## EXECUTIVE SUMMARY (1senea2023002) ## Source details **Canonical URL:** [EXECUTIVE SUMMARY (1senea2023002)](https://www.imf.org/-/media/files/publications/cr/2023/english/1senea2023002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1senea2023002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1senea2023002.pdf.json) --- ### Context, shocks, and near- to medium-term outlook - External and domestic shocks in 2022: COVID-19 pandemic; rising global commodity prices; global slowdown linked to the Russian invasion of Ukraine; Ecowas sanctions against Mali; US dollar appreciation; domestic spending pressures; tightened global and regional financing conditions. - 2022 impacts: - Economic activity dampened. - External and fiscal deficits widened. - Debt levels increased. - Regional international reserves eroded. - Near-term outlook (2023): - Challenging external environment and likely delays in the start of hydrocarbon production will weigh on activity in 2023. - Projected non-hydrocarbon 2023 real GDP growth revised down to 5.3 percent from 6 percent. - If hydrocarbon production starts in Q4 2023, total growth could reach 8.3 percent. - Inflation projected at 5 percent (up from 3.5 percent previously projected). - Current account deficit projected to remain high at about 13 percent of GDP. - Medium-term outlook: - Temporary boost from oil and gas expected; 2024 real GDP growth projected to 10.6 percent and 2025 to 7.4 percent. - Non-hydrocarbon GDP expected to reach potential around 6 percent given prudent macro policies and structural reforms. - Inflation projected to abate to 2 percent. - Climate: - Climate change impact on Senegal projected to be severe; reforms to adapt and reduce greenhouse emissions rank high on authorities’ agenda. ### Key macro developments and selected 2021–2025 projections - Growth and inflation: - Real GDP growth: 6.5 percent (2021); about 4 percent (2022). - Average annual inflation: 9.7 percent (2022); eased to 9.0 percent y-o-y by April 2023. - Core inflation: 6.3 percent in April 2023 (from 5.8 percent in December 2022). - External sector and reserves: - Current account deficit: 19.9 percent of GDP (2022) from 11.2 percent (2021). - Regional reserves: declined from 5.6 months of imports at end-2019 to 3.8 months at end-April 2023. - Fiscal and public debt: - Overall fiscal deficit: 6.6 percent of GDP (2022). - Energy subsidies: 4 percent of GDP (2022). - Public sector debt: 76.6 percent of GDP (2022). - Central government debt at end-2022: 68.2 percent of GDP (about 90 percent of total public debt). - Debt risk classification: moderate (DSA), with PV of public debt payments and debt service to exports ratios edging toward high-risk levels. - Selected macro projections (2023–2025): - Real GDP: 4.0 (2023 Est.); 8.3 (2023 Proj. if hydrocarbon) / 5.3 (2023 Proj. non-hydrocarbon); 10.6 (2024 Proj.); 7.4 (2025 Proj.). - Non-hydrocarbon GDP: 5.9 (2023 Proj.); 5.3 (2024 Proj.); 6.0 (2025 Proj.). - CPI inflation, average: 9.7 (2023 Est.); 3.1 (2023 Proj.); 5.0 (2024 Proj.); 2.0 (2025 Proj.). - Net lending/borrowing incl. grants: -6.6 (2023 Est.); -4.5 (2023 Proj.); -4.9 (2024 Proj.); -3.9 / -3.0 (2025 Proj. varies). - Current account balance: -19.9 (2023 Est.); -8.8 (2023 Proj.); -13.3 (2024 Proj.); -6.1 / -4.2 (2025 Proj. varies). - Gross Public Sector Debt: 76.6 (2023 Est.); 71.4 (2023 Proj.); 77.7 (2024 Proj.); 73.2 / 70.4 (2025 Proj. varies). ### Balance of risks - External downside risks: - Escalation of the war in Ukraine; tighter regional/global financial conditions; deterioration of terms of trade; further US dollar appreciation. - Domestic downside risks: - Political polarization and fiscal slippages ahead of 2024 presidential elections; extreme climate events. - Upside risks: - Higher oil and gas prices; launch of phase 2 Sangomar and GTA projects; start of Yaakar-Teranga gas project. - Hydrocarbon timing: - Oil production delay to 2024 with lower volume would negatively affect revenues and exports. --- ### IMF Arrangements Requested and Program Framework ### Requested IMF financing and program objectives - Authorities requested: - A 36-month ECF/EFF with access of 350 percent of quota (SDR 1,132.6 million). - Breakdown: SDR 377.53 million (116.67 percent of quota) under ECF; SDR 755.07 million (233.33 percent of quota) under EFF. - A 36-month Resilience and Sustainability Facility (RSF) with access of 75 percent of quota (SDR 242.70 million). - Program objectives and priorities: - Reduce debt vulnerabilities via growth-friendly fiscal consolidation. - Strengthen governance, fiscal transparency, AML/CFT. - Deliver inclusive, job-rich growth: strengthen social safety nets, promote gender equality, improve business environment. - RSF to support climate mitigation, adaptation, and budget integration of climate considerations. ### Program financing and coverage - 2023 program macro framework includes budget financing of: - CFAF 438.2 billion through the IMF. - CFAF 188.2 billion through the World Bank. - CFAF 92.1 billion through the African Development Bank. - CFAF 72.2 billion through the French Development Agency. - CFAF 31.0 billion from Japan. - Financing assurances: firm for first 12 months; good prospects thereafter. - Over program period, around 50 percent of projected financing gap covered by the IMF UCT program; remainder by parallel budget support from partners. --- ### Pillar I — Building Fiscal Resilience: strategy, measures, and targets ### Fiscal consolidation strategy and fiscal rule - Program anchor: return to regional fiscal deficit target of 3 percent of GDP by 2025. - New fiscal rule: non-hydrocarbon primary balance in percent of non-hydrocarbon GDP (law on management of hydrocarbons). - Revenue-side anchor: reach MTRS objective of collecting tax revenues of 20 percent of non-oil GDP by 2025. - Requires raising additional non-oil tax revenues by 0.5 percentage point of non-oil GDP per year on average between 2023-2025. - In 2023 focus on revenue administration measures; tax policy measures to be adopted in 2024 budget. - Hydrocarbon revenues expected to reduce the fiscal deficit by 0.7 percentage point of GDP on average. - Spending-side approach: - Rationalize current spending by -3.4 percentage points of GDP by gradually eliminating untargeted energy subsidies and stabilizing public wage bill in percent of non-oil GDP. - Maintain public investment above 7 percent of GDP as in 2022. ### 2023 fiscal stance and adjustment package - Authorities committed to containing fiscal deficit at 4.9 percent of GDP in 2023 (CFAF 919.7 billion). - Emerging pressures (absent new measures): - Revenues could be -0.4 percentage point of GDP lower than projected. - Higher interest payments: 0.4 percent of GDP. - Energy subsidies carryovers: +0.6 percentage point of GDP. - Offset package to maintain agreed deficit: - Identified revenue-increasing measures of 0.7 percentage point of GDP, including one-off land sale of CFAF 57 billion (0.3 percent of GDP). - Commitments to generate 0.7 percentage point of GDP in savings via cuts in other current spending (-0.3 percentage point) and postponing some domestically-financed projects (-0.4 percentage point). - Authorities committed to take additional measures (further cuts in domestically-financed projects) if needed. ### Revenue measures and expected fiscal yields (preserve exact values) - Text Table 3 — Revenues Increasing Measures Identified in 2023 (Expected Fiscal Yield, in percent of GDAP): - Tax administration measures: 0.15 - Withholding tax on fuel products sales made in Senegal by non resident individuals (CFAF 0.5/Kg): 0.02 - Introduction of a levy tax on Insurance Companies (1% of the companies' turnover for insurance companies and 0.5% for life insurance premiums): 0.01 - Additional income and capital gains taxes collected from subcontracting companies working on oil and gaz projects/fields: 0.07 - One-off proceeds from the sale of government land (LeDantec Hospital Dakar): 0.30 - Additional Income taxes resulting from the increase in the fiscal shield on withholding taxes on government employees' salaries: 0.06 - Unwinding the suspension of import tax and customs duty on edible oil and sugar, which will yield around CFAF 15 billion: 0.08 - Total Expected Fiscal Yield: 0.70 - Text Table 4 — Revenues Measures and Expected Fiscal Yield During the Proposed Program (Expected Fiscal Yield 2023-2025): - Tax administration measures: 0.2 - Withholding tax on fuel products sales made in Senegal by non resident individuals (CFAF 0.5/Kg): 0.03 - Introduction of a levy tax on Insurance Companies (1%/0.5%): 0.05 - Additional income and capital gains taxes from subcontracting companies on oil and gaz projects/fields: 0.14 - VAT on online transactions (around CFAF10 billion/year starting in 2024): 0.07 - Rationalization of Tax exemptions (about CFAF 100 billion/year starting from 2024): 0.90 - Unwinding suspension of import tax and customs duty on some staple foods (edible oil and sugar, around CFAF 15 billion/year): 0.13 - Total Expected Fiscal Yield: 1.52 ### Energy subsidies and elimination path - Fuel and electricity subsidies: 4 percent of GDP (2022). - January 2023: electricity prices increased by 17 percent on average; gasoline and diesel prices increased by 100 CFA. - Combined with lower international oil prices, energy subsidies projected to decline to about 1.5 percent of GDP in 2023. - Carryover obligations from 2022 of 2.2 percent of GDP remain unpaid. - Commitments to eliminate untargeted electricity, gasoline, and diesel subsidies by 2025. - Establish independent body to determine and publish fuel prices with revised pricing formula and smoothing mechanism (Structural Benchmark, November 2023). - Study to revise electricity tariff structure including “social tariff” and external audit of subsidy methodology (MEFP ¶24). ### Public financial management and public investment - December 2022 Court of Accounts audit on COVID-19 relief funds revealed severe weaknesses in spending and procurement procedures. - Commitments: - Eliminate treasury deposit accounts (comptes de dépôts) used by central government entities (Structural Benchmark, end-June 2024). - Eliminate capital transfers by ensuring all projects with new procurement contracts executed as government investment (Structural Benchmark, end-December 2023). - PIMA update: public investment efficiency score declined from 67 to 57 percent since 2019. - PIMA-based priorities: strengthen PIP planning-budget link, monitor investments by public enterprises and PPPs, clarify project selection criteria, reduce derogatory execution procedures. ### Debt strategy and program safeguards - Public sector debt assessed sustainable over medium term (DSA) but vulnerabilities exist. - Agreed actions to bring public sector debt on downward path: - Fiscal consolidation. - Rigorous government approval for further SOE borrowing. - Strengthen contingent risk management from PPPs and improve fiscal risk statement. - Program introduces: - QPC on PV of public sector external new borrowing. - Indicative target on stock of public sector debt. --- ### Pillar II — Enhancing AML/CFT and Governance ### Governance challenges and commitments - Governance weaknesses: - Significant public spending via parastatal sector with weak information systems. - Delayed publication of reports by control entities. - Transparency International CPI score: 43 out of 100 (two points down from 2020). - Asset declaration requirements not effective. - Missed September 2022 deadline to exit FATF enhanced oversight, but progress made since 2021. - Commitments: - Strengthen information systems of main extrabudgetary entities and extend statement of government financial operations to them; publish statement annually in October. - Timely and mandatory publication of main control entities’ reports. - Draft law to reinforce OFNAC powers; mandatory reporting by General Prosecutor on OFNAC referrals (Structural Benchmark, end-October 2023). - Revise asset declaration framework with dissuasive sanctions (Structural Benchmark, end-October 2023). - Finalize draft law to establish a financial prosecutor office by October (year implied in MEFP). ### FATF grey-list exit measures - Target exit from FATF grey list by October 2023. - Key actions (MEFP ¶32): - Operationalization of beneficial ownership (BO) registry. - Effective implementation of a targeted financial sanctions regime. - Training of supervisors of DNFBPs. - BO-related benefits: financial stability; correspondent banking relationships; tax revenue; transparency of public procurement and mining. --- ### Pillar III — Building Socioeconomic Resilience: social protection, inclusion, and structural reforms ### Social protection and inclusion - Progress and actions: - Expand Single National Registry (RNU) coverage to one million households (targeting underway). - Adopt digital payment system to avoid delays. - Settle outstanding two quarters of cash transfers not paid since 2021 (Prior Action; settlement in June 2023). - Increase Family Security Grant from CFAF 25,000 to CFAF 35,000; fiscal cost estimated at CFAF 51,501,025,200 per year. - Extend Single National Register to one million households by June 2024 (Structural Benchmark, end-June 2024). ### Gender and labor-related measures - Key indicators: - UNDP Gender Inequality Index: rank 131st (2021). - Secondary education (35+): females 11 percent; males 30 percent. - Labor force participation (15-64): women 39 percent; men 66 percent. - About 75 percent of workforce in agriculture. - Commitments: - Increase social spending targeted to girls and women. - Remove obstacles to girls’ education and facilitate transition to secondary. - Provide training and credit to female entrepreneurs. - Continue gender budgeting since 2016. ### Business environment and structural reforms - Measures to increase private sector contribution: - Labor code reform: preliminary draft available Q2 2023. - Commercial court functional and digitized; plans for appeals and additional courts. - Investment code revision underway; alignment with international best practice. - Establish centralized and integrated land management system (Structural Benchmark, end-December 2023). - Online collateral registry combining movable collateral and mortgages with BCEAO (Structural Benchmark, end-December 2023). - National Private Sector Development Strategy (SNDSP) and reforms to support “National Champions.” ### SOEs, banking sector, and fiscal risks - Post Office group (La Poste): precarious finances; agreed to speed restructuring; any public support contingent on business model and governance changes. - Two non-systemically ailing banks: recapitalization plans, governance reforms, monitoring by Banking Commission. - Fiscal risk monitoring: strengthen CNDP, publish more debt transparency, make on-lending conditions clear. --- ### RSF — Climate agenda: costs, vulnerabilities, and reform program ### Climate vulnerability and NDC costing - Climate projections and vulnerabilities: - Climate change could reduce African GDP growth by 2 to 4 percentage points by 2040 and by 10 to 25 percentage points by 2100. - Senegal exposures: 74 percent of population in coastal areas; about 75 percent of workforce in agriculture. - NDC (2021) adaptation and mitigation priorities identified. - NDC cost estimate: about US$13 billion (of which about US$8 billion related to mitigation), an average of 7 percent of GDP per year during 2023-30. - Climate-PIMA findings: lack of central coordination for green public investment; spatial/urban rules marginally consider climate; weak ex-ante evaluation and project selection without climate criteria. ### RSF reform program — three pillars (MEFP ¶¶47-50) - Pillar I: Supporting mitigation goals - Gradual phase-out of untargeted electricity subsidies per January 2023 roadmap. - Adopt implementation plan for greener public transport and reflect in budget. - Explore carbon tax options; roadmap by end-2023. - Adopt environmental code standards for oil and gas to ban flaring and methane dispersion. - Pillar II: Accelerating adaptation - Adopt Country Development Strategy (PAPIII) to reflect NDC and priority costing. - Strengthen water management institution; collect geo-tagged climate-risk data. - Enact new Urban Code and Construction Code to address sea level rise and flooding. - Pillar III: Integrate climate into budget - Adopt implementation plan of C-PIMA recommendations by end-July 2023. - Assess and quantify disaster-related fiscal risks in Risk Statement Annex for 2025 budget law. - Adopt and publish a PIM decree integrating climate considerations at each project development step. ### Selected RSF monitoring and reform measures (dates preserved) - RM1: Adopt and publish a PIM decree integrating climate considerations (End-October 2023). - RM2: Adopt implementation plan for greener public transport and reflect in 2024 PIP budget (End-November 2023). - RM3: Adopt PAP III at Council of Ministers reflecting NDC (End-April 2024). - RM4: Submit Urban Code and Construction Code laws to National Assembly (End-June 2024). - RM5: Adopt electricity tariff adjustment plan restoring cost recovery by end-2025 (End-June 2024). - RM6: Assess and quantify disaster-related fiscal risks for 2025 budget law (End-September 2024). - RM7: Publicly disseminate key climate risk info via National Committee on Climate Change (End-December 2024). - RM8: Approve inter-ministerial water roles decree (End-March 2025). - RM9/RM10: Guidelines for climate budget tagging and binding PIP appraisal instructions (End-September 2025). ### Climate finance needs and capacity - NDC financing needs: US$13 billion (2020-30); external support needed: US$8.2 billion (2020-30). - Recent climate-related inflows: US$400-500 million a year (2018-2020), about one quarter grant. - RSF arrangement: staff supports 36-month RSF with access of 75 percent of quota; RSF to go towards budget support and substitute more expensive domestic financing. --- ### Program Monitoring, Performance Criteria, and Targets ### Key quantitative and structural monitoring elements - Program monitored semi-annually with QPCs, ITs, and structural benchmarks (Tables summarized in MEFP). - Selected QPCs and indicative targets (examples as in document): - Floor on nonhydrocarbon Primary Balance (CFA billion): -335 -417 -335 (table entries). - Floor on nonhydrocarbon tax revenue (CFA billion): 1,602 3,514 1,882 (table entries). - Ceiling on PV of public sector new external borrowing (USD million): 3,755 3,755 1,828 (table entries). - Ceiling on total nominal public debt (CFAF billion): 14,591 14,591 15,507 (table entries). - Floor on social expenditures (percent of total spending): 40 40 40. - Ceiling on stock of government amounts payable (CFA billion): 40 40 40. - Test dates: - First review test date: June 30, 2023. - Second review test date: December 31, 2023. ### Definitions and reporting requirements (highlights) - Non-hydrocarbon primary fiscal balance: total government revenue (incl. grants) excluding hydrocarbon exploitation revenue and proceeds from sale of central government non-financial assets to public sector entities, minus domestic government expenditure excluding interest. - Ceiling on PV of new external borrowing: PV calculated using program discount rate of 5 percent; exemptions include import-related trade debts with maturity < one year, rescheduling agreements, and IMF disbursements. - Reporting: monthly provisional data on non-hydrocarbon primary fiscal balance and components within six weeks; quarterly reporting on PV of new external borrowing within one month after quarter end, etc. - Indicative targets include ceilings on total nominal public debt, ceilings on non-competitive procurement share, and floors on social expenditure. --- ### Debt Sustainability, Risks, and Recommendations (DSA excerpts) ### Debt levels and composition (end-2022) - Public debt under broad definition: 76.6 percent of GDP (end-2022). - Government debt: 68.2 percent of GDP. - SOE debt: 12.7 percent of GDP (of which 4.3 percent are loans from Government to SOE sector netted out). - Public sector debt rose from 63.6 percent (end-2019) to 73.3 percent (end-2021) and to 76.6 percent (end-2022). - Debt composition shifts (2018–2022): - Share of external debt fell from 81.4 percent to 73.7 percent. - Share of SOE debt in consolidated public sector debt rose from 12.4 percent to 16.6 percent. - Major external creditors and holdings (end-2022): - Total public debt stock (m USD): 21,357 (100.0 percent). - Central Government external debt (m USD): 15,732 (73.7 percent). - Eurobonds (m USD): 4,045 (18.9 percent). - Multilateral creditors (m USD): 6,517 (30.5 percent). - IMF (m USD): 991. - World Bank (m USD): 2,975. - Domestic debt (m USD): 5,626 (26.3 percent). ### DSA outcomes and stress tests - Senegal’s debt carrying capacity: Composite Indicator 3.15; classified as strong. - Risk ratings: - Risk of external debt distress: Moderate. - Overall risk of debt distress: Moderate. - Stress-test vulnerabilities: - All four external debt risk indicators breach thresholds under sensitivity analysis. - Public debt most vulnerable to a growth shock; under standard growth shock all three public debt indicators can become explosive. - One-off marginal breaches noted: external debt service to exports ratio in 2026; PV of total public debt to GDP ratio in 2023. - Debt service needs and Fund metrics: - Total stock of debt to Fund expected to reach 4.7 percent of GDP (including RSF access). - Upcoming total debt service to Fund will peak at 4.1 percent of government revenue and 3.0 percent of exports of goods and services in 2026. - External PPG debt service for 2023 forecasted at 19.1 percent of exports. ### Key recommendations - Prioritize concessional external borrowing and regional CFAF financing; limit commercial debt to high-return projects. - Active debt management to smooth external debt service peaks and monitor maturity profile. - Strengthen debt data, transparency, and monitoring (CNDP, consolidated TOFE, SOE reporting). - Maintain fiscal consolidation to bring deficit to 3 percent of GDP by 2025 and reduce debt vulnerabilities. --- ### Capacity Development and Implementation Support ### IMF TA priorities (Annex IX) - Core TA focus areas: - Domestic revenue mobilization and MTRS implementation. - Improved PFM and public investment management (PIMA/C-PIMA follow-up). - Hydrocarbon revenue forecasting and management (FARI model). - Climate tagging and integrating climate in project selection and budget. - Planned TA timing highlights: - MTRS implementation support (2023H2). - Automate prélevement de conformité fiscale settlement at customs (2023H2). - Specify fiscal rule and tax policy unit capacity building (2023H2-2024H1). - Debt unit capacity building and CNDP operationalization (2023H2-2024H2). - Climate-tagging assistance (2025H1-2025H2). - Engagement strategy: intensify hands-on training, resident advisors, and peer learning to mitigate capacity and political economy risks. --- ### Selected Additional Notable Figures and Fiscal Execution (Q1 2023 highlights) - Q1 2023 fiscal execution (end-March): - Overall budget deficit at end-March 2023: CFAF 566.5 billion. - Revenues executed: CFAF 790.6 billion. - Expenditures executed: CFAF 1,357.1 billion. - Revenues (excluding grants) at end-March 2023: CFAF 759 billion (forecast: CFAF 814.8 billion) → shortfall CFAF 55.8 billion. - Interest payments at end-March 2023: CFAF 149.9 billion; expected CFAF 78 billion higher than initial budget forecast for the year. - Monetary policy: - BCEAO key rates raised by 100 basis points since June 2022. - BCEAO key rates: 3 percent (minimum bid rate) and 5 percent (marginal lending rate). - Program exchange rates (as of December 31, 2022): - 1US$/619.481CFAF - 1US$/1.059 Euro - 1SDR/1.329 US$ --- *Source: IMF — EXECUTIVE SUMMARY and supporting annexes and text (content unit: 1senea2023002) — June 9, 2023.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and outlook - A cascade of external and domestic shocks dampened economic activity in 2022 and weakened macroeconomic positions: COVID-19 pandemic; rising global commodity prices; global economic slowdown linked to the Russian invasion of Ukraine; Ecowas sanctions against Mali; US dollar appreciation; domestic spending pressures; and tightened global and regional financing conditions. - Impacts observed in 2022: - Economic activity dampened. - External and fiscal deficits widened. - Debt levels increased. - Regional international reserves eroded. - Near-term outlook (2023): - The challenging external environment, together with likely delays in the start of hydrocarbon production, will continue to weigh on economic activity in 2023. - Medium-term outlook: - Prospects remain favorable with a temporary boost from oil and gas production, but ambitious reforms are needed to: - Reduce macroeconomic imbalances. - Put debt on a downward trajectory. - Make growth more inclusive. - Climate considerations: - The impact of climate change in Senegal is projected to be severe. - Reforms to adapt to climate change while contributing to lower greenhouse emissions rank high on the authorities’ agenda. ### ECF/EFF request (36-month) - The authorities requested a 36-month ECF/EFF with access of 350 percent of quota to address protracted and structural balance of payment needs. - Program objectives and proposed policy priorities: - Reduce debt vulnerabilities by embarking on a growth-friendly fiscal consolidation. - Strengthen governance, including fiscal transparency, anticorruption and anti-money laundering legislation and financing of terrorism (AML/CFT). - Deliver more inclusive and job-rich growth by strengthening social safety nets, promoting gender equality, and improving the business environment. ### RSF request (36-month) - The authorities requested a 36-month Resilience and Sustainability Facility (RSF) with access of 75 percent of quota to tackle longer-term structural challenges related to climate change and the implementation of climate policies. - Proposed RSF reform areas: - Supporting Senegal's climate change mitigation objectives. - Accelerating Senegal's climate change adaptation. - Integrating climate change considerations into the budget process. ### Recent mission and consultations - Discussions were held in Dakar (April 27-May 11, 2023). - Mission leadership and team composition (selected): - Head: Mr. Gemayel; mission comprised Messrs. Mbohou Mama, Nshimiyimana, and Rosa (all AFR), Ms. Caselli (FAD), and Mr. Ungerer (SPR). - Assisted by Mr. Koulet-Vickot (Resident Representative), Messrs. Ba and Fame (local economists), and Ms. Wane (local administrative assistant). - Ms. Bah (OED) joined; Mr. Verhagen from the Global Center on Adaptation (GCA) joined part of the mission. - World Bank staff joined some meetings. - High-level meetings included President Macky Sall, Prime Minister Amadou Ba, multiple Ministers, the Deputy Governor of the BCEAO Norbert Toe, the National Director of the BCEAO Ahmadou Al Aminou Lo, senior government officials, business community, civil society, and development partners. ### Context — key structural reform gaps and priorities - Over the past three years, a sequence of adverse shocks altered solid fundamentals and reform momentum; some reforms remained unfinished under the previous IMF-supported program (Box 1), specifically: - Broadening the tax base. - Eliminating energy subsidies. - Bolstering social safety nets. - Addressing weaknesses in the AML/CFT framework. - Laying the foundation for job creation and private sector-led growth. - New concerns that emerged: - Reducing debt vulnerabilities. - Enhancing governance. - Tackling climate change (government priority). ### Political and social context - Senegal is gearing up for February 2024 presidential elections amid socio-political tensions and regional security challenges. - Political developments noted: - Incumbent President Macky Sall has yet to announce whether he will run for a third term. - A coalition of opposition parties and civil society organizations is mobilizing against a third term. - Main opposition figure Ousmane Sonko was sentenced to two years in prison for corrupting youth; the sentence compromises his chances of running and has triggered violent protests. - Domestic pressures: - Cost-of-living crisis. - Widespread youth unemployment. - Regional security threats. ### Recent developments (macroeconomic) - Growth and inflation: - Real GDP growth: rebound to 6.5 percent in 2021; slowed to about 4 percent in 2022. - Average annual inflation: 9.7 percent in 2022; eased to 9.0 percent y-o-y by April 2023. - Core inflation rose to 6.3 percent in April 2023 from 5.8 percent in December 2022. - External sector: - Current account deficit widened to 19.9 percent of GDP in 2022 from 11.2 percent in 2021, driven by higher imports of goods (surge in energy and food prices) and higher interest payments due to dollar appreciation. - Regional reserves declined from 5.6 months of imports at end-2019 to 3.8 months at end-April 2023. - Fiscal outcomes: - Overall fiscal deficit rose to 6.6 percent of GDP in 2022—0.5 percentage point higher than projected. - Revenues underperformed (lower VAT) and grants were lower. - Higher public wages and transfers offset by deep cuts in investment spending (0.6 percent of GDP). - Energy subsidies soared to 4 percent of GDP in 2022. - Fiscal developments during 2023Q1 indicate revenue underperformance and higher interest payments. - Financial conditions: - BCEAO raised key interest rates by 100 basis points since June 2022. - Monetary operation change: from fixed-rate full allotment (FRFA) tender to a flexible-rate fixed-quantity system. - Market effects: shorter demand for bond maturities of new issuances, higher interest rates, some governments canceling auctions. - Public debt: - Public sector debt rose to 76.6 percent of GDP in 2022. - Central government debt at end-2022: 68.2 percent of GDP (about 90 percent of total public debt), below WAEMU 70 percent convergence criterion. - Debt risk classification: Senegal’s debt risk remains moderate (DSA), but PV of public debt payments and debt service to exports ratios have edged up nearing levels associated with high risk of debt distress. ### Fiscal details (Text Table 1 highlights) - Selected 2022 and 2023 Q1 fiscal figures (in percent of GDP unless otherwise indicated): - Revenue and grants: 21.0 (2022); 19.9 (2023 Q1); Latest annual projection 21.5. - Taxes: 18.5 (2022); 18.2 (2023 Q1); Latest annual projection 18.7. - Direct taxes: 6.3 (2022); 6.4 (2023 Q1); Latest annual projection 6.1. - Taxes on goods and services: 9.1 (2022); 8.7 (2023 Q1); Latest annual projection 9.3. - Taxes on international trade and transactions: 2.8 (2022); 2.8 (2023 Q1); Latest annual projection 3.0. - Grants: 1.4 (2022); 0.8 (2023 Q1); Latest annual projection 1.6. - Expense: 19.2 (2022); 19.2 (2023 Q1); In billion CFAF 1,026; Latest annual projection 4,948 (26.4 percent of GDP). - Current (excl. interest): 17.0 (2022); 17.0 (2023 Q1); Latest annual projection 16.1. - Personnel: 6.4 (2022); 6.6 (2023 Q1); Latest annual projection 7.0. - Subsidies: 5.0 (2022); 4.6 (2023 Q1); in billion CFAF 659; Latest annual projection 3.5. - Energy subsidies: 4.4 (2022); 4.0 (2023 Q1); in billion CFAF 556; Latest annual projection 3.0. - Interest payment: 2.2 (2022); 2.2 (2023 Q1); in billion CFAF 149.9; Latest annual projection 2.7. - Investment: 8.0 (2022); 7.4 (2023 Q1); in billion CFAF 331.4; Latest annual projection 7.6. - Externally financed investment: 4.3 (2022); 4.3 (2023 Q1); in billion CFAF 169.7; Latest annual projection 3.6. - Internally financed investment: 3.7 (2022); 3.1 (2023 Q1); in billion CFAF 161.7; Latest annual projection 4.1. - Balance: -6.2 (2022); -6.6 (2023 Q1); in billion CFAF -566.9; Latest annual projection -920 to -4.9 (percent of GDP). ### Outlook and risks - Near-term (2023) projections and constraints: - Global slowdown and tighter financial conditions expected to weigh on near-term outlook. - High consumer price levels will weigh on household purchasing power and domestic demand. - High-frequency indicators show weaker-than-envisaged pickup in 2023Q1, particularly in the secondary sector: General index of economic activity (IGA) grew by 5.2 percent y-o-y. - Projected non-hydrocarbon 2023 real GDP growth revised down to 5.3 percent from 6 percent. - If hydrocarbon production starts in the fourth quarter of 2023, total growth could reach 8.3 percent. - Inflation projected at 5 percent (up from 3.5 percent previously projected). - Current account deficit projected to remain high at about 13 percent of GDP due to high import bills. - Access to financing constrained, forcing government to tap external official and commercial sources—including syndicated loans—to finance general budget and on-lend to state-owned enterprises; this raises risks on future external debt service burden and profile (currency, maturity, interest rate). - Medium-term (2024–2025) scenario with hydrocarbon production: - Growth projections: - 2024: Real GDP growth projected to 10.6 percent. - 2025: Real GDP growth projected to 7.4 percent. - Non-hydrocarbon GDP expected to reach potential around 6 percent given prudent macro policies and structural reforms. - Inflation projected to abate to 2 percent. - Current account deficit expected to narrow to about 3-5 percent of GDP as oil-related exports increase by about 2 percent of GDP relative to 2023 and hydrocarbon-related service imports decrease. - Debt-to-GDP ratio projected to improve, boosted by hydrocarbon sector. ### Macroeconomic projections (Text Table 2) - Selected indicators (2021–2025): - Real GDP (percent change): - 2021 Est.: 6.5 - 2022 Est.: 5.0 - 2023 Est.: 4.0 - 2023 Proj.: 8.3 (if hydrocarbon) / 5.3 (non-hydrocarbon) - 2024 Proj.: 10.6 - 2025 Proj.: 7.4 - Of which: Non-hydrocarbon GDP: - 2021 Est.: 6.5 - 2022 Est.: 5.0 - 2023 Est.: 4.0 - 2023 Proj.: 5.9 - 2024 Proj.: 5.3 - 2025 Proj.: 6.0 - CPI inflation, average (percent): - 2021 Est.: 2.2 - 2022 Est.: 5.5 - 2023 Est.: 9.7 - 2023 Proj.: 3.1 - 2024 Proj.: 5.0 - 2025 Proj.: 2.0 - Net lending/borrowing, including grants (percent of GDP): - 2021 Est.: -6.3 - 2022 Est.: -6.2 - 2023 Est.: -6.6 - 2023 Proj.: -4.5 - 2024 Proj.: -4.9 - 2025 Proj.: -3.9 / -3.0 (varies across projections) - Current account balance (percent of GDP): - 2021 Est.: -11.2 - 2022 Est.: -13.2 - 2023 Est.: -19.9 - 2023 Proj.: -8.8 - 2024 Proj.: -13.3 - 2025 Proj.: -6.1 / -4.2 (varies across projections) - Gross Public Sector Debt (percent of GDP): - 2021 Est.: 73.3 - 2022 Est.: 75.1 - 2023 Est.: 76.6 - 2023 Proj.: 71.4 - 2024 Proj.: 77.7 - 2025 Proj.: 73.2 / 70.4 (varies across projections) ### Policies under the new arrangements (overview) - The new IMF-supported program will provide critical help to address macroeconomic imbalances. - Proposed policy priorities include (summary): - Reducing debt vulnerabilities through credible fiscal consolidation (revenue mobilization, phasing out energy subsidies). - Strengthening governance, fiscal transparency, and AML/CFT frameworks. - Delivering inclusive, job-rich growth via social safety nets, gender equality promotion, and business environment improvements. - RSF-linked policies to address climate mitigation, adaptation, and budget integration of climate considerations. *Source: IMF — EXECUTIVE SUMMARY (1senea2023002) — June 9, 2023.* ### 12. The balance of risks to the outlook remains tilted to the downside. On the external side, ### 12. The balance of risks to the outlook remains tilted to the downside ### Downside and upside risks - External downside risks: - Escalation of the war in Ukraine with adverse spillovers on external demand and commodity prices. - Tighter regional and global financial conditions. - Deterioration of terms of trade. - Further appreciation of the US dollar. - Domestic downside risks: - Increasing political polarization and fiscal slippages in the run up to the presidential elections. - Extreme climate events (Annex II). - Upside risks: - Higher oil and gas prices. - Launch of phase 2 of the Sangomar (oil) and GTA (gas) projects. - Start of production of the Yaakar-Teranga gas project could increase hydrocarbon-related investments and create upside risks to growth. ### Hydrocarbon production implications (summary) - Text Figure 3 indicates: - Oil production would be delayed to 2024 with lower volume, with negative implications on government revenues and exports. - Sources: Senegalese authorities and IMF Staff calculations. ### Policies under the new arrangements (ECF/EFF and RSF) - Three key pillars of the new ECF/EFF arrangements: 1. Building fiscal resilience by putting public debt on a firmly downward trajectory. 2. Strengthening AML/CFT and governance. 3. Fostering a more inclusive and private sector-led growth. - The RSF arrangement will support efforts to strengthen resilience to the effects of climate change. ### A. Building Fiscal Resilience (ECF/EFF Pillar I) Fiscal consolidation strategy - Program anchor: gradually return to the regional fiscal deficit target of 3 percent of GDP by 2025. - New fiscal rule: the non-hydrocarbon primary balance in percent of non-hydrocarbon GDP (law on management of hydrocarbons, Annex IV). - Transition path: during the program period (2023-2026) the target for the non-hydrocarbon primary balance is calibrated to achieve the overall deficit objective for each year and the regional fiscal deficit objective of 3 percent by 2025. - Revenue-side anchor: reach the medium-term revenue strategy (MTRS) objective of collecting tax revenues of 20 percent of non-oil GDP by 2025. - Requires raising additional non-oil tax revenues by 0.5 percentage point of non-oil GDP per year on average between 2023-2025. - In 2023 focus on revenue administration measures; tax policy measures to be adopted in the 2024 budget. - Hydrocarbon revenues expected to reduce the fiscal deficit by 0.7 percentage point of GDP on average. - Spending-side approach: - Rationalize current spending by -3.4 percentage points of GDP by gradually eliminating untargeted energy subsidies and stabilizing the public wage bill in percent of non-oil GDP to accommodate additional public investment. - Maintain public investment above 7 percent of GDP as in 2022 (MEFP ¶21). 2023 fiscal stance and adjustments - Authorities committed to containing the fiscal deficit target at 4.9 percent of GDP in 2023. - Emerging pressures since adoption of the 2023 finance law: - Based on 2023Q1 outcome and absent new measures, revenues could be -0.4 percentage point of GDP lower than projected. - Higher interest payments: 0.4 percent of GDP. - Energy subsidies carryovers: +0.6 percentage point of GDP due to 2022 carryovers (¶14). - Offset package to maintain the agreed deficit: - Identified revenue-increasing measures of 0.7 percentage point of GDP (Text Table 3), including one-off proceeds from sale of government land of 0.3 percent of GDP. - Committed to generate 0.7 percentage point of GDP in savings via cuts in other current spending (-0.3 percentage point of GDP) and postponing some domestically-financed projects (-0.4 percentage points of GDP). - Authorities committed to take additional measures, namely further cuts in domestically-financed projects, to meet the deficit target. - One-off land sale detail: - The government intends to sell a part of the land currently occupied by the Aristide Le Dantec Hospital in Dakar, which is expected to generate around CFAF 57 billion (0.3 percent of GDP). Fiscal structural reforms — Tax policy and revenue measures - Tax system diagnostics: - Complex system with many small and unproductive taxes, limited tax base, and high tax rates favoring avoidance and discouraging formalization. - Absence of a tax policy unit to coordinate tax policy across agencies/ministry. - Growing reliance on nontax revenues, one-off measures, and earmarking of budget funds to tax and customs. - VAT suffers from multiple rates and exemptions. - Tax expenditures reached 5.3 percent of GDP in 2020, including 2.4 percent of GDP for households. - Revenues from property tax remain marginal due to lack of information on dwelling owners. - Key reforms during 2023-24 (MEFP ¶¶22-23): - Automatically transmit electricity and water SOEs’ address book of clients to the tax department to improve property tax collection. (Structural Benchmark, end-October 2023) - Increase number of registered taxpayers at the Directorate in charge of small and microenterprises by 25,000 through available information (Structural Benchmark, end-December 2023). - Operationalize SEN’FINANCES Portal for filing tax returns online and requests to revenue administration. - Fully implement prepayment for income taxes levied at customs for importers not current with domestic taxes (prélèvement de conformité fiscale) by fully automatizing its settlement. (Continuous Structural Benchmark, end-December 2023) - Prepare a plan to rationalize tax expenditures by at least CFAF 100 billion per year over the next two years, starting in 2024 (Structural Benchmark, end-November 2023); audit at least 30 percent of VAT credits and nil returns per year. - Strengthen the Legislative and International Cooperation Unit in DGID (Structural Benchmark, end-September 2023). - Strengthen collaboration between customs (DGD) and tax department (DGID) on fraud risk management (revitalization of Brigade mixte; intensify and extend exchange of information). - Finalize institutional framework for VAT on digital transactions (TVA numérique) by end-June 2023 and finalize technical infrastructure by end-December 2023 for implementation starting in 2024. Expected fiscal yields from measures (preserve exact values) - Text Table 3 — Revenues Increasing Measures Identified in 2023 (Expected Fiscal Yield, in percent of GDAP): - Tax administration measures: 0.15 - Withholding tax on fuel products sales made in Senegal by non resident individuals (CFAF 0.5/Kg): 0.02 - Introduction of a levy tax on Insurance Companies (1% of the companies' turnover for insurance companies and 0.5% for life insurance premiums): 0.01 - Additional income and capital gains taxes collected from subcontracting companies working on oil and gaz projects/fields: 0.07 - One-off proceeds from the sale of government land (LeDantec Hospital Dakar): 0.30 - Additional Income taxes resulting from the increase in the fiscal shield on withholding taxes on government employees' salaries: 0.06 - Unwinding the suspension of import tax and customs duty on edible oil and sugar, which will yield around CFAF 15 billion: 0.08 - Total Expected Fiscal Yield: 0.70 - Text Table 4 — Revenues Measures and Expected Fiscal Yield During the Proposed Program (Expected Fiscal Yield 2023-2025): - Tax administration measures: 0.2 - Withholding tax on fuel products sales made in Senegal by non resident individuals (CFAF 0.5/Kg): 0.03 - Introduction of a levy tax on Insurance Companies (1%/0.5%): 0.05 - Additional income and capital gains taxes from subcontracting companies on oil and gaz projects/fields: 0.14 - VAT on online transactions (around CFAF10 billion/year starting in 2024): 0.07 - Rationalization of Tax exemptions (about CFAF 100 billion/year starting from 2024): 0.90 - Unwinding suspension of import tax and customs duty on some staple foods (edible oil and sugar, around CFAF 15 billion/year): 0.13 - Total Expected Fiscal Yield: 1.52 Expenditure policy and energy subsidies - Energy subsidies: - Fuel and electricity subsidies amounted to 4 percent of GDP in 2022. - In January 2023, authorities increased electricity prices by 17 percent on average and prices of gasoline and diesel by 100 CFA. - Combined with lower international oil prices, energy subsidies will decline to about 1.5 percent of GDP in 2023. - Carryover obligations from 2022 of 2.2 percent of GDP have yet to be paid. - Text Table 5 (Subsidies Payment Breakdown in 2023) shows: - Subsidies projected for 2023: Total FCFA 100.7, Total % of GDP 0.7; with carryover Total FCFA 281.2, Total with carryover % of GDP 1.5; carryover from previous years FCFA 3436? (source table formatting); of which already budgeted in 2022 FCFA 129.6 (0.7% of GDP); totals with carryover FCFA 556.6 (3.0% of GDP). (Source: Senegalese authorities and IMF staff calculations.) - Commitments to eliminate untargeted electricity, gasoline, and diesel subsidies by 2025, including: - Establish an independent body to determine and publish fuel prices, with revised pricing formula and smoothing mechanism. (Structural Benchmark, November 2023) - Undertake a study to revise the electricity tariff structure to make it more progressive, including introduction of a “social tariff” category, and conduct an external audit of the methodology to determine the subsidy due to SENELEC. (MEFP ¶24) Public Financial Management (PFM) and public investment - December 2022 Court of Accounts’ audit on COVID-19 relief funds revealed severe weaknesses in spending and procurement procedures. - Authorities revised the public procurement code, opened prosecution cases for misappropriation/embezzlement of Covid-relief funds, and are implementing an action plan under the General Inspectorate of Finance. - Plan to eliminate all treasury accounts (comptes de dépôts) used by central government entities to strengthen internal control and improve transparency (Structural Benchmark, end-June 2024). - Eliminate capital transfers by ensuring that all projects with new procurement contracts will be executed as government investment (Structural Benchmark, end-December 2023). - 2023 PIMA update: public investment efficiency score declined from 67 to 57 percent since 2019; driven by low access to infrastructure and execution of PIPs through capital transfers without spending verification. - PIMA-based priorities: - Strengthen link between PIP planning and budgeting. - Monitor investments by public enterprises and PPPs. - Clarify project selection criteria. - Reduce derogatory expenditure execution procedures. Debt strategy - Public sector debt assessed to be sustainable over the medium term (DSA, Annex). - To bring public sector debt on a downward path authorities agreed to: - Embark on fiscal consolidation. - Implement rigorous government approval processes for further SOE borrowing. - Strengthen contingent risk management from PPPs, improve fiscal risk statement and incorporate results in government budget contingency. - Program introduces: - A quantitative performance criterion (QPC) on the present value of public sector external new borrowing. - An indicative target (IT) on the stock of public sector debt. ### B. Enhancing AML/CFT and Governance (ECF/EFF Pillar II) Governance challenges and commitments - Governance weaknesses: - Significant part of public spending executed through parastatal sector with weak information systems. - Several control entities publish reports with delays while some do not. - Transparency International’s Corruption Perceptions Index score for Senegal: 43 out of 100 (two points down from 2020). - Government effectiveness remains low; asset declaration requirements are not effective. - Missed September 2022 deadline to complete action plan to exit FATF enhanced oversight (grey list), though significant inroads since 2021. - Authorities’ commitments: - Strengthen information systems of main extrabudgetary entities and extend the statement of government financial operations to them, aiming to publish the statement of public administration’s financial operations each year in October. - Enhance public accountability through timely and mandatory publication of main control entities’ reports. - Anti-corruption framework enhancements: - Draft law to reinforce powers of the National Office for the Fight against Fraud and Corruption (OFNAC) to investigate corruption and fraud allegations; make it mandatory for the General Prosecutor office to report periodically on referrals received from OFNAC, including number of cases investigated, number of indictments and dismissals (Structural Benchmark, end-October 2023) (MEFP ¶33). - Revise asset declaration framework to ensure effectiveness with dissuasive sanctions for non-compliance or untruthful declaration (Structural Benchmark, end-October 2023) (MEFP ¶34). - Finalize a draft law to establish a financial prosecutor office with specialized magistrates responsible to investigate serious financial and economic crimes by October. - Additional governance measures noted: - Strengthen role of National Public Debt Committee, increase publications to improve debt transparency, and adopt a regulation to clarify conditions under which the government can on-lend to state-owned enterprises. *Source: Senegalese authorities and IMF staff calculations (content unit: 1senea2023002).* ### 2023. Finally, it will strengthen the code of ethics and deontology for civil servants by October 2023 ### 1senea2023002 - 2023. Finally, it will strengthen the code of ethics and deontology for civil servants by October 2023 ### FATF grey-list exit and related financial governance measures - Authorities target exit from the Financial Action Task Force’s (FATF)’s grey list by October 2023. - Key actions to address remaining weaknesses (MEFP ¶32): - Operationalization of the beneficial ownership (BO) registry. - Effective implementation of a targeted financial sanctions regime. - Training of supervisors of designated Non-Financial Business or Profession (DNFBPs). - Measures related to BO support: - Financial stability. - Correspondent banking relationships. - Tax revenue. - Transparency of public procurement and mining. ### Building Socioeconomic Resilience (ECF/EFF Pillar III): structural reforms and investment efficiency - Context and challenge: - Large public investments in infrastructure have driven recent growth but did not deliver structural transformation and increased debt vulnerabilities amid weak public investment efficiency (Annex VII). - Near-term reform plans (MEFP ¶39): - Setting up a centralized and integrated land management system, digitalizing land management procedures (Structural Benchmark, end-December 2023). - Putting in place an online collateral registry that combines data on movable collateral (registre des suretés mobilières) and mortgages in cooperation with the BCEAO (Structural Benchmark, end-December 2023). - Revising the investment code in line with international best practices, including ensuring tax incentives are not included in the investment code but rather in the tax code. ### Fiscal risks: Post Office group and two small banks - Post Office group (la Société nationale La Poste): - Increasingly precarious financial situation. - Staff recommend strict enforcement of conservatory administrative measures to limit budgetary risks and rapid review/implementation of the restructuring roadmap to transform Poste Finances into an independent financial institution. - Authorities agreed to speed up restructuring and indicated any public support should be contingent on changes in business model and governance. - Two non-systemically ailing banks: - Plans to recapitalize paired with governance reforms and implementation of restructuring plans (MEFP ¶¶ 43). ### Social protection and inclusion - Progress and remaining actions: - Senegal has made good progress establishing its social protection system but needs refinement (Annex III). - Authorities committed to: - Expanding the Single National Registry (RNU) coverage to one million households (targeting process underway; regional, departmental, and communal quotas determined and transmitted) (MEFP ¶36). - Adopting a digital payment system to avoid payment delays. - Settling in June 2023 the outstanding two quarters of cash transfers not paid since 2021 (Prior Action) (MEFP ¶44). ### Gender equality challenges and policy commitments - Key statistics: - UNDP Gender Inequality Index: Senegal ranked 131st in 2021. - Only 11 percent of the female population 35 and older has some secondary education, compared to 30 percent for males. - Labor force participation: women aged 15-64 = 39 percent; men = 66 percent. - About 75 percent of the workforce is in agriculture (which relies mostly on raindrop). - Persistent gaps: - Strong job segregation and differences in access to land, credit, and labor, often driven by secular and customary gender laws. - Government commitments (MEFP ¶34): - Increase social spending on programs targeted to young girls and women. - Remove obstacles to girls’ education, including facilitating transition from primary to secondary education. - Provide training and credit to female entrepreneurs. - Ongoing practice: - Since 2016 Senegal has been implementing gender budgeting; budget laws are accompanied by documents assessing gender effects by ministry. ### Climate change: impacts, NDC costing, and institutional gaps - Projected impact and vulnerability (Annex V): - Climate change could reduce GDP growth by 2 to 4 percentage points across Africa by 2040 and by 10 to 25 percentage points by 2100. - Senegal specific vulnerabilities: - 74 percent of its population lives in coastal areas. - About 75 percent of the workforce is in agriculture. - Vulnerability leads to sizeable output at risk, undermining agriculture and food security and increasing import dependency. - Nationally Determined Contribution (NDC, 2021): - Adaptation priorities: resilience of ecosystems, protection of populations against climate risks, strengthen resilience of agriculture, protect coastal area, enhance geo-tagged climate-risk data collection. - Mitigation priorities: increased carbon sequestration in agriculture and forestry; use of renewable energies; strengthen energy efficiency; improve waste management and industrial processes. - Cost estimate for adaptation and mitigation reforms and investments: about US$13 billion (of which about US$8 billion related to mitigation), an average of 7 percent of GDP per year during 2023-30. - Climate-PIMA (C-PIMA) findings: - Lack of effective central coordination for green public investment decision-making. - Spatial and urban development and construction regulations only marginally consider climate change. - Ex-ante evaluation and project selection are weak and do not include climate-related criteria. ### Climate reform program under the RSF: three pillars (MEFP ¶¶ 47-50) - Pillar I: Supporting mitigation goals - Gradual phase-out of untargeted subsidies in the electricity sector per January 2023 roadmap. - Adopt implementation plan for a greener public transport strategy and reflect it in the budget, in line with NDC objectives. - Exploring options for a carbon tax; roadmap expected to be finalized by end-2023. - Adopt, as part of a new environmental code, higher standards in the oil and gas industry to ban flaring of natural gas and dispersion of methane. - Pillar II: Accelerating adaptation - Adopt Country Development Strategy to establish baseline and priority costing. - Strengthen institution in charge of water management strategic priorities. - Start collecting and disseminating geo-tagged granular climate risk data to support private sector investment and banking/insurance sector participation. - Enact new Urban Code and new Construction Code to address sea level rise and flooding (implementation decrees to be worked on by the World Bank). - Pillar III: Integrate climate into budget process - Adopt by end-July 2023 the implementation plan of recommendations of February 2023 C-PIMA. - Assess and quantify disaster-related fiscal risks as part of the Risk Statement Annex included in the 2025 budget law. - Adopt and publish a Public Investment Management (PIM) decree integrating climate considerations at each step of project development (appraisal, selection, external audit, etc.). - Strengthen budget process and public investment appraisal framework to reflect climate dimensions. ### Capacity development priorities for climate agenda - Priority areas: - Strengthen institutional and operational framework for collecting, analyzing, and disseminating geo-tagged climate risk information for disaster risk management and response. - Fast-track basic budget preparation and implementation reforms to strengthen climate tagging and ex-post assessment of climate spending impacts. - Establish a unified framework for water resource planning and management with tiered response mechanisms depending on climate risk materialization and prioritization by economic and social considerations. - Revise the construction code to incorporate building requirements emerging from projected climate-related risks. ### Financing and program modalities: IMF arrangements, RSF, and financing assurances - IMF support recommended: - Staff supports authorities’ request for a 36-month EFF/ECF arrangement with access of SDR 1,132.6 million or 350 percent of quota (Table 10a). - Breakdown: SDR 377.53 million (or 116.67 percent of quota) under the ECF and SDR 755.07 million (or 233.33 percent of quota) under the EFF. - The arrangement will support external financing needs and address protracted and structural balance of payments problems arising from: - Current account pressures (commodity terms of trade shock; investment needs for infrastructure). - Financial account pressures (high and persistent external debt service amidst global/regional financial tightening). - Proposed uniform phasing reflects profile of annual external financing needs. - The EFF/ECF arrangement will go towards budget support. - Resilience and Sustainability Facility (RSF): - Staff supports a 36-month RSF arrangement with access of 75 percent of quota. - RSF will support financing prospective BoP needs from long-term structural climate challenges. - RSF reform measures closely related to NDC priority reforms; Senegal is eligible and belongs to interest group B. - RSF arrangement will go towards budget support and substitute more expensive domestic financing. - Financing assurances and program coverage: - Firm financing assurances for the first 12 months; good prospects thereafter. - Over the program period, around 50 percent of the projected financing gap is covered by the IMF UCT program; the rest projected to be covered by parallel budget support from partners. - 2023 program macro framework includes budget financing of: - CFAF 438.2 billion through the IMF. - 188.2 billion through the World Bank. - CFAF 92.1 billion through the African Development Bank. - CFAF 72.2 billion through the French Development Agency. - CFAF 31.0 billion from Japan. ### Debt metrics, safeguards, and risks - Capacity to repay and debt metrics: - Total stock of debt to the Fund expected to reach 4.7 percent of GDP (including access under the RSF). - Upcoming total debt service to the Fund will peak at 4.1 percent of government revenue and 3.0 percent of exports of goods and services in 2026. - Nearly all these metrics are well above the 75th percentile of past PRGT arrangements, indicating elevated risks, mitigated by: - Strategy to reduce debt vulnerabilities (fiscal consolidation; prudent SOE borrowing). - Senegal’s strong track record of timely repayment of Fund obligations. - Authorities’ commitment to broad economic reforms. - Safeguards assessment: - The BCEAO has implemented all recommendations provided in the 2018 safeguards and has broadly appropriate governance arrangements and a robust control environment. - An updated assessment of the BCEAO is currently in progress. - Program implementation risks: - Large but manageable. - Domestic risks: policy slippages, political unrest ahead of presidential elections, regional insecurity spillovers. - External risks: escalation of war in Ukraine, further global slowdown, tighter global and regional financial conditions. - If risks materialize, keeping the program on track would require proactive macroeconomic policy adjustment in consultation with Fund staff. ### Staff appraisal (excerpt) - Senegal faces a difficult tradeoff between normalizing policy-making post-pandemic and laying the ground for sustained and resilient growth. - Authorities responded to the COVID crisis with a strong fiscal impulse protecting vulnerable populations; subsequent shocks (war in Ukraine, commodity price surge, tight financial conditions) have prolonged economic strain. *Source: IMF staff report content as provided in the supplied PDF excerpt.* ### 43. To address these challenges, the authorities will need to expedite their ambitious ### To address these challenges, the authorities will need to expedite their ambitious reform agenda to strengthen public finances and achieve a more resilient and inclusive growth. ### Fiscal consolidation, public finances, and social spending - Ambitious fiscal consolidation is needed to put debt on a downward trajectory. - The government’s fiscal strategy targets an increase in domestic revenues and reins in untargeted subsidies in the energy sector. - Authorities are committed to strengthening the implementation of their MTRS objectives with the aim of increasing tax revenues. - Authorities are determined to phase-out energy subsidies by 2025 to create space for more targeted social safety nets. - Delivering on these fronts is critical to make sure that Senegal remains at a moderate risk of debt distress. ### IMF-supported programs and climate finance - The three-year ECF/EFF and concurrent RSF are well tailored to support Senegal’s priorities. - The new ECF/EFF supported program will provide critical help to address macroeconomic imbalances, support Senegal’s medium-term balance of payments needs, and help rebuild regional reserves. - The concurrent RSF will support Senegal’s climate change mitigation and adaptation goals. - Tackling climate change challenges remains critical for long-term macroeconomic resiliency. ### Governance, anti-corruption, and AML/CFT - Strengthening the AML/CFT and governance and anti-corruption framework will be critical. - Government priorities should focus on: - improving fiscal governance, particularly with respect to the information system of the main extrabudgetary entities; - enhancing the prerogatives and powers of the OFNAC; - strengthening the asset declaration system for public officials; - addressing the strategic deficiencies in its AML/CFT framework to exit from the FAFT’s grey list. ### Public financial management, SOEs, and PPPs - Staff welcomes the authorities’ commitment to strengthen public financial management and enhance forward-looking oversight on SOEs borrowing and PPP operations, as they constitute a major risk to debt sustainability. ### Structural transformation and productivity - Important efforts are needed to spur structural transformation and enhance productivity. - Reform efforts include: - solidifying the financial system, particularly the long-standing weaknesses of the postal group and the two non-systemically ailing banks; - reducing gender-based inequalities; - improving the social protection system to strengthen socio-economic resilience. *https://www.imf.org/-/media/files/publications/cr/2023/english/1senea2023002.pdf* ### 48. The authorities are committed to building resilience to climate change and natural ### 1senea2023002 - 48. The authorities are committed to building resilience to climate change and natural ### Climate resilience and policy priorities - The authorities are committed to building resilience to climate change and natural disasters, which will help mitigate macroeconomic and fiscal risks. - Priorities should focus on: - policy reforms to protect against costal erosion, - enhance water management, - strengthen agriculture, - mitigation measures to phase out untargeted electricity subsidies, - strengthen green public transportation. ### IMF program support and financing stance - Based on the protracted balance of payment needs, substantial climate-related financing requirements, and strong policy commitments, staff supports the request for a new 36-month ECF/EFF- and RSF-supported programs. ### Key macroeconomic developments (selected findings from figures and text) - Growth slowed down in 2022; the slowdown was driven by lower private consumption and public investment and a sharp slowdown of the secondary sector. - Inflation spiked in 2022. - The current account deficit widened, primarily reflecting imports for oil and gas projects, which was mostly financed by FDI and other financing. - The tax-to-GDP ratio barely increased while spending remained high, driven by energy subsidies. - Net financing was covered mostly from foreign sources and the public sector debt ratio increased to 77.8 percent of GDP. - Credit to the private sector continued expanding in 2022 and non-performing loans decreased over time. ### Economic outlook (2015–2027 highlights) - Non-oil growth is expected to be around 6 percent in the medium term while headline growth fluctuates with expected oil and gas production volumes. - The current account deficit is expected to decline to about 4 percent of GDP due primarily to oil and gas exports. - An increase in tax revenues is expected to drive the medium-term fiscal consolidation. ### Selected projections and indicators (from Table 1 and related tables) - GDP at constant prices (series of values presented): 1.3 6.5 4.7 4.0 8.3 5.3 10.6 7.4 4.8 5.1 - Non-hydrocarbon GDP (series): 1.3 6.5 4.7 4.0 6.0 5.3 6.0 6.0 6.0 6.0 - GDP deflator (series): 1.5 1.8 6.6 8.6 3.1 3.2 2.0 2.0 2.0 2.0 - Consumer prices (annual average) (series): 2.5 2.2 8.5 9.7 3.5 5.0 2.0 2.0 2.0 2.0 - Central government fiscal performance (percent GDP) — Revenue and expenditure series shown in figure: Revenue, Hydrocarbon Revenue, Current Expenditure, Capital Expenditure (chart data referenced). - Current account balance (percent of GDP) (series): -10.1 -11.2 -15.7 -19.9 -11.0 -13.3 -6.1 -4.2 -3.8 -3.7 - Total public debt (percent of GDP) (series): 69.2 73.3 75.1 76.6 73.7 77.7 73.2 70.4 69.5 68.7 - Public sector debt ratio increased to 77.8 percent of GDP (text figure). ### Balance of payments and financing (selected table highlights) - Current account in CFAF billions (series): -1,427 -1,710 -2,689 -3,442 -2,108 -2,497 -1,289 -986 -941 -993 - Exports, f.o.b. (CFA francs) (series): 2,411 3,045 3,433 3,795 4,308 4,392 5,517 5,995 6,346 6,858 - Imports, f.o.b. (CFA francs) (series): -4,020 -4,707 -5,852 -6,702 -6,360 -6,834 -6,880 -7,206 -7,646 -8,340 - Direct investment (CFAF billions) (series): 1,005 1,292 1,430 1,651 1,182 1,226 1,057 1,024 1,063 1,105 - Current transfers (net) (CFAF billions) (series): 1,435 1,571 1,645 1,665 1,825 1,813 1,869 1,988 2,129 2,268 ### Fiscal operations and public finances (selected table highlights) - Central government revenue and grants (CFAF billions) (series): 2,843 2,978 3,587 3,444 4,061 4,029 4,621 5,398 5,886 6,301 - Taxes (CFAF billions) (series): 2,368 2,593 3,163 3,136 3,587 3,517 4,123 4,755 5,275 5,701 - Total expenditure (percent of GDP) (series in Table 5): 25.8 27.2 26.6 26.6 26.4 25.7 26.3 26.7 26.7 26.8 - Net lending/borrowing (Overall balance) (percent of GDP) (series): -6.3 -6.2 -6.6 -4.9 -4.9 -3.9 -3.0 -3.0 -3.0 -3.1 - Primary fiscal balance (percent of GDP) (series): -4.3 -3.9 -4.4 -2.7 -2.2 -1.5 -0.7 -0.7 -0.8 ### External financing requirements and IMF support (selected table highlights) - Financing Requirements (bn CFA) (series 2022–2028 excerpt): 3980 3243 1866 1485 1631 1669 2193 - Financing Sources (bn CFA) (series 2022–2028 excerpt): 3657 2944 1849 1555 5162 4196 32195 - Change in FX reserves without budget support (C=B-A) (series excerpt): -323 -299 -176 9 -729 42 - Targeted change in FX reserve to support regional external buffers (D) (series excerpt): 490 413 327 88 - Financing gap before accounting for any budget support (E=D-C) (series excerpt): 789 430 258 95 - Budget support from other donors (F) (series excerpt): 26 143 426 9 135 137 139 142 - IMF Financing (series excerpt): 242 354 161 122 -42 -137 -97 - Proposed IMF EFF-ECF program disbursements (I=H): 266 268 270 136 (table) - Proposed IMF RSF Program (L) (series excerpt): 40 80 81 0 ### Debt and debt holders (selected highlights) - Total public debt stock (m USD, end-2022 reported): 21,357 (100.0 percent) - Central Government external debt (m USD, end-2022): 15,732 (73.7 percent) - Eurobonds (m USD, end-2022): 4,045 (18.9 percent) - Multilateral creditors (m USD, end-2022): 6,517 (30.5 percent) - IMF (m USD, end-2022): 991 - World Bank (m USD, end-2022): 2,975 - Domestic debt (m USD, end-2022): 5,626 (26.3 percent) ### Capacity to repay the Fund (selected highlights from Table 9) - Total outstanding Fund credit based on existing and prospective drawings (SDR millions) (series): 1224.3 1515.5 1759.4 1709.4 1544.0 1415.5 1247.7 1048.7 846.7 645.4 458.4 - Total outstanding Fund credit (CFA francs) (series): 748.5 932.7 1086.4 1059.6 962.1 882.0 777.4 653.5 527.6 402.2 285.7 - Percent of GDP (series): 4.0 4.4 4.7 4.3 3.6 3.1 2.5 2.0 1.5 1.1 0.7 - IMF obligations based on existing and prospective credit (Principal, SDR millions) (selected years): 53.9 129.5 176.8 211.8 165.4 128.5 167.8 199.0 202.0 201.3 187.0 - Memorandum items include Nominal GDP (billions of CFA francs) series and Exports of goods and services (billions of CFA francs) series. *Source: Senegal authorities; and IMF staff calculations.* ### Annex I. External Sector Assessment ### Annex I. External Sector Assessment ### Overall assessment - The external position of Senegal in 2022 was substantially weaker than the level implied by fundamentals and desirable policies. - The 2022 current account deficit reached 19.9 percent of GDP, widening further relative to 2021. - Drivers of the 2022 external weakening: - External factors: surge in global commodity prices; depreciation of the WAEMU regional currency (CFA) vis-à-vis the US dollar (which increases the CFA value of imports); trade disruptions due to conflict in neighboring Mali. - Domestic factors: significant temporary infrastructure investments including to start hydrocarbon production; general fiscal deficits, including measures to alleviate the impact of high global commodity prices. - Outlook (2023 and beyond): the current account is expected to start gradually narrowing as: - terms of trade shifts occur; - gradual phase-out of energy and food subsidies incentivizes import-substitution; - trade with Mali partially normalizes; - investments in the hydrocarbon sector gradually phase-out and hydrocarbon exports start supporting the current account in 2024; - the fiscal deficit narrows; and - structural reforms proceed. ### Potential policy responses - Fiscal consolidation to bring down and re-anchor fiscal balances; tightly control further debt creation in state-owned enterprises. - Phase out energy and food subsidies so real price signaling supports import substitution. - Governance reform and structural policies to support private sector growth, facilitate export growth and import substitution, and encourage foreign investment. ### Foreign assets and liabilities: position and trajectory - Assessment basis: latest available data for 2021. - Key 2021 stock statistics (percent of GDP): - NIIP: -71.2 - Gross Assets: 58.2 - Debt Assets: 34.2 - Gross Liab.: 129.4 - Debt Liab.: 100.9 - Interpretation: - NIIP reached -71.2 percent of GDP in 2021, up from -47.1 percent of GDP in 2017, reflecting significant current account deficits driven by external shocks, fiscal imbalances, and infrastructure investment needs. - The increase in NIIP reflects gross liabilities growth that outpaced gross assets and economic base growth. - Sustainability assessment: - NIIP is assessed as sustainable under the baseline, reflecting expected narrowing of current account deficits, economic growth (including hydrocarbon production start), and continued concessional financing support from multilateral and bilateral donors. - Risks to external sustainability: slower-than-projected fiscal consolidation, further deterioration in the terms of trade, and a slowdown in real GDP growth. - External debt sustainability is also assessed as part of the 2023 DSA for Senegal. ### Current account - 2022 outcome: - Current account deficit: 19.9 percent of GDP. - Historical average current account deficit (2017-21): 9.5 percent of GDP. - Drivers: see “Overall assessment” (external commodity price shocks, CFA depreciation, conflict spillovers, temporary hydrocarbon-related investments, fiscal deficits). - Adjustment and gap: - The current account gap is estimated at 7.3 percent of GDP. - Adjustments include temporary factors and a Senegal-specific adjustor of 7.0 percent of GDP to account for temporary investments for starting up Senegal’s hydrocarbon production sector. - The adjustor composition (Senegal’s FARI model estimates for 2022): goods imports of 1.7 percent of GDP and service imports of 5.2 percent of GDP. - Comparison methodology: the adjusted current account balance is compared against a current account norm implied by country fundamentals and desirable policy stances. ### Real exchange rate (REER) - Background: - Senegal is in the WAEMU currency union; the CFA franc is pegged to the euro. - The country’s REER depreciated by 9.7 percent in 2022, driven by depreciation of the euro against third currencies (in particular, the US$) amid spillovers from the war in Ukraine. - The 2022 average REER was about 10 percent lower than during the five preceding years. - Model-based assessments: - Current account model suggests REER over-valuation of +35.1 percent at end-2022. - REER model suggests exchange rate under-valuation of -22.3 percent. - Staff assessment: - The 2021–22 exchange rate depreciation will take time to fully reflect in import-substitution and export competitiveness gains, especially as price subsidies are gradually phased out. - Oil and gas investments are expected to yield export gains that will substantially narrow the current account deficit going forward. - The current account model may overestimate REER over-valuation because it does not internalize forward-looking hydrocarbon export developments. - The REER model is treated as an outlier and used with caution in the context of Senegal’s already-large current account deficits. ### Capital and financial accounts: flows and policy measures - 2022 flows: - Capital and financial account net inflows: 19.5 percent of GDP. - Components: significant foreign direct investment and net borrowing to finance sectoral investments (including hydrocarbon start-up), robust official and bilateral donor financing support, and greater reliance on trade credit for higher commodity price imports. - Outlook (2023 and beyond): - Capital and financial account net inflows are expected to moderate as government and private sector imbalances narrow. - Fiscal consolidation will reduce the government investment-savings imbalance. - As the initial hydrocarbon investment phase completes and production starts, non-government investment-saving imbalances will moderate. - Continued official sector financing support will help buffer tightening global financial market conditions. - Assessment of financing environment: - Rising interest rates in advanced economies and higher risk premia on Senegal’s debt make for a very challenging external financing environment. - Senegal’s substantial external financing needs are expected to be met through a combination of Fund credit and budget support from multilateral and bilateral creditors. - Fiscal consolidation will help reduce external borrowing needs over the medium term. ### FX intervention and reserves level - 2022 outcome: - Regional WAEMU reserves declined to about 4.5 months of import cover by end-2022. - Assumptions and outlook: - For 2023 and beyond, Senegal is assumed to resume supporting regional reserve accumulation through macro-structural reforms to reduce external imbalances and measures to attract external financing from private and official sources. - Adequacy assessment: - The ARA metric for credit constrained economies estimates an adequacy range for the level of reserves of 4.5 to 6.4 months of prospective import coverage for the WAEMU (based on available data for 2021), with the lower end calibrated on fragile states and the higher end calibrated on non-resource rich countries. - The end-2022 level of reserves (4.5 months of imports) is assessed as being somewhat adequate. - Growth-friendly fiscal consolidation and implementation of structural reforms to diversify Senegal’s export base would help rebuild reserves and contribute to external stability at the WAEMU level. *IMF staff assessment as presented in “Annex I. External Sector Assessment.”* ### Annex IV. A New Fiscal Rule ### Annex IV. A New Fiscal Rule ### New fiscal framework adopted in 2022 - Law on the management of hydrocarbons established a fiscal framework to ensure debt sustainability, intergenerational wealth sharing, and macroeconomic stabilization. - Components of the fiscal framework: - A fiscal rule excluding resource revenue, consistent with the WAEMU fiscal deficit convergence criteria. - Two funds: a stabilization fund to shield fiscal policy from volatility in resource revenues, and an intergenerational fund to ensure a fair distribution of resource wealth across generations. - A revenue sharing rule: at least 10 percent of oil and gas revenues allocated to the intergenerational fund each year. - A ceiling on the accumulation of resources in the stabilization fund that serves to determine annual resources allocated to reach this ceiling within 6 years. ### Long-term fiscal anchor and debt sustainability - The fiscal rule is based on the non-resource primary balance (NRPB) relative to nonhydrocarbon GDP, reflecting the permanent income hypothesis for resource-rich countries. - Purpose of the NRPB-based anchor: - Allow a non-resource primary deficit financed with expected permanent income from future resource revenues. - Disconnect fiscal policy from resource revenues to limit procyclicality. - Set aside resources for when nonrenewable oil and gas resources are depleted. - Given current vulnerabilities, priority should be given to reducing public debt before accumulating resources into the intergenerational fund. - Rationale: government net wealth is largely negative due to high public debt relative to limited resource wealth (Annex IV Text Figure 1). - Government borrowing costs: interest rate on government bonds are around 6 percent on average in the regional market. - Concern: the intergenerational fund may have difficulties generating a higher return on investment than government borrowing costs without taking significant investment risks. ### Fiscal rule mechanics and targets - The law requires the fiscal rule to ensure the trajectory of the overall balance complies with the WAEMU regional convergence criterion for the fiscal deficit. - Numerical target: - The NRPB is estimated at -0.1 percent of GDP to achieve the WAEMU deficit criterion of 3 percent of GDP while gradually bringing down public debt below the regional ceiling of 70 percent of GDP. - Calibration note: - Estimates are calibrated with the interest rate – GDP growth differential broadly neutral over the medium-term. ### Transition path and medium-term projection - A transition path toward the long-term objectives can be set up in the multi-year budget framework. - A transition period to reach the 3 percent of GDP deficit target in 2025 has been estimated, consistent with staff baseline, which could be reflected in the government medium-term fiscal framework. - Illustrative figures (Annex IV Text Figure 2) show: - Non-resource primary balance and primary balance trajectories with the anchor attained after a transition period (includes impact from fiscal multipliers). - Time horizon shown from 2021 to 2053. ### Policy recommendations and implications - Prioritize reducing public debt before building up the intergenerational fund to strengthen fiscal sustainability. - Use the NRPB relative to nonhydrocarbon GDP as the long-term fiscal anchor to: - Limit procyclicality by excluding resource revenues from the operational fiscal stance. - Allocate resource wealth between current and future generations while ensuring compliance with WAEMU convergence criteria. - Reflect the transition path to the 3 percent deficit target for 2025 in the government medium-term fiscal framework and multi-year budget framework. - Consider the trade-off between investing in the intergenerational fund and the cost of government borrowing given the regional average interest rate of around 6 percent. *Source: Annex IV. A New Fiscal Rule — IMF staff calculations and text from the provided content unit.* ### 2. Senegal has recently made some progress in tackling governance weaknesses (Annex VI ### 1senea2023002 - 2. Senegal has recently made some progress in tackling governance weaknesses (Annex VI ### Governance: recent progress and remaining weaknesses - Positive governance signals: - Senegal scores above the 20 percent best SSA scores in the Mo Ibrahim governance index and in implementing the EITI standards. - Senegal achieved a very high overall score in implementing the 2019 EITI Standard: 93 points. - A law to ensure sustainable and transparent management of hydrocarbon revenues was recently adopted. - Governance effectiveness has improved over recent years. - Anti-corruption law passed in 2014 and new anti-corruption agency (OFNAC) established in 2019. - Digitalization and automation of fiscal administration and government operations undertaken. - A new procurement code was recently adopted and is expected to ensure more open and competitive tenders. - Remaining governance challenges (fiscal governance and corruption): - The 2023 PIMA assessment shows public investment efficiency remains low in Senegal; Senegal’s overall efficiency score deteriorated from 67 to 57 percent from 2019-2023. - Execution of public investment projects (PIP) through capital transfers to public agencies is a critical concern; in 2022, 88 percent of domestically funded PIPs were executed through capital transfers to public agencies’ treasury account (“Comptes de dépôt”). - Public agencies executing PIPs generally lack capacity to produce timely financial information and do not systematically report on physical execution of projects. - Other PIMA-identified issues: fragmentation of the monitoring system for project implementation; absence of a government’s balance sheet. - December 2022 Audit Court report revealed COVID-19 funds misappropriation and spending irregularities due to weaknesses in budget procedures (direct transfers to public entities) and procurement practices in emergency situations (suspension of public procurement code). - Asset declaration framework has very limited scope and is unevenly enforced. - Governance effectiveness, while improving, remains low. - AML/CFT gaps: - Senegal remains on the list of jurisdictions under close monitoring by the Financial Action Task Force (FATF) largely due to gaps in the targeted financial sanctions regime, AML/CFT risk-based supervision of financial institutions, and the beneficial ownership framework. - There is a list of 30 residual actions mostly pertaining to regulations to be adopted, training to be provided, controls to be performed, and operational tools and mechanisms to be put in place. - Key numeric governance metrics and diagnostics: - 2023 PIMA efficiency score: deteriorated from 67 to 57 percent (2019-2023). - 2022 share of domestically funded PIPs executed through capital transfers: 88 percent. - EITI 2019 implementation score: 93 points. - FATF residual actions: 30. ### Proposed governance reform agenda (three pillars) - Focus areas: (i) fiscal governance, (ii) anti-corruption framework, (iii) AML/CFT. - (i) Fiscal governance: priority reforms building on 2023 PIMA TA and Audit Court findings - Eliminate capital transfers to public agencies executing central government projects and properly budget and execute spending according to their economic nature; this would partly require streamlining the expanded public agencies/parastatal sector to which core public administration activities/responsibilities have been transferred. - Centralize information on the physical execution of public investment. - Prepare and publish public sector/central government balance sheets. - Strengthen the financial information system of public agencies executing government projects. - Complete the transition towards a fully functioning Treasury Single Account (TSA) and close all non-necessary general government accounts to improve cash management. - Finalize the operational framework for the hydrocarbon revenue management law. - Strengthen public accountability through mandatory publications of all Audit court and public procurement authority’s reports. - Increase transparency of the public land management system. - (ii) Anti-corruption framework: priorities drawing on OFNAC recommendations - Reinforce the powers and the independence of the OFNAC. - Strengthen enforcement mechanisms of the anti-corruption and asset declaration laws. - Expand the coverage of the asset declaration law to include conflicts of interests. - (iii) AML/CFT: - Address the 23 remaining actions to exit from the grey list. ### Recent growth drivers and implications for debt vulnerabilities - Drivers and characteristics of recent growth - Large public investments in infrastructure have driven Senegal's economic growth over the recent period; this public sector-driven growth has not resulted in structural transformation and has increased debt vulnerabilities amid weak public investment efficiency. - Plan Senegal Emergent (PSE) launched in 2014 to transform the economy by 2035; PSE implementation has focused on transport (new Dakar airport, toll highway, Regional Express Train), sport and entertainment (Dakar stadium), and administrative buildings. - Public investment spending increased from 10.9 to 12.7 percent of GDP between 2008-2013 and 2014-2019. - Ripple effects: private investment and consumption increased by 15.1 and 4.7 percent on average respectively over the period 2014-2019. - After 2004-2013 of volatile and sluggish growth, Senegal’s average real growth and average per capita growth jumped to 6 percent and 3.5 percent respectively over the period 2014-2019 (interrupted by the COVID-19 crisis). - Prior decade (2004-2013) average growth of private investment and final consumption was 8.1 and 3 percent. - Productivity and structural transformation issues - Aggregate productivity and structural transformation did not accompany the growth; growth largely driven by capital and labor increases with modest or negative total factor productivity (TFP) contribution. - Sectoral TFP contributions: weak from services, retail trade, manufacturing, and agriculture; positive from mining and construction. - No significant structural transformation or export diversification; distribution of value added between sectors broadly unchanged over two decades with predominance of tertiary sector and limited secondary sector. - Investment productivity is low: incremental capital-output ratio (ICOR) indicates lower investment efficiency in Senegal compared to WAEMU average; investment efficiency was deteriorating since 2017 and deteriorated further during the pandemic. - Residential capital formation’s rising share of fixed capital formation may explain declining ICOR. - Implications for debt vulnerabilities - Public debt rose substantially between 2014 and 2019, and further surged since 2020. - Between 2013 and 2019, public debt rose by 26.7 percentage points. - Additional revenue generated by growth was not sufficient to service rising debt used to finance public investments—suggesting insufficient domestic revenue mobilization and/or low return on public investments due to weak spending efficiency. - Shift toward external commercial debt, non-concessional loans, commercial loans, and PPPs increased debt vulnerabilities due to high cost of debt service and higher risks. - Senegal moved to moderate risk of debt distress in 2019 and has limited scope to absorb shocks in the near term. - Policy implications and recommended direction - The revised PSE should shift toward supply-side reforms, improve investment efficiency, and strengthen domestic revenue mobilization. - Recommended supply-side measures: improve business climate; enhance governance to foster private investment without large fiscal costs. - Strengthen spending efficiency by prioritizing investment projects with high economic and social returns and by strengthening fiscal governance. - Build fiscal space by improving domestic revenue mobilization. - Key numeric growth and debt statistics: - Public investment spending: 10.9 to 12.7 percent of GDP (2008-2013 to 2014-2019). - Private investment and consumption increases (2014-2019 averages): 15.1 percent and 4.7 percent. - Average real growth over 2014-2019: 6 percent. - Average per capita growth over 2014-2019: 3.5 percent. - Between 2013 and 2019 public debt rise: 26.7 percentage points. - ICOR: Senegal lower investment efficiency compared to WAEMU average (qualitative statement preserved). ### Tackling stock-flow adjustments (SFAs) in public debt dynamics - Role and magnitude of SFAs - SFAs are volatile and on average contribute significantly to increasing debt. - SFAs for Senegal’s government: on average contribute 1.8pp of GDP annually to increasing the government debt-to-GDP ratio. - SFAs for Senegal’s public sector: on average contribute 1.2pp of GDP annually. - SFAs are endemic in the broader WAEMU region according to a recent IMF regional study. - Possible sources of SFAs - Below-the-line financial transactions, including: - Changes in government deposits (including those not covered by standard fiscal accounts). - Sales/purchases of property or other privatization proceeds. - Sales/purchases of equity stakes or lending to entities outside the government/public sector debt perimeter (e.g., to provide financial support to strategic businesses). - Payments of government obligations not recorded within the current year’s fiscal balance because they were accrued in past years. - Payments made/received linked to realized financial transactions (e.g., unwinding of a foreign exchange hedge). - Above-the-line expenditures or revenues: - Limited visibility on SOE finances; under/over estimation of SOE balances could contribute to unidentified public sector SFAs. - Differences between definitions/perimeters used to compute fiscal balances and the debt stock can lead to unrecorded expenditures/revenues. - Unidentified revaluations in the debt stock: - Changes in the definition of government/private sector liabilities. - Debt write-offs or reclassifications (e.g., recognition of a liability as part of government debt). - Implications of SFAs - Positive SFAs may indicate a downward bias in public debt projections, leading to underestimation of the primary balance needed to stabilize debt-to-GDP. - Biased debt projections can undermine capital market confidence and fiscal sustainability assessments. - SFAs can undermine fiscal anchors and public financial management systems, enabling circumvention of conventional fiscal anchors and undermining debt issuance strategies and cash management. - Lack of transparent explanation of SFAs undermines accountability and taxpayer willingness to contribute, potentially affecting tax compliance. - Recommendations to better manage SFAs - Identify all historical SFAs as a priority: conduct a deep analysis of drivers behind increases in government and public sector debt to identify sources of historical SFAs; review above-the-line and below-the-line transactions and debt stock revaluations across central government, general government and public sector including SOEs; share results publicly to enhance accountability. - Eliminate undesirable SFAs: execute quasi-fiscal operations (e.g., through SOEs or exceptional expenditure procedures) as part of the above-the-line government budget going forward; ensure payment claims to the Government are paid without unwarranted delays. - Set fiscal anchors conservatively while SFAs remain significant and visibility on their nature is limited: calibrate fiscal anchors to reflect risks from higher-than-anticipated debt growth and potential unidentified SFAs. *IMF staff summary based on the provided document content.* ### Annex IX. Capacity Development Strategy ### Annex IX. Capacity Development Strategy ### IMF Technical Assistance focus and objectives - IMF Technical Assistance (TA) will support the ECF/EFF and RSF programs’ objectives. - Core TA focus areas: - Domestic revenue mobilization to support the implementation and effectiveness of the MTRS. - Improved public finance management (PFM). - Implement the framework for the management of the upcoming hydrocarbon revenue to help safeguard fiscal and debt sustainability. - For RSF objectives: establish a comprehensive “climate tagging” in the budget process and introduce the climate dimension in the selection criteria in the public investment projects selection process. - Two long-term experts will continue to support capacity development on revenue mobilization and PFM. ### Engagement strategy and capacity risks - Senegal is an intensive technical assistance user with relatively strong institutional capacity and good ownership and absorption capacity for relevant CD in priority areas. - To optimize traction of TA recommendations: - Pay close attention to the political economy of reforms and support reform-minded officials. - Intensification of hands-on training and delivery through resident advisors recommended to mitigate risks from low staffing levels, high turnover, and capacity limitations. - Peer learning suggested to increase traction and overcome resistance to reforms. ### Authorities’ views and priority demand - Authorities expressed great satisfaction with Fund TA, citing improvements in tax and administrative reforms, public financial management, debt management, and macroeconomic statistics leading to SDDS status. - Authorities indicated willingness to work with TA experts and highlighted keen interest in: - (i) implementation of the MTRS and the tax arrears strategy; - (ii) implementation of the PIMA/C-PIMA main recommendations; - (iii) capacity building for quantification and monitoring of fiscal risks; - (iv) LEG’s assistance in implementing priority reforms on revising the existing framework for assets declaration. ### Key overall CD priorities — Pillar I: Building Fiscal Resilience - Revenue Administration / MTRS: - Recent CD activities: MTRS, legal drafting, international tax. - Planned/proposed: Planning MTRS and immediate revenue measures; advise and assist on developing the MTRS implementation plan. (2023H2) - Objectives: Strengthen capacity in implementing the MTRS action plan; assess effectiveness; take stock of delays and prepare corrective measures; prepare a performance management and accountability framework in line with MTRS targets. (2023H2) - Improve monitoring framework of tax performance. - Customs: - Recent CD activities: Valuation. - Planned/proposed: Assist on automating settlement of the prepayment for the income taxes levied (prélevement de conformité fiscale) at customs for importers not current with domestic taxes. (2023H2) - Objectives: Identify fraud and improve control efficiency in implementation of the prepayment. - Tax Policy: - Recent CD activities: Fiscal Rules choice and calibration (oil and gas revenues projections); Tax policy diagnostic assessment. - Planned/proposed: Specify the fiscal rule by defining long and medium-term fiscal anchors based on May 2023 mission findings. (2023H2-2024H1) - Objectives: Strengthen macro-fiscal framework for hydrocarbon revenues; Tax Policy Unit capacity building. (2023H2-2024H1); Equip the Legislation and International Cooperation Unit of the DGID with technical skills and tools for tax policy design and implementation; Prepare a tax expenditure rationalization strategy. (2023H2); Identify concrete tax exemptions to be abolished and strategy to phase them out. - PFM reforms: - Recent CD activities: PIMA assessment update; Capital projects budgeting. - Planned/proposed: Strengthen public investment management. (2023H2-2024H1); Strengthen capacity to manage PPPs and related fiscal risks. (2023H2-2024H1); Strengthen in-year budget execution programming. - Objectives: Follow up on PIMA assessment and advise on action plan to gradually eliminate capital transfers and ensure classification of new investment projects as central government investment; Better articulation of in-year planning tools (procurement plan, Commitment plan and cash flow plan). - Hydrocarbon revenues forecasting and management: - Recent CD activities: FARI model update. - Planned/proposed: Capacity building in forecasting hydrocarbon-related revenues (FARI model update). (2023H2-2024H1) - Objectives: Strengthen capacity to set-up and update a model to forecast hydrocarbon revenues using the FARI model; Finalize implementing laws and operating procedures for the intergenerational and stabilization funds. (2023H2-2024H1); Assist preparing implementation decrees of framework for management of hydrocarbon revenues; Capacity building on reporting framework to monitor performance of intergenerational and stabilization funds. (2024H1-2024H2); Improve transparency in management of hydrocarbon revenues. - Government Finance Statistics: - Recent CD activities: Improve quality and regularity of in-year budget execution reports; Refine the TOFE of public sector; Strengthening DBA and infra-annual spending programming. - Planned/proposed: Public sector TOFE consolidation – Assets and debts stock-flow-consistency. (2023H1-2023H2); Technical assistance to finalize the implementation of the Single Treasury Account. (2024H2) - Objectives: Improve consolidation of public sector TOFE and reconcile flows and stocks of assets and liabilities; Improve cash management. - Debt management: - Recent CD activities: MTDS and ABP formulation and implementation; Domestic debt market development. - Planned/proposed: Debt Unit capacity building. (2023H2-2024H1); Enhance capacity of the Debt Unit and support operationalization of the national debt committee (CNDP); Debt and cash management. (2024H1-2024H2); Assist on better integrating debt and cash management. ### Key overall CD priorities — Pillar II: Enhancing AML/CFT and Governance - Framework for assets declaration: - No CD activity done previously. - Planned/proposed: Assist authorities on revision of existing framework for assets declaration. (2024H1-2024H2) - Objective: Strengthen governance and transparency. - Governance and anti-corruption framework: - No CD activity done previously. - Planned/proposed: Governance diagnostic (TBD); Governance and anti-corruption framework assessment. - AML/CFT framework: - No CD activity done previously. - Planned/proposed: Strengthening the AML/CFT framework, including transparency of Beneficial Ownership (BO) of legal entities operating in Senegal. (2024H1-2024H2) - Objectives: Build on recent progress—issuance of procedures for identifying, declaring, storing and controlling information relating to beneficial owners; implementation of new electronic forms to submit BO information to the DGID for legal persons and legal arrangements; establishment of procedures for routinely checking that BO information provided is accurate and maintained up-to-date. ### Key overall CD priorities — Pillar III: Building Socio-Economic Resilience - National Account Statistics: - Recent CD activities: Rebasing the national accounts with benchmark year 2021; Updating natural resources (oil and gas) estimates in the national accounts’ framework. - Planned/proposed: Finalize the rebasing of the national accounts. (2025H1) - Improve the business environment: - Recent CD activities: Revision of the investment code. - Planned/proposed: Complete ongoing revision of the investment code. (2023H2-2024H1) - Objective: Assist in finalizing the new investment code to align with international best practices. ### Key overall CD priorities — Pillar IV: Building Climate Change Resilience - Strengthen climate tagging in budget cycle: - Recent CD activities: February 2023 first comprehensive Climate PIMA TA mission from FAD; May 2023 follow-up C-PIMA TA mission to establish a C-PIMA recommendation implementation plan. - Planned/proposed: Assist authorities to improve framework for comprehensive “climate-tagging” in the budget process. (2025H1-2025H2) - Objective: Support implementation of capital investment through the normal (“Titre V”) PFM circuit. (ongoing) - Embed climate considerations in project selection: - No CD activity done previously. - Planned/proposed: Establish climate dimension as key selection criteria in the project selection process. (2023H2-2025) ### Contextual macro-fiscal and program references from the MEFP (selected figures) - Government requested access to the EFF and ECF for SDR 1,132.6 million (350 percent of the quota), consisting of: - SDR 377.53 million (116.67 percent of quota) under the ECF. - SDR 755.07 million (233.33 percent of quota) under the EFF. - Government requests access to the RSF for SDR 242.70 million (75 percent of quota). - Recent 2022 macro-fiscal outcomes and indicators: - Real growth estimated at 4.2 percent in 2022 (6.5 percent in 2021). - Inflation expected to rise to 9.7 percent in 2022; food prices +17.9 percent; local products price rise 11.2 percent, imported products 5.6 percent; core inflation 6.6 percent in 2022 (2.6 percent in 2021). - Overall fiscal deficit at end-December 2022: CFAF 1,054.17 billion, or 6.1 percent of GDP. - Revenues (excluding grants) reached CFAF 3,297.9 billion. - One-off windfall from unwinding a Eurobonds’ SWAP contract: CFAF 92.5 billion. - Domestic taxes underperformed by about CFAF 82 billion. - Tax to GDP ratio: 18.2 percent. - Civil servant wage bill exceeded forecasts by CFAF 55 billion. - Energy subsidies reached CFAF 692 billion in 2022, or 4 percent of GDP. - Crowding out of capital expenditure: CFAF 83 billion compared to appropriations in Revised Budget Law. - Financing of fiscal deficit: net accumulation of liabilities CFAF 1,391.49 billion and net acquisition of financial assets CFAF 335.55 billion. - Current account deficit estimated at 19.9 percent of GDP in 2022 (12.1 percent in previous year). - Imports of goods rose by 42.4 percent; exports of goods grew +24.6 percent. - Remittances grew by 6.7 percent. - Overall public debt including quasi-public entities: CFAF 13,231 billion (76.6 percent of GDP) at end-2022; central government debt estimated at 68.2 percent of GDP at end-2022. - Money supply growth: 21.6 percent; domestic lending increased 28.4 percent year-on-year. - Net claims on central government: +955.6 billion; +51.5 percent. - Loans to the economy: +1,027.4 billion; +20.0 percent. - Net foreign assets fell by 3.1 percent (-62.2 billion). - Banking sector: deposits up 23.5 percent; net loans increased 19.8 percent. - Gross portfolio impairment rate: 9.3 percent at end-2022 (11.5 percent in 2021); net impairment rate 2.9 percent. - Solvency ratio: 12.96 percent at end-December 2022 (minimum threshold 11.5 percent). - Liquidity ratio: 104.8 percent at end-December 2022. *Source: Annex IX. Capacity Development Strategy, 1senea2023002* ### 2023. Domestic economic activity, excluding agriculture and forestry, as measured by the General ### 1senea2023002 - 2023. Domestic economic activity, excluding agriculture and forestry, as measured by the General ### Economic activity and inflation - Domestic economic activity, excluding agriculture and forestry, as measured by the General Activity Index, rose by 5 percent year-on-year in March 2023. - Growth was driven mainly by: - primary sector: +9.5 percent - tertiary sector: +5.6 percent - Inflation dynamics: - Peak inflation: 14.0 percent in November 2022 - Inflation at end-March 2023: 9.4 percent - Food price inflation: 21.4 percent in November 2022 → 11.9 percent in March 2023 - Energy inflation and core inflation: reported as remaining on the rise ### Budget execution and fiscal outturns (end-March 2023) - Overall budget deficit at end-March 2023: 566.5 billion - Revenues executed: CFAF 790.6 billion - Expenditures executed: CFAF 1,357.1 billion - Detailed revenue and tax figures: - Revenues (excluding grants) at end-March 2023: CFAF 759 billion (forecast: CFAF 814.8 billion) → shortfall of CFAF 55.8 billion - Underperformance primarily due to taxes on goods and services: -CFAF 42 billion - Tax revenues: CFAF 726.3 billion (2023 Initial Budget Law projection: CFAF 784 billion) - Non-tax revenues: CFAF 32.7 billion (increase of CFAF 1.9 billion vs Initial Budget Law projections) - Expenditure execution: - Execution rate excluding interest payments: 27 percent of the envelope at end-March 2023 - Interest payments on debt at end-March 2023: CFAF 149.9 billion - Interest payments expected to be CFAF 78 billion higher than the initial budget law forecast for the entire year (attributed mainly to tighter regional financial conditions and U.S. dollar appreciation against the CFA franc) ### Monetary policy and financial conditions - BCEAO policy actions: - Key rates raised by 100 basis points since June 2022 (increments of 25 basis points) - Transition from fixed-rate full liquidity allocation to variable-rate auction system as of mid-February 2023 - BCEAO key rates: 3 percent (minimum bid rate for liquidity injection auctions) and 5 percent (marginal lending rate) - Refinancing volumes: - Volume of refinancing from liquidity injection auctions at end-December 2022: up 13.1 percent vs 2021 - Volume at end-March 2023: increased by 8.1 percent vs same period of previous year - International market impact: - Yields on Senegal’s Eurobonds in the secondary market have risen with the tightening of international financial conditions ### Macroeconomic framework and projections - 2023 projections (with oil and gas production starting in Q4 2023): - GDP growth forecast for 2023: 8.8 percent - Growth excluding hydrocarbons (2023): 6.3 percent (could decline to around 5.3 percent given adverse international developments) - GDP deflator inflation (2023): 4.1 percent - Current account deficit (2023): 15.6 percent of GDP - Medium-term outlook: - Growth: 12.8 percent in 2024; 5.0 percent in 2025 - Growth excluding hydrocarbons: about 6.6 percent on average over 2023-2027 - Inflation: expected to ease to around 2.8 percent - Current account deficit: expected to narrow to about 5 percent of GDP - Debt-to-GDP ratio: expected to improve due to hydrocarbon GDP growth and fiscal consolidation - Key uncertainties: - Start-up date and production rate of hydrocarbons - Potential shocks: weakening external demand; tighter regional and global financial conditions; escalation of the war in Ukraine; appreciation of the U.S. dollar; rising commodity prices; regional security deterioration; unfavorable weather affecting agriculture ### Fiscal policy stance and consolidation measures (Pillar 1) - Fiscal consolidation objectives: - Preserve sustainability of government finances - Improve public debt sustainability - Restore fiscal space eroded by multiple shocks - Achieve WAEMU target of 3 percent of GDP budget deficit by 2025 - Increase transparency and efficiency of public spending, notably subsidies and public investment - 2023 deficit target and adjustment needs: - 2023 deficit target: CFAF 919.7 billion (4.9 percent of GDP) - Identified revenue shortfalls and expenditure overruns without measures could yield a deviation of about CFAF 220 billion from the CFAF 919.7 billion target - Specific projected deviations: - Revenues potentially CFAF 69 billion lower than projected - Interest payments expected CFAF 78 billion higher than projected - Current expenditures expected CFAF 76.4 billion higher than projected (including a CFAF 10,000 increase in the family security grant and enrollment costs for Equal Opportunity Card holders, plus energy subsidies carryovers from 2022) - Measures adopted to meet CFAF 919.7 billion deficit target: - Revenue-side measures and expected yields: - Implementation of new tax policy measures via tax administration reorganization: expected fiscal yield of about CFAF 33.4 billion for the rest of the year - Lifting suspension on customs duty and import tax on edible oil and sugar: expected additional revenue CFAF 15 billion - Strengthened customs control measures (one-stop shop for vehicle clearance; transit/transshipment/re-export office; restrictions on warehousing): expected yield CFAF 28 billion - Additional nontax revenues from sale of government land (LEDANTEC hospital): CFAF 57 billion - Expenditure-side measures: - Commitment to generate CFAF 133 billion in savings through cuts in current expenditures of about CFAF 60 billion and by delaying some domestically-financed investment projects - Financing plan for overall deficit CFAF 919.7 billion: - Program drawdowns: CFAF 306 billion - Project-loan drawdowns: CFAF 435.6 billion - Resource mobilization in the market: CFAF 178 billion ### Revenue mobilization and tax administration reforms - Target: tax-to-GDP ratio of 20 percent of GDP (excluding hydrocarbons) by 2025 through the Medium-Term Revenue Strategy (MTRS) - Implied average increase: 0.5 percentage point of GDP (excluding hydrocarbons) in tax revenues (excluding hydrocarbons) per year over 2023-2025 - Tax administration measures to strengthen collection and compliance: - Operationalization of the SEN’FINANCES portal (unified remote filing platform) by end-December 2023 to improve audits, expand taxpayer base, and monitor collection agents’ performance - Reinforcement of legal obligation for certain entities (public service concession companies, digital platforms, gaming and leisure companies) to provide customer/subscription and location information to tax authorities to improve property tax collection (Structural Benchmark at end-December 2023) - Study for implementation of an electronic invoicing system to detect non-invoicing activities, better target tax audits, detect false charges, and undeclared VAT invoices - Strengthening the Legislation and International Cooperation Directorate of the DGID with an expanded domestic tax policy coordination mandate (Structural Benchmark, end-September 2023) - Establishment of legal framework for full digitization of administration procedures - Completion of control and taxation framework for the digital economy - Establishment of framework for full digitization of property procedures and the land registry ### Customs and inter-agency coordination measures - Strengthening collaboration between the General Directorate of Customs (DGD) and the DGID: - Reactivation of the Joint Control Unit - Intensification of information exchange beyond customs declarations and financial statements to include indications of non-compliance and operator activity characteristics - Strengthening capacities of the Joint Control Unit regarding exemptions, economic arrangements, and verification of investments made with tax benefits - New customs control structures and expected revenue gains: - One-Stop Shop Vehicle Clearance Office: estimated revenue gain of 18.8 billion per year - Transit, Transshipment and Re-export Office: estimated revenue gain of 5.5 billion per year - Creation of a Directorate of Intelligence and Risk and Value Analysis to improve governance of customs valuation and control of the tax base *Source: 1senea2023002 - 2023. Domestic economic activity, excluding agriculture and forestry, as measured by the General* ### 24. The tax policy measures are centered primarily around: ### 24. The tax policy measures are centered primarily around: ### Tax policy measures - Establishment of a withholding tax on the sale of hydrocarbons in Senegal by nondomiciled persons (CFAF 0.5/kg), which should bring in approximately CFAF4.6 billion in additional revenue per year. - Introduction of VAT on digital services. This VAT is applied to the prices of digital services (online sales or sales on digital platforms, online markets) and, where applicable, to the commissions received by intermediaries. - An order by the Minister of Finance specifying the procedures for application of the digital VAT will be adopted in the third quarter of 2023, with a view to its entry into force in 2024. - This new tax should bring in approximately CFAF 10 billion in additional revenue per year. - Revision of the special tax on insurance contracts (Article 542 of the General Tax Code) and modification of the tax regime governing the levy on insurance companies applicable, in particular, to reinsurance and life insurance companies. - Effective enforcement of the tax compliance levy (prélèvement de conformité fiscale). - Government commitment to automate the process of settling the tax compliance levy by automatically integrating into the GAINDE application the list of regulated taxpayers produced by the DGID each quarter (structural benchmark, December 2023). - Government commitment to ensure resolution by end-September 2023 of the 21,854 cases identified as non-compliant with the tax compliance levy for the year 2022 (actual payment of 12 percent by the non-compliant). - Government will report information on the increase in the number of new taxpayers obtained through the tax compliance levy. - VAT tax expenditures in 2020 reached CFAF 743.27 billion, including CFAF 335.24 billion for households. - The 2023 Initial Budget Law calls for the elimination of VAT exemptions on hospital charges, room rentals, and other hotel amenities practiced by private companies. This measure would generate additional revenues of CFAF 0.5 billion per year. - Government commitment to prepare a tax expenditure rationalization plan that clearly identifies the specific tax measures to be eliminated, including those related to the VAT, and to reduce tax expenditures by at least CFAF 100 billion per year, starting in 2024 (Structural Benchmark, end-November 2023). - Government commitment to audit at least 30 percent of VAT credits and zero refunds per year. - Expanding the tax base by increasing the number of registered taxpayers at the Directorate in charge of small and microenterprises that regularly pay taxes by 25,000, by exploiting available information from physical surveys (land registry services, national census of taxable properties) to increase registration and enrollment of new taxpayers (Structural Benchmark, end-December 2023). - Increasing specific taxes on tobacco and alcoholic beverages to bring them into line with the target rates set in the Economic Community of West African States (ECOWAS) standards. - Plans to increase the tax rates applicable to excise duties on tobacco, as well as the specific duties on alcoholic beverages. - Revision of household support measures. - Tax measures taken to support household purchasing power are being evaluated and necessary adjustments made to take account of changes in international prices. - Prices of certain products (oil and sugar) have been revised upwards. These adjustments will generate additional revenues of CFAF 15 billion. ### Expenditures - Rationalization of spending on subsidies is the second pillar of the fiscal consolidation strategy. - Government committed to implementing the roadmap published in January 2023 to reduce energy subsidies to 3 percent of GDP in 2023 and to 1 percent of GDP in 2024, and to completely eliminate them by 2025. - Government committed to establishing an independent body with the mandate to regularly determine and publish fuel prices, based on a revised pricing formula, together with the frequency of adjustment and the related smoothing mechanism (Structural Benchmark, November 2023). - Revise and publish the current pricing formula for petroleum products (gasoline and diesel) to ensure that prices at the pump reflect developments in international markets. The revision will cover: (i) the various elements of the price structure; (ii) the reference price, a gradual price adjustment mechanism to avoid large variations, and the frequency of price adjustments (Structural Benchmark, December 2023). - Government will revise the electricity tariff structure by introducing a social rate applicable to the vulnerable segment of the population. - A financial audit of SENELEC by end-2023 with a view to revising the maximum allowable revenue formula. - Scaling up of cash transfer programs to mitigate the impact of energy price increases on vulnerable households: - Re-certification of data in the Single National Registry for all regions for the 558,000 households already registered and its expansion to one million households by June 2024 (structural benchmark at end-June 2024). - Migration to digital payment of cash transfers. - Improvement in the performance of state-owned companies in the energy sector and a reduction in production costs. - Launching of a campaign from 2024 onwards to publicize the reform to be implemented and the expected impact on the state budget. ### Fiscal reforms and public investment management - Accelerate implementation of the budget and financial reform management strategy to strengthen credibility and transparency in budget execution. - 2023 Public Investment Management Assessment (PIMA) provisional report reaffirmed the need to improve the investment planning and programming mechanism. - Government commits to follow the recommendations of the 2023 PIMA report. Priorities: i) strengthening the link between public investment planning and budgeting, ii) monitoring the investments made by public enterprises (EPs) and PPPs, iii) clarifying the project selection criteria and iv) reduction of derogatory expenditure execution procedures. - Specific measures to be implemented: - Ensuring comprehensive and unified management of the budget through the inclusion of the budgets of public entities (national public institutions and local government authorities) and public private partnership (PPP) projects in the budget documents. - Better consideration in project documents of recurring maintenance expenses to ensure asset durability. - Improvement of the selection process for public investment projects through: (i) application of the criteria defined in the order of July 28, 2015, creating the committee for the development and evaluation of investment projects/programs; and (ii) revitalization of said committee. - Full application of commitment authorization/payment appropriation budgeting and priority consideration in the budget of projects with feasibility studies. - Closer monitoring of the execution of public investment projects. - Follow up on priority recommendations of the Climate-PIMA to fill gaps in the framework for preparing and executing the climate-related budget: - Flesh out climate change requirements and considerations in national and sectoral public investment strategies and plans. - Strengthen effective coordination for the selection and execution of climate-related public investments. - Roadmap for the implementation of C-PIMA recommendations will be finalized by end of June 2024. ### Regulatory and procedural measures to improve budget execution - Order No. 037031 of December 7, 2022, established procedures for intra-annual budget planning to provide a framework for consistency between Procurement Plans, Quarterly Commitment Ceilings, and Cash Flow Plans. - An instruction defining the tools and processes for intra-annual budget planning, the decision-making bodies, and roles and responsibilities will be signed by the Minister of Finance before end-October 2023. - Objective to ensure effectiveness of intra-annual planning through committees and implementation in the Information System starting in 2024. - Ensure that all new investment projects are classified as central government investment (Title V) (Structural Benchmark, Quarterly monitoring, from the end-December 2023). - Instruction of the Minister of Finance and Budget signed in July 2022 concerns implementation of delegated project management agreements within ministerial departments, reclassification of capital transfer expenses as investments executed by the state. - All capital transfers to ministries that are not multi-year in nature will be reclassified as investments executed by the state. For capital transfers with contracts in progress, they will be carried through to completion according to contractual terms. - General Budget Directorate will remove institutional support projects from the investment budget so as to include only those that contribute to gross fixed capital formation. - General Budget Directorate will follow up on implementation of all PIMA and Climate-PIMA assessment recommendations. - Integrated Financial Information Management System (SIGIF) audit included in the 2023 mission program of the General Finance Inspectorate. Terms of Reference approved by the Ministry of Finance and the Budget; work underway to develop the draft budget and to begin selection of a firm. - For ongoing investment projects under Titre VI: - Improve transparency and traceability of transferred resources through enhanced and systematic monitoring. - Future transfer of resources contingent upon: (i) for initial requests, submission of the projected cash flow of the project; (ii) for subsequent transfer requests, submission of the financial execution statement of previously provided resources and the projected cash flow plan associated with the project. ### Audit and COVID-19 expenditures - Publication of a roadmap for implementation of the recommendations contained in the Court of Accounts’ audit of Covid-19 expenditures. - Final audit report on the management of the COVID-19 Fund for the 2020 and 2021 fiscal years contains 82 recommendations, 21 of which apply to the Ministry of Finance and the Budget and the rest to other ministries and public entities. - The Court of Accounts recommends the Minister of Justice open a judicial inquiry into actions of certain officials involved in the public expenditure chain. - Recommendations are in the process of being implemented in cooperation with the Court of Accounts. - A summary table of the Court of Accounts’ recommendations has been prepared and sent to IMF staff and will be monitored on a regular basis. ### Additional budgetary reforms - Elimination of all deposit accounts for non-personalized government services with repatriation of transfer appropriations for operating and investment purposes in the state budget (Structural Benchmark, June 2024). - Publication of the table of government financial operations on the websites of the Ministry, the Treasury, and the National Agency for Statistics and Demography no later than the end-October 2023. - Improved management of fiscal risks associated with PPPs: - Minister of Finance issued Order No. 008655 of March 30, 2023, on the methodology for the provisioning of fiscal risks in the budget law, including those related to PPPs. - Provisions for guarantees and sureties take into account financial risks inherent in PPPs, quantified by the department in charge of monitoring PPPs, according to extent and probability of occurrence of each risk. - Treasury Single Account (TSA) consolidation: - Continue to consolidate the TSA in accordance with its roadmap for the closure of the 113 remaining accounts out of the 276 accounts initially identified. - Accounts concern public industrial and commercial establishments, public health institutions, and higher education institutions with their own resources and management autonomy. - A strategy will be defined including improvements of the banking services offered by the Treasury. ### Debt policy - Government committed to reducing public debt vulnerabilities and strengthening the public debt management framework. - Give priority to concessional financing and CFAF financing on the regional market, limiting recourse to commercial debt to projects with economic, financial, and social profitability compatible with financing conditions. - Implement an active debt management strategy to stabilize debt service and limit foreign exchange risk to ensure better alignment with thresholds set in the debt sustainability analysis. - Measures to improve debt management: - Implementation of the action plan resulting from an audit of the debt management platform, and define a roadmap for integration of debt data of quasi-public sector companies. - Strengthening the National Public Debt Committee (CNDP) by providing it with a permanent secretariat and making it mandatory for all new public sector borrowing to be submitted to the CNDP within at least 15 days, supported by an analysis of the costs and benefits of each project. - Increasing transparency by providing for the publication of the financial statements of all entities that have borrowed, in accordance with the law. - Strict compliance with the debt ceiling aligned with the objective of public sector debt sustainability. - Government will conduct a debt sustainability analysis on a semi-annual basis. - The public sector debt maturity schedule will be monitored. - The table of government financial operations (TOFE) for the public sector will be published by December 31 of the fiscal year. - Adoption of a regulation to establish the conditions and procedures for on-lending by the government to state-owned enterprises. ### Improve Governance - Implement remaining measures of action plan to be removed from enhanced monitoring of FATF: - Measures focus on making the register of beneficial owners operational, clarifying the targeted financial sanctions (TFS) mechanism, and training control and supervisory authorities and reporting entities in AML/CFT and TFS. - Government will make every effort to ensure removal from the grey list by end-October 2023. - Strengthen prerogatives and powers of the National Office for Combating Fraud and Corruption (OFNAC): - Law establishing OFNAC is being revised to strengthen investigation techniques, introduce whistleblower protection, oblige the Public Prosecutor to send quarterly reports to the Minister of Justice on treatment of referred files with concrete action within one year, introduce sanctions against obstructing OFNAC, and increase the limitation period for public action to seven (07) years for facts within OFNAC’s competence. - Government commits to adopt in the Council of Ministers and transmit to the National Assembly a draft law amending the law creating OFNAC (Structural Benchmark, October 2023). - Enhance the framework of asset declaration: - Draft law amending the law on asset declaration is being prepared to strengthen penalties for non-declaration, false declaration, or late declaration. - Government commits to adopt it in the Council of Ministers and transmit to the National Assembly (Structural Benchmark, October 2023). - Establish a Financial Prosecutor’s Office with special authority to deal with economic and financial crimes; plans include a College of Financial Investigating Judges, a Financial Trial Chamber, a Financial Indictment Chamber, and a Financial Appeals Chamber. - Government committed to adopting in the Council of Ministers by October 2023 and transmitting to the National Assembly a draft law amending Law No. 65-61 of July 21, 1965, on the Code of Criminal Procedure. - Promote ethical and moral values in public management: - Draft law on a general code of ethics and professional conduct for public officials is being finalized and is planned to be adopted in the Council of Ministers by October 2023. - Improve financial reporting and public accountability: - Strengthen reporting system for main extrabudgetary entities and include them within scope of government’s financial operations. - In addition to the TOFE of the central government, the TOFE of the general government will be produced and published no later than October 30 of the fiscal year. - Strengthen public accountability through mandatory and timely publication of reports from key oversight entities. *Source: 1senea2023002 - 24. The tax policy measures are centered primarily around:* ### 38. The government is committed to increasing the private sector’s contribution to wealth ### 38. The government is committed to increasing the private sector’s contribution to wealth ### Business Environment and Competitiveness Reforms (PREAC III) - Labor legislation - Steering committee discussed main points of the labor code reforms and adopted a new work plan for completion in the second half of 2023. - A preliminary draft of the new labor code will be available in the second quarter of 2023 to allow convening of the Advisory Council on Labor and Social Security; Advisory Council stage precedes adoption by the Council of Ministers and the National Assembly. - Simplification and computerization of social tax procedures are in effect with deployment by the Senegal Retirement Benefits Institution (IPRES) and the Social Security Fund of the "NDAMLI" digital portal (https://secusociale.ipres.sn), making online reporting and payment of social security contributions a single process. - Commercial judicial system - The commercial court is now functional with digitized procedures. - Planned next steps: creation of a commercial court of appeal; creation of a second commercial court covering the Thiès-Mbour economic hub and possibly Diourbel; strengthening commercial courts outside Dakar (Saint-Louis, Kaolack, and Ziguinchor). - Ongoing work aims to secure investments through diligent and transparent management of economic disputes, supporting stability and entrepreneurial freedom. - Investment Code - Preliminary draft of the new investment code adopted by the steering committee on November 23, 2022. - Integration of observations to be discussed at a national validation workshop with the steering committee and stakeholders during the second quarter of 2023 before political adoption (Government Secretariat General, Council of Ministers, National Assembly, and enactment) under leadership of the Minister of Finance and the Budget and the Minister of the Economy, Planning, and Cooperation. - National Private Sector Development Strategy (SNDSP) - Strategy to better support National Champions using global best practices to benefit from the African Continental Free Trade Area (AfCFTA) and to ensure better coordination of pro-business public action to create more value and productive jobs. - Land management and building/urban planning codes - Establishment of a centralized and integrated land management system that will digitize land management procedures (Structural Benchmark, end-December 2023). - Ongoing updating of the building code and the urban planning code; two draft Codes adopted by the Council of Ministers after formulation and technical validation with stakeholders. - Agreement with the World Bank Group that support for implementation of the reform will continue after entry into force of the laws on the building code and the urban planning code. - Electronic land register actions should be stepped up to enable the Directorate General of Taxes and Property to launch the register in the second half of 2023. - Register of collateral - Establishment of a register of collateral available online and gathering data on movable collateral and mortgages in collaboration with the BCEAO (Structural Benchmark, end-December 2023). - Guarantee register is a community reform at the BCEAO; will build on electronic register of real collateral governed by Decree No. 2021-420 of April 2, 2021, on operating procedures of the Trade and Personal Property Credit Register. - Decree establishes rules for maintaining the Trade and Personal Property Credit Register in each jurisdiction and the National Directory, and provides for a Trade and Personal Property Credit Register Management Committee. - A joint order of the Minister of Finance and the Minister of Justice will be issued to set the cost of the electronic online access service. ### Gender equality and gender-responsive policies - Institutionalization and monitoring instruments - Since 2016, two critical decisions: (i) institutionalization of the Gender Thematic Review for input to the Joint Annual Review of the Emerging Senegal Plan; (ii) annual preparation of the Gender Budget Document appended to the Initial Budget Law. - These instruments measure gender mainstreaming performance, address weaknesses, and propose corrective measures by sector. - Planned actions to reduce gender inequality - Increasing social spending on programs for girls and women, including eliminating gender disparities and barriers to girls’ education, particularly in specialized scientific and technical fields at the secondary and higher levels. - Taking measures to ensure the effectiveness of international and regional commitments in support of gender, particularly implementing the model gender institutionalization plan in WAEMU member states. - Strengthening the gender statistics component of the National Strategy for the Development of Statistics through flagship projects and programs. - Increasing resources allocated to gender-related training and capacity development for government agencies and other stakeholders in implementation of the National Strategy for Equity and Gender and sectoral gender institutionalization plans. - Providing training and credit to women entrepreneurs in promising sectors and industries. - Developing programs to involve women and girls in crisis management, including the R1325 Action Plan on Women, Peace, and Security to build resilience to climate change hazards, risks, and crises. - Adopting administrative and regulatory acts for functioning of National Strategy for Equity and Gender governance bodies (2023-2024), including the Gender and Development Inter-ministerial Committee and the Technical Monitoring Committee. - Mobilizing adequate resources for implementation of the national gender policy communication strategy (2023). ### Restructuring of La Poste - Measures adopted by the inter-ministerial committee and approved by the Prime Minister are being implemented: - Reform of the Treasury guarantee. - Holding of general meetings to decide on continuation of operation. - A hiring freeze. - Drafting and adoption by the Board of Directors of a negotiated severance and staff retraining plan. - Additional future measures identified: - Recapitalization of La Poste and its branches through: (i) consolidation of the credit balance of the cross-capital debt agreement; and (ii) revaluation of assets. - Institutional evolution of Poste Finances into a financial institution before its transformation into a postal bank. ### Financial sector: distressed banks and supervisory actions - Government role and actions - Government will ensure restructuring process of the two distressed banks is completed and will act as guarantor of last resort for the financial sector, implementing credible plans to restore capital of the distressed banks. - Status and stakeholders - For the first bank: shareholders, depositors, and creditors such as the West African Development Bank (BOAD) and certain insurance companies, as well as other community institutions, were brought together around a recapitalization plan approved by the West African Monetary Union (WAMU) Banking Commission; the recapitalization process is continuing. - For the second bank: increase in share capital is ensured by the majority shareholder with regular monitoring of scheduled actions by competent authorities. - Community supervisor issued decisions in favor of requests to modify shareholding structures at its March 2023 session. - Turnaround of institutions will be carried out within the time frame set for each bank by the Banking Commission. ### Social protection reforms and cash transfers - Prior action and legal framework - Outstanding two quarters of cash transfers dating back to 2021 will be settled in June 2023 (prior action). - Decree No. 2023-847 creating and setting the rules for the organization and operation of the National Family Security Grant Program (PNBSF) has been adopted by the government; framework defines enrollment and removal procedures and ensures program sustainability. - Coverage, benefits, and fiscal cost - Measures to expand number of beneficiaries: coverage of all Equal Opportunity Card holders. - Increase in the amount of the grant from CFAF 25,000 to CFAF 35,000; increase will take effect with the payment for the first quarter of 2023. - Fiscal cost of the program is estimated at CFAF 51,501,025,200 per year. - Targeting and registry expansion - Extension of the Single National Register to one million households to include poor and vulnerable households is underway. - Using poverty and vulnerability maps, regional, departmental, and municipal quotas were determined and transmitted to administrative authorities. - Process of targeting eligible households is underway and will be completed by end- *Source: 1senea2023002 - 38. The government is committed to increasing the private sector’s contribution to wealth* ### 2023. In addition, the government has started the process of digitizing the payment of grants with ### 1senea2023002 - 2023. In addition, the government has started the process of digitizing the payment of grants with ### Digitization of grant payments - The government has started the process of digitizing the payment of grants with the development of an IT platform that offers the possibility of partnership with payment operators. - The platform allows for bulk payments; the pilot phase was successful in the Sédhiou region. ### Pillar 4: Build Resilience to Climate Change — overview - The government is devoting particular attention to issues related to climate change, incorporating international climate-related commitments into national plans and sectoral strategies. - Adopted a strategy to phase out heavy fuels and switch to domestic gas for power generation based on more modern and green technologies (Gast-to-Power strategy - GtP). - Program supported by the Resilience and Sustainability Facility (RSF) will: - Help integrate climate change issues into public policy. - Support the government in meeting its Nationally Determined Contribution (NDC) commitments. - RSF program is based on three pillars: - (i) support Senegal’s climate change mitigation objectives; - (ii) accelerate Senegal’s adaptation to climate change; - (iii) mainstream climate change considerations into the budget process. - Program also supports measures to improve water management in the agricultural sector, build resilience to coastal erosion, and design a climate risk management framework. ### Axe 1: Support Senegal’s Climate Change Mitigation Objectives — key reform measures - Key reform measures include: - (i) Adopt a greener public transportation strategy and (ii) reflect it in the Ministry of Transport’s Priority Investment Program 2024 budget. (RM2, by end-November 2023). - Adopt an electricity rate adjustment plan based on the results of the World Bank-supported financial audit of Senelec, gradually eliminating electricity subsidies (RM5, by end-June 2024). - Work with the World Bank to minimize greenhouse gas emissions throughout the life cycle of oil and gas; work will result in a revised petroleum code and a new environmental code, which will be finalized by in 2024. ### Axe 2: Accelerate Senegal’s Adaptation to Climate Change — key measures - Adopt a PAPIII (Country Development Strategy) for Senegal that fully reflects Senegal’s National Determined Contribution (RM3, by end-April 2024). Intended to ensure strategic priorities are integrated into long-term development planning and annual budget processes. - Submit to National Assembly laws that establish (i) the Urban Code (CU) and (ii) the Construction Code (CC) (RM4, by end-June 2024). - Publicly disseminate key information on climate risks by the National Committee on Climate Change. (RM7, by March 2025). - Downscaled and geo-located information on climate risks is a prerequisite for effective climate adaptation. - More accurate information will support expansion of the agricultural insurance program, which currently covers only 10 percent of farmers. - Approve the inter-ministerial decree which defines roles, responsibilities and procedures allowing each actor to assume their role and their responsibility in terms of water (RM8, by end-Marc 2025). ### Axe 3: Mainstream Climate Change Considerations into the Budget Process — key measures - Adopt and publish a PIM decree integrating climate considerations at each step of the project development (appraisal, selection, external audit etc.) (RM1, by end-October 2023). - Assess and quantify disaster-related fiscal risks as part of the Risk Statement Annex included in the 2025 b udget law (RM6, by end-September 2024). - Approve by the Minister of Finance the modification of the permanent directives for the preparation of the budget to fully reflect the priority public investments in terms of climate for mitigation and adaptation identified in the PES (RM9, by September 2025). - The Minister of Finance will issue a binding instruction to all Ministers engaged in large public investment program (PIP) to ensure that all public investments and PPP projects executed or supported by the State budget will include as part of documents required for the appraisal: - (i) a technical assessment of the impact of the investment on adaptation to climate change (both in the pre-feasibility study, if any, and in the feasibility study), and - (ii) the climate implications of the project, i.e. the impact on GHG emissions. (RM10, by September 2025). ### Program monitoring - The program will be reviewed semi-annually and monitored using quantitative performance criteria, indicative targets, and structural benchmarks as shown in Tables 1 and 2. - Definitions provided in the Technical Memorandum of Understanding (TMU) attached to the MEFP. - Under the RSF, monitoring will be done by means of the reform measures detailed in Table 3. - Reviews will assess quantitative performance criteria and indicative targets at specified test dates and on a continuous basis. Test dates: - First review test date: June 30, 2023. - Second review test date: December 31, 2023. ### Table 1 — Selected quantitative performance criteria and indicative targets (as shown) - Performance criteria: - Floor on nonhydrocarbon Primary Balance (CFA billion): -335-417-335 - Floor on nonhydrocarbon tax revenue (CFA billion): 1,6023,5141,882 - Ceiling on the present value of public sector new external borrowing (USD million): 3,7553,7551,828 - Ceiling on public sector external financial arrears (stock): 000 - Ceiling on central government domestic payment arrears (stock): 000 - Indicative Targets: - Ceiling on total nominal public debt (CFAF billion)3: 14,59114,59115,507 - Floor on social expenditures (percent of total spending): 40 40 40 - Ceiling on the stock of government amounts payable (CFA billion): 40 40 40 - Maximum upward adjustment of the overall deficit ceiling owing to Shortfall in program grants relative to program projections (CFA billion): 18.818.815.2 - Memorandum items: - Budget grants...76... - Ceiling on the share of the value of public sector contracts signed by single tender (percent): 15 15 15 - Ceiling on spending through simplified procedures for non-personalized services (percent): 22 2 - Net Domestic and Regional Financing of the Government...340.2... ### Table 2 — Prior Actions and Structural Benchmarks (selected items and target dates) - Prior Actions: - Pay the outstanding two quarters of cash transfers dating back to 2021 to vulnerable beneficiary households: 5 days before the board meeting - Structural Benchmarks — Pilar I. Building Fiscal Resilience (selected): - Reinforce the legal obligation for public service companies and certain public entities to automatically communicate all information about their customers to the tax authorities in order to improve tax compliance: End-October 2023 - Broaden the tax base by increasing by 25,000 the number of taxpayers registered with the Department in charge of small and micro-enterprises: End-December 2023 - Automate the tax compliance (prélevement de conformité fiscale) liquidation Process: End-December 2023 - Prepare a tax expenditure rationalization strategy and from 2024 reduce them by at least 100 billion CFA francs per year over the next two years: End-November 2023 - Strengthen the Legislation and International Cooperation Directorate at the DGID through a ministerial decision: End-September 2023 - Eliminate all treasury deposit accounts (comptes de depot) used by public entities without legal personality (services non-personnalisés de l'État): End-June 2024 - Ensure that all new investment projects will be classified as central government investment (Title V) and related quarterly monitoring: Quarterly monitoring, from the end-December 2023 - Structural Benchmarks — Energy subsidies reforms (selected): - Revise and publish the current pricing formula for petroleum products (gasoline and diesel): End-December 2023 - Put in place an independent body with the mandate to regularly determine and publish petroleum product prices: End-November 2023 - Structural Benchmarks — Pilar II. Enhancing AML/CFT and Governance (selected): - Submit to the National Assembly a draft law amending the existing law creating the anti-corruption body (OFNAC): End-October 2023 - Submit to the National Assembly a draft law amending the existing law on assets declaration: End-October 2023 - Structural Benchmarks — Pilar III. Building Socio-economic Resilience (selected): - Set up a centralized and integrated land management system which will digitalize land management procedures: End-December 2023 - Put in place, in consultation with the BCEAO, a register of real guarantees accessible online which combines data on movable assets as well as non-immovable assets: End-December 2023 ### Table 3 — Proposed RSF Reform Areas and Reform Measures, 2023–25 (selected entries) - RM2 (M) Support decarbonization: - Adopt at the Council of Ministers an implementation plan for the strategy for greener public transport and (ii) reflect it in the 2024 PIP budget of the Ministry of Transport, in line with the objectives of the NDC. End-November, 2023 - RM5 (M) Support decarbonization: - Adopt an electricity tariff adjustment plan based on the results of the financial audit of Senelec, with the aim of phasing out electricity subsidies by 2025. End-June, 2024 - The plan should restore cost recovery (operating and capital costs) by the end of 2025 and set annual targets to gradually achieve full cost recovery by the end of 2025. Each annual target should reflect a cost recovery higher, compared to 2023, for 2024 and 2025 respectively. - RM3 (A) Climate response: strategy and costs: - Adopt Senegal's PAP III (Country Development Strategy) at the Council of Ministers, which should fully reflect the Senegal’s NDC. End-April 2024 - This should include the list of priority adaptation and mitigation projects of the NDC, the estimated costs, the financing mobilization strategy and the implementation modalities, including an implementation timetable. - RM4 (A) Protection of coastal zones: - Submit to the National Assembly two laws that establish (i) the Urban Code (CU) and (ii) the Construction Code (CC) to improve urban planning, thereby mitigating the impact of coastal erosion and urban flooding. End-June, 2024 - RM7 (A) Climate Risk Impact Assessment: - Publicly disseminate key information on climate risks by the National Committee on Climate Change. End-December, 2024 - Meeting this RM will require the adoption by the Council of Ministers a decree that strengthens the role of the National Committee on Climate Change by (i) determining its composition and functioning; and (ii) establishing the regular collection and analysis of information. - RM8 (A) Agriculture and Water Resources Management: - Approve an inter-ministerial decree that defines the roles and responsibilities and the procedures allowing each actor to assume their role and responsibilities for water, including the steps to take to be accountable for their actions. End-March, 2025 - RM9 (A, M) PFM: - Ministry of Finance to (i) develop guidelines for climate budget tagging (deadline end-2024); and (ii) to issue in the budget call circular directives in order to fully reflect the priority mitigation and adaptation public investments (end-2025). End-September 2025 - Government should include in the budget information on all climate change mitigation and adaptation projects with clear labeling and accurate assessment of expected impact. - RM10 (A, M) PIP: - Minister of Finance will issue a binding instruction to all Ministers engaged in large public investment program (PIP) to ensure that all public investments and PPP projects executed or supported by the State budget will include as part of documents required for the appraisal (i) a technical assessment of the impact of the investment on adaptation to climate change (both in the pre-feasibility study, if any, and in the feasibility study), and (ii) the climate implications of the project, i.e. the impact on GHG emissions. End-September, 2025 - Concerned ministers listed include: Minister of Infrastructure and Land Transport; Minister of Agriculture, Rural Equipment, and Food Sovereignty; Minister of Water and Sanitation; Minister of Health, and Social Action; Minister of Environment and Sustainable Development; Minister of Urban Planning, Housing, and Public Hygiene. - RM1 (A, M) Budget presentation: - Adopt and publish a PIM decree integrating climate considerations at each step of the project development (appraisal, selection, external audit etc.). End-October 2023 - RM6 (A, M) Budget presentation: - Assess and quantify disaster-related fiscal risks as part of the Risk Statement Annex included in the 2025 budget law. End-September, 2024 *Source: IMF staff report (excerpt provided).* ### 4. Program exchange rate. In the context of the program, the applicable exchange rates are ### 4. Program exchange rate. In the context of the program, the applicable exchange rates are ### Applicable exchange rates and data sources - The applicable exchange rates are those as of December 31, 2022. - The source of information is the IMF's International Financial Statistics (IFS) database. - As of December 31, 2022, the main rates are: - 1US$/619.481CFAF - 1US$/1.059 Euro - 1SDR/1.329 US$ - For exchange rates not covered by IFC, mutually agreed sources for exchange rate data will be used. ### Quantitative performance criteria - A. Floor on the Non-Hydrocarbon Primary Fiscal Balance (Program Definition) *Source: 1senea2023002 - 4. Program exchange rate. In the context of the program, the applicable exchange rates are* ### 5. Definition. The non-hydrocarbon primary fiscal balance is the difference between (i) total ### 5. Definition. The non-hydrocarbon primary fiscal balance is the difference between (i) total ### Definition of the non-hydrocarbon primary fiscal balance - The non-hydrocarbon primary fiscal balance = (i) total government revenue (including grants), excluding: - revenue from the exploitation of hydrocarbons, and - proceeds from the sale of central government’s non-financial assets to public sector entities (normally recorded in the net acquisition of non-financial assets); and (ii) domestic government expenditure, excluding interest expenditure on domestic and external debt. - The definition of revenue and expenditure is consistent with the 2001/14 Government Financial Statistics Manual (GFSM). - Petroleum revenue to government (including dividends paid by PETROSEN) and all fees and taxes paid by companies operating oil and gas reserves in Senegal are considered hydrocarbon exploitation revenue. - Hydrocarbon revenue is recorded on a cash basis; government expenditure is defined on a payment order basis accepted by Treasury and those executed with external resources. - The quantitative performance criterion (PC) is set as a cumulative floor on the non-hydrocarbon primary fiscal balance since the beginning of the year. ### Adjustment of the non-hydrocarbon primary fiscal balance floor - 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 specified in Table 1 of the memorandum of economic and financial policies. - If budget grants exceed projected level, the floor will be reduced by up to the maximum amount specified in Table 1. - The adjustment is applied with the criterion on a semiannual basis. ### Reporting requirements (non-hydrocarbon primary fiscal balance) - Authorities will report provisional data on the non-hydrocarbon primary fiscal balance (program definition) and its components monthly to Fund staff with a lag of no more than six weeks after the end of the relative month. - Data will be drawn mainly from provisional Treasury account balances. - Final data will be provided as soon as final Treasury balances are available, but no later than two months after reporting provisional data. ### Floor on Non-Hydrocarbon Tax Revenue - Definition: Tax revenue = sum of revenue from taxes and levies on: - income, profits and capital gains, wages and labor, on assets (excluding proceeds from sale of central government non-financial assets to public sector entities), - taxes on goods and services, - foreign trade and international transactions, - other tax revenue. - The performance criterion excludes revenue deriving from oil and gas exploitation. - The quantitative criterion will be assessed using quarterly TOFE data. - Reporting requirements: same as for the non-hydrocarbon primary balance PC. ### Ceiling on the Present Value of New Public Sector External Borrowing - Definition: PC applies to all new external debt (concessional or otherwise), including commitments contracted or guaranteed for which no value has been received. - Exemptions: (i) import-related trade debts with original maturity < one year, (ii) rescheduling agreements, (iii) IMF disbursements. - External debt considered contracted or guaranteed when all conditions met for it to enter into force, including government approval if required. - For euro bond issues, amount arranged = amount subscribed or purchased at end of subscription or purchase period as specified in final exchange clauses. - Present value (PV) calculated by applying PV procedure to all future debt service payments based on a program discount rate of 5 percent, reflecting all loan conditions (maturity, grace period, payment schedule, upfront fees, management fees). - PV calculated using the IMF template based on loan amount. - Concessionality: debt is concessional if, at conclusion date, PV/nominal ratio < 65 percent (equivalent to grant element of at least 35 percent). - For loans with grant element ≤ zero, PV = nominal value. - PV of new external debt is valued at program exchange rates. - For variable-rate debt (benchmark + fixed spread), PV uses program benchmark rate plus fixed spread specified in loan agreement. - Program reference rate for the six-month euro Financial Institution Repo Facility (FIRF) is 2.97 percent. - The difference between the six-month US FIRF and the six-month euro FIRF is 50 basis points. ### Adjustments and reporting for the PV ceiling - The program ceiling on PV of new external debt is adjusted upward to a maximum of five percent of the ceiling on PV of external debt when discrepancies are caused by changes in financing conditions (interest, maturity, grace, payment schedule, initial fees, management fees). - The adjuster cannot be applied when discrepancies derive from an increase in the nominal value of the total contracted or guaranteed debt. - Authorities will inform IMF staff of any new planned external borrowing over a 12-month horizon and the conditions before loans are contracted or guaranteed. - Reporting: government will report the PV of new public sector external borrowing quarterly, within one month after quarter end, accompanied by: - the IMF PV calculation tool used by the government; - a summary table of all external debt issues and their financial conditions and procedures used to calculate PV. ### Ceiling on Public Sector External Debt Payment Arrears (continuous) - Definition: External payment arrears = sum of payments owed and not paid when due (per contract terms) on external debt contracted or guaranteed by public sector. - Quantitative PC on external payment arrears monitored on a continuous basis. - Reporting: authorities will promptly report any accumulation of external payment arrears to Fund staff. ### Ceiling on Domestic Government Payment Arrears (continuous) - Payment arrears with private nonfinancial corporations: obligations unpaid for more than 90 days after Treasury acceptance. - Domestic debt service arrears: debt service obligations (excluding BCEAO) for which payment date exceeds 30 days. - Quantitative PC for central government domestic payment arrears monitored continuously. - Reporting: authorities report any accumulation of domestic payment arrears monthly to IMF staff. ### Indicative targets — Ceiling on Total Nominal Public Debt - Definition: Debt comprises external and domestic debt of the public sector (central government and public nonfinancial corporations), measured at nominal value and valued using program exchange rates. - Ceiling monitored annually; foreign-currency debt converted using program exchange rates (Table 1). - Reporting requirements (selected): - Quarterly provisional data on debts of named public enterprises to IMF staff within six weeks after quarter end. - Any public enterprise contracting debt > 5 billion CFA francs during year will be communicated and added to reporting list. - Stock of debt at end-December of current and previous year for listed public enterprises, and info on newly contracted debt and principal payments, communicated within two months after year end. - On-lent or guaranteed debt from central administration and benefits to public or private enterprises communicated within two months following quarter end, distinguishing guarantees and on-lent debt. - Commitments by comfort letter communicated quarterly within six weeks after quarter end; if counted elsewhere, this will be noted. ### Ceiling on non-competitive public procurement (in percent) - Definition: Public procurement considered "non-competitive" when awarded without open competitive tender and without open inquiry and open price. - Semi-annual indicative target applies to total public sector contracts entered into by Government or entities subject to procurement code. - Exclusions: - classified purchases, - fuel purchases by SENELEC for electricity production under new regulation (SENELEC buys fuel from SAR based on current price structure), - administrative amendments, - necessary contract-execution clauses compliant with procurement code. - Reporting: Government reports semi-annually, lag ≤ one month, total amount of public sector contracts and total value of single-tender contracts. ### Floor on Social Expenditure - Definition: Social spending = spending on health, education, the environment, the judicial system, social safety nets, sanitation, rural water supply, rural electrification, equipment support for vulnerable groups, economic and social support for women and young persons (as provided in the table on social expenditure). - Ceiling evaluated semi-annually. - Reporting: semiannual data to Fund staff within two months after each six-month period. ### Accounts Payable and domestic payment arrears (indicative target) - Definition: "Accounts Payable" (or "unpaid balances") include domestic payment arrears and floating debt; represent all central government obligations due and pending payment; defined as expenditure liquidated but not yet paid by government accounting officer. - Under program, obligations include: - total payments due and unpaid to public and private nonfinancial corporations; - public domestic debt service (excluding BCEAO). - Floating debt: stock of unpaid liquidated expenditure items with overdue duration below 90 days for obligations to nonfinancial corporations and 30 days for debt service arrears to commercial banks, insurance companies, and other financial institutions. - Accounts payable broken down by maturity and overdue period: - nonfinancial corporations: less than 90 days, 90-365 days, more than one year; - financial corporations: less than 30 days, 30-365 days, more than one year. - Government undertakes to: - contain stock of accounts payable to less than CFAF 40 billion in 2023; - no longer accumulate new domestic arrears throughout the program period. ### Memorandum items — Spending through simplified procedures - Definition: Indicative target = share of central government expenditures for non-personalized services executed through simplified procedures in total transfers; procedures include DMRI and DSOP. - Reporting: semi-annually to Fund staff total spending on transfers and total spending for non-personalized services executed through transfers on treasury deposit accounts within six weeks of end of each six-month period. ### Net domestic and regional financing of the government (memorandum item) - Definition: Based on TOFE as sum of net accumulation of liabilities including: - securities issued on regional market (WAEMU), including T-bills, T-bonds, Sukuk; - direct domestic loans in CFAF (including other loans and excluding counterpart of IMF financing). - Accumulation of other accounts payable does not correspond to domestic or regional financing. - Indicative target monitored annually by budgetary central government. - Reporting: data transmitted quarterly with TOFE within maximum lag of two months. ### Additional information for program monitoring - Authorities will transmit, ideally electronically, within specified maximum lags: - Within three days after adoption: any decision, circular, decree, supplemental appropriation order, ordinance, or law with economic/financial implications for the current program (including acts changing budget allocations or creating new agencies/funds). - Within maximum lag of 30 days: preliminary data on tax receipts and assessments by category (monthly), monthly expenditures committed/certified/payment orders issued, quarterly DDI report on investment program execution, monthly preliminary TOFE based on Treasury accounts, provisional monthly balance of Treasury accounts, reconciliation tables among SYSBUDGEP, consolidated Treasury accounts, TOFE, and net treasury position (quarterly), quarterly FSE operations report, monthly report on fuel price structure including subsidy estimate no later than 4 weeks after publication of price structure (and if domestic prices > international prices, indicate in which part of TOFE benefits are accounted). - Final data as soon as final Treasury balances available, but no later than one month after provisional reporting. - Monthly transmission (lag ≤ 30 days) of provisional data on current nonwage noninterest expenditures and domestically financed capital expenditures executed through cash advances, drawn from preliminary consolidated Treasury balances; final data no more than one month after provisional. - Monthly table from expenditure tracking system showing committed expenditures, certified but not yet cleared expenditures, payment orders, payment orders accepted by Treasury, and payments made by Treasury; excludes delegations for regions and embassies; indicates payments without cash impact; stock of accounts payable broken down by payer, spending category, maturity, and overdue duration. - Quarterly reporting on exceptional procedures expenditures: status of suspense accounts, status of exceptional expenditures by category, status of deposit accounts identifying nature of beneficiaries (agencies, legal entities governed by private law, private individuals, non-personalized state services, commitments related to comfort letters), and assessment of regularization from one quarter to the next. - Central bank to transmit: - monthly consolidated balance sheet of banks with maximum lag of two months; - monetary survey monthly with maximum lag of two months; - prudential supervision and financial soundness indicators for bank financial institutions semi-annually, with maximum lag of four and a half months for prudential ratios and six months for financial soundness indicators. - Government will update monthly on designated website: - Preliminary TOFE and transition tables with lag of two months; - SYSBUDGEP budget execution table, table for central Government and summary table including regions, with lag of two weeks. ### Debt sustainability analysis (summary points from the document) - Assessment: Senegal is at moderate risk of external and overall public debt distress, with limited space to absorb shocks. - Observed concerns: - Two marginal one-off breaches under baseline: external debt service to exports ratio in 2026, and present value of total public debt to GDP ratio in 2023. - All risk indicators breach thresholds under sensitivity analysis. - Key assumptions underpinning baseline assessment: - boost to growth, exports, and fiscal revenues from start of hydrocarbon production; - implementation of a strong macro-fiscal reform program that re-anchors the government deficit at 3 percent of GDP, contains broader public sector borrowing, and accelerates structural reforms to sustain medium-term growth at around 5 percent. - Key risks that could increase debt distress: - failure to implement the reform program (expansion of tax base, reduction of tax expenditures, mitigation of fiscal risks, enhancement of debt management), - further delays in hydrocarbon production, - continued tightening of market financing conditions and further depreciation of the CFA, - more detrimental impacts of climate change on the economy or climate spending above baseline projections. - Recommended priorities for debt management strategy: - prioritize concessional external borrowing to keep down interest payments; - prioritize domestic regional financing to lower exchange rate risks and limit external debt service burden; - smooth the debt service profile across years. - Additional numeric/contextual items in the DSA section: - Senegal’s debt carrying capacity classified as strong, composite indicator of 3.15 based on April 2023 WEO and 2021 World Bank CPIA score. - DSA risk ratings unchanged compared to June 2022 DSA vintage. - Risk of external debt distress: Moderate. - Overall risk of debt distress: Moderate. - Granularity in risk rating: Limited space to absorb shocks. - Application of judgment: No. - Date on DSA section: June 9, 2023. *Source: IMF staff and IDA joint text as provided in the content unit.* ### 1. This DSA uses a broad definition of public debt. The assessment includes public and ### 1senea2023002 - Public Debt Sustainability Analysis (extract) ### Definition and Coverage of Public Debt - The DSA uses a broad definition of public debt, including public and publicly guaranteed (PPG) debt held by: - the central government, - para-public entities and state-owned enterprises (SOEs). - The DSA uses a currency-based definition of external and domestic debt (a residency-based definition was not used because of data constraints). - At end-2022, public debt under this definition stood at 76.6 percent of GDP, consisting of: - government debt: 68.2 percent of GDP, - SOE debt: 12.7 percent of GDP (of which 4.3 percent of GDP are loans from the Government to the SOE sector, which are netted out of consolidated public debt). - BOAD debt is treated as external debt starting end-2022; as of end-2022 the stock of BOAD debt amounted to 1.1 percent of GDP. - The World Bank PPP database estimates the PPP capital stock in Senegal at 10.1 percent of GDP. ### Stress Testing and Contingent Liabilities - To assess risks outside the public debt perimeter, stress testing considers contingent liabilities from PPPs and financial markets. - Standard LIC DSA parameterization used: - contingent liabilities valued at 35 percent of the PPP capital stock materialize, - financial sector recapitalization needs of 5 percent of GDP become due. ### Historical Debt Dynamics and Stock-Flow Adjustors (SFAs) - Historical public debt growth exceeded levels predicted by standard debt drivers, indicating significant volatile—and on average positive—SFAs that create projection risks. - In the period 2011-22, changes in the debt-to-GDP ratio beyond expected levels averaged annually: - 1.8 pp for Government debt, - 1.2 percent for public sector debt (for years available). - SFAs partly reflect complex financial transactions between the Government and SOEs (examples in the text include transfers of property to SOGEPA used as collateral for a Sukuk, and bridge financing to AIBD). - The presence of large and on average positive SFAs suggests lack of transparency regarding above-the-line fiscal and below-the-line financial transactions and statistical weaknesses that can undermine public debt projections. - A key statistical weakness: Senegal does not yet publish a consolidated above-the-line and below-the-line representation of public sector transactions; the Government is developing a public sector TOFE to address this. ### Public Debt Levels, Composition, and Servicing - Public sector debt increased markedly in recent years: - from 63.6 percent of GDP at end-2019 to 73.3 percent of GDP at end-2021, - and to 76.6 percent of GDP at end-2022. - Drivers of the increase in 2022 included: - large government deficits, - significant debt-financed investments in the SOE sector (including Petrosen’s spending to launch the hydrocarbon sector), - depreciation of the CFA vis-à-vis key currencies like the US dollar, causing revaluation of external debt. - Composition changes (2018 to 2022): - share of external debt fell from 81.4 percent to 73.7 percent, - share of SOE debt relative to consolidated public sector debt rose from 12.4 percent to 16.6 percent. - Government debt made up 89.1 percent of total public debt at end-2022 and was 68.2 percent of GDP (gradually approaching the 70 percent of GDP WAEMU ceiling). - Largest sources of government debt at end-2022 included multilateral institutions, domestic issuances, and Eurobonds. - Debt service needs: - forecasted external PPG debt service for 2023 is 19.1 percent of exports (LIC DSA threshold for country with strong debt carrying capacity: 21), - or 18.8 percent of public sector revenues (LIC DSA threshold: 23), - total PPG debt service is 30.5 of revenues. ### Financing Conditions and Plan for 2023 - External and domestic financing conditions have deteriorated due to global monetary tightening: - Eurobond annual interest rates for Senegal rose to around 10 percent, with a spread of over 600 basis points. - BCEAO increased policy rates by 100 basis points and shifted toward auction-based liquidity rationing in early 2023, reducing regional market absorption of government issuances. - Government financing plan for 2023 (figures in bn CFA): - Financing needs: 2,645.2 - CG Fiscal Deficit: 919.7 - Amortizations: 1,269.6 - OPEX: 30.0 - Transfers to SOEs: 279.8 - Arrears clearance (below the line): 146.0 - Energy subsidy carry-over: 130.0 - Cash transfer carry-over: 16.0 - Financing sources: 2,645.2 - External (in USD/EUR/other): 1,739.3 - Budget support loans: 821.7 - IMF: 438.2 - BAD: 92.1 - WB: 188.2 - AFD: 72.2 - Japan: 31.0 - Project loans: 435.6 - External commercial borrowing: 482.0 (Eurobonds: 0.0; Syndications with international banks: 482.0) - Domestic/Regional (in CFA): 905.9 - 1-3 Years: 436.2 - 4-7 Years: 339.8 - Beyond 7 years: 129.9 - Memo and shares: - Share of external financing from the IMF (%): 25.2 - Share of external budget support from the IMF (%): 53.3 - Share of total financing from official sources (%): 47.5 - Share of total financing from external sources (%): 65.8 - Share of CFA financing in Senegal (%): 40.0 - Note: The Government rolls over 100m treasuries not in financing table; financing plan is based on contracted amortization schedule. ### Baseline Macroeconomic Assumptions and Projections - Macroeconomic baseline assumes growth fueled by start of hydrocarbon production and economic reforms; updates reflect delays in hydrocarbon production to 2024, fiscal consolidation slippages in 2022, tighter financing, and further depreciation of the CFA and Euro vis-à-vis the US dollar. - Key macro assumptions and projections: - Real GDP growth: - 2023: 5.3 percent (estimated), - 2024: 10.6 percent, - 2025: 7.4 percent, - non-hydrocarbon GDP around 6 percent in 2024-25, - long run growth expected to average about 5 percent. - GDP deflator: - 2023: 3.2 percent (after 2022 spike), - medium term average: 2 percent. - Public sector primary deficit (includes central government and SOE net lending/borrowing): - 2023: 4.3 percent of GDP, - medium term: converge to regional target of 3 percent of GDP (supported by unwinding commodity subsidies and revenue mobilization). - Public sector revenues: - 2022: 28.8 percent of GDP, - projected to increase to about 32.1 percent of GDP by 2025. - Current account deficit and exports: - 2023 current account deficit: about 13.3 percent of GDP, - improvements projected as oil and gas exports come online, with hydrocarbon revenues contributing 0.7 percent of GDP on average per year over 2023-2026. - Assumptions on financing strategy: - In 2023, increased use of external financing; from 2024 onwards, DSA assumes a return to a prudent borrowing strategy emphasizing domestic CFA financing as regional market normalizes by end-2023. - External borrowing in medium term assumed to be concessional and semi-concessional at around US$0.8 billion annually on average, including a proposed IMF EFF-ECF and RSF program and World Bank financing averaging USD 0.4bn annually in 2023-28. - After 2023, external commercial borrowing including Eurobond issuances is assumed to be restrained. ### Data Quality, Transparency, and Policy Actions - Authorities are taking steps to strengthen public debt data quality and coverage: - An audit did not identify major weaknesses but noted risks related to timeliness and reliability of SOE debt data. - An action plan is being followed to address deficiencies. - The national debt committee (CNDP), chaired by the Minister of Finance, reviews large public investment decisions, including those by SOEs; ongoing vigilance is required to ensure consistent application. - A recent circular and decree to reinforce SOE debt reporting is improving debt authorities’ visibility on the wider debt perimeter. - Government data are compiled in accordance with GFSM2001; capacity development initiatives supported by the IMF are assisting the migration to GFSM2014. - Statistical and governance weaknesses noted: - Some large SOE operations did not go through CNDP procedures (example: CFAF 330 billion Sukuk issued by SOGEPA in 2022). - The Government is developing a consolidated public sector representation of above-the-line and below-the-line transactions (public sector TOFE) to help reduce unexplained SFAs. *Source: IMF staff DSA excerpt provided.* ### 11. Terms for new borrowing in the projection period reflect tight conditions on financial ### 1senea2023002 - 11. Terms for new borrowing in the projection period reflect tight conditions on financial ### Terms for new borrowing and interest rate assumptions - Yields on new Eurobonds have been benchmarked at an interest rate of 10 percent (based on current secondary market data from Senegal’s existing Eurobonds). - A 3-year CFA bond was issued at 6.9 percent in February 2023; domestic rates in the DSA are benchmarked on recent Government issuances. - Interest rates on domestic markets are forecast to partially normalize in 2024 onwards as the regional banking system adapts to the new WAEMU liquidity regime. - External official loans remain a significant source of financing during the projection period and are estimated to be less responsive to tighter global financing conditions. - A tailored stress test for market financing assumes: - a temporary increase in the cost of new commercial external borrowing by 400 basis points, - a nominal depreciation of the CFAF relative to the US dollar, - and a shortening of maturities and grace periods. ### Exchange rate effects and currency composition of debt - The DSA incorporates the significant 2022 depreciation of the CFA (fixed to the Euro), particularly vis-à-vis the US dollar, and a sharper than anticipated further depreciation of the CFA vis-à-vis the US dollar in 2022 that is expected to carry through into the projection period. - Currency shares of external government debt (at end-22): - 53.3 percent denominated in Euros. - 33.6 percent denominated in US dollars. - Implications: - Depreciation increases the CFA value of US dollar–denominated debt stock at end-2022. - Because a significant share of public sector debt is denominated in Euros, the depreciation lowers the US dollar value of external debt service payments during the projection period. - In CFA terms, debt service costs increase for payments due in US dollars, but the effect is muted by the comparatively small US dollar share. ### Fiscal adjustment realism and growth assumptions - The assumed primary balance adjustment path is in the top quartile of the historical distribution for LICs. - Key components of the adjustment for Senegal: - Unwinding of fiscal costs of energy subsidies over the medium-term, consistent with the agreed roadmap. - Robust implementation of the authorities’ medium-term revenue strategy. - Projected economic growth: - Projected growth rates in 2023 are above the range of potential growth paths under various fiscal multipliers; expected growth from hydrocarbon projects is not captured by the realism exercise. - Investment and growth: - The share of government investment and the contribution of investment to growth are in line with benchmarks; higher-than-historical non-investment growth contribution is driven by COVID recovery and onset of oil and gas exports. - Historical forecast errors: - Large residual driven by the one-off expansion of the public debt perimeter in 2017 to include state-owned enterprises. ### Debt carrying capacity and classification - Senegal’s Composite Indicator (CI) is 3.15 (a marginal decrease from 3.25 in the June 2022 DSA). - The CI threshold is 3.05; Senegal remains above the threshold and is assessed as having strong debt carrying capacity. - This assessment affects the thresholds used to calculate mechanical external debt risk ratings. ### External DSA baseline and stress-test outcomes - Under the baseline: - External debt indicators generally remain below thresholds, except a one-off marginal breach in 2026 for the debt-service-to-exports indicator (with Eurobond amortizations coming due). - Present value of external debt declines, driven by growth and a declining non-interest current account deficit. - External debt service to revenues ratio remains below risk thresholds throughout the projection period. - Sensitivity and stress-test results: - All four external debt risk indicators breach their thresholds under sensitivity analysis. - For PV of debt-to-GDP and debt service-to-revenue ratios, the most extreme shock is a combination shock. - For the two export-related indicators, the most extreme shock is an exports shock (USD export growth in the first two years one standard deviation lower than forecast or historical average, whichever is lower). - Breaches point to vulnerabilities under adverse conditions (slower external demand or downgrade in hydrocarbon output). - The stress-test breaches result in an external debt distress risk rating of Moderate. - Market financing indicators: - Point to high risk of potentially heightened liquidity needs due to widened spreads and large upcoming financing needs (including refinancing existing debt stock). - Recommendation: an active debt management strategy to smooth future debt service peaks. ### Overall public debt outlook, stress vulnerabilities, and policy recommendations - Baseline public debt trajectory: - Total public debt indicators generally remain below thresholds, except a one-off marginal breach in 2023 for the Present Value of Public Debt to GDP ratio. - Total public debt is projected to peak in 2023 before gradually declining due to fiscal consolidation and favorable interest rate–growth dynamics. - Debt service is projected to remain substantial, averaging more than 30 percent of total revenues and grants over the next five years. - Stress-test vulnerabilities: - Senegal is most vulnerable to a growth shock: under the standard growth shock (GDP growth for the first two years one standard deviation lower than forecast or historical average, whichever is lower), all three public debt indicators would be set on an explosive growth path. - These results yield a public sector debt distress risk rating of Moderate. - Key downside risks identified: - Further delays in hydrocarbon production. - Fiscal slippages on-budget or in the SOE sector (noting Presidential elections in 2024). - Further deterioration in global commodity prices delaying subsidy phase-out. - Tight external and domestic financing conditions raising interest-rate refinancing and liquidity risks. - Limited WAEMU absorption capacity forcing more external borrowing. - More severe climate-change impacts or climate spending above baseline projections. - Upside possibilities: - Determined structural reforms and tourism recovery could support growth more than projected. - Policy recommendations: - Exercise restraint in new borrowing initiatives; focus on concessional and domestic regional financing. - Strengthen debt management and consider debt management operations to smooth external debt service peaks, especially for maturing Eurobonds. - Fiscal policy should build medium-term fiscal space by enhancing revenue mobilization and gradually eliminating costly food and energy subsidies. - Prioritize mobilizing additional domestic revenues and seeking concessional borrowing in the near term. ### Authorities' views - The authorities agree with the DSA conclusions. - They confirm that as soon as the CFA regional market allows, they will resume the debt management strategy to gradually shift government debt towards the domestic CFA market to limit future external debt service burden. - They will actively consider debt management operations to smooth out the external debt service profile. *Source: IMF staff estimates and projections, Senegal DSA (excerpts).* ### 1. Climate change will intensify, and Senegal is particularly vulnerable given its coastal ### 1. Climate change will intensify, and Senegal is particularly vulnerable given its coastal ### Climate risks and socioeconomic impacts - Coastal zones host 52 percent of Senegal’s population, generate 68 percent of its GDP, and contain 90 percent of its industrial facilities. - Coastal threats: accelerated sea-level rise will intensify coastal erosion, flooding, and salinization of water bodies and agricultural land. - In Dakar, the population at risk of coastal flooding due to sea-level rise and extreme events is expected to increase by 20-30 percent in 2050. - Economic damages in Dakar could increase by 30% over the same period. - Agriculture is mainly rainfed with low productivity and is highly vulnerable: - Jobs of 30 percent of the working population are jeopardized by agricultural vulnerability. - Two-thirds of the poor depend on livelihoods affected by agriculture. - Warmer and drier conditions will reduce crop yields and negatively affect livestock. - Macroeconomic and social risks under high climate stress: - Without action, climate change could cause Senegal’s GDP to decrease by 1.3 percent by 2030 and 3.9 percent by 2050 in a 3°C scenario. - Under high climate change stress, the poverty rate could double as early as 2030, mainly due to higher food prices, reduced food production, and negative health impacts. - Internal climate migration could reach up to 1 million persons by 2050, with Senegal’s share of these migrants as a percent of the total population among the highest in West Africa. ### Greenhouse Gas emissions and energy sector profile - Senegal emitted 29.2 million tons of CO2 equivalent in 2019, representing less than 0.07 percent of global emissions. - Emissions by sector (2019): - Agriculture: 42 percent - Energy: 30 percent - Other sectors (waste, and industrial processes): the remainder in equal shares - Projected sectoral trends: - Emissions from agriculture are expected to continue growing at the same pace. - Emissions from the energy sector are expected to grow exponentially with economic and population growth and exploitation of oil and gas resources. - Energy system characteristics (comparative figures vs. Sub-Saharan Africa average): - Predominance of oil in power production: more than 80 percent vs. 64 percent regional average. - Low share of renewable energy in total final energy consumption: 39 percent vs. 68 percent regional average. - Only 24 percent of Senegal’s population has access to clean fuels and technologies for cooking. - Wood energy is a major cause of forest degradation in the southeast, contributing to GHG emissions from forest degradation and deforestation. - Upcoming hydrocarbon developments: - Exploitation of oil and gas resources expected to begin in 2024-25 may further change the energy context and require accelerated transition efforts. ### Government policies and adaptation priorities - National and strategic documents: - National Adaptation Plan released in 2006. - Plan Senegal Emergent (PSE) and PSE Vert incorporate climate considerations through a co-benefit approach. - Nationally-Determined Contribution (NDC) updated in 2020 identifies priority directions for adaptation. - Sectoral adaptation plans are expected through 2023. - Gaps in implementation and coordination: - Very few sectors currently have climate action plans; where plans exist they often lack systematic alignment with sectoral regulations, integration into sectoral projects/programs, and monitoring and reporting. - Need for cross-sectoral planning (e.g., water resource competition) and long-term, anticipative disaster-risk management. - Broad need for awareness raising and capacity building on climate risks and adaptation solutions. - NDC adaptation pillars (as stated in the source): - Observation networks and environmental monitoring. - Resilience of ecosystems and production activities. - Disaster risk management (with a particular focus on floods). - Seven targeted sectors: agriculture, livestock, fisheries, coastal zones, water resources, biodiversity, and human health. ### Mitigation commitments and priorities - NDC mitigation targets: - Unilateral reductions: 5 percent below “business as usual” in 2025 and 7 percent below “business as usual” in 2030. - Conditional reductions (with external support): 23.7 percent in 2025 and 29.5 percent in 2030. - Key mitigation areas: - Carbon sequestration via forestry and agriculture activities. - Biomass energy. - Energy transition: deployment of renewable energy and energy efficiency improvements across the economy. - Policy choices: - Government abandoned plans for further coal-fired power development. - Government pursues a gas-to-power strategy to shift electricity production from largely heavy oil fuel to fossil gas. - Long-Term Strategy under development must consider upcoming oil and gas exploitation. ### Financial challenges and needs for NDC implementation - Total estimated NDC financial needs: US$13billion over 2020-30. - Mitigation needs are about twice larger than adaptation needs. - Sectoral shares of mitigation needs (three sectors account for 70 percent of mitigation needs): - Power Production: 30 percent - Waste Management: 21 percent - Transport: 18 percent - Sectoral shares of adaptation needs (four sectors represent nearly 70 percent of adaptation needs): - Water Resource Management: 20 percent - Flood Risk Management: 17 percent - Agriculture: 16 percent - Coastal Zone Management: 15 percent - External support required: US$8.2billion over 2020-30 to implement NDC and meet more ambitious targets. - This corresponds to financial inflows of about US$800million a year for climate action (on top of a bit less than US$500million to support unconditional climate action). - Recent climate-related development finance inflows (comparison): - Latest inflows in Senegal average US$400-500 million a year over 2018-2020, of which only one quarter is considered grant. - Financing capacity and instruments: - Senegal has experience accessing climate funds and carbon markets, including the largest number of Clean Development Mechanism projects in West Africa. - Bilateral agreement with Switzerland for international emissions reductions trading under Article 6 provisions. - Partnership for Market Implementation: developing a roadmap for a carbon tax and the framework/infrastructure to enable participation in international carbon markets. - Mobilizing finance at scale will require increased private sector and financial market engagement. ### World Bank engagement and selected initiatives - Climate action is cross-cutting in the World Bank’s Country Partnership Framework (2020-24) for Senegal and the World Bank is supporting adaptation and mitigation priorities via lending, technical assistance, and knowledge instruments. - Country Climate and Development Report (CCDR) preparation will analyze how development goals can be met amid climate change and global decarbonization, and will prioritize climate-smart interventions. - Recent World Bank–supported activities (examples): - Coastal resilience: West Africa Coastal Areas Resilience Investment Project; Saint-Louis Emergency Recovery and Resilience Project; (closed) Senegal Tourism and Enterprise Project (Sally). - Flood Risk Management: (closed) Flood Prevention and Drainage Project; Stormwater Management and Climate Change Adaptation Project. - Social protection: Social Safety Net project; Adaptive Safety Net project to strengthen responsiveness after climate shocks. - Climate-smart agriculture: Agriculture and Livestock Competitiveness Program for Results; Sahel Irrigation Initiative Support Project; Sahel Pastoralism Support Project (regional, six countries including Senegal). - Sustainable energy access: Senegal Energy Access Scale Up Project (adaptation and mitigation co-benefits). - Sustainable cities: Senegal Municipal Solid Waste Management Project; Dakar Bus Rapid Transit Pilot Project. - Exploring carbon pricing: Partnership for Market Implementation providing technical assistance to develop carbon tax roadmap and Article 6 implementation framework. ### Authorities’ statement: recent economic developments, outlook, and fiscal policy (selected points) - 2022 macro performance: - Real GDP growth moderated to 4.2 percent in 2022 (from 6.5 percent in 2021). - Inflation in 2022 estimated at 9.7 percent, driven mainly by soaring food prices (+17.9 percent). - Fiscal deficit widened from 4.9 percent of GDP in 2021 to 6.1 percent of GDP in 2022. - 2023 and medium-term outlook: - Domestic activity rose by 5 percent year-on-year in March 2023. - Economic growth forecast for 2023 expected to be 8.8 percent if oil and gas production starts in the last quarter of 2023 as planned. - Headline inflation declined to 9.4 percent at end-March 2023. - Economic growth expected to accelerate to 12.8 percent in 2024 with projected start of hydrocarbon production by end-2023. - Growth in the non-hydrocarbon sector expected to average about 6.6 percent over 2023-2027. - Significant downside risks remain including uncertainty on hydrocarbon start date and production rate, tighter global financial conditions, adverse developments from the war in Ukraine, security spillovers from the Sahel, and unfavorable weather affecting agriculture. - Fiscal policy objectives: - Authorities intend an ambitious fiscal consolidation plan to converge towards the regional deficit target of 3 percent of GDP by 2025. - The 2022 law on the management of hydrocarbons establishes a new fiscal framework to ensure debt sustainability, intergenerational wealth sharing, and macroeconomic stabilization. - Fiscal policy focus: enhance revenue mobilization, rationalize expenditures, and maintain priority programs and social sector spending. *Source: IMF chapter "1. Climate change will intensify, and Senegal is particularly vulnerable given its coastal" (extracted content).* ### 8. To strengthen credibility and transparency in budget execution and safeguard efficiency ### 8. To strengthen credibility and transparency in budget execution and safeguard efficiency gains ### Fiscal governance and budget execution - The government intends to accelerate fiscal reforms, including those identified in the 2023 PIMA and C-PIMA reports. - Continue implementing budgetary reforms, including closing the deposit accounts for non-personalized government services, and pursuing the consolidation of the Treasury Single Account in accordance with its roadmap. ### Debt sustainability and public debt management - The government intends to reduce debt vulnerabilities and strengthen the public debt management framework. - Senegal is currently at a moderate risk of debt distress and the authorities are strongly committed to containing the country’s DSA at the same or a lower risk of debt distress. - The authorities will: - Give priority to concessional financing or financing denominated in CFAF in the regional market. - Limit commercial debt to projects with higher economic, financial, and social rates of return. - Continue to closely manage public debt and monitor new borrowing terms. - Contextual factors: - The country’s strong track record of market access and the government’s history of successful implementation of reforms are notable mitigating factors. - Yields on Senegal’s Eurobonds in the secondary market have risen with the tightening of international financial conditions. - The authorities are confident they will be able to avail themselves of the temporary increase in GRA access limits to secure relief and better navigate the current financing squeeze. ### Monetary and financial sector policies - The protracted inflationary pressures and the decline in foreign exchange reserves led the regional central (BCEAO) to: - Raise its key rates by 100 basis points since June 2022. - Resume the liquidity injections through the auction system. - The monetary authorities have indicated their readiness to tighten the monetary stance further, as needed, to achieve price stability. - Despite these dire circumstances, the banking system remained resilient and profitable; the authorities will continue to closely monitor the banking sector to safeguard its soundness. - Anti–money laundering / countering financing of terrorism measures: - The government is committed to implement the few remaining measures to be removed from the FATF’s grey list, notably the operationalization of the register of beneficial owners and the clarification to experts regarding the targeted financial sanctions (TFS) mechanism. - Sustained efforts are underway to ensure that all these measures are fully implemented by end-October 2023. ### Structural reforms — governance - The authorities commit to implementing transformative reforms to boost inclusive and private sector-led growth, including improving governance and the business environment. - On governance, the authorities plan to forcefully combat corruption by: - Strengthening the prerogatives of the National Office for Combating Fraud and Corruption (OFNAC) and its investigation techniques and powers. - Adopting a law amending the law creating the OFNAC by October 2023. - Adopting an amendment to the law on the declaration of assets by October 2023 to strengthen the system of penalties for non-declaration and false or late declaration. - Improving financial reporting and accountability and establishing a Financial Prosecutor’s Office with authority to deal with cases related to economic and financial crimes. ### Structural reforms — business environment and labor - To improve the business environment and foster private sector-led inclusive growth, the authorities will: - Continue to rationalize the public administration. - Simplify labor legislation. - Digitalize procedures for business creation and registry. - Enhance the commercial judicial system. - A preliminary draft of the new labor code will be available in the second quarter of 2023. - The simplification and digitalization of the social tax procedures have been completed. - The commercial judicial system has been upgraded with commercial courts fully functional and expanding in the inner regions. ### Social policies, gender, and safety nets - The government will continue increasing social spending on programs for girls and women, including those aimed at eliminating gender disparities and barriers to girls’ education. - The authorities intend to strengthen gender statistics and increase resources allocated to gender-related training and capacity development for government agencies and other stakeholders. - Social safety nets: - The authorities will pursue efforts to improve social safety nets by expanding the number of beneficiaries and identifying new eligible households until end-2023. - The 40 percent increase in the amount of the Family Security Grant is effective with the payment for the first quarter of 2023. ### RSF-related reforms — climate mitigation, adaptation, and mainstreaming - The authorities plan to accelerate the implementation of their ambitious climate strategy and their commitments under their Nationally Determined Contributions. - RSF program focus areas include improving water management in the agricultural sector, building resilience to coastal erosion, and designing a climate risk management framework. - Mitigation measures: - Adoption of a greener public transportation strategy. - Commit to revise the petroleum Code and finalize a new Environment Code in close collaboration with the World Bank, to minimize greenhouse gas emissions throughout the life cycle of oil and gas projects. - Adaptation measures: - Integrate adaptation priorities into Senegal’s long-term development planning and annual budgeting. - Establish regular collection, analysis, and dissemination of key climate risk information to support expansion of the agricultural insurance program, which currently covers only 10 percent of farmers. - Introduce measures to improve urban planning and maintenance of key infrastructure to mitigate the impact of coastal erosion. - Implement additional measures to enhance drainage systems and attenuate urban flooding. - Implement measures to support water security and address challenges of water resources management, notably the impact of climate change and inefficient use on water resources. - To mainstream climate change into the budget process, the Government will modify the standard budget preparation guidelines and the selection criteria for public investments to incorporate climate change considerations and integrate the associated risks. ### Conclusion and IMF program request - Senegal is described as an important pole of stability in West Africa, reinforced by a strengthening economic fabric. - The authorities have consistently shown commitment in implementing transformative reforms to support inclusive growth while keeping a responsible eye on the sustainability of public finances. - In view of the authorities’ strong track record of implementing impactful policies, the IMF staff would appreciate Executive Directors’ support to the authorities’ requests for arrangements Under the Extended Fund Facility and the Extended Credit Facility, combined with an arrangement under the Resilience and Sustainability Facility. *Source: 1senea2023002 - 8. To strengthen credibility and transparency in budget execution and safeguard efficiency* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1senea2023002.pdf_