## _cr0905 - Executive Summary

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### Executive summary — shocks, program performance, and priorities
- Dual shocks in 2008:
  - rising food and energy prices that presented a shock to the balance of payments of 5¼ percent of GDP in 2008;
  - significant government payment delays to the private sector accumulated over 2006-08.
- Program performance under the PSI:
  - All structural conditionality for the second PSI review has been met, including a new electricity tariff structure.
  - Significant fiscal slippages equivalent to 5 percent of GDP were uncovered, including a large stock of unpaid government bills and extrabudgetary spending.
  - Program conditionality helped identify unpaid bills and extrabudgetary spending; unpaid bills and their resolution require three waivers, which staff recommends be granted in light of strong corrective actions.
- Authorities’ commitments and corrective actions:
  - eliminate payment delays by mid-2009;
  - sharply cut spending via a supplementary budget for 2008 and the 2009 budget law to be adopted in mid-December;
  - reinforce public financial management (PFM) systems, including improved budget preparation procedures, modified budget execution practices, and strengthened fiscal reporting.
- To address the balance-of-payments impact of the food and energy price shock, authorities requested access to the ESF and have taken steps to contain imports and eliminate costly and untargeted subsidies; the remaining subsidy on butane gas will be eliminated by mid-2009.

### Background — magnitude and sources of vulnerability
- Food and energy price run-up during 2006–08 increased the import bill and contributed to high budgetary costs of untargeted subsidies.
- Subsidies and tax suspensions introduced in response to the shock:
  - accounted for a total of 7 percent of GDP during 2006–08.
- Treasury advances, unsettled payment orders, and contracting without appropriations led to an unmanageable stock of unpaid bills.

### Major uncovered budgetary slippages (end-October 2008)
- Stock of payment delays to the private sector within the expenditure chain estimated at CFAF 225 billion (3¾ percent of GDP), of which CFAF 50 billion owed through agencies.
- Extrabudgetary spending without budgetary appropriations of CFAF 74 billion (1¼ percent of GDP) identified by the Ministry of Finance’s audit inspectorate (IGF), of which CFAF 11 billion by line ministries and CFAF 63 billion by agencies and universities.
- Estimated stock of payment delays (breakdown):
  - Regular budget: CFAF 174.9 billion (3 percent of GDP).
  - Treasury corresponding accounts: CFAF 50 billion (3/4 percent of GDP).
  - Extrabudgetary expenditures: CFAF 74 billion (1¼ percent of GDP), broken down by:
    - Line ministries: CFAF 11 billion.
    - Agencies: CFAF 31.3 billion.
    - Public health institutions: CFAF 12.1 billion.
    - Universities: CFAF 19.1 billion.

### Authorities’ action plan to eliminate unpaid bills and restore fiscal balance
- Fiscal adjustment and measures undertaken or committed:
  - Reduce expenditures by CFAF 100 billion (1¾ percent of GDP) in 2008 to create room to settle payment delays.
  - Regularly adjust electricity prices and implement market pricing; a 17 percent rise in electricity rates was introduced.
  - Reinstate taxes on food, including rice, and eliminate rice subsidy (eliminated as of October 29, 2008).
  - Eliminate butane gas subsidy from mid-2009; cap the subsidy before mid-2009.
  - Eliminate protective tax on vegetable oil — described as pro-poor and expected to lower retail price by 25 percent.
  - Expand school feeding program with a cost of 0.2 percent of GDP by 2010.
  - Obtain financing of around 2-2½ percent of GDP to help settle payment delays.
  - Accelerate donor grants in the pipeline and sell government assets (e.g., cell phone license, hotel) to provide financing in 2009.
  - Regularize Treasury advances in a supplementary budget to improve transparency and accountability.
  - Audit extrabudgetary expenditures to assess which spending is to be accepted or rejected.
- Financing measures taken/requested:
  - Authorities requested rapid financial assistance from France: a loan for €125 million (CFAF 82 billion), maturity 5 years, interest rate 6.2 percent, with 70 percent disbursed in 2008 and the remainder at the time of the third PSI review.
  - Senegal requested access to the ESF high-access component, at 30 percent of quota (SDR 48.54 million), equally tranched in two disbursements of SDR 24.27 million.

### Structural conditionality and PFM strengthening
- Structural conditions met for the second PSI review (examples):
  - Introduction of a new electricity tariff structure with reduced rates for low-income consumers (implementation and 17 percent average tariff increase).
  - Adoption of the implementation decree for the special economic zone (DISEZ).
  - Consolidation of tax collections in one department; issuance of administrative order to strengthen investment planning and evaluation.
  - Completion of the IGF audit of payment delays.
  - Preparation of a rolling two-year program of issuance of government securities (completed on August 14, 2008, though 1½ months late).
- Core PFM weaknesses identified by TA:
  - Budget preparation lacked a meaningful top-down constraint and appropriate calendar.
  - Budget execution was complex with multiple modifying procedures and frequent Treasury advances.
  - Accounting: delays in submission of accounts and lack of reconciliation between budgetary and Treasury systems.
- Key PFM reforms and prior actions:
  - Issue a decree to fix a budget preparation calendar effective with the 2010 budget (structural AC).
  - 2009 budget consistent with the macroeconomic framework (prior action).
  - Eliminate Treasury advances (decree completed prior action) and enforce a continuous zero ceiling for spending outside streamlined procedures (quantitative AC).
  - Limit spending carryover to next fiscal year to 5 percent of total spending (structural AC).
  - Freeze and publish SIGFIP data to close the 2008 fiscal year by end-April 2009 (structural AC).
  - Conduct technical audits of extrabudgetary spending (structural benchmark; external audit report due end-March 2009).

### Economic outlook and medium-term projections
- Short-term observed effects:
  - Activity in construction and real estate slowing; banks’ nonperforming loans rising; tax collections lagging.
  - GDP growth in 2008 estimated at about 3.9 percent.
- Medium-term outlook (2009–13 summary):
  - Economic growth expected to average 5½ percent during 2009–13, concentrated in construction, telecommunications, and transportation.
  - ICS recovered in March 2008 with a US$100 million injection by the foreign majority owner; recovery projected to impact 2009 growth.
  - Inflation projections:
    - Headline inflation projected at 6 percent in 2008.
    - Core inflation projected at 2–3 percent.
    - Inflation expected to return to historical levels over the medium term; government forecasts inflation of 3¼ percent in 2009.
  - Balance-of-payments and reserves:
    - The balance-of-payments shock from food and energy prices quantified at 5¼ percent of GDP in 2008.
    - Reserves expected to fall to 3¼ months of imports in 2008 (staff estimates), and hover around 3½ months of imports over the medium term.
  - External debt and financing:
    - FDI projected to rise from ½ percent of GDP in 2005 to 5 percent of GDP in 2010; risk of debt distress remains low.
    - External public debt projected to be about 23 percent of GDP by 2010.
- Numerical macro highlights (selected exact figures):
  - GDP at constant prices (2007–2013): 5.9, 5.6, 2.3, 4.8, 3.9, 5.2, 5.6, 5.5, 5.4, 5.3.
  - Consumer prices, annual average (2007–2013): 0.5, 1.7, 2.1, 5.9, 6.1, 3.3, 2.2, 2.2, 2.2, 2.2.
  - External current account deficit (Including current official transfers) (2007–2013): -6.1, -7.8, -9.4, -10.7, -12.3, -10.6, -11.6, -11.7, -11.6, -11.7 (percent of GDP).
  - Reserves coverage (months of imports of GNFS) (2004–13): 4.8, 4.1, 3.8, 3.8, 3.2, 3.7, 3.4, 3.4, 3.5, 3.5.

### Economic risks and transmission channels of the global crisis
- Payment delays: failure to settle could trigger a pronounced economic downturn.
- Transmission channels to monitor:
  - Aid flows: aid recently amounted to 2 percent of GDP annually; some budget aid currently suspended.
  - Remittances: running at 8 percent of GDP per year.
  - FDI: projected rise to 5 percent of GDP by 2010; delays would affect current account financing.
  - Financing flows: large PPP projects may be delayed; trade finance could dry up.
  - Exports: phosphoric acid exports should rise in 2009–10 due to ICS recovery; tourism and processed fish products could suffer.
  - Financial sector: banks are independent subsidiaries with limited credit lines from parents; crisis could lead to deteriorating domestic loan quality.
- Other risks: exogenous commodity price shocks, adverse weather/pests, and political/economic costs of cleaning up slippages.

### ESF request, terms, and impact of food and fuel shock
- ESF request:
  - Authorities requested access to the Exogenous Shock Facility (ESF) high-access component, at 30 percent of quota, to help absorb the food and energy price shocks.
  - The ESF will be a twelve-month arrangement; entitlement SDR 48.54 million, in two tranches of SDR 24.27 million.
  - Disbursements: first disbursement SDR 24.27 million available upon approval; second disbursement SDR 24.27 million available on or after May 10, 2009, subject to conditions.
- ESF financing role:
  - The ESF (30 percent of quota equally tranched) will finance food and fuel imports of ½ percent of GDP and may catalyze donor support.
- Measured impact of food and fuel price surge (Box 5; 2008 prices relative to 2007, volumes at 2007 levels):
  - Total: 5.2 (Percent of GDP).
  - Food: 2.8 (Percent of GDP).
  - of which: Rice: 2.4 (Percent of GDP).
  - Fuel: 2.5 (Percent of GDP).
- Other measured impacts and policy response:
  - Temporary price subsidies cost 3 percent of GDP in 2008.
  - Using the staff methodology with constant 2007 volumes, the 2008 exogenous shock measured at 5.2 percent of GDP; using 2008 trade volumes, BOP impact amounts to 4.4–4.8 percent of GDP.
  - Overall, Senegal projected to spend 2.4 percent of GDP more for food and fuel products in 2008 than in 2007, with rice accounting for three-fourths of this increase.
  - Staff judged ESF financing appropriate given temporary nature of the shock and to allow reserves to recover.

### Misreporting, waivers, and staff appraisal
- Misreporting and PFM weaknesses:
  - Authorities misreported data related to the basic fiscal balance and the budgetary float for end-2007 under the PSI.
  - Misreporting partially reflected budget monitoring and execution deficiencies.
- Waivers and staff view:
  - Strong corrective PFM actions and return to prudent fiscal policy justify granting waivers for the ACs on domestic arrears and the budgetary float.
  - Staff describe Senegal’s capacity to repay the Fund as good.
  - Staff welcome the loan from France and recommend granting a waiver for the nonobservance of the A (text truncated in source).
  - Staff suggest authorities reserve proceeds from contemplated asset sales for early repayment of the French loan and the loan for the toll highway, and possibly accelerated settlement of extrabudgetary spending following the independent technical audit.

### Program monitoring, conditionality highlights, and reporting
- Key quantitative and structural program features:
  - Ceiling on the amount of the float (depenses liquidees non payees par le Tresor): 30; 92; 80; 30; 30; 30 (timing per TMU).
  - Continuous criteria include zero tolerance for external payment arrears and zero limit on Treasury advances.
  - Prior actions for second review included passage by Parliament of the 2009 Budget Law (Target Date: December 15, 2008) and adoption of decree prohibiting Treasury advances (Completed on November 28, 2008).
  - Structural benchmarks included closing the 2008 budget year by freezing and publishing SIGFIP by April 30, 2009, and conducting an external audit of extrabudgetary commitments by March 31, 2009.
- Reporting commitments to Fund staff (maximum lags preserved):
  - Immediately: any decision, circular, edict, decree, ordinance, or law having economic or financial implications for the current program.
  - Within 30 days: preliminary tax receipts and assessments; monthly committed and certified expenditures; monthly provisional TOFE; provisional balance of the Treasury accounts; reconciliation tables between TOFE, Treasury accounts, NGP, and SIGFIP on a quarterly basis.
  - Monthly provisional reporting: current nonwage non-interest expenditures and domestically financed capital expenditures executed through advance payments and treasury advances, lag no more than 30 days; final data no later than one month after provisional data.
  - Financial sector reports: monthly central bank balance sheet (lag one month), consolidated banks’ balance sheet (lag two months), monetary survey quarterly (lag two months), lending and deposit rates monthly.
- Prioritized program pillars:
  - (i) Contain fiscal deficit to underpin macro stability and safeguard debt sustainability.
  - (ii) Improve fiscal governance and transparency to enhance policy credibility and sustain external assistance.
  - (iii) Encourage private sector activity by improving the business environment.
  - (iv) Limit financial sector vulnerabilities and raise the sector’s contribution to the economy.
  - Emphasis in this review placed on the first two pillars.

### Staff recommendation and Executive Board decisions
- Staff recommends, on balance, completion of the second PSI review (text as provided: "Staff recommends, on balance, completion of the second PSI review. While the seriousness of the budgetary slippages made it difficult to arrive at this recommendati authorities’ c").
- Executive Board actions (as reported):
  - Approved a one-year SDR 48.54 million arrangement under the ESF for Senegal.
  - Enabled immediate draw of SDR 24.27 million and an equal amount upon completion of the first ESF review.
  - Completed the second review under the PSI and granted three waivers for non-observance of quantitative assessment criteria on domestic arrears, budgetary float, and contracting or guaranteeing new nonconcessional external debt by the government.
- Board urges:
  - Eliminate the large stock of unpaid bills by the first half of 2009.
  - Strictly adhere to the 2009 budget and ensure fiscal transparency.
  - Rapidly and thoroughly follow through on commitments to overhaul PFM systems.
  - Use proceeds from asset sales to first repay loans carrying the highest interest rates.

*Source: IMF staff summary of the Executive Summary and selected sections of the IMF country report _cr0905 - Executive Summary.*

### Executive Summary.......................................................................................................

### _cr0905 - Executive Summary

### Executive Summary
- Senegal faced dual shocks in 2008: rising food and energy prices that presented a shock to the balance of payments of 5¼ percent of GDP in 2008, and significant government payment delays to the private sector accumulated over 2006-08.
- Program performance under the PSI has been mixed:
  - All structural conditionality for the second PSI review has been met, including a new electricity tariff structure.
  - Significant fiscal slippages equivalent to 5 percent of GDP were uncovered, including a large stock of unpaid government bills and extrabudgetary spending.
- Program conditionality helped identify unpaid bills and extrabudgetary spending; the unpaid bills and their resolution require three waivers, which staff recommends be granted in light of strong corrective actions.
- Authorities intend to eliminate payment delays by mid-2009 and have sharply cut spending via a supplementary budget for 2008 and the 2009 budget law to be adopted in mid-December.
- Authorities committed to reinforcing public financial management (PFM) systems based on Fund TA diagnostics and recommendations, including improved budget preparation procedures, modified budget execution practices, and strengthened fiscal reporting.
- To address the balance-of-payments impact of the food and energy price shock, the authorities requested access to the ESF and have taken steps to contain imports and eliminate costly and untargeted subsidies; the remaining subsidy on butane gas will be eliminated by mid-2009.
- Staff supports completion of the second PSI review and the ESF request, noting that remedial actions should help Senegal weather the global financial downturn.

### I. Background — A Difficult Environment
- Dual shocks and rising vulnerability:
  - Sharp run-up in international food and energy prices during 2006-08 increased the import bill.
  - High budgetary costs of untargeted subsidies contributed to sizable government payment delays to the private sector, affecting the economy.
  - The global economic and financial crisis, though having limited impact so far, may affect Senegal in the months ahead.
- The context provides a basis for completing the second PSI review and for ESF access.

### Program Performance and Impact of Budgetary Slippages
- Major budgetary slippages uncovered (Box 1 summary):
  - Energy and food subsidies introduced in 2006 and significantly expanded in 2007 accounted for a total of 7 percent of GDP during 2006–08.
  - Unsettled payment orders carried over year-to-year, heavy reliance on Treasury advances, and contracting without appropriations led to an unmanageable stock of unpaid bills.
- Identified slippages (end-October 2008):
  - Stock of payment delays to the private sector within the expenditure chain estimated at CFAF 225 billion (3¾ percent of GDP), of which CFAF 50 billion owed through agencies.
  - Extrabudgetary spending without budgetary appropriations of CFAF 74 billion (1¼ percent of GDP) identified by the Ministry of Finance’s audit inspectorate (IGF), of which CFAF 11 billion by line ministries and CFAF 63 billion by agencies and universities.
- Program conditionality role (Box 2 summary):
  - The PSI included quantitative ACs on domestic arrears (narrow WAEMU definition) and a broader AC on the budgetary float; coverage of SIGFIP was extended to payments beginning in 2008 (structural AC).
  - The IGF audit was included as a structural benchmark for end-September 2008 and was instrumental in revealing a larger problem than initially identified.

### Authorities’ Action Plan to Eliminate Unpaid Bills
- Fiscal adjustment and measures undertaken:
  - Reduce expenditures by CFAF 100 billion (1¾ percent of GDP) in 2008 to create room to settle payment delays.
  - Regularly adjust electricity prices and implement market pricing; a 17 percent rise in electricity rates was introduced (see structural conditionality).
  - Reinstate taxes on food, including rice, to reestablish market pricing and reduce spending.
  - Eliminate butane gas subsidy from mid-2009 and cap the subsidy before mid-2009 to establish market pricing and reduce spending.
  - Eliminate protective tax on vegetable oil — described as pro-poor and expected to lower retail price by 25 percent.
  - Expand school feeding program — pro-poor; redirects subsidies with a cost of 0.2 percent of GDP by 2010.
  - Obtain financing of around 2-2½ percent of GDP to help settle payment delays.
  - Accelerate donor grants in the pipeline to ease government liquidity constraints.
  - Sale of government assets (e.g., cell phone license, hotel) to provide financing in 2009, possibly needed for full settlement.
  - Regularize Treasury advances in a supplementary budget to improve transparency and accountability.
  - Audit extrabudgetary expenditures to assess which spending is to be accepted or rejected.
- The authorities committed to launch technical audits for extrabudgetary spending and to sell government assets to help complete settling all budgetary slippages in the first half of 2009.

### Structural Conditionality and Program Actions
- Structural conditions met for the second PSI review:
  - Introduction of a new electricity tariff structure with reduced rates for low-income consumers (structural assessment criterion), coupled with a 17 percent rise in rates.
  - Adoption of an implementation decree for the special economic zone (DISEZ) (structural assessment criterion).
  - Preparation of a two-year program of issuing government securities (structural benchmark), though prepared 1½ months late.
  - Completion of the IGF audit of payment delays (structural benchmark).
  - Consolidation of tax collections in one department (structural benchmark).
  - Issuance of an administrative order to strengthen investment planning and evaluation (structural assessment criterion).

### II. Economic Outlook and Risks — Economic Outlook (Summary)
- Economic effects observed:
  - Activity in sectors including construction and real estate is slowing.
  - Banks’ nonperforming loans are on the rise, and tax collections are lagging.
  - Higher oil and food prices have affected consumption and may lower economic growth in 2008.
- Indicators and trends noted in Figures 1–3:
  - The balance-of-payments shock from food and energy prices was quantified as 5¼ percent of GDP in 2008.
  - Fiscal measures and subsidy adjustments undertaken in 2008/2009 aim at restoring fiscal balance and financial equilibrium of public utilities (for example, SENELEC).
  - Current and projected macroeconomic developments were presented in staff estimates and comparisons with WAEMU and SSA aggregates (Figures 1–3).

*Source: IMF staff summary of the Executive Summary and selected sections of the IMF country report _cr0905 - Executive Summary.*

### 3.9 percent.

### _cr0905 - 3.9 percent.

### Medium-term outlook
- Economic growth is expected to average 5½ percent during 2009–13, concentrated in construction, telecommunications, and transportation, supported by the recovery of Industries Chimiques du Sénégal (ICS) and continued strong FDI inflows.  
- ICS was successfully rehabilitated in March 2008; the foreign majority owner injected US$100 million and ICS's recovery is projected to impact 2009 growth.  
- Inflation projections:
  - Headline inflation is projected at 6 percent in 2008, reflecting high input prices for food and energy products.
  - Core inflation is projected at 2–3 percent.
  - Inflation is expected to return to historical levels over the medium term.
- Balance of payments and external debt:
  - The current account impact of high food prices will be mitigated by ICS’s recovery, but some deterioration is expected over the medium term due to FDI-related imports.
  - FDI inflows, projections of which are so far holding up, should help Senegal maintain its low debt ratios; the risk of debt distress remains low.
  - Reserves should hover around 3½ months of imports.
- Millennium Development Goals: Despite some progress, some MDGs will be difficult to achieve.

### Economic risks
- Payment delays: Should payment delays not be settled speedily, Senegal may enter a pronounced economic downturn; this could be exacerbated by the global economic and financial crisis.
- Transmission channels of the global crisis (authorities to monitor):
  - Aid flows: Aid recently amounted to 2 percent of GDP annually for Senegal; budget constraints in donor countries could reduce aid and some budget aid is currently suspended.
  - Remittances: Running at 8 percent of GDP per year; a downturn in Europe would likely dampen remittances and affect activity such as construction.
  - FDI: Projected to rise from ½ percent of GDP in 2005 to 5 percent of GDP in 2010; a delay or cancellation could affect current account financing and lower growth and employment prospects.
  - Financing flows: Large PPP investment projects (e.g., new airport, toll highway) may be delayed; trade finance could dry up.
  - Exports: Phosphoric acid exports should rise in 2009–10 due to ICS recovery, but tourism, processed fish products, and groundnut products could suffer from reduced external demand.
  - Financial sector: Banks are generally independent subsidiaries with their own capital base and limited credit lines from parent banks abroad; existing capital controls limit large-scale withdrawals. However, the crisis could lead to deteriorating domestic loan quality.
- Other risks: (i) exogenous shocks such as unpredictable commodity price developments and adverse weather/pest conditions affecting agriculture; (ii) political and economic costs of cleaning up budgetary slippages that could lead to backtracking on the economic and structural program.

### Program discussions — overview and pillars
- The budgetary slippages and misreporting challenge completion of the second PSI review; authorities committed to a strong corrective package to return to prudent fiscal policy, eliminate payment delays to the private sector, address extrabudgetary spending, and restore budget integrity.
- Development partners prefer a continued program relationship and urged authorities to implement their action plan to unfreeze budget support from several donors (including France, the Netherlands, and the African Development Bank).
- The program is based on four pillars:
  - (i) Containing the fiscal deficit to underpin macroeconomic stability and safeguard debt sustainability.
  - (ii) Improving fiscal governance and transparency to enhance policy credibility and sustain external assistance.
  - (iii) Encouraging private sector activity by improving the business environment and addressing structural impediments to higher economic growth.
  - (iv) Limiting financial sector vulnerabilities and raising the sector’s contribution to the economy.
- Given urgency, emphasis in this review is placed on the first two pillars.

### Fiscal policy
- Medium-term fiscal deficit target of 4 percent of GDP remains valid to keep debt sustainable and contribute to domestic stability within the monetary union; availability of financing must be carefully considered and lower deficit targets may be needed if financing cannot be obtained.
- Authorities are tightening fiscal policy in 2008 and 2009 to help settle payment delays:
  - The mid-November supplementary budget for 2008 included expenditure cuts of around 3 percent of GDP—about half reflected spending reductions implemented under an earlier administrative order (a first-review prior action).
  - The 2009 budget expected to be passed by parliament by December 15, 2008 (prior action) is in line with the macroeconomic framework developed with staff.
  - Authorities committed to safeguarding priority spending.
- Repayment of unpaid bills:
  - A significant reduction in unpaid bills is envisaged for 2008, with the remainder scheduled for the first half of 2009; the repayment schedule depends on available financing.
  - This requires raising the AC on the budgetary float for end-December 2008 from CFAF 30 billion to CFAF 92 billion.
  - To make meaningful progress in 2008, the authorities requested rapid financial assistance from France on nonconcessional terms.
    - The loan is for €125 million (CFAF 82 billion), with a maturity of 5 years and an interest rate of 6.2 percent, with 70 percent disbursed in 2008 and the remainder at the time of the third PSI review.
  - Borrowing in global markets was unattractive: the borrowing spread over comparable US government bonds would have exceeded 10 percentage points.

### Structural reforms and conditionality
- Structural conditionality focuses on preventing recurrence of fiscal slippages and strengthening PFM systems, reflecting PFM TA mission recommendations. Conditionality aims for quick results to restore budgetary discipline and support waivers and correction of fiscal reporting deficiencies.
- PFM diagnostic (TA mission):
  - Strengths: generally satisfactory budgetary legal and regulatory framework; good quality of Ministry of Finance staff; well-developed capacity for macroeconomic and budgetary analysis; expenditure tracking software SIGFIP is an asset.
  - Weaknesses:
    - Preparation of the annual budget lacks a meaningful top-down constraint, an appropriate calendar, and flexibility for unforeseen spending.
    - Budget execution is complex with multiple modifying procedures, inefficient expenditure controls, and absence of account closure (e.g., 2007 payment orders issued in November 2008).
    - Accounting: substantial delays in submission of accounts and budget closure laws to the audit court; no reconciliation of budgetary and Treasury systems.
- Key structural and prior actions (selected):
  - Budget preparation and realism:
    - Issue a decree to fix a budget preparation calendar effective with the 2010 budget and strengthen macroeconomic underpinnings and top-down constraint; include early consultations with parliament (structural AC).
    - The 2009 budget should be consistent with the macroeconomic framework elaborated with staff (prior action).
  - Budget execution, cash-flow planning, and monitoring:
    - Eliminate Treasury advances: a decree has eliminated Treasury advances (completed prior action); a continuous zero ceiling for spending outside the streamlined procedure will apply from the time of the second PSI review (quantitative AC).
    - Limit spending carryover to next fiscal year to 5 percent of total spending (structural AC); government committed to adjusting spending in the following year to maintain consistency with the macro framework.
    - Ensure timely closure of fiscal year: administrative order set deadlines for commitments, verifications, payment orders, and payments; the 2008 accounts will be closed by end-April 2009 through freezing the SIGFIP system and publishing accounts on the internet (structural AC).
    - Reconcile budgetary and accounting data: authorities reconciled above- and below-the-line fiscal data and issued a manual outlining the reconciliation procedure (completed prior action).
  - Extrabudgetary spending:
    - Conduct technical audits of extrabudgetary spending based on terms of reference to be agreed with staff; an external audit will assess terms and conditions of goods and services delivered under past extrabudgetary spending (structural benchmark). This will inform decisions to regularize such spending in a supplementary budget in 2009 or reject it.
  - Fiscal governance and procurement:
    - Complete and publish first annual report on implementation of the procurement framework (structural benchmark). The report will assess implementation amid concerns such as a possible single-tender purchase by SENELEC.
  - Special economic zone (DISEZ):
    - Ringfence revenue impact of DISEZ: memoranda of understanding will identify roles of zone administrator, revenue authority, and customs authority in tax administration of the zone (structural benchmark).
  - Microfinance:
    - Complete creation of new legal and regulatory framework for microfinance; the sector accounts for one-tenth of credits. The new microfinance law (structural benchmark of the first PSI review) will be made operational by decree (structural benchmark).

*Source: IMF staff report (excerpts).*

### 19.      The authorities request access to the ESF high-access component, at 30 percent

### _cr0905 - 19.      The authorities request access to the ESF high-access component, at 30 percent

### ESF request and terms
- The authorities request access to the ESF high-access component, at 30 percent of quota, to help absorb the food and energy price shocks (Box 5).
- The ESF will be a twelve-month arrangement with program targets identical to the PSI’s.
- The ESF (30 percent of quota equally tranched in two disbursements at the completion of the second and third reviews) will finance food and fuel imports of ½ percent of GDP and may catalyze donor support.

### Impact of the food and energy price surge (Box 5)
- Senegal imports all of its fuel and most basic staples, including rice and wheat.
- The price effect is worsening Senegal’s 2008 current account by 5¼ percent of GDP, corresponding to a decline of 1½ months of reserves.
- Taking into account mitigating factors, reserves are expected to fall to 3¼ months of imports in 2008 (Table 2).
- Temporary price subsidies to help shield the population cost 3 percent of GDP in 2008.
- Food and Fuel Price Impact (Measured as 2008 prices relative to 2007 (October 2008 WEO data). Volumes kept constant at 2007 levels.)
  - Total: 5.2 (Percent of GDP)
  - Food: 2.8 (Percent of GDP)
  - of which: Rice: 2.4 (Percent of GDP)
  - Fuel: 2.5 (Percent of GDP)

### Authorities’ measures and fiscal stance
- The authorities discontinued the rice subsidy, reinstated taxes on core food products, and ended the protective tax on vegetable oil—the standing Bank and Fund staff recommendation.
- Phasing out of subsidies and tax suspensions on food and energy is intended to help contain demand and improve the balance of payments.
- Energy sector reform supported by the World Bank and France is expected to diversify energy production, reduce costs, and enhance governance.
- The butane gas subsidy will be eliminated by mid-2009.
- The adoption of the 2009 budget consistent with the macroeconomic framework developed with staff is highlighted as particularly noteworthy.
- Staff emphasize the need to preserve budget allocations to priority social sectors despite the tight budgetary environment to help reduce poverty and progress toward meeting the MDGs.

### Misreporting, PFM weaknesses, and corrective actions
- A separate report on misreporting has been issued: the authorities misreported data related to the basic fiscal balance and the budgetary float for end-2007 under the PSI.
- The misreporting partially reflects budget monitoring and execution deficiencies.
- Strong corrective actions are incorporated in the program to prevent a repeat of the misreporting and to restore the integrity of the budget framework.
- PFM measures included in the program are fundamental to restoring integrity by:
  - improving fiscal accounting and monitoring,
  - strengthening budget formulation and execution,
  - discontinuing practices inconsistent with Senegal’s overall satisfactory budgetary legal and regulatory framework and administrative capacity.
- Staff call on the authorities to take appropriate and immediate decisions to implement the PFM measures forcefully.
- The strong corrective actions in the PFM area, together with the envisaged return to a prudent fiscal policy stance, justify granting waivers for the ACs on domestic arrears and the budgetary float.

### Staff appraisal, debt and external financing
- Senegal’s capacity to repay the Fund is described as good (Table 10).
- The ESF will cover only a fraction (½ percent of GDP) of the total exogenous shock.
- Staff welcomes the loan from France to assist Senegal; its impact on debt sustainability is described as negligible given its one-off character and terms comparable to those in the WAEMU financial market.
- Staff recommend granting a waiver for the nonobservance of the A (text truncated in source) in light of urgent relief needs and limited alternatives.
- Staff suggest that authorities reserve the proceeds from contemplated asset sales for early repayment of the French loan and the loan for the toll highway, and possibly accelerated settlement of extrabudgetary spending following the independent technical audit.

*Source: IMF staff content provided in the supplied document excerpt.*

### 28.      Staff recommends, on balance, completion of the second PSI review. While the

### _cr0905 - 28.      Staff recommends, on balance, completion of the second PSI review. While the

### Staff recommendation
- "Staff recommends, on balance, completion of the second PSI review. While the seriousness of the budgetary slippages made it difficult to arrive at this recommendati authorities’ c" (text as provided).

### National income and prices (selected indicators)
- GDP at constant prices (2007–2013): 5.9, 5.6, 2.3, 4.8, 3.9, 5.2, 5.6, 5.5, 5.4, 5.3
- Nonagriculture GDP (2007–2013): 6.0, 4.8, 3.9, 5.7, 2.7, 5.5, 5.8, 5.6, 5.5, 5.4
- GDP deflator (2007–2013): 0.5, 2.3, 3.4, 5.4, 7.8, 2.3, 2.2, 2.1, 2.1, 2.2
- Consumer prices, annual average (2007–2013): 0.5, 1.7, 2.1, 5.9, 6.1, 3.3, 2.2, 2.2, 2.2, 2.2
- Consumer prices, end of period (2007–2013): 1.7, 1.4, 3.9, 6.2, 6.0, 2.2, 2.2, 2.2, 2.2, 2.2

### External sector (selected indicators)
- Exports, f.o.b. (in CFA francs; 2007–2013): 9.2, 4.4, 0.1, -3.9, 26.1, 5.6, 6.7, 5.7, 5.7, 6.0
- Imports, f.o.b. (in CFA francs; 2007–2013): 9.8, 15.6, 9.0, 13.1, 23.3, 1.0, 9.6, 7.7, 7.7, 6.7
- Export volume (2007–2013): 4.1, -4.2, -12.3, -1.9, 6.3, 12.6, 4.2, 4.2, 4.4, 4.8
- Import volume (2007–2013): 2.0, 4.2, 5.6, 7.9, 7.0, 8.2, 7.6, 6.4, 6.3, 6.3
- Terms of trade (deterioration (-)) (2007–2013): -2.6, -2.0, 10.7, -6.8, 2.6, 0.4, 0.6, 0.2, -0.1, 0.8

### Money, credit, and banking (selected indicators)
- Net domestic assets (2007–2013): 3.1, 8.6, 5.0, 8.6, 5.7, 5.0, 10.3, 10.0, 9.4, 8.7
- Domestic credit (2007–2013): 2.5, 10.4, 5.8, 11.5, 6.0, 5.3, 10.7, 10.4, 9.7, 9.0
- Credit to government (net) (2007–2013): -3.1, -4.1, 3.0, 4.9, -1.1, -1.7, 3.3, 2.8, 2.2, 1.5
- Credit to the economy (percentage growth) (2007–2013): 9.2, 24.5, 4.2, 10.5, 11.3, 10.9, 11.4, 11.6, 11.8, 11.8

### Government financial operations (selected fiscal indicators; percent of GDP)
- Revenue (2007–2013): 18.3, 19.2, 19.9, 21.3, 20.2, 20.7, 20.6, 20.9, 21.1, 21.3
- Grants (2007–2013): 2.1, 1.6, 1.5, 2.6, 2.2, 2.4, 2.3, 2.3, 2.3, 2.3
- Total expenditure and net lending (2007–2013): 23.3, 24.1, 27.5, 27.9, 25.7, 25.9, 26.8, 27.0, 27.3, 27.5
- Overall fiscal surplus (+) or deficit (-), payment order basis, excluding grants (2007–2013): -5.2, -4.6, -7.3, -6.3, -5.5, -5.1, -6.2, -6.1, -6.2, -6.2
- Overall fiscal surplus (+) or deficit (-), payment order basis, including grants (2007–2013): -3.1, -3.0, -5.8, -3.7, -3.3, -2.7, -4.0, -3.9, -4.0, -3.9
- Primary fiscal balance 1/ (2007–2013): -1.8, -2.3, -5.2, -3.3, -2.7, -2.0, -3.2, -3.1, -3.1, -3.0
- Basic fiscal balance 2/ (2007–2013): 0.7, 0.9, -3.4, -1.0, -0.4, 0.1, -0.9, -0.9, -0.8, -0.5

### Investment and savings (percent of GDP)
- Gross domestic investment (2007–2013): 26.0, 29.5, 29.7, 31.2, 30.5, 31.2, 32.4, 32.9, 33.4, 34.1
- Gross domestic savings (2007–2013): 13.4, 14.1, 12.2, 10.7, 9.4, 12.7, 13.1, 13.5, 13.9, 14.6
- Gross national savings (2007–2013): 19.9, 21.8, 20.3, 20.5, 18.2, 20.6, 20.8, 21.2, 21.8, 22.4

### External positions and debt (selected indicators)
- External current account deficit (Including current official transfers) (2007–2013): -6.1, -7.8, -9.4, -10.7, -12.3, -10.6, -11.6, -11.7, -11.6, -11.7 (percent of GDP)
- External current account deficit (Excluding current official transfers) (2007–2013): -7.9, -9.3, -10.4, -12.5, -13.7, -12.0, -12.9, -13.0, -12.9, -13.0 (percent of GDP)
- Central government domestic debt (year-end) (2007–2013): 3.5, 3.3, 4.3, 5.6, 6.9, 5.9, 6.9, 7.8, 8.3, 8.5
- External public debt (nominal) 3/4/ (2007–2013): 44.0, 42.4, 17.8, 18.1, 19.6, 22.0, 22.1, 22.3, 22.9, 23.6
- External public debt service (percent of exports) 4/ (2007–2013): 7.4, 5.6, 4.2, 4.6, 2.9, 3.8, 3.9, 3.9, 3.9, 3.7
- External public debt service (percent of government revenue) 4/ (selected years): 10.9, 7.9, 5.4, 5.1, 3.6, 4.6, 4.7, 4.5, 4.4, 4.1

### Balance of payments (selected items, billions of CFA francs)
- Current account (2004–13): -257, -355, -455, -571, -735, -682, -808, -877, -941, -1,017
- Balance on goods (2004–13): -521, -691, -828, -1,078, -1,307, -1,274, -1,427, -1,559, -1,704, -1,827
- Exports, f.o.b. (2004–13): 798, 832, 833, 801, 1,010, 1,066, 1,138, 1,202, 1,270, 1,347
- Imports, f.o.b. (2004–13): -1,319, -1,524, -1,661, -1,879, -2,316, -2,340, -2,565, -2,761, -2,974, -3,173
- Unrequited current transfers (net) (2004–13): 342, 405, 437, 570, 572, 578, 613, 661, 724, 782
- Gross official reserves (billions of CFA francs) (2004–13): 66, 86, 62, 66, 61, 73, 97, 86, 79, 94, 110, 301, 101 (as reported in table)
- Gross official reserves (months of imports of GNFS) (2004–13): 4.8, 4.1, 3.8, 3.8, 3.2, 3.7, 3.4, 3.4, 3.5, 3.5

### Government financial operations (billions of CFA francs; 2006–13)
- Total revenue and grants (2006–13): 1,036, 1,202, 1,277, 1,377, 1,341, 1,493, 1,593, 1,734, 1,884, 2,050
- Revenue (2006–13): 963, 1,082, 1,139, 1,254, 1,209, 1,337, 1,436, 1,565, 1,702, 1,854
- Total expenditure and net lending (2006–13): 1,331, 1,452, 1,491, 1,667, 1,541, 1,668, 1,868, 2,025, 2,204, 2,388
- Current expenditure (2006–13): 829, 779, 881, 1,007, 994, 974, 1,039, 1,120, 1,196, 1,269
- Capital expenditure (2006–13): 475, 665, 605, 660, 550, 698, 831, 905, 1,006, 1,117

### Key fiscal balances (billions of CFA francs)
- Primary fiscal balance 5/ (2006–13): -236, -210, -163, -247, -165, -130, -220, -230, -254, -260
- Overall fiscal balance (including grants) (2006–13): -279, -245, -198, -290, -200, -175, -275, -291, -319, -339
- Overall fiscal balance (excluding grants) (2006–13): -352, -364, -336, -413, -332, -331, -432, -461, -502, -535
- Basic fiscal balance 6/ (2006–13): -165, -56, -54, -95, -21, 10, -65, -69, -62, -42

### Selected monetary aggregates (2004–07 / 2008 projections)
- Net foreign assets (2004–2008): 676, 660, 780, 851, 863 (as reported)
- Broad money (M2) (2004–2008): 1,446, 1,553, 1,751, 1,973, 2,097
- Nominal GDP growth (percentage growth): 6.4, 8.0, 5.8, 10.4, 12.0
- Credit to the economy (percentage growth): 9.2, 24.5, 4.2, 10.5, 11.3

### Social and structural indicators (selected Millennium Development Goals)
- Net primary enrollment ratio (percent of relevant age group) (selected years): 45.3, ... , 56.5, 69.6, 70.7, ...[100.0]
- Under-5 mortality rate (per 1,000) (selected series): 149, 148, 133, 119, 116, 116, [49.3]
- Access to an improved water source (percent of population) (selected series): 67, 69, 72, 77, ...
- Share of women employed in the nonagricultural sector (percent): 26

### Financial soundness indicators for the banking sector (selected, 2003–08)
- Capital to risk weighted assets (2003–2007): 12.1, 11.9, 11.1, 13.1, 13.6, 13.7
- Gross NPLs to total loans (2003–07): 13.3, 12.6, 11.9, 16.8, 18.6, 19.0
- Provisions to NPLs (2003–07): 75.3, 75.7, 75.4, 52.0, 53.8, 50.3
- After-tax return on average assets (2003–07): 1.8, 1.8, 1.6, 1.6, 1.6

### Quantitative assessment criteria and program monitoring (2007–08; selected outcomes)
- Floor on the basic fiscal balance: series of assessments including "not met" and "met" entries as reported.
- Ceilings on contracting new nonconcessional external debt: "met" entries recorded for the monitoring periods shown.
- Ceilings on government external payment arrears: "0" and "met" statuses as reported.
- Other program performance indicators: a mix of "met" and "not met" entries for ceilings on payment arrears, float, and procurement-sharing objectives (see table for details).

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

### 1. Publish administrative orders from the prime

### 1. Publish administrative orders from the prime minister and finance minister which will limit the authorizations for commitments on current expenditure and domestically-financed capital expenditure, as specified in paragraph 10.

### Structural assessment criteria and benchmarks
- Structural assessment criteria implemented:
  - Publish administrative orders from the prime minister and finance minister limiting authorizations for commitments on current expenditure and domestically-financed capital expenditure.  
    - Implemented on May 20, 2008 — Completed
  - Adopt and make effective the new tariff structure for electricity, providing progressive tariff rates with lower tariff adjustments for low-income consumers.  
    - Target date: August 1, 2008 — Completed
  - Issue the implementation decree for the application of Law 2007-16 on DISEZ, as specified in paragraph 17 of the MEFP.  
    - Target date: November 15, 2008 — Completed
  - Publish an administrative order from the prime minister with guidelines to strengthen public investment planning and evaluation, as specified in paragraph 16 of the MEFP.  
    - Target date: November 15, 2008 — Completed

- Structural benchmarks:
  - Develop a rolling two-year program of issuance of government securities, in collaboration with the BCEAO, as specified in paragraph 13 of the MEFP.  
    - Target date: June 30, 2008 — Completed on August 14, 2008
  - Complete a comprehensive audit of payment delays by the financial audit inspectorate of the MEF (Inspection Générale des Finances), as specified in paragraph 14 of the MEFP.  
    - Target date: September 30, 2008 — Completed

### Policy measures and implementation status
- Adopt all the legal texts and regulations allowing the effective transfer of direct State tax collection responsibilities from the Treasury to the DGID effective January 1, 2009, as specified in paragraph 23 of the MEFP.  
  - Target date: October 31, 2008 — Completed
- Prepare memoranda of understanding stipulating the respective rights and responsibilities of APIX, DGID, and DDI regarding the management of DISEZ, as specified in paragraph 17 of the MEFP.  
  - Target date: March 31, 2009 — (status not completed in the provided text)

### Quantitative program financing and conditionality (ESF arrangement highlights)
- Arrangement entitlement and disbursements:
  - Senegal requested access to the Exogenous Shock Facility (ESF) for 30 percent of quota, the equivalent of SDR 48.54 million, in two tranches.
  - Disbursement schedule:
    - First disbursement: SDR 24.27 million, available upon approval of the Arrangement.
    - Second disbursement: SDR 24.27 million, available on or after May 10, 2009, subject to specified conditions.

- Conditions barring the second disbursement (paragraph 3):
  - Second disbursement will not be requested if, as of December 31, 2008:
    - (i) the floor on the basic fiscal balance, as set out in Table 1 of the MEFP and the TMU, or
    - (ii) the ceiling on the amount of the float at the Treasury, as set out in Table 1 of the MEFP and the TMU, was not observed.
  - Second disbursement will not be requested until the first program review (paragraph 38 of the MEFP) has been completed.

- Grounds for withholding any disbursement during the Arrangement (paragraph 4):
  - Nonobservance of any of the following ceilings as specified in Table 1 of the MEFP and the TMU:
    - (i) ceiling on contracting or guaranteeing new nonconcessional external debt by the government,
    - (ii) ceiling on the stock of external payment arrears by the government,
    - (iii) ceiling on spending undertaken outside normal and simplified procedures.
  - Or if Senegal:
    - (i) imposes or intensifies restrictions on payments and transfers for current international transactions,
    - (ii) introduces or modifies multiple currency practices,
    - (iii) concludes bilateral payments agreements inconsistent with Article VIII,
    - (iv) imposes or intensifies import restrictions for balance of payments reasons.

### Recent economic developments and program performance (from MEFP)
- Growth, inflation, and external sector (2008 estimates/projections):
  - GDP growth in 2008 estimated at about 3.9 percent.
  - Inflation expected to be 6 percent in 2008.
  - Current account deficit about 12¼ percent of GDP in 2008.
  - Reserves expected to cover around 3½ months of imports.
  - Foreign direct investment (FDI) and aid expected to be adequate to finance a large portion of the balance of payments.

- Causes of weaker-than-expected 2008 performance:
  - Impact of the rise in food and energy prices on real domestic consumption.
  - Delayed resumption of the operations of Industries Chimiques du Sénégal (ICS).
  - Slowdown in private sector activity, especially construction, related to government payment delays.

### Budget execution problems: magnitudes and sources
- Estimated stock of payment delays at end-October 2008:
  - Regular budget: CFAF 174.9 billion (3 percent of GDP).
  - Treasury corresponding accounts: CFAF 50 billion (3/4 percent of GDP).
  - Extrabudgetary expenditures: CFAF 74 billion (1¼ percent of GDP), broken down by:
    - Line ministries: CFAF 11 billion.
    - Agencies: CFAF 31.3 billion.
    - Public health institutions: CFAF 12.1 billion.
    - Universities: CFAF 19.1 billion.

- Factors explaining budgetary slippages:
  - Subsidies and tax suspensions introduced in response to oil and food price shocks:
    - Subsidies on oil and food products represented 7 percent of GDP for the years 2006 to 2008 combined.
    - In March 2008, direct subsidies were introduced on rice and cooking oil.
    - The government eliminated virtually all subsidies and tax suspensions introduced immediately after the shock and planned to remove the remaining subsidy on butane gas by mid-2009.
  - Continued high-speed implementation of a wide-ranging public investment program focused on infrastructure, sustaining economic activity and employment despite crowding-out pressures.
  - Frequent use of Treasury advances to undertake spending not initially budgeted:
    - Public expenditure representing 5½ percent of GDP was executed through Treasury advances in 2006–08.

- Consequences for program conditionality:
  - Three quantitative assessment criteria were not met: domestic arrears, the budgetary float, and nonconcessional external borrowing.
    - Nonobservance of domestic arrears and budgetary float resulted directly from budgetary slippages.
    - The nonconcessional external borrowing criterion was intentionally breached to repay the private sector quickly and boost economic activity; given low liquidity in the regional financial market, nonconcessional financing was used to avoid maintaining large arrears.
  - Government requested waivers for the three missed criteria in light of corrective measures proposed.

- Other program performance observations:
  - Government did not accumulate external arrears throughout the program period.
  - Basic fiscal balance was observed at end-September 2008.
  - Indicative ceiling on share of public sector contracts awarded by single tender contained at 17 percent by end-June and 19 percent by end-September.

### Program objectives, policy stance, and government commitments
- Program objectives:
  - Preserve macroeconomic stability.
  - Strengthen private sector-driven growth in a sustainable way.
  - Make quick progress toward achieving the Millennium Development Goals.
  - Strengthen agricultural production and implement energy sector reform.

- Policy actions and commitments:
  - The MEFP builds on prior MEFPs (October 3, 2007 and May 30, 2008) with strengthened commitments to prevent future budgetary weaknesses and normalize government financial relations with the private sector.
  - The government confirmed it will:
    - Consult with the IMF on adoption of any additional measures or changes to the policies described in the MEFP.
    - Provide the Fund with requested information on progress in implementing policies and achieving program objectives.
    - Authorize the IMF to publish the Letter, MEFP, and related Staff Report.

### Social sector spending
- Government actions to safeguard social spending:
  - Fiscal adjustment measures reduced expenditure by CFAF 191 billion relative to appropriations approved in the initial 2008 Budget Law, but did not affect social sectors.
  - Government planned to increase the total social sector share of the national budget from 32.6 percent in 2007 to 35.9 percent in 2008.
  - Intention to request technical expertise from the World Bank and other development partners to improve analysis of efficiency of social sector spending.

### Selected numerical indicators excerpted (verbatim figures from table and text)
- ESF entitlement and disbursement amounts:
  - SDR 48.54 million (total for 12 months).
  - SDR 24.27 million (first tranche).
  - SDR 24.27 million (second tranche).
- Payment delay estimates (end-October 2008):
  - CFAF 174.9 billion (regular budget).
  - CFAF 50 billion (Treasury corresponding accounts).
  - CFAF 74 billion (extrabudgetary expenditures).
  - CFAF 11 billion (line ministries).
  - CFAF 31.3 billion (agencies).
  - CFAF 12.1 billion (public health institutions).
  - CFAF 19.1 billion (universities).
- Macro aggregates and projections (selected entries from the Indicators table and text):
  - GDP growth in 2008: about 3.9 percent.
  - Inflation in 2008: 6 percent.
  - Current account deficit in 2008: about 12¼ percent of GDP.
  - Reserves coverage: around 3½ months of imports.
  - Subsidies on oil and food products: 7 percent of GDP for 2006–2008 combined.
  - Public expenditure executed through Treasury advances in 2006–08: 5½ percent of GDP.
  - Social sector budget share: 32.6 percent in 2007; targeted 35.9 percent in 2008.

*Source: Memorandum of Economic and Financial Policies and related IMF Arrangement documents (December 5, 2008) attached to the ESF request.*

### 8.      The government has made significant progress in implementing its structural

### _cr0905 - 8.      The government has made significant progress in implementing its structural

### Progress in implementing structural reform program
- All structural assessment criteria and benchmarks had been observed by end-October 2008.
- Measures completed or adopted:
  - A plan for issuing treasury bills and government securities was finalized in mid-August, six weeks later than scheduled; expected to improve forecasting of cash flow needs and accustom the market to regular issuances.
  - A new electricity tariff structure was adopted at the beginning of August; rate increases averaged 17 percent, were asymmetrical, and relatively small for low-income consumers; expected to help SENELEC restore financial equilibrium and encourage consumers to save electrical power.
  - An audit of domestic payment delays was completed by IGF on September 30, as planned.
  - The Council of Ministers adopted, by end-October, all laws and regulations to ensure the effective transfer of direct tax collection responsibilities from the Treasury to the Revenue Authority (DGID).
  - A Prime Minister’s circular sent on November 13, 2008, to all sectoral ministries and independent executing agencies set procedural and institutional rules to ensure: (i) consistency among investment projects and between them and strategic objectives; (ii) compatibility between the investment programs and the medium-term macroeconomic framework; and (iii) establishment and observance of project analysis rules varying with project size, to select the best projects.

### Macroeconomic policies for 2009–10 — outlook and projections
- External environment: slowdown in global growth, problems on financial markets, continued rise in food prices.
- Government expects domestic factors to offset negative international environment, including elimination of payment delays.
- Key macro projections and expectations:
  - Real GDP growth projected to average about 5½ percent over the next two years, based on gradual resumption of ICS production, recovery in private sector activity linked to elimination of payment arrears, and FDI-related economic growth.
  - Inflation expected to return to historical level of 2 percent over the medium term; government forecasts an inflation rate of 3¼ percent in 2009 given short-term food price pressures.
  - External current account deficit projected to fluctuate between 11 percent and 12 percent of GDP and be increasingly financed by FDI flows.
  - External public debt projected to increase slightly to about 23 percent of GDP by 2010.
  - Domestic public debt projected to increase slightly to about 7 percent of GDP by 2010.
  - Monetary and foreign exchange policies remain in the subregional framework with a peg to the euro; prudent fiscal policy emphasized as key instrument for macroeconomic stability and contribution to WAEMU external stability.

### Fiscal policy — stance and targets
- Government commitment: limit the overall fiscal deficit to 4 percent of GDP over the medium term to ensure debt sustainability, support investment and growth, maintain domestic stability, contain demand pressures, and prevent crowding out.
- 2008 and 2009 targets and measures:
  - Deficit temporarily lowered to 3.3 percent of GDP in 2008 to settle payment delays related to 2007 expenditure; consistent with a basic fiscal deficit of CFAF 21 billion in 2008 (revised quantitative assessment criterion).
  - Government will keep the 2009 fiscal deficit to less than 3 percent of GDP.
  - Parliament to pass a 2009 Budget Law consistent with budgetary projections agreed with the IMF under the PSI (prior action).
  - Basic fiscal surplus expected to exceed CFAF 5 billion at end-June 2009 (quantitative assessment criterion) to complete settlement of all past payment delays.
- Priority and social spending:
  - Social spending targeted to reach 39.2 percent of total expenditure, or 10.5 percent of GDP, by 2010.
  - Social sector spending to reach 9.2 percent of GDP in 2008 and 9.9 percent of GDP in 2009.
  - Increased expenditure planned for rural areas and infrastructure.
  - Expanded mechanism for identifying HIPC and MDRI expenditure to allow better monitoring in 2009.

### Elimination of payment delays — action plan and measures
- August 2008 action plan strengthened to cover several aspects:
  - 2008 supplementary budget law passed on November 27, 2008: (i) regularized Treasury advances executed during the year and transfers of appropriations that exceeded the 10 percent threshold authorized by the Organic Budget Law; and (ii) reduced by CFAF 191 billion the appropriations initially approved by parliament to account for revenue shortfalls and incorporate announced expenditure reductions and additional reductions of CFAF 100 billion described in the action plan.
  - Government formulating financing options to reduce the budgetary float.
  - Eliminated all budgetary subsidies on food products to create budgetary room: elimination of rice subsidy as of October 29, 2008; reinstitution of previously suspended duties and taxes on other food products as of September 15, 2008; removal of specific tax on vegetable oils as of September 15, 2008.
  - Commitment to curtail and completely eliminate the subsidy on butane gas by end-June 2009 and to revise electricity pricing method.
  - Increase in the levy on alcohol and cigarettes expected to take effect by end-December 2008.
  - Government to launch tenders for privatization of Hotel Méridien Président in the first quarter of 2009 and expects to finalize renegotiation of the second mobile telephone license in 2009.
  - Government to launch technical audits of all extrabudgetary expenditure by end-December 2008.
  - Major exercise of data reconciliation and verification completed by the Treasury to enable reconciliation with private sector data.
  - Commitment to take strong corrective measures to restore budgetary quality and transparency and align public financial management systems with best international practices over the medium term.
- Specific commitments to regularize financial relations and prevent recurrence:
  - Eliminate domestic payment arrears, as defined by the WAEMU, by end-December 2008 and continuously maintain a zero balance thereafter.
  - Limit the stock of the budgetary float to a ceiling of CFAF 92 billion at end-2008 (quantitative assessment criterion).
  - Limit the stock of committed expenditure for which bills have not yet been validated and strengthen link between monthly commitments at sectoral ministries and availability of cash.
  - Meet new quantitative assessment criterion envisaging a zero limit on Treasury advances (to be observed continuously). Expenditures authorized by Advance Decree in line with paragraph 11 of the TMU are not considered Treasury Advances.

### Debt management
- General principle: not contracting or guaranteeing external loans on nonconcessional terms to ensure debt sustainability.
- Exception and financing plan:
  - Government has not yet managed to raise about CFAF 80 billion for the Dakar-Diamniadio toll highway because of difficult international markets; this amount will be raised in the first half of 2009 so donor resources can be supplemented with the government’s financial contribution under the PPP (quantitative assessment criterion).
  - Government will consult IMF staff well in advance for any further exceptions to the quantitative assessment criterion.
  - Any proceeds from asset sales will first be used to accelerate settlement of payment delays, extrabudgetary spending accepted by the Ministry of Finance based on technical audits, and repayment of nonconcessional external loans contracted in 2008-09.
- Strengthening debt management practices:
  - Every quarter or after each issuance, in consultation with the BCEAO, the government will update the rolling two-year government securities issuance program.
  - Government plans to issue CFAF 30 billion in securities in December 2008 and in each quarter of 2009; will update the rolling two-year plan after each issuance.
  - As of December 2008, half-yearly public debt sustainability analysis will include a study of risks from contingent liabilities related to guarantees, PPPs, and public enterprises.
  - Government requested assistance from the U.S. Treasury to strengthen debt management capacity and asked Standard and Poor’s, Fitch, and Moody’s to rate Senegal’s country risk.

### Structural reforms — fiscal reforms and public finance management
- Overall objective: urgently correct shortcomings in budget planning, execution, and monitoring revealed by recent budgetary slippages to preserve macroeconomic stability, enhance efficiency of public spending, ensure integrity of budgetary and accounting systems, and increase fiscal transparency.
- Commitment to implement IMF technical assistance recommendations integrated into public finance reform framework.

Budget planning
- By decree before January 31, 2009, government will establish timetable and main methods for budget formulation for preparation of the 2010 budget (structural assessment criterion). This will include:
  - Preparation of an initial macroeconomic framework by end-March.
  - Formulation of government’s major economic and fiscal priorities for fiscal policy debate in parliament by June at the latest.
  - Establishment of medium-term sectoral expenditure frameworks with a top-down constraint (expenditure ceilings by ministry and other administrative units).
  - Preparation of a second (updated) macroeconomic framework by end-August for draft budget law formulation.
- Supplementary budgets in 2009:
  - Government will introduce two supplementary budgets in 2009 (one mid-year and one late-year), or at least one at mid-year, to regularize transfers of appropriations and extrabudgetary expenditures recognized on the basis of technical audits.
  - Supplementary budgets will regularize decrees implementing articles 12, 15, and 18 of the 2001 Organic Budget Law and revise estimated use of appropriations (crédits évaluatifs).
  - Government plans to implement two supplementary budgets every year thereafter.

Budget execution
- Treasury advances will be eliminated; decree supplementing RGCP limits expenditure execution to normal and simplified procedures and prohibits Treasury advances (completed prior action).
- Government will simplify reopening and carrying over budgetary appropriations by issuing an implementation decree for articles 17 and 18 of the organic budget law before end of the complementary period on February 28, 2009 (structural assessment criterion). Rules include:
  - Any capital budget appropriations without a payment order at end of complementary period may be carried forward within an overall ceiling of 5 percent of the total capital budget for the current year.
  - Appropriations (crédits de paiement) carried over are canceled in the initial year and added to subsequent year appropriations.
  - Appropriations related to dépenses liquidées are automatically carried forward within the above ceiling.
  - Appropriations not carried forward become unusable.
  - Mid-year supplementary budget law will ensure conformity with IMF macroeconomic framework.
  - Government will issue an administrative order by March 31, 2009, to definitively settle reopened and carried-over appropriations from all budget years prior to 2008, to be borne in the 2009 budget year.
- Closure provisions and deadlines:
  - Government issued a circular recalling deadlines and will reduce time allowed for commitments by setting cutoff date at November 30.
  - Complementary period: administrative phase halts issuance of payment orders on December 31; accounting phase ends at end-February of subsequent year.
  - Beyond February 28, any operation from previous budget year with cash flow impact must be imputed to current year accounts.
  - SIGFIP data will be frozen and published in detail on the Ministry of Finance website by April 30 (structural assessment criterion).
  - Any accounting adjustments after April 30 must be recorded in the following budget year.

Accounting system and budgetary monitoring
- Government, in consultation with IMF, established a detailed procedures manual for reconciling TOFE, Treasury accounts, net government position (NGP), and SIGFIP, and published reconciliation tables for December 2007 and March, May, June, July, August, and September 2008 (completed prior action). Reconciliation to be carried out quarterly going forward.
- Government will undertake an audit of SIGFIP during the first half of 2009 to ensure thorough tracking of each type of expenditure and to establish genuine administrative accounting (comptabilité administrative) based on SIGFIP; may request IMF technical assistance for this audit.

Extrabudgetary expenditure
- IGF audit identified CFAF 74 billion in extrabudgetary expenditure; an independent external audit will analyze circumstances under which these commitments were generated and potential additional spending without budgetary lines.
- Terms of reference for the audit to be drawn up in consultation with IMF staff; audit report to be submitted to IMF staff by end-March 2009 (structural benchmark).
- No payments to private sector for any extrabudgetary expenditure before audit establishes nature of claims, goods/services provided, and unit cost.
- Preventive and corrective measures:
  - Impose sanctions on employees found at fault.
  - Apply a discount factor to claims of private firms that agreed to provide goods or services on unlawful terms.
  - Pay claims recognized on the basis of the audit only after authorization by a budget law providing for simultaneous reductions of appropriations for other expenditure items.

*Source: IMF staff report (content unit _cr0905 - 8).*

### 27.      The compilation of the government’s Treasury accounts and budget review laws

### 27.      The compilation of the government’s Treasury accounts and budget review laws

### Treasury accounts and budget review laws
- Accelerate compilation of the government’s Treasury accounts and budget review laws.
- Timetable for forwarding Treasury accounts to the Audit Court (as legally stipulated):
  - FY 2006: forward by end-January 2009.
  - FY 2007: forward by end-March 2009.
  - FY 2008: forward by end-July 2009.
- Timetable for sending draft budget review laws to the Audit Court:
  - FY 2004 draft: send by end-December 2008.
  - FY 2005 draft: send by end-February 2009.
  - FY 2006 draft: send by end-May 2009.
  - FY 2007 draft: send by end-June 2009.

### Government procurement
- New government procurement framework in place since January 1, 2008; government to apply it rigorously.
- Key commitments and benchmarks:
  - Quarterly indicative target: share of government contracts awarded by single tender set at 20 percent of all contracts, including those entered into by agencies and other government bodies.
  - Continue to publish the list of contracts awarded each quarter on the website of the central directorate for public procurement (DCMP).
  - No public procurement allowed unless included in procurement plans submitted to the DCMP.
  - The procurement regulatory agency (ARMP) to conduct audits and surveys of government contracts; first audit report for 2008 to be published by May 31, 2009 (structural benchmark).

### Large investment projects
- Government to ensure transparency and efficiency in implementation of large public investment projects to increase growth potential.
- Commitments on specific projects:
  - Airport project and Dakar integrated special economic zone (DISEZ): prepare memoranda of understanding defining rights and duties of APIX, DGID, and DGD for DISEZ management, including conflict resolution rules and measures for combating fraud and tax evasion (structural benchmark for end-March 2009).

### Social safety net for the rise in prices
- National priority: help population cope with rise in food and energy prices while preserving macroeconomic stability.
- Policy measures for the most underprivileged:
  - Expansion of the school meals program to improve household purchasing power, enrollment rates, and children’s performance in school.
  - Feasibility study regarding the introduction of a subsidy on public transportation.
  - Request technical expertise from the World Bank to analyze operational feasibility of introducing a targeted program of cash transfers to the poorest households, as recommended by the IMF’s PSIA mission.
- Long-run focus:
  - Improve supply and reduce costs of energy and food products.
  - Increase domestic agricultural production (in particular rice) via improved infrastructure (irrigation and storage), increased competition, and subsidy restructuring to enhance agricultural productivity.
  - Energy sector reform to boost production and generate cost reductions to be gradually passed on to consumers.

### Energy sector reform
- Reform objectives: improve energy supply and contain fiscal risks; program supported by World Bank and other donors.
- Policy principles: market-based pricing; implement energy saving and efficiency measures.
- Specific commitments:
  - Modify structure of electricity tariffs every three months and adjust institutional price setting process.
  - Complete recapitalization of SENELEC by mid-2009; CFAF 9 billion will be appropriated in 2009 for this purpose.
  - Eliminate subsidy on butane gas by end-June 2009. Butane gas prices will be adjusted so that the annual subsidy is limited to CFAF 32 billion in 2008 and CFAF 8 billion in 2009.

### Accelerated Growth Strategy (AGS) and private sector development
- AGS remains the anchor for reforms and priority actions to enhance growth potential; participative implementation focused on five cluster sectors.
- Institutional arrangements:
  - Monitoring committee chaired by the Prime Minister to meet every six months.
  - Technical committee chaired by the Minister of Finance to meet every three months.
- Reforms since November 2007 Presidential Investment Council (CPI):
  - Simplified import/export and customs clearance procedures; reduced time and costs for formalities.
  - Simplified property transfer procedures: wait times reduced from 114 days to 18 days.
  - Simplified procedures for building permits and related requirements: wait times reduced from 217 days to 78 days.
  - Passed law on promotion and development of small and medium-sized enterprises.
  - Improved legal and judicial framework by increasing number of magistrates and court clerks.
  - Improved legal framework applicable to PPPs; amended law on construction contracts, operations, and infrastructure transfers.
  - Adopted regulations for implementation of the Labor Code.
  - Created new technical and vocational education centers.
- Commitments from November 2008 CPI:
  - Update and modernize labor legislation.
  - Strengthen vocational education.
  - Take stock of the tax system and incentives for new financing methods for the private sector, such as leasing, factoring, and venture capital.

### Financial sector reforms
- Government intent: safeguard soundness of the financial system and enhance its economic contribution.
- Specific commitments:
  - Implement all decisions and recommendations of the WAEMU Banking Commission.
  - Cooperate closely with the BCEAO and the WAEMU Banking Commission to limit impact of the ICS restructuring plan on the banking system and the budget.
  - Carefully monitor potential effects of the global financial crisis on soundness and liquidity of the Senegalese banking system and regional financial markets, in close cooperation with the BCEAO, regional Banking Commission, and banks’ home-country supervisors.
  - Adopt, by end-January 2009, the implementation decree for the new law on microfinance institutions that became effective on September 3, 2008 (structural benchmark), and continue to strengthen the supervision unit of the Ministry of Finance.
  - Submit to Parliament the new legislation on combating the financing of terrorism by end-December 2008.
  - Continue establishing a legal framework to encourage private sector access to a diversified supply of credit.

### Program monitoring and Technical Memorandum of Understanding (TMU) — key monitoring elements
- Quantitative assessment criteria and indicative targets:
  - Quantitative assessment criteria set for end-December 2008 and end-June 2009.
  - Quantitative indicative targets set for end-March and end-September 2009.
  - These program targets also apply to the ESF.
- Review schedule:
  - Third and fourth reviews under the PSI scheduled by end-June 2009 and end-December 2009, respectively.
  - First review under the ESF by end-June 2009.
  - Completion of the third review contingent upon observance of assessment criteria for end-December 2008 and structural assessment criteria through April 30, 2009.

### Selected TMU definitions, adjusters, and reporting requirements (highlights)
- Government definition:
  - Government = central administration of the Republic of Senegal; excludes local administrations, central bank, and government-owned entities with separate legal personality.
- Basic fiscal balance (program definition):
  - Defined as difference between government’s budgetary revenue and total expenditure and net lending, excluding externally-financed capital expenditure (financed by donors), drawings on on-lent loans (except on-lent loans to the energy sector financed through donor budget support), and expenditure funded with HIPC- and MDRI-related resources.
  - Budgetary revenue excludes privatization receipts and sales of mobile telephone licenses or other government assets.
  - Assessment criterion: floor on cumulative basic fiscal balance since the beginning of the year.
  - Example as at December 31, 2008: floor = minus CFAF 21 billion, calculated from budgetary revenue (CFAF 1209 billion) and total expenditure and net lending (CFAF 1541 billion), excluding externally financed capital expenditure (CFAF 226 billion), drawings on on-lent loans (CFAF 5 billion), and expenditure funded with HIPC- and MDRI-related resources (CFAF 79 billion).
  - Reporting: monthly provisional data with lag no more than 30 days; final data no later than two months after provisional data.
- Government domestic payment arrears:
  - Defined per WAEMU: expenditures cleared for payment but not paid during 90 days after payment order cleared.
  - Assessment criterion monitored until second PSI review; authorities report any accumulation as soon as incurred.
- Budgetary float (instances de paiement):
  - Defined as outstanding stock of government expenditure for which bills received and validated but not yet paid by the Treasury.
  - Assessment criterion: ceiling on budgetary float, monitored at end of quarter.
  - Reporting: weekly and monthly SIGFIP tables showing committed, certified but not cleared, payment orders, payment orders accepted by Treasury, and payments made; excludes delegations for regions and embassies and treasury advances (provided separately).
- Spending outside simplified and normal procedures:
  - Criterion applies continuously to any procedure other than simplified and normal procedures (including Treasury advances), excluding spending under advance decree for absolute urgency and national interest per Article 12 of Organic Budget Law.
  - Reporting: monthly with maximum delay of 30 days, together with SIGFIP table.
- Government external payment arrears:
  - Defined as payments owed and not paid on external debt contracted or guaranteed by the government.
  - Reporting: authorities report any accumulation as soon as due date is passed.
- Contracting or guaranteeing new nonconcessional external debt by the government:
  - Applies to debt as defined in Executive Board Decision No. 6230-(79/140) (last amended by Decision No. 12274-(00/85)), and to commitments contracted or guaranteed for which funds not received.
  - Exemptions listed (i)–(v), including CFAF debt with WAEMU residents and external debt for the airport project company (AIDB).
  - Criterion measured cumulatively since approval of second program review; ceiling raised to accommodate CFAF 80 billion exclusively to finance Dakar-Diamniadio toll highway project.
  - Definition of nonconcessional: present value > 65 percent of nominal value (grant element < 35 percent), with exception for IMF PRGF lending. For debt with maturity > 15 years, use ten-year reference market interest rate published by OECD; six-month reference market rate used for shorter maturities.
  - Reporting: government will report any new external borrowing and its terms as soon as contracted or guaranteed.
- Public sector contracts signed by single tender:
  - Public sector contracts = administrative contracts entered into by government entities subject to procurement code.
  - Single-tender contracts = signed without competitive tender.
  - Quarterly indicative target applies to contracts examined by Commission Nationale des Contrats de l’Administration (CNCA) until December 31, 2007, and to those examined by Direction Centrale des Marchés (DCM) thereafter.
  - Reporting: quarterly report to Fund staff within one month of end of observation period on total value of contracts and total value of single-tender contracts.

*Source: Technical Memorandum of Understanding and associated section on program measures and monitoring.*

### 22.      The authorities will report to Fund staff the following, with the maximum time lags

### _cr0905 - 22.      The authorities will report to Fund staff the following, with the maximum time lags

### Reporting requirements and maximum time lags
- Effective immediately:
  - Any decision, circular, edict, decree, ordinance, or law having economic or financial implications for the current program.
- With a maximum lag of 30 days, preliminary data on:
  - Tax receipts and tax and customs assessments by categories, accompanied by the corresponding revenue collected by the Treasury on a monthly basis.
  - The monthly amount of expenditures committed, certified, and for which payment orders have been issued.
  - The quarterly report of the Debt and Investment Directorate (DDI) on execution of investment programs.
  - The monthly preliminary government financial operations table (TOFE), based on the Treasury accounts (balances de compte).
  - The provisional balance of the Treasury accounts.
  - A reconciliation table between the fiscal reporting table (TOFE), the Treasury accounts (identifying the relevant accounts and amounts), the net government position (NGP), and the SIGFIP on a quarterly basis.
- Final data:
  - Final data will be provided as soon as the final balances of the treasury accounts are available, but not later than one month after the reporting of provisional data.

### Monthly provisional reporting during the program
- During the program period:
  - The authorities will report provisional data on a monthly basis on current nonwage non-interest expenditures and domestically financed capital expenditures executed through advance payments and treasury advances, with a lag of no more than 30 days.
  - The data will be drawn from preliminary consolidated treasury account balances.
  - Final data will be provided as soon as the final balances of the treasury accounts are available, but no more than one month after the reporting of provisional data.

### Financial sector and other periodic reports
- The government will report to Fund staff:
  - The monthly balance sheet of the Central Bank, with a maximum lag of one month.
  - The consolidated balance sheet of banks with a maximum lag of two months.
  - The monetary survey, on a quarterly basis, with a maximum lag of two months.
  - The lending and deposit interest rates of commercial banks, on a monthly basis.
  - Prudential supervision and financial soundness indicators for bank and nonbank financial institutions, as reported in the Table entitled Situation des Etablissements de Crédit vis-à-vis du Dispositif Prudentiel [Survey of Credit Institutions in Relation to the Prudential Framework], on a quarterly basis.
- Additional monthly disclosure:
  - The government will update monthly on the website used for this purpose the amount of airport tax—redevance de développement des infrastructures aéroportuaires (RDIA)—collected, deposited in the escrow account, and used for the repayment of the loan financing the construction of the new airport.

### Quantitative assessment and performance criteria (selected numeric limits and timing)
- Reporting dates and notes in the quantitative assessment (sample entries shown in source):
  - Dates referenced: March 31, 2009; June 30, 2009; September 30, 2009; December 31, 2009; December 31, 2008.
- Examples of assessment criteria and targets as presented:
  - Floor on the basic fiscal balance 2/: -95; -21; 2; 5; 7; 10.
  - Ceiling on the contracting or guaranteeing of new nonconcessional external debt by the government 3/4/: 80 6/; 80 7/; 80 7/; 80 7/; 80 7/; 80 7/.
  - Ceiling on government domestic payment arrears (stock) 4/5/: 0 ... ... ... ... ...
  - Ceiling on spending undertaken outside normal and simplified procedures 4/8/: ... 0 0 0 0 0.
  - Ceiling on government external payment arrears (stock) 4/: 0 0 0 0 0 0.
  - Ceiling on the amount of the float (depenses liquidees non payees par le Tresor) 9/: 30; 92; 80; 30; 30; 30.
  - Indicative target — Quarterly ceiling on the share of the value of public sector contracts signed by single tender (in percent): 20; 20; 20; 20; 20; 20.
- Footnotes and definitions retained in source (selected):
  - 1/ Data for March and September 2009 are indicative targets, with the exception of the assessment criteria monitored on a continuous basis.
  - 2/ Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, and HIPC and MDRI spending. Cumulative since the beginning of the year. Total revenue excludes privatization receipts and sales of mobile telephone licenses.
  - 3/ This criterion excludes government or government-guaranteed CFAF borrowing from financial institutions within WAEMU. It also excludes external loans contracted by the airport project company (AIDB) to finance the construction of the new Dakar Airport.
  - 4/ Monitored on a continuous basis.
  - 5/ Discontinued as of the time of second review, since the broader AC on the budgetary float applies.
  - 6/ This target is defined on a cumulative basis since the approval of the first program review. The ceiling was raised to CFAF 80 billion in the fourth quarter of 2008, to finance exclusively the Dakar-Diamnadio toll highway project. The CFAF 80 billion ceiling will be adjusted downward by the amount of any receipt from a privatization, a sale of a telecommunications license, or any other State asset (such as Sonatel shares) during 2008.
  - 7/ This target is defined on a cumulative basis since the approval of the second program review. The amount of up to CFAF 80 billion is to finance exclusively the Dakar-Diamniadio toll highway project.
  - 8/ Criterion applies from the time of the second PSI review.
  - 9/ The budgetary float is defined as all the expenditure for which a bill has been received and recognized (depense liquidee) but which has not yet been paid by the treasury.

### Structural conditionality, assessment criteria, and benchmarks (December 2008–June 2009)
- Prior Actions
  - Ensure passage by Parliament of the 2009 Budget Law, as described in paragraph 12 of the MEFP.
    - Target Date for Implementation: December 15, 2008.
    - Macroeconomic Rationale: Ensure that the budget is consistent with the macroeconomic framework and resource availability.
  - Adopt a decree amending the general regulations on government accounting (RGCP) to require use of only the normal and simplified procedures, and prohibiting the use of procedures of any other type, in particular Treasury advances, as described in paragraph 21 of the MEFP.
    - Status: Completed on November 28, 2008.
    - Macroeconomic Rationale: Ensure macroeconomic stability and the transparency of budgetary procedures, while addressing one of the main causes of past budgetary slippages.
  - Set out in a manual the detailed procedures for reconciling the budget, the TOFE, the Treasury accounts, the NGP, and the SIGFIP; establish this reconciliation for end-2007 and selected months in 2008, and publish the results, as described in paragraph 24 of the MEFP.
    - Status: Completed on November 30, 2008.
    - Macroeconomic Rationale: Restore the reliability of the budget monitoring systems to facilitate fiscal policy assessment.
- Structural Assessment Criteria
  - Improve the budget procedure by adopting a decree to set the timetable and principal methods for compiling the budget, as described in paragraph 19 of the MEFP.
    - Target Date for Implementation: January 31, 2009.
    - Macroeconomic Rationale: Ensure that the budget is formulated in a way that is consistent with macroeconomic circumstances and the available resources.
  - Adopt a decree specifying the system for the reopening and carryover of budgetary appropriations and commitments, as described in paragraph 22 of the MEFP.
    - Target Date for Implementation: February 28, 2009.
    - Macroeconomic Rationale: Improve the monitoring of budget execution and increase the observance of the one-year budget rule.
  - Close the 2008 budget and accounting year by freezing and publishing the SIGFIP by April 30, 2009, as described in paragraph 23 of the MEFP.
    - Target Date for Implementation: April 30, 2009.
    - Macroeconomic Rationale: Ensure that the account statement allows for an accurate assessment of expenditure carryovers from one year to the next and facilitate government cash flow management.
- Structural Benchmarks
  - Adopt the decree implementing the new law on microfinance institutions.
    - Target Date for Implementation: January 31, 2009.
    - Macroeconomic Rationale: Enhance financial intermediation and provide better access to credit, putting into effect the new regulatory and prudential framework for this rapidly growing sector which provides one-tenth of all credit to the private sector.
  - Conduct an external audit of all extrabudgetary commitments, based on terms of reference drawn up in consultation with IMF staff, as described in paragraph 26 of the MEFP.
    - Target Date for Implementation: March 31, 2009.
    - Macroeconomic Rationale: Create the basis for rejecting or regularizing extrabudgetary expenditure in a supplementary budget.
  - Draft memoranda of understanding specifying the respective rights and duties of the APIX, DGID, and DDI regarding the management of the DISEZ, as stated in paragraph 30 of the MEFP.
    - Target Date for Implementation: March 31, 2009.
    - Macroeconomic Rationale: Safeguard government revenue.

*Source: _cr0905 - 22.      The authorities will report to Fund staff the following, with the maximum time lags*

### 4. Compile and publish the first audit report of the

### 4. Compile and publish the first audit report of the Government Procurement Regulatory Authority (ARMP)

### Action description and deadline
- Compile and publish the first audit report of the Government Procurement Regulatory Authority (ARMP), as described in paragraph 28 of the MEFP.
- Deadline: May 31, 2009.

### Purpose and policy intent
- Increase fiscal transparency and governance.
- Assess the functioning of the new government procurement framework.

### Context within the IMF engagement with Senegal
- This measure is part of the Second Review Under the Policy Support Instrument, Request for a Twelve-Month Arrangement Under the Exogenous Shocks Facility, and Request for Waivers and Modification of Assessment Criteria—Informational Annex (Prepared by the African Department; Approved December 8, 2008).
- The action supports public financial management reforms encouraged by Executive Directors to contain the fiscal deficit, preserve debt sustainability, and improve the business environment to foster private-sector led growth.

### Relevant program and institutional information (selected figures preserved exactly)
- Outstanding purchases and loans amounted to SDR 17.33 million (10.7 percent of quota) at end-October 2008.
- Quota: 161.80 (SDR Million) — Percent of Quota: 100.00.
- Fund holdings of currency: 160.16 — Percent of Quota: 98.98.
- Reserve Position: 1.67 — Percent of Quota: 1.03.
- Net cumulative SDR allocation: 24.46 — Percent of Allocation: 100.00.
- SDR holdings: 0.22 — Percent of Allocation: 0.91.
- PRGF Arrangements outstanding: 17.33 — Percent of Quota: 10.71.
- Latest PRGF Arrangement listed: Apr 28, 2003–Apr 27, 2006; Amount Approved (SDR Million) 24.27; Amount Drawn (SDR Million) 24.27.
- Projected payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): Total 2008–2012 listed as: 2008 Principal 0.35; 2009 Principal 2.08; 2010 Principal 3.47; Charges/Interest 2008 0.21; 2009 0.55; 2010 0.55; 2011 0.54; 2012 0.53; Total 2008 0.21; Total 2009 0.55; Total 2010 0.90; Total 2011 2.62; Total 2012 3.99.
- HIPC decision point date: June 2000; Assistance committed by all creditors (US$ million): 488.30; Of which: IMF assistance (US$ million) 42.30 (SDR equivalent in millions) 33.80; Completion point date April 2004.
- Disbursement of IMF assistance (SDR million): Assistance disbursed to the member 33.80; Interim assistance 14.31; Completion point balance 19.49; Additional disbursement of interest income 4.60; Total disbursements 38.40.
- MDRI total debt relief (SDR million) 100.32; Of which: MDRI 94.76; HIPC 5.56.
- Safeguards assessment of BCEAO completed on November 4, 2005; findings include publication of a full set of audited financial statements and movement toward IFRS, establishment of an internal audit charter, improved risk management mechanisms, adoption of a multi-year audit program, establishment of an audit committee, expanded disclosures on WAEMU countries' financial positions with the Fund, and strengthening of the internal audit function.
- Senegal is a member of WAEMU; CFA franc parity to euro set at CFAF 655.96 = €1 effective December 31, 1998.
- The 2008 Article IV consultation was completed by the Executive Board on June 18, 2008 (IMF Country Report No. 08/209); the next consultation is expected within 24 months.
- AML/CFT onsite evaluation occurred July/August 2007; GIABA Plenary adopted the report in early May 2008; the evaluation recorded 12 Non-Compliant and 17 Partially Compliant ratings out of the 40+9 FATF AML/CFT recommendations.

### Expected outcomes and monitoring
- Publication of the ARMP audit report by May 31, 2009 is expected to:
  - Improve transparency in government procurement processes.
  - Provide an assessment of the new procurement framework’s effectiveness and adherence to governance standards.
  - Support broader public financial management reforms being monitored under the IMF-supported program.

_International Monetary Fund — Senegal: Second Review Under the Policy Support Instrument, Request for a Twelve-Month Arrangement Under the Exogenous Shocks Facility, and Request for Waivers and Modification of Assessment Criteria—Informational Annex (Prepared by the African Department; Approved December 8, 2008)._

### 5.      GFS are compiled by the Ministry of Economy and Finance from customs, tax, and

### _cr0905 - 5.      GFS are compiled by the Ministry of Economy and Finance from customs, tax, and

### Government Finance Statistics (GFS) and fiscal reporting
- GFS are compiled by the Ministry of Economy and Finance from customs, tax, and treasury directorate sources.
- Data last reported to STA for electronic redissemination and publication in the 2007 Government Finance Statistics Yearbook were for fiscal year 2001.
- Higher frequency data are not provided for redissemination in IFS, but the ministry compiles and disseminates quarterly government financial operations tables (TOFE) in their own publications.
- Deficiencies in the monitoring system for domestic arrears data and other payment delays (including weaknesses in the Treasury computerization system) are being addressed under the PSI program.
- An AFR team worked with the authorities in February 2004 to improve fiscal reporting; focus areas included:
  - public accounts outside direct treasury purview;
  - treatment of correspondents’ accounts in the TOFE;
  - ensuring consistency between treasury and banking system information concerning government transactions.
- Proposed changes from the 2004 AFR engagement are being implemented and have improved presentation of government financial operations as a first step toward aligning the TOFE with the extended WAEMU TOFE; subsequent steps include implementing the revised WAEMU fiscal directives.
- A regional advisor in GFS has conducted technical assistance missions to improve consistency of fiscal reporting and migrate to methodologies of the Government Finance Statistics Manual 2001; efforts also supported resumption of reporting annual and higher frequency data for IFS and electronic dissemination of the GFS Yearbook.

### Monetary and financial statistics
- Preliminary monetary data are compiled by the national agency of the BCEAO and officially released by BCEAO headquarters.
- Authorities now report monetary data to STA on a regular basis, with lag reduced from about six months to about three to four months.
- Improvements noted in timeliness of reporting interest rate and depository corporation data.
- An area-wide page for the WAEMU zone was introduced in the January 2003 issue of IFS.
- In 2005, BCEAO made substantial revisions to estimates of banknotes in circulation in member states due to cross-border banknote movement; revisions resulted from changes in the method to estimate currency in circulation using updated sorting coefficients (“coefficients de tri”) and have been applied retroactively from December 2003.
- In August 2006, BCEAO reported test monetary data for June 2006 for all member countries using the Standardized Report Forms (SRF); BCEAO provided a revised central bank report form (1SR) and test data on other depository corporations (2SR) for STA review.
- BCEAO authorities have not yet responded to STA feedback on the 2SR test data. Completion of SRFs (1SR central bank, 2SR other depository corporations, and 5SR monetary aggregates) is required to allow publication of data in the IFS Supplement.

### External sector statistics (Balance of payments and related)
- Balance of payments (BOP) statistics are compiled by the Senegalese national agency of the BCEAO.
- With STA support, steps taken include:
  - implementation of the Balance of Payments Manual, fifth edition;
  - modification and simplification of related surveys for companies and banks;
  - improvement in computerization of procedures;
  - significant strengthening of staff training.
- Further steps are needed to enhance quality and coverage of BOP statistics.
- Definitive BOP statistics can now be provided with a delay of less than one year, but there are some delays in reporting to STA.
- Balance of payments statistics up to the year 2004 and international investment position statistics up to 2006 have been communicated to STA.

### Key data and indicators (selected entries from Table of Common Indicators)
- Exchange Rates: Date of latest observation — Current; Date received — Current; Frequency of data — D; Frequency of reporting — M; Frequency of publication — M.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation — 9/2008; Date received — 12/2008; Frequency of data — M; Frequency of reporting — M; Frequency of publication — M.
- Reserve/Base Money: 9/2008 (latest observation); 12/2008 (date received); M, M, M.
- Broad Money: 9/2008; 12/2008; M, M, M.
- Central Bank Balance Sheet: 9/2008; 12/2008; M, M, M.
- Consolidated Balance Sheet of the Banking System: 9/2008; 12/2008; (frequency entries present in table).
- Interest Rates: 10/2008 (date of latest observation); 11/2008 (date received); M, M, M.
- Consumer Price Index: 9/2008 (date of latest observation); 10/2008 (date received); M, M, M.
- Revenue, Expenditure, Balance and Composition of Financing – Central Government: Q3/2008 (latest observation); 11/2008 (date received); Frequency of data — Q; Frequency of reporting — Q; Frequency of publication — Q.
- External Current Account Balance: 2007 (latest observation); 05/2008 (date received); Frequency — A, A, A.
- GDP/GNP: 2007 (latest observation); 12/2008 (date received); Frequency — A, I, A.
- Gross External Debt: 2007 (latest observation); 05/2008 (date received); Frequency entries include Q, I, A.
- International Investment Position: 2006 (latest observation); 9/2008 (date received); A, A, A.

### Recent macroeconomic developments and staff observations (Statement by IMF Staff Representative, December 19, 2008)
- Inflation developments:
  - End-of-period inflation fell to 4.2 percent in November, after 7.5 percent in October.
  - Decline attributed in part to lower food prices related to good harvests.
  - This supports projected average inflation projections for 2008 and 2009 underlying the macroeconomic framework.
- Fiscal and budgetary measures taken:
  - Remaining prior action on adoption of the 2009 budget in line with the macroeconomic framework was met.
  - Prior measures include:
    - adoption of the 2008 supplementary budget in November 2008, bringing expenditure cuts to close to 3½ percent of GDP relative to the initial budget (prior action);
    - elimination of all food and energy subsidies, except for the butane gas subsidy which will be eliminated by mid-2009;
    - discontinuation of Treasury advances (prior action).
  - Authorities raised domestic financing consistent with the macroeconomic framework by selling freely tradable shares in SONATEL at the Abidjan stock exchange and issuing T-bills in the WAEMU regional market.
  - As of December 12, 2008 SIGFIP table, the stock of unpaid bills had not yet been affected by financing operations; authorities reiterated feasibility of reducing the stock by more than half by end-2008.
- Governance and audit actions:
  - Terms of reference for technical audit of extrabudgetary spending finalized; exercise to be conducted by a reputable international audit company and should be completed by end-March 2009.
  - Authorities met the end-January 2009 structural benchmark on the implementation decree for the microfinance law, enhancing supervision of a sector that accounts for one-tenth of credit to the economy.
- Balance-of-payments (BOP) shock assessment and ESF justification:
  - Staff methodology assuming constant 2007 trade volumes measured the 2008 exogenous shock at 5.2 percent of GDP.
  - Using 2008 trade volumes, the BOP impact amounts to 4.4–4.8 percent of GDP.
  - Overall, Senegal is projected to spend 2.4 percent of GDP more for food and fuel products on a net basis in 2008 than in 2007, with rice accounting for three-fourths of this increase.
  - Rice import volume declined by more than 10 percent in 2008 despite a temporary government subsidy on rice.
  - Detailed 2009 calculations show an abating food and fuel price shock; BOP impact ranges within 1.4–4.9 percent of GDP, and Senegal would spend broadly the same amount relative to GDP for food and fuel on a net basis as in 2007.
  - Given the temporary nature of the shock, financing under the ESF is judged appropriate to allow reserves to recover; reserves projected to average 3½ months over the medium term, still below end-2007 level.
- Rice price index context:
  - Domestic production accounts for only one-tenth of total rice consumption.
  - WEO’s rice price index rose from 100 in 2005 to a peak of 331 in mid-2008 and is now at 196.

### IMF decisions, lending, and policy recommendations (Press Release and Executive Board statements)
- IMF approvals and disbursements:
  - Executive Board approved a one-year SDR 48.54 million (US$75.6 million) arrangement under the Exogenous Shocks Facility (ESF) for Senegal.
  - Approval enables Senegal to draw SDR 24.27 million (about US$37.8 million) immediately, and an equal amount upon completion of the first review under the ESF arrangement.
- PSI review and waivers:
  - Board completed the second review under the three-year Policy Support Instrument (PSI) and granted three waivers for non-observance of quantitative assessment criteria on domestic arrears, budgetary float, and contracting or guaranteeing new nonconcessional external debt by the government.
- Policy recommendations and Board assessment (remarks by Mr. Murilo Portugal, Deputy Managing Director and Chairman):
  - Eliminate expeditiously the large stock of unpaid bills by the first half of 2009.
  - Strictly adhere to the 2009 budget and ensure fiscal transparency.
  - Pursue a prudent fiscal policy over the medium term while safeguarding priority spending to maintain macroeconomic stability and debt sustainability.
  - Carefully assess available financing for the budget given limited domestic liquidity and uncertain international borrowing prospects.
  - Use proceeds from any asset sales to first repay loans carrying the highest interest rates.
  - Rapidly and thoroughly follow through on commitments to overhaul public financial management systems to restore budget integrity: improve fiscal accounting and monitoring, strengthen budget formulation and execution, and discontinue inconsistent practices.
  - Take immediate decisions following completion of the independent technical audit of past extrabudgetary spending to normalize financial relations with the private sector.
  - Continue structural reforms to strengthen private sector activity and bolster the financial sector, including revising labor market regulations, simplifying tax procedures, and improving access to credit.
- Board judgment:
  - Despite inaccurate information previously provided to the Fund on the fiscal deficit and budgetary float, in light of corrective measures taken and improved fiscal monitoring commitments, the Board maintained a positive assessment of Senegal’s program performance under the PSI and its potential for continued positive performance.

*Source: IMF staff report excerpts, December 2008.*

### 1.              Last June, at the time of the first review of Senegal’s PSI-supported program, staff

### _cr0905 - 1.              Last June, at the time of the first review of Senegal’s PSI-supported program, staff

### Recent Policy Challenges and Achievements
- Senegal experienced significant fiscal pressures from the food and energy crisis, leading to sustained consumer inflation and prompting provision of food and energy subsidies to protect vulnerable households.
- Infrastructure development needs (including hosting the OIC Summit) and disruptions in Les Industries Chimiques du Sénégal (ICS) operations contributed to revenue losses and delayed payments to the private sector.
- Authorities assert that implementation of their action plan will:
  - settle payment delays during the first half of 2009; and
  - remove scope in the budgetary framework for extra budgetary spending.

### Eliminating Payment Delays and Auditing Extra budgetary Expenditures
- Authorities adopted an action plan that included “drastic measures” and a 2008 supplementary budget that implemented total spending cuts amounting about 3½ of GDP last month.
- The 2008 fiscal deficit is estimated to be about 3.3 percent of GDP in 2008.
- Measures taken to settle payment delays:
  - elimination of virtually all food subsidies (rice subsidies removed; temporary duty and tax exemptions on other foodstuffs rescinded);
  - rescission of the specific tax on vegetable oil;
  - adoption of a new electricity tariff structure and tariff increases;
  - intention to eliminate butane gas subsidies next year.
- Extra budgetary expenditures:
  - plan to commission an external independent audit to clarify their genesis (financial audit inspectorate of the Ministry of Economy and Finance has completed its audit and estimates);
  - such spending will be regularized and cleared only upon certification by the audit;
  - two supplementary budgets planned towards the midst and end of next year will help regularize extra budgetary expenditures confirmed by the independent audit.

### Advancing the Structural Reform Agenda
- Authorities report full implementation of structural conditionality for the second PSI review, with slight delay on the structural benchmark for a program of issuance of government securities.
- Recent structural measures and governance improvements include:
  - compliance with ceiling on the share of public sector contracts signed by single tender and publication of the list of contracts awarded;
  - strengthening of tax administration;
  - mitigation of potential adverse impact of the planned special economic zone on tax revenues;
  - improvements in public investment planning and evaluation;
  - elaboration of a two-year program of issuance of government securities.

### Implementing Quantitative Conditionality
- Achievements:
  - met end-June and end-September 2008 assessment criteria related to the basic fiscal deficit and external payment arrears;
  - met the indicative target on the share of the value of public sector contracts signed by a single tender.
- Shortfalls and causes:
  - nonobservance of assessment criteria related to the budgetary float and domestic arrears due to budgetary pressures and extra budgetary spending by some public entities.
  - successful implementation of the action plan to eliminate payment delays will necessitate recourse to nonconcessional borrowing.
- Staff recommendation and request to Directors:
  - support proposal to raise the ceiling on nonconcessional external borrowing to accommodate the nonconcessional loan the authorities intend to contract from France.
- Data misreporting and corrective actions:
  - authorities acknowledged underreporting of end-December 2007 budgetary float and basic fiscal balance due to not accounting for subsequent changes to Treasury accounts occurring between data reporting and the June Board meeting on the first PSI review;
  - corrective measures: discontinuation of Treasury advances, timely closure of the fiscal year, strengthening of the expenditure tracking system, and other measures to improve planning, monitoring and execution of the budget.
- Authorities request waivers for nonobservance of assessment criteria on domestic arrears and budgetary float.

### Policy and Reform Agenda under the PSI
- Overarching aim: preserve macroeconomic stability and fiscal sustainability while addressing recent shortcomings and advancing PSI objectives.

Subsection: Implementing Prudent Fiscal Policies and Strengthening Fiscal Governance and Transparency
- Fiscal targets and legal changes:
  - Parliament adopted a budget law for 2009 consistent with keeping the fiscal deficit below 3 percent of GDP in 2009.
  - Authorities will continue to abide by their commitment to limit the fiscal deficit to 4 percent.
- Measures to improve public financial management:
  - enhancements to planning, execution, and monitoring of the budget through actions scheduled from early in 2009;
  - budget preparation from 2010 onwards to be facilitated by timetable and techniques of budget formulation set by a decree to be adopted by early next year;
  - restrictions by decree on the amount of expenditure carryovers to improve monitoring of budgetary execution;
  - publication of a manual summarizing procedures for reconciling data from budgetary and Treasury accounts (prepared in close consultation with staff and published upon finalization);
  - planned audit of budgetary management system, SIGFIP.
- Legal and transparency steps:
  - public accounting regulations amended on November 28, 2008, prohibiting recourse to exceptional procedures such as the use of treasury advances;
  - decision to finalize and publish detailed budgetary data by April 30;
  - setup of a clear timetable for submitting Treasury accounts to the audit court and conduct and publication of an audit of government contracts by the end of the first quarter of 2009.

Subsection: Pursuing Financial Sector Reform and Coping with the Global Financial Crisis
- Financial sector reforms under way:
  - development and planned implementation of a program of regular issuance of government securities;
  - enactment of a new microfinance law and adoption of its implementation decree to improve supervision of microfinance institutions and ease credit access for SMEs.
- Global financial crisis stance:
  - to date, limited impact on Senegal’s financial system;
  - authorities remain vigilant and stand ready to take necessary actions;
  - regional coordination: adoption of a proactive approach during a high-level meeting held early this month in Abidjan to mitigate potential adverse effects.

Subsection: Promoting Private Sector Development and Strengthening Debt Management
- Private sector reforms and results:
  - Senegal ranked among the five top performers in the World Bank’s Doing Business 2009 and was the top reformer globally in easing trade.
  - implemented measures: fully operational one-stop shop for business creation; streamlining of import and export procedures; introduction of a single window for customs clearance; significant improvements in infrastructure.
  - planned actions under the Accelerated Growth Strategy: revision of labor market regulations, simplification of tax procedures, development of an action plan for improved credit access.
- Debt management focus:
  - authorities exploring avenues to strengthen debt management capacity and better manage fiscal risks and guarantees;
  - sought technical expertise from the US Treasury and invited some international rating agencies to assess country risk to identify steps to reduce it.

### ESF Request
- Senegal requests Fund assistance under a one-year ESF high-access component to cope with the major BOP shock from recent oil and food price hikes.
- Justification:
  - oil and food price hikes drove double-digit annual percentage increases in the import bill over the past couple of years.
  - coupled with Fund financial assistance, reversal of revenue-reducing and costly measures (food subsidies, temporary tax suspensions on some food and energy products) is expected to mitigate adverse impacts and enhance prospects for improving the fiscal position.

### Conclusion and Requests to Directors
- Authorities view the PSI as the appropriate vehicle for policy dialogue with the IMF, signaling commitment to sound policies and advancing structural reform.
- They emphasize strong commitment to the program and forward-looking measures to prevent recurrence of recent shortcomings.
- Requests:
  - support for a one-year arrangement under the ESF high-access component;
  - waivers and modification of assessment criteria; and
  - completion of the second PSI review.

* _cr0905 - 1.              Last June, at the time of the first review of Senegal’s PSI-supported program, staff

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0905.pdf_