Senegal and the IMF |
Country's Policy Intentions Documents
of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum
Mr. Horst Köhler
Dear Mr. Köhler:
1. On April 20, 1998, the Executive Board of the International Monetary Fund approved a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) in support of Senegal's economic and financial program. The third annual arrangement, which was extended by 12 months, expired on April 19, 2002.
2. In order to consolidate the encouraging results obtained up to this point and to create the conditions for a higher rate of growth that will help combat poverty more effectively, Senegal has prepared a Poverty Reduction and Strategy Paper that was considered by the IMF Executive Board on December 19, 2002. The government has also designed a new economic reform program for the 2003-05 period focused on poverty reduction. The objectives of this program are set forth in the Memorandum on Economic and Financial Policies drafted in collaboration with IMF and World Bank staff.
3. In support of this program, the government requests a three-year arrangement under the Poverty Reduction and Growth Facility in the amount of SDR 24.27 million, as well as interim assistance from the Fund under the enhanced HIPC Initiative in the amount of SDR 5.083 million.
4. The government believes that the policies and measures set forth in the attached memorandum will permit the achievement of program objectives, but it will, if required, take any additional measures deemed necessary to that effect. During the period covered by an arrangement under the PRGF, the government will consult the Managing Director of the IMF on any appropriate economic or financial measure, at its own initiative, or at the request of the Managing Director. Furthermore, following the period of an arrangement under the PRGF and while Senegal maintains financial obligations to the Fund resulting from loans granted under this arrangement, the government and the Fund will hold periodic consultations on Senegal's economic and financial policies, at the government's initiative or at the request of the Managing Director. The government will provide the Fund with information needed to evaluate Senegal's progress in implementing its economic and financial policy and in achieving the program objectives. In any event, the Fund, together with the government of Senegal, will carry out a first review midway through the first year of the program, to be concluded by end-November 2003 at the latest. This review will include an examination of the main components of the medium-term recruitment and wage policy for civil servants and an evaluation of the reform of the tax system, including the Investment Code, that will enter into force in the context of the 2004 budget. The second review of the first annual arrangement, which should be concluded by end-April 2004 at the latest, will focus on postal sector reforms, as well as implementation of the action plan for reforms in public expenditure management based on an exhaustive diagnosis currently being conducted with the support of development partners.
Minister of Economy and Finance
Dakar, April 10, 2003
1. The government intends to launch the implementation of its poverty reduction strategy in 2003. The objective of this strategy,1 which fits harmoniously into the vision of NEPAD, is to lay the foundation for robust, balanced, and more evenly distributed growth; facilitate general access to essential social services by the end of the decade; and ultimately eliminate all forms of exclusion.
2. The analysis of the poverty profile and of the causes and forms of poverty has led to a strategy based on four key pillars: (i) wealth creation; (ii) capacity-building and the strengthening of basic social services; (iii) the improvement in the living conditions of vulnerable groups; and (iv) the establishment of a decentralized, participatory mechanism for strategy implementation and monitoring. The government will complement its wealth creation strategy by strengthening the macroeconomic framework, improving governance, and implementing structural reforms essential to the eventual removal of key obstacles to growth and to eliminate risks of major financial imbalances emanating from the parastatal sector.
3. This memorandum describes recent economic developments and presents the medium-term economic and financial program (2003-05) that is based on the poverty reduction strategy, and for which the government seeks a new three-year arrangement under the Poverty Reduction and Growth Facility (PRGF).
II. Recent Economic Developments and Structural Reforms Implemented in 2002
4. Economic growth slowed to 2.4 percent2 in 2002, owing to disappointing results in the primary sector, where a drop of 14 percent was recorded as a result of shrinking output in the livestock (-7.7 percent) and agriculture (-21.2 percent) subsectors. Growth in the secondary and tertiary sectors is estimated at 10.1 percent and 4.8 percent, respectively. Average inflation (measured by the harmonized consumer price index) reached 2.2 percent, in line with West African Economic and Monetary Union (WAEMU) convergence criteria. As regards the external sector, the current account deficit (excluding grants) is estimated at roughly 6.3 percent of GDP.
5. In executing the 2002 budget, the government has given priority to social services, while ensuring that overall expenditure was in line with an annual target for the budget
deficit (excluding grants) of approximately 1½ percent of GDP, a reduction of 2.3 percentage points of GDP relative to 2001. The basic balance improved, reaching a surplus estimated at 2.2 percent of GDP, compared to a deficit of 0.8 percent in 2001, owing to strong revenue performance and better expenditure control, including the elimination of subsidies for petroleum products (except butane) and virtually all public enterprises since 2001.
6. Based on preliminary figures, the revenue collection ratio increased by half a percentage point to about 17.7 percent of GDP, reflecting the full-year effect of the single VAT rate and steps taken to strengthen tax audits and computerize the tax administration. Total expenditure and net borrowing are estimated at CFAF 718.7 billion (20.2 percent of GDP) in 2002, including expenditure financed with HIPC Initiative resources of CFAF 10.1 billion. The wage bill increased by 12.5 percent to CFAF 199.4 billion, due in particular to the financial impact of the reform of the National Retirement Fund (FNR) of CFAF 11 billion and wage hikes granted in January 2002 that totaled CFAF 6.7 billion. Transfers and subsidies were limited to CFAF 106.2 billion, including a subsidy of CFAF 4.3 billion to SENELEC and social safety net spending (subsidies for small bottles of butane gas) of CFAF 4.9 billion. The budget did not include a transfer or subsidy for SONACOS, or subsidies for petroleum products (except butane). Investment expenditure reached CFAF 275.7 billion, of which 54 percent was estimated to have been financed with domestic resources.
7. The government's determination to reduce poverty was reflected in its fiscal priorities. The most significant steps taken in this context aimed at boosting the efficiency of public spending. This was to be achieved in particular by increasing the allocation for education, which is estimated to have increased from 31.6 percent of budgetary expenditure in 2001 to 32.0 percent in 2002, and by expanding the health budget, which accounted for 9.2 percent of budgetary expenditure, slightly higher than the 9 percent established as benchmark by the World Health Organization. To further the decentralization process, the government appropriated an additional CFAF 2.5 billion in favor of local governments.
B. Money and Banking Sector
8. Based on end-December estimates, broad money increased by 8.3 percent in 2002, reflecting growth in net foreign assets of 12.1 percent in terms of beginning-of-period broad money, due in particular to the handover of French franc banknotes to the central bank in the context to the conversion to the Euro. Credit to the economy increased moderately by 3.4 percent in terms of beginning-of-period broad money, while net bank credit to the government (NBCG) in 2002 declined by 8.2 percent. Central bank credit under the statutory advance, at CFAF 73.5 billion, was unchanged from the previous year. In view of WAEMU member countries' difficulties in honoring their initial commitment to fully repay all credits under the statutory advance by end-December 2001, the WAEMU Council of Ministers decided on September 19, 2002 to consolidate these credits at their December 31, 2001 level, at an interest rate of 3 percent per year and with quarterly repayments over a period of 10 years. Surveillance of the banking system continues to receive special attention. The monetary authorities approved the closure of a financial institution that had not complied with prudential regulations and revoked its license in August 2002.
C. Structural Reforms in 2002
9. Groundnut sector. After substantial budgetary support in 2001 that helped eliminate the deficit of SONACOS, its financial performance improved in 2002, with the company recording a modest cash surplus of CFAF 1.7 billion. Nevertheless, as the enterprise remains sensitive to a possible worsening of global market conditions for its products, vigilance remains in order.
10. As regards SENELEC, the initial forecast of a balanced cash-flow position could not be achieved. Instead, the company recorded a cash deficit of about CFAF 3 billon and has not been able to clear its arrears, despite recovery measures taken during 2002 by the government, which included the strengthening of the company's management. To improve SENELEC's financial position, electricity rates were raised by 10 percent, effective March 1, 2002, and SENELEC received a subsidy of CFAF 4.3 billion in 2002. The end-year result of SENELEC, even though it represents an improvement over the previous year, shows that the recovery measures did not suffice, owing in part to overly optimistic projections for electricity bill collections from the government, and in the other part due to higher costs resulting from the surge in petroleum prices in 2002. To this end, the government's main development partners involved in the sector were contacted to discuss possible ways of permanently overcoming the difficulties related to the insufficient generation of electricity.
11. As regards the postal office, the key objectives of the strategic plan for 2001-03, include institutional, operational, commercial, and functional measures. The postal office will continue to pursue the reform program described in the action plan of the Public Enterprise Audit and Oversight Committee, including a revision of the convention between the treasury and the postal office with a view to ensuring effective control of financial flows between the two entities. In addition, the government plans to implement the recommendations of the February 2002 World Bank technical assistance mission for the postal system, once it has validated them. An independent audit firm has calculated the costs of the post office's universal service obligation, and, for the first time, the government has inscribed a corresponding allowance in the 2003 budget.
12. As regards the pension system, the viability of the National Retirement Fund (FNR) was negatively affected by the liquidation of public enterprises, the more rapid increase in the number of pensioners relative to the number of contributors (owing to the freeze in civil service hiring), and relatively generous benefits accorded to retirees. To remedy this situation, the government's FNR reform plan included the following changes: (i) a revision of pension benefits, to be based on the last three years of employment, instead of the last year only; (ii) a reduction in ancillary benefits; (iii) a broadening of the base for the calculation of contributions to include other types of compensation in addition to the base wage; and (iv) an increase in the retirement age. As a result, the FNR's annual net flow to the treasury has turned positive and is expected to remain so for a long period of time.
D. HIPC Initiative and Completion Point
13. The government has taken the necessary steps to quickly reach the completion point under the enhanced HIPC Initiative. Virtually all macroeconomic targets mentioned in the HIPC Decision Point Document have been met and the structural measures have been implemented. Reflecting its firm resolve to pursue its withdrawal from the productive sector, the government has sold or liquidated eleven public enterprises from an agreed list with the specific choice of companies left to the government. At end-December 2001, the following eleven (11) public enterprises were offered for sale or liquidated: SONAFOR, SIDEC, SONEPI, SONAGRAINES, SEPROT, SERAS, the railway line DAKAR-BAMAKO, SODEFITEX, SODIDA, SEN-RE, and SENELEC. The privatization of SENELEC was not completed. The privatization process for the railway line DAKAR-BAMAKO and for SODEFITEX is being pursued, despite difficulties with prospective buyers at the final stages of the process throughout 2002. The main objective is to bring these final operations to a successful conclusion as fast as possible.
14. As regards measures in the education sector, their objectives have largely been attained. In the health sector, an emergency action plan has been developed, in partnership with the World Bank. The implementation of this plan is expected to lead, inter alia, to improvements in indicators of access to prenatal care, vaccination coverage, and use of primary health care centers, indicators whose recent evolution has been favorable.
III. The Medium-Term Framework of 2003-05 Economic Policies
15. Despite good results as regards growth and macroeconomic stability, the government is aware, as the PRSP stresses, that a quick reduction in poverty will require faster and more diversified growth and greater efforts to increase access to high-quality basic social services and infrastructures, primarily in rural areas, to boost the incomes of the poor. On this basis, the 2003-05 program aims at (i) sustaining a real growth rate beyond 5.0 percent per annum, (ii) maintaining price stability in line with price developments in the main trading partner countries, and (iii) keeping the fiscal deficit and the deficit of the external current account, including grants, at sustainable levels.
16. Although the government is firmly committed to implementing all the actions envisaged in the PRSP, the program described below is based on a more narrow economic policy platform. It focuses on the pursuit of macroeconomic stability, improved governance, and the implementation of reforms essential to remove the main obstacles to growth as well as eliminating the risks of major financial imbalances originating in parastatal companies. Moreover, the program's macroeconomic framework is based on the PRSP's prudent growth scenario, reflecting, in the medium term, a measured response of the economy to the envisaged economic and institutional reforms, a certain degree of caution in view of possible exogenous shocks to which our economy remains vulnerable, and a pace of execution of public expenditure programs that is consistent with the economy's absorptive capacity. As the implementation of reforms and investment programs progresses, and in light of actual results, the scope of the program may be expanded, and the assumptions of the macroeconomic framework adjusted. This flexible and prudent approach, based on a distinction between the PRSP's growth objectives, which the government views as desirably ambitious, and the growth assumptions underpinning the macroeconomic program, will in particular reduce risks of overheating that could result from a fiscal policy based on overly ambitious objectives.
A. Fiscal Policy
17. Fiscal policy will remain prudent. The basic fiscal balance (including additional expenditure under the enhanced HIPC initiative and the cost of specific structural reforms) is expected to be positive at 0.3 percent of GDP in 2003, and to stabilize at 0.7 percent in 2004 and 2005. The relatively small basic fiscal surplus in 2003 reflects the execution of HIPC Initiative spending with resources carried over from 2002. The underlying public expenditure strategy will aim at accelerating the switching of expenditure toward the priority sectors identified in the PRSP, as well as strengthening expenditure management to boost efficiency. Overall spending is projected to grow relatively fast in 2003, to allow for the expansion of social services and infrastructure included in the PRSP, reaching about 22.8 percent of GDP, including approximately 1 percent of spending financed with HIPC Initiative resources, and to stabilize around 22.5 percent of GDP in 2004 and 2005. The government will pursue revenue mobilization efforts, aiming at a gradual expansion of the tax base and greater efficiency in the tax administration. These projections do not include a possible revision of the fiscal framework in the medium-term, with respect to both revenues and expenditures, in view of the implementation of a hiring and wage policy that remains to be defined. The government will also continue to seek foreign assistance to finance its externally funded investment program at concessional terms.
18. In 2003, the government will define a medium-term hiring policy to address civil service staffing needs. This policy will also include key elements of a medium-term compensation strategy, taking into account incentives for greater efficiency and aspects of competitiveness with the private sector for certain key positions. As regards the wage bill, the government will proceed with hiring staff during 2003-05, particularly in the social sectors, as envisaged in the PRSP. It will also introduce a compensation system incorporating better incentives for civil servants in 2004. The government will include the World Bank and other interested donors and lenders in the process of defining the civil service reform and the hiring strategy.
19. Overall tax policy will focus on simplifying the tax structure during the next three years, with a view to increasing its yield. At the same time, the government will complete a study before end-June 2003 to assess the desirability of lowering marginal income tax rates, and will continue its efforts to expand the tax base by progressively taxing sectors outside the formal economy. As regards the reform of the investment code, the policy will be based on the principles of rationalization, non-discrimination, and safeguarding public finance sustainability. The government will consult with Fund staff on the key elements of the fiscal reform at the latest in the context of the first review of the program.
B. Monetary Prospects
20. The basic objective of regional monetary policy will remain to ensure price stability and the strengthening of the foreign reserves position, using market-based policy instruments. The issuance of treasury bills will be the main domestic source for financing fiscal deficits, in accordance with the commitment of the WAEMU states not to seek any more direct monetary financing from the BCEAO.
21. As regards the financial sector, the government's principal objective is to create an environment conducive to the mobilization and efficient intermediation of savings, so as to meet financing needs of the private sector. The government will strive to eliminate the impediments to a deepening of credit markets, including delays in the modernization of the judicial system, insufficient observance of accounting standards by small and medium-sized enterprises, and problems related to securing collateral in case of default. In this context, the government will continue to strengthen the training of judges in commercial and financial matters. The creation of commercial courts and the appointment of specially trained judges are under consideration. The government also intends to strengthen the development of the microfinance sector, so as to expand the access of the population to financial services and to combat poverty more effectively.
C. External Sector Policies
22. Absence of exchange restrictions. The government will keep the economy free of any exchange restrictions, multiple currency practices, and bilateral payment agreements that are inconsistent with Article VIII of the Fund's Articles of Agreement, and will neither introduce nor tighten import restrictions for the purpose of balance of payments control.
23. External debt. The government will neither contract nor guarantee external loans at nonconcessional terms, that is with a grant element of less than 35 percent,3 and will not accumulate any arrears. Moreover, it will examine weaknesses in its debt management system and will take the necessary steps to enhance debt management capacities.
D. Structural Policies
24. The government has prepared a Strategic Orientation Framework Paper for the agricultural sector, focusing on four cross-cutting issues, in line with the PRSP: (i) enhancing the quality and sustainability of rural infrastructure; (ii) strengthening market arrangements in the agricultural and rural sector; (iii) strengthening the capacity of public and private, institutional and non-institutional, agents; and (iv) efficiently managing natural resources and the environment to secure a sustainable development. An operational plan is now being drafted. In the groundnut sector, the revised framework agreement with the non-governmental National Groundnut Sector Committee aims at strengthening the role of the private sector in the management of the groundnut sector, while the study on rural credit, which is about to be completed, will focus on the rationalization of finance for agriculture. In this context, the financial arrangements and the environment in the groundnut sector will receive particular attention. In particular, the guarantee, improvement, and disaster funds will be used appropriately and efficiently, with a view to avoid any adverse impact on the government's and SONACOS' financial situation. The situation of these various funds will be examined in the context of formulating the reform strategy for the groundnut subsector, key elements of which are described in paragraph 50.
25. In the energy sector, the policy of indexing domestic petroleum prices to world prices, introduced in the context of the sector's liberalization, will be maintained. The reform of the electricity sector is a priority, in view of the sector's impact on the competitiveness of the economy and the major costs that the economy and the Budget would incur were this sector to continue performing poorly. The basic objectives of reform are to ensure the generation of sufficient, high quality electricity at the lowest possible cost in a context of fast-growing demand, and to expand access to electricity, especially in rural areas. SENELEC will begin implementing its emergency investment program, notably with the 30-megawatt expansion of the Cap des Biches No. 4 Power Plant, scheduled to take up operations in early 2003. Moreover, in September 2002, the government-appointed task force, which includes staff from the World Bank and Agence Française de Développement, began to work on an emergency investment program (generation, transmission, and distribution) as well as on the institutional development of the sector.
26. The government will also continue its policy of rehabilitating and restructuring public enterprises and government agencies, and will strive to maintain the medium- and long-term financial equilibrium of the National Retirement Fund.
27.Strengthening the public finances will be furthered in the context of the government's firm resolve to implement the national program for good governance, which is essential to enhance the attractiveness of the Senegalese economy. The government will ensure that the new procurement code adopted in 2002 is strictly enforced.
28. The fight against corruption will be stepped up with the establishment of a national governance surveillance commission. As laid out in the PRSP, the government intends to take up the challenge of, inter alia, (i) respecting the principles laid down in the WAEMU Transparency Code concerning the reliability of published government financial statistics; and (ii) making comprehensive statistical information, particularly regarding budget execution, broadly available to the public. In this respect, the laws on the new statistical framework will be adopted no later than June 2003, and the recommendations of the Report on the Observance of Standards and Codes (ROSC), approved by the government, will be systematically implemented from 2003 onwards. Furthermore, Senegal's participation in the Fund's General Data Dissemination System will be expanded and the plan for improving statistics in the various sectors will be carried out.
29. To boost the efficiency of the judicial system, particular emphasis will be given to reducing the delays in judicial proceedings and expediting the execution of court decisions. As regards notably cases with economic and commercial content, the government encourages and supports the recourse to mechanisms of arbitrage. The government will also make every effort to strengthen the independence of the judicial system and increase access to all citizens by hiring judges and improving their working conditions, modernizing and computerizing the offices of court clerks, and rehabilitating court buildings. A study will be prepared with a view to developing a five-year (2003-07) modernization program for the Ministry of Justice as part of a ten-year judicial reform plan. This plan, which is being prepared with the support of development partners, will be published by end-2003.
30. As regards priority social sectors, the government's objectives rest on the implementation of the poverty reduction strategy. Spending on education will reach 35 percent of current non-wage non-interest spending in 2003, and is expected to exceed 40 percent in 2005. The government is committed to achieve a target of 46.4 percent in 2005, up from 44 percent in 2003, for the ratio of primary education expenditure to total education spending. The share of health care spending in total non-wage non-interest current expenditure will increase to reach 9.5 percent in 2003 and 10 percent by 2005. Spending on primary health care will increase by 10 percent in 2003, and 14 percent in 2005. Furthermore, a study on the optimal ratio of contractual to regular staff in these sectors will be completed, with a view to improving and sustaining education and health services.
31. To achieve these objectives, the government will implement measures contained in the action plan to improve absorption capacity for investment, including: (i) strengthening the capacity and improving the tools and methods of technical ministries, by setting up operational units responsible for preparing, monitoring and evaluating investment; (ii) streamlining administrative and budgetary procedures for expenditure execution, in line with the reform of the procurement code, by reducing delays in expenditure control; (iii) improving the institutional approach to and the management of public investment projects, and (iv) pursuing the modernization of the budget information system.
32. Implementing of the poverty reduction strategy requires an expenditure framework that allows speedy execution, regular monitoring and frequent assessments to measure the effect of the actions taken. Moreover, it requires a framework for monitoring the impact of the strategy. Pending the introduction of the Medium-Term Expenditure Framework (MTEF) and the expansion of output-based budgeting, the government will introduce a mechanism in 2003 to identify and track poverty-reducing spending from the budget down, with a view to speeding up its processing at various control points on a priority basis. As regards monitoring, legislation to set up a steering committee will be adopted.
33. In the area of local governance, the government will take the necessary steps by end-2003 to adopt a local tax regime that strengthens the financial resources of local governments.
34. The government has also expressed its resolve to promote the rapid development of infrastructure in the framework of the Presidential Large Infrastructure Projects (LIP) through public-private partnerships. Projects for the Ndiass international airport and a toll highway are the most advanced. Throughout the preparation of all the LIPs, the authorities will, as part of a consultation process, provide Fund and World Bank staff with all the information (relevant to each institution's respective area of primary expertise) needed to: (i) assess the technical, economic, and financial viability of the LIP; and (ii) measure their impact on the macroeconomic framework set out in the government's economic and financial program for 2003-05. World Bank staff will assess the viability of the projects, and the Fund team will assess the macroeconomic aspects to ensure consistency with the economic and financial program. At the end of the consultation process, the macroeconomic framework will be adjusted as needed to ensure that the overall objectives of the program remain attainable. The award of concessions will be carried out through a transparent and, in principle, competitive process, for which the government is drafting legislation on BOOTs (Build, Own, Operate, Transfer) and BOOs (Build, Own, Operate) in consultation with the World Bank. Finally, during the implementation phase of these projects, the government will ensure efficient, equitable and transparent public resource management.
IV. Economic and Financial Program for 2003
35. The economic and financial program for 2003 envisages a growth rate of GDP of 6.6 percent, reflecting the expected return of agricultural output to its trend level, which would translate into 10.8 percent growth of the primary sector. Growth of the nonagricultural economy is projected at 5.7 percent, owing to significant investment in capacity expansion for the chemical and electrical sectors in recent years, and the sustained strong performance of the construction sector, boosted by public investment programs. Inflation is expected to remain moderate, with a growth rate of the GDP deflator of approximately 2.5 percent.
36. In the first program year, the government will focus on accelerating the implementation of its agenda to strengthen public expenditure management. Moreover, it will concentrate on implementing institutional reforms in sectors which, in the past, seriously threatened the government's ability to achieve its fiscal objectives, particularly the electricity and groundnut sectors and the postal service. Tax and civil service reforms to be introduced in 2004 will be prepared in 2003. Finally, the government will launch programs to strengthen the judicial system, and to promote private sector development and good governance.
A. Fiscal Policy
37. The 2003 budget reflects a prudent policy aimed at ensuring long-term fiscal sustainability and allowing room for maneuver in the event of adverse exogenous shocks. With basic surplus of 0.3 percent of GDP and strong growth of externally financed capital expenditure, the overall balance including grants will shift to a deficit of 1.3 percent of GDP in 2003, from a surplus of 0.4 percent of GDP in 2002.
38. Revenue policy will focus on the simplification of the tax system for small and medium enterprises, the continuation of efforts to strengthen the tax and customs administrations, and the preparation of a reform of corporate taxation to support private investment. The tax-to-GDP ratio will be maintained at a level above 18 percent. The government will take all necessary measures, in addition to expenditure containment, should tax revenue fall far short of projections.
39. The government will also adopt legislation to introduce a simplified tax for small enterprises, combining the income tax, VAT, and business licensing fees. It will ensure that the new mechanism will be easy to use and administer, and that the tax is designed such that its introduction is revenue-neutral. The tax will allow both to expand and simplify the tax system under which small enterprises are operating.
40. As regards expenditures, the policy for 2003 aims at (i) strengthening expenditure management with a view to improve efficiency and transparence, (ii) increasing priority expenditures in favor of social sectors and basic infrastructure, in line with the implementation of the poverty reduction strategy described in the PRSP, and (iii) ensuring adequate funding for the costs of structural reforms. The government will also prepare a recruitment plan in the priority sectors, the financial administration, and domestic security which will be implemented starting in 2004. Overall spending, excluding externally financed investment, is expected to grow substantially, with current expenditure increasing by roughly 10 percent and domestically financed investment expenditure by 13.4 percent. The wage policy will continue to be prudent, with the wage bill as a share of tax revenue remaining well below the WAEMU criterion of 35 percent. The wage bill is expected to grow by 4 percent, owing mainly to the hiring of regular and contract staff, primarily in the education and health sectors, while wages will remain unchanged in 2003. As for other current expenditure, spending on goods and services and transfers will accelerate slightly, in line with investment expenditures. No new transfer to SONACOS is planned, and a subsidy of CFAF 5.7 billion is envisaged for SENELEC.
41. The above objectives will be supported by reforms of the tax and customs administrations and by sound and more transparent public expenditure management, described in the following paragraphs.
42. Tax and customs administrations. The implementation of the single taxpayer identification number will be pursued. It will be gradually extended to all administrations, starting with the private sector pension fund (IPRES) and the social security administration towards the end of the first semester of 2003. As regards the computerization of revenue collection, the information technology (IT) systems of the Tax Directorate, the Customs Directorate and the treasury Directorate will be integrated by end 2003, so as to improve tax assessment and share available taxpayer data. This IT integration will be expanded to decentralized government services in 2003. The computerization of procedures will be expanded to tax audits by end-2003. Finally, the long term objective will be to integrate tax administration and expenditure management IT systems.
43. Public expenditure management. In recent years, strong central control has allowed the government to contain overall expenditures and eliminate financial imbalances. Looking forward, it intends to take the same approach to increase the transparency and efficiency of the public expenditure management system. The diagnostic analysis of government financial operations that is currently carried out in cooperation with the World Bank, the African Development Bank, and the European Union aims at developing an action plan by April 2003. The plan will then serve as basis to complete the reform agenda.
44. In the meantime, efforts will focus on harmonizing budgetary and accounting classifications and on the gradual expansion of an integrated IT system for monitoring the expenditure process. Detailed measures are described in Annex I, and include the adoption of the three most recent public expenditure management directives of the WAEMU by the end of the first quarter of 2003. The implementation of the WAEMU chart of accounts and the inclusion of treasury execution operations into the integrated expenditure monitoring software will be tested in 2003. As a result, at the start of fiscal year 2004, it will be possible to use this software to monitor expenditure execution up to the payment stage.
45. The government will make arrangements to enhance dissemination and improve controls of financial information. Accordingly, the following documentation will be produced: in March 2003, the treasury end-period accounts for 2002; every month, monthly treasury accounts; each quarter, government financial operations (TOFE); and in June 2003, the reconciled accounts of the treasury and of the executed budget of 2002. A similar schedule will be followed in subsequent years. The delay in the adoption of the 1997-2001 budget execution laws will be made up during the first half of 2003 (for the 1997 to 2000 accounts) and during the second half (for the 2001 accounts), respectively, in compliance with WAEMU provisions. Finally, until March 2003, the government plans to complete the questionnaire necessary to prepare a mission on the fiscal module of the IMF's Report on the Observance of Standards and Codes (ROSC).
46. The government is also determined to minimize the use of extraordinary budget procedures. Accordingly, by the end of the complementary period (February 2003), it will regularize all outstanding cash treasury advances (Avances de Trésorerie, AT) and payments bypassing normal procedures (Paiements par Anticipation, PPA) for current and investment expenditures combined that were accumulated in 2002. Beginning with the fiscal year 2003, the total stock of AT and PPA is not expected to exceed 15 percent of the total quarterly spending authorization derived from the Budget Law, excluding special treasury accounts and externally financed investment expenditures.4 As the accumulation of large amounts in deposit accounts (as defined in the attached technical memorandum of understanding) limits the ability to track actual expenditure execution, the government plans to limit balances held in these accounts to CFAF 20 billion.
47. Finally, to the extent that the implementation of structural reforms could imply costs to be borne by the Budget, the government will ensure that such costs are properly assessed and that the requisite budgetary appropriations are made, if necessary in a supplementary budget in consultation with Fund staff. As the reform program moves forward, these costs, as well as the proceeds from privatizations, will be more accurately assessed. This assessment involves in specific: (i) a partial recapitalization of the IPRES, as a consequence of contribution arrears by enterprises that are now being liquidated, the Postal Service, and the University of Dakar; and additional recapitalization that the World Bank intends to finance in the context of its support for pension reform; (ii) the possible costs of privatizing SENELEC and SONACOS, in particular severance pay; and (iii) operations to settle mutual debts of the Postal Service and the treasury stemming from the clearing process for postal checks, as well as the possible need to recapitalize the Postal Service with a view to spinning off its financial activities.
B. Monetary Policy and the Financial Sector
Monetary and credit policy
in 2003 will remain prudent. Broad money is expected to increase by 8.8 percent
in 2003. Net bank credit to the government is expected to decrease by 0.3 percent
in terms of beginning-of-the-period broad money, while credit to the economy is
expected to grow by 6.7 percent in terms of beginning-of-the-period broad money.
To support the
48.development of the rapidly growing microfinance sector, the government will, in cooperation with donors and lenders, publish an orientation document to the define a strategy for the sector. This document will clarify the respective responsibilities of the Ministry of Finance unit in charge of supervision, the new Ministry of Female Entrepreneurship and Microcredit, and the BCEAO. It will also define the core tasks to be assigned to these institutions, with a view to separating the functions of supervision and regulation on the one hand, and those of development and promotion on the other.
C. Public Enterprises
49. To avoid any major financial imbalance originating in parastatal companies, the government will ensure that public enterprises in difficulty (SONACOS and SENELEC) are monitored more closely, based on monthly financial and accounting information.
D. Structural Reforms
50. Groundnut sector. The government will continue to closely monitor the management of SONACOS in 2003. It will take any necessary steps to prevent the worsening of SONACOS's financial position. The government will also pursue the privatization of SONACOS. By end-July 2003, it will announce the details of the privatization strategy and issue an international tender. Possible costs from privatization that the government would bear, for example from a possible redundancy plan, will be covered by a budget appropriation, if necessary in a supplementary budget in 2003, so as not to delay the privatization. Furthermore, in parallel with the privatization process, the government plans to issue a sector policy document covering issues such as the tax and customs regulations applicable to the sector, the financing of producers, the institutional aspects of managing the sector, special funds, price setting arrangements for the indicative producer price, and the new factory-gate groundnut marketing system. This document will also describe the main features of the government's policy in the groundnut sector, focusing on diversification in the groundnut basin, the strengthening of producer organizations, and the improvement of yields.
51. The government is aware that, as international experience has shown, the pre-privatization phase requires special attention to prevent a sudden deterioration of the enterprise's financial situation. In this context and in order to facilitate the certification of SONACOS' accounts--which will be a major concern to potential investors--the government will ensure that the enterprise issues a widely disseminated call for claims documentation under which any holder of residual claims on SONACOS may come forward within a given period. At the end of this period, SONACOS will conduct a thorough inventory of such claims with the assistance of an auditor. SONACOS will avoid making any partial settlement of these claims before the inventory is completed and certified. The terms of reference of the accounting firm assisting in the privatization will also include the monitoring of the company's accounts in the pre-privatization period.
52. Electricity. To ensure a satisfactory performance of the electricity sector over the long run, the government intends to involve the private sector in two ways in 2003. First, the government will specify the options and procedures for the privatization of SENELEC in an Energy Sector Policy Letter in March 2003. Second, it will issue a tender for a private Independent Power Producer (IPP) to expand overall generation capacity by approximately 60 MW, equivalent to about 20 percent of the capacity available at end-2002. The IPP would be slated to become operational by end 2004 or early 2005. Terms and conditions are currently being drafted, and a tender under international competitive bidding procedures will be issued by end-June 2003.
53. In the meantime, the government will take all necessary steps to ensure that the day-to-day management of SENELEC is both technically and financially satisfactory. In particular, the government will ensure that:
54. The government will adopt a number of extraordinary measures in the event of an increase in the cost of imported fuel that exceeds the projection in the company's cash flow plan by 30 percent over a period of more than three months. These measures would be based on the following principles: (i) SENELEC would first use its overdraft facility with local banks up to the approved limit of CFAF 6.1 billion, thereby allowing CFAF 3 billion to be used to absorb the extra costs; (ii) any remaining cash deficit would be covered by the government, using the additional tax revenue generated by the petroleum price increase, as well as possible budgetary support from external donors; (iii) finally, should the impact of an increase in petroleum prices on SENELEC's costs exceed the amount that could be covered by the overdraft facility and the envisaged subsidy, the following two steps would be taken: first, electricity tariffs would be adjusted during the year, i.e., before the statutory annual tariff revision at end 2003, in line with provisions for exceptional tariff adjustment in the current regulatory framework; and, second, this adjustment would be maintained for a sufficiently long period--even if petroleum prices were to fall subsequently--so as to cover the additional cost of the petroleum price increase financed by bank overdraft.
55. Postal Service. The government has revised its postal sector policy to improve the operation of the postal service, in view of the latter's important role in the economy and in providing rural areas with access to payments services and information, as well as the financial risks that poor performance entails for the public finances. The main objectives of this policy include improving the management of the postal service and spinning off its financial activities (CCP--postal checking accounts, and CNE--National Savings Bank) into an autonomous subsidiary, subjected to the regulations applicable to financial institutions and supervised accordingly. The measures are expected ultimately to make the postal service independent of the treasury, and reduce the risk that financial slippage has to be assumed by the government. A Sector Policy Letter has been published in February 2003, spelling out these objectives and measures to achieve them. The World Bank will fund technical assistance to strengthen financial management. In addition, the treasury and the Postal Service will settle outstanding cross-debts, including claims accumulated in the context of clearing postal checks. Finally, should the spin-off of financial services require recapitalization of the postal service, the government will seek concessional external financing and ensure that a budget appropriation is made, if necessary in a supplementary budget in 2003.
E. External Sector Policy
56. The external current account deficit (excluding grants) is expected to increase from 6.3 percent of GDP in 2002 to 7.6 percent of GDP in 2003, reflecting changes in the trade balance. The projections for 2003 show a financing gap to be covered by IMF disbursements under the new PRGF arrangement, as well as IDA disbursements envisaged under the base scenario of the World Bank's Country Assistance Strategy and by the African Development Bank. Support from multilateral organizations should suffice to cover projected gaps over the medium term.
57. More generally, balance of payments projections reveal more clearly than ever the sensitivity of the economy to exogenous shocks, particularly as regards the terms of trade (primarily the prices of groundnuts and petroleum) and weather conditions. In view of the considerable uncertainty surrounding global petroleum prices, the government will consult Fund staff if petroleum prices increase by 30 percent over the level projected under the program, or if petroleum price increases would put the achievement of program objectives at risk.
58. Reaching the completion point under the enhanced HIPC Initiative by end-2003 will require a complete update of the debt sustainability analysis (DSA) prepared in June 2000 for the decision point. This update will be carried out jointly by the government and World Bank and Fund staff.
F. Private Sector Development, Governance, and Judicial Reform
Private sector development
59. A policy letter on private sector development, under preparation, is expected to be adopted by end-April 2003. In addition, in November 2002, the government set up a Presidential Investment Council to ensure a dynamic approach towards promoting private investment. The policy letter will be followed by an action plan, which will focus on the following key measures: improving the investment climate, facilitating private sector participation and strengthening competitiveness, human and institutional capacity-building in support of the private sector, and the implementation of sectoral strategies in sectors such as tourism, the cultural industry, textiles and the clothing industry, and new information technologies and communications (NITC).
60. The government has decided to strengthen public performance within the framework of a program on good governance covering six components, including improvements in the quality of public services, economic governance, and judicial governance. Upon completion of the reform, the administration will be strictly managed, adhering to mechanisms of transparency, control, merit, and clearly defined sanctions, with a view to maximizing efficiency and outcomes, and minimizing unnecessary costs. Moreover, a new procurement code has been adopted.
61. The government intends to promote a credible, swift, and effective justice system, by (i) reinforcing human resources by hiring 15 judges and 20 clerks per year, (ii) providing ongoing training for judges and clerks, and (iii) modernizing the offices of court clerks, through organizational reforms and computerization, to improve their functioning, as well as renovating facilities.
Improvements of the statistical system
62. The government has implemented a number of measures aimed at improving the quality and coverage of the statistical system and the dissemination of economic and social data. To this end, a workshop was held in December of 2002 with the participation of AFRISTAT, to valid the national accounts for the period 1996-2001 in accordance with the methodology of the 1993 United Nations System of National Accounts (SNA93).
63. To increase the reliability of statistical data, the government plans to set up a National Statistics and Demographic Institute by end-June 2003 at the latest. A draft law and decrees that allow creating such structures have been prepared, and the approval process is under way.
G. Program Monitoring
64. Implementation of the program will be monitored by means of the quantitative indicators and structural performance criteria, as well as quantitative indicators and structural benchmarks. These are described in detail, together with several prior actions for the start of the arrangement, in the attached technical memorandum of understanding.
1The strategy is described in detail in the Poverty Reduction Strategy Paper (PRSP) published in May 2002 and presented to the Executive Boards of the IMF and the IDA on December 18 and 23, 2002, respectively.
2On September 19, 2002, the WAEMU Council of Ministers discussed and approved a draft Regulation governing the adoption of methods of calculating GDP. The purpose of this new methodology is to ensure reliability, comparability, and conformity with the U.N. System of National Accounts 1993 (SNA 1993). The new elements essentially concern broadening the scope of accounting, harmonizing classifications, and coordinating evaluation methods, including, in particular, standardization of the recording of crop campaigns. As a consequence, the production of the crop year 2002-03 is recorded in 2002. In other words, the decline in agricultural production in 2002-03, which would have been recorded in 2003 under the former methodology, is now reflected in 2002. This necessitates a revision of the growth figure for 2002, which was initially projected at 5 percent.
3With the exception of IMF lending under the Poverty Reduction and Grant Facility, which is considered concessional even if it misses the 35 percent grant element threshold.
4This is equivalent to CFAF 28.2 billion in 2003.
5The authorities are carrying out a diagnostic analysis with the cooperation of the World Bank and possibly the IMF Fiscal Affairs Department.
Dakar, April 10, 2003
1. This technical memorandum of understanding defines the quantitative and structural performance criteria, indicative targets and structural benchmarks to monitor the program supported by the first annual arrangement under the Poverty Reduction and Growth Facility. It also establishes the terms and time limits for transmitting the data that will enable Fund staff to monitor program implementation and provides numerical illustrations of these criteria and benchmarks based on past outcomes.
2. Unless otherwise specified below, the government is defined as the central administration of the Republic of Senegal and does not include any local administration, the central bank, or any government-owned entity with separate legal personality.
3. In the context of this program, quantitative performance criteria will be set for June 30, 2003, and December 31, 2003, for the basic fiscal balance excluding temporary costs of structural reforms and spending financed with resources made available as a result of debt relief under the HIPC Initiative (HIPC-related resources); the change in net bank credit to the government; and the stock of arrears of SENELEC. For March 31, 2003, and September 30, 2003, indicative targets will be set for the same items. The performance criteria pertaining to the ceiling on the contracting or guaranteeing of new nonconcessional external debt by the government, as well as domestic and external payments arrears, will be monitored on a continuous basis.
4. The basic fiscal balance is the difference between the government's budgetary revenue and total expenditure and net lending, excluding capital expenditure financed from abroad and gross lending. It includes the balance of special and correspondent accounts at the treasury. Temporary costs of structural reforms and spending financed with HIPC-related resources are excluded from the definition of the basic balance for the purposes of program monitoring and evaluation. Expenditures counting as "temporary costs of structural reforms" are listed, on an indicative basis, in the table below. It is envisaged that a plan detailing spending for temporary costs of structural reforms will be specified in a supplementary budget later in 2003, after consultations with Fund staff. In this supplementary budget, also the expenditures to be financed with not-yet allocated HIPC-related resources will be defined.
5. The performance criteria for the basic fiscal balance excluding
temporary costs of structural reforms and spending financed with debt relief under
the HIPC Initiative are floors of CFAF 45.2 billion on June 30, 2003,
and CFAF 58.1 billion on December 31, 2003. The indicative targets
are floors of CFAF 12.2 billion on March 31, 2003, and CFAF 61.8
billion on September 30, 2003.
6. During the program period, the authorities will report monthly to Fund staff provisional data on the basic fiscal balance excluding temporary costs of structural reforms and spending financed with HIPC-related resources with a lag of no more than 45 days. The data for revenues, expenditures, special accounts and correspondent accounts that are included in the calculation of the basic fiscal balance, for expenditure financed with HIPC-related resources and for spending for temporary costs of structural reforms will be drawn from preliminary treasury account balances. Spending for temporary costs of structural reforms will be provided by the authorities in the format of the table above. Final data will be provided as soon as the final balances of the treasury accounts are available, but not later than two months after the reporting of provisional data.
7. The definition of government for the purpose of calculating net bank credit to the government is the one applied by the BCEAO. It is broader than the definition of government in paragraph 2. Net bank credit to the government reflects the net credit position of the government--including postal checking accounts (CCP)--vis-à-vis the central bank and commercial banks. Net bank credit to the government is the difference between the government's gross borrowing from the banking system and its claims against the banks. Government claims include treasury cash holdings, deposits (including earmarked privatization receipts and other resources such as loans and grants) at the central bank, deposits in commercial banks, and secured liabilities (obligations cautionnées). The government's debt to the banking system includes central bank credit (mainly statutory advances, IMF resources, refinancing of secured liabilities, and the deposit by Kuwait), government securities held by the central bank, commercial bank credit (including government securities held by resident commercial banks), ex-ONCAD securities, and private deposits at the CCP. Government securities held outside the Senegalese banking system are not included in net bank credit to the government. The net bank credit to the government as calculated by the BCEAO serves as the basis for program monitoring.
8. The change in net bank credit to the government as of the date for the quantitative performance criterion or benchmark indicated is defined as the difference between the stock on the date indicated and the stock on December 31, 2002.
9. The ceiling on the cumulative change in net bank credit to the government will be lowered (raised) by the amount by which disbursements of external budgetary assistance (defined as budgetary grants, program disbursements, and debt relief, excluding Fund resources and HIPC Initiative debt relief) exceed (fall short of) program projections. The adjustment will be for the full amount of any excess disbursement but will be limited to CFAF 20 billion in the event of a shortfall.
10. The ceiling will be adjusted for the difference between programmed HIPC-related resources and actual HIPC-related resources. HIPC-related resources consist of debt relief under the HIPC Initiative received during the period under consideration and of the stock of resources in the treasury's HIPC account at the BCEAO at the end of the preceding year. The ceiling will be lowered (raised) for HIPC-related resources exceeding (falling short of) programmed amounts.
11. The ceiling will also be adjusted for the difference between programmed HIPC-related spending and actual HIPC-related spending. HIPC-related spending consists of expenditures in priority sectors that have been financed with HIPC-related resources. The ceiling will be raised (lowered) for HIPC-related spending exceeding (falling short of) programmed amounts.
12. The ceiling will be adjusted for the difference between the amount of programmed costs for structural reforms and the actual costs of structural reforms. The ceiling will be lowered (increased) for expenditures on structural reforms that fall short of (exceed) the programmed amount for temporary costs of structural reforms.
13. The ceiling will be adjusted for the difference between programmed and actual privatization receipts. The ceiling will be lowered (raised) for privatization receipts that exceed (fall short) of the programmed amount. The programmed amount for privatization receipts is CFAF 0.0 billion at March 31, 2003; CFAF 0.0 billion at June 30, 2003; CFAF 1.1 billion at September 30, 2003; and CFAF 1.1 billion at December 31, 2003. In addition, the ceiling on net bank credit to the government will be lowered by the amount of treasury bills issued in 2003 that are held by an entity or person outside the Senegalese banking system.
14. The performance criteria for the cumulative change in net bank credit to the government under the program are ceilings of CFAF -12.2 billion on June 30,2003, and CFAF 3.5 billion on December 31, 2003. The respective indicative targets are ceilings of CFAF 7.8 billion on March 31, 2003, and CFAF -11.7 billion on September 30, 2003.
15. The BCEAO will report to Fund staff the provisional data on the net bank credit to the government to Fund staff monthly, with a lag of no more than one month after the end of each observation period. Final data will be reported with a maximum lag of two months.
16. Data on privatization receipts will also be reported monthly, be drawn from preliminary treasury accounts, and be transmitted to Fund staff with a lag of no more than 45 days. Final data will be provided as soon as the final treasury accounts are available, but no more than two months after the reporting of provisional data.
C. Stock of Arrears of SENELEC
17. The stock of arrears of SENELEC includes all payments due and not paid.
18. The performance criteria for the stock of arrears of SENELEC are ceilings of CFAF 0.0 billion on June 30, 2003 and on December 31, 2003. The respective indicative targets are ceilings of CFAF 0.0 billion on March 31, 2003 and on September 30, 2003.
19. The government will report to Fund staff monthly, with a lag of no more than one month after the end of each period of observation, the stock of arrears of SENELEC, the newly contracted debt, any new accumulation of arrears, and the debt service and arrears payments made.
20. This performance criterion applies not only to debt as defined in Point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Executive Board Decision No. 6230-(79/140), last amended by Executive Board Decision No. 12274-(00/85), adopted August 24, 2000, but also to commitments contracted or guaranteed for which value has not been received.
21. The definition of debt as specified in Point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt reads as follows: "(a) For the purposes of this guideline, the term "debt" will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows: (i) loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and (iii) leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair, or maintenance of the property. (b) Under the definition of debt set out in point 9(a), arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt."
22. Any external debt with a grant element of less than 35 percent is considered nonconcessional, with the exception of IMF lending under the Poverty Reduction and Growth Facility, which is considered concessional even if it does not meet the 35 percent grant element threshold. For debt with a maturity of more than 15 years, the ten-year reference market interest rate, published by the OECD, is used to calculate the grant element. The six-month reference market rate is used for debt with shorter maturities.
23. For purposes of this performance criterion, government is understood to include the government as defined in paragraph 2, as well as public institutions of an industrial and commercial nature (EPIC), public administrative institutions (EPA), public institutions of a scientific and technical nature, public institutions of a professional nature, public health institutions, local administrations, public enterprises, and government-owned independent companies (sociétés nationales).
24. Within the context of the program, the government as defined in paragraph 23 will not contract or guarantee nonconcessional external debt. This performance criterion is monitored on a continuous basis and does not apply to debt rescheduling and restructuring operations, short-term import-related credit and short-term pre-export financing secured on export contracts. Short-term credit refers to maturities of less than one year. It does also not apply to government bonds held by residents of countries in the West African Economic and Monetary Union.
25. The government will report any new external borrowing and its terms to Fund staff as soon as external debt is contracted or guaranteed by the government.
26. External payments arrears are defined as the sum of external payments due but unpaid on outstanding external debt that has been contracted or guaranteed by the government. Debt is understood as defined in paragraph 21.
27. Under the program, the government will not accumulate any external payments arrears. This performance criterion will be monitored on a continuous basis.
28. The government will report to Fund staff any accumulation of external payments arrears as soon as the due date has been missed.
E. Domestic Payments Arrears
29. Domestic payments arrears are duly certified domestic expenditure commitments cleared for payment (dépenses ordonnancées) but not paid during a period of 90 days after the date the payment order (ordonnancement) was cleared.
30. Under the program, the government will not accumulate any domestic payments arrears. This performance criterion will be monitored on a continuous basis.
31. The authorities will report to Fund staff any accumulation of domestic payments arrears as soon as the 90 days period mentioned in paragraph 29 has elapsed. The government will also keep track of expenditure commitments (dépenses engagées) and commitments duly certified but not yet cleared for payment (dépenses liquidées non encore ordonnancées) in order to minimize delays in payments.
III. Indicative targets
32. Tax revenue is defined as the ones included in the government financial operations table.
33. The indicative targets set for tax revenue are floors of CFAF 166.1 billion on March 31, 2003, CFAF 353.2 billion on June 30, 2003, CFAF 521.7 billion on September 30, 2003, and CFAF 698.5 billion on December 31, 2003.
34. The government will report to Fund staff preliminary tax revenue data monthly, with a lag of no more than one month, on the basis of actual collections as recorded in treasury accounts. Final data will be provided once the final treasury accounts are available, but not later than two months after the reporting of preliminary data.
35. The wage bill is defined as all government expenditure on wages, other compensation, bonuses, allowances, and social benefits granted to or paid for the benefit of civil servants and other public employees.
36. The indicative targets set for the wage bill are ceilings of CFAF 51.8 billion on March 31, 2003, CFAF 103.6 billion on June 30, 2003, CFAF 154.4 billion on September 30, 2003, and CFAF 207.4 billion on December 31, 2003.
37. The government will report monthly to Fund staff the wage bill data, with a lag of no more than 45 days after the end of the month under consideration.
C. Ceiling on the Amount of Current
Non-Wage Non-Interest Expenditures
38. Current nonwage non-interest expenditures are all current expenditures other than wage and interest payments as reported in the government financial operations table. Domestically financed capital expenditures are all capital expenditures that have not been financed from abroad. Exceptional payments procedures are advance payments (paiements par anticipation) and treasury advances (avances de trésorerie).
39. The indicative
targets set for the sum of current non-wage non-interest expenditures and domestically
financed capital expenditures executed through exceptional budgetary procedures
are ceilings of CFAF 28.2 billion on March 31, 2003, June
40. During the program period, the authorities will report monthly to Fund staff provisional data on current non-wage non-interest expenditures and domestically financed capital expenditures executed through advance payments and treasury advances, with a lag of no more than 45 days. The data will be drawn from preliminary treasury account balances. Final data will be provided as soon as the final balances of the treasury accounts are available, but no more than two months after the reporting of provisional data.
Ceiling on the Stock of Net Deposits in the Correspondent Accounts of the
41. The stock of net deposits in the correspondent accounts of the treasury is defined as the sum of the net credit balance in the entry balance sheet (balance d'entrée) of the considered year and the net inflows in those accounts during the considered period. In the standard list of correspondent accounts of the treasury, the correspondent accounts excluded from this benchmark are: the accounts of local authorities, numbered 433-1 through 433-3; the accounts of public agencies, numbered 420-016 through 420-019 and 430-050 through 430-292; the accounts of SN La Poste, numbered 432-00 through 432-03; the account of IPRES with the number 434-105; and the deposit and guarantee accounts, numbered 441-001 through 441-020.
42. The indicative targets set for the net deposits in the correspondent accounts of the treasury, excluding the correspondent accounts of local authorities, of public agencies, of SN La Poste, of IPRES, and deposit and guarantee accounts, are ceilings of CFAF 20.0 billion on March 31, 2003, June 30, 2003, September 30, 2003, and December 31, 2003.
43. During the program period, the authorities will report monthly to Fund staff provisional data on net deposits in the correspondent accounts of the treasury, excluding the correspondent accounts of local authorities, of public agencies, of SN La Poste, of IPRES and of deposit and guarantee accounts, with a lag of no more than 45 days. The data will be drawn from preliminary treasury account balances. Final data will be provided as soon as the final balances of the treasury accounts are available, but no more than two months after the reporting of provisional data.
44. The creditor flow on any date is defined as the difference between the cumulative receipts on the accounts of SN La Poste at the treasury and cumulative withdrawals from the same accounts since the beginning of the year under consideration.
45. The indicative targets for the creditor flow of the SN La Poste treasury accounts are floors of CFAF -2.0 billion at March 31 and June 30, 2003, and of CFAF 0.0 billion at September 30 and December 31, 2003.
46. The government will report to Fund staff the provisional flows of the SN La Poste accounts on a monthly basis, with a lag of no more than 45 days.
F. Ceiling on Government Guarantee Deposits
47. Government guarantee deposits are defined as government deposits in local and foreign banks used to guarantee bank loans.
48. The indicative targets for the stock of guarantee deposits are ceilings of CFAF 2.5 billion at March 31 and June 30, 2003, and of CFAF 0.0 billion at September 30 and December 31, 2003.
49. The government will report to Fund staff monthly, with a lag of no more than one month after the end of each period of observation, the stock of government guarantee deposits.
G. Stock of Debt of SONACOS
50. The stock of debt of SONACOS includes all loans contracted with local and foreign banks. It includes also discounted letters of credit for which the respective export contracts have not yet been executed.
51. The indicative targets for the stock of debt of SONACOS are ceilings of CFAF 22.3 billion on March 31, 2003, CFAF 11.0 billion on June 30, 2003, CFAF 0.0 billion on September 30, 2003, and CFAF 0.0 billion on December 31, 2003.
52. The government and the BCEAO will report monthly to Fund staff the stock of debt of SONACOS, the new debt contracted, and the debt-service payments made with a lag of no more than one month after the end of each period of observation.
H. Basic Balance of SENELEC
53. The basic balance of SENELEC (line S of Table 10) is defined as the difference between (i) total receipts from its clients, on a gross-of-tax basis, including the administration (excluding subsidies), and arrears collected, on a cash basis; and (ii) current operating expenses on a gross-of-tax, invoice basis, including energy, personnel, other operating expenses, fees collected by SENELEC on behalf of other entities, and its net financial charges (interest, fees, and commissions).
54. The indicative targets for the basic balance of SENELEC are floors of CFAF 7.0 billion on March 31, 2003, CFAF 14.1 billion on June 30, 2003, CFAF 22.5 billion on September 30, 2003, and CFAF 30.1 billion on December 31, 2003.
55. The government will report monthly to Fund staff all information needed to calculate the basic balance of SENELEC with a lag of no more than one month after the end of each period of observation.
Prior Actions, Structural Performance Criteria and IV. Benchmarks
A. Prior Action I
56. Issue decrees adopting the three directives on expenditure management established by the West African Economic and Monetary Union concerning the government financial operations table (TOFE), the chart of public accounts (Plan comptable), and the system of public accounts (Comptabilité Publique).
B. Prior Action II
57. Publish the new Energy Sector Policy Letter.
C. Structural Performance Criterion I
58. Issue a tender for the concession of an Independent Power Producer (IPP) to operate a 60 MW production plant, under the conditions outlined in the new Energy Sector Policy Letter by June 30, 2003.
D. Structural Performance Criterion II
59. Issue an international tender for the privatization of SONACOS by July 31, 2003.
E. Structural Performance Criterion III
60. Publish on an experimental basis monthly treasury accounts (balance de comptes) coherent with the new chart of public accounts for the period March through July 2003 by September 30, 2003.
F. Structural Benchmark I
61. Submit the end-year treasury accounts (comptes de gestion) for the fiscal years 1998, 1999, 2000, and 2001 by August 31, 2003, to the Audit Office (Cour de Comptes).
G. Structural Benchmark II
62. Adopt the SNA 93 and publish the 2001 preliminary national accounts on that basis by April 30, 2003.
H. Structural Benchmark III
63. Publish a semiannual audit report on SENELEC's preliminary account as of end-June 2003 by September 30, 2003.
V. Additional Information for Program Monitoring
65. The central bank will report to Fund staff the following: