.JuneSep.Dec.TOTALMar.JuneSep.Dec.TOTAL
(In millions of SDRs)
Disbursements under PRGF0.03.50.00.03.53.50.00.00.03.53.50.00.00.03.513.90.00.00.013.9
IMF HIPC 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 interests0.10.50.10.51.20.10.50.10.51.10.10.40.10.41.10.10.40.10.31.0
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 SBA0.00.40.00.40.90.00.40.00.40.70.00.30.00.30.60.00.20.00.20.4
SDR charges0.10.10.10.10.40.10.10.10.10.40.10.10.10.10.50.10.10.10.10.6
Total Fund credit outstanding
(end of period)178.2176.2168.5161.3161.3157.1148.1140.5131.5131.5127.6118.5111.2103.8103.8110.3105.396.591.591.5
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 SBA178.2176.2168.5161.3161.3157.1148.1140.5131.5131.5127.6118.5111.2103.8103.8110.3105.396.591.591.5
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)110.1108.9104.299.799.797.191.586.881.381.378.873.368.764.164.168.265.159.656.556.5
Ordinary resources0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.0
SAF / PRGF110.1108.9104.299.799.797.191.586.881.381.378.873.368.764.164.168.265.159.656.556.5
Sources: International Monetary Fund, Finance Department; and staff projections.
Sources: International Monetary Fund, Finance Department; and staff projections.
Table 13.Financial Soundness Indicators for the Banking Sector, 2000–05
200020012002200320042005
DecemberSept.
(In percent, unless otherwise indicated)
Capital Adequacy
Capital to risk weighted assets20.616.816.012.111.911.6
Regulatory capital to risk weighted assets20.616.815.511.711.511.4
Capital to total assets9.99.710.37.87.78.1
Asset composition and quality
Total loans to total assets62.859.458.359.657.162.5
Concentration: loans to 5 largest borrowers to capital177.3107.7104.9141.0131.4143.1
Sectoral distribution of loans
Industrial31.333.136.441.133.633.6
Retail and wholesale trade28.623.622.219.919.317.5
Services, transport and communications14.916.317.517.227.428.9
Gross NPLs to total loans18.117.818.513.312.613.4
Provisions to NPLs67.670.270.575.375.762.9
NPLs net of provisions to total loans6.75.65.53.33.45.4
NPLs net of provisions to capital51.334.330.727.825.141.9
Earnings and Profitability
Average cost of borrowed funds2.22.42.21.81.9
Average interest rate on loans10.110.19.78.78.3
Average interest margin 1/7.97.77.66.76.4
After-tax return on average assets1.71.61.81.81.8
After-tax return on average equity20.318.621.122.12/17.6
Noninterest expenses/net banking income45.744.545.448.948.7
Salaries and wages/net banking income21.319.920.621.821.5
Liquidity
Liquid assets to total assets 2/65.166.566.4
Liquid assets to total deposits 3/82.981.082.0
Total deposits to total liabilities81.575.578.582.079.677.8
Source: Senegalese authorities.

Excluding the tax on banking operations.

Estimate.

As of March 2004.

Source: Senegalese authorities.

Excluding the tax on banking operations.

Estimate.

As of March 2004.

26. As agreed during the previous review discussions, the authorities have prepared an action plan for enhancing bank soundness and improving credit availability (MEFP, Annex III).14 The priority actions include (i) simplifying the regulatory framework for loan recovery and collateral seizure to facilitate the reduction of nonperforming loans; and (ii) raising the required CAR above 8 percent, given that the structure of the economy limits the scope for reducing the risk of credit concentration. The authorities noted that they had proposed the measures that required action at the regional level to the Council of Ministers of WAEMU—its main decision-making body—for consideration. Staff also encouraged the authorities to urge speedy progress by the WAEMU on the draft law criminalizing the financing of terrorism and to update the Anti-Money Laundering law.

D. Public Enterprise Reform

27. The chemical company (ICS)—one of the largest enterprises in the country—in which the state has a 47 percent stake, is teetering on the verge of bankruptcy.15 As the largest borrower in the country (accounting for 7 percent of total bank credit), the ICS’ inability to repay its loans, if not addressed, would seriously affect the soundness of some banks. The plan for its rehabilitation involves injection of capital by private shareholders. The government has agreed not to make any budgetary transfers to the company.

28. There is a need to adjust electricity prices—which were lowered by 5 percent in October 2004—to reflect the sharp increase in SENELEC’s fuel costs. The government intends to raise prices gradually, with lower increases for the poor households. As a first step, prices were raised by 10 percent, on average, in November 2005. The mission urged that further price increases be implemented as needed during 2006, in light of the evolution of SENELEC’s financial situation. The authorities have committed to further raising electricity prices in order to fully apply the new price formula by end-2006 (MEFP, para. 7).16

E. Relations with the Fund

29. The authorities noted their intention to continue their close collaboration with the Fund after the current arrangement expires in April 2006. They reiterated their interest in an arrangement under the Policy Support Instrument. In the meantime, in consultation with staff, the government has established a number of indicative targets to monitor the progress of its policies in 2006 (MEFP, Tables 1 and 2).

30. Senegal has an excellent record in meeting its debt service obligations to the Fund. Given the trajectory of its external and fiscal positions, it should not have any difficulty discharging its future obligations to the Fund in a timely manner (Table 12).

F. Statistical Issues and Disclosure

31. Overall, Senegal’s economic database is adequate for program monitoring, but there are weaknesses in the data on national accounts, production, international trade, and social indicators. Senegal participates in the General Data Dissemination Standard (GDDS). Its metadata have been posted on the Fund’s Dissemination Standards Bulletin Board since September 2001.

IV. Staff Appraisal

32. Senegal has attained macroeconomic stability and debt sustainability, accompanied by robust economic growth, but the economy remains fragile, dependent on donor support, and vulnerable to shocks. The steady flow of external financing—on which the robust growth of the economy depends—will largely hinge on the authorities’ ability to maintain a high level of credibility in the implementation of appropriate fiscal policy and structural reforms.

33. The fiscal stance for 2006 is in line with the program’s macroeconomic objectives. It allows for a modest increase in expenditure, keeps investment outlays in line with absorptive capacity of the economy and foreign financing, and aims at a realistic revenue target. However the composition of expenditure in the 2006 budget is of concern, as it shows a reduction in allocation for health services and social affairs. Staff recommends that this shift be corrected through additional allocation to health and social services in the 2006 supplementary budget.

34. Expenditure management and fiscal transparency should be further improved. The decision to implement transparent procedures for the construction of the new airport is an important step in this direction. However, these procedures are second-best compared to the normal budgetary procedures; they should not be applied to other government projects. Public expenditure management should be buttressed by strict enforcement of the new procurement code in the case of ministries and autonomous agencies that execute public expenditure to reduce no-bid contracts, and by effective ex post monitoring.

35. Investment planning, evaluation, and monitoring should be improved before capital outlays are raised beyond the current levels relative to GDP. Public capital spending should remain consistent with implementation capacity and fiscal sustainability.

36. Staff welcomes the completion of the privatization of the state-owned groundnut processing company, but regrets the imposition of a new tax to protect the company. The tax is contrary to the objectives of privatization. It should be rescinded as soon as possible.

37. The prompt rehabilitation of ICS and SENELEC should be given priority. In the case of ICS, the government should press for cost cutting, management improvements, and capital injection by private partners. The financial health of SENELEC depends on its ability to adjust electricity rates in line with market conditions. To this end, and to provide incentives for investment in the electricity sector, the market-oriented formula for setting electricity prices should be adhered to.

38. Improvements in the financial sector require coordination at the regional level, but the government’s action plan for the sector is a step in the right direction. Staff urges the authorities to implement the judicial reforms quickly to facilitate loan recovery. 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.

39. Staff recommends the completion of the third and fourth reviews under the PRGF arrangement. Staff also recommends waivers to be granted for the three missed performance criteria. In the short term, staff does not foresee any substantial risk on the macroeconomic front—barring supply shocks or further increases in the price of oil, and assuming the policies outlined above. The main risks stem from the possibility of policy reversals if the political will for reform slackens, especially in public finance management. However, given the government’s prudent fiscal and debt policies for 2006, remedial measures already taken and planned to ensure that the program is and remains on track, and commitment to take other measures as needed, staff recommends completion of the reviews and granting of the necessary waivers.

Table 14.Senegal: Schedule of Projected Reviews and Disbursements Under the PRGF Arrangement, 2003–06
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.
End-September 2005Quantitative performance criteria. Test date for the fourth review.
January 2006Executive Board consideration of the third and fourth reviews under the PRGF arrangement.SDR 13.86 million
Table 15.Senegal: Millennium Development Goals
199019941997200020032015
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 USS1 a day (percent)45.422.3
2. Poverty gap at USS1 a day (percent)20.05.7
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)21.6/122.222.322.7[10.8]
5. Population below minimum level of dietary energy consumption (percent)25.024.0
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)47.157.962.557.9[100.0]
7. Percentage of cohort reaching grade 5 (percent)84.567.5
8. Youth literacy rate (% ages 15–24)40.144.347.550.752.9
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)68.581.683.987.1[100.0]
10. Ratio of young literate females to males (percent ages 15–24)60.464.567.670.472.5
11. Share of women employed in the nonagricultural sector (percent)28.1
12. Proportion of seats held by women in national parliament (percent)13.012.012.019.0
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)148.0143.0139.0137.0[49.3]
14. Infant mortality rate (per 1,000 live births)90.084.080.078.0
15. Immunization, measles (percent of children under 12 months)51.059.065.048.060.0
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)1200.0690.0[250.0]
17. Births attended by skilled health staff (percent)47.246.657.841.4
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 (percent of population aged 15–24)0.80.8
19. Contraceptive prevalence rate (percent of women aged 15–49)12.910.5
20. Number of children orphaned by HIV/AIDS12000.017000.0
Target 8: Halt by 2015, and begin to reverse, the incidence of malaria and

other major diseases
21. Malaria incidence (notified cases, per 100,000 people)11925.0
22. Malaria prevention (percent of population aged under 5 using insecticide-treated bed nets)1.7
23. Tuberculosis incidence (per 100,000 people)200.2213.1223.2233.9245.1
24. Tuberculosis cases detected under DOTS (percent)67.261.259.759.6
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)34.632.2
26. Nationally protected areas (% of total land area)11.6
27. GDP per unit of energy use (2000 PPP $ per kg oil equivalent)4.64.44.44.64.8
28. C02 emissions (metric tons per capita)0.40.50.40.4
Target 10: Halve by 2015 proportion of people without access to safe drinking water
29. Access to an improved water source (percent of population)66.072.0[83.0]
Target 11: Achieve significant improvement in life of at least 100 million slum dwellers by 2020
30. Access to improved sanitation (percent of population)35.052.0
Goal 8. Develop a Global Partnership for Development
Target 12: Develop and implement strategies for productive work for youth
31. Youth unemployment rate (percent of total labor force ages 15–24)
32. Fixed line and mobile telephones (per 1,000 people)6.08.914.047.977.7
33. Personal computers (per 1,000 people)2.55.611.416.821.2
Table 16.Senegal: Follow-up on HIPC Assistance

(As of December 15, 2005)

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/FADYesyesyesCFAF 7.4 billion have been refunded, representing assistance from 4/1/2004 to 12/31/2004
EUYesyesyes
BIDLimitednono
FIDAYesnoyes
BOADYesyesyesAgreement signed, May 20,2005
BADEALimitednoyes
BCEAOYesnono
ECOWASLimitednono
OPEC FundYesyesyesRefinancing assistance
Nordic FundYesnoyes
Paris Club Creditors
FranceYesyesyesAgreement signed, November 29, 2004
GermanyYesyesnoAgreement being finalized
ItalyYesyesyesAgreement signed, May 4, 2005
JapanYesnoyesAgreement signed, November 17, 2004
SpainYesyesnoAgreement signed with CESCE (April 14, 2005), being finalized with ICO
United StatesYesyesyesAgreement signed, November 19, 2004
NorwayYesyesyesAgreement signed, March 11, 2005
DenmarkYesnoyes
The NetherlandsYesyesyesLetter for debt cancellation received on June 28,2004
BelgiumYesyesyesAgreement signed, November 24, 2004
CanadaYesyesyesAgreement signed, September 9, 2004,
United KingdomYesyesyesAgreement signed, February 21, 2005
SwedenYesnono
Bilateral creditors—Non Paris Club members
KuwaitNonoyesAgreement signed with Kuwaiti Fund
Saudi ArabiaNonono(March 4, 2005)
ChinaNonono
Taiwan, Prov.of Chinan/an/ano
EmiratesNonono
AlgeriaNonono
OmanNonono
IraqNonono
Source: Senegalese authorities.
Source: Senegalese authorities.
APPENDIX I

Dakar, Senegal

December 29, 2005

Mr. Rodrigo de Rato

Managing Director

International Monetary Fund

Washington, D.C., 20431

Dear Mr. de Rato,

1. On April 28, 2003, the Executive Board of the International Monetary Fund 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 two reviews under this arrangement were completed on February 13, 2004 and March 8, 2005. The attached memorandum on economic and financial policies reviews the macroeconomic and financial performance and the implementation of economic policies in 2005. It also describes the economic policies and structural reforms that the government of Senegal will pursue in 2006.

2. As stated in paragraphs 4 and 5 of the memorandum, 11 of the 12 program’s quantitative performance criteria at end-March 2005—the test date for the third review—and 8 of the 10 quantitative performance criteria at end-September 2005—the test date for the fourth and final review—were met. However, owing to the rapid increase in oil prices in 2005, the financial situation of the electricity company SENELEC deteriorated and two continuous performance criteria (the ceiling on arrears of the company, and the ceiling on budgetary transfers to the company) were missed. The ceiling on no-bid contracts at end-September was also exceeded as extraordinary provisions of the Procurement Code were used in the case of a few large contracts of a strategic nature (paragraph 9 of the memorandum). The structural PC on elimination of a specific tax on vegetable oil was respected in December 2005.

3. The government has implemented a number of corrective measures and will implement others, as described in paragraphs 7 and 9 of the memorandum, to ensure that these problems do not arise in the future. Owing to the exceptional circumstances which have weakened the financial position of SENELEC and the reasons which led to the use of extraordinary procurement practices, and in view of the remedial actions already taken and planned, the government of Senegal requests a waiver for the nonobservance of these three performance criteria.

4. The government of Senegal believes that the policies and measures set forth in the attached memorandum 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—at its own initiative or whenever the Managing Director requests such a consultation—before the adoption of any such measures and in advance of any changes to the policies described in the attached memorandum.

5. 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 third and fourth reviews as well as the disbursement of the fourth and fifth loans under the current arrangement in an amount equivalent to SDR 13.86 million.

6. On the expiry of the current arrangement on April 27, 2006, the government of Senegal would like to continue its close collaboration with the Fund, through a nonfinancial arrangement, focusing on accelerating growth, reducing poverty and deepening fiscal and financial sector reforms.

7. The government of Senegal consents to the publication of this letter, the memorandum of economic and financial policies, and the report of Fund staff on the third and fourth reviews of the program.

Sincerely yours,

/s/

Abdoulaye Diop

Minister of State, Minister of Economy

and Finance

Attachment: Memorandum of Economic and Financial Policies for 2006 of Senegal

ATTACHMENT: SENEGAL Memorandum of Economic and Financial Policies for 2006

Dakar, December 29, 2005

1. In its letter of February 4, 2005 to the Managing Director of the International Monetary Fund (IMF) and in the memorandum attached thereto, the government of Senegal defined its economic and financial objectives for 2005, as well as the measures it intended to implement to achieve them. In this memorandum, the government outlines the results achieved in 2005, its analysis of the deviations observed between projected and actual performance, and the measures it intends to implement in 2006 to achieve its objectives.

I. Measures Implemented and Results Achieved in 2005

2. Real GDP growth in 2005 is estimated at 5.1 percent, about 1.3 percent lower than programmed due to the unexpected increase in the price of oil. Growth was driven by recovery of grain production from the decline in 2004 owing to a locust invasion, expansion of construction and public works, and dynamic performance of the telecommunications sector. The consumer price index is estimated to have increased by about 2 percent on an average annual basis, reflecting mainly higher oil prices and the increase in food prices. As a result of the rise in value of petroleum imports, the external current account deficit is expected to increase by about 1 percent of GDP (to 7.6 percent of GDP) rather than narrow (to about 5.5 percent of GDP) as programmed.

3. The overall fiscal deficit in 2005 will remain at 3.5 percent of GDP (0.2 percent of GDP more than in 2004), while the basic fiscal surplus will increase slightly (by 0.1 percent of GDP). Strong revenue performance has made it possible to accommodate an increase in the allocation for priority sectors in the supplementary budget, transfers to SENELEC and SAR for the losses incurred as a result of higher oil prices, and the wage bill associated with the finalization of the recruitment program.

4. At end-March 2005, 11 of the 12 performance criteria were hit (Table 1). The continuous performance criterion on the absence of arrears of the electricity company was breached for reasons explained below (paragraph 6). Only half of the six quantitative indicative targets were achieved. The wage bill exceeded the target by CFAF 2.7 billion (less than 0.1 percent of GDP) as delays in recruitment during the last quarter of 2004 were rectified. The expenditures executed under exceptional procedures exceeded the program ceiling, as the treasury experienced difficulties to process the higher than usual volume of payment orders associated with the decentralization of the expenditure process to four ministries. The balance for treasury correspondent accounts was also above the program ceiling, reflecting an accumulation of deposits by some public entities.

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; end of period)

March 31June 30Sept. 30Dec. 31
Performance CriteriaPerformance Criteria after adjustersActual provisionalStatusIndicative TargetsIndicative Targets after adjustersActual provisionalStatusPerformance CriteriaPerformance Criteria after adjustersActual provisionalStatusIndicative Targets
Performance Criteria
Floor on the basic fiscal balance, excluding temporary costs of structural

reforms and spending financed with HlPC-related resources 1/
13.526.5met32.7118.3met44.0120.5met40.4
Ceiling on the cumulative change in net bank credit to the government−16.15.22.6met−24.5−24.0−81.0met−27.3−39.6−119.4met−17.5
Ceiling on government domestic payments arrears 2/0.00.0met0.00.0met0.00.0met0.0
Ceiling on government external payments arrears 2/0.00.0met0.00.0met0.00.0met0.0
Ceiling on the contracting or guaranteeing of new nonconcessional

external debt by the government 2/3/
0.00.0met0.00.0met0.00.0met0.0
Ceiling on the amount of government contracts signed without budgetary allocation 2/0.00.0met0.00.0met0.00.0met0.0
Ceiling on the share of the value of government contracts signed by single tender (in percent)20.019.3met20.031.9not met20.023.7not met20.0
Ceiling on

transfers to SONACOS 2/
0.00.0metn.a. 4/n.a. 4/n.a. 4/n.a. 4/n.a. 4/
stock of arrears of SONACOS 2/0.00.0metn.a. 4/n.a. 4/n.a. 4/n.a. 4/n.a. 4/
SONACOS’ debt to the banking system35.5n.a 4/n.a. 4/n.a. 4/n.a. 4/n.a. 4/n.a. 4/
Ceiling on

budgetary transfers to cover SENELEC operating losses 2/
0.00.0met0.00.0met0.00.0not met 5/0.0
the stock of arrears of SENELEC 2/0.00.9not met0.00.9not met0.01.0not met0.0
SENELEC’s debt to the banking system52.536.6met48.440.3met46.636.3met42.5
Indicative Targets
Floor on tax revenue176.5190.7met385.1435.6met601.6634.6met840.1
Ceiling on the amount of current non-wage non-interest expenditures

and domestically financed capital expenditures executed through

exceptional procedures
21.022.0not met21.014.0met21.032.6not met21.0
Ceiling on the wage bill58.661.3not met118.6124.2not met179.0185.9not met255.3
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 Chèques Postaux (CCP)

and the saving accounts at the Caisse Nationale d’Epargne (CNE) 2/
0.00.7met0.0−2.0not met0.011.9met0.0
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 accounts
18.035.9not met18.012.3met18.029.5not met18.0
Ceiling on guarantee deposits of the government0.00.0met0.00.0met0.00.0met0.0
Memorandum items:
External budgetary assistance, excluding IMF32.820.141.225.044.627.353.0
Grants3.70.07.74.911.16.311.5
Loans29.120.133.620.133.621.041.5
Programmed spending of HIPC debt relief5.96.827.518.534.326.269.0

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

This performance criterion or indicative target will be monitored on a continuous basis.

This criterion excludes government or government-guaranteed CF AF borrowing from financial institutions within WAEMU.

Not applicable: SONACOS was privatized in March 2005.

SENELEC received budgetary transfers amounting to CFAF 16 billion in December 2005.

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

This performance criterion or indicative target will be monitored on a continuous basis.

This criterion excludes government or government-guaranteed CF AF borrowing from financial institutions within WAEMU.

Not applicable: SONACOS was privatized in March 2005.

SENELEC received budgetary transfers amounting to CFAF 16 billion in December 2005.

5. At end-September 2005, 2 of the 10 quantitative performance criteria were missed (the continuous ceiling on arrears of the electricity company and the ceiling on no-bid public contracts) for reasons explained below (paragraphs 6 and 9). The same three quantitative indicative targets which were missed in March were again exceeded in September (Table 1). In December 2005, a third performance criterion was missed when the ceiling on the budgetary transfers to SENELEC (continuous PC) was exceeded.

6. The surge in oil prices in 2005 and the reduction by 5 percent and the freezing of electricity prices in July 2004 led to a significant deterioration in SENELEC’s financial situation. The company experienced difficulties in meeting obligations toward its suppliers and accumulated arrears on interest charges for overdue payment with one of its supplier (CFAF 1 billion at mid-December 2005). Under current regulation, SENELEC is entitled to budgetary transfers estimated at CFAF 16 billion by the Electricity Sector Regulation Commission (CRSE).

7. In order to improve SENELEC’s financial situation, the government first froze the price of the fuel purchased by the company from the refining company (SAR) during July–October 2005, creating the need for a transfer of CFAF 3.8 billion to SAR. In addition, electricity prices will be gradually increased according to a new electricity price formula compatible with the operator’s profitability adopted in October 2005. Application of the new formula would entail a 15 percent increase in electricity prices retroactive to January 1, 2005. As a first step, electricity prices were raised by 10 percent on November 1, 2005, and will be further raised in order to fully apply the new price formula by the end of 2006. These adjustments will not be passed on fully to low-income subscribers. If prices are not adjusted in 2006 as required by the formula, CRSE has estimated that the budgetary transfer due to SENELEC would amount to CFAF 37 billion, an amount which could be reduced by about CFAF 9 billion provided two new more efficient power plants come on stream in 2006. SENELEC has signed a memorandum of understanding with its supplier to pay all its arrears before the end of the year.

8. Owing to the exceptional circumstances which have weakened the financial position of SENELEC and in view of the strong remedial actions explained above (paragraph 7), the government requests a waiver for the nonobservance of the performance criteria on the arrears of and the budgetary transfers to SENELEC.

9. The government also requests a waiver for the nonobservance of the ceiling on no-bid contracts. This ceiling was exceeded owing to a few large no-bid contracts for the production of digitized identification cards for the next election and military equipment, the strategic nature of which prevented recourse to the usual tender procedures. However, the government recognizes that the excessive use of no-bid contracts is a recurrent problem. In order to limit the recourse to such contracts, the government will implement four remedial actions:

  • First, in order to ensure better planning for procurement, each ministry will be required to send procurement plans for 2006 to CNCA (Advisory Commission on Public Contracts) by the end of 2005. Ministries that do not comply will be subject to sanctions.
  • Second, a revised legal framework for procurement, including the Code of state financial obligations and a procurement code—both prepared with World Bank assistance—will be submitted for parliamentary approval by April 2006. The new framework will strictly limit the conditions under which noncompetitive bids can be approved.
  • Third, two new institutions, the Directorate for Public Procurement and the Advisory and Regulatory Authority for Public Procurement, will be set up to enforce the implementation of the revised legal framework.
  • Fourth, procurement contracts will be audited every year, with a special emphasis on no-bid contracts. The government will publish these audits, starting in December 2005 with that of the 2003 procurement contracts, and the competent authorities will evaluate the report and propose specific corrective measures, including sanctions.

10. Although two structural benchmarks in the area of fiscal transparency and public expenditure management (PEM) (reports on taxes due and collected and on budget execution) were met with delay, and one structural benchmark (improvement of the transparency of government’s table on financial operations) was not observed (Table 2), the government implemented a series of measures that improved tax collection and strengthened PEM. In particular, the government has strengthened the Directorate General of Taxes and Property (DGID) through the recruitment of about 100 staff.

Table 2.Senegal: Prior Actions, Structural Performance Criteria, and Benchmarks for the Program under the PRGF Arrangement in 2005
MeasuresTimetableStatus
Proposed prior actions for the combined third and fourth reviews
  • Promulgate a decree on transparency procedures for financing and construction of Dakar’s new airport.
Implemented
  • Improve the transparency of the Government’s Table of Financial Operations (TOFE) for October 2005 in line with the methodological Changes to the government operations table explained in the box of the memorandum of economic and financial policies in 2006.
Implemented
Structural performance criteria
  • Submit to the IMF staff the monthly table of the government’s financial operations (TOFE) for January 2005.
March 31, 2005Implemented
  • Eliminate the specific tax on refined vegetable oil.
December 31, 2005Implemented
Benchmarks
  • Produce a report on direct and indirect taxes due and collected in January 2005.
March 31, 2005Implemented with delay
  • Produce reports on the execution of capital expenditures at end-June, end-September and end-December 2004. The reports will include (i) the payments authorized by the Debt and Investment Directorate for each project; (ii) the funds transferred to the accounts of these projects in the banking system by the treasury; (iii) the external funding allocated to these projects (grants, loans); and (iv) the external funds deposited in these accounts.
March 31, 2005Implemented
  • Improve the transparency of the Government’s Table of Financial Operations (TOFE) in line with the recommendations of the AFR/FAD technical mission of February 2004 concerning the treatment of correspondent accounts and the different government definitions used in the TOFE and the net bank credit to government.
June 30, 2005Not implemented
  • Prepare a report on commitments, verification, payment orders, and payment by major spending lines for the months January– June 2005, using the software “Système Intégré de Gestion des Finances Publiques” (SIGFIP).
July 31, 2005Implemented with delay
  • Implement a new formula for electricity prices compatible with operator profitability.
October 1, 2005Gradual implementation, starting in November 2005

11. To better monitor public finance data, the government has decided to adopt the WAEMU TOFE when the relevant directive under discussion will have been adopted. In the meantime, starting with the TOFE for October 2005, the presentation of the table will be improved as described in the following box (prior action). The provisional monthly tables for January to September 2005 have been produced based on the consolidated monthly treasury balances, with a 60-day lag.

Methodological Changes to the Table of Government Financial Operations

The methodology to report fiscal data will be changed to provide a more accurate assessment of fiscal performance, and a more precise definition of bank and nonbank financing. The new format of the Table of Government Financial Operations (TOFE) brings it closer to the WAEMU TOFE, which expands the coverage of fiscal statistics to local governments and autonomous public entities. The changes are the following:

  • Elimination of the line “Treasury Special and CorrespondentAccounts.”17 The accumulation of deposits of Correspondent Accounts at the treasury was previously recorded above the line as negative expenditures. This did not conform to international accounting practices and created distortions. In the new presentation, only those public sector entities whose entire operations (revenue and expenditure) pass through the treasury accounts have been maintained above the line.
  • Introduction of the “balance of selected public sector entities” line. This new line in the TOFE, captures the deficit or surplus of three type of institutions: (i) local governments, (ii) autonomous public sector entities (e.g., hospitals, universities), and (iii) the Social Security Fund for civil servants (FNR). Movements in all the other correspondent accounts have been classified as nonbank financing, in accordance with the WAEMU TOFE.
  • Revision of the net credit to the government (NCG) series. This series, reported below the line in the TOFE, will be corrected to ensure that its institutional coverage corresponds to the scope of government reflected above the line in the TOFE. This correction will create a difference between the change in the NCG reported in the TOFE and that in the monetary accounts. The latter, reported by the BCEAO, includes public sector agencies whose operations do not have a counterpart “above the line” in the TOFE. The changes in government deposits that do not have a counterpart in the TOFE are listed as a memorandum item. Thus the difference between the TOFE and BCEAO statistics can easily be reconstructed.

12. A number of important steps have been taken to strengthen public expenditure management. Starting with the 2005 budget, a single budget document, containing both current and capital expenditures, was prepared using a harmonized nomenclature. The government issued an administrative order in September 2005, establishing December as a deadline for payment orders (ordonnancements), with exceptions strictly limited to expenditure included in the supplementary budget law.

13. The privatization of SONACOS was completed with the final transfer of assets in March 2005. The specific tax (taxe spécifique) was eliminated in December 2005 (performance criterion). However, in view of the strong increase in vegetable oil imports since 2004, which has weakened SONACOS’ financial situation and threatened its ability to buy the groundnut crop, parliament adopted a law imposing import duties of 25 percent on palm oil imports and 15 percent on other vegetable oil imports for a temporary period of up to 6 years. The government commits to ensuring that the imposition of these new taxes is in line with the emergency safeguard clauses in the World Trade Organization (WTO) and WAEMU treaties, within the deadline prescribed by these treaties.

14. The PRSP process has continued to improve health and education outcomes and reduce poverty. According to the second PRSP progress report published in June 2005, the incidence of poverty is estimated to have been further reduced from about 57 percent in 2001 to 54 percent in 2004. The allocation of spending toward health and education continued to improve, reaching about 33 percent of total spending and 8 percent of GDP in 2004. These increased resources have led to better outcomes. For example, there have been increases in gross enrollment in primary schools from 77 percent in 2003 to 80 percent in 2004, and in the DTC3 immunization coverage from 59 percent in 2003 to 75 percent in 2004.

II. Government Program for 2006

15. The macroeconomic outlook for 2006 is broadly favorable. Real GDP growth is projected at about 5 percent, reflecting continued robust expansion in all sectors as in 2005, despite an increase in the average price of oil. Annual average inflation, measured by the GDP deflator, is expected to edge up to about 2.5 percent, reflecting mainly higher oil prices and the increase in electricity prices. Although the rise in value of petroleum imports will weigh on the trade deficit, strong private remittances will help maintain the external current account deficit at about 7.6 percent of GDP.

A. Public Finances

16. The government’s fiscal policy will remain prudent in 2006. The overall fiscal deficit, including grants is expected to increase from 3.5 percent of GDP in 2005 to 4 percent of GDP in 2006, while the basic balance (program definition) will deteriorate by about 1 percent of GDP. This deterioration is explained mainly by higher capital expenditures, the postponement to 2006 of the cost of some structural reforms (especially the recapitalization of the postal agency), and some revenue losses associated with the reduction of the corporate income tax. At the same time, the growth of domestically financed public investment will be gradual and will take into account absorptive capacity. In order to improve the efficiency of investment projects, the government will also enhance investment planning, monitoring, and evaluation based on the recommendations of the World Bank’s 2005 Public Expenditure Review.

17. The government will maintain an attractive fiscal environment for private sector development. To this end, the corporate income tax will be reduced from 33 percent to 25 percent, effective from January 2006, causing a likely revenue loss of approximately CFAF 19 billion a year. The equalization tax (a special sales tax) will be eliminated in 2007, generating a revenue loss estimated at CFAF 9 billion.

18. The government expects substantial additional revenue from the sale of its minority stake in the telecommunications company SONATEL, the renegotiation of an existing mobile phone license, and the issuance of a new mobile phone license. Senegal’s qualification for the MDRI will also free additional resources for priority needs, which will be identified in the new Poverty Reduction Strategy Paper (PRSP) under preparation. The allocation of resources from MDRI will be decided after consultation with Fund staff. A supplementary budget will be presented to parliament in 2006 to account for all resources generated from the telecom sector and debt relief.

19. All resources that may be received within the framework of the Millennium Challenge Account program and the preparation of the summit of the Organization of Islamic Countries are not reflected in the 2006 budget. The amounts and procedures for spending these resources are still not known. In the interest of strengthening fiscal discipline and transparency, the 2006 supplementary budget law will present the external funds made available to the government and all of its agencies, to finance any expenditure associated with these initiatives.

20. To improve the efficiency of tax administration, the government will install a software at the treasury to render the data-sharing system between the three tax collecting agencies fully operational by March 2006. The government will assess the feasibility of transferring direct tax collection responsibilities to the General Directorate for Tax Collection (DGID). The tax management system software SIGTAS will be installed at the large enterprises unit in 2006.

21. The government has prepared an action plan to enhance budgetary transparency (Annex I) in line with the recommendations of the fiscal module of the Report on Observance of Standards and Codes (ROSC), and consistent with the CFAA and CPAR recommendations. The government will strengthen the legal and institutional environment in which various government funds and agencies operate. In particular, it will ensure that agencies follow regular budgetary rules and will set up a system of financial audits for the agencies to enhance transparency regarding financial risks for the government. A comprehensive list of agencies and the budgetary transfers made to them, either directly or through the budget allocations for spending ministries, have been clearly identified in the 2006 budget documentation and will continue to be presented in future budget laws. The government will extend the computerized system of monitoring budget execution (SIGFIP) to the final payment phase in 2006, making it possible to produce monthly reports on budget execution by major spending lines until the final payment stage.

22. The government will further strengthen budgetary control procedures. External audits of the government’s end-year treasury accounts by the Audit Court will continue, and parliamentary examination of budget review laws will be strengthened. The 2004 end-year treasury accounts and draft budget review laws for 2003–04 will be submitted to the Audit Court by, respectively, end-March and end-June 2006. The capacity of the Audit Court will be enhanced to speed up examination of budget review laws and permit submission to the National Assembly within the timeframe specified by WAEMU directives. Resources allocated to the Audit Court (for current and capital expenditures) will be increased in 2006–07 to enable it, in particular, to recruit 27 new magistrates.

B. Implementation of the Airport Project

23. The government has reaffirmed its determination to build the new Blaise Diagne International Airport, the potential benefits of which will be reinforced by the implementation of the toll road and the Diamniadio industrial platform projects. The World Bank has expressed a favorable opinion on certain aspects of the project’s viability but has highlighted several important issues that need to be analyzed in depth and resolved before implementation starts. The government commits to finding satisfactory answers to these questions with the World Bank’s assistance. Before construction begins, the government will seek the independent and expert opinion of the Council on Infrastructure about the project, and submit it to parliament for its advice. The government will take the results of these deliberations into account in implementing the project.

24. The following measures apply to the implementation of the project:

  • An Investment and Operation Company (SIE) will be created, in which the government will hold a 49 percent stake. The government’s contribution to the capital of the company will consist of land and will be provided in accordance with company law. The private partner(s) in the airport will hold 51 percent of the capital.
  • The company will finance the airport through a loan, which will be reimbursed with the receipts from the Airport Infrastructure Development Tax (RDIA).
  • The authorities will publish the annual accounts of the SIE, approved and audited according to international standards, on the external website of the Ministry of Economy and Finance by end-July of the year following the SIE’s fiscal year. These accounts will also be forwarded to the parliamentary commission on public works.
  • The government will draw up a contract with the SIE, the provisions of which will minimize the risks of the project for public finances. Fund and World Bank staff will receive a copy before the contract is signed, and be given an opportunity to evaluate the distribution of risks and financing related to the project. Based on the results of that analysis, the financial flows and the contingent liabilities related to the project will be reflected in the Table of Government Financial Operations (TOFE) and in other fiscal tables as necessary. This contract will set out the procedures governing the use of RDIA revenue for implementation of the project.
  • The revenue generated by the RDIA since its introduction on April 1, 2005 will be collected by the International Air Transport Association (IATA). All RDIA revenue will be collected and used in accordance with the procedures defined in Annex II. A decree was adopted to that end (prior action for the third and fourth reviews).
  • IATA will be asked to send a report to the Minister of Finance by the end of each month containing full information on: (i) the amount of the funds collected by IATA for the benefit of Senegal directly or through the Administration des Activités Aéronautiques du Sénégal (AAANS) in the previous month and cumulatively since April 1, 2005; (ii) the amount of funds transferred to the SIE and its banks, to the government, or to third parties during the previous month and cumulatively since the first inception of transfers; and (iii) the remaining Senegalese funds held by IATA.

C. Financial Sector Reform

25. The government will continue to encourage the development of the financial system and strengthen its supervision. An action plan was prepared for this purpose following broad consultations in 2003 between the government, the private sector, the banking community, and the other financial institutions, and reflecting the recommendations of the Financial Sector Assessment Program (FSAP) report. The priority measures of the plan are presented in Annex III. These measures are intended to, inter alia (i) enhance the soundness of banks, which remains broadly satisfactory, although risk concentration is still the main source of vulnerability in this area; (ii) implement an appropriate legal framework and simplified procedures for the seizure of collateral, by end-December 2005; and (iii) encourage the preparation of certified financial statements by small- and medium-sized enterprises to facilitate their access to credit. The government will take the necessary steps to implement measures under the action plan at the national level, and has already brought those necessitating a decision at the regional level to the attention of the president of the WAEMU’s Council of Ministers.

D. External Debt Policy

26. The government will not contract or guarantee any foreign loans on nonconcessional terms (as defined in the TMU of February 4, 2005) and will not accumulate any arrears. The provisions regarding prior authorization by the Minister of Finance for any foreign borrowing by public entities, as defined in the November 24, 2003 directive of the Prime Minister, will continue to be strictly enforced.

E. Public Enterprises

27. To prevent any adverse consequences on public finances and the economy, the government will continue to strengthen its supervision of the financial situation of public enterprises. The government portfolio management and control unit will be strengthened in order to produce a semiannual report outlining: (i) the level of external and domestic debt of the enterprises in which the government has a stake of at least 45 percent; (ii) the expected new borrowing of these enterprises; (iii) the level of any contingent liabilities arising from the activities of these enterprises; and (iv) the risk to the government of operations related to public/private partnerships. The report on the first half of 2005 will be available in January 2006.

28. Industries Chimiques du Sénégal (ICS), in which the government owns 47 percent of the capital, is in a delicate financial situation and will be monitored closely by the government portfolio management and control unit. In order to resolve its financial problems, private shareholders will recapitalize the company.

F. Accelerated Growth Strategy and Poverty Reduction Strategy Paper

29. Senegal is committed to achieving the Millennium Development Goals and this objective is clearly reflected in its Poverty Reduction Strategy Paper (PRSP). To that end, the government’s growth and development objectives underlying its economic and financial program for 2003–2005 were based on the guidelines specified in the PRSP.

30. To accelerate growth and meet substantial demand for social services, the government has launched deliberations on an Accelerated Growth Strategy (SCA), which aims to increase the average real GDP growth rate to more than 7 percent per annum. In January 2005, a list of five economic activities with substantial growth potential, labor intensity, and external competitiveness was drawn up. These include agriculture and agro-industries, fishing and fishing industries, tourism-art crafts, and cultural industries, textile and clothing industries, and electronic customer support services. In consultation with the public and private sectors, action plans to promote development in these sectors are being prepared for removing constraints to growth. The objective is to start the implementation of the SCA in June 2006.

31. The process of updating the PRSP also began in early 2005 and will be completed by the beginning of 2006. The revised PRSP, with which the SCA action plan will be aligned, will reflect the new priorities, particularly the development of infrastructures, including those in the secondary cities, and enhanced urban mobility in Dakar. It will draw on the conclusions of the first and second PRSP annual progress reports, and emphasize the need to improve the monitoring of poverty reduction indicators, including through better statistics.

III. Relations with the IMF and Program Monitoring

32. The government would like the next economic and financial program supported by the Fund to be a nonfinancial program focusing on accelerating growth, reducing poverty, and deepening fiscal and financial sector reforms. Accordingly, the government has established indicative quantitative benchmarks for end-March, June, September, and December 2006 as a basis for assessing performance in the coming months (Tables 3 and 4). In addition, the government will pursue the above-mentioned structural reforms, which could be developed further under the new program to be established on the expiry of the current arrangement on April 27, 2006.

Table 3.Senegal: Indicative Targets for 2006

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

March 31June 30Sept. 30Dec. 31
Floor on the basic fiscal balance, excluding temporary costs of structural

reforms and spending financed with HIPC-related resources 1/
−3.13.7−13.80.0
Floor on tax revenue208.8464.0669.2892.1
Ceiling on the wage bill72.0144.0216.0266.3
Ceiling on the share of the value of government contracts signed by single tender (in percent)20.020.020.020.0
Ceiling on the amount of current non-wage non-interest expenditures

and domestically financed capital

expenditures executed through exceptional procedures
23.028.125.625.7
Ceiling on the contracting or guaranteeing of new nonconcessional

external debt by the government 2/3/
0.00.00.00.0

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

This indicative target will be monitored on a continuous basis.

This indicative target excludes government or government-guaranteed CFAF borrowing from financial institutions within WAEMU.

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

This indicative target will be monitored on a continuous basis.

This indicative target excludes government or government-guaranteed CFAF borrowing from financial institutions within WAEMU.

Table 4.Senegal: Quarterly Government Financial Operations, 2006 1/
MarchJuneSept.Dec.
(In billions of CFA francs, cumulative since the beginning of the year)
Total revenue and grants243.2525.6763.61022.4
Revenue217.3480.9701.0934.5
Tax revenue208.8464.0669.2892.1
Nontax revenue8.517.031.842.4
Grants26.062.781.487.9
Budgetary9.49.49.416.0
Budgeted development projects16.553.271.971.9
Total expenditure and net lending269.8631.8930.61207.3
Current expenditure178.9364.7541.7700.7
Wages and salaries72.0144.0216.0266.3
Interest due9.924.532.446.3
Of which: external7.820.326.237.9
Other current expenditure97.0196.2293.2388.1
o/w: HIPC current expenditure2.26.58.68.6
Capital expenditure92.2250.1369.2473.1
Domestically financed56.6144.8218.7295.0
Non HIPC financed47.7123.0185.7250.5
HIPC financed8.921.833.044.5
Externally financed35.6105.3150.5178.1
Net lending−1.31.54.318.0
Temporary costs of structural reforms0.015.515.515.5
Selected public sector entities balance 2/0.00.00.00.0
Overall fiscal balance (including grants)−28.6−86.0−144.1−184.9
Overall fiscal balance (excluding grants)−54.6−130.7−206.8−272.8
Primary balance 3/−18.8−61.5−111.7−138.6
Basic fiscal balance (program definition) 4/−3.13.7−13.80.0
Financing28.686.0144.1184.9
External financing30.758.775.3145.5
Drawings38.173.8103.0164.1
Program loans16.216.216.231.9
Project loans21.857.586.8132.2
Amortization due−12.6−38.2−54.6−132.0
Debt relief and HIPC Initiative assistance5.323.226.998.4
T-bills and bonds issued in WAEMU0.00.00.015.0
Domestic financing−2.127.368.839.3
Banking system−2.127.371.641.0
Of which: T-bills and bonds0.00.00.07.5
Nonbank financing0.00.0−2.8−1.7
Of which: privatization receipts0.00.00.01.1
Of which: T-bills and bonds0.00.00.0−2.0
Errors and omissions0.00.00.00.0
Financing gap0.00.00.00.0
Memorandum items:
Airport travel tax earmarked for new airport (RDIA)16.1
Total HIPC spending11.128.341.653.2
Basic fiscal balance (WAEMU definition) 5/−14.2−40.1−70.9−68.7
Sources: Senegalese authorities; and staff estimates and projections.

Incorporates methodological changes presented in box of the Memorandum of Economic and Financial Policies.

Local governments, autonomous public sector entities (e.g. hospitals, universities), and the civil servants’ pension fund (FNR).

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.

Incorporates methodological changes presented in box of the Memorandum of Economic and Financial Policies.

Local governments, autonomous public sector entities (e.g. hospitals, universities), and the civil servants’ pension fund (FNR).

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.

ANNEX I: Priority Measures for Improving Fiscal Transparency in 2005–06

MeasuresTimetable
1. Improve the quality of the information presented in the Budget Law, by submitting detailed information on:
(i) all resources transferred to agencies, public entities (établissements publics), funds, and any other budget execution entities either directly or through the budget of spending ministries.2006 Budget Law
(ii) full details of transfers to public or private enterprises and other public entities (établissements publics) to compensate them for their quasi-budgetary activities.2007 Budget Law
(iii) exemptions of direct and indirect taxes, especially those that are associated with the new Investment Code.2007 Budget Law
2. Prepare the Consolidated Investment Budget (BCI) and the three-year Investment Program using an economic classification of expenditures, starting with the 2007 Budget Law.2007 Budget Law
3. Shorten the length of the complementary period (periode complémentaire): close out the administrative phase of the expenditure process (payment order or ordonnancement) on December 31, and the accounting phase (payment) at end-February of the following year, with exceptions strictly limited to expenditure included in the supplementary budget law.December 2005
4. Define the legal framework for agencies, funds, and any other fragmented budget execution entities. Promulgate a law establishing the terms on which agencies and funds may be created, specifying their goals, decision-making bodies, and other mechanisms necessary for tracking and monitoring their operations, and budget execution procedures, including compliance with the Procurement Code.December 2005
5. Improve the legal and operational framework for public procurement:
  • Forward to the National Commission of Public Procurement (CNCA) the procurement plans for 2006 of all government ministries and agencies.
January 2006
  • Adopt a new Code of State Obligations and Procurement Code that limits the recourse to no-bid contracts.
April 2006
  • Publish the 2003 Audit of Public Procurement and propose corrective measures, including the need for sanctions.
December 2005
6. Forward to the Audit Court the end-year treasury accounts (comptes de gestion) for 2004.March 2006
7. Forward the draft budget review laws (lois de règlement) for 2003–2004 to the Audit Court.June 2006

ANNEX II: Decree on Transparency Procedures for the International Airport Blaise Diagne de Ndiass

The following is the text of the articles of the decree that was issued in December 2005 to establish transparency procedures for the use of public resources earmarked for the construction of the new airport.

Article 1. The revenues from the earmarked airport tax (RDIA) will be deposited in a blocked account in a reputable commercial bank of first rank.

The contract with the reputable international commercial bank where the blocked account will be opened includes the following:

(a) The funds deposited in the blocked account can only be withdrawn to service the loan contracted by the Investment and Operation Company for the financing of the airport project (the company).

(b) the depository bank will send a report to the Minister of Finance by the end of each month providing full information on:

  • the amounts deposited in the blocked account and interest accrued the previous month and cumulatively since the opening of the account;
  • the details of the administrative and banking charges;
  • outflows from the blocked account (amounts withdrawn, transferred, paid to third parties, etc.), during the previous month and cumulatively since the opening of the account, by purpose, nature of transaction, and beneficiary; and
  • the outstanding balance of the blocked account.

Article 2. The reports provided by the agencies in charge of the collection of the RDIA and by the depository bank will be sent to parliament for information by the Minister of Finance within 15 days of their receipt, and posted on the Ministry of Finance external website.

Article 3. The Minister in charge of the execution and construction of the airport will verify every six months that the use of the proceeds of the loan is consistent with the execution of the works. If the construction work is interrupted, or there are substantial differences between the payments and the progress of the construction work, the Minister responsible for the construction of the airport should ask the company to suspend the withdrawal of funds from the account where the proceeds from the loan have been deposited.

Article 4. The project and the contract between the government and the company will be submitted to the independent Council on Infrastructure and parliament for their advice. The statutes of the company and the government’s contracts with IATA and the company will be published on the website of the Ministry of Finance.

Article 5. The Minister of State, The Minister of Economy and Finance and the Minister of Tourism and Air Transport are responsible, each according to their areas of expertise, for the implementation of this decree, which will be published in the Official Journal.

ANNEX III: Priority Measures for Enhancing the Performance of the Financial Sector

ObjectiveMeasuresTimetable
Improve the legal and judicial environmentBoost resources allocated to the judicial system, with the aim of:2006 Budget Law
  • Enhancing the performance of the offices of the clerks of courts;
June 2006
  • Instituting a specialized window to expedite procedures for the realization of collateral;
June 2006
  • Creating specialized chambers within the Dakar courts to handle commercial, financial, and banking cases so as to simplify and expedite procedures for the realization of collateral;
June 2006
  • Increasing the number of judges trained in economic and financial matters and ensuring that court cases are handled regularly throughout the year (including during the judicial holiday period).
2006
Improve prudential regulationBring the following measures to the attention of the president of the Council of Ministers of the WAEMU:Implemented, October 2005
  • Raise the minimum capital adequacy ratio,
  • Adopt a law on bank failure in accordance with best international practices.
Improve access to credit for SMEs
  • Streamline the guarantee funds and the existing interest subsidy mechanisms, as well as their management.
December 2006
  • Provide technical, financial, and institutional assistance (through the Private Investment Promotion Project) to the National Association of Chartered Accountants (ONECCA) to promote the preparation of certified financial statements and prevent the illegal performance of accounting functions.
Ongoing from September 2005
  • Ensure the effectiveness of the ONECCA disciplinary unit.
December 2006
APPENDIX II: Senegal: Relations with the Fund

(As of November 30, 2005)

I. Membership Status: Joined August 31, 1962; Article VIII as of June 1, 1996

II. General Resources Account:

SDR MillionPercent of Quota
Quota161.80100.00
Fund holdings of currency160.2499.04
Reserve position in the Fund1.560.96

III. SDR Department:

SDR MillionPercent of Allocation
Net cumulative allocation24.46100.00
Holdings0.230.95

IV. Outstanding Purchases and Loans:

SDR MillionPercent of Quota
Poverty Reduction and Growth Facility (PRGF) arrangements109.3867.60

V. Financial Arrangements:

TypeApproval DateExpiration DateAmount Approved

(SDR million)
Amount Drawn

(SDR million)
PRGFApril 28, 2003April 27, 200624.2710.41
PRGFApril 20, 1998April 19, 2002107.0196.47
ESAF/PRGFAugust 29, 1994January 12,1998130.79130.79

VI. Projected Payments to Fund (with Board-approved HIPC Assistance) (SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20052006200720082009
Principal4.4120.9623.7517.8613.20
Charges/interest0.281.171.060.960.88
Total4.6922.1324.8018.8214.08

VII. Implementation of HIPC Initiative:18

Enhanced

Framework
I. Commitment of HIPC Initiative assistance
Decision point dateJune 2000
Assistance committed
By all creditors (US$ million) 1/488.30
Of which: IMF assistance (US$ million)42.30
(SDR equivalent in millions)33.80
Completion point dateApr. 2004
II. Disbursement of IMF assistance (SDR Million)
Assistance disbursed to the member33.80
Interim assistance14.31
Completion point1919.49
Additional disbursement of interest income 2/4.60
Total disbursements38.40

VIII. Safeguards Assessments:

The Central Bank of the West African States (BCEAO) is the common central bank of eight west African states, which include Senegal. An on-site safeguards assessment of the BCEAO completed on March 3, 2002, proposed specific remedies to alleviate vulnerabilities that were identified by staff. Based on the 2002 financial statements, the staff noted that the BCEAO has improved the explanatory notes to the financial statements and further changes are scheduled for the next fiscal year, with a view towards a gradual alignment with IAS accounting to the extent applicable to central banks by 2005. The external auditor has apprised the Board of Directors of the BCEAO of the quality of internal controls in June 2003, and the financial statements for the year 2002 were published on the bank’s website. The staff will continue its follow up on the progress of the BCEAO in implementing the proposed recommendations as part of the ongoing safeguards monitoring process.

Financial reporting framework. The Fund staff recommended that the BCEAO formally adopt International Accounting Standards (IAS) and publish a complete set of financial statements, including detailed explanatory notes. It was agreed by the BCEAO and Fund staff that the BCEAO will strive to improve its financial and accounting reporting by aligning its practices with those recommended by IAS, which have been adopted internationally by other central banks.

Internal controls system. The staff noted that the absence of oversight of the bank’s governance, financial reporting, and internal control practices by an entity external to the management of the BCEAO represented a significant risk. It was agreed y the BCEAO and Fund staff that, after seeking the opinion of the external auditor (Commissaire Contrôleur), the BCEAO staff will propose to the BCEAO Board of Directors that it adopt a resolution whereby the external auditor will be required to apprise the Board of Directors, during its annual review and approval of the financial statements, of the state and quality of internal controls within the bank.

The staff follows up regularly on the BCEAO’s progress in implementing the recommendations in the context of the Fund’s semiannual regional consultation missions.

IX. Exchange System:

Senegal is a member of the West African Economic and Monetary Union (WAEMU). The exchange system, common to all members of the union, is free of restrictions on the making of payments and transfers for current international transactions. The union’s common currency, the CFA franc, had been pegged to the French franc at the rate of CFAF 1 = F 0.02. Effective January 12, 1994, the CFA franc was devalued and the new parity set at CFAF 1 =F 0.01. Effective December 31, 1998, the parity was switched to the euro at a rate of CFAF 655.96 = €1. On May 6, 2005, the rate of the CFA franc in terms of the SDR was SDR 1 = CFAF 767.75.

Aspects of the exchange system are also discussed in the recent report on economic developments and regional policy issues of WAEMU.

X. Article IV Consultations:

Senegal is on the 24-month Article IV consultation cycle, in accordance with the provisions of the decision on consultation cycles. The 2004 Article IV consultation was completed by the Executive Board on March 7, 2005 (2004 Article IV consultation and the second review, and IMF Country Report No. 05/155). In concluding the Article IV consultation, Executive Directors stressed the importance of prudent fiscal policies and structural reforms to enhance policy credibility, maintain debt sustainability, and achieve the growth needed to further reduce poverty. They emphasized in particular the need to enhance public expenditure management and fiscal transparency, rehabilitate and privatize public enterprises, address the under-development of financial markets, and press ahead with structural reforms and infrastructural improvements to lower the cost of production, improve the business climate and raise productivity in the export sector.

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

A joint team of the World Bank and the International Monetary Fund conducted a mission under the FSAP program in November 2000 and January 2001. The Financial System Stability Assessment (FSSA) was issued in August 2001 (IMF Country Report No. 01/189). An FSAP update was undertaken in June 2004, focusing on development issues (in particular nationwide supply of basic financial services and access of SMEs to credit), in line with the priorities defined in the PRSP (IMF Country Report No. 05/126).

A ROSC on the data module, based on a September 2001 mission, was published on December 2, 2002. An FAD mission conducted a ROSC on the fiscal transparency module in January 2005.

XII. Technical Assistance:

STAStaffSeptember 2001ROSC assessment of data.
FADStaff/consultantSeptember 2001Assessment of capacity to track poverty-reducing expenditures.
STAAFRISTATJuly 2002Real sector statistics assessment Mission, under GDDS West Africa project.
STAAFRISTATAugust 2002National accounts assistance under GDDS West Africa project.
STARegional advisorAugust 2002Continued assistance with fiscal sector data under GDDS West Africa project.
STAAFRISTATDecember 2002Continued assistance with national accounts and prices statistics under GDDS West Africa project
STARegional advisorFebruary 2003Continued assistance with fiscal sector data under GDDS West Africa project.
AFRITAC2003

- Ongoing
Public external debt: Upgrading of information systems; techniques of external debt management.
AFRITACNovember 2003

- Ongoing
Assistance to strengthening the microfinance sector.

XIII. Resident Representative

Stationed in Dakar since July 24, 1984. The position has been held by Mr. Ousmane Doré since August 4, 2003.

XIV. Fourth Amendment of the Articles of Agreement and the Eleventh Quota Review

The authorities have indicated their agreement with the Fourth Amendment of the Articles of Agreement. The increase in Senegal’s quota under the Eleventh General Review of Quotas was completed on February 11, 1999.

APPENDIX III: Senegal: Relations with the World Bank20

(As of December 21, 2005)

Partnership in Senegal’s development

1. In May 2002, the Government of Senegal outlined its development strategy in a poverty reduction strategy paper (PRSP). The PRSP was presented to the Bank and IMF Boards in December 2002. It covers the period 2003–2005. The Government provided the first annual PRSP progress report in March 2004 and the second Annual Progress Report in June 2005. The PRSP sets out the following pillars of the government’s strategy: (i) creation of wealth within a healthy macroeconomic framework; (ii) capacity building and promotion of basic social services; (iii) improving the living conditions of vulnerable groups; and (iv) implementation and monitoring/evaluation. A new PRSP is currently being prepared and the Government expects to finalize it by first half of 2006.

2. Regarding the division of responsibilities between the Bretton Woods institutions, the IMF takes the lead in the policy dialogue on macroeconomic policies and monitors macroeconomic performance by way of quantitative performance criteria and indicators. In addition, the IMF’s PRGF contains structural conditionality in areas such as electricity and groundnut sector reform, which have a direct bearing on macroeconomic stability and growth prospects.

3. The PRSP and its comprehensive poverty analysis have provided the framework for the Bank’s country assistance strategy (FY03–05). The Bank supports the Government’s efforts to achieve sustained growth rates, reduce the incidence of poverty and improve access to basic social services. In particular, the Bank is currently supporting the implementation of the PRSP in the areas of health/nutrition, education, HIV/AIDS, rural development, transport, water, and urban development through the implementation of a portfolio of specific projects, as outlined more fully below. A new CAS (FY07–10) will be prepared to take into account the Government’s priorities as set in its new PRSP. CAS Board presentation is currently planned for December 2006.

World Bank Group strategy and portfolio

Lending

4. IDA has provided external assistance to Senegal since 1966. The main objective of the Bank’s assistance strategy for Senegal has been to reduce the incidence of poverty and improve employment. The Bank is working to (i) develop country ownership through policy dialogue; (ii) use public expenditure reviews with a focus on impacts at the levels of the consolidated central budget; (iii) monitor linkages between implementation and aggregate results; and (iv) emphasize investment in human capital through the lending and advisory services.

5. As of December 21, 2005, the World Bank had approved 132 credits for Senegal with a total amount of about US$2.6 billion. Past projects had supported agricultural diversification, irrigation, human resources development, institutional development, and expansion of the country’s infrastructure, particularly its transport system. In recent years, the emphasis has shifted to better utilizing and maintaining existing facilities and to helping the Government resolve some of the key issues hampering long-term development prospects. The current active portfolio has a commitment value of about US$672.2 million equivalent, with an undisbursed amount of about US$402.6 million. The portfolio is composed of 17 credits in various sectors (rural development, human resources: population/health/ nutrition/education/social development, HIV/AIDS, infrastructure/urban development, energy/water, industry, and private sector development, budget support).

Sector issues

6. Bank support to the health sector is provided under a series of PRSCs. PRSC II is expected to strengthen the Government’s efforts aimed at improving health infrastructure and the allocation of human and financial resources toward the regions.

7. In 1999, the Government adopted a ten-year program (PDEF) with the ultimate objective of reaching universal primary education by the year 2008 (up from 60 percent of gross primary enrollment in 1999). A Quality Education For All Project (QEFA—Education SIP) covers the first three years of the ten-year program. Key issues in education include the need to (a) consolidate gains in expanding access while addressing the needs of the under- and un-served areas; (b) support quality improvements in education through interventions at the school and at local education structures; (c) improve sector management (in particular, financial and personnel management); and (d) prepare for smooth deconcentration, and eventual decentralization, to the regional and departmental levels. The first phase of the QEFA operation is due to close at the end of December 2005. Preparation of the second phase is under way. Board presentation is planned for the second half of FY06.

8. Up until 1996, the urban water sector was facing two major issues: (i) a shortage of water production and distribution capacity in the Dakar area requiring substantial immediate investments, (ii) low managerial efficiency with no financial viability of the sector. To deal with these issues, the government adopted two Water Sector Projects in 1996 and 2001 supported by seven donors, including the World Bank as lead agency. The Water Sector is now closed. The Long-Term Water Sector project includes a large physical investment program and institutional reforms (PSP), which have increased access to potable water in the Dakar area and improved overall management of the sector.

9. In the transport sector, capacity constraints are being addressed with a program of new investments, especially in rehabilitating rail links between Senegal and Mali, as well as institutional reforms. The Transport SIP was launched in 1999 with support from several donors, including the World Bank. Key issues in transport include the need to strengthen institutional capacity, direct private sector involvement in investment and management of the sector, improving the condition of the priority road network and reducing the cost of road maintenance and rehabilitation.

10. Due to global difficulties in the energy sector, the two “privatization” efforts conducted over the last five years to bring private sector expertise and private financing into SENELEC were not successful. The Bank is now assisting the Government in a third effort taking into account the lessons learned and the overall international context where private sector interest in investing in Africa is reduced. A Rural Electrification Services project was approved in September 2004, and an Electricity Efficiency Enhancement project was approved in May 2005.

11. As of September 2005, credits from the International Finance Corporation’s (IFC) portfolio totaled about US$38 million and included two large investments (the GTI-Dakar power plant—the first independent power producer of the country—and Ciments du Sahel—the country’s second cement producer). Direct SME investments were made to finance a 130-room hotel, a private school, a microfinance institution, and expand a fishing fleet. Prior equity investments in the financial sector in housing and leasing are mature and IFC is seeking exit. IFC has been active in advisory work with FIAS assessments of investment red tape and the taxation system. IFC is also an active participant in the President’s Investors’ Advisory Council, a forum for high-level dialogue between the government and private sector (domestic and foreign).

World Bank-IMF collaboration in specific areas

12. The IMF and the World Bank staff maintain a close working relationship, especially with respect to (i) the implementation of the Poverty Reduction Strategy; (ii) reforms in public finance management; and (iii) structural measures in specific sectors, such as electricity and groundnuts, which have systematic impact on the public finances and on macroeconomic stability.

13. The conditionality for the groundnut and electricity sectors in the new PRGF-supported program has been developed in close collaboration with World Bank staff, and the Bank takes the lead role in working out the technical details of the envisaged reforms. The IMF and the Bank also coordinate their activities and conditionalities in the area of public expenditure reform, an area in which both institutions have an interest.

Senegal: Statement of Loans/Credits/Grants

(As of July 26, 2005)

Loan/Credit/

Grant
DescriptionPrincipalAvailableDisbursedApproval DateClosing Date
(Amount in millions of U.S. dollars)
40600Electricity Efficiency Enhancement15.7015.020.0017-May-0531-Jan-09
40250Emergency Locust10.007.572.0916-Dec-0430-Jun-09
39980Girmac10.008.281.6611-Nov-041-Jun-10
39810Rural Electrification Services29.9026.403.149-Sep-0430-Jun-09
39820Casamance20.0017.672.149-Sep-0431-May-08
40100PRSC30.00031.2614-Dec-0431-Dec-05
38750Private Sector Adjustment45.0034.569.1818-Mar-0431-Dec-05
37620Private Investment Promotion46.0039.828.8520-May-0331-Dec-08
36190Nutrition Enhancement Prog.14.702.4414.5914-Mar-0215-Jan-06
36010HIV/AIDS Prevention and Control30.0016.3217.947-Feb-0230-Sep-07
34700Long-Term Water Sector Project125.0062.9378.696-Mar-0131-Dec-07
34460Social Development Fund Prog.30.004.9728.9820-Dec-0031-Dec-04
33540Urban Mobility Improv. Project70.0047.2327.8125-May-0031-Dec-05
33330Quality Education for All Prog.50.000.1551.3011-Apr-0031-Dec-03
33150National Rural Infrastructure28.502.1827.4227-Jan-0030-Jun-05
32190Agriculture Services & Prod. Org.27.401.4226.9920-May-9931-Dec-04
31830Transport II90.0022.2870.5630-Mar-9930-Jun-05
Total672.20309.29402.65
Statement of IFC’s Held and Disbursed Portfolio

(As at 9/20/05)

(In US$ million)

HeldDisbursed
FY ApprovalCompanyLoanEquityQuasiParticLoanEquityQuasiPartic
1996/97AEF SERT00.430000.4300
1980BHS00.460000.4600
1999CDS14.592.263.25014.592.263.250
1997/98GTI Dakar9.061.69010.939.061.51010.93
2001SEF Royal Saly1.480001.48000
Total Portfolio:25.134.843.2510.93025.134.673.2510.93

AEF SERT = Africa Enterprise Fund - Société d’exploitation des ressources thonnères (tuna fishing unit)

BHS = Banque Habitat du Sénégal (local housing bank)

CDS = Ciments du Sahel (cement factory)

GTI-DAKAR = (power plant)

SEF Royal Saly = Small Enterprise Fund (small tourist hotel)

AEF SERT = Africa Enterprise Fund - Société d’exploitation des ressources thonnères (tuna fishing unit)

BHS = Banque Habitat du Sénégal (local housing bank)

CDS = Ciments du Sahel (cement factory)

GTI-DAKAR = (power plant)

SEF Royal Saly = Small Enterprise Fund (small tourist hotel)

APPENDIX IV: Senegal: Statistical Issues

9. Overall, Senegal’s economic database is comprehensive, but there are weaknesses in data on national accounts, production, international trade, and social indicators. The authorities are strongly committed to improving the quality and availability of economic, financial and social indicators, partially relying on technical assistance from the Fund and other international organizations.

10. Senegal has embarked on a process of regional harmonization of statistical methodologies within the framework of the West African Economic and Monetary Union (WAEMU).

11. Senegal participates in the General Data Dissemination System (GDDS), and its metadata were posted on the Fund’s Dissemination Standards Bulletin Board on September 10, 2001. Metadata were updated in July 2005.

12. The mission that prepared the Report on Observance of Standards and Codes (ROSC) in September 2001 carried out a review of Senegal’s data dissemination practices against the GDDS, as well as an in-depth assessment of the quality of national accounts, consumer price, monetary, balance of payments, government finance, and income poverty statistics. The main findings of the mission were as follows: (i) Senegal generally follows the recommendations of the GDDS for the coverage, periodicity, and timeliness of all data categories; (ii) improvements need to be made in data coverage (especially national accounts by institutional sectors), periodicity (especially quarterly government financial statistics), and timeliness (especially balance of payments, monetary, and poverty); and (iii) plans for improvement in these areas should address resource constraints, reinforce the legal framework for data collection and coordination, and clarify the responsibilities for dissemination of government operations, public debt, and monetary data. The mission also found that, while statistics were generally compiled based on acceptable sources; those relating to government finance were weak because of the absence of an integrated accounting source and the practice of not investigating revisions.

13. On October 17, 2002, the authorities conveyed to the Fund their observations on the draft data ROSC and their consent to the publication of the final version on the Fund website. The data ROSC was published on December 2, 2002.

14. In discussions with the government in the context of the 2002 Article IV consultations and the monitoring of the PRGF-supported program, the staff has urged the authorities to address the lack of quarterly (or half-yearly) indicators for overall economic activity. The national accounts and balance of payments data are prepared only on an annual basis. The authorities publish a quarterly industrial production index and a semi-annual services sector output index.

15. Specific issues in various topical areas are discussed below.

Real sector

16. The comparability of the national accounts generally follows the System of National Accounts, 1993. While the staff demonstrates professionalism, the lack of adequate financial resources has constrained efforts to collect and process data. Data sources are deficient in some areas, particularly the informal sector. Owing to financial constraints, surveys of business and households are not conducted regularly, impeding the production of national accounts estimates (e.g., input-output tables and institutional sector accounts are not compiled annually). However, efforts are being made to improve data collection procedures, strengthen the coordination among statistical agencies, and reduce delays in data dissemination. A project to implement the System of National Accounts 1993 was completed in early 2003 and included a change in the base year from 1987 to 1999, and improvement of estimates of informal activities; revised data have already been published in the IFS. Other initiatives, as indicated in the February 2004–April 2005 AFRITAC West Work Program, are the redevelopment of the industrial production index, development of a statistical register, production of a CPI with national coverage. A regional advisor in real sector statistics covering the West Afritac countries, including Senegal, was posted for one year beginning December 2005.

17. The coverage of the harmonized consumer price index, introduced in January 1998, is limited to Dakar. Its weights are based on a household budget survey conducted during only three months in 1996, and the regular provision of financial resources required for the price collection is not assured.

Public finances

18. Government finance statistics (GFS) data are compiled by the Ministry of Economy and Finance from the customs, tax, and treasury directorate sources. The authorities have not reported data to STA for inclusion in the 2005 GFS Yearbook. Data last reported were for fiscal year 2001. They do not report subannual data for publication in IFS, although the ministry compiles and disseminates reasonably detailed quarterly government financial operations tables (TOFE) in their own publications. In part to improve its GFS, Senegal started implementing recommendations made by a May 2000 FAD mission to correct a reported deterioration in the treasury accounts, as well as to integrate special accounts.

19. An AFR team worked with the authorities in February 2004 to improve fiscal reporting in the context of the PRGF-supported program. The focus was on (i) public accounts that are outside of the direct purview of the treasury; (ii) the treatment of correspondents’ accounts in the TOFE; and (iii) ensuring consistency between treasury and banking system information concerning government transactions. The mission found that the recent adoption by the authorities of the five WAEMU directives on public finances had set off a series of reforms, which should contribute to improving the overall government financial operations and bring the TOFE much in line with the extended WAEMU TOFE. However, the full implementation of these reforms could take time because of delays in addressing the weakness in the treasury computerization system. In the interim, the mission proposed a number of specific recommendations for improvement of the fiscal accounting practices. The authorities will review with Fund staff the modalities for incorporating these recommendations.

Monetary data

20. Preliminary monetary data for Senegal are compiled by the national agency of the Central Bank of West African States (BCEAO) and officially released by BCEAO headquarters. There has been an improvement in the timeliness of data provided on interest rates, monetary institutions, and deposit money banks. The authorities are now reporting monetary data to STA on a regular basis, with a reduction in the lag from about six months to about three to four months. Most key monetary statistical issues have been resolved.

21. A monetary and financial statistics mission visited BCEAO headquarters in Dakar in May 2001. The mission reviewed the procedures for collecting and compiling monetary statistics and addressed outstanding methodological issues that concern all the member countries of the WAEMU. The mission also briefed the BCEAO authorities on the methodology in the new Monetary and Financial Statistics Manual (MFSM) and discussed the modalities for introducing an IFS area-wide page for the WAEMU zone, which was subsequently introduced in the January 2003 issue of IFS.

22. In April 2003, the BCEAO organized a regional seminar on monetary and financial statistics with representatives from BCEAO headquarters and national agencies in Dakar; STA staff also participated. Participants agreed to set up a working group consisting of representatives from the national agencies and various departments of the BCEAO’s headquarters, which will follow up on the implementation of the seminar’s recommendations on implementation of the MFSM.

Balance of payments data

23. Balance of payments data for Senegal are compiled by the national agency of the BCEAO. With STA support, several steps have been taken to tackle balance of payments deficiencies, including: (i) implementation of the Balance of Payments Manual 5th edition methodology; (ii) modified and simplified related surveys for companies and banks; (iii) improvement in the computerization of procedures; and (iv) significant strengthening of staff training. Definitive balance of payments data can now be provided with a delay of less than one year. Further efforts are required to enhance the quality and coverage of balance of payments data. In particular, their latest published data show significant inconsistencies between the balance of payments and the international investment position.

Senegal: Table of Common Indicators Required for Surveillance

(As of December 20, 2005)

Date of

latest

observation
Date

received
Frequency

of

data6
Frequency

of

reporting6
Frequency

of

publication6
Memo Items:
Data Quality -

Methodological soundness7
Data Quality Accuracy

and reliability8
Exchange RatesCurrentCurrentDMM
International Reserve Assets and Reserve Liabilities

of the Monetary Authorities 1
Reserve/Base MoneySep. 200512/08/05MMMLO, LO, O, OLO, O, O, LO
Broad MoneySep. 200512/08/05MMM
Central Bank Balance SheetSep. 200512/08/05MMM
Consolidated Balance Sheet of the Banking System
Interest Rates2Nov. 2005Dec. 2005MMM
Consumer Price IndexMar 2005Jun 2005MMMO, LO, O, OLO, O, O, NA
Revenue, Expenditure, Balance and Composition

Financing3 - General Government4
O, LNO, LO, OLO, LO, O, LO
Revenue, Expenditure, Balance and Composition of Financing3 - Central Government
Stocks of Central Government and Central

Government-Guaranteed Debt5
External Current Account Balance2003July 2005AAAO, O, O, OO, O, O, O
Exports and Imports of Goods and Services2003July 2005AAA
GDP/GNP2004July 2005AVALO, LO, LO, LNOLNO, LNO, LNO, LNO
Gross External DebtJune 2002Nov 2002QVA

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

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

Foreign, domestic bank, and domestic nonbank financing.

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

Including currency and maturity composition.

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

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

Same as footnote 7, except referring to international standards concerning (respectively) source data, statistical techniques, assessment and validation of source data, and revision studies.

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

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

Foreign, domestic bank, and domestic nonbank financing.

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

Including currency and maturity composition.

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

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

Same as footnote 7, except referring to international standards concerning (respectively) source data, statistical techniques, assessment and validation of source data, and revision studies.

1

The discussion of fiscal developments is based on the revised Table on Government Financial Operations (TOFE). The changes are explained in the MEFP, Box 1.

2

Official flows of loans, grants, and debt relief have averaged 7 percent of GDP per year since the 1994 devaluation.

3

Customs revenues weakened in 2004, as the share of zero- and low-tariff imports in total has increased, but strengthened in the first nine months of 2005 as customs administration improved and oil prices increased.

4

The staff’s projection of the average per barrel price of oil for 2005 increased from US$37 in December 2004 to US$54 in December 2005. Oil price movements are substantially passed through to consumers (Box 1).

5

This adjustment was achieved by reducing domestically financed capital expenditures by about 0.5 percent of GDP and by taking absorptive capacity constraints into account for the projection of externally financed capital expenditures.

6

In addition, debt service savings owing to the MDRI would average US$90 million per year (1 percent of GDP) over the medium term.

7

This includes the presentation of an economic classification of investment projects (para. 23), the regular preparation of procurement plans in the main spending ministries, and the strengthening of the medium-term expenditure framework through a better system to assess costs and benefits.

8

The cost of the new airport project is estimated at about 4 percent of GDP.

9

These issues include (i) transparent modalities for the creation of the construction company in charge of the project, and for the selection of its shareholders; (ii) risk sharing arrangement between the government and the construction company, and the evaluation of potential contingent liabilities for the government; (iii) management of the shift from the old to the new airport and the existing airport’s assets; (iv) the size of the project and the timetable for its implementation; and (v) the control and incentive mechanisms for the management of the airport.

10

The authorities formally informed staff that parliamentary approval of the project, originally proposed by staff, was not possible under Senegal’s constitution, as it impinged on the authority of the government.

11

The action plan is based on the recommendations of the 2003 World Bank’s Country Financial Accountability Assessment (CFAA) and review of Country Procurement Practices (CPAR), the 2004 Assessment and Action Plan (AAP), and the 2005 fiscal ROSC.

12

The authorities noted that the difficulties with the new budget nomenclature and the installation of the computerized system for monitoring budget execution (SIGFIP) led to delays in transmission of these documents.

13

As a result, the ratio of NPLs (net of provisions) to capital increased to 42 percent.

14

The action plan also reflects the recommendations of “Senegal-Financial System Stability Assessment Update,” IMF Country Report No. 05/126.

15

Its losses amounted to about 2 percent of GDP in 2003–04, owing mainly to overruns on investments costs, high input and low export prices during 2001–03, and the depreciation of the U.S. dollar with respect to the euro, which reduced the CFA franc value of its export earnings.

16

The 2006 fiscal program provides for sufficient transfers to SENELEC, should tariffs not be raised (Table 5).

17

Correspondent Accounts are a series of heterogeneous deposit accounts that local governments, autonomous agencies, Social Security Funds, spending ministries, and even private companies and individuals hold at the treasury, which plays the role of a bank.

18

Senegal was not eligible for the HIPC Initiative under the original framework.

19

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

20

Prepared by Françoise Perrot from the World Bank (202-473 4465).

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