## cr1808

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---

### Economic performance and recent developments
- Growth:
  - Growth is expected to stay high at close to 7 percent in 2017, similar to 2016.
  - Real GDP growth projection for 2017: 6.8 percent.
  - Medium-term growth expected to continue at 6-7 percent provided reforms are implemented.
- Inflation and prices:
  - Inflation contained at 2 percent (2.0 percent for the 12 months through August 2017; consumer prices increased 1.9 percent over the first six months of 2017).
  - GDP deflator projected at 2.2 percent in 2017 and expected to come down slightly to just under 2 percent through 2022.
- Sectoral and activity highlights:
  - Non-agricultural growth in first six months of 2017: 5.6 percent (tertiary sector, especially public administration, driving growth).
  - Agricultural growth likely in double digits, supporting overall GDP growth close to 7 percent.
  - Private sector credit growth: 12.4 percent in the 12 months up to end-July 2017.
  - First nine months of 2017 — IGA nonagricultural growth: 6.6 percent; construction +9.7 percent; woodworking +26.1 percent; hotel and restaurant services +18.3 percent; financial services +16.1 percent; underperformers include mining -0.5 percent and leather manufacturing -12.9 percent.

### External position and current account
- Current account:
  - Current account deficit projected at 7.8 percent of GDP in 2017 (7.8 percent driven by increase in imports of capital goods and oil, and lower exports).
  - Current account deficit projected to improve slightly starting in 2018 due to a decrease in imports; long term average projected to decrease to 5.3 percent of GDP.
  - Historical comparison: 2016 current account deficit was 5.6 percent of GDP.
- Remittances:
  - Projected at 11.1 percent of GDP in 2017; expected to decline to 10.0 percent of GDP in 2022.
  - Assumed nominal growth of remittances: 7 percent in the next five years, and 6.5 percent thereafter.
- External financing and Eurobond:
  - Capital inflows strong in 2017, including a US$1.1 billion (6.7 percent of GDP) Eurobond issuance.
  - External public debt projected at 46.4 percent of GDP in 2017; total public debt projected to reach 60.8 percent of GDP in 2017.
  - External debt profile assumptions: average maturity of new external debt close to 18 years with a 5-year grace period; average cost of new external borrowing assumed 3.7 percent.

### Fiscal policy, budget stance, and public debt dynamics
- 2017 and 2018 fiscal stance:
  - Authorities committed to achieving the 3 percent of GDP fiscal deficit target by the 2019 WAEMU target date.
  - Headline fiscal deficit on track to meet 2017 target of CFAF 349 billion (3.7 percent of GDP).
  - For 2018, program allows a higher headline deficit by 0.5 percent of GDP (headline deficit of 3.5 percent of GDP in 2018 vs 3.0 percent originally).
  - Externally-financed projects projected CFAF 325 billion in 2018, compared to CFAF 230 billion envisaged during the 4th PSI review.
- Fiscal execution and composition:
  - Debt growing faster than implied by headline deficit because the Treasury financed deficits of the Post Office and Civil Service Pension, and expenditures from past-year budget appropriations.
  - To meet overall borrowing target (headline deficit plus additional CFAF 150 billion = 1.6 percent of GDP), authorities may increase annual carryover of end-year financing; carryover was CFAF 116 billion (1.3 percent of GDP) in 2016.
- Key fiscal outturns, targets, projections (selected figures as presented):
  - Total revenue: 11.3 / 25.4
  - Tax revenue: 9.9 / 10.6 / 20.7
    - PIT: 2.3 / 3.1
    - CIT: 1.4 / 1.9
    - Domestic goods and services: 4.6 / 10.2
    - International trade and transactions: 1.2 / 2.7
  - Total expenditure: 13.2 / 29.0
    - Wages: 3.1 / 6.2
    - Interest: 1.2 / 2.3
    - Capital expenditure: 4.9 / 12.6
  - Net lending/borrowing: -2.0 / -2.0 / -3.7
- Medium-term consolidation measures:
  - Repatriate quasi-fiscal surpluses from public entities (FSE, ARTP, ARMP, COSEC, ANACIM, ADSs, FERA); estimated CFAF 30 billion repatriated in 2017.
  - Reduce tax expenditures and publish rules on the internet; two new structural benchmarks for sixth and seventh reviews.
  - From end-2018, adjustment above-the-line for public entities’ deposit account credit balances resulting from budgetary transfers and checks drawn on the Treasury.
  - From 2019 budget law, no project exceeding CFAF 1 billion included in investment budget unless vetted through investment project bank.

### Treasury management, public-sector balance-sheet issues, and reforms
- Structural issues and required reforms:
  - Identify and reform Post Office structural deficit; separate the Post Office from deposit-taking Poste Finance.
  - Implement parametric and structural reform of Civil Service Pensions by end-2018; until reform is passed pension deficit part of government budget.
  - Audit stock of comptes de dépôt and time-bound unwind; new PFM rules limit carryover of appropriations to zero for current spending and 5 percent for capital spending starting end-2018.
  - Strengthen Treasury operations and control over Treasury transactions to reduce off-budget and intra-governmental financing needs.
- Risks to treasury operations:
  - Presidential elections in early 2019 could create rising fiscal pressures and weaken commitment to consolidation.
  - Treasury pressures could increase with delayed reforms.

### Debt sustainability analysis (DSA) — findings, scenarios, and risks
- DSA baseline and projections:
  - Under reform-heavy baseline, PPG external debt projected at 38.0 percent of GDP in 2017 and to decline to 34.6 percent in 2022 and well below 30 percent in long term.
  - PV of total public debt decreases from 52.8 percent in 2016 to 52.4 percent in 2017 under baseline, then projected to 38.6 percent of GDP in 2037.
  - Public debt service projected to reach 32.3 percent of revenue in 2017; debt service close to 30 percent of revenues over medium term with spikes due to Eurobond bullet repayments.
- Stress tests and scenarios:
  - Historical scenario (lack of reform): growth at 4.3 percent; all indicators breach thresholds over medium term.
  - Combination shock and one-time 30 percent depreciation are among most extreme tests; under some stress tests two debt indicators breach thresholds (PV debt-to-GDP + remittances; debt-service-to-revenue).
  - Rebasing (1999→2014) increases nominal GDP by approximately 30 percent in 2014, reducing debt-to-GDP from just over 60 percent to around 47 percent for 2017.
- Key vulnerabilities and operational implications:
  - Vulnerabilities: increased reliance on non-concessional foreign-currency debt, bullet Eurobond amortizations, and fast public debt growth.
  - Staff recommendations: careful and continuous monitoring of financing needs; develop transparent pipeline of bankable projects; strengthen debt management; emphasize concessional borrowing when possible; limit non-concessional borrowing; mobilize domestic resources.

### Private sector development, SEZ, and structural reforms
- Private sector role:
  - To sustain high growth, private sector must become engine of growth; SME development and FDI attraction are priorities.
- SEZ and incentives:
  - Special Economic Zone (Prosperity triangle) policies: corporate income tax of 15 percent that cannot be waived; VAT to apply to businesses not exporting at least 80 percent; VAT extended to all enterprises in zone; refunds within no more than 30 days for exported portion.
  - Progress: all companies in zone subject to 15 percent corporate tax rate without exemptions; plan to extend VAT to all enterprises in the zone.
  - G20 Compact with Africa could support transparent tenders, youth and women programs, and independent electricity supply.
- SME and financial sector measures:
  - Reforms: modification to law on credit bureaus; planned judicial reforms to set up commercial courts in 2019.
  - Initiatives: “Maison de l’Entreprise” one-stop-shop; BCEAO region-wide tool to support SME financing via re-financing; growth of FONGIP, FONSIS and BNDE.
  - Financial sector indicators: ratio of NPLs to total loans fell slightly to 17.3 percent at end-2016; NPLs net of provisioning in single digits.
  - BCEAO actions: increased minimum own funds for banks from CFAF 5 billion to CFAF 10 billion; at end-June 2017 two banks did not meet new requirement.

### Program implementation, monitoring, and conditionality
- PSI implementation status:
  - Performance under PSI-supported program broadly satisfactory.
  - All end-June 2017 assessment criteria were met; all end-June 2017 indicative targets met except floor on tax revenue.
  - End-September 2017 indicative target on revenues missed (shortfall 0.7 percent of GDP) and one on net lending/borrowing missed due to accelerated externally-financed capital spending.
  - Two of three structural benchmarks for the review were met.
  - Staff recommends completion of the fifth PSI review.
- Proposed monitoring and structural benchmarks:
  - New SBs and resets for sixth and seventh reviews include: pilot project on tax expenditures; use of integrated project bank for projects > CFAF 1 billion; restructuring plan of La Poste; establishment of exchange platform between taxpayer and internal tax authority; basic infrastructure for M-Tax; reducing carryover related to comptes de dépôt; establishing job ceilings.
- Reporting and transparency:
  - Senegal adhered to SDDS on November, 20, 2017; NSDP and Advanced Release Calendar for 18 data categories established.
  - Reporting requirements: monthly provisional TOFE and Treasury reconciliations within 30 days; extensive monthly and quarterly reporting by Treasury and BCEAO as detailed in MEFP/TMFU.

### Key numeric indicators and selected tables (preserve source precision)
- Fiscal targets and selected program numbers (CFAF billions / percent as presented):
  - 2017 budget deficit target: CFAF 349 billion (3.7 percent of GDP).
  - Carryover in 2016: CFAF 116 billion (1.3 percent of GDP).
  - Additional borrowing to finance accounts payable (sample 2017 calc): CFAF 150 billion; government overall net financing requirement: CFAF 499 billion; overall fiscal deficit: CFAF 349 billion.
  - Externally-financed projects projected in 2018: CFAF 325 billion (vs CFAF 230 billion envisaged earlier).
- DSA tables and projections (selected):
  - Total public debt projected to reach 60.8 percent of GDP in 2017.
  - External public debt projected at 46.4 percent of GDP in 2017.
  - Domestic debt projected to decrease from 18.2 percent of GDP at end-2016 to 14.4 percent at end-2017.
  - Public debt service projected to reach 32.3 percent of revenue in 2017.
  - Real GDP growth (Current DSA): 6.5, 6.7, 6.8, 7.0, 5.4 (Ave. 2015, 2016, 2017, 2018-22, Long term).
  - Overall fiscal deficit (Current DSA): 4.8, 4.2, 3.7, 3.1, 3.0 (same time series).
  - Current account deficit (Current DSA): 7.0, 5.6, 7.8, 6.8, 5.3.
  - PV of debt-to-GDP+remittances ratio (baseline): 33 (2017) → 29 (2027) → 21 (2037); combination shock example: 50 in 2019 (bound test).
  - Discount rate for the DSA: 5 percent.
  - Eurobond 2017: maturity 16 years, interest rate 6.25 percent; Senegal issued a $1.1 billion Eurobond in 2017.

*Source: cr1808*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Economic performance and recent developments
- Growth is expected to stay high at close to 7 percent in 2017, similar to 2016, with inflation contained at 2 percent.
- Non-agricultural growth in the first six months of 2017 was 5.6 percent, driven mainly by the tertiary sector, especially public administration.
- Private sector credit grew by 12.4 percent in the 12 months up to end-July 2017.
- Agricultural growth is likely in double digits, supporting overall GDP growth close to 7 percent.
- The current account deficit is projected to reach close to 8 percent of GDP in 2017, reversing the downward trend since 2012 (5.6 percent of GDP in 2016), due to lower phosphate exports, higher imports of capital goods, and a negative terms of trade shock.
- Capital inflows were strong in 2017, including higher donor financing and a US$1.1 billion (6.7 percent of GDP) Eurobond issuance.
- Inflation remained contained at 2.0 percent for the 12 months through August 2017.

### Fiscal policy and public debt dynamics
- Authorities are committed to achieving the 3 percent of GDP fiscal deficit target by the 2019 WAEMU target date—one year later than foreseen in the PSI 4th review.
- Headline fiscal deficit is on track to meet the 2017 target of CFAF 349 billion (3.7 percent of GDP).
- Debt is growing faster than implied by the headline fiscal deficit because the Treasury has financed deficits of the Post Office and Civil Service Pension, and expenditures from past year budget appropriations.
- To meet the overall borrowing target (headline fiscal deficit plus an additional CFAF 150 billion, the equivalent of 1.6 percent of GDP), authorities will likely resort to increasing the annual carryover of end-year financing; carryover stood at CFAF 116 billion (1.3 percent of GDP) in 2016.
- To meet the additional borrowing target of CFAF 75 billion for 2018 without excessive reliance on carryover, significant reform progress is needed to address the underlying financing sources.
- Near-term fiscal measures: contain current spending, reduce execution rate of domestically-financed investment projects, extend use of the project bank and the precautionary reserve envelope (PRE), repatriate surpluses from government agencies (FSE, ARTP) into the budget.
- Tax revenue: end-June 2017 assessment criteria and indicative targets were met except for the floor on tax revenue; the end-September indicative target on revenues was missed, with a shortfall of 0.7 percent of GDP linked to FSIPP deficits and lower collections.

### Treasury management and public sector balance-sheet issues
- Structural issues underlying the public sector overall borrowing requirement (which the headline budget deficit does not fully capture) need to be addressed to keep Senegal at low risk of debt distress.
- Specific reforms recommended:
  - Reform the Post Office and Civil Service Pension to limit Treasury financing of their deficits.
  - Limit use of deposit accounts outside budget appropriations of the current fiscal year.
  - Strengthen Treasury operations and control over Treasury transactions to reduce off-budget and intra-governmental financing needs.
- Treasury pressures could increase with delayed reforms and the presidential elections in early 2019, creating rising fiscal pressures.

### Private sector development and reforms
- To sustain current high growth rates, the private sector needs to become the engine of growth.
- Progress and initiatives:
  - Revamping the business environment and putting in place transparent governance rules for the Special Economic Zone (SEZ).
  - New initiatives for SMEs are underway.
  - Energy supply is becoming more reliable.
  - Measures in agriculture: better use of irrigation and improved seed quality.
  - Public investment quality improvements via a “project bank” and the PRE.
  - Revamping the Public Private Partnership (PPP) framework with development partner assistance.
- The G20 Compact with Africa could play a facilitating and financing role in promoting private sector growth.
- Government must maintain reform momentum, overcome vested interests, and ensure initiatives are well coordinated to attract private investment and sustain growth.

### Program implementation and IMF engagement
- Performance under the PSI-supported program has been broadly satisfactory.
- All end-June 2017 assessment criteria and indicative targets were met except for the floor on tax revenue.
- The end-September indicative target on revenues was missed, as was the one on net lending/borrowing due to accelerated externally-financed capital spending.
- Two of the three structural benchmarks set for this review were met.
- Staff recommends completion of the fifth PSI review.

### Outlook and risks
- Medium-term growth is expected to continue at 6-7 percent provided economic space is opened for increased SME activity and FDI inflows.
- Downside risks:
  - Lack of progress on private-sector reforms could return growth to historically anemic rates and jeopardize debt sustainability.
  - The 2019 presidential elections could weaken commitment to fiscal consolidation and structural reforms.
  - External risks: more-than-expected tightening of regional and global financial markets, adverse security threats.
  - Higher oil prices would negatively impact public finances, external accounts, and growth; the magnitude depends on domestic fuel and electricity price responses.

### Statistics and methodological improvements
- On November, 20, 2017, Senegal adhered to the Special Data Dissemination Standard (SDDS), becoming the fourth sub-Saharan African country to subscribe.
- SDDS adherence includes an Advanced Release Calendar and a National Summary Data Page (NSDP) for 18 data categories, improving transparency and accessibility for investors and the public.
- Senegal is rebasing GDP from base year 1999 to 2014 with IMF technical assistance; preliminary results show an increase of approximately 30 percent in the level of nominal GDP in 2014. Fully validated GDP series with 2014 as the base year are expected in the first half of 2018.

*Source: EXECUTIVE SUMMARY (cr1808)*

### 13.      For 2018, the program will allow a higher headline deficit by 0.5 percent of GDP than

### 13.      For 2018, the program will allow a higher headline deficit by 0.5 percent of GDP than 

### Fiscal stance for 2018 and projections
- For 2018, the program will allow a higher headline deficit by 0.5 percent of GDP than originally envisaged, to make room for higher externally-financed capital expenditure.
- Externally-financed projects are projected to be CFAF 325 billion in 2018, compared to CFAF 230 billion envisaged during the 4th PSI review.
- The program allows for a headline deficit of 3.5 percent of GDP in 2018, compared to 3.0 percent at the time of the 4th PSI review, provided that the authorities implement measures to reduce the fiscal deficit in the medium term (see ¶15).
- The authorities reiterated their commitment to meet the 3 percent of GDP WAEMU deficit convergence criterion by the target date of 2019.

### Revenue mobilization and 2018 Budget Law measures
- The authorities will continue to mobilize revenue and improve the quality of investment in the 2018 Budget Law. Measures include:
  - Repatriate to the budget taxes, duties, royalties and contributions from operations in the mining and telecommunications sector that are currently accounted for outside the budget (MEFP ¶9).
  - Further advance the digitalization of tax collection for medium-size companies and households (MEFP ¶10).
  - Implement customs administration reform with full deployment of the new customs software (GAINDE), implementation of the customs release ticket (Ticket Libératoire) and full operationalization of the unique taxpayer identification number (NINEA) under the cooperation protocol between customs and internal revenue administration (MEFP ¶11).
  - All new domestically-financed projects above CFAF 1 billion will be vetted through the project bank (MEFP ¶16).

### Key fiscal outturns, targets, and projections (selected figures)
- Year end 2017 Outturns / Program targets / Projections (selected lines as presented)
  - Total revenue: 11.3 / 25.4
  - Tax revenue: 9.9 / 10.6 / 20.7
  - of which:
    - PIT: 2.3 / 3.1
    - CIT: 1.4 / 1.9
    - Domestic goods and services: 4.6 / 10.2
    - International trade and transactions: 1.2 / 2.7
  - Total expenditure: 13.2 / 29.0
    - Wages: 3.1 / 6.2
    - Interest: 1.2 / 2.3
    - Capital expenditure: 4.9 / 12.6
  - Net lending/borrowing: -2.0 / -2.0 / -3.7

### Medium-term fiscal consolidation measures to reduce deficit and debt
- To compensate for the larger-than-planned 2018 deficit, measures from the 2017 Supplementary Budget Law and the 2018 Budget Law will help reduce debt over the medium term:
  - Repatriate quasi-fiscal surpluses from identified public entities (FSE, l’ARTP, l’ARMP, the COSEC, l’ANACIM, the ADSs and the FERA) beyond the amount needed to finance two years of current expenditure in their budget (MEFP ¶13). An estimated CFAF 30 billion will be repatriated in 2017. The government will continue to integrate quasi-fiscal revenues into the budget (MEFP ¶8).
  - Appropriate measures will be taken to reduce tax expenditures, consistent with a comprehensive approach based on rules published on the internet and applicable to everyone. This strategy is reflected in two new structural benchmarks for the sixth and seventh reviews (MEFP ¶14).
  - From the end of the fiscal year 2018, public entities that have credit balances on their deposit account at the Treasury (comptes de dépôt) resulting from budgetary transfers received during the year and checks drawn from the Treasury on the period, will be subject to an adjustment above-the-line in the following year’s budget (MEFP ¶23).
  - Starting with the 2019 budget law, no project exceeding CFAF 1 billion will be included in the government’s investment budget unless it has been vetted through the newly established investment project bank (MEFP ¶16).

### Risks to fiscal consolidation and execution
- Implementation of measures to reach the 3 percent of GDP WAEMU criterion by 2019 is subject to risks:
  - Presidential elections can give rise to spending pressures, creating uncertainty regarding execution of the 2018 budget and continuity of policies in the 2019 budget law.
  - Macroeconomic risks include fluctuations in oil prices, affecting oil imports directly and indirectly via FSIPP and SENELEC. Electricity prices were revised downwards by 10 percent in early 2017, but recent increases in global oil prices could require a transfer to SENELEC from the central budget in 2017 and 2018 absent reductions in production costs or higher electricity tariffs.

### Treasury management, public-sector balance sheet, and debt dynamics
- Debt remains on a sustainable path, but further efforts are needed to improve the public-sector balance sheet and sustain growth over the medium term:
  - Key debt indicators are at high levels, with debt to GDP over 60 percent (46.5 percent after rebasing) and debt service near one-third of revenues.
  - The DSA shows a breaching of debt indicators under the stress and historical scenarios.
  - To maintain the current low risk of debt distress rating, strong reform efforts are needed to raise revenue and limit Treasury operations to free up financing for development needs and enable the private sector to drive and sustain growth.
  - The debt management strategy should emphasize continued reliance on concessional lending, when possible (MEFP ¶21).

### Structural reforms to reduce public-sector borrowing requirement
- Reforms needed to address factors that have pushed up the public sector borrowing requirement:
  - Identify the Post Office structural deficit and re-evaluate the subsidy it receives in the budget; separate the Post Office from the deposit-taking Poste Finance (MEPF ¶25).
  - Implement parametric and structural reform of Civil Service Pensions by end-2018, ensuring the sustainability of the Fund; until reform is passed, the pension deficit will be part of the government budget and not require additional financing (MEFP ¶26).
  - For comptes de dépôt: (i) audit the stock to establish valid claims and a time-bound plan to unwind them; and (ii) new PFM rules will limit carryover of appropriations to zero for current spending and 5 percent of the appropriation for capital spending starting at end-2018 (MEFP ¶23).

### External stability, SEZ development, and private sector
- External position and vulnerabilities:
  - Reliance on imported oil and recent increase of foreign currency debt as a percent of total debt leave Senegal vulnerable to external shocks.
  - Low levels of FDI relative to peers mean dependence on external debt-creating flows to finance the current account.
  - Discovery of gas and oil off the coast could yield significant revenue gains and boost FDI, exports and growth if managed properly (MEFP ¶12); potential new oil and gas production as early as 2021-23 if investments progress.
- SEZ policy and incentives:
  - SEZ should be set up to create space for SMEs and attract FDI; G20 Compact with Africa could support transparent tenders, youth and women programs, and independent electricity supply in the zone.
  - Progress: all companies in the zone subject to a 15 percent corporate tax rate without exemptions; plan to extend VAT to all enterprises in the zone without reference to administrative criteria (MEFP ¶32, 33).
- Competitiveness indicators:
  - Senegal gained six places in the 2017-18 World Economic Forum Global Competitiveness Report (now 106th out of 137) and seven places in the 2018 World Bank Doing Business rankings (now 140th out of 190).

### Financial sector stability and SME development
- Financial system indicators and regulation:
  - Ratio of NPLs to total loans fell slightly to 17.3 percent at end-2016; NPLs net of provisioning is in single digits.
  - BCEAO increased minimum own funds for banks from CFAF 5 billion to CFAF 10 billion; at end-June 2017 two banks did not meet the new requirement and BCEAO is working with them.
  - BCEAO monetary tightening had limited impact on banking sector liquidity; credit to the private sector was growing at 12.4 percent in the 12 months through July 2017.
- SME finance and institutional support:
  - Reforms: modification to law on credit bureaus; planned judicial reforms to set up commercial courts in 2019.
  - Initiatives: “Maison de l’Entreprise” one-stop-shop; BCEAO region-wide tool to support SME financing via re-financing; growth of FONGIP, FONSIS and BNDE to increase credit availability.
  - Need to maintain quality of credit portfolios in development institutions and address structural impediments to SME access to finance.

### Program implementation, conditionality, and structural benchmarks
- Program monitoring and adjustments:
  - End-December 2018 ACs and end-September 2018 ITs are proposed.
  - All end-June 2017 ACs and ITs were met, except the IT on the floor on tax revenue. All end-September 2017 ITs were met except two (linked to lower-than-expected tax revenue and frontloading of capital spending).
  - Authorities requested modification of several ACs and ITs related to net lending and borrowing and tax revenue for end-March 2018, end-June 2018, and end-December 2017.
- Structural benchmarks (SBs):
  - Of three SBs set for this review, two were fully met: audit of the comptes de dépôt and draft decree setting conditions for operation of these accounts; reorganization of the DGID was completed.
  - Progress was made on the final SB with the DGD-DGID platform operational but not fully populated with data (MEFP, Tables 1, 2).
  - New SBs proposed:
    - Four for sixth review: (i) pilot project on tax expenditures for auditing supporting documentation for approvals; (ii) use of integrated project bank for all projects over CFAF 1 billion; (iii) preparation of restructuring plan of La Poste and stopping compensation operations between Treasury and La Poste; (iv) establishment of an exchange platform between taxpayer and internal tax authority.
    - Three SBs revised and reset from sixth to seventh review: (i) establishing basic infrastructure for M-Tax; (ii) reducing tax expenditures; (iii) establishing a public investment committee and its use in vetting projects from the government’s capital budget.
    - Two new SBs for the seventh review: (i) reducing carryover related to comptes de dépôt; (ii) establishing job ceilings (MEFP, Table 2).

*Source: cr1808 - 13.      For 2018, the program will allow a higher headline deficit by 0.5 percent of GDP than*

### 26.      Safeguards assessment. The 2013 assessment of the WAEMU regional central bank, BCEAO,

### Safeguards assessment. The 2013 assessment of the WAEMU regional central bank, BCEAO, found a continuing strong control environment.

### Safeguards assessment findings and follow-up
- The 2013 assessment found a continuing strong control environment.
- All recommendations from the assessment have been implemented.
- Implemented measures included:
  - Strengthening the external audit arrangements by appointment of an international firm with ISA experience for the audits of FY 2015–17.
  - Reinforcing the capacity of the audit committee with external expertise to oversee the audit and financial reporting processes.
  - Adoption of IFRS starting with the financial year 2015.
- An update safeguards assessment is planned for the first quarter of 2018, in line with a four-year cycle for regional central banks.

### Staff appraisal — Structural reforms and private investment
- Senegal needs to continue implementing its structural reform program to maintain high growth rates of recent years.
- Progress made:
  - Implementation of much-needed public infrastructure projects.
  - Progress on the functioning of credit bureaus and the one-stop shop for SMEs (Maison de l’Entreprise).
- Remaining priorities:
  - Implement reforms to improve the business environment and attract private investment.
  - Carefully implement and coordinate initiatives to develop SMEs, facilitate their access to credit, and help them into the formal sector. Note: SMEs make up more than 95 percent of Senegal’s economic fabric.
  - The new SEZ could play a catalytic role by leading by example in good economic governance, potentially supported by the Compact with Africa.
  - To address high levels of debt service, the debt management strategy should emphasize continued reliance on concessional borrowing, when possible.

### Staff appraisal — Fiscal issues and Treasury operations
- Structural weaknesses linked to Treasury operations need to be dealt with swiftly to meet the WAEMU fiscal deficit target and ensure long-term fiscal sustainability.
- Short-term macroeconomic challenge:
  - Maintain Senegal’s rating of low risk of debt distress while finding fiscal space for physical and human capital accumulation to facilitate private investment.
- Actions required in 2018:
  - Resolve issues related to Treasury operations through reforms of the Post Office, Civil Service Pensions, and the comptes de dépôt.
  - Maintain fiscal prudence in the face of potential spending pressures in the run-up to presidential elections in early 2019.
- Medium-term fiscal objective:
  - Raise tax revenues to the WAEMU convergence criterion level following the GDP rebasing, which will imply both improvements in revenue collection and changes in tax policy.

### Outlook and risks
- Growth projection:
  - Senegal is expected to continue to grow at 6-7 percent over the medium term, provided the necessary reforms are implemented.
- Risks:
  - Lack of reform progress could risk a return to anemic growth rates of the past and could jeopardize debt sustainability.
  - Political risk: the 2019 presidential elections could weaken commitment to pursue fiscal consolidation and to tackle vested interests.
  - External risks: more-than-expected tightening of regional and global financial market conditions and adverse effects from regional security threats.

### Program monitoring — PSI review recommendations
- Staff recommends completion of the fifth PSI review.
- Program performance as of reviews cited:
  - All end-June 2017 ACs have been met and all end-June 2017 ITs have been met save for the IT on the floor on tax revenue.
  - All end-September 2017 ITs have been met except for two.
  - Two of the three SBs set for the fifth review have been met.
- Staff supports the authorities’ request for modification of:
  - (i) the end-June 2018 AC on the floor on net lending and borrowing, and the end-June 2018 IT on the floor on tax revenue;
  - (ii) the end-March 2018 ITs on the floor on net lending and borrowing and tax revenue; and
  - (iii) the end-December 2017 IT on the floor on tax revenue.

*Source: cr1808 - 26.      Safeguards assessment. The 2013 assessment of the WAEMU regional central bank, BCEAO, (IMF staff report excerpt).*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Request for Fifth Review under the Policy Support Instrument
- The government of Senegal requests completion of the fifth review under the Policy Support Instrument (PSI) of its macroeconomic program.
- The initial Memorandum of Economic and Financial Policies (MEFP) of June 8, 2015, and subsequent MEFPs define the program; the attached MEFP:
  - takes stock of program performance at end-June 2017,
  - defines macroeconomic objectives for 2018,
  - updates structural reforms monitored under the program.
- The attached memorandum proposes:
  - quantitative assessment criteria for end-December 2018,
  - indicative targets for end-September 2018,
  - new structural benchmarks.
- The government requests modification of specific targets to reflect increased fiscal space in 2018:
  - (i) the end-June 2018 assessment criterion on the floor on net lending and borrowing and the end-June 2018 indicative target on the floor on tax revenue;
  - (ii) the end-March 2018 indicative targets on the floor on net lending and borrowing and tax revenue;
  - and the end-December 2017 indicative target on the floor on tax revenue.

### Program Implementation and Performance through June–September 2017
- Overall assessment: program implementation remains satisfactory.
- All end-June 2017 assessment criteria under the program were met.
- End-June 2017 indicative targets: two out of three were met.
- At end-September 2017, all indicative targets were met except for two targets linked to the budget.
- Structural benchmarks for the fifth review: two out of three benchmarks were met.
- The government commits to meeting the deficit target for end-2017 and to consult with the IMF before adopting additional or revised measures.

### Recent Economic Developments (2014–17 and 2017 partial-year)
- Quarterly GDP growth (annualized):
  - 2014–17: 5.2 percent on average,
  - 2010–2013: 3.5 percent on average.
- Contribution to quarterly GDP growth (averages):
  - Consumption: 2014–17 = 4.4 percent; 2010–2013 = 2.0 percent.
  - Gross fixed capital formation (GFCF): 2014–2017 = 3.4 percent; 2010–2013 = 2.6 percent.
  - Exports of goods: 2014–2017 = 2.6 percent; 2010–2013 = 1.9 percent.
  - Imports: contribution fell from -1.2 percent (2010–2013) to -2.0 percent (2014–17).
- First nine months of 2017 — General Activity Index (IGA) nonagricultural growth: 6.6 percent, with sectoral performance:
  - Construction: +9.7 percent
  - Chemical industries: +8.6 percent
  - Energy production: +7.6 percent
  - Woodworking: +26.1 percent
  - Hotel and restaurant services: 18.3 percent
  - Financial services: 16.1 percent
  - Underperforming industries:
    - Mining: -0.5 percent
    - Leather manufacturing: -12.9 percent
    - Meat and fish canneries: -0.7 percent
    - Grain mill products: -6.3%
    - Tobacco manufacturing: -3 percent
- Inflation: consumer prices increased 1.9 percent over the first six months of 2017 compared to the same period in 2016.

### Fiscal Outcomes and Quantitative Results through June 2017
- All quantitative assessment criteria at end-June 2017 were met.
- Observed program ceilings and floors:
  - Quarterly ceiling on the budgetary float: CFAF 50 billion (observed)
  - Single-tender contracting ceiling: 15 percent (observed)
  - Floor on social spending: 35 percent (observed)
- Fiscal deficit:
  - Contained within the CFAF 189 billion target (set by the program) through end-June 2017.
- Indicative target on the floor on tax revenues:
  - Program target: CFAF 1,006 billion
  - Outcome: missed by CFAF -67 billion (owing in particular to an oil revenue shortfall).

### Macroeconomic Outlook and Program Pillars for 2017
- Real GDP growth projection for 2017: maintained at 6.8 percent.
- Inflation in 2017: expected to be moderate.
- Current account deficit: expected to deteriorate slightly due to:
  - higher prices for imported oil products,
  - growth of imports of capital goods accompanying investment growth.
- PSI program pillars:
  - (i) consolidating the government’s fiscal space;
  - (ii) strengthening public finance management and governance;
  - (iii) improving the business environment.

### Consolidating the Government’s Fiscal Space (Measures and Targets)
- 2017 budget deficit target: CFAF 349 billion (3.7 percent of GDP) — remains unchanged.
- To address the end-June revenue gap (notably oil revenue shortfall), the government will:
  - repatriate portions of surpluses of entities such as:
    - Energy Support Fund (Fonds de soutien à l’énergie—FSE),
    - Telecommunications and Postal Regulatory Authority (Autorité de Régulation des Télécommunications et des Postes—ARTP),
    into the budget.
  - limit expenditure if year-end revenues fall short of programmed levels.
  - consider integrating quasi-fiscal taxes into the budget.
- Mobilizing domestic resources:
  - broaden the tax base,
  - modernize tax and customs administrations,
  - strengthen tax policy,
  - streamline tax expenditures.
- Legislative and/or regulatory measures under the 2018 initial budget law to repatriate into the budget:
  - taxes, duties, royalties and contributions on operations in the mining and telecommunications sectors currently accounted for outside the government budget.
- Mining and oil royalties:
  - establishment of a reporting regime by end-March 2018,
  - annual joint audit missions (Mining Directorate-DGID-Customs),
  - transfer of authority for the collection of these royalties to the Tax Administration Department,
  - taxpayers required to voluntarily declare and pay royalties to the DGID.

### Strengthening Tax and Customs Administration — Planned Measures and Benchmarks
- DGID modernization measures:
  - Adoption of a regulation prior to the sixth review to enable medium-sized enterprises to file and pay taxes online in 2018 (structural benchmark for the sixth review).
  - Launch of three priority applications selected during the 2016 Hackathon for DGID benefit, including implementation of the project “Mon espace perso” (structural benchmark for the sixth review). Specifications prepared; choice of supplier to be decided by end-December 2017.
  - M-Tax (mobile filing/payment without internet): basic platform infrastructure to be put in place for the seventh review (structural benchmark for the seventh review), including equipment, the voice server in the national language, and acquisition of licenses.
  - Batch scanning project: many modules to be operational by December 2018 to convert 8 to 10 million hard copy documents into electronic files.
  - Recovery of tax debt: committed to mobilizing at least 50 percent of the tax debt deemed recoverable with a floor of CFAF 45 billion by end-December 2017.
- DGD modernization measures:
  - Deployment of the full version of the computerized system, GAINDE.
  - Implementation of the customs release ticket (grouping payments related to port and airport platforms, excluding duties and taxes).
  - DGID/DGD cooperation on the single taxpayer identification number (NINEA).
  - New full version of GAINDE to be effective on February 1, 2018.
  - Customs release ticket expected to be operational in early June.

*Letter of Intent and Memorandum of Economic and Financial Policies (2015–18), Dakar, November 27, 2017.*

### 2018. DGID/DGD cooperation on NINEA is operational and the next phase will involve refining the

### cr1808 - 2018. DGID/DGD cooperation on NINEA is operational and the next phase will involve refining the

### Tax policy and administration
- Potential tax policy reforms target: land and mining activities, financial services, and telecommunications. Legislative proposals are expected to streamline and/or simplify the tax system.
- Discussions starting in the last quarter of 2017 on:
  - Optimal taxation of the agricultural sector, taking account of the thrusts of the PSE.
  - Appropriate taxation of the oil and gas sectors as Senegal transitions from oil importer to producing/exporting country.
- These proposals will be discussed with the IMF during the sixth review for inclusion in the 2019 budget.
- DGID/DGD cooperation:
  - DGID/DGD cooperation on NINEA is operational; next phase will refine data tables to align with tax and customs administration needs.
  - DGID will be involved in payment, audit and recovery of royalties and other mining and oil revenues.

### Repatriation of quasi-fiscal revenue and public enterprises
- Government, together with FSE, ARTP, ARMP, COSEC, ANACIN, ADS, and FERA, will examine repatriating a share of their surpluses into the government budget.
- Terms and conditions for surplus transfers will be defined in a law or regulation.
- Surpluses beyond the amount needed to finance two years of current expenditures will be transferred to the government budget.
- Investment projects of these entities must be approved according to investment budget procedures.
- Government commits to:
  - Privatization of SONACOS in 2018.
  - Streamlining the number of agencies; timetable for the streamlining plan to be established before the sixth review.
- Post Office restructuring (priority in 2017):
  - Measures include recapitalization through conversion of government claims on Groupe SN La Poste, reconstitution of third-party deposits, and a business recovery plan to reduce operating expenses.
  - Compensating transactions between the Post Office and the Treasury to cease as of December 31, 2017, except checks relating to Poste Finances depositors which cease as of March 31, 2018; decision regarding Poste Finances by end-March 2018.
  - Restructuring plan to be prepared before the sixth review (structural benchmark for the sixth review).

### Streamlining tax expenditures and revenue administration reforms
- Action plan to reduce tax expenditures will be revised based on the most recent report and working group conclusions; implementation = structural benchmark for the seventh review.
- Measures to limit discretionary tax measures and publish rules on the internet applicable to all.
- Pilot audit project:
  - DGID and DGD, with APIX sharing databases, to audit supporting documents for approvals with a view to auditing the 100 most important approvals by the time of the next review (structural benchmark for the sixth review).
  - Conclusions to be presented and discussed during the sixth review mission.
- Specific government undertakings:
  (i) review the personal income tax regime to ensure greater equity between income brackets;
  (ii) resume investigations of importers of products for resale whose declared turnover was less than imports declared at customs;
  (iii) assess the mechanism for BIC installment payments by importers not part of the large taxpayer unit to improve audit of payments;
  (iv) adopt a draft law amending the General Tax Code regarding taxation of property and patent income.

### Public consumption, payroll control, and civil service modernization
- Continued rationalization of public consumption expenditures; strict control of the wage bill.
- Implement policies to improve the payroll information system after an audit revealing IT security deficiencies and legal basis issues for certain allowances.
- Modernize civil service working methods to promote ICT use for productivity gains and lower staffing levels.
- Job ceilings to be set in the 2019 budget law following technical discussions with all ministries and institutions to be organized by March 31, 2018 (structural benchmark for the seventh review).

### Public investment management and project governance
- For projects with total cost ≥ CFAF 1 billion: from the second year of implementation, payment appropriations in the budget law will be subject to an implementation report covering the previous year, addressing physical and financial aspects.
- System for better monitoring project execution (Budget, Public Procurement and Planning Units) to be introduced by January 1, 2018.
- Review by December 31, 2017 of Decree No. 2012-673 (July 4, 2012) establishing budget nomenclature to steer expenditures toward gross fixed capital formation.
- Integrated project bank mandatory for all projects > CFAF 1 billion prior to inclusion in the budget; public investment selection committee to vet projects.
- Starting with the 2018 budget:
  - All new projects exceeding 1 billion CFAF financed entirely with domestic resources will be taken from the integrated project bank.
  - Quarterly and annual physical and financial execution reports will be transmitted for all these projects (structural benchmark for the sixth review).
- Starting with the 2019 budget law:
  - No project exceeding CFAF 1 billion will be included in the government’s investment budget unless reviewed by the committee (structural benchmark for the seventh review).

### Strengthening public finance management, governance, and Treasury modernization
- Shared service centers to be developed to group service departments, pool resources, integrate processes, and facilitate user access; national professional development strategy to be prepared.
- Transposition of WAEMU directives ongoing with emphasis on organizational prerequisites and training due to decentralized budget processes.
  - Testing phase for decentralization of payment orders to be launched on January 1, 2018 for five pilot ministries.
  - Validation of programs by December 31, 2017; two versions of the 2018 budget law (line and program); program managers appointed by March 31, 2018.
- Draft legislation on harmonized public finance framework directives (local governments financial regime and stock accounting system) to be finalized and reviewed by the Council of Ministers.
- Treasury modernization:
  - Move to digital channels for direct government handling of mass payments (scholarships, pensions) and to increase financial inclusion.
  - Aim to obtain ISO 9001 certification for RGT and DDP; restructuring plan to be prepared before the sixth review.
  - Observation groups established for broader public sector and local public sector.
- Active public debt management: working group analyzing possibility of a large issuance to remove expensive debt; proposals made in late October 2017.
- Centralization of cash flow and SICA-STAR:
  - DGCPT joined SICA-STAR, establishing a single point for receipts and payments.
  - Plan to expand SICA-STAR Settlement System to 10 agencies and units by June 30, 2018 at the latest.
  - Consolidation of the second-generation Single Treasury Account to be completed in December 2017.
- From 2018 fiscal year:
  - Credit balances on deposit accounts resulting from budgetary transfers and drawings of checks on the Treasury will be subject to an adjustment in the next budget (structural benchmark for the seventh review).
  - For incorporated entities: end-year financial statements on deposit accounts will be prepared so new budget allocations can be decreased net of outstanding checks and funds blocked for public contracts being implemented.
  - Treasury to audit deposit accounts by end-December 2017 to separate current and capital expenditures and determine capital expenditures already committed.

### Social protection and pensions
- Reform of the National Pension Fund (FNR) committed to by end of 2018; bill being finalized.
  - Option retained: increase contributions to the Fund and introduce a supplementary pension scheme.
  - Impact assessment on FNR expected liquidity needs integrated into special Treasury accounts; balance of these accounts to be included in the overall budget balance.

### Business environment, private sector promotion, and major projects
- WAEMU Commission actions on PPPs: draft Community Directive on PPPs and draft strategy for PPP promotion to receive final approval per Union timetable.
- PREAC and PSE: tools adapted to international standards (Customs, Tax, Civil Procedure, Mining Codes) and community reforms via OHADA, WAEMU, ECOWAS; reforms in commercial justice, starting a business, partnerships, transfer of ownership, vocational training, apprenticeships, SME financing, and economic zones reported effective by the private sector.
- Doing Business 2017: Senegal scored 6 for strength of legal rights under Getting Credit criterion.
  - Recommendation: establish a collateral registry to facilitate non-judicial foreclosure and reduce time to proceed against collateral; coordinate with OHADA to remove uniform act provisions preventing such a registry.
- Islamic finance: potential to increase financing for SMEs/SMIs; detailed risk management analysis needed, supplementing products with takaful and retakaful; discuss implementation of insurance measures under the CIMA code.
- “Prosperity triangle” (Greater Dakar to Thiès and Mbour) planned as a special economic zone:
  - Corporate income tax of 15 percent that cannot be waived.
  - VAT applicable to businesses that do not export at least 80 percent of their output.
  - VAT extended to all enterprises in the zone without reference to administrative criteria; refunds within no more than 30 days for exported portion.
  - Targeted activities: manufacturing and leading-edge services (digital, health, tourism, higher education, research).
  - Sectoral projects and reforms to control and lower factor and intermediation costs to be continued and completed in 2017–18.
- Support requested under G20 Compact with Africa to develop the zone, including transparent call for tenders for international developers and programs to support unemployed youth and women (on-the-job training and a share of wages for the first year).
- IMF workshop on diversification to be organized in January 2018; Senegal requests IMF support for participation of pilot Compact with Africa countries.

### New program monitoring indicators, quantitative targets, and structural benchmarks
- Assessment criteria defined for 2018 with end-December 2018 assessment criteria and end-September 2018 indicative targets (see Table 1 of the MEFP).
- Adjustments made to take into account increased fiscal space in 2018 for various assessment criteria and indicative targets.
- Review schedule:
  - Sixth review expected to be completed by end-June 2018.
  - Seventh review by end-December 2018.
  - Eighth review by June 23, 2019.
- Selected numeric figures from Table 1 (CFAF billions, unless otherwise specified):
  - Floor on net lending/borrowing: -49; -49; -298 (status: not met); -189; -192; -187 (status: met); -259; -565; -349; -154; -220; -280; -367.
  - Ceiling on the amount of the budgetary float: 50; 33 (met); 50; 25 (met); 50; 47; 50; 50; 50; 50; 50.
  - Floor on tax revenue: 445; 396 (not met); 1,006; 939 (not met); 1,464; 1,436; 1,977; 471; 1,097; 1,599; 2,211.
  - Quarterly ceiling on the share of the value of public sector contracts signed by single tender (percent): 15; 25 (not met); 15; 1 (met); 15; 10; 15; 15; 15; 15; 15.
  - Floor on social expenditures (percent of total spending): 35; 36 (met); 35; 36 (met); 35; 35; 35; 35; 35; 35.
  - Memorandum item — Program grants: 3; 10; 13; 10; 24; 35; 4; 17; 32; 47.
- Structural benchmarks (selected from Table 2):
  - 2017:
    - Operationalize the DGD-DGID platform and produce a report based on data crosschecks between DGD and DGID. Review: 5th review. Status: Not met.
    - Expand and finalize the IGF financing audit and adopt a decree on conditions for opening, operation, and closing of deposit accounts. Review: 5th review. Status: Met.
    - Implement the new DGID organization. Review: 5th review. Status: Met.
  - 2018 (benchmarks and reviews):
    - Adopt a regulation enabling online filing and payment of taxes for medium-size enterprises in 2018. Review: 6th review.
    - From 2018 budget, all new projects exceeding 1 billion CFAF financed entirely with domestic resources will come from the integrated project bank; quarterly and annual reports transmitted. Review: 6th review.
    - DGID and DGD pilot audit of supporting documentation to audit the 100 most important approvals. Review: 6th review.
    - Restructuring plan of the Poste to be prepared before the sixth review; compensating transactions cease per dates above. Review: 6th review.
    - Implement “Mon espace perso” platform for DGID-taxpayer communication. Review: 6th review.
    - From 2018, credit balances on deposit accounts to be adjusted in the next budget; incorporated entities to prepare end-year financial statements to decrease new allocations net of outstanding checks and contracts. Review: 7th review.
    - Establish job ceilings in the 2019 finance law after technical discussions by March 31, 2018. Review: 7th review.
    - Establish basic infrastructure for M-Tax application to allow taxpayers to file and pay taxes via mobile phones without internet access. Review: 7th review.
    - From 2019 budget law, no project > CFAF 1 billion included in capital budget unless reviewed by the public investment selection committee. Review: 7th review (reset from 6th review).
    - Implement action plan for reducing tax expenditures and limit discretionary measures; publish rules on the internet. Review: 7th review (reset from 6th review).

*Source: IMF Staff and Senegal authorities (excerpt from the Memorandum of Economic and Financial Policies and Technical Memorandum of Understanding contained in cr1808).*

### 7. The floor including grants is adjusted downward by the amount that budget grants fall short

### 7. The floor including grants is adjusted downward by the amount that budget grants fall short of program projections up to a maximum of CFAF 15 billion at current exchange rates (see MEFP Table 1)

### Reporting requirements (overall fiscal balance)
- Provisional data on the overall fiscal balance (program definition) and its components: reported monthly to Fund staff with a lag of no more than 30 days after the end of the relative month.
- Data on revenues and expenditure used in the overall fiscal balance calculation: drawn mainly from preliminary Treasury account balances.
- Final data: provided as soon as final Treasury account balances are available, but no later than two months after reporting provisional data.

### Social Expenditure
- Definition: spending on health, education, the environment, the judicial system, social safety nets, sanitation, and rural water supply.
- Reporting: semiannual data to Fund staff within two months following the end of each period.

### Budgetary Float (instances de paiement)
- Definition: outstanding stock of government expenditure for which bills have been received and validated but not yet paid by the Treasury (difference between dépenses liquidées and dépenses payées).
- Assessment criterion: ceiling on the budgetary float, monitored at the end of the quarter.
- Reporting: weekly (at the end of each week) and monthly transmission of a SIGFIP expenditure-tracking table showing:
  - dépenses engagées (committed expenditure)
  - dépenses liquidées non encore ordonnancées (certified expenditures not yet cleared for payment)
  - dépenses ordonnancées (payment orders)
  - dépenses prises en charge par le Trésor (payment orders accepted by the Treasury)
  - dépenses payees (payments made by the Treasury)
- SIGFIP exclusions and notes:
  - Excludes delegations for regions and embassies.
  - Will list any payments without cash impact on Treasury accounts.

### Spending Undertaken Outside Simplified and Normal Procedures
- Assessment criterion applies continuously to any procedure other than normal and simplified procedures.
- Exclusion: spending under a supplemental appropriation order (décret d’avance) in absolute urgency and national interest pursuant to Article 12 of the Organic Budget Law; such spending requires signatures of the President and the Prime Minister.
- Reporting: authorities will report any such procedure immediately to Fund staff.

### Public Sector External Payments Arrears
- Definition: sum of payments owed and not paid when due (in accordance with contract terms) on external debt contracted or guaranteed by the public sector. Uses the external debt definition in paragraph 19.
- Monitoring: assessment criterion on external payments arrears monitored on a continuous basis.
- Reporting: authorities will promptly report any accumulation of external payments arrears to Fund staff.

### Definition of Debt, Debt Guarantees, and External Debt
- Debt definition: per paragraph 8(a) of the Guidelines on Public Debt Conditionality (Executive Board Decision No. 15688-(14/107), adopted December 5, 2014).
  - Debt understood as a direct, non-contingent liability created under a contractual arrangement requiring future payments of assets or services.
  - Primary forms enumerated:
    - (i) Loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swaps).
    - (ii) Suppliers’ credits (deferred payment contracts).
    - (iii) Leases (debt equals present value at inception of lease payments expected during the agreement, excluding operation/repair/maintenance payments).
  - Arrears, penalties, judicially awarded damages and interest arising from failure to pay contractual obligations that constitute debt are debt.
  - Failure to make payment on an obligation not considered debt (e.g., payment on delivery) does not give rise to debt.
- Debt guarantees: any explicit legal obligation of the public sector to service a debt in event of nonpayment by the debtor.
- External debt: debt borrowed or serviced in a currency other than the CFA franc, regardless of creditor residency.

### Annual Central Government Net Financing Requirement
- Definition: sum of:
  - i) the overall fiscal balance (as defined in the net lending/borrowing assessment criterion), and
  - ii) additional borrowing by the Treasury to finance accounts payable, comprising:
    - (a) operations of the post office (Poste and Poste Finance),
    - (b) the pension system (Fonds National de Retraites),
    - (c) spending by ministries out of unutilized appropriations from past budgets (drawdown of the “comptes de dépôt”),
    - (d) offsets for illiquid revenues (“recettes d’ordre”).
- End-December 2017: assessment criterion must be less than or equal to the amount indicated in Table 1 attached to the Memorandum of Economic and Financial Policies.
- Sample calculation for fiscal year 2017:
  - Government’s overall net financing requirement: CFAF 499 billion.
  - Overall fiscal deficit: CFAF 349 billion.
  - Additional borrowing to finance accounts payable: CFAF 150 billion.

### Reporting for Net Financing Requirement and Components
- Additional borrowing by the Treasury to finance accounts payable: sent annually within one month from the end of December; includes (a)–(d) as above.
- Overall financing requirement: sent annually within one month from the end of December and must include:
  - (i) total gross government debt;
  - (ii) total debt principal repaid by the government;
  - (iii) all guarantees granted by the government for domestic or external loans to suppliers/contractors and any other public or private entity.
- Details regarding any government borrowing (including amounts on-lent and guarantees): reported monthly within six weeks of the end of the month; grouped as short-term (less than one year) or long-term (one year or more). Rule also applies to amounts on-lent and guarantees.

### Public Sector Contracts Signed by Single Tender
- Definitions:
  - Public sector contracts: administrative contracts for procurement of supplies, services, or execution of work by government or entities subject to procurement code.
  - Single-tender contracts: contracting agent signs with chosen contractor without competitive tender.
- Quarterly indicative target applies to total public sector contracts entered into by the government or entities subject to the procurement code.
- Exclusions from ceiling on single-tender contracts:
  - Classified purchases.
  - Fuel purchases by SENELEC for electricity production under a new regulation allowing SENELEC to buy fuel from SAR on the basis of the current price structure.
- Reporting: quarterly reporting to Fund staff, lag no more than one month from end of observation period, of total amount of public sector contracts and total value of single-tender contracts.

### Tax Revenues
- Definition: sum of revenues from taxes and levies on:
  - income, profits and capital gains, salaries and labor, assets;
  - taxes on goods and services;
  - foreign trade and international transactions;
  - other tax revenues.
- Indicative target: assessed on data for these revenues provided in the quarterly TOFE.
- Petroleum revenues monitoring: VAT on oil, excise taxes on oil, customs duties on oil, vehicle taxes, and the Petroleum Product Imports Security Fund (FSIPP).

### Additional Information and Frequency of Reporting for Program Monitoring
- Three days after adoption: transmit any decision, circular, edict, supplemental appropriation order, ordinance, or law having economic or financial implications for the current program (including acts that change budget allocations, create new agencies or funds).
- Within a maximum lag of 30 days: preliminary data on:
  - tax receipts and tax/customs assessments by category with corresponding monthly revenue;
  - monthly amount of expenditures committed, certified, or for which payment orders have been issued;
  - monthly situation of checks issued by agencies from deposit accounts at the Treasury but not paid, with dates of issuance;
  - quarterly report of the Debt and Investment Directorate (DDI) on execution of investment programs;
  - monthly preliminary government financial operations table (TOFE) based on Treasury accounts;
  - provisional monthly balance of the Treasury accounts;
  - reconciliation tables between SIGFIP and consolidated Treasury accounts, between consolidated Treasury accounts and TOFE for “budgetary revenues and expenditures,” and between TOFE and the net treasury position (NTP), on a quarterly basis.
- Final data: provided as soon as final Treasury balances are available, but not later than one month after provisional data reporting.
- Monthly transmission during program period: provisional data on current nonwage noninterest expenditures and domestically financed capital expenditures executed through cash advances, with lag no more than 30 days; drawn from preliminary consolidated Treasury account balances; final data within one month after provisional reporting.
- Central bank to transmit to Fund staff:
  - Monthly balance sheet of the central bank, maximum lag of one month;
  - Monthly consolidated balance sheet of banks, maximum lag of two months;
  - Monetary survey, monthly, maximum lag of two months;
  - Lending and deposit interest rates of commercial banks, monthly;
  - Prudential supervision and financial soundness indicators for bank financial institutions (Survey of Credit Institution Compliance with the Prudential Framework), quarterly, maximum delay of two months.
- Government website monthly updates:
  - Preliminary TOFE and transition tables with delay of two months;
  - SIGFIP execution table, table for the central government and a summary table including regions, with delay of two weeks;
  - Amount of airport tax collected, deposited in the escrow account, and used for repayment of the loan financing the construction of the new airport, with delay of one month;
  - Full information on (i) Energy Sector Support Fund (FSE) operations; (ii) investment projects in the power sector; (iii) planning and execution of these projects; and (iv) details of financing and updated costs.

### Debt Sustainability Analysis — Selected Findings and Indicators
- Risk of external debt distress: Low.
- Augmented by significant risks stemming from domestic public and/or private external debt? No.
- Key developments and indicators for 2017:
  - External public debt projected at 46.4 percent of GDP in 2017, compared to 38.7 percent projected in the previous DSA.
  - Senegal issued a $1.1 billion dollar Eurobond in 2017; previous issuance was $500 million in 2014.
  - Domestic debt projected to decrease from 18.2 percent of GDP at end-2016 to 14.4 percent of GDP at end-2017.
  - Total public debt projected to reach 60.8 percent of GDP in 2017, higher than the 57.2 percent estimated in the previous DSA.
  - Public debt service projected to reach 32.3 percent of revenue in 2017.
- Staff observations and policy implications:
  - Deterioration of debt indicators since last DSA driven by increase in external borrowing and Eurobond issuance.
  - Eurobond helped rebuild WAEMU reserves in short run.
  - Need to reduce additional borrowing for Treasury operations, exercise caution with non-concessional debt, and implement reforms to mobilize domestic resources and sustain growth to stabilize debt and remain at low risk of debt distress.
  - Immediate reforms needed to reduce structural deficits of the Post Office and civil service pensions, and PFM reforms to limit carry-over of unutilized appropriations from past budgets.
  - Concerns noted about fast growth of public debt and use of bullet bonds; 2017 Eurobond maturity 16 years and interest rate 6.25 percent.

*Source: cr1808 - 7. The floor including grants is adjusted downward by the amount that budget grants fall short of program projections up to a maximum of CFAF 15 billion at current exchange rates (see MEFP Table 1).*

### 7.8 percent of GDP, due to an increase in imports of capital goods and oil, and to lower export

### cr1808 - 7.8 percent of GDP, due to an increase in imports of capital goods and oil, and to lower export

### Current account, remittances, and short-term outlook
- Current account deficit:
  - Projected at 7.8 percent of GDP in 2017.
  - Starting in 2018, projected to improve slightly due to a decrease in imports.
  - Long term average current account deficit projected to decrease to 5.3 percent of GDP due to improved export growth.
- Remittances:
  - Projected at 11.1 of GDP in 2017 (remittances remain a significant component of the current account).
  - Expected to decline as a percent of GDP over the medium term, reaching 10.0 percent of GDP in 2022.
  - Assumed nominal growth of remittances: 7 percent in the next five years, and 6.5 percent thereafter.

### Evolution of selected macroeconomic indicators
- Inflation and deflator:
  - Inflation contained in 2017 at 1.9 percent.
  - GDP deflator projected at 2.2 percent in 2017 and expected to come down slightly to just under 2 percent through 2022.
- External financing mix and terms assumptions:
  - Average maturity of new external debt close to 18 years, with a 5-year grace period (compared to 17.2 and 4.2, respectively, in the previous DSA).
  - Average cost of new external borrowing assumed to be 3.7 percent (consistent with the 4 percent ceiling commitment in the MEFP (CR/17/1)).
- Domestic borrowing assumptions:
  - Domestic debt accounted for 30.1 percent of total public debt in 2016; assumed to decrease to 23.6 percent of total public debt by 2022 due to issuance of the Eurobond.
  - New short-term domestic debt assumed at an average interest rate of 6 percent.
  - Medium- and long-term domestic debt assumed to carry a real interest rate of 3.3 percent with average maturity of 4.7 years.
- Discount rate for the DSA: set at 5 percent.

- Key table of indicators (as presented):
  - Real GDP growth (Ave. 2015, 2016, 2017, 2018-22, Long term):
    - Current DSA: 6.5, 6.7, 6.8, 7.0, 5.4
    - Previous DSA: 6.5, 6.6, 6.8, 6.9, 5.5
  - Overall fiscal deficit (percent of GDP):
    - Current DSA: 4.8, 4.2, 3.7, 3.1, 3.0
    - Previous DSA: 4.8, 4.2, 3.7, 3.0, 3.0
  - Current account deficit (percent of GDP):
    - Current DSA: 7.0, 5.6, 7.8, 6.8, 5.3
    - Previous DSA: 7.4, 6.5, 6.9, 6.9, 6.7
  - Note: Long term defined as the last 15 years of the projection period; for the current DSA update, the long term covers the years 2023-2037.

### External DSA findings and stress tests
- Baseline and scenarios:
  - Under a reform-heavy baseline (government undertakes reforms to contain Treasury borrowing, improve revenue mobilization, and sustain growth), PPG external debt:
    - Projected at 38.0 percent of GDP in 2017.
    - Estimated to decline to 34.6 percent of GDP in 2022 and to well below 30 percent in the long term.
  - Historical scenario (illustrating lack of reform and return to anemic growth):
    - Senegal would grow at 4.3 percent and all indicators breach their thresholds over the medium term.
- Deterioration in 2017 relative to last DSA:
  - Reflects increase in external borrowing due to a 16-year Eurobond in 2017, creating rollover pressures in 2033.
  - Under extreme stress tests, two debt indicators breach thresholds:
    - (i) PV of debt-to-GDP + remittances ratio.
    - (ii) Debt-service-to-revenue ratio (spikes due to bullet payment structure of existing Eurobonds).
  - Stress scenario for PV debt-to-GDP + remittances is a “combination” shock: simultaneous shock to growth, exports, the US dollar GDP deflator, and non-debt creating flows (including FDI).
  - Stress scenario for debt-service-to-revenue is a one-time 30 percent depreciation shock.
- Rebasing effects:
  - Preliminary rebasing exercise (changing base year from 1999 to 2014) suggests GDP level increase by about 30 percent.
  - Implies fall in projected debt-to-GDP ratio in 2017 from just over 60 percent to around 47 percent; debt-to-GDP + remittances shock scenario would stay below the threshold for the projection period.
- Risk assessment:
  - Senegal remains at a low risk of debt distress under the reform-heavy baseline.
  - Debt-to-GDP + remittances ratio in the stress test rises above the threshold of 45 percent of GDP under the combination shock.
  - The combination shock and historical averages illustrate risk of return to anemic growth.
  - Currency and exchange rate considerations:
    - Senegal is a member of a currency union with a currency fixed to the euro.
    - Less than 40 percent of external debt is in dollars.
    - Authorities have used swaps providing substantial protection against CFAF/dollar volatility.
  - Judgement recommended in interpreting threshold breaches under stress scenarios; low risk of debt distress maintained under baseline.

### Public DSA and debt-service vulnerabilities
- PV of total public debt:
  - Decreases from 52.8 percent in 2016 to 52.4 percent in 2017 under baseline, then projected to steadily decline to 38.6 percent of GDP in 2037.
  - Ratios slightly higher than previous DSA, reflecting increased borrowing for below-the-line Treasury operations and greater reliance on non-concessional debt.
- Scenario responses:
  - Under a 30 percent depreciation in 2017, debt ratios increase more in the short term, but long-term evolution similar to baseline; no threshold breach.
  - Under the historical scenario, PV of total public debt grows and in 2022 is projected to be above the benchmark of 74 percent of GDP.
- Debt service:
  - Debt service is close to 30 percent of revenues over the medium term with spikes due to Eurobond bullet repayments.
  - Debt service will absorb a significant portion of fiscal revenues, constraining space for infrastructure, health, and education.
- Coverage:
  - Public debt covers central government debt and does not include debt of state-owned enterprises or guarantees.
  - Government bonds on the WAEMU regional market are treated as domestic debt.

### Conclusion, risks, and policy recommendations
- Overall assessment:
  - Senegal remains at low risk of debt distress under the baseline scenario where planned reforms are implemented to sustain high growth.
  - Under extreme stress tests, two debt indicators breach thresholds; breaches can be significant and prolonged, raising the possibility of moderate risk of debt distress if deterioration continues.
  - Debt-to-GDP trajectory remains on a declining path over the medium term, conditional on reform implementation.
- Key vulnerabilities:
  - Increased vulnerabilities related to debt service, especially liquidity risks from multiple Eurobond bullet amortizations over the next 20 years.
  - Greater reliance on foreign currency-denominated debt increases exchange rate-related vulnerabilities.
- Staff recommendations:
  - Careful and continuous monitoring of financing needs and borrowing plans.
  - Development of a transparent pipeline of bankable projects.
  - Strengthening of debt management.
  - Continued fiscal consolidation and structural reforms to mobilize additional revenue, control borrowing, and sustain high growth.

*Source: cr1808 - 7.8 percent of GDP, due to an increase in imports of capital goods and oil, and to lower export (IMF PDF).*

### 12.      The authorities agree with the analysis in this DSA. The conclusions of the DSA were shared

### 12.      The authorities agree with the analysis in this DSA. The conclusions of the DSA were shared

### Authorities' reaction and overall assessment
- Authorities "broadly concurred with the assessment and with maintaining a “low” debt risk rating."
- Agreed with staff that Senegal needs to reinforce its debt management capacity, including a pro-active search for the best available financing.
- Noted importance of this as per capita income rises and concessional financing falls as a share of total financing needs.

### Policy commitments and priorities
- Commitment to increase domestic revenues in view of gradual transition to market sources.
- Strong commitment to limit non-concessional borrowing.
- Commitment to properly vet projects so borrowing decisions consider their impact on growth.

### DSA stress-test framework and scenario notes (from figures)
- The most extreme stress test is defined as "the test that yields the highest ratio on or before 2027."
  - In figure b. it corresponds to a Combination shock.
  - In figure c. to a Exports shock.
  - In figure d. to a Combination shock.
  - In figure e. to a Exports shock.
  - In figure f. to a One-time depreciation shock.

### Selected baseline indicators and projections (external sustainability, baseline scenario)
- External debt (nominal): 71.4, 73.4, 70.9, 75.1, 69.6, 66.8, 64.7, 62.6, 61.3, 58.0, 49.6 (percent of GDP across 2014–2022 and averages as shown in table)
- Public and publicly guaranteed (PPG) external debt (percent of GDP): 40.4, 41.1, 42.3, 46.4, 45.2, 44.1, 43.4, 42.4, 41.8, 37.8, 27.2
- Change in external debt: 2.5, 2.0, -2.5, 4.2, -5.6, -2.8, -2.1, -2.1, -1.2, -0.9, -0.4
- Identified net debt-creating flows: 4.5, 13.0, -1.2, 1.4, 0.3, 0.1, 0.0, 0.1, -0.1, 0.7, -1.6
- Non-interest current account deficit: 7.1, 5.5, 3.7, 7.8, 3.3, 6.0, 5.2, 4.8, 4.6, 4.6, 4.6
- Exports (percent of GDP): 28.1, 29.4, 27.4, 26.5, 25.5, 25.6, 25.5, 25.5, 26.0, 27.7, 34.5
- Imports (percent of GDP): 47.4, 46.0, 42.1, 42.2, 40.7, 40.1, 39.7, 39.7, 40.0, 41.5, 44.7
- Grant-equivalent financing (in percent of GDP, projections): .........., 2.6, 3.5, 3.4, 3.3, 3.3, 3.2, 3.1, 3.0, 3.1
- Grant-equivalent financing (in percent of external financing, projection entries): ........., 19.2, 49.2, 49.2, 49.4, 50.0, 39.7, 50.0, 49.9, 52.6, 50.3
- Total gross financing need (Billions of U.S. dollars): 1.3, 0.9, 1.0, 1.3, 1.4, 1.4, 1.4, 2.0, 1.5, 2.4, 2.3
- Nominal GDP (Billions of US dollars, memorandum): 15.3, 13.7, 14.7, 16.4, 18.6, 20.4, 22.2, 24.1, 26.2, 38.7, 81.0
- Gross workers' remittances (Billions of US dollars): 2.2, 2.0, 2.1, 2.3, 2.5, 2.6, 2.8, 3.0, 3.2, 4.4, 8.3

### Key macroeconomic assumptions (selected)
- Real GDP growth (in percent): 4.1, 6.5, 6.7, 4.3, 1.5, 6.8, 7.0, 7.0, 7.0, 7.0, 7.0, 7.0, 5.8, 4.6, 5.4 (as reported across historical and projection columns)
- Effective interest rate (percent): 2.8, 2.1, 2.8, 1.8, 0.9, 3.5, 3.4, 3.5, 3.5, 3.4, 3.3, 3.4, 3.2, 2.6, 3.0
- Growth of exports of G&S (US dollar terms, in percent): 2.3, -6.7, 0.5, 5.9, 11.0, 7.4, 9.7, 9.6, 8.5, 8.6, 10.7, 9.1, 10.0, 10.3, 9.9
- Grant element of new public sector borrowing (in percent): ...............-0.2, 17.3, 17.3, 17.4, 12.3, 16.9, 13.5, 15.2, 14.1, 14.6

### Public sector debt (baseline projections, selected)
- Public sector debt (percent of GDP): 54.5, 56.9, 60.4, 60.8, 58.7, 57.1, 55.6, 54.5, 53.4, 48.4, 43.2
- Foreign-currency denominated share (percent of GDP): 40.4, 41.1, 42.3, 46.4, 45.2, 44.1, 43.4, 42.4, 41.8, 37.8, 27.3
- Change in public sector debt: 7.6, 2.4, 3.5, 0.4, -2.1, -1.6, -1.4, -1.1, -1.1, -0.8, -1.4
- Identified debt-creating flows: 9.4, 7.2, 3.9, -3.9, -0.9, -1.9, -1.6, -1.4, -1.3, -0.6, -0.1
- Primary deficit (percent of GDP, selected entries): 3.3, 3.2, 2.2, 3.7, 0.7, 1.5, 1.4, 0.9, 0.9, 1.0, 1.1
- Revenue and grants (percent of GDP): 24.8, 25.1, 26.8, 25.4, 25.6, 25.7, 25.7, 25.8, 25.8, 25.8, 25.8
- PV of public sector debt-to-revenue ratio (percent): ... , ... , 220.3, 230.3, 220.8, 213.6, 207.6, 202.4, 199.0, 182.4, 166.0
- Gross financing need (percent of GDP) 2/: 14.1, 11.9, 12.4, 11.1, 10.9, 9.7, 8.0, 9.9, 7.6, 8.3, 10.5

### Sensitivity analysis highlights (Table 2 & Table 4 excerpts)
- PV of debt-to-GDP+remittances ratio (baseline): 33 (2017), 33 (2018), 32 (2019), 32 (2020), 31 (2021), 31 (2022), 29 (2027), 21 (2037)
  - Alternative scenario A1 (historical averages): rises to 77 by 2037.
  - Bound test B5 (combination of shocks): 50 in 2019 and 40 in 2027.
  - One-time 30 percent nominal depreciation (B6): 44 in 2018 and 38 in 2027.
- PV of debt-to-exports+remittances ratio (baseline): 93 (2017) rising to 51 (2037) in projection columns shown.
  - A1 rises to 172 by 2037; B2 (export shock) shows large increases in early years.
- PV of debt-to-revenue ratio (baseline): 167 (2017) to 98 (2037).
  - A1 rises to 394 by 2037; combination shocks push ratios substantially higher.
- Debt service-to-revenue ratio (baseline): 13 (2017) with projection values varying across scenarios (e.g., A1: 41 in 2037; B5: 21 in 2027).

### Operational implication for debt management
- Need to reinforce debt management capacity to:
  - Pro-actively search for best available financing.
  - Manage transition as concessional financing falls and market financing rises.
  - Increase domestic revenue mobilization to mitigate fiscal and financing risks.
  - Limit non-concessional borrowing and ensure project vetting includes growth impact.

*Source: Country authorities; and staff estimates and projections (as presented in the DSA).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2018/cr1808.pdf_