## 1senea2022001 ## Source details **Canonical URL:** [1senea2022001](https://www.imf.org/-/media/files/publications/cr/2022/english/1senea2022001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1senea2022001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1senea2022001.pdf.json) --- ### Executive summary — context, recent developments, and program performance - Context and recent developments - COVID-19 interrupted a decade of high growth and development progress; a recession was avoided in 2020 but most households experienced income and job losses. - Dynamic recovery underway since mid-2020, supported by expansionary fiscal policy. - Fiscal space is narrowing as higher fiscal deficits and lower growth have resulted in a rapid increase of the debt-to-GDP ratio. - COVID-19 case numbers comparatively low and about 14 percent of the adult population is vaccinated. - Senegal expecting a total of 13 million vaccines under the COVAX and AVAT schemes; 4.5 million doses have been received and a million of the doses received remain unused. - Authorities adopted a large youth and women employment spending package in response to social unrest; local and legislative elections slated for January and July 2022 and the next presidential election set for February 2024. - Key financing and support: - IMF disbursement under the Rapid Financing Instrument and Rapid Credit Facility: US$442 million. - BCEAO on-lent the CFAF counterpart of the SDR allocation (1.6 percent of GDP) on highly concessional terms: a 20-year loan with a possibility of a rollover and with a 0.05 percent interest rate. - Eurobond issuance: Euro 775 million (3.4 percent of GDP). Proceeds mainly used for liability management and to finance some state-owned oil company investments in oil and gas projects. - Program performance - All end-June performance criteria were met. - All but one indicative targets (quantitative targets) were met; the ceiling on single-sourced procurement contracts was missed. - Six out of eight structural benchmarks were met. - Budget execution through September broadly consistent with program targets. - Ongoing implementation of the Policy Coordination Instrument (PCI), together with the Stand-By Arrangement and arrangement under the Standby Credit Facility (SCF/SBA) and the SDR allocation, supports the authorities’ pandemic response. ### Outlook and main risks - Growth and macro outlook - Growth expected to reach 5 percent in 2021 and 5.5 percent in 2022. - Oil and gas production expected to start in 2023 and projected to provide a significant temporary boost to GDP in 2023-24 but initially modest fiscal revenues. - Revised projections related to oil and gas production and exports have lowered medium-term export projections, impacting debt sustainability indicators. - Key risks (tilted to the downside) - Repeated COVID-19 outbreaks, possibly exacerbated by new variants. - Scarring from the pandemic. - Deteriorating regional security conditions. - Slower reform implementation. - Delays in the start of oil and gas production. - Policy timing - New framework to manage oil and gas revenues should be operational by mid-2022. ### Recent economic and financial developments (selected) - Output and inflation - GDP grew by an estimated 7.5 percent y/y in 2021H1. - Growth drivers in 2021H1: industrial production (+22.4 percent y/y through September), services (turnover +17 percent y/y), retail (turnover +9 percent y/y). - Inflation accelerated to 3.2 percent y/y in October, driven by food prices (4.3 percent y/y). - Public debt and fiscal outcomes - Total public debt projected to reach 73 percent of GDP in 2021, compared to 59.2 percent of GDP projection at the time of the 2018 Article IV consultation. - Fiscal deficit widened sharply in 2020 to 6.4 percent of GDP. - Domestic revenues increased by 2 percent of GDP in 2019 compared with 2018. - External sector and financing flows - 2021H1 current account deficit increased by 7 percent y/y. - Goods exports grew +18 percent, driven by natural resources (+38 percent), groundnut-related products (+60 percent), and chemical products (+22 percent). - Services imports jumped by 40 percent due to major investments in two oil and gas projects financed by FDI, which doubled from a year ago. - Remittances grew by 25 percent. - Tourism-related income remains negatively affected by the pandemic. - Banking sector and financial stability - Banking system average capital ratio stood at 12.1 percent at end-June 2021. - Gross NPLs to total loans declined from 13.3 percent in December to 12.9 percent at end-June; net NPLs at 4.4 percent. - Credit to the economy grew 8.1 percent y/y at end June and 3.7 percent in 2021 H1. - BCEAO supportive measures included liquidity provision to banks, a 50 basis points reduction in the policy rate, widening collateral framework, and a bank loan repayment moratorium (expired in December 2020). ### Key policy recommendations and priorities - Fiscal policy and debt sustainability - Anchor fiscal policy by a credible path to a 3 percent of GDP deficit by 2024, in line with WAEMU commitments. - Adopt a revenue-based consolidation strategy to preserve space for priority spending and investment. - Accelerate implementation of the medium-term revenue mobilization strategy (MTRS) and enhance spending efficiency. - Use some of the SDR on-lent resources as substitutes for more expensive financing to improve the debt outlook. - Authorities will spend 0.9 percent of GDP of the SDR-related resources on the health sector, cash transfers, and faster repayment of unmet obligations. - Energy subsidies - Curb high fiscal costs and regressivity of energy subsidies and mitigate fiscal risks associated with rising world oil prices. - Envisage a cap on subsidies in 2022 and greater pass-through of international prices to retail fuel and electricity prices, drawing on existing legal framework. - Combine subsidy reforms with targeted social transfers to protect the vulnerable. - Inclusive and strong growth - Enhance social safety nets, expand the cash transfer scheme PBSF, set up targeted mechanisms to respond to shocks. - Address youth unemployment by creating private sector work opportunities. - Implement reforms to improve business environment, promote financial inclusion, and broaden access to education. --- ### Budget execution at end-September 2021 and fiscal outturn - Overall execution - Budget execution at end September was broadly in line with the revised 2021 budget. - At end-September, tax revenues stood at slightly below 70 percent of their year-end target (excluding transfer to the budget of parafiscal taxes expected in Q4). - Spending reached 79 percent of the first revised budget target; current spending, notably for transfers in the emergency youth employment program, was high. - Central government debt rose from 62.8 at end-December 2020 to 65.3 percent of GDP at end-September. - Including debt of other public entities and SOEs, public debt rose to 71.5 percent of GDP (from 68.7 percent at end-December 2020). - Key 2021Q3 budget outturn figures (in billion CFAF) - Revenues and grants: 1,984 (2021 Q3 Outturn) - Revenues (excl. grants): 1,913 - Tax Revenues: 1,806 - Non-Tax Revenues: 107 - Grants: 71 - Budgetary grants: 4 - Projects grants: 66 - Expenditure: 3,056 - Current (excl. interest): 1,733 - Personnel: 659 - Goods and services: 299 - Grants, Subsidies and other spending: 774 - Interest: 247 - Investment: 1,076 - Externally Financed investment: 521 - Internally Financed investment: 556 - Deficit: -1,073 ### Program conditionality and governance of COVID-19 spending - Program performance and conditionality - All but one end-June performance criteria (PC) quantitative targets (QT) and indicative targets (IT) met. - Ceiling on the share of single-sourced procurement contracts missed: 57 percent compared to 15 percent (reflects two externally-financed investment projects tied to specific contractors and a large single-sourced contract of a state-owned utility). - Six out of eight structural benchmarks were met; decree implementing new PPP law adopted with delay in mid-September, study on tax exemptions expected by end-2021. - Audits on COVID-19 spending (main findings) - Fonds Force COVID-19 Report: revealed implementation challenges and spending inefficiencies due to urgent deployment, insufficient anticipation of logistics and uptake, and coordination challenges; called for more systematic external monitoring. - ARMP report: covered >95 percent of contract value related to pandemic response; recognized efforts on biggest contracts but identified weaknesses including contract concentration, overpayments, lack of ex-post controls, and poor accounting practices. - Both audits recommend strengthening procurement practices when emergency procedures are used, reinforcing incentives for good public fund management, revising procurement legal framework to promote competitive bidding, and publishing procurement contracts’ beneficial owners. --- ### 2022 budget adopted by Parliament (December 12) — stance, revenue mobilization, and spending priorities - Authorities’ deficit targets - 2022: 4.8 percent of GDP (a 0.6 percent of GDP increase compared with the 3rd review) - 2023: 3.7 percent of GDP - 2024: 3 percent of GDP (extension to return by one year in line with WAEMU decision) - Staff assessment and recommendations - Staff recommended keeping the fiscal deficit at or under 4.5 percent of GDP in 2022 and bringing it closer to 3 percent in 2023. - If deficit higher, staff insisted on building significant buffers against short-term fiscal risks and strengthening medium-term fiscal position via revenue mobilization and subsidy reforms. - Agreed budget features - Strong revenue-mobilization, increased social spending, substantial buffers. - Precautionary reserve: 0.4 percent of GDP. - Additional budget reserve: 0.3 percent of GDP to reach projected energy subsidies of 0.9 percent of GDP. - Revenue mobilization (Text Table 5 highlights) - 2022 is first full year of MTRS implementation; budget targets increase of tax revenue-to-GDP ratio by 1 percentage point. - Measures: broadening the tax base, reduction of tax exemptions, tax policy measures (mostly excise taxes), strengthening revenue administration, in particular customs. - Text Table 5 (as presented): Tax Revenue 264 230 25 (in percent of GDP) 17.3 18.4; Nominal increase 383; Tax policy measures (incl. base broadening) 119; Promad 30; Reduced tax exemptions 25; Base broadening 50; Other tax policy changes 14; Administrative measures 71; Growth of tax and tariff base 193; Memorandum item: NGDP 15,273 16,464. - Spending priorities and social protection - Public investment prioritized and kept at over 10 percent of GDP. - Shift spending toward education, youth unemployment, women’s economic empowerment, and social protection. - Program floor for social spending raised from 35 to 40 percent of total spending. - Gender budgeting in its 6th year; investments in programs with strong gender components exceed 1 percent of GDP in 2022. ### Energy subsidies and fiscal risks - Staff estimates and warnings - 2022 budget allows coverage of energy subsidies up to a maximum of 0.9 percent of GDP; sufficient only if average Brent remains at or below US$75 per barrel. - Staff estimates subsidy needs could reach close to 2 percent of GDP at an average oil price of US$85 per barrel in 2022. - Staff urged capping subsidies at the budgeted amount by moving towards greater price flexibility while protecting the vulnerable; prepare a public roadmap including automatically-adjusting retail prices and targeted protections. - Text Table 6. Senegal: Energy Subsidies (in percent of GDP) - 2019 Act. 1.2 - 2020 Act. 0.3 - 2021 Act. 1.3 - 2022 Proj. (about US$75/barrel) 1.0 - 2022 Proj. (about US$85/barrel) 1.8 - Electricity subsidies: 1.1 0.3 1.1 0.7 (values across 2019–2022) - Fuel subsides: 0.1 0.0 0.2 0.3 (values across 2019–2022) ### Public financial management (PFM) reforms and fiscal risk disclosure - PFM reform priorities - Gradual elimination of transfers and proper budgeting by economic nature. - Systematic use of harmonized commitment, procurement and cash plans by all budget entities. - Transition to a fully functioning Treasury Single Account (TSA) and closure of non-necessary government accounts. - Better public investment management: robust project preparation and execution; strictly limit single-sourced procurement contracts; identify legal/regulatory procurement changes by end-June 2022 (proposed SB). - Fiscal risk disclosure - 2022 budget includes a detailed fiscal risks statement covering SOEs, PPPs, natural disasters, and selected macroeconomic risks. - Recommendation to improve the statement with risk quantification and links to mitigation measures. - Regular updates of PPP and IPP database and quantification of fiscal risks in contracts (proposed SB, June 2022). --- ### Oil and gas prospects, projected macro impact, and governance - Projects and timing - First hydrocarbon revenues expected in 2023. - Two projects with final investment decision: Sangomar (mainly oil) and GTA (mainly LNG), expected to start production in 2023. - Yakaar Teranga expected to supply gas for gas-to-power; final investment decision not yet made. - Staff projections and assumptions - Pre-production phase: FDI rose from about 2 percent of GDP to an expected 7.8 percent of GDP in 2021; imports of services expected to reach 9.9 percent of GDP in 2021. - Production phase starting in 2023: growth temporarily lifted to about 10 percent in 2023 and 2024. - Assumptions: 70 percent of crude oil and 100 percent of LNG sold abroad, adding about 5 percent of GDP to current exports of goods between 2023 and 2030. - Moderate public revenues projected in the medium term; staff expects revenues to average 0.7 percent of GDP through 2026. - Policy recommendations and timing - Need for fully functioning legal and fiscal framework by mid-2022 to guide incorporation of oil and gas revenues in the 2023 budget: approval by Parliament of related law, adoption of a fiscal framework targeting a non-oil balance, an investment plan for oil and gas related revenues, and better revenue monitoring and forecasting capacity. - Authorities plan a national day of consultations by end-year before submitting the framework to Parliament to operationalize the revised fiscal framework by mid-2022. --- ### Social impact, poverty, and employment programs - Social and labor indicators - Poverty fell from 42.8 percent to 37.8 percent over the last decade. - World Bank estimates indicate poverty increased since 2020 by up to 2 percentage points to about 40 percent. - Youth unemployment affects almost 1/3 of those between 15 and 34 years. - About 200,000 young enter the labor market each year; formal job market about 500,000 jobs vs workforce of 5.5 million. - Emergency program for youth and women employment (program elements and expected costs, table values as presented) - Special recruitment: Creating 35,000 jobs — total expected costs line item shown as 1,245. - Support private sector job creation: 315. - Vocational training/traineeships: 211. - Access to financing for entrepreneurs and independent workers (Microcredits): 1,653. - Subsidy for school uniforms: 510. - Total listed in table: 3,9150 / 150 / 150 / 450 (as presented). - Social safety nets and targeting - Staff welcomed increased share of social spending in 2022 budget and planned SDR use for additional cash transfers. - Expand cash transfer scheme “Programme de bourses de securité familiale (PBSF)” under which 0.2 percent of GDP a year allocated to about 300,000 poor households. - Staff recommended updating and expanding the “Registre National Unique” (RNU) to prepare rapid targeted support mechanisms. - Education, skills, and job-creation efficiency - High share of workers without formal education despite comparatively high education spending tilted toward tertiary education. - Staff recommended prioritizing investments in primary and secondary education and cautioned that significant public hiring could crowd out other spending and may not deliver sustainable jobs. ### Authorities’ operational commitments (selected) - RNU to cover 1 million households by end of June 2022 (SB, October 2022). - Ensure full amount of cash transfers due in 2021 will be paid and institutionalize and gradually expand the program. - One-stop shop employment and entrepreneurship centers: 15 operational out of expected 45 by end-2022. - Streamline funds to finance young entrepreneurs and women into a single fund effective in 2022 (SB, December 2021). - Full strategy to overhaul interventions in sector to be ready before end of the year. --- ### Debt dynamics, debt sustainability, and financing - Debt levels and drivers - Public sector debt has "more than doubled over the last decade." - As of end-December 2020: public sector external debt 54 percent of GDP; total public sector debt 68.8 percent of GDP. - Total public debt projected to reach 73 percent of GDP in 2021. - Recent drivers: PSE investments, oil and gas sector investments, and fiscal response to COVID-19. - Financing operations and composition - Eurobond issuance: EUR 775 million in June 2021 used for buyback of USD Eurobonds maturing in 2024 and financing oil and gas investments. - SDR allocation counterpart on-lent by BCEAO: CFAF 246.7 billion (1.6 percent of GDP), treated as domestic debt; SDR on-lent terms: 20-year, 0.05 percent interest, option to rollover. - Debt service and DSA findings - External debt service payments: about 23 percent of exports and 17 percent of revenues for 2021; projected 20 percent of exports and 15 percent of revenues in 2022. - DSA assessment: Senegal continues to have a moderate risk of external and overall debt distress, with limited scope to absorb shocks in the near term. - Staff projects public sector debt to peak at 73 percent of GDP in 2021 and to decline under baseline to under 60 percent of GDP over the medium term conditional on fiscal consolidation and growth. - Downside scenario shows debt trajectory remains above 70 percent and debt service rises rapidly under shocks; high risk of debt distress if shocks materialize absent concessional support. - Financing outlook and program coverage - Program is fully financed with firm commitments for next 12 months and good prospects thereafter. - Additional net financing available through Eurobond (0.4 percent of GDP; remainder for liability management) and on-lending of the SDR allocation. - Share of Fund financing in 2021–22 decreases from about 40 to 30 percent compared to program request. - Senegal has adequate capacity to repay the Fund; repayments peak at 3.4 percent of government revenue in 2025 and 2.3 percent of exports of goods and services in 2026. --- ### Downside scenario and policy implications - Downside scenario assumptions - Combines shocks: lower non-oil growth, delayed oil and gas production, reduced revenue mobilization, and higher fiscal deficits. - Specific oil/gas assumption: production starts in 2024 instead of 2023 and production volumes are only 70 percent compared to the baseline. - Key projection excerpts (Base / Downside as presented) - NGDP: "15,273 15,273 16,485 16,152 18,415 17,403 20,668 19,308" - Real GDP growth (percent): "5.0 5.0 5.5 3.5 9.5 4.6 10.3 10.4" - Government Revenues (percent of GDP): "20.4 20.2 21.0 20.7 21.4 21.0 21.7 20.7" - Government Expenditure (percent of GDP): "26.7 26.7 25.7 26.3 25.1 26.0 24.7 25.2" - Fiscal Balance (percent of GDP): "-6.3 -6.5 -4.8 -5.6 -3.7 -5.0 -3.0 -4.5" - Gross Public Debt (percent of GDP): "73.0 73.1 71.6 73.9 67.7 73.5 63.1 70.5" - Policy implications - Bringing the debt trajectory on a downward trend hinges on implementing baseline fiscal consolidation. - If risks materialize, absent highly concessional support, authorities would need to balance additional revenue measures with delaying lower-priority investments or reducing non-essential current spending. - Full implementation of the MTRS and fiscal consolidation are critical to secure macroeconomic stability. --- ### Data provision, capacity development, and staff appraisal - Data and statistics - Senegal SDDS subscriber since 2017. - Monthly trade, price, economic activity, and fiscal indicators available with relatively short lags. - Quarterly national accounts with a three-month lag but subject to frequent significant revisions; work ongoing to improve compilation methodology. - Work to improve government finance statistics and broaden fiscal data coverage supported by Fund TA. - Capacity development - FAD support to implement MTRS, enhance spending efficiency, set up PPP and hydrocarbon revenue frameworks. - CD priorities include tax policy/revenue administration, PFM, debt management, and macro statistics. - Staff appraisal — macro outlook and risks - Economic prospects remain good if risks and rising vulnerabilities are well-managed. - Swift policy reaction and international support buffered COVID-19 shock. - Risks tilted to the downside include renewed COVID-19 waves, slow vaccination progress, scarring, higher global energy prices, rising social tensions. --- ### Selected numeric and operational highlights (selected figures preserved) - Growth projections: 2021 5.0; 2022 5.5; 2023–24 temporary lift to around 10 percent (oil and gas). - Inflation: 3.2 percent y/y in October; medium-term anchored around 2 percent. - Current account deficit: projected to widen in 2021 to 10.6 percent of GDP; medium-term expected between 4 and 5 percent of GDP. - Public debt: projected to reach 73 percent of GDP in 2021. - SDR allocation: 246.3 (Percent of GDP 1.6%); Uses 2021 expenditure: 141 (Percent of GDP 0.9%); Additional financing: 105.3; Financial transactions: 63.3; 2022 financing: 42.0. - Selected fiscal framework (2021 first revised budget): Revenues and grants 3,109; Revenues (excl. grants) 2,873; Tax Revenues 2,691 (percent of GDP 17.6); Expenditure 4,076; Investment 1,591 (percent of GDP 10.4); Deficit -967 (percent of GDP -6.3); Deficit (percent of GDP excl. SDR allocation) -5.4. - Banking ratios (selected): Regulatory capital to RWA 12.1 (2021); Gross NPLs to total loans 13.1 (2021, June); Provisioning rate 69.7 (2021, June); Net NPLs to total loans 4.4 (2021, June). - Financing needs and sources (selected CFAF billions) - Total financing sources (sample series): 1,557; 1,431; 1,784; 2,318; 1,831; 1,991; 1,911; 1,978; 2,032; 2,349. - Total financing needs (sample series): 693; 696; 492; 161; 363; 477; 157; 143; 120; 122. - Residual financing gap (sample series): 295; 295; 292; 71; 150; 254; 0; 0; 0; 0. - IMF-related schedule and obligations (selected) - Program Request June 7th, 2021: SBA 86.3; SCF 43.1; Total 129.4 (SDR million); % of quota: 27; 13; 40. - Total proposed: SBA 302; SCF 151; Total 453 (SDR million); % of quota 140. - Capacity to repay (selected totals): Total obligations based on existing and prospective credit (SDR Millions): 453.0; 776.6; 722.7; 593.2; 427.2; 246.3; 131.9; 76.7; 26.4; 0.0; 0.0. Percent of GDP sample series: 2.3; 3.7; 3.0; 2.3; 1.5; 0.8; 0.4; 0.2; 0.1; 0.0; 0.0. *Source: IMF staff summary of 1senea2022001 (selected extracts).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and recent developments - The COVID-19 pandemic interrupted a decade of high growth and development progress in Senegal; a recession was avoided in 2020 but most households experienced income and job losses. - A dynamic recovery is underway since mid-2020, supported by expansionary fiscal policy. - Fiscal space is narrowing as higher fiscal deficits and lower growth have resulted in a rapid increase of the debt-to-GDP ratio. - COVID-19 case numbers remain comparatively low and about 14 percent of the adult population is vaccinated. - Senegal is expecting a total of 13 million vaccines under the COVAX and AVAT schemes; 4.5 million doses have been received and a million of the doses received remain unused. - The authorities adopted a large youth and women employment spending package in response to social unrest; local and legislative elections are slated for January and July 2022 and the next presidential election is set for February 2024. - Key financing and support: - IMF disbursement under the Rapid Financing Instrument and Rapid Credit Facility: US$442 million. - BCEAO on-lent the CFAF counterpart of the SDR allocation (1.6 percent of GDP) on highly concessional terms: a 20-year loan with a possibility of a rollover and with a 0.05 percent interest rate. - Eurobond issuance: Euro 775 million (3.4 percent of GDP). - The Eurobond proceeds were mainly used for liability management and to finance some state-owned oil company investments in oil and gas projects. ### Outlook and risks - Growth projections: - Growth is expected to reach 5 percent in 2021 and 5.5 percent in 2022. - Oil and gas production is expected to start in 2023 and is projected to provide a significant temporary boost to GDP in 2023-24 but initially modest fiscal revenues. - Revised projections related to oil and gas production and exports have lowered medium-term export projections, impacting debt sustainability indicators. - Risks (tilted to the downside) include: - Repeated COVID-19 outbreaks, possibly exacerbated by new variants. - Scarring from the pandemic. - Deteriorating regional security conditions. - Slower reform implementation. - Delays in the start of oil and gas production. - The new framework to manage oil and gas revenues should be operational by mid-2022. ### Program performance - All end-June performance criteria were met. - All but one indicative targets (quantitative targets) were met; the ceiling on single-sourced procurement contracts was missed. - Six out of eight structural benchmarks were met. - Budget execution through September was broadly consistent with program targets. - The ongoing implementation of the Policy Coordination Instrument (PCI), together with the Stand-By Arrangement and arrangement under the Standby Credit Facility (SCF/SBA) and the SDR allocation, supports the authorities’ pandemic response. - Since June 2021 Senegal obtained additional financing through a Euro 775 million Eurobond issuance (3.4 percent of GDP) and the SDR allocation (1.6 percent of GDP). ### Recent economic and financial developments - Output and inflation: - A dynamic recovery since 2020Q3: GDP grew by an estimated 7.5 percent y/y in 2021H1. - Growth drivers in 2021H1: industrial production (+22.4 percent y/y through September), services (turnover +17 percent y/y), retail (turnover +9 percent y/y). - Inflation accelerated to 3.2 percent y/y in October, driven by food prices (4.3 percent y/y). - Public debt and fiscal outcomes: - Total public debt is now projected to reach 73 percent of GDP in 2021, compared to a 59.2 percent of GDP projection at the time of the 2018 Article IV consultation. - The fiscal deficit widened sharply in 2020 to 6.4 percent of GDP in response to the pandemic. - Domestic revenues increased by 2 percent of GDP in 2019 compared with 2018. - External sector and financing flows: - The 2021H1 current account deficit increased by 7 percent y/y. - Goods exports grew +18 percent, driven by natural resources (+38 percent), groundnut-related products (+60 percent), and chemical products (+22 percent). - Services imports jumped by 40 percent due to major investments in two oil and gas projects financed by FDI, which doubled from a year ago. - Remittances grew by 25 percent. - Tourism-related income remains negatively affected by the pandemic. - Banking sector and financial stability: - Banking system average capital ratio stood at 12.1 percent at end-June 2021. - Gross NPLs to total loans declined from 13.3 percent in December to 12.9 percent at end-June; net NPLs at 4.4 percent. - Credit to the economy grew 8.1 percent y/y at end June and 3.7 percent in 2021 H1. - Regional central bank (BCEAO) supportive measures included: liquidity provision to banks, a 50 basis points reduction in the policy rate, widening of the collateral framework for refinancing, and a bank loan repayment moratorium (which expired in December 2020). ### Policy recommendations and priorities - Fiscal policy and debt sustainability: - Anchor fiscal policy by a credible path to a 3 percent of GDP deficit by 2024, in line with WAEMU commitments. - Adopt a revenue-based consolidation strategy to preserve space for priority spending and investment. - Accelerate implementation of the medium-term revenue mobilization strategy (which experienced delays) and enhance spending efficiency. - Use some of the SDR on-lent resources as substitutes for more expensive financing to improve the debt outlook. - Authorities will spend 0.9 percent of GDP of the SDR-related resources on the health sector, cash transfers, and faster repayment of unmet obligations. - Energy subsidies: - Curb high fiscal costs and regressivity of energy subsidies and mitigate fiscal risks associated with rising world oil prices. - Envisage a cap on subsidies in 2022 and greater pass-through of international prices to retail fuel and electricity prices, drawing on the existing legal framework. - Combine subsidy reforms with targeted social transfers to protect the vulnerable. - Inclusive and strong growth: - Enhance existing social safety nets to make growth more inclusive, including expanding the existing cash transfer scheme and setting up targeted mechanisms to respond to shocks. - Address youth unemployment by creating work opportunities in the private sector. - Implement reforms to improve the business environment, promote financial inclusion, and broaden access to education to support formal sector job creation. - Program modalities: - Staff supports the authorities’ requests for completion of the fourth PCI review, first review under the Stand-By Arrangement and the arrangement under the Standby Credit Facility, and for modification of performance criteria and quantitative targets. *IMF Country Report — Executive Summary* ### 9. Budget execution at ### 9. Budget execution at ### Budget execution and fiscal outturn (end-September 2021) - Budget execution at end September was broadly in line with the revised 2021 budget. - At end-September, tax revenues stood at slightly below 70 percent of their year-end target (excluding the transfer to the budget of parafiscal taxes expected in Q4). - Project grant disbursements should also pick up in Q4. - Spending reached 79 percent of the first revised budget target as current spending, notably for transfers in the context of the emergency youth employment program, was high. - Central government debt rose from 62.8 at end-December 2020 to 65.3 percent of GDP at end-September. - Including the debt of other public entities and SOEs, public debt rose to 71.5 percent of GDP (from 68.7 percent at end-December 2020) (MEFP ¶4). Key 2021Q3 budget outturn figures (in billion CFAF) - Revenues and grants: 1,984 (2021 Q3 Outturn) - Revenues (excl. grants): 1,913 - Tax Revenues: 1,806 - Non-Tax Revenues: 107 - Grants: 71 - Budgetary grants: 4 - Projects grants: 66 - Expenditure: 3,056 - Current (excl. interest): 1,733 - Personnel: 659 - Goods and services: 299 - Grants, Subsidies and other spending: 774 - Interest: 247 - Investment: 1,076 - Externally Financed investment: 521 - Internally Financed investment: 556 - Deficit: -1,073 ### Program performance and conditionality - Program performance was satisfactory. - All but one end-June performance criteria (PC) quantitative targets (QT) and indicative targets (IT) have been met. - The ceiling on the share of single-sourced procurement contracts (IT/QT) was missed by a significant margin: 57 percent compared to 15 percent. This reflects two externally-financed investment projects tied to specific contractors and a large single-sourced contract of a state-owned utility. - Six out of eight structural benchmarks (SBs) (reform targets (RTs)) were met. - The decree implementing the new PPP law was adopted with delay in mid-September, while the study on tax exemptions is expected to be finalized by end-2021 (MEFP ¶8-9). ### Governance measures and audits related to COVID-19 spending - Governance measures regarding COVID-19 spending are being gradually implemented. - Quarterly budget execution reports and the report by the Fonds Force COVID-19 monitoring committee were finalized and are available online. - The report on procurement procedures related to COVID-19 spending by the Public Procurement Regulatory Authority (ARMP) was also published. - Both reports point to the need to strengthen the procurement process used under emergency situations, like the COVID-19 pandemic. - The finalization of the special report of the Audit Court is taking longer than expected, with publication expected for March 2022 instead of October 2021 (MEFP ¶10). - Staff encouraged the authorities to follow up on the findings of the audits and investigate any potential misuse of COVID-19 funding. Main findings of the audits on the use of COVID-19 funds (Box 1) - Two reports evaluated execution of the “Fonds Force COVID-19” resources: (i) the Fonds Force COVID-19 Report by a multistakeholder monitoring committee (including civil society), and (ii) the ARMP report focused on procurement. - Fonds Force COVID-19 Report: - Audited all Fonds Force COVID-19 spending (health, social spending, private sector support, emergency food distribution). - Revealed implementation challenges and spending inefficiencies due to urgent deployment, insufficient anticipation of implementation difficulties (logistics, actual uptake by targeted groups), and coordination challenges with existing programs. - Called for more systematic external monitoring of emergency spending. - ARMP report: - Covered more than 95 percent of the total value of contracts related to the government’s pandemic response. - Recognized efforts to maintain procurement quality on the biggest contracts (notably supply contracts for emergency food distributions). - Identified weaknesses including contract concentration, overpayment for specific services, lack of ex-post controls of spending appropriateness and efficiency, and sometimes poor accounting practices that led to excessive or unregistered payments. - Both audits: - Highlight the need to strengthen procurement practices, especially when normal procedures are suspended and single sourcing becomes prevalent. - Recommend reinforcing incentives to ensure good management of public funds and maximize value for money when deviations from normal procedures are allowed. - Suggest the procurement legal framework’s bias toward exceptional procedures may require substantive amendments to promote competitive bidding and clearly restrict use of exceptional procedures. - Recommend further transparency measures such as publication of information on procurement contracts’ beneficial owners and investigation of potential abuses. ### Outlook, risks, and scenarios - Recovery is expected to continue in 2021–22, and growth will receive a temporary boost from oil and gas production starting in 2023 (Text Table 2). - Staff’s baseline scenario assumptions: - Further COVID-19 waves are likely and vaccinating a significant share of the eligible population will take at a minimum well into 2022. - Absent new lockdowns, the impact on economic activity is expected to be limited. - Gradual recovery in global merchandise trade will support goods’ exports while services, notably travel and tourism, continue to be affected. - Onset of oil and gas production in 2023 will boost growth, exports and revenue (MEFP ¶11-15). - Key macro projections and indicators (selected, as presented) - Growth in 2021 is revised up from 3.7 to 5 percent. - Growth in 2022 around 5 ½ percent. - Inflation would remain anchored at around 2 percent over the medium term. - Current account deficit projected to widen in 2021 to 10.6 percent of GDP. - Over the medium term, hydrocarbon exports are expected to reach 5 percent of GDP (downgrade from previous projections reflecting that only 70 instead of 100 percent of crude oil will be exported). - Medium-term current account deficit expected to decline to between 4 and 5 percent of GDP. - Senegal’s external position is assessed to be moderately weaker than the level implied by fundamentals and desirable policies (Annex II). - Fiscal deficit assumed to return to 3 percent of GDP by 2024 on the back of significant domestic revenue mobilization, though with a more backloaded consolidation path compared with the 3rd PCI review. - Senegal’s public sector debt projected to reach 73 percent of GDP in 2021 while a steady decline to under 60 percent of GDP is projected over the medium term based on fiscal consolidation and growth. - Risks: - Outlook subject to significant uncertainty and risks are tilted to the downside. - Domestic and regional risks: repeated COVID-19 outbreaks (new variants), scarring from the pandemic through missed education and lower buffers, rising social tensions, deteriorating regional security, slower reform implementation given forthcoming elections, delays in start of oil and gas production. - Main external risks: worsening terms of trade (especially higher oil price until Senegal becomes a producer), rapid rise of global interest rates. - Climate vulnerability: high share of population living in coastal areas and expected increase of extreme weather events such as droughts and floods (Annex IV; MEFP ¶16). - Downside scenario: - Staff developed a downside scenario combining shocks to non-oil growth, oil and gas production, revenue mobilization and the fiscal deficit (Annex V). - Shows that bringing the debt trajectory on a downward trend hinges on implementing the baseline fiscal consolidation. - If risks materialize, absent more highly concessional support, authorities would need to balance additional revenue measures with delaying lower-priority investments (e.g. transport infrastructure) or reducing non-essential current spending (e.g. subsidies). ### Authorities’ views - Authorities agreed with the short-term outlook but expect stronger medium-term growth because of ongoing policy reforms, dissipating pandemic effects, and positive spillovers from oil and gas production. - Regarding the downside scenario, authorities took note of implications for the debt outlook but considered its materialization unlikely, especially assumptions of fiscal deficits exceeding 3 percent of GDP and lower longer-term growth of non-oil GDP. ### Policy responses, SDR use, and 2022 budget adjustments - Staff and authorities agreed to keep the 2021 fiscal deficit excluding SDR-related spending unchanged at 5.4 percent of GDP. - A second revised budget was approved by Parliament on November 15, 2021. It incorporates spending related to the SDR allocation, higher energy subsidies due to higher global oil prices, an employer contribution for skill development and the signing of a cross-debt convention between the central government and the state-owned power utility (both budget neutral for a total of 0.5 percent of GDP). - Changes in financing and spending composition noted: - Lower grant financing (0.3 percent of GDP) owing to a change in the World Bank’s financing terms. - Higher energy subsidies (0.2 percent of GDP) due to higher world oil prices. - Higher tax and non-tax revenue (0.1 percent of GDP) as stronger economic activity outweighs impact of recent tariff reductions on staple foods and savings on wages, goods and services and investment. - Use of the SDR allocation: - Authorities decided to save 0.3 percent of GDP to cover 2022 financing needs. - Reserve 0.5 percent for financial transactions (e.g. recapitalization of a bank and equity in pharmaceutical production) in 2021 and 2022. - Spend about half of the SDR allocation in 2021 (0.9 percent of GDP) on the health sector, domestic vaccine production, cash transfers and faster repayment of unmet obligations expected to support recovery in private sector activity (Text Table 3) (MEFP ¶17). - Specifics on customs levy and transparency: - A new customs levy of 3 percent on non-ECOWAS imports had been introduced in September, tied to a comprehensive customs modernization program based on a single-sourced contract. - Staff raised concerns that the ad-hoc introduction and design were inconsistent with program objectives of improving fiscal transparency, strengthening procurement practices, and enhancing the business environment. - Staff recommended bringing the rate in line with WTO rules and reflecting all related revenues in the budget. - Authorities agreed to channel all related revenues and spending through the budget and amended the draft 2022 budget to lower the rate to 1.5 percent starting in January 2022. - Staff welcomed these modifications. Selected fiscal framework and SDR allocation figures (as presented) - SDR Allocation: 246.3 (Percent of GDP 1.6%) - Uses 2021 expenditure: 141 (Percent of GDP 0.9%) - Health sector: 33 - COVID-19 response production of vaccines: 2 - Investment in hospitals: 13 - Cash Transfers: 5 - Accelerated clearance of unmet obligations: 103 - Additional financing: 105.3 - Financial transactions: 63.3 - 2022 financing: 42.0 Fiscal framework highlights (selected figures) - Revenues and grants (2021 first revised budget): 3,109 - Revenues (excl. grants) (2021 first revised budget): 2,873 - Tax Revenues (2021 first revised budget): 2,691 (percent of GDP 17.6) - Expenditure (2021 first revised budget): 4,076 - Investment (2021 first revised budget): 1,591 (percent of GDP 10.4) - Deficit (2021 first revised budget): -967 (percent of GDP -6.3) - Deficit (percent of GDP excl. SDR allocation) (2021 first revised budget): -5.4 *Source: IMF staff summary of the chapter “9. Budget execution at” from 1senea2022001.* ### 19. The 2022 budget adopted by Parliament on December 12 envisages a higher deficit ### 19. The 2022 budget adopted by Parliament on December 12 envisages a higher deficit ### Fiscal stance, staff assessment, and agreed 2022 budget - Authorities’ new deficit targets: - 2022: 4.8 percent of GDP (a 0.6 percent of GDP increase compared with the 3rd review) - 2023: 3.7 percent of GDP - 2024: 3 percent of GDP - Note: extension to return to a 3 percent of GDP deficit by one year to 2024 is in line with WAEMU’s Council of Ministers’ decision (MEFP ¶18). - Staff assessment and recommendations: - Staff cautioned about rapidly-diminishing fiscal space and risks to debt sustainability from a looser fiscal stance. - Staff recommended keeping the fiscal deficit at or under 4.5 percent of GDP in 2022 and bringing it closer to 3 percent of GDP in 2023. - If the deficit is higher, staff insisted on building significant buffers against short-term fiscal risks (e.g., higher world oil prices), strengthening medium-term fiscal position via revenue mobilization and reforms to durably lower energy subsidies. - Agreed budget features: - Strong revenue-mobilization, increased social spending, and substantial buffers. - Precautionary reserve: 0.4 percent of GDP (projects to be implemented later if budget execution is on track). - Additional budget reserve: 0.3 percent of GDP to reach projected spending on energy subsidies (0.9 percent of GDP), on top of already budgeted amount of 0.6 percent of GDP. Staff urged preserving this buffer to avoid arrears (MEFP ¶22). ### Revenue mobilization and Text Table 5 (as presented) - 2022 is the first full year of MTRS implementation; budget targets an increase of the tax revenue-to-GDP ratio of 1 percentage point. - Increase measures: broadening the tax base, reduction of tax exemptions, tax policy measures (mostly excise taxes), and strengthening revenue administration, in particular at customs (Text Table 5; MEFP ¶19). - Text Table 5. Senegal: Revenue Projections, 2022 (sources: Senegalese authorities; and IMF staff calculations): - 20212022 proj. proj. - Tax Revenue 26423025 - (in percent of GDP)17.318.4 - Nominal increase 383 - Tax policy measures (incl. base broadening)119 - Promad 30 - Reduced tax exemptions25 - Base broadening50 - Other tax policy changes14 - Administrative measures 71 - Growth of tax and tariff base193 - Memorandum item: - NGDP15,273 16,464 ### Spending priorities, social protection, and gender budgeting - Spending priorities: - Public investment prioritized and kept at over 10 percent of GDP. - Pivot spending away from hard infrastructure towards education, youth unemployment, women’s economic empowerment, and social protection. - Program floor for social spending raised from 35 to 40 percent of total spending (MEFP ¶22). - Gender budgeting (Box 2): - Gender budgeting integrated at all stages of the budget process and in its 6th year of implementation in Senegal. - Investments in programs with a strong gender component exceed 1 percent of GDP in 2022. - Example: “Délégation à l’Entreprenariat Rapide” provides training and credit to mostly female entrepreneurs with 75 percent of the beneficiaries being women. - Targeted investments to facilitate girls’ access to education and expand health services for women and girls in rural areas. ### Debt sustainability, authorities’ debt management views, and risks - Public debt developments and risks: - Total public debt increased by nearly 10 percentage points of GDP since 2019. - Eurobond issuance in June 2021 increased external debt but pre-financed oil and gas investments and bought back outstanding U.S. dollar Eurobonds, reducing FX risk and smoothing external debt service. - SDR allocation increased public sector (domestic) debt on highly-concessional terms. - Updated DSA: Senegal continues to have a moderate risk of external and overall debt distress, with limited scope to absorb shocks in the near term. - External debt service payments: about 23 percent of exports and 17 percent of revenues for 2021; projected to be 20 percent of exports and 15 percent of revenues in 2022. - A recent audit of the debt database did not identify major weaknesses but noted risks related to timeliness and reliability of SOE debt data. - Authorities’ commitments: - Non-concessional external borrowing to be carefully managed and focused on projects with a high rate of return. - Adhering to the regional fiscal deficit target and operationalizing the MTRS to reduce reliance on debt financing (MEFP ¶24). - Action plan developed to address debt database audit deficiencies; new circular and decree to strengthen SOE debt data sharing and reinforce the national debt committee’s role (MEFP ¶25). ### Energy subsidies: risks, projections, and policy advice - Staff estimates and warnings: - 2022 budget allows coverage of energy subsidies up to a maximum of 0.9 percent of GDP; sufficient only if average Brent remains at or below US$75 per barrel. - Staff estimates subsidy needs could reach close to 2 percent of GDP at an average oil price of US$85 per barrel in 2022. - Staff urged capping energy subsidies at the budgeted amount by moving towards greater price flexibility while protecting the vulnerable; prepare a public roadmap including automatically-adjusting retail prices and targeted protections. - Gas-to-power strategy could lower electricity subsidies over time but requires significant planning and investment and is affected by uncertain gas price outlook. - Text Table 6. Senegal: Energy Subsidies (in percent of GDP; source: Senegalese authorities; and IMF staff calculations): - 2019 Act. 1.2 - 2020 Act. 0.3 - 2021 Act. 1.3 - 2022 Proj. (about US$75/barrel) 1.0 - 2022 Proj. (about US$85/barrel) 1.8 - Electricity subsidies 1.1 0.3 1.1 0.7 (values across 2019–2022 as shown) - Fuel subsides 0.1 0.0 0.2 0.3 (values across 2019–2022 as shown) ### Public financial management (PFM) reforms and fiscal risk disclosure - PFM reform priorities and recommended actions (MEFP ¶29): - Gradual elimination of transfers and proper budgeting of expenditures according to their economic nature to improve transparency and efficiency, including proper budgeting and execution of central government investment expenditures. - Stronger budget preparation and execution through systematic use by all budget entities of harmonized commitment, procurement and cash plans. - Transition to a fully functioning Treasury Single Account (TSA) and closure of all non-necessary general government accounts to improve cash management. - Better public investment management: robust project preparation and execution; align investment plan with development priorities; strictly limit single-sourced procurement contracts; identify by end-June 2022 necessary changes to the legal and regulatory framework for procurement (proposed new end-June 2022 SB, MEFP ¶8). - Fiscal risk disclosure: - 2022 budget includes a detailed fiscal risks statement covering SOEs, PPPs, natural disasters, and selected macroeconomic risks (e.g., world oil prices). - Recommendation to gradually improve the statement with risk quantification, determination of potential contingent liabilities, and clear links to mitigation measures. - Regular updates of PPP and IPP database and quantification of fiscal risks in contracts (proposed new SB, June 2022) to improve monitoring of PPP-linked risks. ### Oil and gas revenues: framework and projected macroeconomic impact - Timing and projects: - First hydrocarbon revenues expected in 2023. - Two projects with final investment decision: Sangomar (mainly oil) and GTA (mainly LNG), expected to start production in 2023. - Yakaar Teranga expected to supply gas for gas-to-power; project preparation advanced though final investment decision not yet made. - Staff projections (Box 3): - Pre-production phase: FDI rose from about 2 percent of GDP to an expected 7.8 percent of GDP in 2021; imports of services expected to reach 9.9 percent of GDP in 2021. - Production phase starting in 2023: growth temporarily lifted to about 10 percent in 2023 and 2024 (with a shift in the level of GDP but future growth not expected to benefit from further production increases). - Assumptions: 70 percent of crude oil and 100 percent of LNG sold abroad, adding about 5 percent of GDP to current exports of goods between 2023 and 2030. - Moderate public revenues projected in the medium term; total net revenue projections (including cash flows from Petrosen) are highly uncertain but staff expects revenues to average 0.7 percent of GDP through 2026. - Policy recommendations and timing: - Need for a fully functioning legal and fiscal framework by mid-2022 to guide incorporation of oil and gas revenues in the 2023 budget: approval by Parliament of related law, adoption of a fiscal framework targeting a non-oil balance, an investment plan for oil and gas related revenues, and better revenue monitoring and forecasting capacity (MEFP ¶31). - Authorities plan a national day of consultations by end-year before submitting the framework to Parliament to operationalize the revised fiscal framework by mid-2022 (SB, June 2022; MEFP ¶26-29, 31). *Source: IMF staff report text (selected extracts).* ### 32. The pandemic has exacerbated stress on the social fabric. Poverty fell from 42.8 percent ### 1senea2022001 - 32. The pandemic has exacerbated stress on the social fabric. Poverty fell from 42.8 percent ### Social impact and poverty - Poverty fell from 42.8 percent to 37.8 percent over the last decade. - World Bank estimates indicate poverty increased again since 2020 by up to 2 percentage points to about 40 percent of the population. - Youth unemployment affects almost 1/3 of those between 15 and 34 years. - About 200,000 young enter the labor market each year, many with little or no formal education. - Formal job market currently about 500,000 jobs compared with a workforce of 5.5 million. - Without rapid growth in the formal job market, employment sources are often in informal agricultural or services sectors with low wages, little or no training opportunities and little scope to increase productivity. ### Emergency program for youth and women employment - Government launched an emergency program for youth and women employment in April (program envisages significant public hiring, microcredits to the self-employed, and expanding vocational training). - Text Table 7 (program elements and expected costs) highlights measures including: - Special recruitment: Creating 35,000 jobs, of which 5,000 teachers, 22,000 youths for reforestation and cleaning, 6,000 security agents and 1,850 other — total expected costs line item shown as 1,245 (units as per table). - Support private sector job creation: 315 (with sub-allocations 15, 15, 45). - Vocational training/traineeships: 211 (with sub-allocations 18, 16, 45). - Access to financing for entrepreneurs and independent workers (Microcredits and targeted support to informal sectors): 1,653 (with sub-allocations 33, 34, 120). - Subsidy for school uniforms: 510 (with sub-allocations 10, 10, 30). - Total listed in table: 3,9150 / 150 / 150 / 450 (as presented). ### Social safety nets and targeting - Staff welcomed increased share of social spending in the 2022 budget and planned use of part of the SDR allocation for additional cash transfers. - Expand social protection schemes including the cash transfer scheme “Programme de bourses de securité familiale or PBSF” under which 0.2 percent of GDP a year are allocated to about 300,000 poor households. - Staff recommended advancing work to update and expand the “Registre National Unique” (RNU) to prepare rapid and targeted support mechanisms to respond to shocks (pandemic, floods, droughts, price increases). ### Education, skills, and job-creation efficiency - High share of workers without formal education despite comparatively high education spending relative to GDP by Senegal; such spending is tilted toward tertiary education and investments in the sector are a relatively small part of the overall investment envelope. - Staff recommended higher priority to investments in the education sector with stronger focus on primary and secondary education to increase accessibility. - Staff warned that significant public hiring under the youth employment initiative could crowd out other spending and may not result in sustainable, long-term jobs; essential that spending is of high quality. ### Authorities’ operational views and commitments - Authorities stated RNU is being extended to cover 1 million households by the end of June 2022 (SB, October 2022). - Authorities will ensure full amount of cash transfers due in 2021 will be paid and will further institutionalize and gradually expand the program, exploring options to use mobile payments (MEFP ¶32). - One-stop shop employment and entrepreneurship centers: 15 already operational out of an expected 45 by end-2022. - Decision to streamline numerous funds to finance young entrepreneurs and women into a single fund to be effective in 2022 (SB, December 2021). - A full strategy to overhaul interventions in the sector is being developed and should be ready before the end of the year (MEFP ¶33). ### Growth strategy and structural reform priorities - Government growth strategy relies on horizontal reforms (improving business environment, expanding basic infrastructure, promoting access to education and training, extending access to finance) and vertical/sectoral policies (tax exemptions, subsidies, production centers, export-processing zones, modernizing regulatory frameworks). - Identified growth constraints: high cost of energy, distortive business environment, lack of access to land and financing, high labor costs and labor market rigidities, weak human capital (lack of education and skills). - Priority sectors include agriculture and agri-processing, pharmaceuticals, mining, and the digital economy. - Staff encouraged accelerating and deepening structural reforms, improving access to finance, functioning of labor and product markets, better justification and evaluation of sectoral support measures, use of sunset clauses, regular evaluation of public interventions, and avoiding support for sectors lacking essential inputs (skills, infrastructure, technology). ### Financial sector, inclusion, and vulnerabilities - Financial inclusion rate reached 70 percent in 2019 compared to 65.9 percent two years earlier, driven by electronic money. - Electronic money services grew by 5.4 percentage points to stand at 39.6 percent in 2019. - Authorities aim to give access to financial services to 65 percent of the population and 90 percent of SMEs through the financial inclusion strategy expected to be approved by December 2021. - Financial sector issues: - Three small banks with preexisting problems continue to be in violation of capital requirements; staff encouraged speedier corrective measures while minimizing resort to public funds and conditioning any public liquidity injections on governance safeguards (MEFP ¶38). - Precarious financial situation of the post office group (“La Poste”) risks undermining Poste finances; roadmap to transform Poste finances into an independent bank has suffered delays. Staff advised exploring alternative solutions short of a full-fledged bank and more fundamental restructuring to limit fiscal risks. - Several micro-finance institutions (MFIs) have come under stress during the pandemic; diagnostic missions and a special monitoring regime have been launched (MEFP ¶39). - Senegal is subject to enhanced oversight by the Financial Action Task Force (FATF) owing to strategic deficiencies in its AML/CFT framework; action plan expected to be completed by September 2022. - Staff noted stronger AML/CFT framework would support procurement and PFM reforms and revenue administration reforms (increased digitalization). ### Program modalities, fiscal measures, and financing - Modifications of end-December 2021 and end-June 2022 quantitative performance criteria reflect the revised fiscal framework, including additional SDR-related spending which lifts the 2021 net borrowing. - The adjustor for grants will be reduced to zero in 2021 as the grants’ shortfall is anticipated in the second revised budget. - Upward adjustment of the end-2021 nominal debt ceiling by CFAF 246 billion or 1.6 percent of GDP offsets the on-lending of the SDR allocation by the BCEAO (Appendix Tables 1a and 1c). - Floor on social spending will increase from 35 percent to 40 percent of total spending in 2022. - Ceiling on spending through simplified procedures for non-personalized services will be lowered to make it more binding. - Corrective actions after missed IT (QT) on single-sourced procurement contracts include commitments to insist that external financing not be tied to specific contractors and to revise procurement legal framework to limit single sourcing (MEFP ¶8). - New structural benchmarks proposed include replacing continuous SB on fuel and electricity subsidies with end-June SB capping energy subsidies at a maximum of CFAF 150 billion in 2022, publishing a roadmap to gradually reduce energy subsidies while protecting the vulnerable, setting up an evaluation framework for MTRS implementation by revenue administrations, revising legal framework to rely more on open competitive tenders, and regularly updating the database for all PPPs and electricity purchase contracts. ### Financing, debt, safeguards, and risks - Program is fully financed with firm commitments for the next 12 months and good prospects thereafter. - Additional net financing became available through the Eurobond (0.4 percent of GDP; remainder used for liability management) and on-lending of the SDR allocation. - Share of Fund financing in 2021–22 decreases from about 40 to 30 percent compared to the program request. - Senegal has adequate capacity to repay the Fund; repayments to the Fund will peak at 3.4 percent of government revenue in 2025 and 2.3 percent of exports of goods and services in 2026. - BCEAO has implemented all recommendations in the 2018 safeguards assessment; an updated assessment is due in 2022. - Program faces material but manageable risks including subsequent waves of COVID-19, fiscal risks from high energy subsidy needs due to increasing global oil prices absent retail price adjustment, possible tax revenue shortfalls, further social unrest, and political risks associated with elections in 2022. *International Monetary Fund — Senegal country chapter (excerpts).* ### 50. Data provision is broadly adequate for surveillance and program monitoring. Senegal ### 1senea2022001 - 50. Data provision is broadly adequate for surveillance and program monitoring. Senegal ### Data provision and statistics - Senegal is an SDDS subscriber since 2017. - Monthly trade, price, economic activity, and fiscal indicators for the central government are available with relatively short lags, facilitating surveillance and program monitoring. - The national statistics office publishes quarterly national accounts with a three-month lag but they are subject frequent and significant revisions. - Deviations between quarterly and annual national accounts have increased recently; authorities are working on improving the compilation methodology for quarterly GDP data supported by Fund TA. - Work is ongoing to improve government finance statistics, notably to better allocate expenditure items according to their economic nature and to broaden the perimeter of fiscal data to the public sector, also supported by Fund TA. ### Capacity development - Capacity development (CD) is well-aligned with program objectives. - FAD is providing extensive support to: - implement the MTRS, - enhance efficiency and quality of spending, - set up a sound framework for PPPs and for oil and gas revenues. ### Staff appraisal — macroeconomic outlook and risks - Senegal’s economic prospects remain good, provided risks and rising vulnerabilities can be well-managed. - The authorities’ swift policy reaction to the pandemic coupled with substantial international support, including from the Fund, have buffered the unprecedented shock of the COVID-19 pandemic in 2020. - Senegal’s economy is now on track for a robust recovery and its growth fundamentals remain strong amid high investment rates, a young and growing population, expected oil and gas production and significant catch-up potential. - The pandemic caused severe hardship with many households suffering from income and job losses. - Risks are tilted to the downside and include renewed COVID-19 waves amid lackluster progress on vaccinations, scarring from the pandemic, further increasing global energy prices, and rising social tensions. ### Fiscal position and debt sustainability - Fiscal space is rapidly shrinking. - The debt stock and debt service burden have increased steadily over the last decade. - Senegal’s risk of debt distress continues to be assessed as moderate but with little margin to absorb shocks. - A downside scenario shows relatively small shocks to the baseline, notably to revenues and exports, could lead to a revised assessment. - The external position of Senegal in 2020 was moderately weaker than the level implied by fundamentals and desirable policies. ### SDR allocation and 2021 budget - The SDR allocation provides additional policy space incorporated in a second revised 2021 budget. - Staff welcomed the authorities’ decision to keep the 2021 deficit unchanged excluding SDR-related spending. - Staff emphasized that spending related to the SDR-allocation should be transparent and accountable. - Spending about half of the allocation to support the fight against the pandemic and economic recovery will provide an immediate boost to economic activity, while utilizing a greater share to substitute for more expensive financing would have helped lower fiscal risks. ### Medium-term fiscal consolidation strategy - The revenue-based medium-term fiscal consolidation strategy is essential to meet critical spending needs while bringing debt on a downward trajectory. - The consolidation is anchored on reaching the WAEMU convergence criterion of 3 percent of GDP by 2024. - Staff welcomes: - ambitious steps to increase domestic revenues, - substantial buffers against downside risks, - higher social spending embedded in the 2022 budget. - Deviations from the consolidation path would have significant implications for debt sustainability. ### Medium-Term Revenue Strategy (MTRS) - Authorities should step up implementation of the MTRS. - The strategy focuses on tax base-broadening, digitalization, and tax and customs administration reforms. - For non-oil tax revenues to reach 20 percent of non-oil GDP by 2024, this ratio would need to progress by about 1 percentage points over the next three years. - To ensure successful implementation, authorities should: - urgently strengthen ownership by the revenue administrations, - launch a broad public communication campaign, - adopt a quantified monitoring and evaluation framework. ### Energy subsidies and fiscal risks - There is an urgent need to contain energy subsidies. - Rising world oil prices pose a significant risk to the 2022 budget if domestic energy prices remain fixed, with higher subsidy needs crowding out other spending priorities. - Staff welcomes the authorities’ commitment to capping fuel subsidies in 2022, entailing steps towards greater fuel and electricity price flexibility while protecting the vulnerable. - A roadmap, to be published by end-June 2022, will lay out a comprehensive strategy to gradually eliminate energy subsidies starting in 2023. ### Spending efficiency and public financial management - Stronger spending efficiency will help anchor lasting fiscal discipline. - Staff welcomes commitments to reduce recourse to single-sourcing procurement and ensure value for money in public spending. - Ongoing PFM reforms to support transparent budget execution should be pursued actively to improve spending efficiency. ### Inclusive growth and labor market - Achieving more inclusive growth will require enhanced social safety nets, broad access to quality education, and addressing youth unemployment. - Staff recommends: - expanding social protection schemes, including the cash transfer scheme “Programme de bourses de securité familiales”, and targeted mechanisms to respond to shocks, - prioritizing provision of basic education and skills to a larger part of the workforce, - focusing youth unemployment strategy on facilitating creation of work opportunities by the private sector rather than relying on public sector job creation. - Implementation of the authorities’ agenda to enhance the business environment, supported by the Compact with Africa, and of the financial inclusion strategy would support expansion of more productive formal sector jobs. ### Oil and gas production - The onset of oil and gas production will temporarily boost GDP growth, but fiscal revenues are expected to be modest in the initial production phase. - Staff does not expect significant additional fiscal space in the years following the coming on stream of hydrocarbon production. - Authorities should transparently communicate their revenue projections and manage public expectations accordingly. - There is a need to design and establish a fully functioning framework to manage oil and gas revenues by mid-2022 at the latest to incorporate these receipts in the preparation of the 2023 budget. ### Financial sector vulnerabilities - The overall financial system is sound, but pockets of vulnerability require more decisive action. - Authorities should: - tackle the three problem banks, - take resolute steps to limit fiscal risks from the precarious financial situation of the national postal group. - Rapid progress to address deficiencies in the AML/CFT framework is essential to avoid negative economic repercussions such as a loss of correspondent banking relationships. ### Program performance and policy support - The authorities’ performance under the SCF/SBA arrangements and the PCI remains strong with: - all continuous and end-June performance criteria (quantitative targets under the PCI) met, - all but one indicative target (quantitative target under the PCI) met, - all but two structural benchmarks (reforms targets under the PCI) met. - Given the strength of policy commitments going forward, staff supports: - completion of the fourth review under the Policy Coordination Instrument, - the first review of the arrangement under the Standby Credit Facility and the Stand-By arrangement, - requests for modification of performance criteria and quantitative targets. *International Monetary Fund — Selected extracts from country report text.* ### 63. Staff proposes that the next Article IV Consultation will take place within 24 months in ### Staff proposes next Article IV Consultation within 24 months ### Real and external sectors (2015–21) - Staff proposes that the next Article IV Consultation will take place within 24 months in accordance with the Decision on Article IV Consultation Cycles Decision No. 14747-10/96. - Growth and inflation: - Senegal narrowly escaped a recession in 2020. - Inflation picked up reaching 2.5 percent, driven by food prices although core inflation rose too. - Demand and sectoral dynamics: - Private consumption has held up buoyed by transfers. - The tertiary sector, historically driving growth, was most affected by the pandemic. - External sector: - The current account widened as the services balance turned more negative. - Strong FDI flows and concessional loans help finance the deficit. ### Fiscal and financial indicators (2015–21) - Revenues and spending: - Tax revenues held up despite the economic downturn, while spending increased significantly. - Financing and debt: - The higher fiscal deficit was financed through substantial securities issuance on the regional market. - The public sector debt ratio, including debt of SOEs, increased to almost 70 percent in 2020. - Banking sector performance: - Credit growth accelerated in line with the recovery. - Nonperforming loans are decreasing steadily. ### Economic outlook and key projections (2020–26) - Oil and gas: - Growth is recovering and will temporarily benefit from the start of oil and gas production in 2023 and 2024. - The current account has widened owing to the pandemic and oil and gas related services imports; from 2023 onwards, oil and gas exports are expected to contribute to a significant decline in the current account deficit. - Fiscal outlook snapshot (selected projections from Table 1 and figures): - GDP at constant prices: projected series include values such as 5.0, 5.5, 5.5, 9.5, 10.3, 5.4, 5.5 (table format preserved as in source). - Consumer prices (annual average): values shown include 1.0, 2.5, 2.5, 2.0, 2.5, 2.0, 2.5, 1.5, 1.5, 1.5, 1.5. - Current account balance (percent of GDP): -8.1 (2019), -10.5 (2020), -10.0 (2021), -11.3 (2022), projections through 2026 include -10.6, -10.5, -9.4, -7.2, -4.0, -4.4, -4.4. - Central government fiscal performance components (percent of GDP) projected include Revenue, Hydrocarbon Revenue, Current Expenditure, Capital Expenditure with series shown in the source figures and tables. - Balance of payments (selected items, billions of CFAF, Table 2): - Current account: -1,111 (2019), -1,486 (2020), -1,424 (2021), with projections -1,696 (2022), -1,614 (2023), -1,693 (2024), -1,552 (2025), -1,324 (2026). - Exports, f.o.b.: 2,595 (2019), 2,323 (2020), 2,410 (2021), projections rising to 5,343 (2025) and 5,224 (2024) as shown in the tables. - Imports, f.o.b.: -4,282 (2019), -3,996 (2020), -4,020 (2021), projections include -6,568 (2025), -6,841 (2026). - Direct investment (financial account, billions CFAF): 583 (2019), 819 (2020), 819 (2021), projected values include 1,196 (2022), 834 (2023), 1,330 (2024), 1,163 (2025), 951 (2026). ### Fiscal tables and budgetary operations (selected figures) - Table 1 — Selected Economic and Financial Indicators (highlights): - Revenue (percent of GDP): entries include 20.4, 20.0, 20.0, 20.2, 20.4, 21.0, 21.0, 21.4, 21.7, 22.9, 23.8. - Total public debt (percent of GDP): 63.8 (2019), 68.8 (2020), 68.8 (2021), 70.9 (2022), 73.0 (2023), 69.9 (2024), 71.6 (2025), 67.7 (2026), 63.1, 61.5, 60.0 (series preserved as in source). - Net lending/borrowing (overall balance) including grants: -3.9 (2019), -6.4 (2020), -6.4 (2021), -5.4 (2022), -6.3 (2023), -4.2 (2024), -4.8 (2025), -3.7 (2026), with further annual series in Table 1. - Table 4 — Budgetary Central Government Operations (billions of CFAF, selected lines): - Revenue and Grants: 2,789 (2019), 2,843 (2020), 2,843 (2021), projected 3,034 (2022), 3,109 (2023), 3,389 (2024), 3,461 (2025), 3,945 (2026). - Taxes: 2,410 (2019), 2,368 (2020 and 2021), projected 2,564 (2022), 2,691 (2023), 2,918 (2024), 3,025 (2025), 3,469 (2026). - Total expenditure: 3,317 (2019), 3,746 (2020), 3,746 (2021), projected 3,852 (2022), 4,076 (2023), 4,066 (2024), 4,245 (2025), 4,629 (2026). - Net acquisition of nonfinancial assets: 1,160 (2019), 1,317 (2020 and 2021), projected 1,515 (2022), 1,591 (2023), 1,572 (2024), 1,772 (2025), 1,910 (2026). ### Monetary and financial soundness indicators - Monetary survey (Table 6, selected items, billions CFAF and percent changes preserved): - Net foreign assets: 1,973 (Act.), 1,880 (EBS/21/44 Act.), 1,905 (2020 Act.), 1,818 (2021 Act.), 2,332 (2022 EBS/21/44Proj.), 1,710 (2023), 2,527 (2024). - Broad money: 5,687 (2019), 6,394 (2020), 6,389 (2021), 6,793 (2022), 7,366 (2023), 7,375 (2024), 8,326 (2025). - Broad money growth figures: 8.2, 12.4, 12.3, 6.2, 15.3, 8.6, 13.0 (series preserved). - Credit to the economy (net) levels and growth: 4,597 (2019), 4,668 (2020), 4,668 (2021), 5,047 (2022), 4,901 (2023), 5,581 (2024), 5,274 (2025); credit growth percentages 6.1, 1.2, 1.2, 5.9, 3.7, 7.9, 5.1 (series preserved). - Financial soundness (Table 7, banking sector, selected ratios): - Regulatory capital to risk weighted assets: 19.1 (2015), 14.5 (2016), 13.6 (2017), 11.8 (2018), 13.1 (2019), 11.9 (2020), 12.1 (2021). - Gross NPLs to total loans: 19.3 (2015), 18.0 (2016), 16.2 (2017), 13.1 (2018), 13.9 (2019), 13.3 (2020), 13.1 (2021, June). - Provisioning rate: 57.7 (2015), 62.5 (2016), 59.7 (2017), 68.1 (2018), 61.5 (2019), 66.7 (2020), 69.7 (2021, June). - Net NPLs to total loans: 9.2 (2015), 7.6 (2016), 7.2 (2017), 4.6 (2018), 5.9 (2019), 4.9 (2020), 4.4 (2021, June). *Sources: Senegalese authorities; Central Bank of West African States (BCEAO); Ministry of Finance; and IMF staff calculations.* ### 1. Total Financing Requirement ### 1. Total Financing Requirement ### 1. Total Financing Requirement — key figures (CFAF billions) - Current account balance (excluding budget grants): 2,251; 2,127; 2,276; 2,479; 2,193; 2,468; 2,068; 2,121; 2,153; 2,471 - Debt Amortization (excl. regional market securities): 317; 317; 378; 323; 370; 423; 364; 463; 386; 602 - Repayment to the Fund: 3; 3; 0; 0; 0; 0; 42; 101; 129; 140 - Change in Net Foreign Assets BCEAO (- increase): 1/; 38; 14; -138; -530; -42; -448; -283; -682; -638; -658 - Change in Net Foreign Assets (Other depository institutions) (- increase): -209; -209; 0; 0; 0; 0; 0; 0; 0; 0 - Errors and Omissions: -80; 7; 0; 0; 0; 0; 0; 0; 0; 0 ### 2. Total Financing Sources — key figures (CFAF billions) - Total financing sources: 1,557; 1,431; 1,784; 2,318; 1,831; 1,991; 1,911; 1,978; 2,032; 2,349 - Foreign direct investment (net): 819; 819; 841; 1,196; 834; 1,330; 1,163; 951; 990; 1,032 - Regional market financing from non-residents (net): 170; 170; 173; 199; 56; 78; 132; 87; 181; 136 - Project grants and loans: 559; 559; 733; 723; 776; 805; 917; 953; 990; 1,028 - Other capital flows (net): 9; -117; 37; 199; 165; -222; -301; -12; -128; 152 ### 3. Total Financing Needs (CFAF billions) - Total financing needs: 693; 696; 492; 161; 363; 477; 157; 143; 120; 122 ### 4. Expected Financing (CFAF billions) - Expected financing: 398; 401; 200; 90; 214; 223; 157; 143; 120; 122 - Budget support (grants + loans): 398; 401; 160; 60; 179; 178; 157; 143; 120; 122 - Vaccination campaign financing (World Bank): 0; 0; 40; 30; 35; 45; 0; 0; 0; 0 ### 5. Residual Financing Gap and proposed financing (CFAF billions) - Residual financing gap: 295; 295; 292; 71; 150; 254; 0; 0; 0; 0 - IMF (SBA/SCF) 2/: 266; 266; 201; 0; 150; 254; 0; 0; 0; 0 - DSSI: 29; 29; 91; 71; 0; 0; 0; 0; 0; 0 - Note: "1/ This is not indicative of the country’s impact on WAEMU’s aggregate external position or the pooled WAEMU reserves since the data contains intra-WAEMU flows from the current, capital and financial account." - Sources: Senegalese authorities; and IMF staff calculations. - 2/ For 2020 RFI/RCF disbursement. SBA/SCF in 2021/22; only undisbursed amounts. ### 3. Capacity to Repay the Fund — selected obligations and metrics (Table 9, Senegal: Capacity to Repay the Fund 2021) - IMF obligations based on existing credit (SDR millions) — Principal by year: 0.00; 0.00; 53.93; 129.45; 117.45; 52.73; 31.15; 31.15; 26.36; 10.79; 0.00 - IMF obligations based on existing credit — Charges and interest by year: 0.00; 3.18; 3.08; 2.12; 0.75; 0.13; 0.01; 0.01; 0.01; 0.01; 0.01 - IMF obligations based on existing and prospective credit (SDR millions) — Principal: 0.00; 0.00; 53.93; 129.45; 165.99; 180.96; 114.44; 55.13; 50.34; 26.38; 0.00 - IMF obligations based on existing and prospective credit — Charges and interest: 0.00; 5.27; 5.31; 4.39; 2.89; 1.47; 0.35; 0.01; 0.01; 0.01; 0.01 - Total obligations based on existing and prospective credit (SDR Millions): 453.0; 776.6; 722.7; 593.2; 427.2; 246.3; 131.9; 76.7; 26.4; 0.0; 0.0 - Total obligations (CFA francs): 356.0; 609.0; 564.4; 461.5; 331.2; 190.6; 102.0; 59.4; 20.4; 0.0; 0.0 - Percent of GDP: 2.3; 3.7; 3.0; 2.3; 1.5; 0.8; 0.4; 0.2; 0.1; 0.0; 0.0 - Percent of quota: 140.0; 240.0; 223.3; 183.3; 132.0; 76.1; 40.7; 23.7; 8.2; 0.0; 0.0 - Net use of IMF credit (SDR millions) — Disbursements: 129.4; 323.6; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 1.0 - Net use of IMF credit — Repayments and repurchases: 0.0; 5.3; 59.2; 133.8; 168.9; 182.4; 114.8; 55.1; 50.4; 26.4; 0.0 - Net use of IMF credit — Percent of government revenue: 0.0; 0.2; 1.5; 3.1; 3.4; 3.4; 2.0; 0.9; 0.8; 0.4; 0.0 - Net use of IMF credit — Percent of exports of goods and services: 0.0; 0.1; 1.0; 1.9; 2.2; 2.3; 1.4; 0.6; 0.5; 0.3; 0.0 - Net use of IMF credit — Percent of external debt service: 0.0; 0.7; 7.1; 12.7; 15.7; 13.8; 9.3; 4.7; 5.0; 2.5; 0.0 Memorandum items (selected, CFA francs) - Nominal GDP (billions of CFA francs): 15,273; 16,464; 18,559; 20,058; 21,542; 23,053; 24,753; 26,873; 28,871; 30,973; 33,208 - Exports of goods and services (billions of CFA francs): 3,049; 3,798; 5,908; 7,184; 7,606; 7,855; 8,455; 8,865; 9,420; 10,114; 10,843 - Government revenue (billions of CFA francs): 2,998.5; 3,360.8; 3,855.4; 4,352.0; 4,935.9; 5,443.1; 5,699.8; 6,183.6; 6,651.0; 7,137.5; 7,637.5 - External Debt service (billions of CFA francs): 774.4; 758.7; 830.2; 1,051.9; 1,077.8; 1,319.3; 1,230.3; 1,183.9; 1,013.0; 1,040.8; 1,323.0 - IMF Quota (SDR millions): 323.6 (each year listed) - CFA francs/SDR (period average): 786; 784; 781; 778; 775; 774; 774; 774; 774; 774; 774 ### Schedule of Reviews and Disbursements - Policy Coordination Instrument reviews (Proposed dates and Test dates): First Review By June 30, 2020 (End-December 2019); Second Review By December 31, 2020 (End-June 2020); Third Review By June 30, 2021 (End-December 2020); Fourth Review By December 31, 2021 (End-June 2021); Fifth Review By June 30, 2022 (End-December 2021); Sixth Review By December 31, 2022 (End-June 2022). - Proposed Schedule of Reviews and Disbursements under SBA and SCF, 2021–22 (SDR million and % of quota): - Program Request June 7th, 2021: SBA 86.3; SCF 43.1; Total 129.4; % of quota: 27; 13; 40 - First Review December 6, 2021 (End-June 2021): SBA 86.3; SCF 43.1; Total 129.4; % of quota: 27; 13; 40 - Second Review June 7th, 2022 (End-December 2021): SBA 64.7; SCF 32.4; Total 97.1; % of quota: 20; 10; 30 - Third Review November 22nd, 2022 (End-June 2022): SBA 64.7; SCF 32.4; Total 97.1; % of quota: 20; 10; 30 - Total: SBA 302; SCF 151; Total 453; % of quota: 93.3; 46.7; 140 ### Annex I — Implementation of the 2018 Article IV Main Recommendations (status) - Eliminate “below the line” financing needs resulting in a disconnect between the evolution of the public debt stock and budget deficits. - Status: Broadly implemented. There is no “below the line” financing need expected in 2021. However, some fundamental problems that have led to past below-the-line financing, such as the difficult financial position of La Poste, have not been fully resolved. - Repay over time the stock of unmet obligations from unpaid energy subsidies and investment projects accumulated before 2019. - Status: Under implementation. As of mid-2021, unmet obligations of 1.5 percent of GDP were cleared out of a total of 2.4 percent of GDP. The remainder is expected to be cleared in 2021-22. - Adjust domestic energy prices in steps to reduce or eliminate the need for energy subsidies. - Status: Partially implemented. The authorities increased fuel prices and electricity tariffs in 2019. No further adjustments were made since then. Given current global oil prices, subsidies in 2021 are expected to amount to about 1 percent of GDP. The authorities have committed to cap energy subsidies in 2022 which will entail steps towards greater fuel and electricity price flexibility while protecting the vulnerable. - Enhance public investment efficiency by streamlining the investment plan, reduce investment projects based on unsolicited offers, and update the legal framework for PPPs. - Status: Partially implemented. The legal framework for PPPs was updated with the adoption of a new law and implementing decrees. Efforts are being made to limit direct awards but not unsolicited offers. Legal changes are needed to improve procurement transparency and value for money. Further efforts are needed to streamline the investment plan. - Increase domestic revenue mobilization through streamlining tax exemptions, improving cooperation between tax and customs administration, and implementing digital and mobile tax payment options. - Status: Broadly implemented. Tax revenues increased from 15.3 to 16.7 percent of GDP in 2020 and are expected to reach 17.1 percent of GDP in 2021. The 2022 budget includes a reduction of tax exemptions. The authorities are also implementing their MTRS to increase the non-oil tax to GDP ratio to 20 percent by 2024. - Improve the business environment by addressing growth constraints such as high cost of energy, heavy administrative procedures, rigid formal labor regulations and weak human capital. - Status: Broadly implemented. Reforms in the energy sector and of the labor market are underway, a new commercial court is operational, and taxes can now be paid by mobile phone. - Strengthen debt management and increase the proportion of domestic debt while prioritizing concessional debt whenever possible. - Status: Broadly implemented. The 2019 and 2020 financing needs were covered largely through concessional debt and bond issuances on the regional market. The 2021 Eurobond serves for liability management and to finance investments in the oil and gas sector. - Promote access to credit and financial inclusion. - Status: Broadly implemented. A national financial inclusion strategy was developed and the credit bureau’s access to data was extended. - Set up a transparent fiscal framework for the management of oil and gas revenues in line with international best practice. - Status: Broadly implemented. A new law on hydrocarbon revenue sharing is expected to be adopted in 2021 broadly in line with Fund recommendations and international best practices. Further progress is needed on operationalizing the fiscal framework ahead of 2023 when oil and gas revenues are expected. ### Annex II — External Sector Assessment (overall and by component) - Overall assessment: The external position of Senegal in 2020 was moderately weaker than the level implied by fundamentals and desirable policies. The current account deficit widened in 2020 due to the impact of the pandemic and temporarily elevated hydrocarbon-related investments. The current account deficit is expected to increase further in 2021 from a terms-of-trade shock (oil and food prices) and a sluggish recovery in external demand. - Potential policy response: In the near term, policies should continue to support the recovery from the pandemic, while monitoring external financing risks in the context of the uncertain path for global interest rates. A gradual fiscal tightening towards the regional deficit target, combined with structural reforms to support private sector competitiveness and the expected boost from oil and gas exports, should substantially narrow the imbalances over the medium term. A. Current Account - 2020 current account deficit: increased to 10 percent of GDP in 2020 from 8.1 percent in 2019. - Remittances: amount to about 10 percent of GDP and remained resilient. - 2021 projection: current account deficit projected to increase to 10.6 percent of GDP in 2021, reflecting higher prices for oil and food imports and elevated imports associated with the oil and gas projects. - One-off factors: import of services related to hydrocarbon projects estimated to be 5 percent of GDP for 2020. - Cyclical adjustment: staff introduced a cyclical adjustment of 3 percent of GDP to account for high share of imports associated with increased FDI. - Medium-term outlook: start of hydrocarbon exports in 2023 expected to narrow the current account deficit significantly; risks include uncertainty in global recovery and potential delays to oil and gas projects. - EBA-lite model results (2020): overvaluation of 7.5 percent; current account gap of -1.4 percent of GDP (cyclically adjusted current account balance of -7.6 percent of GDP against a norm of -6.1). - Preliminary 2021 model results: current account gap of -1.5 percent of GDP (cyclically adjusted current account balance of -7.1 percent of GDP against a norm of -5.6). B. Real Exchange Rate - REER movements: CFA Franc depreciated by about 10 percent in real terms over the previous decade through 2019; in 2020 REER appreciated by about 4 percent; as of 2021Q1 REER depreciated by about 2 percent. - EBA-lite REER model: finds an undervaluation of 12.4 percent and a current account gap of 2.7 percent; model results treated with caution. C. Capital and Financial Account - Net FDI: estimated at 5.8 percent of GDP in 2020, up from 4.3 percent in 2019 and 3.4 percent in 2018; about 85-90 percent linked to SNE and GTA hydrocarbon projects. - Net portfolio investment flows: estimated at 1.5 percent of GDP in 2020. - Other investment: estimated decrease in 2020 (-1.5 percent of GDP) but projected rebound to average of 1 percent of GDP over medium term. - Financing in 2020: reliance on concessional financing from IFIs and bilateral partners to finance additional COVID-19 spending. - Risks: moderate financial account risks; increase in FDI poses low risk given link to future outputs; access to capital markets contingent on global interest rates. - Policy recommendation: prioritize concessional financing in the near term, gradually increase domestic financing over the medium term, and seize favorable global market conditions when available. D. Reserves - WAEMU pooled reserves: increased to US$21.7 billion at end-2020 from US$17.7 billion at end-2019. - Reserve coverage: equivalent to 5.8 months of 2021 imports or 77.3 percent of the BCEAO’s sight liabilities at end-2020. - SDR allocation: August 2021 SDR allocation about US$2.3 billion (roughly 0.6 months of 2022 imports) to further support reserves in 2021. - Medium-term projection: reserve cover expected to contract to about 4 months of prospective imports by 2025, largely driven by decline in portfolio flows. - ARA CC adequate range (2020 data): 4.6 to 6.7 months of prospective import coverage for the WAEMU. - Projected reserves end-2021: 6.5 months of imports coverage; medium-term projection end-2026: 4.8 months. E. Foreign Assets and Liabilities - NIIP (end-2020): CFAF -7,580 billion (-62.7 percent of GDP), compared to CFAF -6,643 billion (-55.2 percent of GDP) at end-2019. - Financial assets (end-2020): 46.9 percent of GDP (mostly other investments 22 percent of GDP and reserves 12.8 percent of GDP). - Financial liabilities (end-2020): about 102.2 percent of GDP, with other investment liabilities accounting for 55.5 percent of GDP, mostly concessional loans to the government. - Outlook: widening current account deficit in 2021 expected to further weaken NIIP in near term; relative net debtor position should improve under baseline over medium term. Authorities’ Views - Authorities broadly agree with the external sector assessment and staff’s assessment aligns with the BCEAO for 2020. - For 2021, authorities expect a slightly smaller current account deficit due to different import price assumptions. - Over the medium-term, the BCEAO is more conservative on improvement to the current account, anticipating lower exports from hydrocarbon projects during initial production phases. *Source: Senegalese authorities; and IMF staff calculations.* ### Annex II Text Figure 5. Net International ### Annex II Text Figure 5. Net International Investment Position (percent of GDP) ### Net international investment position (visual) - Figure title: "Annex II Text Figure 5. Net International Investment Position (percent of GDP)" - Source: BCEAO. - Chart elements shown: FDI-Assets; Portfolio Investment-Assets; Other Investment-Assets; Reserves; FDI-Liabilities; Portfolio Investment-Liabilities; Other Investment-Liabilities; Net International Investment Position. - Vertical axis markers shown in the figure: -140%, -120%, -100%, -80%, -60%, -40%, -20%, 0%, 20%, 40%, 60%. - Horizontal axis indicated years: 2019 2020. ### Key note - Country label on figure: SENEGAL. --- ### Risk Assessment Matrix (Annex III) - Purpose: Events that could materially alter the baseline path (staff’s subjective assessment of relative likelihood and potential impact). - Risk entries (Source of Risks — Relative Likelihood — Potential impact — Policy Response): - Uncontrolled local COVID-19 outbreak or global resurgence of the pandemic/new variants — Medium/High — An outbreak amid limited access to vaccines could force new lockdowns and—combined with dwindling policy space—prompt a reassessment of their growth prospects — Limited policy space to cushion the economic impact will require careful spending prioritization and sustained revenue mobilization efforts. - Widespread social discontent and political instability — Medium — Social tensions could erupt as the withdrawal of pandemic-related policy support amid increasing prices of essentials hurts vulnerable groups and exacerbates pre-existing inequities — Ensure transparency and effectiveness of fiscal measures to address the pandemic and high prices for staple foods. - Rising commodity prices amid bouts of volatility — Medium — Commodity prices, especially oil, increase more than expected in a context of pent-up demand and supply disruptions worsening Senegal’s terms of trade — Strengthen automatic pass-through of global commodity price changes to domestic prices, notably in the energy sector, and provide targeted support to the vulnerable. - Higher frequency and severity of natural disasters related to climate change — Medium — Extreme weather events linked to climate change such as droughts or floods could cause severe damage — Invest in resilience against extreme weather events and strengthen social protection mechanisms to cope with shocks. - Domestic and regional security threats — Medium — Deteriorating security amid elevated terrorist activity in the region could lower confidence and trigger higher security expenditures — Ensure that multi-year budget framework allows room to address fiscal contingencies. - RAM methodological note excerpt: - "The relative likelihood of risks listed is the staff’s subjective assessment... (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability of 30 percent or more)." --- ### Policies to Mitigate and Adapt to Climate Change in Senegal (Annex IV) Background and vulnerability - West Africa is one of the most vulnerable regions to climate change (USAID,2018). Senegal is especially at risk: "About 74 percent of the population lives in the coastal area" and "Around 75 percent of the workforce is employed in agriculture." - Projected aggregate impacts on growth: "Climate change could reduce GDP growth by 2 to 4 percentage points across Africa by 2040 and by 10 to 25 percentag e points by 2100." - By 2060 projected climate changes in Senegal include: - lower rainfall "(by up to 16 percent)"; - higher mean annual temperatures "(1.4 to 2.5°C)"; - longer-lasting heat waves "(by 6-18 days in average per year)"; - longer dry spells "(by up to 22 days on average per year)"; - rising sea levels "(by 17 to 45 cm)". - Senegal’s CO2 emission: "0.6 metric tons per person (MTP)," compared with "SSA level (0.8 MTP)" and "world average (4.5 MTP)." - Senegal’s Intended National Determined Contribution (INDC) adopted December 2020 targets: "a reduction in greenhouse emissions by 31 percent by 2030" and a set of targeted investments. Mitigation policies and costs - Estimated costs of mitigation policies under the conditional contribution objectives: "about US$8.7 billion through 2030." - Electricity sector: currently "about 14 percent of its electricity from renewable sources (of which 7.2 percent from solar, 3.3 percent from wind, and 3 percent from biomass)." - Planned renewable expansions to cut CO2 from power generation and distribution by up to "31 percent by 2030" including: - wind turbines "(200 MW)"; - solar plants "(200 MWp)"; - hydroelectric plants "(200 GWh)". - Transport sector: intend to reduce greenhouse gas emissions by "about 31 percent by 2030" via stronger public transportation (rapid bus transit system). - Note: footnote clarifications in source: "Mega Watt peak" and "Gigawatt hours" definitions. Adaptation policies and costs - Estimated costs of adaptation policies under the conditional contribution objectives: "US$4.3 billion through 2030." - "The largest investments (about 80 percent of the total) under Senegal’s adaptation policies relate to the need to strengthen water management and protect against the rise in sea levels." - Key adaptation measures: - protect areas vulnerable to rising sea level, flooding, and dry spell events through barrier and other water management infrastructures; - ensure logistics and support for displacement of vulnerable populations; - strengthen sanitation infrastructure and rainwater drainage systems in cities; - put in place an Integrated Water Resources Management System. Vulnerabilities and fiscal risks - Flooding example: 2009 major floods reconstruction cost estimated at "US$142 million." - Coastal economic activities contribute "68 percent of the country's gross domestic product." - By 2080, due to sea level rise, "75 percent of the coastline will be at risk of erosion, compared to 25 percent today, with a total discounted cost of up to US$3 billion." Socioeconomic benefits (authorities’ model simulations) - Implementation of mitigation and adaptation in PSE phase 2 projected to yield: higher GDP growth, lower poverty, and more jobs versus baseline; agriculture to benefit via higher productivity and improved food security. --- ### Downside Scenario (Annex V) Scenario intent - Illustrates macroeconomic impact if risks materialize: repeated COVID-19 outbreaks, scarring, increased social tensions, deteriorating regional security, delays/shortfalls in oil and gas production, or high subsidy needs from sharply-higher oil prices. Scenario assumptions (Text Table 1 summary) - lower growth due to: more protracted recovery from the pandemic, delayed and lower oil and gas production, and lower trend non-oil growth in medium- to long-term; - reduced goods and services exports due to: lower oil and gas exports, weaker external demand, and less competitive supply of tradable goods; - a more gradual increase of the tax-to-GDP ratio than in the baseline reflecting incomplete implementation of the medium-term revenue strategy; - a less ambitious fiscal consolidation and a higher medium-term fiscal deficit of "4.5 percent of GDP" reflecting high subsidy needs and rising overall spending pressures. Key projection excerpts from source table (Base / Downside across years) - NGDP: "15,273 15,273 16,485 16,152 18,415 17,403 20,668 19,308" - Real GDP growth (percent): "5.0 5.0 5.5 3.5 9.5 4.6 10.3 10.4" - Government Revenues (percent of GDP): "20.4 20.2 21.0 20.7 21.4 21.0 21.7 20.7" - Government Expenditure (percent of GDP): "26.7 26.7 25.7 26.3 25.1 26.0 24.7 25.2" - Fiscal Balance (percent of GDP): "-6.3 -6.5 -4.8 -5.6 -3.7 -5.0 -3.0 -4.5" - Exports of Goods and Services (percent of GDP): "21.7 21.4 22.6 22.0 24.1 22.8 27.9 26.0" - Gross Public Debt (percent of GDP): "73.0 73.1 71.6 73.9 67.7 73.5 63.1 70.5" - Years indicated in table: 2021 2022 2023 2024 (and columns labeled Base.Down. and years 2021–2024 and 2023 in source). Debt and fiscal implications - "Debt vulnerabilities would be exacerbated... The debt-to-GDP ratio would remain above 70 percent of GDP while debt service would rise rapidly." - External sustainability indicators in the DSA would worsen and indicate "high risk of debt distress." - Less successful domestic revenue mobilization would lead to "less nominal spending despite the assumed higher fiscal deficit." Policy implications (text) - Underscores: - importance of domestic revenue mobilization to create room for priority and investment spending; - sensitivity of the debt trajectory to shocks to projected medium-term growth and fiscal deficits; - need to stick to the medium-term fiscal consolidation path to bring debt-to-GDP ratio on a downward trajectory. - Recommendation: "Full implementation of the medium-term revenue mobilization strategy as well as fiscal consolidation should be the cornerstones to secure macroeconomic stability going forward." Specific downside oil/gas assumption (footnote) - "Oil and gas production is assumed to start in 2024 instead of 2023 and production volumes are only 70 percent compared to the baseline." --- ### Capacity Development (Annex VI) Overview - "The FY2021 Capacity Development (CD) strategy remains appropriate, and implementation is proceeding well despite the COVID-19 pandemic." - CD priorities align with Policy Coordination Instrument and concurrent SCF/SBA: revenue mobilization, improved public financial management, sound debt management, and fiscal and legal framework for hydrocarbon revenues. Recent TA support and outcomes - Supported: legal framework for hydrocarbon revenues and forecasting model; preparation of the medium-term revenue strategy and revenue administration reforms; PFM reforms (fiscal risk analysis, program budgeting, public investment management); debt management and national committee operationalization; compilation of macroeconomic statistics (national accounts, fiscal accounts) leading to SDDS status; two long-term experts on revenue mobilization and PFM. Engagement strategy and risks - Senegal: "an intensive technical assistance user with relatively strong institutional capacity." Good ownership and absorption capacity. - Risks: low staffing levels, high turnover, capacity limitations; mitigation: intensify hands-on training, resident advisors, peer learning. Priorities by Department (listed objectives) - FAD — Tax policy/Revenue administration: launch 2020 MTRS; implement base-broadening tax and customs measures; reduce tax expenditures; prepare performance management and accountability framework; address delays in MTRS implementation. - FAD — Public Financial Management: adopt/implement new PFM reform strategy; improve budget execution and controls; strengthen capacity to manage PPPs and fiscal risks; strengthen cash management; implement legal/fiscal frameworks for hydrocarbons; strengthen public investment management. - FAD — Expenditure policy: "No CD activity planned in 2022." - MCM — Debt management: enhance capacity of the debt unit; operationalize national debt committee; better integrate debt and cash management. - STA — Government finance statistics: compile COFOG in accordance with GFSM 2014; improve quality and coverage of public sector GFS data; extend coverage of debt statistics to public sector (general government + public corporations); produce general government statistics according to the GFS analytic framework (Stock positions + Flows). *Source: IMF.* ### Appendix I. Letter of Intent/Program Statement ### Appendix I. Letter of Intent/Program Statement ### Context and Purpose - Letter dated December 20, 2021, addressed to the Managing Director of the International Monetary Fund. - Purpose: report on developments since the third review of the Policy Coordination Instrument (PCI), request modification of performance criteria under the program, request completion of the fourth PCI review and the first review under the Stand-By Arrangement and Arrangement under the Standby Credit Facility, and request disbursement of SDR 129.4 million. - Core government objectives unchanged: (i) cope with the dual health and social crisis caused by COVID-19 while maintaining fiscal sustainability; (ii) boost supply and efficiency of public services; (iii) lay foundation for strong, sustainable, and inclusive private sector–led growth. ### COVID-19 Pandemic, Vaccination, and Policy Response - Third wave of COVID-19 peaked end-July 2021 then declined; normalization depends largely on vaccination success. - Vaccination progress to date: obtained 4.5 million doses and vaccinated just over 7 percent of the population. - Government vaccination target: vaccinate 80 percent of the eligible population. - Government action plan: intensify communication; support local vaccine production starting in 2022. - Use of SDR allocation (1.6 percent of GDP) planned transparently for urgent one-time health and social welfare expenditures, clearing outstanding unmet obligations, and reserving a substantial portion for 2022 financing. ### Program Performance and Monitoring (through end-June / end-September 2021) - Quantitative performance criteria and indicative targets: all met as of end-June 2021 except the ceiling on single-sourced procurement contracts. - Structural benchmarks: 6 of 8 implemented by end-June 2021. - Specific outcomes and figures: - Tax revenues (end-June 2021): CFAF 1,144 billion vs floor CFAF 1,082 billion. - Net lending/borrowing (budget deficit, end-June 2021): CFAF 617 billion vs target CFAF 620 billion. - No external arrears at end-June 2021. - Social spending: 40 percent of total spending vs floor 35 percent. - Spending through simplified procedures for non-personalized services: 3 percent of total transfer spending vs ceiling 23 percent. - Public contracts concluded outside open tenders: 57 percent vs ceiling 15 percent (exceeded due to two contracts: one tied-aid infrastructure project and one urgent sanitation project). - Governance of COVID-19 Force Fund: - Publication of third and fourth quarter 2020 budget execution reports with detailed fund expenditure information. - Monitoring committee report published in September 2021. - ARMP audit report on procurement regularity published December 14, 2021. - Audit Court’s detailed audit delayed; provisional report expected end-December 2021 and final report expected end-March 2022. - Government committed to implement audit recommendations and establish an action plan to apply exceptional procurement procedures appropriately and strengthen monitoring. ### Fiscal Policy and Budgetary Framework - Second supplementary budget for 2021 adopted to support recovery, combat pandemic, and cover subsidies to stabilize energy prices; objective to keep budget deficit at 5.4 percent of GDP (excluding expenditures supported by the SDR allocation). - 2022 budget: significant increase in social expenditure; measures to improve tax revenue collection aimed at reducing budget deficit to 4.8 percent of GDP. - Medium-term objective: continued rigorous implementation of the Medium-Term Revenue Strategy (MTRS) in 2023-24 and rationalization of public expenditure to lower the budget deficit to 3 percent of GDP by 2024, in line with WAEMU Council of Ministers commitment. - Energy subsidy policy for 2022: limit amount of energy subsidies to a maximum of CFAF 150 billion by re-activating or modifying decrees on electricity and fuel price adjustment while protecting the most vulnerable. - Requested program modifications: - Performance criteria (quantitative targets) to be modified for: floor on net lending/borrowing or overall fiscal balance (end-December 2021 and end-June 2022); ceiling on annual net borrowing (end-December 2021); floor on tax revenue (end-December 2021 and end-June 2022); ceiling on total nominal public debt (end-December 2021). - Social spending floor for 2022 to be increased from 35 to 40 percent of total spending. - Expenditure ceiling on simplified spending procedures for non-personalized services to be lowered to reflect reduction in transfers to these entities. ### Recent Economic Developments and Indicators - General Activity Index (GAI, excluding agriculture and forestry): grew by 7.0 percent year-on-year over first eight (8) months of 2021. - Secondary sector growth: +17.0 percent. - Tertiary sector growth: +5.9 percent. - Primary sector change: -5.6 percent. - Inflation: rose 3.2 percent in October (year-on-year); core inflation (excluding energy and food) at a 3.9 percent monthly rate compared to October 2020. - Budget execution at end-September 2021: - Total revenues: CFAF 1,983.5 billion (66 percent of 2021 target). - Tax revenues: CFAF 1,805.6 billion — breakdown includes taxes on income, profits, and capital gains CFAF 579.1 billion; taxes on international trade CFAF 257.7 billion; indirect taxes CFAF 886.8 billion (slightly below expectations). - Total expenditures: CFAF 3,060.3 billion (around 80 percent of total amount). - Expenditure execution featured savings on the wage bill, overspending on goods and services and transfers, and under-performance of capital expenditures. - Banking sector: - Lending to the economy increased by 3.6 percent in the first eight (8) months of 2021 (vs 1.5 percent in 2020). - Deferred loan payments granted: CFAF 9.4 billion; outstanding deferrals not settled: CFAF 25.9 billion at end-September 2021. - Stock of deferred principal repayments: 0.5 percent of banking sector loans at end-August 2021. - Nonperforming loans rate: 12.9 percent at end-August 2021 vs 13.3 percent at end-December 2020. - Provisioning rate: 71.4 percent. ### External Sector and Public Debt - Trade deficit (end-June 2021): CFAF 707.9 billion vs CFAF 821.7 billion a year earlier. - Exports growth: mining products +37.5 percent; groundnut products +59.6 percent; chemicals +22.3 percent. - Imports: intermediate goods +21.7 percent; capital goods +8.6 percent. - Remittances: increased by 25.3 percent year-on-year at end-June 2021. - Services account deficit: grew by 65.7 percent in first half of 2021 (oil and gas project development; decline in tourism). - Public debt (end-September 2021 vs end-December 2021 figures reported): - Stock increased by CFAF 1,173.6 billion, from CFAF 9,753.0 billion to CFAF 10,926.5 billion. - Central government debt: from CFAF 8,903.3 billion to CFAF 9,977.3 billion (increase of 12.1 percent). - Central government debt composition: external debt CFAF 7,432.1 billion (74 percent) vs 78.0 percent at end-December 2020 (CFAF 6,946.3 billion); domestic debt CFAF 2,545.2 billion (26 percent) vs CFAF 1,597.1 billion (21.9 percent). - Quasi-public sector debt: from CFAF 849.7 billion to CFAF 949.2 billion (increase of 11.7 percent); composition external CFAF 584.4 billion (61.6 percent), domestic CFAF 364.8 billion (38.4 percent). - Debt policy commitments: - Conduct prudent debt policy; strengthen debt management. - Improve collection of information on debt of public and parapublic entities and PPPs to better control contingent liabilities. - Continue efforts to improve public financial management and ensure transparent and sustainable management of future hydrocarbon revenues. - Seek removal from increased monitoring by the Financial Action Task Force (FATF). ### Structural Reforms, Governance, and Specific Measures - Structural benchmark achievements (six of eight): - Operationalization of MTRS initiated: appointment of strategic committee members; adoption of revised 2021-2023 action plan and monitoring and evaluation plan. - Publication of 2018-2019 annual tax expenditure evaluation reports on Ministry website. - PPP and electricity purchase agreements database established with budgetary impact and key budgetary risks quantified. - Draft hydrocarbon revenue distribution/oversight/management legislation finalized in June. - Semi-annual report on information linking/exchange between DGID and DGD produced. - Budget appropriations for energy subsidies included in Supplementary Budget Laws of June and November 2021 due to suspension of decree revising fuel and electricity rates. - Tax exemption reform progress: - Study of tax exemptions with little impact and reduction options to be finalized by end-2021 (components progressed; "income tax revision" component finalized with IMF support). - Draft law amending General Tax Code includes abolition of VAT exemption on hospitalization fees for private health-care facilities and rationalization of social tax brackets for water and electricity. - PPP framework: - Decree implementing PPP law adopted by Council of Ministers September 15 and signed October 27, 2021. - Remaining implementation issues: need for procedural manual and adequate resources for new entities; government intends full operationalization in first quarter of 2022, provided sufficient financing can be mobilized. - Procurement and contracting: - Authorities committed to ensuring aid is not tied; review legal framework to make open tendering standard practice; regulate unsolicited bids and direct contracting in line with international best practices (new structural benchmark, end-June 2022). ### Macroeconomic Framework and Growth Outlook - Revised 2021 outlook: - Economic growth forecast for 2021: 5 percent (revised up from 3.7 percent projected in June). - Average annual inflation rate expected: 2.5 percent. - Drivers: weaker-than-expected impact of COVID-19 waves on tertiary sector; strong growth in secondary sector driven by mining; primary sector projected sharp slowdown after 2020 record harvests and expected decline in fishing sub-sector. - 2022 and medium-term outlook: - Baseline scenario: acceleration to 5.5 percent growth in 2022 driven by recovery of consumption and private investment amid a dynamic global economy. - Projected average growth around 10 percent in 2023-24 in connection with development of oil and gas production. ### Requests, Commitments, and Information Provision - Requests to the IMF: - Modify specified quantitative performance criteria and indicators in line with the revised macroeconomic framework. - Complete the fourth review of the PCI and the first review under the SCF/SBA. - Disbursement request: SDR 129.4 million. - Government commitments: - Implement key recommendations of audits and monitoring reports. - Conduct additional measures as necessary to meet program objectives and consult with the IMF before adopting such measures or upon request by the Managing Director. - Regularly provide the IMF with information requested under the Technical Memorandum of Understanding (TMU). - Authorization to IMF to publish this letter, the Memorandum, the Technical Memorandum of Understanding, and the Staff Report on the program. *Source: Appendix I. Letter of Intent/Program Statement (Senegal), December 20, 2021.* ### 13. The current account deficit is expected to remain high in 2021-2022. The current ### 13. The current account deficit is expected to remain high in 2021-2022. The current ### External sector outlook - The current account deficit is expected to deteriorate slightly in 2021 to about 10 percent of GDP, before gradually improving driven by: - a steady decline in the services account deficit, mitigated by a persistent trade deficit. - By 2024, a significant improvement in the current account deficit is expected due to oil and gas exports and recovery of the tourism sector. - Risks to the outlook are tilted to the downside, including: - a resurgence of the pandemic (and new variants of the virus); - deterioration of the security situation in the region; - a rise in commodity prices that would put pressure on external and fiscal accounts; - climatic shocks (droughts and floods); - tightening of international financial conditions. ### Fiscal framework and targets - The medium-term budget framework envisages a gradual return to the 3 percent of GDP target by 2024, in line with the WAEMU Council of Ministers decision. - The absence of one-off COVID-19 related expenditures and determined implementation of the MTRS will allow the deficit to decline to: - 4.8 percent of GDP in 2022; - 3.7 percent of GDP in 2023. - The government reaffirms commitment to maintain the budget deficit (excluding spending supported by the SDR allocation) at 5.4 percent of GDP in 2021. ### 2021 second Supplementary Budget Law adjustments and SDR allocation use - Budget revenue mobilization target revised upwards by CFAF 74.4 billion composed of: - CFAF 20 billion from a more favorable economic outlook; - CFAF 23.7 billion reintegration of earmarked revenue from the standard contribution paid by employers; - CFAF 15 billion from the Customs Administration Modernization Program; - CFAF 69 billion recognition of additional revenue from the cross-debt agreement between Senelec and the state. - Offset by a decrease of CFAF 48 billion in budgetary grants due to World Bank financing term changes. - Budget appropriation for energy subsidies revised upward by CFAF 35 billion, totalling CFAF 145 billion for the full year (CFAF 95 billion for electricity subsidies and CFAF 50 billion for fuel subsidies). - Additional expenditures backed by the CFAF counterpart of the SDR allocation (CFAF 246.3 billion) are limited to CFAF 141 billion (0.9 percent of GDP), allocated as: - CFAF 38 billion for urgent and one-off health and social protection expenses; - CFAF 103 billion to accelerate settlement of outstanding obligations; - Remainder (0.7 percent of GDP) for financial operations including: - CFAF 9 billion equity investments; - CFAF 15 billion loans for the hotel sector; - CFAF 30 billion settlement of residual securitization balance agreed in 2017; - CFAF 2 billion guarantee fund; - CFAF 50 billion financing of the 2022 budget. - Government commitment to consult with IMF staff on the use of SDRs for all financial transactions on a case-by-case and economically justified basis. ### 2022 budget priorities, targets, and measures - 2022 initial Budget Law provides for a significant increase in social spending supported by MTRS implementation; aims to reduce budget deficit to 4.8 percent of GDP. - Total budget revenue, including grants, expected to increase by 0.6 percentage points of GDP, reaching 21 percent of GDP. - Tax burden expected to rise from 17.3 percent (excluding Senelec’s pre-2021 tax debts) to 18.4 percent of GDP, supported by: - efforts to broaden the tax base in line with MTRS priorities; - reduction in tax expenditure of CFAF 25 billion; - fiscal policy measures of CFAF 6 billion; - continuation of reforms to strengthen financial authorities in the amount of CFAF 121 billion. - Budgetary grants expected to total CFAF 46 billion. - DGID revenue collection target: CFAF 2,043.0 billion (increase of CFAF 208 billion over the revised 2021 target), achieved via tax base expansion and tax policy measures including: - elimination of corporate income tax exemption for cement plants: CFAF 4 billion; - revision of consumption tax exemption for water and electricity services: CFAF 10 billion; - revision of rice exemption (taxation of “premium” rice): CFAF 0.7 billion; - revision of family tax credit: CFAF 9 billion; - elimination of exemption for non-medical hospitalization in private facilities: CFAF 0.8 billion; - increase in taxpayer portfolio via Yaatal program: CFAF 19 billion; - improved compliance for simplified tax return filers: CFAF 31 billion. - Fiscal policy revenue measures projected at CFAF 6 billion include: - obligation for platforms to collect VAT on foreign B2C digital services; - revision of the rate for the additional tax on alcoholic beverages; - expansion/revision of special tax on non-recyclable bags, packaging, or wrapping materials; - elimination of the 5 percent rate and harmonization of real estate capital gains tax rates at 10 percent and 15 percent. - DGD revenue collection target: CFAF 997 billion (increase of CFAF 122 billion); five measures expected to generate about CFAF 71.24 billion in 2022. - DGCPT revenue collection target: CFAF 125 billion (increase of CFAF 23 billion). ### PROMAD (Customs Administration Modernization Program) - PROMAD clusters: - generalized computerization of procedures and formalities; - strengthening of anti-fraud measures; - acquisition of state-of-the-art equipment and infrastructure. - Expected customs outcomes: - continuous increase in revenue; - containment of fraud; - easing and targeting of controls via technology; - better coverage of land-based customs territory; - better surveillance of maritime customs territory; - streamlining of customs processing and improvement of time spent in customs. - PROMAD financing: levy on customs value of non-ECOWAS and non-WAEMU eligible imports excluding customs and tax regimes to promote investments; instituted by the second Supplementary 2021 Budget Law, in place since September 1st 2021, set at 1.5 percent from 2022 onwards for a maximum of 10 years. Related revenues and expenditure are included in budget laws and go to a deposit account in the treasury. ### Spending, reserves, and financing needs - Total spending expected to reach 25.8 percent of GDP. - Policy shift toward social infrastructure (education, health, social services) after heavy capital investments in transport and energy. - Compared to the second 2021 Supplementary Budget Law: - current expenditure/GDP ratio expected to decline by 1.3 percentage points; - investment expected to increase from 10.4 percent of GDP to 10.8 percent of GDP; - social spending expected to reach 40.2 percent of total spending. - Initial Budget Law includes resources to cover a maximum of CFAF 150 billion for energy subsidies based on an assumed Brent crude oil price of about US$75 per barrel. - Contingency reserve: CFAF 60 billion; management reserve: CFAF 50 billion (i.e., 5.5 percent of the general government budget excluding personnel and interest payments). - Government financing need: CFAF 1,643 billion, to be covered by: - excess financing estimated at CFAF 121.46 billion; - project loans amounting to CFAF 580 billion; - budget support loans amounting to CFAF 132 billion; - IMF disbursements amounting to CFAF 254 billion; - recourse to market financing amounting to CFAF 555.6 billion. ### Debt policy, management, and risks - Central government debt expected at 66.6 percent of GDP in 2021; enterprises and other quasi-government entities around 6.4 percent, resulting in total public sector debt equal to 73 percent of GDP. - Central government outstanding debt in relation to GDP remains below the community threshold of 70 percent in 2021. - Debt ratio expected to begin falling gradually from 2022 onwards as economic growth is strengthened and MTRS implementation improves domestic resource mobilization and reduces debt use. - Government aims to increase private sector contribution to investment financing through PAP2A and endogenous development strategies. - Debt Sustainability Analysis (DSA) indicates Senegal remains at moderate risk of debt distress with very limited room to absorb shocks. - Short-term policy: limit external borrowing to remain at moderate risk of debt distress. - Nominal public debt ceiling set at CFAF 11,270 billion; government’s net domestic and regional market financing (memorandum item) will not exceed CFAF 500 billion for 2021. - Non-concessional financing restricted to projects with a high internal rate of return. - Debt management improvements: action plan to implement recommendations from external technical and functional audit of the computerized debt database platform; measures include better monitoring of public entities’ debt, governance of information system, and technical/functional upgrades. - Regulatory measures: circular of October 25, 2021 — production of regular debt reports is condition for acceptance of files by the National Public Debt Committee (CNDP); order of November 29, 2021 — prior opinion of CNDP is precondition for all borrowing by public and quasi-public entities. ### Strengthening revenue mobilization and public service delivery - Government target: tax-to-GDP ratio (excluding hydrocarbons) of 20 percent by 2024 through MTRS ownership by revenue authorities. - By December 31, 2021 the government will: - publish and disseminate the MTRS document; - launch internal and external communication campaign; - organize a high-level workshop to approve the revised MTRS implementation matrix. - Revenue authority reforms and digitalization: - draft master plan for digitization of revenue authorities to be adopted before end-2021 with specifications and timetable; - continuation in 2022 of digitization projects: online filing/payment/processing, digital interconnection, unique tax identifier linked to national identification file and Trade Register, real-time information availability. - Joint tax-customs control unit regulation revisions to be finalized by end-2021; joint DGID-DGD control program launched January 2022. - Regulations on evaluation and monitoring of tax expenditures to be updated by January 2022 with harmonized reference tax standard and organization for real-time monitoring; availability of tax expenditure report within three (3) months of fiscal year-end for 2021. - Ensure Strategic Implementation Unit (UE-MTRS) has sufficient budgetary and human resources; master plan for human resources to be implemented by June 2022. - Ongoing DGID and DGD actions: Yaatal program implementation (RNPI), further development of GAINDE, continued use of DGID-DGD interconnection. - DGID’s use of customs information established CFAF 1,965 billion in collection vouchers for the first half of 2021. - Performance monitoring framework for revenue authorities, including quantitative indicators and performance contracts, to be established pursuant to an order by June 31, 2022 at the latest (new structural benchmark, end-June 2022). Implementation supported by IMF technical assistance. *Source: IMF staff report text provided in the content unit.* ### 29. The government will continue with the ongoing public financial management reforms. ### 29. The government will continue with the ongoing public financial management reforms. ### Priorities for 2022 — public financial management reforms - Program budget and accountability - The program budget has come into effect. The 2020 Budget Law has been presented in program format. - As part of the 2020 accountability process, ministries have prepared annual performance reports. - Arrangements are underway to operationalize the chain of programmatic accountability in the context of decentralization of the authorization process. - Introduction of intra-annual programming instruments in 2022 will establish the framework for steering and dialogue for performance monitoring of program, action, and activity managers. - Decentralization of spending authorization - Progressive decentralization has been put into effect at 16 ministries and institutions. - In January 2022, decentralization of the spending authorization process is envisaged to be extended to all principal authorizing officers within all ministries to comply with the Organic Law on Budget Laws. - Full application of spending decentralization will harmonize responsibilities in budget execution after the 2021 test period and facilitate reporting under the Budget Law. - Intra-annual budget execution and cash flow planning - Continued development of commitment plans, procurement plans, and the cash flow forecast; the first draft was included in the 2022 draft Budget Law. - Training of line ministries in these best practices is continuing. - Framework for guiding intra-annual programming of budget execution and cash management to be put in place by end-2021, with a draft circular for implementation of the 2022 appropriations expected by end-2021. - Reclassification of transfers by economic type - Reclassification of transfers under appropriate headings of the government's budget nomenclature is continuing. - The 2022 draft Budget Law will include a distinction between grants and current transfers, and a Table of Government Financial Operations reflecting the economic nature of expenditures. - Reclassification in 2021 of capital transfers as investments made by the state will be finalized in 2022 and complemented by implementation of delegated contracting agreements as of end-2021. - Investment project selection and planning - Projects and programs evaluated annually: 12 in 2015, 50 in 2020, and 86 in 2021. - Projects evaluated in 2021 represent a total volume of CFAF 3,059 billion. - These projects are listed in an annex to the 2022 draft Budget Law. - Approximately 90 project feasibility studies are planned in 2022. - Improvements to investment programming and monitoring - Continued efforts through: - (i) standardization of annual budgeted work plans and establishment of exhaustive documentation on each project at the General Directorate of the Budget (DGB) as part of the annual preparation of the Multi-Year Investment Plan (PIP); - (ii) establishment of a mechanism for physical and financial monitoring of quarterly and annual execution of projects by the DGB; - (iii) improvement of the administrative and economic classification of projects and programs based on all funding sources combined. - Integrated Financial Information Management System (SIGIF) - SIGIF will be operationalized after a technical audit according to international standards before the end of June 2022. - Following an inconclusive assessment of business functionalities by the General Inspectorate of Finance (IGF), full implementation of SIGIF will not take place during 2022. - Public financial management reform strategy - The government will make necessary arrangements for adoption of the PFM reform strategy during the first quarter of 2022, informed by conclusions of different IMF technical assistance missions. - Fiscal risk management - A statement on fiscal risks has been prepared as an annex to the 2022 draft Budget Law covering: macroeconomic risks; risks related to state-owned enterprises; risks related to public-private partnerships; risks related to debt and guarantees; and risks related to natural disasters. - The initial report will be refined in 2023 to include quantification of risks and possible financial mitigation measures. - Authorities will initiate experience-sharing activities with support from technical and financial partners and intend to request appropriate technical assistance. - The government will continue to develop a database for all PPPs and power purchase agreements, presenting their fiscal impact and quantifying main risks, and will update it quarterly, within 90 days of the end of each quarter (new structural benchmark, end-June 2022). - Treasury Single Account (TSA) and bank account closures - Commitment to close 100 ordinary accounts opened at local banks in 2021. - As of October 20, 2021, 85 of the 100 accounts have been closed (requests for closure sent to the banks) by managers of the entities. - A consultant has been selected to conduct a study to identify bank accounts to be closed by end-June 2022 and prepare a roadmap; the consultant’s report is expected at end-December 2021. - The study will identify technical and regulatory constraints and propose a roadmap for gradual closure of remaining accounts. ### Energy subsidies, price adjustment, and roadmap for elimination - Limit on energy subsidies - The government intends to limit energy subsidies to the CFAF 150 billion provided for in the 2022 initial Budget Law. - In case of budgetary overruns due to world petroleum price increases, the government will reactivate, if necessary, the decree on adjustment of fuel prices. - Electricity subsidies and price-setting - An external audit of the methodology for determining the maximum allowable revenue will be conducted by end-2021. - The government will revise the decree on electricity price setting to take into account changes in world prices. - Protection for vulnerable populations and roadmap - Measures to protect the most vulnerable and certain priority consumers will be implemented through existing social safety nets and temporary support measures (new structural benchmark, end-June 2022). - The government will publish by end-June 2022 a roadmap for the gradual elimination of energy subsidies starting in 2023, including a communication phase and support measures for low-income households (new structural benchmark, end-June 2022). - Medium-term cost reduction - Implementation of the gas-to-power strategy is expected to achieve a lasting reduction in electricity production costs. ### Hydrocarbon revenue governance and legal framework - Consultation and legislation timeline - A national day of sharing and consultation will be organized before adoption by the Council of Ministers of the draft law on management and distribution of revenues from hydrocarbon production. - The draft law will be submitted to the National Assembly for approval no later than December 31, 2021. - Operationalization of mechanisms provided by the law is planned in 2022 in anticipation of first hydrocarbon revenues expected in 2023. - Budgetary integration and funds governance - Budget rules and revenue forecasting methodology in the draft law will be reflected in the 2023-2025 Multi-year Budgetary and Economic Programming Document. - Legal and operational frameworks for the Intergenerational Fund and the Stabilization Fund will be finalized by December 31, 2022, at the latest. - Implementing decrees of the law on management and distribution of hydrocarbon revenues will be reviewed by the Council of Ministers no later than June 30, 2022. ### Social protection and emergency programs - Single National Registry (RNU) and PBSF - Decree institutionalizing the RNU was adopted in August 2021; implementation to be fully effective by mid-2022. - Plans for 2022: finalize update of RNU data for all regions covering the 558,000 households already enrolled, and add 412,000 vulnerable households identified mostly through community-based targeting to include at least one million households in the RNU by the end of October 2022 (structural benchmark). - PBFS (Programme de bourses de sécurité familiale) launched in 2012; noted delays in payments in the current year. - Arrangements made for payments for the four (4) quarters of 2021 (CFAF 31 billion), plus an additional CFAF 5 billion supported by the SDR allocation, by end-December 2021. - Government commitments regarding PBFS: - (i) adoption of a ministerial order for institutionalization by end-December 2021; - (ii) ensure beneficiaries receive quarterly payments on time; - (iii) gradually extend coverage to 558,000 households based on the expanded RNU starting in 2023. - Emergency program for youth employment and entrepreneurship - Reform of governance and steering framework to promote socio-economic integration and employment of young people. - Establishment of a unique identifier and a database of recipients of public funding. - Consolidation of women's and youth entrepreneurship funding into a single fund to be implemented starting fiscal year 2022 (structural benchmark, end-December 2021). - Finalize overall strategy for streamlining support system for women, youth, and SMEs by end-December 2021. - Fifteen (15) employment and entrepreneurship centers (one-stop shops) are already operational; target is forty-five (45) centers by the end of 2022. - Performance contracts with targets in terms of job creation will be signed with state structures and instrumentalities involved in the youth program. ### Private sector development and business environment reforms - PREAC, Compact with Africa, and regulatory reforms - Business Environment Reform and Competitiveness Program (PREAC) in third phase (2021-2023) will finalize structural and sectoral reforms: adoption of a new labor code; updating construction and urban planning codes; continued modernization of land administration. - Emphasis on reducing input costs by simplifying pricing systems at the port and improving credit information. - Regulation and competition improvements through updating competition framework and reducing entry restrictions in key sectors such as health care and pharmaceuticals. - Warehouse receipt system to become operational; promotion of investment platforms and extension of paperless government services; increase occupancy rate of special economic zones. - SME support and investment funds - One-stop shop at the Agency for Development and Supervision of SMEs (ADEPME): electronic service counter operational for online registration; physical service counter to open soon. - Master plan for the integrated management information system for SMEs (SIGIPME) implemented; in-depth study of target model for streamlining support system underway. - Sovereign Fund for Strategic Investment (FONSIS) has established a hybrid investment fund for Senegalese SMEs with an initial amount of 30 million euros, which will grow eventually to 112 million euros. - Land, collateral, and registry reforms - Reforms to facilitate online access to land titles and establish a single online collateral registry combining movable collateral and mortgages in cooperation with the BCEAO are being implemented. - Integrated land management system including computerization of land management procedures to be operational by end-December 2021 (structural benchmark). - Database on movable assets is available online (seninfogreffe.com); unified secured registry will be complete after computerization of the land registry (structural benchmark, end-December 2021). - Computerization of the land registry: pilot phase covering Dakar, Ngor Almadie, Rufisque, and Mbour scheduled for mid-2022; full territorial schedule for first half of 2023. - Investment code update - Project to update the 2004 investment code to increase visibility of incentive schemes and align with PAP2A. - Strategic diagnosis phase underway since July 2021; diagnostic report to Steering Committee and selection of strategic guidelines expected in December 2021. - Entry into force of the investment code planned for 2022 following adoption of the draft code and implementing regulations. ### Energy sector legal framework - New legal framework - Adoption of the Electricity Code and the law on the regulation of the energy sector in August 2021 aims to improve financial viability and good governance to support sufficient quantity and quality of electricity to achieve universal access by 2025 and PSE objectives on affordable energy. - Framework provides more favorable rules and practices for private investment to achieve sector development objectives. ### Financial stability and inclusion - National financial inclusion strategy - Government committed to approving the national financial inclusion strategy by end-December 2021. - Strategy objectives for 2021-2025: - Reach a financial inclusion rate of 65% for adults and 90% for SMEs. - Achieve a geographical penetration rate of 40 traditional or digital financial service centers per 1,000 km2 and coverage of all municipalities. - Effective implementation from 2022 onward to support inclusive recovery and emergency youth employment program. - Bank restructuring and fiscal support - Restructuring of three non-systemically important banks with capital adequacy shortfalls to receive special attention from the BCEAO, the Banking Commission, and the government. - BCEAO and the Banking Commission will ensure stakeholders respect commitments. - Government will support the process by honoring financial commitments, including settlement of the residual outstanding amount from the 2017 securitization transaction for one institution. - Government will consider financial support for a second bank in the form of a subordinated loan, pending a private solution, to contain fiscal risk. - Public interventions will be accompanied by measures to strengthen governance and permanently guarantee financial viability of these banks. *Source: 1senea2022001 - 29. The government will continue with the ongoing public financial management reforms.* ### 39. The government will ensure that the stability of the microfinance sector is maintained. ### 39. The government will ensure that the stability of the microfinance sector is maintained. ### Microfinance sector stability and supervision - The volume of maturities carried over at end-June 2021 fell to CFAF 5 billion (1.7 percent of total loans) compared to a peak of CFAF 72 billion at end-October 2020. - Diagnostic missions to microfinance institutions in difficulty will continue; three (3) decentralized financial systems have been visited out of the four (4) scheduled for the year 2021. - A special monitoring system has been set up at the Directorate for Regulation and Supervision of microfinance. - The monitoring system: - Relies on onsite and documentary audits and pre-established criteria. - Classifies microfinance institutions according to their level of risk. - Enables the authorities to take appropriate measures based on the classification. ### Restructuring of La Poste Group and Poste Finances - The restructuring and reorganization process of the public company La Poste will continue on the basis of certified accounts and financial statements, with the aim of restoring financial equilibrium of the group's entities and ultimately transforming Poste Finances into a postal bank. - A finalized roadmap outlines actions at the legal, technical, and financial levels. - Government intends a gradual approach: initially set up Poste Finances as a payment financial institution (making payments on its own behalf or on behalf of third parties) leveraging the postal service network. - Parent company measures: - Rationalize operating costs. - Increase production efficiency. - Evolve the business model in line with the Strategic Development Plan, competition, and technological developments. - Government will ensure a balanced relationship with the postal service by determining the required level of public service remuneration to ensure that the company’s operations balance out. - Implementation condition: approval of the cost accounting system by the Telecommunications and Postal Regulatory Authority (ARTP), which is expected by December 31 2021. - Specific measures under a restructuring subcommittee being considered to restore balance: - Institutional transformation of Poste Finances into a bank through a gradual process accounting for postal network constraints and comparative advantages. - Restructuring of entities within La Poste Group to restore financial, economic, and social balance. - Strict separation of business lines to avoid the use of Poste Finances cash by La Poste. - An amendment to the agreement between Poste Finances and La Poste will be signed no later than November 30, 2021, under the authority and supervision of the Ministry of Finance and Budget. - The amendment envisages a monthly reconciliation of reciprocal operations and reimbursement of the balance within 10 days of settlement of the amounts. - Repayment of the balance by La Poste could be facilitated by re-establishment of public service remuneration after adjustment of operating costs to determine the real production cost of postal activities. - In accordance with the new guarantee agreement, Poste Finances will continue to automatically repay the balance of the compensation. ### Implementation of the action plan to exit FATF enhanced scrutiny (AML/CFT) - Technical compliance developments: - June 2021: Senegal adopted legislation to broaden the legal regime for collection, updating, and storage of information on beneficial owners by amending the General Tax Code. - June 2021: Senegal fully criminalized the financing of terrorism and created the National Office for the Recovery of Criminal Assets (ONRAC) through amendments to the Criminal Code and Code of Criminal Procedure. - Regional/community updates: - CIMA adopted Regulation No. 001/CIMA/PCMA/PCE/SG 2021 of March 3, 2021 (AML/CFT procedures for insurance companies). - CREPMF adopted regulations pursuant to Instruction No. 59/2019/CREPMF of September 30, 2019, on AML/CFT for internal control systems of financial markets in the WAMU zone. - Senegal will review and possibly revise, by end-January 2022, with IMF technical support, the regulatory texts (Decree No. 2020-602 of February 28, 2020, and Order No. 026970 of November 24, 2020) relating to targeted financial sanctions linked to financing of terrorism and proliferation of weapons of mass destruction (recommendations 6 and 7). - Members of the Advisory Committee on Administrative Freezing of Assets (CCFA) were appointed in November, following appointment of its Chairman in October. - Effectiveness developments: - Training, informational activities, and typology/diagnostic studies by Senegal and community institutions (BCEAO, CREPMF, CIMA, GIABA) led to an upward trend in the number of alerts by reporting entities. - Control and supervision actions: - Two (2) banks and two (2) decentralized financial systems were audited with injunctions issued. - Four (4) stock exchange companies were audited with findings accompanied by injunctions. - Fifty-six (56) manual money changers were audited; one (1) was sanctioned by withdrawal of its license. - Five (5) small decentralized financial systems were audited. - Criminal investigations and prosecutions: - Twenty (20) investigation reports submitted to the Public Prosecutor. - Six (6) judgments handed down: four (4) concerned criminal offenses and two (2) involved terrorism and terrorist financing. - Sentences ranged from three (3) to five (5) years. - Decisions to confiscate assets were made in three (3) of the judgments. - Judicial cooperation: - One (1) case of extradition for membership in a terrorist group. - One (1) request for mutual legal assistance concerning a person prosecuted for various offenses including money laundering. - Next steps: production of the progress report covering July to December 2021 and preparatory meetings of the Senegalese technical delegation before the January 2022 deadline. ### Program monitoring (PCI, SBA/SCF) — framework and timelines - Under the PCI, the program will be monitored using quantitative targets, continuous targets, and reform targets. - Quantitative targets are proposed for: - End-December 2021. - End-June 2022. - One quantitative target to be monitored on an ongoing basis. - The government and IMF staff agreed on reform targets in Table 2. - Review schedule: - The fifth review should be completed by June 30, 2022. - The sixth review by December 31, 2022. - Under the SBA/SCF: - The program will be subject to semi-annual reviews. - It will be monitored through performance criteria, indicative targets and structural benchmarks (as set out in Tables 1c and 2). - Definitions and monitoring terms are provided in the Technical Memorandum of Understanding attached to the MEFP/Program Statement. - Reviews will assess quantitative performance criteria, indicative targets and quantitative targets as of specified test dates and on a continuous basis: - First review (fourth review under the PCI) will assess the end-June 2021 test date. - Second review (fifth under the PCI) will assess the end-December 2021 test date. - Third review (sixth under the PCI) will assess the end-June 2022 test date. *Source: 1senea2022001 - 39. The government will ensure that the stability of the microfinance sector is maintained.* ### 3. Debt. The definition of debt is set out in paragraph 8(a) of the Guidelines on Public Debt ### 1senea2022001 - 3. Debt. The definition of debt is set out in paragraph 8(a) of the Guidelines on Public Debt ### Definition of Debt (paragraph 8(a) summary) - Debt: a direct, i.e., non-contingent, liability created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, according to a given repayment schedule; these payments will discharge the principal and/or interest. - Primary forms of debt: - Loans: advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds (including Treasury Bills), debentures, commercial loans, and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the borrowed funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements). - Suppliers’ credits: contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided. - Leases: 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. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair, or maintenance of the property. - Arrears, penalties, and judicially awarded damages and interest arising from the failure to make payment under a contractual obligation that constitutes debt is a debt. - Debt guarantees: any explicit legal obligation of the public sector to service a debt in the event of nonpayment by the debtor (involving payments in cash or in kind). - External debt: debt borrowed or serviced in a currency other than the CFA franc, regardless of the residency of the creditor. ### Quantitative Performance Criteria (Program targets under the PCI) - Floor on Net Lending/Borrowing (Program Definition) - Definition: Net lending/borrowing, or the overall fiscal balance, is the difference between the Government’s total revenue and total expenditure (costs and acquisition net of nonfinancial assets). Definition of revenues and expenditures consistent with the 2001/14 Government Financial Statistics Manual (GFSM). Government expenditure defined on a payment order basis accepted by Treasury, as well as those executed with external resources. - Assessment: This quantitative performance criterion is set as a floor on the overall fiscal balance as of the beginning of the year. - Adjustment: The floor including grants is adjusted upward or downward by the amount that budget grants exceed or fall short of program projections up to a maximum amount as specified in Table 1 of the memorandum of economic and financial policies. - Reporting: Authorities will report provisional data on the overall fiscal balance (program definition) and its components monthly to Fund staff with a lag of no more than 6 weeks after the end of the relative month. Final data no later than two months after the reporting of the provisional data. - Ceiling on Central Government’s Overall Net Financing Requirement - Definition: Sum of (i) the overall fiscal balance (as defined above) and (ii) the additional borrowing by the Treasury to finance accounts payable (spending by ministries out of unutilized appropriations from past budgets (drawdown of the “comptes de dépôt”), offsets for illiquid revenues (“recettes d’ordre”) and other below-the-line operations). - For end-December 2021: this quantitative performance criterion would need to be lower or equal to the amount indicated in Table 1 of the memorandum of economic and financial policies. - Adjustment: The ceiling is adjusted downward or upward by the amount that budget grants exceed or fall short of program projections up to a maximum amount as specified in Table 1 of the memorandum of economic and financial policies. - Reporting requirements: - Data related to additional borrowing to finance accounts payable: sent quarterly within a period of one month from the end of the quarter. - Data related to the overall financing requirement: sent quarterly within a period of one month from the end of the quarter, starting from the end of December. These data must include: - (i) total gross Government debt; - (ii) total debt principal repaid by the Government; and - (iii) all guarantees granted by the Government for domestic or external loans to its suppliers and contractors and any other public or private entity. - Details regarding any Government borrowing (including amounts on-lent and any guarantee) reported monthly within six weeks of the end of the month. - Borrowings grouped as short-term (less than one year) or long-term (one year or more). - Data on projected principal and interest payments reported on a commitment and a disbursement basis. - Floor on Tax Revenues - Definition: Sum of revenues from taxes and levies on income, profits and capital gains, salaries and labor, on assets; taxes on goods and services; on foreign trade and international transactions; and other tax revenues. Assessed based on quarterly TOFE data. Petroleum revenues subject to specific monitoring (VAT on oil, excise taxes on oil, customs duties on oil, vehicle taxes, the PSE, and the Petroleum Product Imports Security Fund (FSIPP)). - Reporting: Same as quantitative performance criterion on net lending/borrowing. - Ceiling on Total Nominal Public Debt - Definition: Debt as defined above, comprises external and domestic debt of the public sector (general government and public nonfinancial corporations), measured at its nominal value. Monitored on an annual basis. - Exchange rates for projection of the debt stock: - for 2020 CFAF/US$ 598 and CFAF/SDR 817 - for 2021 CFAF/US$ 534.5 and CFAF/SDR 775.8 - Reporting: Authorities will report quarterly data to Fund staff within two months following the end of each quarter. - Quarterly provisional reporting within six weeks after the end of the quarter for debts of specified public enterprises (list below). Any public enterprise contracting debt during the year greater than 5 billion CFA francs will be communicated and added to the list for future reporting. - The stock of debt at end December of the current and previous year of all listed public enterprises, information on newly contracted debt during the year and principal payments, will be communicated within two months after the end of the year. - All retroceded or guaranteed debt emanating from the central administration and benefiting public enterprises or private sector enterprises will be communicated; data must distinguish between guarantees and debt on-lent to public enterprises and those issued to private sector actors. - All commitments by comfort letter will be communicated quarterly within six weeks after the end of the quarter; if some comfort letters are already counted in another category, this will be explicitly mentioned. - Public enterprises requiring quarterly provisional data within six weeks after quarter end: - LONASE, SN La Poste, RTS, SN PAD, SONES, SENELEC, APIX, SN HLM, SAED, SNR, SOGIP SA, SAPCO, SODAGRI, CICES, SSPP SOLEIL, PETROSEN, SIRN, SICAP, DDD, MSAD, ONFP, ONAS, CNQP, OFOR, OLAG, FONSIS, AIBD, FERA, ASER, FSE, ANAM, AGPBE, COUD, ACMU, CDC, Dakar Dem Dik, ITA, MIFERSO, CEREEQ, Air Senegal and SONACOS. - Any public enterprise not included above contracting debt greater than 5 billion CFA francs will be communicated and added. - Ceiling on Public Sector External Payments Arrears (Continuous) - Definition: External payment arrears are the sum of payments owed and not paid when due (in accordance with the terms of the contract) on the external debt contracted or guaranteed by the public sector. The definition of external debt (paragraph 4) applies. - Monitoring: Continuous. - Reporting: Authorities will promptly report any accumulation of external payments arrears to Fund staff. ### Indicative Targets and Memorandum Items - Ceiling on The Share of The Value of Public Sector Contracts Signed by Single Tender (Percent) - Definition: Public sector contracts are administrative contracts for procurement of supplies, delivery of services, or execution of work. Public procurement is "non-competitive" when awarded without open competitive tender and without an open inquiry and open price. - Scope: Semiannual indicative target applies to total public sector contracts entered into by the Government or entities subject to the procurement code. - Exclusions: classified purchases; fuel purchases by SENELEC for electricity production reflected in a new regulation imposing SENELEC to buy fuel from SAR on the basis of the current price structure; administrative amendments; riders necessary for final delivery included in original contract provided they comply with procurement code. - Reporting: Government will report semi-annually to Fund staff, with a lag of no more than one month, the total amount of public sector contracts and the total value of all single-tender public sector contracts. - Floor on Social Expenditure - Definition: Spending on health, education, the environment, the judicial system, social safety nets, sanitation, and rural water supply (as contained in the table on social expenditure). - Frequency: Evaluated on a semiannual basis. - Reporting: Authorities report semiannual data to Fund staff within two months after each semester. - Ceiling on Spending Through Simplified Procedures for Non-personalized Services - Definition: Share of central government expenditures for non-personalized services executed through simplified procedures in total transfers. These procedures relate to “Demandes de mise en règlement immédiat » (DMRI) and “Dépenses sans ordonnancement préalable » (DSOP). - Reporting: Government will report semi-annually to Fund staff the total amount of spending on transfers, and the total amount of spending for non-personalized services executed through transfers on treasury deposit accounts, within six weeks of the end each semester. - Net Domestic and Regional Financing of the Government (memorandum item) - Definition: On the basis of the TOFE, defined as the sum of net accumulation of liabilities including (i) securities issued on the regional market (WAEMU), including T-bills, T-bonds, and Sukkuk) and (ii) direct domestic loans in CFAF (including other loans and excluding the counterpart of IMF financing). Accumulation of other accounts payable does not correspond to domestic or regional financing for this memorandum item. - Monitoring: Indicative target monitored annually for the budgetary central government. - Reporting: Data transmitted quarterly with the TOFE and a maximum delay of two months. ### Additional Information for Program Monitoring (reporting lags and required transmissions) - Immediate and short-lag reporting: - Within three days after adoption: any decision, circular, edict, supplemental appropriation order, ordinance, or law having economic or financial implications for the current program (includes acts that change budget allocations, creation of new agency or fund). - Within a maximum lag of 30 days: preliminary data on: - Tax receipts and tax and customs assessments by category with corresponding revenue on a monthly basis; - Monthly amount of expenditures committed, certified, or for which payment orders have been issued; - Monthly situation of checks issued by agencies from their deposit accounts at the Treasury but not paid to beneficiaries, 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 table and consolidated Treasury accounts, between consolidated Treasury accounts and TOFE for “budgetary revenues and expenditures,” and between TOFE and net treasury position (NTP), on a quarterly basis; - Quarterly report on FSE operations in terms of revenues and expenditures; - Monthly report on the price structure of fuel products, including an estimate of the necessary subsidy for the rest of the year based on the latest price structure; no later than 4 weeks after the publication of the price structure. If domestic prices are higher than international prices, authorities will communicate in which part of the TOFE the benefits are accounted for. - Final data: Provided as soon as the final balances of the Treasury accounts are available, but not later than one month after reporting of provisional data. - Monthly and quarterly reporting on expenditures and commitments: - During the program period: provisional data on current nonwage noninterest expenditures and domestically financed capital expenditures executed through cash advances on a monthly basis with a lag of no more than 30 days; data drawn from preliminary consolidated Treasury account balances; final data no more than one month after provisional data. - Monthly table from expenditure tracking system (SIGFIP, or SIGIF once operational) showing: - All committed expenditure (dépenses engagées); - All certified expenditures not yet cleared for payment (dépenses liquidées non encore ordonnancées); - All payment orders (dépenses ordonnancées); - All payment orders accepted by the Treasury (dépenses prises en charge par le Trésor); - All payments made by the Treasury (dépenses payées). - SIGFIP table excludes delegations for regions and embassies and lists any payments without cash impact on Treasury accounts. Balances outstanding broken down by payer and spending category, maturity and length of time overdue. - Quarterly reporting on derogatory procedures: - At end of each quarter authorities will report: - Status of ‘waiting and provisional imputation’ accounts (comptes d’attentes et d’imputation provisoire) showing stock of transactions awaiting regularization from the general balance of accounts of the state; - Status of derogatory expenditures by expenditure category; - Status of deposit accounts (comptes de dépôt) by nature of beneficiaries: (i) agencies in the broad sense; (ii) legal entities governed by private law; (iii) private individuals; (iv) non-personalized state services; and (v) commitments related to comfort letters. - An assessment of the regularization of such expenditures from one quarter to the next. *Source: Extracted content from the specified program document.* ### 28. The central bank will transmit to Fund staff: ### 28. The central bank will transmit to Fund staff: ### Central bank reporting obligations - The central bank will transmit to Fund staff: - The monthly consolidated balance sheet of banks with a maximum lag of two months; - The monetary survey, on a monthly basis, with a maximum lag of two months; - The lending and deposit interest rates of commercial banks, on a semi-annual basis; - Prudential supervision and financial soundness indicators for bank financial institutions, as reported in the table entitled Situation des Établissements de Crédit vis--à-vis du Dispositif Prudentiel (Survey of Credit Institution Compliance with the Prudential Framework), on a semi-annual basis, with a maximum delay of four and a half months after the closing of accounts for prudential ratios and six months for the financial soundness indicators. ### Government publication and transparency requirements - The Government will update on a monthly basis on the website established for this purpose the following information: - (a) Preliminary TOFE and transition tables with a delay of two months; - (b) SIGFIP execution table, the table for the central Government and a summary table including regions, with a delay of two weeks; - (c) The amount of the airport tax collected, deposited in the escrow account, and used for the repayment of the loan financing the construction of the new airport, with a delay of one month. - The Government will also provide full information on: - (i) the operations of the Energy Sector Support Fund (FSE); - (ii) investment projects in the power sector; - (iii) planning and execution of these projects; and - (iv) details of financing and updated costs. ### Statistical capacity, data adequacy, and dissemination (as of December 13, 2021) - General assessment: - Data provision has some shortcomings but is broadly adequate for surveillance and program monitoring. - Weaknesses exist in data on national accounts, production, and social indicators. - Authorities are committed to improving quality and availability of economic, financial, and social indicators, with technical assistance from the Fund and other donors. - National accounts: - Rebasing in 2018 changed the base year from 1999 to 2014; rebased series available from 2007 to 2019, with quarterly series up to 2021Q2 including the demand side. - Two national surveys on employment for businesses and for household are regularly conducted. - No regular (annual or quarterly) surveys for household consumption and gross fixed capital; a turnover index is being implemented to provide information on household consumption (with some assumptions). - New standards implemented to compile an Industrial Production Index with producer price indices; producer price indices for services released; agricultural sector monthly sector prices released. - Coverage needs improvement for sectors like forestry and farming. - Efforts continue to improve data collection procedures, strengthen coordination among statistical agencies, and reduce delays in data dissemination. - With IMF TA, Senegal is starting to better capture activities related to natural resources. - Price statistics: - ANSD compiles a monthly CPI based on WAEMU harmonized methodology. - Current CPI weights are based on expenditure data collected during 2008; price-updating done in 2014 does not produce current expenditure estimates, so the reference period remains 2008. - CPI weights are out of date and will be updated using data from the harmonized survey of living conditions to be collected beginning in 2022. - External sector statistics: - BCEAO’s National Directorate for Senegal has been collecting data following BPM6 since 2013. - Since November 2017 (SDDS subscription), BCEAO disseminates quarterly BOP and IIP statistics on Senegal’s National Summary Data Page. - International Transactions Reporting System (ITRS) implemented. - Monetary and financial statistics (MFS) and FSIs: - BCEAO compiles and disseminates MFS monthly; migrated to SRFs in August 2016 and transmits SRF-based MFS to the IMF STA since November 2016. - BCEAO submits some indicators to the Financial Access Survey (FAS). - BCEAO finalized development of FSIs for deposit takers in 2018 but has not granted approval to publish the data on the IMF’s FSI website. - Government finance statistics (GFS): - GFS compiled by the Ministry of Economy and Finance and disseminated quarterly as TOFE. - AFRITAC-West has provided TA to improve fiscal reporting consistency and migration to GFS Manual 2001/2014 methodology, per WAEMU TOFE Directive. - Coverage improved from central government to general government and fiscal data now reported to STA at that coverage level. - Data gathering remains ad hoc; structures needed to ensure regular capture of necessary information. ### Common indicators reporting (as of December 13, 2021) — selected entries and reporting frequency - Exchange Rates: Date of Latest Observation: Current; Date Received: Current; Frequency of Data/Reporting/Publication: D D D - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation: 09/2021; Date Received: 12/2021; Frequency: M M M - Reserve/Base Money: Date of Latest Observation: 09/2021; Date Received: 12/2021; Frequency: M M M - Broad Money: Date of Latest Observation: 09/2021; Date Received: 12/2021; Frequency: M M M - Central Bank Balance Sheet: Date of Latest Observation: 09/2021; Date Received: 12/2021; Frequency: M M M - Consolidated Balance Sheet of the Banking System: Date of Latest Observation: 09/2021; Date Received: 12/2021; Frequency: M M M - Interest Rates: Date of Latest Observation: 08/2018; Date Received: 08/2018; Frequency: M M M - Consumer Price Index: Date of Latest Observation: 10/2021; Date Received: 11/2021; Frequency: M M M - Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of Latest Observation: 2020; Date Received: 09/30/2021; Frequency: A A A - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of Latest Observation: 2020; Date Received: 09/30/2021; Frequency: Q Q Q - Stocks of Central Government and Central Government-Guaranteed Debt: Date of Latest Observation: 2020; Date Received: 09/30/2021; Frequency: A A A - External Current Account Balance: Date of Latest Observation: 2018; Date Received: 01/2020; Frequency: A A A - Exports and Imports of Goods and Services: Date of Latest Observation: 2018; Date Received: 01/2020; Frequency: A A A - GDP/GNP: Date of Latest Observation: 2019; Date Received: 11/2020; Frequency: A I A - Gross External Debt: Date of Latest Observation: 2017; Date Received: 10/2018; Frequency: A I A - International Investment Position: Date of Latest Observation: 2018; Date Received: 01/2020; Frequency: A A A ### Debt sustainability analysis — key findings and assumptions - Risk ratings: - Risk of external debt distress: Moderate - Overall risk of debt distress: Moderate - Summary finding: - Senegal faces a moderate risk of external and overall public debt distress under the baseline scenario, with limited space to absorb shocks. - The rating is contingent upon a growth rebound and a significant boost to growth and exports from hydrocarbon production over the medium term. - The baseline assumes that fiscal deficits will converge to the regional convergence criterion of 3 percent of GDP in 2024, supported by the unwinding of one-off COVID-19-related spending and enhanced revenue-mobilization. - Projections are subject to significant uncertainty; potential risks include a slower vaccination campaign, socio-political unrest, security challenges, and delays to hydrocarbon projects. - Policy implication: maintaining debt sustainability requires a prudent borrowing strategy prioritizing concessional external borrowing and domestic regional financing alongside efforts to strengthen debt management; broader fiscal policy should seek to increase fiscal space over the medium-term to respond to future shocks. - Debt carrying capacity and applicable thresholds: - Senegal’s debt carrying capacity is classified as strong. - Applicable thresholds for strong debt carrying capacity: - PV of debt-to-GDP ratio: 55 percent - PV of debt-to-exports ratio: 240 percent - Debt service-to-exports ratio: 21 percent - Debt service-to-revenue ratio: 23 percent - Benchmark for PV of total public debt: 70 percent of GDP - Debt coverage and contingent liabilities: - DSA uses a broad definition of public debt including public and publicly guaranteed (PPG) debt held by (i) the central government, (ii) para-public entities, and (iii) state-owned enterprises (SOEs). - Currency-based definition of external and domestic debt used due to data constraints. - Debt to the regional development bank (BOAD) treated as domestic debt since January 2020. - Default financial sector shock of 5 percent of GDP used in stress tests; this exceeds estimated potential bank recapitalization needs of less than 1 percent of GDP. - Authorities are taking steps to strengthen quality and coverage of public debt data; an audit noted risks related to timeliness and reliability of SOE debt data and an action plan was developed. - National debt committee (CNDP), chaired by the Minister of Finance, reviews large public investment decisions and recent circulars/decrees reinforced CNDP’s role, clarifying need for regular and timely provision of debt data by SOEs. *Prepared by the staff of the International Monetary Fund (as presented in the source material).* ### 3. Public sector debt levels have more ### 3. Public sector debt levels have more ### Debt evolution and drivers - Public sector debt has "more than doubled over the last decade." - Public investment represented 38 percent of public expenditure on average from 2010 to 2020. - As of end-December 2020: - Public sector external debt stood at 54 percent of GDP. - Total public sector debt reached 68.8 percent of GDP. - Recent drivers of external public debt increases: - Investments associated with the Plan Senegal Emergent (PSE) in infrastructure, energy, and agriculture. - Investments related to the oil and gas sector. - Fiscal response to the COVID-19 pandemic. - Main holders of Senegal’s external debt: private creditors, the World Bank and regional development banks. ### Debt composition, concessionality, and special items - The 2021 SDR allocation counterpart on-lent by the BCEAO: CFAF 246.7 billion, or 1.6 percent of GDP; treated as domestic debt. - SDR loan terms used in the DSA: a 20-year loan with a 0.05% interest rate, with the option to rollover the debt upon maturity. - The DSA calculates present value of the SDR loan to capture its highly concessional nature; this reduces its initial impact on the DSA’s assessment. - Senegal’s public sector debt has become more concessional on average, as measured by the difference between the nominal and present value of the debt. - Note: The perimeter of public debt was expanded in 2017 to capture public and para-public enterprises, creating a structural break in the data; Senegal is the only WAEMU member country to use this broader definition. ### Access to markets and recent financing operations - Eurobond issuance: EUR775 million Eurobond in June 2021 (first Euro-denominated obligation). - Just under half of the proceeds used to buy back USD-denominated Eurobonds maturing in 2024, improving maturity profile and reducing rollover and FX risk. - Remainder used for financing the central government deficit and pre-financing for the state-owned oil company’s investments. - The Eurobond issuance is expected to help create space in the regional bond market for other WAEMU members and support the build-up of WAEMU pooled reserves. ### Debt service and DSSI participation - Public external debt service to exports: - Reached 23.5 percent in 2020. - Projected to remain at about 23 percent in the near term due to Eurobond buyback bringing forward external debt service from 2024 to 2021. - Expected to average about 20 percent over the medium term as recovery takes hold and hydrocarbon exports materialize. - Public external debt service projected to average about 16 percent of revenues over the medium term (Table 1). - Total public debt service projected to average around 26 percent of revenues and grants over the same period (Table 2). - Participation in G-20 DSSI: - DSSI provided around CFAF 30 billion in debt service relief (0.2 percent of GDP) over May-December 2020. - Extension until end-2021 expected to result in additional debt service relief of CFAF 71 billion (0.5 percent of GDP). - This CFAF 71 billion is CFAF 20 billion lower than projected in the previous DSA (June 2021) due to revised participation figures. - Deferred payments are incorporated in the DSA over 2022–27, averaging about CFAF 17 billion per year. ### Baseline macroeconomic assumptions and fiscal outlook - Real GDP growth: - Estimated at 5 percent in 2021 (compared to 3.7 percent at the time of the 3rd review). - Recovery continues in 2022 with growth around 5 ½ percent. - Onset of oil and gas production temporarily lifts growth in 2023 and 2024; growth projected to decline to 5.5 percent by 2026, close to long run average of about 5 percent. - Oil and gas projects: - Baseline includes Sangomar (SNE) offshore oil field and Greater Tortue Ahmeyim (GTA) gas project, with production expected to begin in the second half of 2023. - Share of oil production contributing to exports reduced to 70 percent (from 100 percent) to account for 30 percent destined for the domestic refinery. - Remaining financing needs of Petrosen for both projects estimated at CFAF 1,090 billion from 2021 through 2037. - Inflation projected to be 2 ½ percent in 2021 and average around 1.5 percent over the medium term. - Public sector deficit (central government deficit plus net lending/borrowing of SOEs): - Estimated at 7.4 percent of GDP in 2021. - Projected to stabilize at around 3 percent of GDP over the medium term as central government deficit converges toward regional target of 3 percent of GDP in 2024. - Drivers of stabilization: unwinding of one-off COVID-19 spending, enhanced revenue-mobilization, declining hydrocarbon sector financing needs, strengthened SOE financial performance. - Revenues: - Central government tax revenue declined by almost 1 percent of GDP in 2020 to 16.7 percent of GDP. - Non-hydrocarbon tax revenues projected to gradually increase to 20 percent of non-hydrocarbon GDP in 2024 (Medium-Term Revenue Strategy) and remain above that level over the medium term. - Oil and gas-related revenues expected to start adding to revenue from 2023 onwards. - Current account deficit: - Assumed 10 percent in 2020 and 10.6 percent in 2021. - Projected to sharply decline starting in 2023 as oil and gas exports come online and services exports recover. ### Oil and gas macroeconomic impact (Box 1 highlights) - Pre-production phase: FDI increased from about 2 percent of GDP to expected 7.8 percent of GDP in 2021. - Imports of services are expected to reach 9.9 percent of GDP in 2021. - Production phase (starting 2023) includes GTA (LNG) and Sangomar (oil). - Growth temporarily lifted to about 10 percent in 2023 and 2024 — a shift in the level of GDP; future growth not expected to benefit from further production increases. - It is assumed that 70 percent of crude oil and 100 percent of LNG will be sold abroad, adding about 5 percent of GDP to current exports of goods between 2023 and 2030. - Moderate public revenues expected in the medium term: staff expects revenues to average 0.7 percent of GDP through 2026 (high uncertainty). ### Borrowing strategy and financing plan - Revised 2021 budget financing: primarily concessional and semi-concessional loans (World Bank, African Development Bank, other partners) and the SDR-related BCEAO loan. - Gross financing in 2021: CFAF 2,061 billion (versus CFAF 1,415 billion in previous baseline). - DSA assumption: domestic borrowing will increase over time and account for an average of about 42 percent of total financing over 2022–26, from about 23 percent in 2021. - Eurobond issuance assumed to gradually increase over the long term (new issuances equivalent to the stock of maturing Eurobonds plus 20-30 percent) as Senegal shifts away from concessional external borrowing. ### Realism assessment and fiscal adjustment - Assumed primary balance adjustment path: 3.3 percent of GDP over 2021–23 (in the top quartile of historical distribution for LICs). - A significant portion of adjustment reflects one-off expenditures from COVID-19 in 2020 (4.5 percent of GDP) and those associated with the SDR allocation in 2021 (1.6 percent of GDP). - Staff judges reaching central government’s 3 percent fiscal deficit target by 2024 is realistic, conditional on implementation of revenue-enhancing measures. - High residual explained by expansion of debt perimeter in 2017. ### Country classification and stress testing - Debt carrying capacity rated as strong; Composite Indicator (CI) = 3.25 (up from 3.23). - Tailored stress test for market financing shock (reflecting outstanding Eurobonds) uses default parameters: - Temporary increase in cost of new commercial external borrowing by 400 basis points. - Nominal depreciation of the CFAF relative to the US dollar. - Shortening of maturities and grace periods. - Result: one-off breach of PV of debt-to-GDP ratio in 2022, but otherwise no flagged areas of concern. - Standard stress tests and market financing shock applied. ### External DSA and sensitivity analysis - Under baseline: - PPG external debt projected to peak at 57.9 percent of GDP in 2021 (compared to 57 percent in the 3rd PCI review) before steadily declining. - Present value of debt to exports close to the risk threshold in first year but declines thereafter. - External debt service to exports ratio breaches the risk threshold in 2021 due to front-loading from Eurobond buyback; this short-lived one-year breach is discounted for DSA risk ratings. - External debt service to revenues projected to average around 16 percent over the medium term. - Sensitivity analysis: - Three of the four external debt burden indicators breach their threshold under sensitivity analysis. - For PV debt-to-GDP ratio, the most extreme shock is a combination shock. - For export-related indicators, the most extreme shock is a shock to exports; sustained breaches also occur for the combination shock. - Vulnerabilities flagged under adverse conditions: slower global recovery affecting export markets, or significant delays in hydrocarbon sector development. ### Overall public debt risk and vulnerabilities - No breaches of the overall public debt risk indicator in the baseline scenario. - Total public debt projected to peak at 73 percent of GDP in 2021 before gradually declining. - Present value of public debt to GDP remains below its benchmark under baseline and steadily declines. - Present value of debt to revenues projected to gradually decline. - Debt service is projected to remain substantial, averaging about a quarter of total revenues and grants over the next five years. - Stress tests indicate greatest vulnerability to a growth shock: - Under the standard growth shock (simulating a growth rate of 2.4 percent in 2022–23), two of three public debt indicators would be set on an explosive growth path and the other would increase substantially. - Emphasizes importance of reforms to strengthen resilience by building fiscal space and enhancing medium-term growth potential. *IMF staff report (Senegal): DSA chapter content.* ### 17. Senegal remains at moderate risk of external debt distress, with limited space to ### 17. Senegal remains at moderate risk of external debt distress, with limited space to absorb shocks ### Overall assessment - Senegal is considered to have “limited space to absorb shocks” because the realization of the median observed shock is expected to result in a downgrade to high risk of debt distress. - Senegal’s overall risk of debt distress is assessed as moderate. - The country’s vulnerability stems from sensitivity to growth and export shocks and heightened uncertainty over the global economic outlook. ### Policy guidance and priorities - Near-term: focus on targeted support to the recovery while prioritizing concessional debt whenever possible. - Medium-term: gradual reduction in fiscal deficits to the agreed WAEMU target. - Fiscal management: prioritize mobilizing additional domestic revenues and seek concessional borrowing in the near term. - Debt management and fiscal risk containment: implement reforms to contain fiscal risks and continue strengthening debt management to ensure debt is channeled toward productive capital formation. - Interest payments: an overall increase in total interest payments calls for prioritizing concessional debt whenever possible. ### Risks and shock channels - Global recovery speed and vaccine access are primary determinants of the near-term outlook. - Slower global growth could hinder recovery. - Limited access to vaccines leaves Senegal vulnerable to future COVID-19 waves. - Higher global growth could be beneficial for Senegal’s growth and exports but may also: - Contribute to higher interest rates. - Increase imported commodity prices (such as oil), affecting terms of trade, fiscal balances (via domestic fuel price subsidies), and market access. - Recent Eurobond buyback operation has mitigated market access risk. - Hydrocarbon sector risks: - Sustained higher oil prices would strengthen the external and fiscal outlook by increasing profitability of new hydrocarbon projects. - Significant delays in hydrocarbon production would materially impact growth and revenues. - Other risks: natural disasters, regional security, and socio-political developments. ### Downside scenario (Box 2): assumptions and implications - Assumptions: - Lower growth due to a more protracted recovery from the pandemic, delayed and lower oil and gas production, and lower trend non-oil growth in the medium to long term. - Reduced goods and services exports due to lower oil and gas exports, weaker external demand, and less competitive supply of tradable goods. - A more gradual increase of the tax to GDP ratio than in the baseline reflecting incomplete implementation of the medium-term revenue strategy as tax policy measures face increasing resistance by vested interests. - A less ambitious fiscal consolidation and a higher medium-term fiscal deficit of 4.5 percent of GDP reflecting high subsidy needs and rising overall spending pressures. - Implications: - Debt vulnerabilities would be exacerbated. - The debt-to-GDP ratio would remain above 70 percent of GDP while debt service would rise rapidly. - External sustainability indicators of the DSA would worsen significantly and indicate high risk of debt distress, given limited space to absorb shocks. - Less successful domestic revenue mobilization would lead to less nominal spending despite the assumed higher fiscal deficit. ### Implementation progress (selected fiscal management reforms) - FY21 SDFP Performance and Policy Actions (PPAs) were successfully implemented by end FY21; three reform areas continue under FY22 SDFP: - PPA-1: establishment of a framework for publication of the annual borrowing plan (ABP) — ongoing in FY22 with a mechanism to publish quarterly debt bulletins, including information on SOE and PPP debt and assessments of the implementation of the Medium-Term Debt Management Strategy (MTDS) and the ABP. - PPA-2: adoption of an accelerated VAT credit refund procedure — to be supplemented in FY22 by reduction of tax expenditures, including selected VAT exemptions. - PPA-3: development and formal adoption of a detailed fiscal risk-assessment methodology for (i) the granting of public guarantees and on-lent loans to SOEs and (ii) the monitoring of SOEs’ credit risk, leading to the publication of a fiscal risk assessment for 2022 as part of the FY22 SDFP. *Source: IMF chapter content provided.* ### 20. The authorities share staff’s overall assessment. The authorities agree with the DSA ### 1senea2022001 - 20. The authorities share staff’s overall assessment. The authorities agree with the DSA ### Authorities’ assessment and policy stance - The authorities share staff’s overall assessment and agree with the DSA assessment. - Recognize that there is limited space to absorb shocks, especially in the near term. - More optimistic about the boost to medium-term growth from both hydrocarbon projects and other reforms to enhance competitiveness. - To reduce the country’s reliance on debt financing, the authorities are committed to: - Gradually reducing fiscal deficits to meet the regional target. - Mobilizing higher revenues through the MTRS. - In the meantime, the authorities will continue to look for pro-active debt management opportunities to: - Help smooth out debt service payments. - Further mitigate FX risks. ### Debt outlook and sustainability indicators (selected) - External debt (nominal) series (percent or levels as reported): 70.0, 73.9, 74.7, 75.2, 73.4, 69.8, 65.0, 62.9, 61.0, 54.7, 39.5 - Of which: public and publicly guaranteed (PPG) external debt: 50.1, 52.8, 54.0, 57.9, 57.2, 53.4, 49.5, 46.8, 45.0, 38.5, 23.3 - Identified net debt-creating flows (selected): -0.3, 3.3, 0.2, -0.6, -2.4, -5.3, -6.9, -3.3, -3.1, -1.9, -2.6 - Endogenous debt dynamics (selected): -3.6, 2.1, -1.9, -1.5, -1.5, -4.0, -4.3, -1.3, -1.3, -1.2, -0.9 - Residual (selected): 9.1, 0.6, 0.6, 1.1, 0.6, 1.8, 2.1, 1.2, 1.2, 0.5, 0.7 - Sustainability indicators (selected): - PV of PPG external debt-to-GDP ratio (selected years): 48.9, 49.8, 49.4, 46.2, 43.1, 41.0, 39.8, 34.8, 21.3 - PV of PPG external debt-to-exports ratio (selected years): 245.5, 228.9, 218.7, 191.8, 154.5, 148.6, 148.6, 125.6, 52.3 - PPG debt service-to-exports ratio (selected): 15.9, 13.3, 23.5, 23.3, 20.3, 18.6, 17.7, 17.2, 20.4, 13.4, 7.2 - PPG debt service-to-revenue ratio (selected): 13.5, 11.2, 16.4, 17.1, 15.3, 14.7, 16.0, 14.7, 16.9, 11.5, 8.9 - Gross external financing need (Billion of U.S. dollars, selected): 1.8, 1.4, 1.9, 2.0, 1.4, 1.3, 1.1, 1.4, 1.9, 2.3, 2.2 - PV of external debt (memorandum, selected): 69.6, 67.1, 65.6, 62.6, 58.6, 57.1, 55.7, 51.0, 37.5 - Total external debt service-to-exports ratio (selected): 19.1, 18.7, 28.7, 28.2, 24.8, 21.2, 19.6, 19.1, 22.4, 15.1, 8.2 ### Key macroeconomic assumptions (selected) - Real GDP growth (in percent): 6.2, 4.4, 1.5, 5.0, 5.5, 9.5, 10.3, 5.4, 5.5, 5.3, 4.9, 4.6, 6.1 - GDP deflator in US dollar terms (change in percent): 3.7, -3.5, 4.3, 7.3, 3.5, 3.5, 3.0, 3.0, 2.7, 1.9, 2.3, 0.0, 3.1 - Effective interest rate (percent): 3.6, 3.9, 3.2, 2.8, 3.4, 3.3, 3.3, 3.3, 3.2, 3.0, 2.5, 2.7, 3.1 - Growth of exports of G&S (US dollar terms, in percent): 19.2, 6.7, -15.7, 22.9, 13.5, 20.7, 31.8, 7.3, 5.0, 10.4, 13.2, 4.8, 13.0 - Growth of imports of G&S (US dollar terms, in percent): 19.6, 2.3, 0.0, 19.9, 8.1, 10.1, 12.6, 7.5, 5.7, 11.4, 11.4, 6.4, 9.4 - Government revenues (excluding grants, in percent of GDP): 27.7, 29.6, 28.6, 29.6, 30.0, 30.5, 30.9, 32.3, 32.3, 32.4, 32.5, 20.4, 31.6 - Grant element of new public sector borrowing (in percent, selected): 9.1, 19.0, 19.0, 17.1, 21.6, 16.1, 15.2, 17.4, 16.4 ### Risk assessment and stress tests (selected) - IMF DSA indicators and stress tests present scenarios including historical scenario, most extreme shocks (combination), and tailored stress tests (e.g., market financing, natural disaster, commodity price). - Figure summaries indicate a qualification in the Moderate Risk category for 2021–31 (figures show trajectories for debt service-to-revenue ratio, PV of debt-to-exports ratio, PV of debt-to-GDP ratio, and debt service-to-exports ratio under baseline and most extreme shocks). - Sensitivity and bound tests report alternative scenarios and bound tests for PV of debt-to-GDP ratio, PV of debt-to-exports ratio, debt service-to-revenue ratio, and debt service-to-exports ratio with multiple numeric series across 2021–31. ### Policy recommendations and operational measures (from authorities’ stated approach) - Gradually reduce fiscal deficits to meet the regional target. - Mobilize higher revenues through the MTRS. - Pursue pro-active debt management to smooth debt service payments and mitigate FX risks. - Leverage expected medium-term growth from hydrocarbon projects and competitiveness-enhancing reforms to improve debt dynamics. *Sources: Country authorities; and staff estimates and projections.* ### Annex I. Debt Holder Profile Table ### Annex I. Debt Holder Profile Table ### Debt decomposition and key debt statistics (as presented) - Total: 18094100691838207924127.07.99.2 - Central Government: 1651891631562178018825.96.87.2 - State-owned enterprises (SOEs): 1576962762995311.01.12.0 - External: 1339574511002122212103.84.64.6 - Multilateral creditors: 530229201361982960.50.81.1 - IMF: 50832 - World Bank: 26651510 - ADB/AfDB/IADB: 106364 - Other Multilaterals: 106664 - o/w: IsDB: 49632 - EIB: 18511 - Bilateral Creditors: 324318122742094511.00.81.7 - Paris Club: 1042643101110.10.00.4 - o/w: France: 89453 - Spain: 5100 - Non-Paris Club: 22011282432093400.90.81.3 - o/w: EXIM China: 136385 - EXIM India: 23411 - Bonds (Eurobonds): 419323162657804271.03.01.6 - Commercial/Other International creditors: 6574232635371.20.10.1 - o/w: SGCIB: 30121 - AFREXIM: 9110 - SOEs (domestic/external breakout): 85253N/AN/AN/AN/AN/AN/A - Domestic: 312317125615586712.12.12.6 - T-Bills: 10210010000.00.40.0 - Bonds: 22981393932935541.51.12.1 - Loans: 723431681511170.60.60.4 - SOEs (domestic): 72543N/AN/AN/AN/AN/AN/A - Memo items: - Collateralized debt: 000 - o/w: Related - o/w: Unrelated - Contingent liabilities: 000 - o/w: Public guarantees - o/w: Other explicit contingent liabilities3 - Nominal GDP: 26317 ### Economic developments in 2021 and near-term outlook - Real GDP growth in 2021: 5 percent - Inflation (year-on-year, October): 3.2 percent - Core inflation (excluding energy and fresh produce, monthly, October vs October 2020): 3.9 percent - Fiscal deficit target for 2021: maintain at 5.4 percent of GDP - Regional deficit norm target: 3 percent by 2024 - Credit to the economy: increase of 3.6 percent over the first eight months of 2021 (vs 1.5 percent in 2020) - Gross NPLs to total loans: 13.3 percent in December 2020 → 12.9 percent at end-August 2021 - Migrant remittances: increased by 25.3 percent year-on-year at end-June 2021 - Current account deficit: should remain high at around 10 percent of GDP - Growth projections: - 2022: 5.5 percent - 2023–2024 average: 10 percent (linked to start of oil and gas production) - Authorities’ assessment: central government outstanding debt-to-GDP ratio remains below the regional threshold of 70 percent and is expected to start falling gradually from 2022 ### Program performance (implementation to mid-2021) - Performance criteria and quantitative targets at end-June 2021: all met except the indicative quantitative target related to the ceiling on single-sourced procurement contracts - Structural benchmarks: six out of eight implemented - Governance of “Force COVID-19” resources: progress made; budget execution reports, monitoring committee report, and public procurement office audit report published - Court of Auditors audit report on Covid-19 funds: final report to be published in March 2022 ### Medium-term policies and fiscal strategy - Health policy: goal to vaccinate 80 percent of the population; accelerate vaccination and support domestic production of vaccines as of 2022 - Revenue mobilization: - Target tax-to-GDP ratio (excluding hydrocarbons) in 2024: 20 percent - Actions: implementation of the Medium-Term Revenue Mobilization Strategy (MTRS), digitalization master plan, overhaul of mixed tax-customs control brigade, ensure implementation unit resourced - Reduce tax expenditures and strengthen revenue administration efficiency - Hydrocarbons governance: four principles in draft law on distribution/management of future hydrocarbons revenues: - (i) prohibition of any early transfer of hydrocarbon resources and/or any anticipated security on these resources - (ii) full budgeting of fiscal and non-fiscal revenues derived from exploitation of hydrocarbons - (iii) creation of an intergenerational fund - (iv) creation of a stabilization fund - Public spending priorities: fight Covid-19, implement priority action plan (PAP2A), focus on social infrastructure (education, health, social services) - Energy subsidies: roadmap for gradual elimination from 2023 to be published by end of June 2022, including communication and support for disadvantaged households; reactivation of decree relating to revision of fuel prices and revision of electricity prices if necessary - Budget and public investment management: - Implement multi-year budget framework - Steps to operationalize programmatic chain of responsibility and deconcentrate procurement in 2022 - Projects evaluated annually: increased from 12 in 2015 to 86 in 2021 (now annexed to the Budget) - Debt policy and management: - Commitment to prudent debt policy to remain at moderate risk of debt distress - Short-term: limit external borrowing; use non-concessional financing only for high internal rate of return projects - Action plan to improve debt management: monitor public and parastatal entity debt, governance of information system, technical and functional issues ### Social protection, private sector development, and financial inclusion - Social protection: - Institutionalize Programme de bourses de sécurité familiale (PBSF) - Extend Registre national unique (RNU) to include new vulnerable groups - Target: reach at least one million households by October 2022 - Reform emergency socio-economic integration and youth employment program governance and management - Private sector and structural reforms: - Triennial program for reforming the business environment and competitiveness (PREAC) and "Compact with Africa CwA" reforms underway (energy, real estate, judicial environment) - Rationalize administrative procedures, labor legislation, improve credit information - Financial inclusion targets (national strategy 2021-25): - 65 percent of adults - 90 percent of small and medium enterprises (SMEs) - Banking sector: restructuring process of three non-systemic banks with capital shortfalls monitored by BCEAO, the Banking Commission, and the government - AML/CFT: implement action plan to exit reinforced surveillance of FATF; address strategic deficiencies ### Conclusion and authorities’ request - Authorities’ commitments: continue implementing objectives of the PCI and program supported by the SBA/SCF; pursue reforms under the PSE to achieve strong and sustainable growth while preserving macroeconomic stability and improving public financial management and the business environment - Request to Directors: support for completion of the fourth review under the PCI, the first reviews under the SBA and arrangement under the SCF, and request for modification of performance criteria and quantitative targets *Annex I. Debt Holder Profile Table — 1senea2022001.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1senea2022001.pdf_