## _cr10165 — Executive Summary and Key Findings ## Source details **Canonical URL:** [_cr10165 — Executive Summary and Key Findings](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10165.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10165.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10165.pdf.json) --- ### I. Recent developments, outlook, and risks - Real GDP growth: - Averaged about 2 percent in 2008 and 2009. - Estimated 1½ percent in 2009. - Projected to pick up to close to 3½ percent in 2010. - Inflation: - Consumer price inflation was negative in the second half of 2009. - Expected to return gradually to its long-run trend of about 2 percent. - Fiscal and external balances: - Overall fiscal deficit widened to 5.1 percent of GDP in 2009 from 3.7 percent of GDP two years earlier. - 2009 current account deficit declined mainly due to lower energy and food imports. - Recovery indicators and shocks: - Industrial activity index and credit growth started to pick up toward year-end 2009. - Key downside risks: unexpectedly subdued external demand; financing constraints; renewed electricity supply problems; opportunistic policy changes for political reasons. - Upside risk: faster-than-expected pickup in global activity. - Notable project development: - Arcelor-Mittal suspended its US$2.2 billion projected investment in an iron ore project. ### II. Program performance and structural reforms - Quantitative criteria: - All quantitative assessment/performance criteria through end-December 2009 except the one for the (basic) fiscal balance were met. - End-2009 basic fiscal deficit was ¾ percent of GDP higher than targeted. - Fiscal drivers of the missed criterion: - Revenues fell short, mostly due to tax arrears of agencies and other public entities. - Current expenditure was higher than programmed; supplemental appropriation decrees totaling some 0.5 percent of GDP were used for emergency measures and contractual obligations (education sector). - Authorities’ corrective measures: - Increased financial monitoring of public entities in 2010. - Intention to offset future supplemental expenditures. - 2010 budget includes a contingency reserve for unforeseen current expenditure. - Issued a press statement on settlement of extrabudgetary commitments; some modalities remain to be spelled out. - Structural benchmarks (December 2009–March 2010): - 1. Stop issuing 2009 payment orders. Target Date: December 31, 2009. Status: Met. - 2. Issue press release summarizing audit results of extrabudgetary commitments and agency debt, submit government’s strategy for settling payments in first supplementary budget for 2010 to parliament no later than May 15, 2010, and settlement procedures. Target Date: January 31, 2010. Status: Partly met. - 3. Draw up an action plan to suppress tax expenditures with a significant budgetary impact, aiming to incorporate the first changes in the 2011 budget. Target Date: March 31, 2010. Status: Met. - 4. Prepare consolidated action plan to implement FSAP recommendations. Target Date: March 31, 2010. Status: Met. - Staff recommendation: - With authorities’ commitment to further public financial management reforms, staff recommends completion of the fifth PSI and the third and last ESF reviews and granting waivers of nonobservance for the assessment/performance criterion on the fiscal balance. ### III. Fiscal stance, financing plans, and adjustments - Medium-term fiscal target: - Gradually reduce fiscal stimulus to achieve a medium-term deficit target of 4 percent of GDP (and somewhat less in the long run). - 2010 financing and adjustments: - Authorities plan to tap the regional market several times in 2010. - Because of uncertainties about revenue recovery and liquidity, authorities agreed to slow expenditure (mostly investment) by about ½ percent of GDP. - Expenditure could be raised back to budgeted level later in the year if revenue collection permits or additional financing (including privatization proceeds) becomes available. - Staff encouraged updating treasury and bond issuance plans more often to minimize liquidity and financing risks. - Revised ceilings and floors: - Authorities agreed a gradual reduction in the fiscal deficit would assist meeting WAEMU convergence criteria. ### IV. WAEMU convergence indicators (selected series and projections) - Primary criteria: - Basic fiscal balance/GDP (≥ 0 percent): 2007 -1.0; 2008 -0.8; 2009 -2.8; 2010 Proj. -1.5 - Average inflation (≤ 3 percent): 2007 5.9; 2008 5.8; 2009 -1.1; 2010 Proj. 1.6 - Total debt/GDP (≤ 70 percent): 2007 24.5; 2008 25.1; 2009 32.1; 2010 Proj. 34.1 - Change in domestic arrears (≤ 0): 2007 0.0; 2008 0.0; 2009 0.0; 2010 Proj. 0.0 - Change in external arrears (≤ 0): 2007 0.0; 2008 0.0; 2009 0.0; 2010 Proj. 0.0 - Secondary criteria (selected): - Wages and salaries/fiscal revenue (≤ 35 percent) 1/: 2007 28.7; 2008 30.2; 2009 32.5; 2010 Proj. 32.3 - Domestically financed capital expenditure/fiscal revenue (≥ 20 percent): 2007 34.4; 2008 27.3; 2009 29.3; 2010 Proj. 32.9 - Current account deficit, excluding grants/GDP (≤ 5 percent): 2007 13.2; 2008 15.3; 2009 9.8; 2010 Proj. 9.8 - Fiscal revenue/GDP (≥ 17 percent): 2007 21.1; 2008 19.4; 2009 18.7; 2010 Proj. 19.4 - Note: - Regularization of extrabudgetary spending and public institution/agency debt in the May 2010 supplementary budget continues to be recorded below the line and excluded from the fiscal balance for program purposes pending finalization of modalities. To the extent that it will eventually be recorded above the line, the fiscal deficit will increase. ### V. Normalizing relations with the private sector and extrabudgetary commitments - Progress: - Past payment delays being addressed; stock of unpaid bills within regular expenditure chain kept at normal levels since mid-2009 (quantitative performance/assessment criterion on the budgetary float). - Budgetary float declined to CFAF 37 billion (⅔ percent of GDP) at end-December 2009 from CFAF 175 billion (3 percent of GDP) in October 2008; end-March 2010 float: CFAF 40 billion (below indicative ceiling CFAF 45 billion). - Commitments and targets: - Supplementary budget to be submitted to parliament by mid-May 2010 will incorporate further regularization, consistent with commitment to pay down at least 50 percent of extrabudgetary spending and public institution/agency debt by end-September 2010 (structural benchmarks). - SIGFIP budget system improvements and strengthened Treasury–public institution/agency financial relations ongoing. - Box summary — extrabudgetary spending and public institution/agency debt: - Estimated total CFAF 119 billion; CFAF 37 billion intragovernmental (taxes and social security contributions) with no impact on private sector. - Remaining CFAF 82 billion (1½ percent of GDP) vis-à-vis private sector: CFAF 35 billion was settled in 2009 and at least half of the remainder will be paid by September 2010. - Of extrabudgetary spending by ministries of CFAF 36 billion (⅔ percent of GDP) identified by the July 2009 audit, CFAF 10 billion has been regularized in the 2009 and 2010 budgets; the first supplementary budget for 2010 will regularize the remainder. - Public institution/agency debt to the private sector: CFAF 45 billion (¾ percent of GDP), two-thirds paid in late 2009; remaining one-third to be settled in 2010–11. ### VI. Public investment, infrastructure, and debt-financing stance - Investment priorities: - Extension and modernization of transport infrastructure: Blaise Diagne International Airport, Dakar-Diamniadio toll road, other road projects, modernization of port of Dakar. - Plans for special economic zone, airport conversion, road construction, water distribution and housing projects. - Financing and staff view: - December 2009 issuance: US$200 million bond with five-year maturity for Dakar-Diamniadio toll road. - Staff view: nonconcessional borrowing should remain linked to specific projects assessed as economically profitable by a reputable source; mobilize concessional or regional financing where possible; given low risk of debt distress, some space exists for nonconcessional financing if debt sustainability is not jeopardized; untied limits could become possible after PFM improves. - Investment projects should be selected and prioritized based on rigorous economic cost-benefit analyses, including maintenance costs. ### VII. Competitiveness and REER assessment - Export performance: - Weak since mid-1980s despite 1994 devaluation; ICS production improvements have slowed decline. - REER findings: - REER has appreciated over past two years; three approaches suggest modest overvaluation in some estimates but results are within normal margin of error and not conclusive. - Macroeconomic balance approach: REER overvalued by 5 percent (trade balance elasticity –0.71; current account norm 5.5–6.0 percent of GDP; underlying current account 9¼ percent of GDP). - Equilibrium exchange rate approach: REER close to equilibrium. - External sustainability approach: implies REER overvaluation of about 8 percent under certain assumptions; most recent DSA suggests larger current account deficit is sustainable given projected FDI inflows and concessional external financing. - Business environment indicators: - Global Competitiveness Report ranking: 92 out of 133 countries. - World Bank Doing Business Report 2010 ranking: 157 out of 183 countries. - CPIA: Senegal ranked 57 out of 75 low-income countries. ### VIII. Energy sector reform - Electricity supply and SENELEC: - Since 2006, frequent power shortages and blackouts; high cost and poor quality impede private investment. - SENELEC recapitalizations: 2007 CFAF 65 billion; 2008 CFAF 37 billion. - Government reform plan (with Bank and donors): restructure SENELEC’s short-term debt, fresh financing, some tax breaks on new investment, cost-recovering tariff adjustments. - SENELEC to be made financially sound on a permanent basis; medium-term unbundling expected (production, transportation, distribution). ### IX. Financial sector soundness and reform - Impact of global crisis: - Negligible direct effects on banking system; slowdown in growth led to deterioration in loan quality. - Compliance and capital: - Most banks on track to meet higher minimum capital requirements by December 2010; authorities assessing institutions likely to face difficulties. - Financial soundness indicators (selected Dec-02 to Dec-09, Percent): - Regulatory capital to risk-weighted assets: Dec-02 15.5; Dec-03 12.1; Dec-04 11.9; Dec-05 11.1; Dec-06 13.1; Dec-07 13.6; Dec-08 13.9; Dec-09 16.5 - Loans to 5 largest borrowers to capital: Dec-02 104.9; Dec-03 141.0; Dec-04 131.4; Dec-05 179.9; Dec-06 103.7; Dec-07 88.5; Dec-08 86.9; Dec-09 88.1 - Gross NPLs to total loans 1/: Dec-02 18.5; Dec-03 13.3; Dec-04 12.6; Dec-05 11.9; Dec-06 16.8; Dec-07 18.6; Dec-08 19.1; Dec-09 18.7 - NPLs net of provisions to total loans 1/: Dec-02 5.5; Dec-03 3.3; Dec-04 3.4; Dec-05 3.2; Dec-06 8.8; Dec-07 8.6; Dec-08 9.3; Dec-09 9.7 - Total deposits to total liabilities: Dec-02 78.5; Dec-03 82.0; Dec-04 79.6; Dec-05 78.3; Dec-06 75.8; Dec-07 73.6; Dec-08 70.3; Dec-09 74.9 - Number of banks: Dec-02 11; Dec-03 11; Dec-04 12; Dec-05 14; Dec-06 17; Dec-07 17; Dec-08 17; Dec-09 17 - Authorities’ action plan: - Updated consolidated financial sector action plan completed (structural benchmark), listing decisions for 2010–2011 to improve institutional, legal, and operational environment and increase bank penetration while guarding against vulnerabilities. - Initiatives include regular stress tests, monitoring of asset/liability positions, review of credit institutions likely to face difficulty complying with new rules, strengthening microfinance supervision, and measures to increase bank penetration to 20 percent by end-2012. ### X. Stress tests (authorities’ results, Dec-2009 data) - If provisioning needed to increase by 50 percent: - Global capital adequacy would deteriorate by less than 1 percentage point; no additional bank would violate minimum capital adequacy regulation. - If nonperforming loans increased by 25 percent: - Capital adequacy ratio of the banking system as a whole would be 14.5 percent (above 8 percent threshold), although a third bank would breach the regulation. ### XI. Program issues, adjusters, and structural benchmarks (May–Oct 2010) - Program risks: - Continued revenue shortfalls; liquidity shortages in the regional market; delays in domestic reforms; election-related spending pressures; need for vigilance in contracting external loans (two Ministers have signature authority). - Adjuster for the basic fiscal balance: - If privatization revenues materialize, the floor on the basic fiscal balance will be adjusted downward by up to CFAF 35 billion to sustain original spending plans and potentially support new infrastructure projects. - Structural benchmarks (selected with implementation dates and rationales): - 1. Submit a supplementary budget for 2010 to Parliament. Implementation Date: May 15, 2010 — Rationale: Complete normalization of financial relations with the private sector. - 2. Improve SIGFIP by including payroll expenditure and implementing the SIGFIP-ASTER interface. Implementation Date: July 31, 2010 — Rationale: Strengthen monitoring of budget execution. - 3. Conduct a census of all accounts of general government and public institutions. Implementation Date: July 31, 2010 — Rationale: Improve liquidity management and transparency. - 4. Complete payment of at least 50 percent of extrabudgetary arrears and public institution and agency debt identified in July 2009 audit. Implementation Date: September 30, 2010 — Rationale: Normalize relations with private sector and improve business climate. - 5. Publish press release reporting internal audit results and progress clearing commitments and debt. Implementation Date: September 30, 2010. - 6. Compile general tax code and all legislation governing domestic taxation in a single document. Implementation Date: October 15, 2010. ### XII. Debt sustainability analysis (DSA) — main findings and assumptions - Main finding: - Senegal’s external PPG debt sustainability is subject to a low risk of debt distress. - Vulnerability to permanent deterioration in borrowing terms underscores need for prudent debt management. - Inclusion of domestic debt raises debt-burden indicators but does not change overall low-risk assessment; highlights need for fiscal consolidation later. - Selected indicators and projections (selected series and projections preserved verbatim): - Gross official reserves (imputed, US$ billions): 2009 2.1; 2010 2.0; 2011 2.1; 2012 2.1; 2013 2.3; 2014 2.4; 2015 2.6. - Current account (CFAF billions): 2007 -638; 2008 -850; 2009 -524; 2010 -555; 2011 -604; 2012 -655; 2013 -710; 2014 -774; 2015 -809. - Public sector debt (percent of GDP): 24.5; 25.1; 32.1; 35.7; 38.0; 39.6; 41.0; 42.2; 42.6; 46.3; 45.8. - PV of external debt (percent of exports, selected): 166.7; 168.8; 171.6; 175.1; 177.4; 178.3; 180.3; 184.3; 179.9. - Stress-test scenarios: - Alternative scenario A2: interest rate on new external public borrowing higher by 2 percentage points than baseline; even under this, debt burden indicators remain below thresholds in baseline assessments. - Bound tests include B1 (growth shock), B2 (export shock), B6 (one-time 30 percent nominal depreciation in 2011), showing elevated ratios under adverse assumptions but baseline remains manageable. - Macroeconomic assumptions (selected): - Real GDP growth: 2009 1.5 percent; average 2010-11 3.8 percent; 2012–15 4.8 percent; over long term over 5¼ percent. - Inflation: expected to stabilize at around 2 percent. - Workers’ remittances: around 10 percent of GDP and more than 40 percent of exports over projection period. ### XIII. Staff appraisal and policy recommendations - Immediate priorities: - Accelerate structural reforms in business climate, governance, energy sector, and financial sector to boost competitiveness and growth. - Strengthen public financial management to prevent future fiscal slippages. - Swift and transparent settlement of extrabudgetary spending and agency debt to support recovery and fiscal objectives. - Fiscal strategy: - Gradually reduce fiscal stimulus to reach deficit target of 4 percent of GDP in the medium term and somewhat less in the longer run, consistent with debt sustainability. - Contain current expenditure while allowing public investment to rise over time. - Energy and financial sectors: - Implement energy sector reform plan quickly to limit supply bottlenecks and fiscal risks. - Enhance financial sector contribution to growth while guarding against vulnerabilities; consider space for greater financing by financial sector for government consistent with safeguards and prudential rules. - Program approvals: - Staff recommends granting waiver for nonobservance of fiscal-balance criterion and completion of fifth PSI and third and last ESF reviews. *Source: Executive Summary, Chapter 8, sections 19–31, Text Tables, Boxes, and MEFP excerpts as contained in the provided content.* ### Executive Summary ...................................................................................................... ### _cr10165 - Executive Summary ### I. Recent Developments and Short-term Outlook: Economic Activity May Have Bottomed Out - Recent shocks (oil, food, financial crises and domestic shocks, including temporary electricity shortages) contributed to a major loss in output. - Real GDP growth: - Averaged about 2 percent in 2008 and 2009. - Estimated 1½ percent in 2009 (Table 1). - Projected to pick up to close to 3½ percent in 2010. - Inflation: - Consumer price inflation was negative in the second half of 2009. - Expected to return gradually to its long-run trend of about 2 percent. - Fiscal balance: - Overall fiscal deficit widened to 5.1 percent of GDP in 2009 from 3.7 percent of GDP two years earlier. - Balance of payments: - 2009 current account deficit declined mainly due to lower energy and food imports; export performance outside the recovering chemicals sector was subdued. - Indicators of recovery: - Industrial activity index and credit growth to the economy started to pick up toward year-end 2009. - Key downside risks: - Unexpectedly subdued external demand. - Financing constraints limiting fiscal room for maneuver. - Renewed problems with electricity supply. - Opportunistic changes in economic policies for political reasons. - Upside risk: - Faster than expected pickup in global activity could have positive spillovers. - Notable project development: - Arcelor-Mittal suspended its US$2.2 billion projected investment in an iron ore project. ### II. Program Performance - Quantitative criteria: - All quantitative assessment/performance criteria through end-December 2009 except the one for the (basic) fiscal balance were met. - End-2009 basic fiscal deficit was ¾ percent of GDP higher than targeted (Table 7). - Fiscal developments contributing to the missed criterion: - Revenues fell short, mostly due to tax arrears of agencies and other public entities. - Current expenditure was higher than programmed despite being well below program objectives during the first 9 months of 2009. - Supplemental appropriation decrees (décrets d’avance) totaling some 0.5 percent of GDP were used to meet emergency measures and contractual obligations (education sector). - Authorities’ corrective and containment measures: - Increased financial monitoring of public entities in 2010. - Intention to offset future supplemental expenditures. - 2010 budget includes, for the first time, a contingency reserve for unforeseen current expenditure. - Issued a press statement on the settlement of extrabudgetary commitments; some modalities remain to be spelled out. - Structural reforms and benchmarks: - Structural reforms generally satisfactory; structural benchmarks for the fifth review generally met. - Text Table 1: Structural Benchmarks, December 2009–March 2010 - 1. Stop issuing 2009 payment orders. Target Date: December 31, 2009. Status: Met. - 2. Issue a press release summarizing audit results of extrabudgetary commitments and agency debt, government’s strategy for settling payments in the first supplementary budget for 2010 submitted to parliament no later than May 15, 2010, and settlement procedures. Target Date: January 31, 2010. Status: Partly met. - 3. Draw up an action plan to suppress tax expenditures with a significant budgetary impact, aiming to incorporate the first changes in the 2011 budget. Target Date: March 31, 2010. Status: Met. - 4. Prepare consolidated action plan to implement FSAP recommendations. Target Date: March 31, 2010. Status: Met. - Staff recommendation: - With the authorities’ firm commitment to further public financial management reforms, staff recommends completion of the fifth PSI and the third and last ESF reviews and granting waivers of nonobservance for the assessment/performance criterion on the fiscal balance because of corrective actions taken by the authorities. ### III. Policy Discussions: Regaining Growth Momentum - Overarching assessment: - The shocks have likely implied a permanent output loss; medium-term growth previously expected to average about 5½ percent now averaged about 2 percent for 2008–2009. - Progress toward the MDGs has been mixed; the shocks complicated PRS implementation and possibly reversed earlier gains in poverty reduction. - Authorities reaffirm commitment to PRS long-term objectives; PRSP-3 work ongoing and likely to be finalized by end of the year. - Agreed policy pillars to regain growth momentum: - Maintain supportive macroeconomic policies. - Fully and expeditiously normalize relations with the private sector. - Accelerate structural reforms to address: - Cumbersome business procedures. - Governance issues. - Frequent electricity outages. - Limited access to finance. - Competitiveness and exchange rate assessment: - Authorities and staff agreed that improving nonprice competitiveness is crucial. - In line with findings for the WAEMU, three different approaches suggest the real effective exchange rate may be modestly overvalued but estimates are within the normal margin of error. - Medium-term outlook highlights (Figures 3 and 4): - Output growth projected to be driven by services, recovery in ICS' production, and construction related to large investment projects. - Inflation projected to return to historical trends in the context of WAEMU membership absent renewed energy and food price pressures. - Current account deficit projected to be financed in part by private flows while the economy remains dependent on foreign assistance. - Fiscal balance to be contained by controlling current expenditure while allowing public investment to rise over time. ### IV. Program Issues - Ongoing program issues to address include: - Continued weaknesses in public financial management, highlighted by missed fiscal balance criterion. - Need to spell out modalities for settlement of extrabudgetary commitments and agency debt. - Continued focus on tax policy, PFM reforms, and financial sector promotion. ### V. Staff Appraisal (Summary) - Overall assessment: - In a difficult environment, program performance has been mixed on the macroeconomic front but satisfactory on the structural side. - Staff supports completion of reviews and granting of waivers for the missed fiscal assessment/criterion given corrective actions. - Major priorities for authorities: - Accelerate structural reforms in the business climate, governance, energy sector, and financial sector to boost competitiveness and growth. - Strengthen public financial management to prevent future fiscal slippages. - Normalize relations with the private sector and resolve extrabudgetary commitments and agency debt. *Source: Executive Summary (pages and tables as contained in the provided content).* ### 8. With a higher than expected fiscal deficit in 2009, financing ### 8. With a higher than expected fiscal deficit in 2009, financing ### Fiscal stance, financing plans, and program adjustment - Authorities and staff concurred that the fiscal stimulus should be gradually reduced to progressively achieve a medium-term deficit target of 4 percent of GDP (and somewhat less in the long run). - Authorities committed to reduce current expenditure and reinforce efforts to bring in more revenue (including through preparing for tax expenditure rationalization—structural benchmark). - To finance the deficit, authorities plan to tap the regional market several times this year. - It appears that tax revenues started to recover in early 2010, and regional liquidity is high. - Because of uncertainties about persistence of revenue recovery and liquidity, authorities agreed to slow expenditure (mostly investment) by about ½ percent of GDP. - Authorities and staff concurred that expenditure could be raised back to the budgeted level later in the year if revenue collection permits or additional financing (including privatization proceeds) becomes available. - Staff encouraged the authorities to update their treasury and bond issuance plans more often to minimize liquidity and financing risks. - A gradual reduction in the fiscal deficit was seen as helping Senegal meet WAEMU convergence criteria in the medium term. ### Senegal: Compliance with WAEMU Convergence Criteria (selected indicators and projections) - Primary criteria: - Basic fiscal balance/GDP (≥ 0 percent): 2007 -1.0; 2008 -0.8; 2009 -2.8; 2010 Proj. -1.5 - Average inflation (≤ 3 percent): 2007 5.9; 2008 5.8; 2009 -1.1; 2010 Proj. 1.6 - Total debt/GDP (≤ 70 percent): 2007 24.5; 2008 25.1; 2009 32.1; 2010 Proj. 34.1 - Change in domestic arrears (≤ 0): 2007 0.0; 2008 0.0; 2009 0.0; 2010 Proj. 0.0 - Change in external arrears (≤ 0): 2007 0.0; 2008 0.0; 2009 0.0; 2010 Proj. 0.0 - Secondary criteria: - Wages and salaries/fiscal revenue (≤ 35 percent) 1/: 2007 28.7; 2008 30.2; 2009 32.5; 2010 Proj. 32.3 - Domestically financed capital expenditure/fiscal revenue (≥ 20 percent): 2007 34.4; 2008 27.3; 2009 29.3; 2010 Proj. 32.9 - Current account deficit, excluding grants/GDP (≤ 5 percent): 2007 13.2; 2008 15.3; 2009 9.8; 2010 Proj. 9.8 - Fiscal revenue/GDP (≥ 17 percent): 2007 21.1; 2008 19.4; 2009 18.7; 2010 Proj. 19.4 - Sources: Senegalese authorities; and Fund staff estimates and projections. - Note: Regularization of extrabudgetary spending and public institution/agency debt in the May 2010 supplementary budget continues to be recorded below the line and excluded from the fiscal balance for program purposes pending finalization of modalities. To the extent that it will eventually be recorded above the line, the fiscal deficit will increase. ### Fully normalizing relations with the private sector - Progress exceeded expectations: past payment delays are being addressed; stock of unpaid bills within the regular expenditure chain has been kept at normal levels since mid-2009 (quantitative performance / assessment criterion on the budgetary float). - Tight monitoring and management of unpaid bills (budgetary float) is important for cash flow supervision and preventing budgetary slippages; staff emphasized better liquidity management and completion of a census of government accounts (structural benchmark). - Authorities committed to regularize remaining extrabudgetary spending and public institution/agency debt through a transparent and publicly communicated process. - Supplementary budget to be submitted to parliament by mid-May 2010 will incorporate further regularization, consistent with commitment to pay down at least 50 percent of extrabudgetary spending and public institution / agency debt by end-September 2010 (structural benchmarks). - SIGFIP budget system improvements and strengthened Treasury–public institution/agency financial relations are ongoing (structural benchmark). Box summary — extrabudgetary spending and public institution/agency debt - Estimated total CFAF 119 billion; CFAF 37 billion intragovernmental (taxes and social security contributions) with no impact on private sector. - Remaining CFAF 82 billion (1½ percent of GDP) vis-à-vis private sector: CFAF 35 billion was settled in 2009 and at least half of the remainder will be paid by September 2010. - Of extrabudgetary spending by ministries of CFAF 36 billion (⅔ percent of GDP) identified by the July 2009 audit, CFAF 10 billion has been regularized in the 2009 and 2010 budgets; the first supplementary budget for 2010 will regularize the remainder (mid-May structural benchmark). - Public institution/agency debt to the private sector: CFAF 45 billion (¾ percent of GDP), two-thirds paid in late 2009; remaining one-third to be settled in 2010–11. ### Reaping benefits of public investment and infrastructure plans - Authorities prioritizing extension and modernization of transport infrastructure with donor support: Blaise Diagne International Airport, Dakar-Diamniadio toll road, other road projects, modernization of port of Dakar. - Plans at various stages for: establishment of a special economic zone; conversion of current airport into a business complex; road construction; water distribution and housing projects. - Authorities plan a donors’ conference on infrastructure financing and will seek economic profitability assessments for projects. - Following issuance in December 2009 of a US$200 million bond with a five-year maturity for the Dakar-Diamniadio toll road, authorities inquired about additional external nonconcessional financing. - Staff view: nonconcessional borrowing should remain linked to specific projects assessed as economically profitable by a reputable source, and mobilize concessional or regional financing where possible; projects to be analyzed case by case. Given Senegal’s low risk of debt distress confirmed by the latest Bank-Fund DSA, some space exists in principle for nonconcessional financing for new infrastructure projects if debt sustainability is not jeopardized. Untied limits could become possible after PFM improves. - Investment projects should be selected and prioritized based on rigorous economic cost-benefit analyses, including maintenance costs, to raise productivity of government spending and improve PEFA and CPIA outcomes. ### Price and structural competitiveness; REER assessment - Senegal’s export performance has been weak since mid-1980s despite a 1994 devaluation; recent production improvements at ICS (phosphoric acid) have slowed the decline in export share. - REER has appreciated over the past two years, but there is no conclusive evidence of overvaluation; consistent with a regional external stability assessment finding WAEMU REER not misaligned. - Three complementary approaches used to assess REER misalignment (Box 3): - Macroeconomic balance: current account deficit “norm” estimated at 5.5–6.0 percent of GDP; “underlying” current account deficit estimated at 9¼ percent of GDP; assuming trade balance elasticity –0.71, difference indicates REER overvalued by 5 percent. - Equilibrium exchange rate: comparison indicates REER close to its equilibrium. - External sustainability: assuming negative net international investment position of 50 percent of GDP, current account deficit norm about 3.5 percent of GDP, implying REER overvaluation of about 8 percent; most recent DSA suggests larger current account deficit is sustainable given projected FDI inflows and concessional external financing. - To improve competitiveness, Senegal needs a better business environment and enhanced governance. - Global Competitiveness Report ranking improved but Senegal still ranks 92 out of 133 countries; weaknesses include: (i) higher education and training; (ii) labor market efficiency; (iii) financial market sophistication; (iv) market size; and (v) health and primary education. - World Bank Doing Business Report 2010 ranking: 157 out of 183 countries; highlighted weaknesses in hiring workers, registering property, protecting investors, and paying taxes. - CPIA: Senegal ranked 57 out of 75 low-income countries; areas for improvement include social protection and labor, quality of budget and financial management, and transparency, accountability, and corruption control in the public sector. ### Energy sector reform - Since 2006, power shortages and blackouts have been frequent; high cost and poor quality of electricity impede private investment. - SENELEC recapitalizations: 2007 CFAF 65 billion; 2008 CFAF 37 billion. - Persistent technical failures lead to higher production costs, fuel supply constraints, delays in energy-saving measures, tax arrears, and weaknesses in internal governance. - Government reform plan (with Bank and donors) includes restructuring SENELEC’s short-term debt, fresh financing, some tax breaks on new investment, and cost-recovering tariff adjustments. - SENELEC needs to be made financially sound on a permanent basis; future unbundling expected: electricity production, transportation, and distribution to be separated. ### Financial sector reform and system soundness - Global crisis had negligible direct effects on the banking system, but sector affected by slowdown in economic growth; bank loan quality deteriorated due to domestic conditions. - Compliance with prudential requirements has historically been mixed; most banks on track to meet higher minimum capital requirements by December 2010. - Authorities assessing credit institutions likely to face difficulties complying with new rules and proposing targeted measures. - Some private sector participants suggested reviewing certain prudential requirements (e.g., on maturity matching of assets and resources) that may be too conservative. - Financial Soundness Indicators for the Banking Sector, 2002–09 (Percent): - Regulatory capital to risk-weighted assets: Dec-02 15.5; Dec-03 12.1; Dec-04 11.9; Dec-05 11.1; Dec-06 13.1; Dec-07 13.6; Dec-08 13.9; Dec-09 16.5 - Loans to 5 largest borrowers to capital: Dec-02 104.9; Dec-03 141.0; Dec-04 131.4; Dec-05 179.9; Dec-06 103.7; Dec-07 88.5; Dec-08 86.9; Dec-09 88.1 - Gross NPLs to total loans 1/: Dec-02 18.5; Dec-03 13.3; Dec-04 12.6; Dec-05 11.9; Dec-06 16.8; Dec-07 18.6; Dec-08 19.1; Dec-09 18.7 - NPLs net of provisions to total loans 1/: Dec-02 5.5; Dec-03 3.3; Dec-04 3.4; Dec-05 3.2; Dec-06 8.8; Dec-07 8.6; Dec-08 9.3; Dec-09 9.7 - NPLs net of provisions to capital 1/: Dec-02 30.7; Dec-03 27.8; Dec-04 25.1; Dec-05 27.2; Dec-06 67.9; Dec-07 60.7; Dec-08 63.9; Dec-09 62.3 - Total deposits to total liabilities: Dec-02 78.5; Dec-03 82.0; Dec-04 79.6; Dec-05 78.3; Dec-06 75.8; Dec-07 73.6; Dec-08 70.3; Dec-09 74.9 - Number of banks and compliance metrics (Dec-02 to Dec-09): Minimum capital, capital adequacy, large exposures and concentration, liquidity, transformation (stable resources)—varying compliance levels; Number of Banks: Dec-02 11; Dec-03 11; Dec-04 12; Dec-05 14; Dec-06 17; Dec-07 17; Dec-08 17; Dec-09 17. - Sources for banking data: BCEAO and BC-WAMU. - Notes: - 1/ Changes in 2006 due to ICS. It was recapitalized in 2008 but past provisions remain in place. - Definitions: 1/ Capital equity > CFAF 1 billion. 2/ Regulatory capital/risk-weighted assets > 8 percent. 3/ (i) Loans to a single borrower/regulatory capital < 75 percent; (ii) Sum of all risks reaching 25 percent of regulatory capital < 8 times regulatory capital. 4/ Assets with residual term of less than 3 months/liabilities with residual term of less than 3 months > 75 percent. 5/ Resources with residual term of more than 2 years /assets with residual term of more than two years > 75 percent. *Source: IMF staff report content (chapter 8).* ### 19. Stress tests by the authorities suggest the banking system may have some resilience ### 19. Stress tests by the authorities suggest the banking system may have some resilience ### Stress test findings - Based on December 2009 data, if provisioning needed to increase by 50 percent, the global capital adequacy of the banking system would deteriorate by less than 1 percentage point, and no additional bank would violate the regulation on the minimum capital adequacy ratio. - If nonperforming loans increased by 25 percent, the capital adequacy ratio of the banking system as a whole would be 14.5 percent, well above the 8 percent threshold, although a third bank would breach the regulation. ### Financial sector structure and indicators (Figure 6 summary) - Capital Adequacy Ratio (%; Minimum Standard = 8) — overall, the banking sector appears well capitalized. - Loans to the 5 Largest Borrowers (% of capital) — loan concentration is high. - Credit to the Economy (% of GDP) — the banking market shows gradual deepening; credit to the economy remains limited. - Non-Performing Loans (% of total loans) and NPLs net of provisions — non-performing loans are high. - Maturity of the Banking Sector's Assets (% of total assets, end-2008) — banks’ asset maturity is relatively short. - Access to Credit indicators (Doing Business 2010 and related indices): Strength of Legal Rights Index (0-10), Credit Information Index (0-6), Borrowers Covered by Public Registry (% of adults), Borrowers Covered by Private Registry (% of adults) — surveys identify inadequate access to finance as the leading constraint to private sector development in Senegal. ### Authorities’ response and action plan - Authorities completed an updated consolidated financial sector action plan (completed structural benchmark), taking into account progress since the 2004 national FSAP and the 2007 regional FSAP. - The action plan lists decisions to be taken in 2010–2011 to improve the institutional, legal, and operational environment of the financial sector, including increasing the rate of bank penetration while guarding against vulnerabilities. - Surveys of firms identify inadequate access to finance as the leading constraint to private sector development in Senegal. ### Program issues and fiscal adjuster - The appended Letter of Intent and accompanying Memorandum of Economic and Financial Policies outline the authorities’ policy objectives for the remainder of 2010. - Quantitative assessment criteria for end-June 2010 are shown in Table 1 and structural measures in Table 2 of Appendix I (see also Text Table 2). The thrust of the structural measures remains unchanged. - The program includes an adjuster for the basic fiscal balance if additional privatization revenues materialize: the floor on the basic fiscal balance will be adjusted downward by up to CFAF 35 billion to sustain original spending plans and potentially support new infrastructure projects next year’s budget. - Program risks include continued revenue shortfalls, liquidity shortages in the regional market, delays in implementing domestic reforms, institutional and policy changes in the run-up to elections intensifying spending pressures, and the need for increased vigilance with contracting of external loans (two Ministers have signature authority for external loans). ### Structural benchmarks, May–October 2010 (Text Table 2) - 1. Submit a supplementary budget for 2010 to Parliament... Implementation Date: May 15, 2010 — Macroeconomic Rationale: Complete the normalization of financial relations with the private sector. - 2. Improve SIGFIP by including payroll expenditure and implementing the SIGFIP-ASTER interface. Implementation Date: July 31, 2010 — Macroeconomic Rationale: Strengthen the monitoring of budget execution. - 3. Conduct a census of all accounts of general government and public institutions... Implementation Date: July 31, 2010 — Macroeconomic Rationale: Improve liquidity management and the transparency of operations. - 4. Complete payment of at least 50 percent of extrabudgetary arrears and public institution and agency debt identified in the July 2009 audit. Implementation Date: September 30, 2010 — Macroeconomic Rationale: Complete normalization of financial relations with the private sector and improve the business climate. - 5. Publish a press release reporting on the results of the internal audit... Implementation Date: September 30, 2010 — Macroeconomic Rationale: Complete normalization of financial relations with the private sector and improve the business climate. - 6. Compile the general tax code and all legislation governing domestic taxation in a single document. Implementation Date: October 15, 2010 — Macroeconomic Rationale: Further simplify the tax system. ### Key medium-term policy issues (Box 4) - Accelerate growth, reduce vulnerabilities to shocks, and protect the most vulnerable. - Continued PFM reforms: further public financial management reforms remain essential for more effective expenditure planning and control. - Raising tax revenues: authorities aim to increase tax revenues above 20 percent of GDP through strengthening tax and customs administrations, rationalizing tax expenditure, and other tax reform measures. - Expenditure composition and quality of spending: improve investment planning and develop a well-developed debt management strategy to support public investment and infrastructure development. - Private sector development: reforms to support private sector development — including business climate and governance — are essential; the energy and financial sectors need to play a supportive role. ### Staff appraisal and recommendations - Growth is projected to reach 3½ percent in 2010, driven by a pick-up in external demand and supportive domestic economic policies. - While risks of debt distress are low, the authorities will need to gradually reduce the fiscal stimulus to reach a deficit target of 4 percent of GDP in the medium term and somewhat less in the longer run, consistent with debt sustainability. - A swift and transparent settlement of extrabudgetary spending and agency debt is essential to support the recovery and fiscal objectives of raising growth-enhancing public investments and sheltering priority spending. - Raising Senegal’s growth potential requires faster action on plans to improve nonprice competitiveness through a better business climate and governance; in the energy sector the plan needs to be implemented quickly to limit supply bottlenecks and fiscal risks. - The contribution of the financial sector to growth needs to be enhanced; the financial sector action plan highlights improving the institutional, legal, and operational environment while guarding against vulnerabilities and examining the space for greater financing by the financial sector of the government. - The staff recommends that the waiver for the nonobservance of the performance/assessment criterion on the fiscal balance be granted and the fifth review of the PSI and the third and last review of the ESF arrangement be completed. - The 2010 budget includes a contingency reserve; the authorities are committed to offsetting any increase in expenditure related to supplemental appropriation decrees (décrets d’avance) by reducing nonpriority spending. *Source: IMF staff report text (sections 19–29, Text Table 2, Box 4).* ### 31. It is recommended that the next Article IV consultation take place within ### _cr10165 - 31. It is recommended that the next Article IV consultation take place within ### National income and prices - GDP at constant prices (annual percentage change): 2007 4.8; 2008 2.3; 2009 1.5; 2010 3.4; 2011 3.4; 2012 4.1; 2013 4.5; 2014 4.7; 2015 4.9; (Proj.) 5.0. - Nonagriculture GDP (annual percentage change): 2007 6.3; 2008 1.1; 2009 1.1; 2010 3.4; 2011 3.4; 2012 4.1; 2013 4.6; 2014 4.8; 2015 5.0; (Proj.) 5.1. - GDP deflator: 2007 5.4; 2008 7.3; 2009 -0.5; 2010 2.1; 2011 2.1; 2012 2.1; 2013 2.1; 2014 2.1; 2015 2.1. - Consumer prices (annual average): 2007 5.9; 2008 5.8; 2009 -1.1; 2010 8.1; 2011 6.1; 2012 2.1; 2013 2.1; 2014 2.1; 2015 2.1. - Consumer prices (end of period): 2007 6.2; 2008 4.3; 2009 -2.2; 2010 2.2; 2011 2.2; 2012 2.1; 2013 2.1; 2014 2.1; 2015 2.1. ### External sector and balance of payments - Exports, f.o.b. (CFA francs, percent change): 2007 -3.7; 2008 23.0; 2009 -15.2; 2010 14.6; 2011 17.6; 2012 9.3; 2013 7.1; 2014 8.4; 2015 7.5; (Proj.) 7.5. - Imports, f.o.b. (CFA francs, percent change): 2007 19.5; 2008 25.8; 2009 -20.4; 2010 10.8; 2011 10.3; 2012 6.7; 2013 7.1; 2014 7.9; 2015 7.9; (Proj.) 6.7. - Export volume (percent change): 2007 6.1; 2008 -14.6; 2009 9.9; 2010 10.5; 2011 5.2; 2012 5.9; 2013 6.0; 2014 6.6; 2015 6.2; (Proj.) 5.9. - Import volume (percent change): 2007 21.5; 2008 11.3; 2009 -5.3; 2010 5.3; 2011 5.1; 2012 4.6; 2013 4.9; 2014 6.7; 2015 6.4; (Proj.) 6.5. - Terms of trade ("–" = deterioration): 2007 -2.9; 2008 12.2; 2009 -1.0; 2010 -1.6; 2011 4.8; 2012 1.7; 2013 0.9; 2014 0.7; 2015 0.1; (Proj.) 0.7. - Balance of payments (CFAF billions, selected): Current account: 2007 -638; 2008 -850; 2009 -524; 2010 -555; 2011 -604; 2012 -655; 2013 -710; 2014 -774; 2015 -809. - Balance on goods (CFAF billions): 2007 -1,193; 2008 -1,523; 2009 -1,159; 2010 -1,217; 2011 -1,274; 2012 -1,365; 2013 -1,468; 2014 -1,589; 2015 -1,686. - Exports, f.o.b. (CFAF billions): 2007 803; 2008 988; 2009 838; 2010 985; 2011 1,076; 2012 1,153; 2013 1,250; 2014 1,343; 2015 1,443. - Imports, f.o.b. (CFAF billions): 2007 -1,996; 2008 -2,510; 2009 -1,997; 2010 -2,202; 2011 -2,350; 2012 -2,518; 2013 -2,717; 2014 -2,931; 2015 -3,129. - Unrequited current transfers (net, CFAF billions): 2007 618; 2008 754; 2009 699; 2010 718; 2011 732; 2012 753; 2013 773; 2014 830; 2015 892. - Capital and financial account (CFAF billions): 2007 690; 2008 745; 2009 707; 2010 523; 2011 622; 2012 688; 2013 768; 2014 852; 2015 915. - Gross official reserves (imputed, US$ billions): 2007 1.6; 2008 1.5; 2009 2.1; 2010 2.0; 2011 2.1; 2012 2.1; 2013 2.3; 2014 2.4; 2015 2.6. - Current account balance (percent of GDP): Including current official transfers: 2009 -11.8; 2010 -14.3; 2011 -8.7; 2012 -8.7; 2013 -9.0; 2014 -9.1; 2015 -9.2; (Proj.) -9.4; (Proj.) -9.2. Excluding transfers: 2009 -13.2; 2010 -15.3; 2011 -9.8; 2012 -9.8; 2013 -9.9; 2014 -10.0; 2015 -10.2; (Proj.) -10.3; (Proj.) -10.1. - Gross domestic product (CFAF billions): 2007 5,405; 2008 5,935; 2009 5,999; 2010 6,336; 2011 6,345; 2012 6,742; 2013 7,197; 2014 7,696; 2015 8,241; (Proj.) 8,836. ### Money and credit; monetary survey - Net domestic assets (percent change of beginning-of-year broad money): 2007 8.6; 2008 6.2; 2009 6.1; 2010 13.0; 2011 10.1; 2012 10.0; 2013 9.0; 2014 9.2; 2015 10.5; (Proj.) 7.3. - Domestic credit (percent change): 2007 11.5; 2008 7.3; 2009 6.8; 2010 13.4; 2011 10.0; 2012 10.3; 2013 9.2; 2014 9.4; 2015 10.7; (Proj.) 7.6. - Credit to government (net, percent change): 2007 4.9; 2008 -3.5; 2009 4.2; 2010 8.3; 2011 4.7; 2012 4.2; 2013 3.0; 2014 2.8; 2015 3.9; (Proj.) 0.8. - Credit to the economy (percentage growth): 2007 10.5; 2008 17.2; 2009 3.6; 2010 7.5; 2011 7.8; 2012 9.4; 2013 9.7; 2014 10.4; 2015 11.0; (Proj.) 11.1. - Broad money (M2, CFAF billions): 2007 1,553; 2008 1,751; 2009 1,973; 2010 2,007; 2011 2,219; 2012 2,459. ### Government financial operations (levels and percent of GDP) - Total revenue and grants (CFAF billions): 2011 Prog./Est. 1,277/1,293; 2012 Prog. 1,323; 2013 Est./Prog. 1,303/1,390; 2014 Prog. 1,380; 2015 1,472; later years up to 2,012 (Proj.). - Revenue (CFAF billions): 2011 1,139; 2012 1,153; 2013 1,160; 2014 1,121; 2015 1,242; later years rising to 1,816 and 1,861. - Tax revenue (CFAF billions): 2011 1,088; 2012 1,088; 2013 1,125; 2014 1,084; 2015 1,199; later years up to 1,735. - Grants (CFAF billions): 2011 138; 2012 140; 2013 162; 2014 182; 2015 148; 2016 onward variable. - Total expenditure and net lending (CFAF billions): 2011 Prog./Est. 1,491/1,579; 2012 1,592; 2013 1,623; 2014 1,703; 2015 1,668; later years rising to 2,363. - Current expenditure (CFAF billions): 2011 881; 2012 979; 2013 957; 2014 993; 2015 989; later years up to 1,367. - Wages and salaries (CFAF billions): 2011 327; 2012 348; 2013 370; 2014 364; 2015 397; later years to 530. - Interest due (CFAF billions): 2011 34; 2012 39; 2013 48; 2014 41; 2015 53; later years around 62–97. - Capital expenditure (CFAF billions): 2011 605; 2012 595; 2013 633; 2014 627; 2015 713; later years up to 996. - Primary fiscal balance (percent of GDP): 2007 -3.3; 2008 -4.2; 2009 -3.7; 2010 -4.7; 2011 -4.1; 2012 -3.7; 2013 -3.4; 2014 -3.0; 2015 -3.0; (Proj.) -3.0/-2.9. - Overall fiscal balance (payment order basis, excluding grants, percent of GDP): 2007 -6.2; 2008 -7.0; 2009 -7.2; 2010 -8.1; 2011 -7.3; 2012 -6.9; 2013 -6.5; 2014 -6.2; 2015 -6.2; (Proj.) -6.2. - Overall fiscal balance (including grants, percent of GDP): 2007 -3.7; 2008 -4.6; 2009 -4.5; 2010 -5.1; 2011 -4.9; 2012 -4.5; 2013 -4.3; 2014 -4.0; 2015 -4.0; (Proj.) -4.0. - Basic fiscal balance (percent of GDP): 2007 -1.0; 2008 -0.8; 2009 -2.8; 2010 -1.9; 2011 -1.9; 2012 -1.1; 2013 -0.8; 2014 -0.8; 2015 -0.7; (Proj.) -0.7. - Financing (percent of GDP): 2007 3.7; 2008 4.6; 2009 4.5; 2010 5.1; 2011 4.9; 2012 4.5; 2013 4.3; 2014 4.0; 2015 4.0; (Proj.) 4.0. - External financing (percent of GDP): 2007 2.4; 2008 3.8; 2009 4.9; 2010 4.1; 2011 3.0; 2012 3.0; 2013 3.0; 2014 2.9; 2015 2.9; (Proj.) 2.5/3.2. - Domestic financing (percent of GDP): 2007 1.1; 2008 2.1; 2009 0.3; 2010 2.5; 2011 2.9; 2012 1.6; 2013 1.4; 2014 1.1; 2015 1.0; (Proj.) 1.5/0.3. - Memorandum: Priority expenditure (percent of total expenditure) 2007 32; 2008 33; 2009 34; 2010 34; 2011 35; 2012 35. ### Public debt and debt service - Central government domestic debt (year-end, CFAF billions): 2007 6.6; 2008 5.3; 2009 8.1; 2010 7.0; 2011 8.6; 2012 10.2; 2013 11.1; 2014 11.9; 2015 13.3; (Proj.) 13.0. - External public debt (nominal) after HIPC and MDRI (CFAF billions): 2007 17.9; 2008 19.8; 2009 24.0; 2010 26.1; 2011 27.1; 2012 27.8; 2013 28.5; 2014 29.1; 2015 28.9; (Proj.) 29.6. - External public debt service: percent of exports: 2007 3.4; 2008 2.8; 2009 3.8; 2010 4.2; 2011 4.8; 2012 6.6; 2013 6.3; 2014 6.0; 2015 9.4; (Proj.) 5.2. - External public debt service: percent of government revenue: 2007 4.2; 2008 3.8; 2009 4.8; 2010 4.8; 2011 6.2; 2012 8.5; 2013 8.0; 2014 7.6; 2015 11.8; (Proj.) 6.5. ### Financial sector soundness (banking indicators) - Capital to risk-weighted assets (Dec. series): 1990 16.0; 1995 11.7; 2000 11.5; 2005 10.8; 2006 12.9; 2007 13.5; 2008 13.8; 2009 16.3. - Gross NPLs to total loans: 2002 18.5; 2003 13.3; 2004 12.6; 2005 11.9; 2006 16.8; 2007 18.6; 2008 19.1; 2009 18.7. - Provisions to NPLs: 2002 70.5; 2003 75.3; 2004 75.7; 2005 75.4; 2006 52.0; 2007 53.8; 2008 51.5; 2009 53.1. - NPLs net of provisions to total loans: 2002 5.5; 2003 3.3; 2004 3.4; 2005 3.2; 2006 8.8; 2007 8.6; 2008 9.3; 2009 9.7. - Average interest margin: 2002 7.6; 2003 6.7; 2004 7.9; 2005 7.9; 2006 8.9; 2007 9.2; 2008 9.4; 2009 11.1. - After-tax return on average assets: 2002 1.8; 2003 1.8; 2004 1.8; 2005 1.6; 2006 1.6; 2007 1.6; 2008 1.4. - Total deposits to total liabilities: 2002 78.5; 2003 82.0; 2004 79.6; 2005 78.3; 2006 75.8; 2007 73.6; 2008 70.3; 2009 74.9. ### Quantitative assessment criteria, performance criteria and indicative targets (2009–10) - Reported assessments (selected): Floor on the basic fiscal balance (cumulative since beginning of year): Indicative target -1/ -119 -168; Status Not met for March 2010; -30 37 Met (table entries preserved as in source). - Ceiling on contracting or guaranteeing new nonconcessional external debt by the government: Indicative target 3/4/90 5/87 5/Met0 6/0 Met (table entries preserved verbatim). - Ceilings on spending undertaken outside normal and simplified procedures, government external payment arrears, amount of the float, and quarterly ceilings on single-tender public contracts reported with met/not met statuses as in source. ### Indicators of capacity to repay the Fund (2008–20 projections) - Obligations to the Fund from existing drawings (SDR millions, principal): 2009 0.0; 2010 0.4; 2011 2.1; 2012 3.5; 2013 3.5; 2014 11.6; 2015 20.9; 2016 19.2; 2017 17.8; 2018 17.8; 2019 9.7; 2020 0.0. - Total Fund credit outstanding (millions of SDRs): 2009 106.3; 2010 138.3; 2011 136.3; 2012 132.8; 2013 129.3; 2014 117.8; 2015 93.6; 2016 68.0; 2017 43.7; 2018 19.4; 2019 3.2; 2020 0.0. - Total existing and prospective obligations to the Fund (millions of U.S. dollars): 2009 0.3; 2010 0.6; 2011 3.3; 2012 5.9; 2013 5.9; 2014 18.3; 2015 37.5; 2016 39.7; 2017 37.5; 2018 37.4; 2019 24.9; 2020 5.0. - Memorandum: Exports of goods and services (millions of US$) series and debt service (millions of US$) series are provided for 2009–20 as in the source. ### Millennium Development Goals and social indicators (selected WDI figures) - Employment to population ratio, 15+, total (%): 1990 67; 1995 67; 2000 66; 2005 65; 2008 66. - GDP per person employed (annual % growth): 1990 -2; 1995 30; 2000 31. - Income share held by lowest 20%: 1990 3.5; 1995 6.5; 2000 6.6; 2005 6.2. - Malnutrition prevalence, weight for age (% of children under 5): 1995 21.9; 2000 20.3; 2005 14.5. - Poverty headcount ratio at $1.25 a day (PPP) (% of population): 1990 66; 1995 54; 2000 44; 2005 34. - Literacy rate, youth female (% ages 15-24): 1990 28; 2000 41; 2005 45; 2008 45. - Primary completion rate, total (% of cohort): 2005 63; 2008 53. - Immunization, measles (% of children ages 12-23 months): 1990 51; 1995 80; 2000 48; 2005 74; 2008 84. - Mortality rate, infant (per 1,000 live births): 1990 72; 1995 72; 2000 66; 2005 61; 2008 59. - Fertility rate, total (births per woman): 1990 6.7; 1995 6.1; 2000 5.6; 2005 5.2; 2008 5.0. - GNI per capita, Atlas method (current US$): 2008 800; 2005 970 (figures in source). - Population, total (millions): 1990 7.5; 1995 8.7; 2000 9.9; 2005 11.3; 2008 12.2. - Trade (% of GDP): 1990 57.6; 1995 68.2; 2000 65.1; 2005 69.5; 2008 72.4. ### Appendix I: Letter of Intent - Letter of Intent dated May 7, 2010, addressed to the Managing Director, IMF (first lines preserved as in source). *Sources: Senegalese authorities; BCEAO; Central Bank of West African States; and IMF staff estimates and projections (tables and notes as presented in the source PDF).* ### 1. The attached Memorandum of Economic and Financial Policies (MEFP) reviews ### _cr10165 - 1. The attached Memorandum of Economic and Financial Policies (MEFP) reviews ### Introduction - Updates Senegal’s economic program under the three-year Policy Support Instrument (PSI) for the period 2007–2010 and the Exogenous Shocks Facility (ESF) arrangement approved in December 2008. - PSI program focuses on: - following a prudent fiscal policy and avoiding a recurrence of payment delays; - strengthening governance and transparency; - promoting private sector activity; - enhancing the contribution of the financial sector to the economy. - Government objectives: preserve macroeconomic stability, foster good fiscal management and governance, strengthen private-sector-driven growth, and make rapid progress toward the Millennium Development Goals (MDGs). - Attachment components: Memorandum of Economic and Financial Policies (MEFP) and Technical Memorandum of Understanding (TMU). ### Recent economic developments and program performance - Growth and activity: - Real GDP growth estimated at around 1½ percent in 2009. - General activity index (excluding agriculture and government) was flat for most of 2009 (year-on-year) with a modest upturn in the last quarter. - Primary sector performed relatively robustly due to favorable climatic conditions and a more dynamic agricultural policy. - Secondary sector: Industries Chimiques du Sénégal (ICS) recovering but faced significantly lower export prices. - Tertiary sector results were poor. - Energy and inflation: - Financial and operational difficulties of SENELEC caused repeated power cuts harmful to production and investment. - Inflation (CPI, year-on-year) negative since May 2009 due to declines in food and energy prices. - External sector: - External current account deficit estimated to have improved compared to 2008, primarily from the decline in oil and food prices. - Quantitative program outcomes (end-December 2009 / end-March 2010): - Basic fiscal deficit: exceeded ceiling by 0.8 percent of GDP. - Basic fiscal deficit at end-December 2009: CFAF 168 billion. - Program ceiling: CFAF 119 billion. - Causes: lower-than-anticipated tax revenues from public entities (tax arrears) and higher current spending to meet urgent needs; some expenditures based on supplemental appropriation decrees; higher spending on items without firm spending limits (telephone, electricity, water). - Capital spending reached 10½ percent of GDP in 2009. - Government will limit supplemental appropriation decrees, better estimate non-firm-limit spending, and offset overruns by reducing nonpriority spending. Government requests a waiver for exceeding the ceiling on the fiscal deficit. - Budgetary float: - Declined to CFAF 37 billion (⅔ percent of GDP) at end-December 2009 from CFAF 175 billion (3 percent of GDP) in October 2008. - At end-March 2010, budgetary float: CFAF 40 billion (below indicative ceiling CFAF 45 billion). - External arrears: government did not accumulate any external payment arrears. - International bond issue (December 2009): US$200 million (CFAF 87 billion) to finance Dakar-Diamniadio highway; authorized under program for up to CFAF 90 billion; issue oversubscribed; five-year bond nominal interest rate 8.75 percent and effective interest rate 9.25 percent. - Treasury advances: no Treasury cash advances approved since end-2008; budget executed according to normal and simplified procedures. - Supplemental appropriation decrees in 2009 established new appropriations totaling CFAF 30 billion (about half used to finance wages of contractual education sector workers). - Procurement: single-tender contracts limited to 6 percent of government procurement in Q4 2009 and 15 percent in Q1 2010 (program ceiling 20 percent). - Structural benchmarks and reforms: - Budget execution and accounting closure rules respected: cutoff for commitments November 30; complementary administrative period ended December 31; Treasury suspense accounts closed by end-February; fiscal year 2009 SIGFIP data finalized April 30, 2010. - Transparency: provisional end-of-month SIGFIP and TOFE published on Ministry website 10 and 45 days after month end respectively, beginning with November 2009 TOFE and end-December 2009 SIGFIP. - Audit and extrabudgetary obligations: - IGF external audit (completed June 2009) identified extrabudgetary spending CFAF 37 billion and public agency/institution debt CFAF 67 billion as of December 31, 2008. - Government issued press release summarizing audit results and general strategy for settling payments in the first supplementary budget for 2010 (structural benchmark, January 31, 2010). - More time needed to determine amounts and terms for settlement; some agency debt paid and some extrabudgetary spending incorporated into the budget. - Tax expenditures: study revealed tax expenditures and exemptions could exceed 3 percent of GDP; government established plan of action to identify eliminable measures and necessary legislative/regulatory amendments (structural benchmark, March 2010). - Financial sector reform: government reviewed progress since 2004/2007 FSAPs; action plan prepared (structural benchmark, end-March 2010) covering banking and insurance, microfinance, cash flow management, legal framework, and access to financial services. - Supplementary budget commitment: submit to Parliament no later than May 15, 2010 (structural benchmark); it will include line items to settle extrabudgetary arrears and part of audited public institution and agency debt; debts not requiring allocation will be presented in an annex. ### Macro outlook and risks (remainder of 2010 and 2011) - 2010 growth and inflation projections: - Growth expected: about 3½ percent in 2010. - Inflation expected to return to about 2 percent as oil prices recover. - Risks and priorities: - High uncertainties: a more subdued international recovery could slow remittances, official development assistance, exports, and foreign direct investment, negatively affecting growth. - Continued energy sector reform essential to minimize risks from repeated power cuts. ### Fiscal and financial policy stance and commitments - 2010 budget trade-offs: - Objectives: support overall demand, protect priority spending, ensure debt sustainability. - To offset revenue shortfall and financing constraints, the budget deficit (including grants) will be reduced by restricting spending for a total amount of CFAF 35 billion; social ministries (education and health) not affected. - Overall budget deficit (including grants) projected at about 4½ percent of GDP in 2010 (slightly below level foreseen during last review). - Revised ceiling for basic fiscal deficit in 2010: CFAF 97 billion. - Assessment criterion: CFAF 49 billion at end-June 2010. - Contingency for privatization receipts: if privatization receipts occur in 2010, spending reinstated up to initial budget level and basic fiscal deficit ceiling may be raised by up to CFAF 35 billion. - Extrabudgetary arrears and agency debt settlement: - Supplementary budget based on IMF-staff macro framework to be submitted to Parliament no later than May 15, 2010 along with press release. - Precise assessment: extrabudgetary expenditure remaining to be cleared: CFAF 30 billion; public institution and agency debt to the private sector remaining: CFAF 16 billion. - Commitment: at least 50 percent of these amounts will be cleared by end-September 2010 (structural benchmark, end-September 2010). - Government to request another internal audit by Office of the Inspector-General of Finance to verify no new extrabudgetary commitments or new public institution and agency debt have been accumulated since end-2008; audit will assess debt level at end-2009. - Government will publish a new press release at end-September 2010 reporting audit results and progress in clearing commitments and debt (structural benchmark, end-September 2010). - Expenditure composition and medium-term fiscal stance: - Social spending share: increase from 33 percent of total spending in 2008 to almost 35 percent in 2010; government intends to increase to 40 percent of GDP in the near future (initial PRSP target for 2010 was overly ambitious). - Current expenditure on goods and services and transfers will be reduced as a percentage of GDP in 2010 to free resources for higher domestically financed capital expenditure. - Medium-term fiscal targets: - Limit overall fiscal deficit to 4 percent of GDP over the medium term. - Approximately 3.5 percent of GDP in the longer term. - Semiannual public debt sustainability analysis will include risk assessment for contingent liabilities from government guarantees to Public-Private Partnerships (PPPs) and public enterprise operations. ### Program review, financing request, and consultations - Program reviews and expirations: - ESF arrangement expires on June 18, 2010. - PSI expires on November 1, 2010. - Government requests completion of the fifth review under the PSI and the third and final review under the ESF arrangement with a disbursement of SDR 32.36 million. - Expected completion of the sixth and final review under the PSI by end-October, 2010. - Government intends to examine with IMF staff the possibility of another program during the next review mission. - Information and consultation commitments: - Government will promptly take additional measures necessary to achieve program objectives and will consult with the IMF—at its own initiative or whenever the Managing Director requests—before adopting such measures or policy changes. - Government will provide IMF with information requested on progress in implementing policies and achieving program objectives. - Publication authorization: - Government authorizes the IMF to publish this letter, the attached MEFP, and the related Staff Report (which includes Article IV consultation report and Debt Sustainability Analysis). *Source: Memorandum of Economic and Financial Policies (MEFP), Dakar, May 7, 2010.* ### 13. To ensure debt sustainability, the government will continue to favor ### _cr10165 - 13. To ensure debt sustainability, the government will continue to favor ### Debt sustainability and external borrowing - Government policy: continue to favor concessional financing and, in general, will not contract or guarantee any new external borrowing on nonconcessional terms. - Consultation requirement: the government will consult with IMF staff in advance regarding any exceptions. - Guidance on nonconcessional borrowing: should be guided by debt sustainability considerations and linked to specific economically profitable projects for which sufficient external concessional financing or domestic and regional financing could not be mobilized. - Infrastructure projects: government working on new large infrastructure projects, including the extension of the Dakar-Diamniadio highway, with economic profitability assessments planned before the next PSI review so concessional, domestic, and regional financing may be supplemented, if necessary, with other nonconcessional resources as a last resort. - Condition on nonconcessional financing: must be linked to economically profitable projects evaluated by a reliable entity such as the World Bank and should not jeopardize debt sustainability. ### Structural reforms — Budget reforms and public financial management - Commitment: continue ambitious budget reforms supported by IMF technical assistance and the PEFA report to enhance budget efficiency and transparency and protect macroeconomic stability. - Supplemental appropriations: endeavor to limit recourse to supplemental appropriation decrees; maintain budgeted spending by offsetting overruns with equivalent reductions elsewhere; transmit all supplemental appropriation decrees to Parliament in a timely manner; ratify supplemental appropriation decrees in the following initial or supplementary budget in accordance with law. - Preventing agency debt: - Place accountants in public institutions and agencies to track budget execution and report liquidity to the Treasury. - Ensure timely processing (no later than 90 days after the Treasury receives the check) of transfers to Treasury correspondents’ accounts and/or payments to enterprises by withdrawals from correspondents’ deposit accounts with the Treasury. - Measures: (i) establish and regularly update a cash flow plan between the Treasury and correspondents; (ii) notify the Treasury of transfer or payment intentions at least thirty days before withdrawal or payment date. - SIGFIP and ASTER systems: - Improve SIGFIP as key budget monitoring system; implement IMF technical assistance recommendations. - Short-term intentions: incorporate payroll expenditure and implement the SIGFIP-ASTER interface (structural benchmark, end-July 2010). - Auxiliary expenditure accounting module (CAD) will be operational in 2010. - High-level information systems steering committee established within the Ministry of Economy and Finance. - Draft budget review laws: - Draft budget review law for 2008 forwarded to the Audit Court by end-December 2009. - Draft budget review law for 2009 to be forwarded to the Audit Court by end-September 2010. - Cash management and Treasury accounts: - Updating the 2006 census of all government accounts (including public institution and agency accounts) to finalize strategy to establish a single Treasury account. - For each account list to include number, name of holder, and balances as at December 31, 2008 and 2009 (structural benchmark, July 2010). - Ministries and public institutions and agencies to provide lists of accounts and authorization for banks to provide information to the Treasury. - Strengthen liquidity tracking and forecasting at the Treasury using all available information and cooperation of government entities. - Debt management improvements: - Centralize all public debt data regardless of loan origin; establish a global debt management strategy. - Regularly update rolling two-year calendar for issuance of public securities, either quarterly or after each issuance, in cooperation with the Central Bank of West African States (BCEAO). ### Public investment project selection - Procedures: evaluate and select public investment projects based on Prime Minister’s circular of November 2008 and MEFP commitments. - Threshold for formal analysis: new projects involving CFAF 500 million or more will be subject to a formal economic cost-benefit/profitability analysis. - Priority setting: government plans to improve method for determining order of priority of projects. - Aviation sector note: new airline majority privately owned will not benefit from additional government funds or guarantees; Air Sénégal International’s cessation has so far required no government financing and no supplementary financing is expected. ### Tax administration - Action plan prepared to eliminate distortionary tax expenditures with significant budgetary cost following analysis of tax expenditures. - Consolidation: consolidate all legislation relating to domestic taxation in a single document by October 15, 2010 (structural benchmark, October 15, 2010). - Ex ante impact evaluations: commit to conduct ex ante impact evaluation prior to any adoption of new tax expenditures to analyze economic consistency, efficiency, and effectiveness and reject measures that do not meet criteria. ### Energy sector measures and SENELEC reform - Progress: implementation of SENELEC reform progressing satisfactorily; measures include strengthening commercial performance, penalizing fraudulent activities, implementing audit recommendations on accounting, and debt restructuring/cancellation/rescheduling. - Preliminary 2009 financial results for SENELEC below November 2009 forecasts. - Short-term government measures: - Adjust tariffs, if necessary, effective April 1, to reduce difference between tariffs and variations in production costs or cost of energy purchases. - Ensure SENELEC tax payments are included in calculations of company’s financial stability; take legal and regulatory measures to ensure regular satisfaction of tax and customs obligations. SENELEC to provide statement of tax and customs obligations at least quarterly to the Minister of Finance. - Return the GTI power station to service while maintaining existing contractual stipulations regarding the guarantee by the state without other financial risk for the government. - Mobilize private bank loans in the amount of CFAF 36 billion against payment in two tranches in 2011 and 2012 of the balance of the 2008 compensation to SENELEC by the government for the freezing of electricity tariffs. Net debt by SENELEC to the government resulting from the agreement to offset mutual claims, as well as all new debt of SENELEC vis-à-vis the government accumulated in 2010, will be deducted from the bank loans before proceeds are made available to SENELEC. - Finalize terms and conditions for restructuring SENELEC’s short-term debt to reduce arrears and high cost of debt servicing. - Undertake assessment of fuel supply and human resource management functions. - Sector restructuring and support: - Implement detailed action plan in line with regulations to meet conditions of second tranches of budget support from the World Bank and AFD relating to sector restructuring, currently planned for 2011. - In cooperation with World Bank and AFD, intend to unbundle SENELEC's activities (production, transport, distribution) in the medium term and finalize strategy for private participation. - FSIPP collections and SAR: - Management of amounts collected by SAR as FSIPP assessments transferred from the Treasury to the DGID. - DGID begun collecting FSIPP payments and deposits payments in the General Treasurer’s account at the BCEAO dedicated to FSIPP. - On the 25th of each month, the General Treasurer gives the BCEAO an order for transfer to a SAR account opened at ECOBANK to reimburse the bank. - Government committed to include all subsidies and transfers to SAR, including FSIPP payments collected by the DGID and all strategic investments in the oil sector, in the first supplementary budget for 2010. ### Financial sector reforms and stability actions - Context: cash flow difficulties in late 2008; nonperforming loans stabilized but several banks fail to meet certain prudential regulations. - Government commitments and priorities: - (a) Continue bank monitoring including asset/liability analysis, financing source concentration, liquidity relationships with parent countries/groups, and overall liquidity; intensify discussions with WAEMU authorities and supervisors of foreign institutions present in Senegal. - (b) Focus on macrofinancial risks from financing links between government, private sector, and financial system; banks to be subject to regular stress tests. - (c) Step up consultations with government and banks to anticipate financing and cash requirements of government and private sector. - (d) In consultation with the central bank, closely monitor entry into force of new minimum capital rules by end-2010. A working group made up of BCEAO officials and a representative of the Ministry of Finance created in each WAEMU country to review positions of credit institutions likely to encounter difficulties and propose targeted measures. - (e) Further strengthen capacity and resources of directorate in charge of regulation and supervision of microfinance institutions within the Ministry of Economy and Finance. - Financial inclusion and private sector financing initiatives: - (a) Implement action plan to increase rate of bank penetration to 20 percent by end-2012 through measures including promotion of noncash means of payments. - (b) Establish legal framework to support creation of credit information bureaus. - (c) Finalize legislation governing financial leasing to promote financing of start-ups and growth of innovative small and medium-sized enterprises. ### Developing the private sector and improving governance - Business environment priorities to accelerate growth and reach international standards (Doing Business indicators noted deterioration): - Improve efficiency of commercial justice system by providing courts required resources and implement administrative measures identified. - Reduce delays in transfer of property rights per 2008 office memoranda and adopt/implement Prime Minister’s circular to reduce time to issue construction permits and hook up water, sewage, electricity, and telephone services. - Extend possibilities for renewing fixed-term labor contracts. - Implement action plan from second national forum on credit (March 16 and 17, 2010) according to agreed timetable. - Governance measures: - Finalize legislation on government property and real estate: (i) law on real estate ownership and its implementation decree; (ii) update price schedules for government-owned property. - Strengthen the Audit Court by providing appropriate resources and promoting judge training with donor help. - Ensure appropriate resources for the procurement regulatory agency (ARMP). - Ensure National Commission to Enhance Transparency and Combat Corruption and Extortion has sufficient resources. ### Program monitoring, quantitative targets, and structural benchmarks - Monitoring schedule: quantitative assessment criteria for end-June 2010 and quantitative indicators for end-September 2010 set to monitor program implementation in 2010; sixth PSI review expected to be completed by end-October 2010; PSI expires on November 1. - Selected quantitative figures from Table 1 (CFAF billions, unless otherwise specified): - Floor on the basic fiscal balance 2/: -59; -49; -73. - Ceiling on the contracting or guaranteeing of new nonconcessional external debt by the government 3/ 4/ 5/: 0; 0; 0. - Ceiling on spending undertaken outside normal and simplified procedures 4/: 000. - Ceiling on government external payment arrears (stock) 4/: 0; 0; 0. - Ceiling on the amount of the float (depenses liquidees non payees par le Tresor) 6/: 45; 45; 45. - Indicative target — Quarterly ceiling on the share of the value of public sector contracts signed by single tender (percent): 20; 20; 20. - Notes excerpted as presented: - 1/ Indicative targets for September 2010, except for 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, HIPC and MDRI spending, and payment of extrabudgetary spending and agency debt identified in the July 2009 audit and included in the first supplementary budget of 2010. Cumulative since the beginning of the year. Total revenue excludes privatization receipts and sales of mobile telephone licenses. - 3/ Excluding government or government-guaranteed CFAF borrowing from financial institutions within the WAEMU and 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/ Cumulative since approval of fourth PSI review. - 6/ Defined as all expenditure for which a bill has been received and recognized (dépense liquidée) but not yet paid by the Treasury. - Structural benchmarks (May–October 2010) — example item: - Submit a supplementary budget for 2010 to Parliament based on macroeconomic framework agreed with IMF staff including line items authorizing Ministry of Finance to settle in 2010 extrabudgetary arrears of ministries and public institutions and agencies and part of public institution and agency debt identified in July 2009 audit and not yet budgeted for; any debt settlement not requiring a budget allocation to be presented in an annex; accompanied by a press release explaining settlement terms and conditions. Implementation date listed as May 15, 2010; status: Complete; macroeconomic rationale: Complete the normalization of financial relations with the private sector. *Source: Excerpts from the IMF country report chapter provided in the content unit.* ### 2. Improve SIGFIP by including payroll ### _cr10165 - 2. Improve SIGFIP by including payroll ### Action items (selected benchmarks and deadlines) - 2. Improve SIGFIP by including payroll expenditure and implementing the SIGFIP-ASTER interface. Deadline: July 31, 2010. Objective: Strengthen the monitoring of budget execution. - 3. Conduct a census of all accounts of general government and public institutions, including the number, name of the holder, and the balances as of December 31, 2008 and 2009 for each account, with a view to adopting a strategy to establish a single Treasury account. Deadline: July 31, 2010. Objective: Improve the management of cash flows, as well as the transparency of operations. - 4. Complete payment of at least 50 percent of extrabudgetary arrears and public institution and agency debt identified in the July 2009 audit. Relative priority/ID: 9. Deadline: September 30, 2010. Objective: Complete the normalization of financial relations with the private sector and improve the business climate. - 5. Publish a press release reporting on the results of the internal audit, summarizing progress made to clear the extrabudgetary commitments and public institution and agency debt, and detailing the steps taken to complete this process. Relative priority/ID: 10. Deadline: September 30, 2010. Objective: Complete the normalization of financial relations with the private sector and improve the business climate. - 6. Compile the general tax code and all legislation governing domestic taxation in a single document. Relative priority/ID: 23. Deadline: October 15, 2010. Objective: Further simplify the tax system. ### Technical Memorandum of Understanding (TMU): program monitoring overview - The TMU defines quantitative assessment (performance) criteria, indicative targets, and structural benchmarks for monitoring implementation of the Fund-supported program under the Policy Support Instrument (PSI) in 2010. - Quantitative assessment criteria for June 30, 2010 and indicative targets for September 30, 2010 are in Table 1; prior actions and structural benchmarks are in Table 2 (tables referenced in source). - Government definition for program purposes: central administration of the Republic of Senegal; excludes local administrations, the central bank, and any government-owned entities with separate legal personality (e.g., public universities and hospitals). ### Basic Fiscal Balance (program definition) - Definition: 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 budgetary assistance), - expenditure funded with HIPC- and MDRI-related resources, - expenditure related to settlement of agency debt and extrabudgetary arrears identified in the July 2009 audit and included in the first supplementary budget for 2010. - Budgetary revenue excludes privatization receipts and sales of mobile telephone licenses or other government assets. - Government expenditure is defined on the basis of payment orders accepted by the Treasury (dépenses ordonnancées prises en charge par le Trésor). - The assessment/performance criterion is set as a floor on the cumulative basic fiscal balance since the beginning of the year. Key example (preserve numbers exactly): - The floor for the basic balance (program definition) as at June 30, 2010 is –CFAF 49 billion. - It is calculated as the difference between budgetary revenue (CFAF 614 billion) and total expenditure and net lending (CFAF 834 billion), excluding externally financed capital expenditure (CFAF 137 billion), drawings on on-lent loans (CFAF 5 billion), and expenditure funded with HIPC-and MDRI-related resources (CFAF 30 billion). Reporting requirements: - Authorities will report provisional data on the basic fiscal balance and its components monthly to Fund staff with a lag of no more than 30 days. - Data drawn from preliminary Treasury account balances. Final data provided as soon as final balances are available, but not later than two months after reporting provisional data. ### Adjuster for the Basic Fiscal Balance - Privatization receipts are not taken into account by default. If privatization receipts occur in 2010, spending will be increased and the floor on the basic fiscal balance correspondingly raised by up to CFAF 35 billion. - Example provided: - If CFAF 100 billion in privatization receipts were to become available in 2010, spending would be raised by CFAF 35 billion, from CFAF 1668 billion to CFAF 1703 billion. - The floor on the basic fiscal balance would be lowered by CFAF 35 billion, from –CFAF 97 billion to –CFAF 132 billion. ### Budgetary float and SIGFIP reporting - Budgetary float (instances de paiement): outstanding stock of government expenditure for which bills have been received and validated but not yet paid by the Treasury (difference between dépenses liquidées and dépenses payées). - The assessment/performance criterion is a ceiling on the budgetary float, monitored at the end of the quarter. - Reporting requirements for SIGFIP: - Authorities will transmit to Fund staff on a weekly basis and at the end of each month a table from the expenditure tracking system (SIGFIP) showing: - all committed expenditures (dépenses engagées), - all certified expenditures not yet cleared for payment (dépenses liquidées non encore ordonnancées), - all payment orders (dépenses ordonnancées), - all payment orders accepted by the Treasury (dépenses prises en charge par le Trésor), - all payments made by the Treasury (dépenses payées). - The SIGFIP table will exclude delegations for regions and embassies. - The SIGFIP table will also list any payments that do not have a cash impact on the Treasury accounts. ### Spending undertaken outside normal/simplified procedures - Criterion applies continuously to any procedure other than normal and simplified procedures to execute spending. - Excludes spending on the basis of an advance decree in absolute urgency and national interest under Article 12 of the Organic Budget Law; such spending requires signatures of the President of the Republic and Prime Minister. - Authorities will report any such procedure, together with the SIGFIP table, to Fund staff monthly with maximum delay of 30 days. ### External payments arrears - Definition: sum of payments owed and not paid on external debt contracted or guaranteed by the government. - The assessment/performance criterion on external payments arrears is monitored on a continuous basis. - Authorities will promptly report any accumulation of external payments arrears to Fund staff. ### Contracting or guaranteeing of new nonconcessional external debt by the government - Criterion applies to debt as per Guidelines on Performance Criteria with Respect to Foreign Debt and also to commitments contracted or guaranteed by the government for which funds have not been received. - Exemptions (criterion does not apply to): - (i) CFAF debt contracted or guaranteed by the government with WAEMU residents; - (ii) CFAF debt initially contracted or guaranteed by the government with WAEMU residents subsequently acquired by nonresidents; - (iii) CFAF government or government-guaranteed debt where agreement is between the government and a WAEMU resident entity and there is no ensuing contractual obligation between the government and a nonresident entity, regardless of resale to a nonresident; - (iv) debt rescheduling transactions of debt existing at time of PSI approval; - (v) external debt contracted by the airport project company (AIDB) to finance construction of the new Dakar Airport. - Measurement: cumulative basis from approval of the fourth program review; applies continuously; no adjuster will be applied. - Government definition for this criterion includes central government plus EPIC, EPA, scientific/technical institutions, professional institutions, public health institutions, local administrations, public enterprises, sociétés nationales (government-owned or controlled independent companies where government holds at least 50 percent of capital), and government agencies. - Nonconcessional definition: debt with net present value (using reference interest rates specified) greater than 65 percent of nominal value (grant element < 35 percent) is nonconcessional, except IMF lending. - For maturities > 15 years, use average of ten-year CIRRs published by OECD. - For shorter maturities, use average of six-month CIRRs. - For loans in foreign currencies where OECD does not calculate a CIRR, base calculation on CIRR in SDRs. - Reporting requirement: government will report any new external borrowing and its terms to Fund staff as soon as contracted or guaranteed. ### Public sector contracts signed by single tender - Definition: public sector contracts are administrative contracts for procurement of supplies, services, or execution of work entered by government or entities subject to procurement code. - "Single-tender" contracts: contracting agent signs contract with chosen contractor without competitive tender. - Quarterly indicative target applies to public sector contracts examined by Central Public Procurement Directorate (DCMP). - Reporting: government will report quarterly to Fund staff, with lag no more than one month from end of observation period, total value of contracts signed by all ministries and agencies and total value of single-tender contracts signed by these ministries and agencies. ### Additional information for program monitoring (reporting lags and items) - Immediate transmission: any decision, circular, edict, decree, ordinance, or law having economic or financial implications for the current program. - With maximum lag of 30 days, preliminary data on: - Tax receipts and tax and customs assessments by categories, accompanied by the corresponding revenue; - The monthly amount of expenditures committed, certified, and for which payment orders have been issued; - The quarterly report of the Debt and Investments Directorate (DDI) on the execution of investment programs; - The monthly preliminary government financial operations table (TOFE), based on the Treasury accounts; - The provisional balance of the Treasury accounts; - Reconciliation tables between: - the SIGFIP table and the consolidated Treasury accounts, - the consolidated Treasury accounts and the TOFE for "budgetary revenues", - the consolidated Treasury accounts and the TOFE for "total expenditure and net lending", - the TOFE and the net government position (NGP), on a quarterly basis. - Final data provided as soon as final balances of the Treasury accounts are available, but not later than one month after reporting provisional data. - During program period, authorities will transmit provisional data on current nonwage noninterest expenditures and domestically financed capital expenditures executed through cash advances monthly with lag no more than 30 days; data drawn from preliminary consolidated Treasury account balances; final data within one month after provisional reporting. - Government will transmit to Fund staff: - monthly central bank balance sheet, max lag one month; - consolidated balance sheet of banks, max lag two months; - monetary survey, quarterly, max lag two months; - lending and deposit interest rates of commercial banks, monthly; - prudential supervision and financial soundness indicators for bank financial institutions (Table: Situation des Etablissements de Crédit vis-à-vis du Dispositif Prudentiel), quarterly. - Government will update monthly on the designated website the amount of airport tax—redevance de développement des infrastructures aéroportuaires (RDIA)—collected, deposited in the escrow account, and used for repayment of the loan financing the construction of the new airport. ### Debt Sustainability Analysis (IMF/IDA joint summary and macroeconomic assumptions) - Joint IMF/IDA assessment (approved May 7, 2010): Senegal remains at a low risk of debt distress. - Under baseline and various shock scenarios, all debt burden indicators remain well below their indicative policy-dependent thresholds. - External debt is vulnerable to a permanent deterioration in borrowing terms, highlighting need for prudent debt management as authorities seek greater access to external resources on nonconcessional terms. - Inclusion of domestic debt does not alter overall assessment but raises debt burden indicators, suggesting the need for fiscal consolidation once the impact of the crisis subsides. Selected background and numbers: - More than 60 percent of end-2009 external debt was owed to multilateral institutions. - In December 2009, Senegal issued its first Euro Bond: US$200 million, maturity 5 years, coupon 8.75 percent, priced to yield 9.25 percent. Proceeds to finance Dakar-Diamniadio toll road. - Domestic public debt at end 2009: 8 percent of GDP, or one-fourth of total debt. - In 2009, net domestic debt issuance reached almost 3 percent of GDP. - Private external debt estimated at 20 percent of GDP at end-2009. Macroeconomic assumptions (Box 1: 2010–30) — exact projections and assumptions: - Real GDP growth: - 2009: 1.5 percent, - average 2010-11: 3.8 percent, - 2012–15: 4.8 percent, - over the long term: over 5¼ percent. - Inflation: expected to stabilize at around 2 percent (measured by GDP deflator in US. dollar). - Current account deficit (excluding interest payments): expected to stabilize at around 8.5 percent by end of projection period. - Fiscal deficit / primary balance: - primary deficit of 4.4 percent of GDP in 2009, - modest primary fiscal deficits averaging 3.4 percent of GDP expected in 2010 and 2011, - thereafter primary deficit gradually declines with improved public expenditure management and efficiency gains in tax administration. - Aid flows (grants and concessional loans): access to concessional resources expected to decline as Senegal’s development improves; grants expected to decline gradually (text truncated in source). *Source: _cr10165 - 2. Improve SIGFIP by including payroll (PDF content provided).* ### 2.7 percent of GDP in 2010 to 2.1 percent of GDP by the end of the projection period, while ### _cr10165 - 2.7 percent of GDP in 2010 to 2.1 percent of GDP by the end of the projection period, while ### Public financing composition and domestic borrowing - Grants are projected to decline from 2.7 percent of GDP in 2010 to 2.1 percent of GDP by the end of the projection period. - Concessional loans are expected to decline from 1.9 percent of GDP to 1.7 percent of GDP over the same period. - Public domestic borrowing: - As the WAEMU debt markets become more liquid and efficient, Senegal is expected to rely increasingly on domestic financing. - Senegal’s domestic borrowing is expected to be less than one-third of the total public financing needs. - Claims on the government are expected to be largely held by commercial banks. ### III. EXTERNAL DSA — key findings and assumptions - External PPG debt burden indicators under the baseline scenario remain well below their policy-dependent thresholds (Figure 1, Table 1). - Workers’ remittances: - Represent a reliable and large source of foreign exchange for Senegal, accounting for around 10 percent of GDP and more than 40 percent of exports over the projection period. - Are explicitly considered in this DSA (Figure 2). - Modified debt burden indicators: - The PV of external debt and external debt service are measured as ratios to the sum of exports and gross remittances, and to the sum of gross domestic product and gross remittances, respectively. - These modified indicators are significantly lower than the updated DSF thresholds (10 percent lower than the usual DSF thresholds). - Country classification for thresholds: - Indicative external debt burden thresholds for Senegal are based on its classification as a “medium” performer given its (three-year average) score of 3.67 on the World Bank’s Country Policy and Institutional Assessment index (CPIA). - The CPIA ranges: weak performers score below 3.25, strong performers above 3.75. ### Stress tests and vulnerability analysis - Stress tests do not reveal serious vulnerabilities for external public debt; the various indicators remain below the thresholds (Figure 2, Table 2). - The most common extreme stress test applied is a general deterioration in the terms of external borrowing: - Modeled as an increase by 2 percentage points in the interest rate on new external public borrowing. - Even with this adverse shock, the debt burden indicators remain well below their thresholds. ### IV. PUBLIC DSA — overall public debt assessment - Indicators of overall public debt (external plus domestic debt) and debt service follow a similar pattern as those for external public debt alone (Table 3, Figure 3). - While more elevated than under the external DSA, the public debt burden indicators do not suggest increased concerns for debt sustainability. ### Fiscal outlook and risks - Public debt sustainability hinges on containing the fiscal deficit in the medium and long term. - If the fiscal balance were to remain at its 2010 level, the debt burden indicators would appear to be on an upward trend, suggesting that the debt situation is unsustainable. - This highlights the importance of an exit strategy for fiscal stimulus. - Growth shock vulnerability: - Under a scenario with permanently lower real growth, the PV of debt-to-GDP stabilizes at close to 50 percent, which is about 10 percentage points above the baseline. - This underscores the need for the authorities to continue pursuing their goal of raising potential output growth. *Source: IMF staff report content as provided in the supplied PDF excerpt.* ### 12. Senegal’s external debt burden is subject to a low risk of debt distress. The ### _cr10165 - 12. Senegal’s external debt burden is subject to a low risk of debt distress. ### Main finding - The sustainability of Senegal’s external PPG debt is assessed as subject to a low risk of debt distress. - Vulnerability noted to a permanent deterioration in borrowing terms, underscoring the need for prudent debt management as Senegal seeks greater access to external resources on nonconcessional terms. - Adding domestic debt raises debt-burden indicators but does not change the overall low-risk assessment; it highlights the need for fiscal consolidation once the impact of the crisis subsides. ### Indicators and projections (selected) - External debt (nominal): 34.1; 37.4; 44.1; 48.1; 49.7; 51.0; 52.4; 53.2; 54.4; 58.4; 59.6 (series across reported periods). - o/w public and publicly guaranteed (PPG) external debt: 17.9; 19.8; 24.0; 27.1; 27.8; 28.5; 29.1; 28.9; 29.6; 32.4; 32.7. - Change in external debt (selected years): 2.0; 3.3; 6.7; 4.0; 1.5; 1.3; 1.4; 0.8; 1.2; 0.9; -0.3. - Identified net debt-creating flows (selected): 3.9; 7.1; 8.8; 5.5; 5.2; 4.7; 4.5; 3.8; 3.6; 3.2; 2.6. - Non-interest current account deficit (series in percent of GDP): 11.3; 13.9; 8.2; 7.6; 3.2; 8.0; 8.3; 8.5; 8.6; 8.8; 8.7; 8.6; 8.3; 8.5. - Exports (percent of GDP series): 25.5; 26.4; 23.3; 24.8; 25.0; 25.0; 25.3; 25.4; 25.4; 26.2; 27.4. - Imports (percent of GDP series): 47.9; 53.0; 43.2; 44.3; 44.2; 44.0; 43.9; 44.2; 44.0; 44.6; 45.2. - Net current transfers (negative = inflow): -11.4; -12.7; -11.7; -8.5; 2.6; -11.3; -10.9; -10.5; -10.1; -10.1; -10.1; -10.0; -9.7; -9.9. - Endogenous debt dynamics (selected): -5.0; -4.8; 2.2; -0.8; -1.2; -1.5; -1.7; -1.8; -2.0; -2.3; -2.6. - PV of external debt (percent of exports, selected): 166.7; 168.8; 171.6; 175.1; 177.4; 178.3; 180.3; 184.3; 179.9 (series for projection horizon). - PV of PPG external debt (in percent of exports, selected): 80.3; 84.0; 84.3; 85.1; 85.2; 82.4; 82.8; 85.2; 81.8. - PV of PPG external debt (in percent of government revenues, selected): 101.6; 109.1; 108.8; 108.3; 108.2; 103.7; 103.4; 109.4; 109.3. - Debt service-to-exports ratio (in percent, selected): 11.6; 12.9; 20.3; 18.7; 19.9; 18.8; 16.5; 20.3; 16.4; 14.0; 14.6. - PPG debt service-to-exports ratio (in percent, selected): 3.4; 2.8; 3.8; 4.8; 6.6; 6.3; 6.0; 9.4; 5.2; 3.0; 5.0. - PPG debt service-to-revenue ratio (in percent, selected): 4.2; 3.8; 4.8; 6.2; 8.5; 8.0; 7.6; 11.8; 6.5; 3.9; 6.6. - Total gross financing need (Billions of U.S. dollars, selected): 1.3; 2.0; 1.4; 1.4; 1.6; 1.6; 1.6; 1.8; 1.7; 2.3; 4.9. - Non-interest current account deficit that stabilizes debt ratio (selected): 9.3; 10.6; 1.5; 4.0; 6.8; 7.2; 7.2; 8.0; 7.5; 7.7; 8.6. ### Key macroeconomic assumptions (selected) - Real GDP growth (in percent series): 4.8; 2.3; 1.5; 3.8; 2.0; 3.4; 4.1; 4.5; 4.7; 4.9; 5.0; 4.4; 5.2; 5.6; 5.3. - GDP deflator in US dollar terms (change in percent): 15.1; 15.2; -5.8; 6.0; 10.1; 0.1; 1.0; 1.6; 1.5; 1.6; 1.6; 1.2; 2.1; 2.2; 2.2. - Effective interest rate (percent): 2.0; 1.5; 1.4; 1.7; 0.4; 1.6; 1.4; 1.3; 1.2; 1.2; 1.0; 1.3; 0.9; 0.9; 0.9. - Growth of exports of G&S (US dollar terms, percent): 19.9; 22.1; -15.7; 8.0; 13.2; 10.4; 6.0; 6.2; 7.4; 6.9; 6.9; 7.3; 8.1; 8.2; 8.1. - Growth of imports of G&S (US dollar terms, percent): 33.9; 30.4; -21.9; 13.0; 16.9; 6.1; 5.0; 5.6; 6.2; 7.2; 6.3; 6.1; 7.7; 8.0; 7.8. - Grant element of new public sector borrowing (percent, projection): 43.1; 43.1; 43.1; 43.1; 43.1; 42.5; 43.0; 40.4; 37.5; 39.7 (projection years). - Government revenues (excluding grants, percent of GDP series): 20.7; 19.2; 18.4; 19.1; 19.4; 19.6; 19.9; 20.1; 20.3; 20.4; 20.5; 20.4. - Aid flows (Billions of US dollars, selected): 0.7; 0.9; 0.8; 0.6; 0.6; 0.6; 0.7; 0.7; 0.8; 1.1; 2.0. - o/w Grants (Billions of US dollars, selected): 0.3; 0.3; 0.4; 0.4; 0.3; 0.4; 0.4; 0.4; 0.4; 0.6; 1.1. - Nominal GDP (Billions of US dollars, selected): 11.3; 13.3; 12.7; 13.2; 13.9; 14.7; 15.7; 16.7; 17.8; 25.4; 53.4. - Gross remittances (Billions of US dollars, selected): 1.4; 1.9; 1.6; 1.6; 1.6; 1.7; 1.7; 1.8; 1.9; 2.7; 5.8. ### Stress tests and sensitivity analysis - The DSA includes alternative scenarios and bound tests for 2010-2030 assessing PV of debt-to-GDP+remittances, PV of debt-to-exports+remittances, PV of debt-to-revenue, debt service-to-exports+remittances, and debt service-to-revenue ratios. - Alternative scenario A2 (new public sector loans on less favorable terms in 2010-2030) assumes the interest rate on new borrowing is by 2 percentage points higher than in the baseline while grace and maturity periods remain the same. - Bound tests include shocks such as: - B1: Real GDP growth at historical average minus one standard deviation in 2011-2012. - B2: Export value growth at historical average minus one standard deviation in 2011-2012. - B6: One-time 30 percent nominal depreciation relative to the baseline in 2011. - Results of sensitivity analysis show higher ratios under less favorable financing scenarios; e.g., PV of debt-to-GDP and PV of debt-to-exports ratios can materially increase under A2 and certain bound tests, but the most extreme stress tests are identified case-by-case (the stress test yielding the highest ratio in 2020). ### Public sector debt and fiscal dynamics (selected) - Public sector debt (percent of GDP series): 24.5; 25.1; 32.1; 35.7; 38.0; 39.6; 41.0; 42.2; 42.6; 46.3; 45.8. - o/w foreign-currency denominated public sector debt: 17.9; 19.8; 24.0; 27.1; 27.8; 28.5; 29.1; 28.9; 29.6; 32.4; 32.7. - Change in public sector debt (selected): 1.5; 0.6; 7.0; 3.6; 2.3; 1.5; 1.4; 1.2; 0.4; 0.7; -0.4. - Primary deficit (percent of GDP series and projections): 3.3; 4.1; 4.4; 2.0; 2.4; 3.6; 3.3; 2.9; 2.9; 2.9; 2.9; 3.1; 2.8; 1.0; 2.4. - Automatic debt dynamics and contribution from interest rate/growth differential (selected): Automatic debt dynamics -3.3; -0.5; -1.0; 1.0; -1.0; -1.2; -1.3; -1.5; -1.6; -2.0; -2.3. Contribution from interest rate/growth differential -1.3; -0.9; -0.2; -0.9; -1.2; -1.5; -1.6; -1.7; -1.8; -2.1; -2.4. - PV of public sector debt (percent of GDP, selected): 6.6; 5.3; 26.7; 29.4; 31.2; 32.4; 33.4; 34.2; 34.1; 36.2; 35.4. - Gross financing need (percent of GDP series): 5.5; 6.6; 7.8; 7.4; 7.3; 8.6; 9.3; 10.8; 10.7; 10.2; 7.5. ### Policy implications and IMF recommendations - Maintain prudent debt management to guard against risks from less favorable borrowing terms, especially as access to nonconcessional external resources expands. - Gradually reduce the temporary fiscal stimulus to reach deficit targets consistent with debt sustainability. - Implement fiscal consolidation once the impact of the crisis subsides to address higher debt-burden indicators when domestic debt is included. - Continue public financial management reforms to make expenditure planning and control more effective and to prioritize investment projects using rigorous cost-benefit analysis. - Fully and promptly implement the energy sector reform plan to limit fiscal and economic risks. - Sustain structural reforms to raise growth, improve the business environment, and strengthen and diversify exports. ### IMF program context and operational notes - IMF support included an Exogenous Shock Facility (ESF) arrangement and a Policy Support Instrument (PSI); outstanding purchases and loans amounted to SDR 106.32 million (65.71 percent of quota) at end-March 2010. - The Executive Board completed the third and final review under the ESF arrangement and approved a disbursement equivalent to SDR 32.36 million (about US$47.7 million), bringing total ESF disbursements to SDR 121.35 million (about US$178.8 million). - The Board completed the fifth review under the PSI and approved waivers for nonobservance of performance criteria on the basic fiscal balance and nonconcessional external debt. - The assessment notes data shortcomings (national accounts, production, social indicators) but considers data broadly adequate for surveillance and program monitoring; ongoing TA from AFRITAC and headquarters supports improvements. *Source: International Monetary Fund, Staff Report for the 2010 Article IV Consultation and informational annex (Senegal), May 7, 2010.* ### 1. We thank the staff for a balanced report. Since the last program review, the ### 1. We thank the staff for a balanced report. Since the last program review, the ### Program performance - Program implementation observed four out of five quantitative criteria set forth by the program at end-December 2009. - Achievements: - Fully discontinued the use of Treasury cash advances. - Contained the budgetary float. - Maintained prudent management of external debt. - Exercised limit on recourse to single-tender contracts. - Missed criterion: - The criterion on the basic fiscal balance was missed due to lower-than-projected revenues and higher-than-expected current expenditures used to address urgent needs (notably in the education sector) and entailed the use of legally permissible supplemental appropriation decrees. - Authorities intend to limit recourse to such decrees and accommodate any resulting spending increase by reducing nonpriority expenditures. - Authorities requested a waiver of nonobservance of this criterion. ### Structural and fiscal measures - Budgetary procedures and transparency: - Ensured timely execution and accounting closure of the 2009 budget. - Systematically published budgetary and fiscal tables. - Extrabudgetary commitments and public institution/agency debt: - Continuous efforts to clear remaining extrabudgetary commitments and debt; settlement of part of these liabilities programmed in the 2009 and 2010 budgets. - These liabilities were audited in 2009 and a summary of results made public. - A supplementary budget for 2010 submitted to parliament accounts for settlement of extrabudgetary commitments and part of remaining debt. - Tax expenditures: - Study estimated tax expenditures and other tax exemptions could amount to over 3 percent of GDP. - Action plan to reduce tax expenditures was finalized on schedule; some proposed changes expected to be reflected in the next budget. - Any new tax expenditures will require an impact assessment prior to approval. ### Financial sector and PFM reforms - Financial sector: - Followed up FSAP recommendations; a consolidated action plan finalized aimed at financial sector development, strengthening legal and institutional framework, and safeguarding financial stability. - Government action plan will include continued monitoring of banks’ soundness indicators, introduction of new minimum capital rules, regular stress tests, and capacity building for microfinance regulation and supervision. - Public financial management (PFM): - Launched far-reaching PFM reforms building on Fund technical assistance. - Improvements planned for the budget monitoring system (SIGFIP) including payroll data and an interface between SIGFIP and the Treasury accounting system (ASTER). - Strategy to establish a Treasury single account; exhaustive census of government accounts being updated and Treasury liquidity forecasting capacities to be upgraded. ### Relations with private sector and liquidity management - Plan to normalize relations with private sector: - Clearance of at least 50 percent of estimated remaining unsettled extrabudgetary spending and public institutions and agencies’ debt. - An audit to ascertain if new extrabudgetary commitments or additional debt were accumulated since end-2008; results to be made public with status of clearance process. - New reporting mechanisms in public agencies and improved cash-flow management at the Treasury intended to help avoid accumulation of new debt. ### Specific program compliance issue - A loan contracted last September with a regional bank had a grant element equivalent to less than 0.1 percent of GDP and was about one point of percentage short of the 35 percent required by the program. - As the loan was yet to be disbursed, authorities contacted the lender requesting an increase in the grant element to meet the program requirement. - Authorities intend to consult more closely with staff in similar situations to avoid recurrence. ### Request - Authorities requested completion of the fifth PSI and third ESF reviews. ### Executive Board assessment and outlook - Background and recent performance: - Real GDP growth is estimated to have been 1½ percent in 2009. - Growth is projected to reach 3½ percent in 2010, driven by a pick-up in external demand and supportive domestic economic policies. - Inflation has been negative since the second half of 2009. - The overall fiscal deficit widened to 5.1 percent of GDP in 2009 from 3.7 percent of GDP two years earlier due to lower tax revenues and higher expenditure. - Current account deficit declined mainly because of lower energy and food prices. - Risks to the outlook: - Unexpectedly subdued external demand. - Financing constraints limiting fiscal room for maneuver. - Renewed problems with electricity supply. - Opportunistic changes in economic policies for political reasons. - Directors’ views and recommendations: - Welcomed broadly satisfactory implementation of the PSI and ESF but noted growth slowed due to external environment and domestic shocks. - Emphasized that prudent domestic macroeconomic policies and accelerated structural reforms would strengthen growth and reduce poverty. - Noted Senegal’s risk of debt distress is low but urged gradual withdrawal of temporary fiscal stimulus and reduction of the budget deficit consistent with debt sustainability. - Welcomed plans to strengthen revenue collection (already higher than the regional average) and encouraged ensuring public entities pay taxes on time. - Stressed spending pressures must be contained to preserve macroeconomic stability, debt sustainability, and meet WAEMU convergence criteria while safeguarding priority spending. - Supported efforts to eliminate payment delays to the private sector and finalize normalization of financial relations through transparent settlement of extrabudgetary spending and agency debt. - Encouraged maintenance of PFM reform momentum, improved liquidity and debt management, and stronger investment planning and evaluation to ensure high productivity of government spending. - Noted real effective exchange rate appreciation but staff assessment is that it is not significantly overvalued; urged improvements in competitiveness, business climate, and governance to stimulate private-sector growth. - Encouraged implementation of energy sector reform to limit supply bottlenecks and fiscal risks and efforts to enhance the financial sector's contribution to the economy. ### Key statistics (selected indicators) - Real GDP growth (percent change): 2005: 5.6; 2006: 2.4; 2007: 4.8; 2008: 2.3; 2009: 1.5. - Inflation (average): 2005: 1.7; 2006: 2.1; 2007: 5.9; 2008: 5.8; 2009: -1.1. - Current account balance (percent of GDP): 2005: -9.0; 2006: -9.5; 2007: -11.8; 2008: -14.3; 2009: -8.7. - Exports (in CFA francs, percent change): 2005: 4.4; 2006: 0.1; 2007: -3.7; 2008: 23.0; 2009: -15.2. - Imports (in CFA francs, percent change): 2005: 15.6; 2006: 9.6; 2007: 19.5; 2008: 25.8; 2009: -20.4. - Real effective exchange rate (percent change): 2005: -1.0; 2006: -0.2; 2007: 5.3; 2008: 4.4; 2009: -1.7. - Credit to the economy (percent change): 2005: 24.5; 2006: 4.2; 2007: 10.5; 2008: 17.2; 2009: 3.6. - Government revenue (percent of GDP): 2005: 19.2; 2006: 19.7; 2007: 21.1; 2008: 19.4; 2009: 18.7. - Grants (percent of GDP): 2005: 1.6; 2006: 1.5; 2007: 2.6; 2008: 2.4; 2009: 3.0. - Total expenditure and net lending (percent of GDP): 2005: 24.0; 2006: 27.2; 2007: 27.6; 2008: 26.6; 2009: 27.1. - Overall balance (percent of GDP): 2005: -3.0; 2006: -5.7; 2007: -3.7; 2008: -4.6; 2009: -5.1. - Central government domestic debt (percent of GDP): 2005: 3.3; 2006: 5.3; 2007: 6.6; 2008: 5.3; 2009: 8.1. - External public debt (percent of GDP): 2005: 42.3; 2006: 17.7; 2007: 17.9; 2008: 19.8; 2009: 24.0. *Source: Senegalese authorities and IMF staff estimates.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10165.pdf_