## _cr12227 ## Source details **Canonical URL:** [_cr12227](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12227.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12227.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12227.pdf.json) --- ### Executive Summary — Macroeconomic performance and risks - Political transition: - Presidential elections led to a peaceful administration changeover; Mr. Macky Sall elected and new coalition government appointed in April 2012. - New authorities confirmed commitment to program objectives and willingness to pursue implementation. - Growth and inflation: - 2011 growth: 2.6 percent (compared to 4 percent in the program) due to cereal and groundnut production decline of about a third in 2011. - 2012 projection: growth rebound to 3.9 percent driven by higher public investment and agricultural recovery (assuming normal rainfall). - Excluding agriculture, activity projected to grow by 3.2 percent in 2012. - Inflation: averaged 3.4 percent in 2011; declined to below 1 percent in May year-on-year; expected about 2.5 percent in 2012. - External and balance of payments: - Current account deficit widened to 6.4 percent of GDP in 2011; balance of payments in deficit. - Current account deficit projected to increase in 2012 due to higher imports of food and capital goods and weak export demand. - Risks: - External: continued weakness in Europe; higher oil prices; instability in neighboring countries (Mali). - Domestic: high public expectations for job creation and lower cost of living complicating medium-term fiscal consolidation. ### Program performance - Implementation and targets: - Program implementation slowed significantly ahead of the presidential elections. - All end-2011 quantitative assessment criteria met except overall fiscal balance, missed by CFAF 28 billion (0.4 percent of GDP). - End-March 2012 quantitative program targets were met despite revenue mobilization and financing difficulties. - Revenue underperformance drivers: economic slowdown, political tensions, decision to reduce petroleum product taxation ahead of elections. - Financing in the regional market more difficult than expected, resulting in underexecution of expenditures and accumulation of arrears by agencies. - Structural reforms: - Some structural reforms delayed or not implemented; missed structural benchmarks reprogrammed. - New Document of Economic and Social Policies (third PRSP) to be finalized in next few months; government may review/update before transmission by end-October 2012. ### Policy discussions and priorities - Authorities’ commitments: - Improve tax system, strengthen public financial and debt management, promote private sector development and good governance. - Fiscal targets: reduce fiscal deficit below 5 percent of GDP in 2013 and below 4 percent of GDP by 2015. - Priority reforms for 2012: - Comprehensive tax reform and reform of the energy sector. - Other priorities: public financial and debt management, tax and customs administration, financial sector measures, addressing growth bottlenecks, improving business climate and governance. - Missed structural benchmarks of early 2012 were rescheduled. ### Program monitoring and staff appraisal - Staff recommends completion of the third review based on strong commitments of new authorities. - Staff supports waiver for nonobservance of end-December 2011 overall fiscal deficit criterion because deviation was small and corrective action is being taken. - Staff supports modification request for end-June and end-December 2012 assessment criteria. --- ### A. Fiscal policies in 2012 — Gap, losses, and revised stance - Estimated fiscal losses (Box 1 presented totals): - Total: 2.4 percent of GDP; 174 CFAF billions - Lower growth and revenue base: 0.3 percent of GDP - Petroleum prices stabilization: 0.5 percent of GDP - Drought-related spending (net of grants): 0.6 percent of GDP (CFAF 76 billion gross; CFAF 30 billion financed by donor grants; net CFAF 46 billion) - Increase in SENELEC compensation: 0.9 percent of GDP (compensation now estimated at about CFAF 105 billion; budgeted CFAF 40 billion; additional CFAF 65 billion needed) - Food prices stabilization: 0.1 percent of GDP - Fiscal gap and targets: - Total fiscal gap in 2012 estimated at 2.4 percent of GDP. - Absent measures, overall fiscal deficit would reach about 8 percent of GDP (described as unsustainable and not financeable). - Revised 2012 fiscal deficit target raised from 5.6 percent to 6.4 percent of GDP; this still requires adjustment effort of 1.6 percent of GDP. - Adjustment measures for 2012: - Consideration urged to reduce energy subsidies (~2 percent of GDP) because of size and poor targeting; authorities prefer time to design alternatives. - The 2012 adjustment to be achieved through: - Current expenditure cuts: 0.4 percent of GDP - Postponement of certain investment projects: 1.2 percent of GDP - Cabinet adopted a supplementary budget for 2012 reflecting these understandings. - Authorities intend to sustain savings on operating expenditures and rationalize government spending, with World Bank assistance in some areas. ### Expenditure control and rationalization (Box 2) - Short-term measures: - Reduce number of ministries from 37 to 25; eliminate/merge many ministerial offices and directorates; streamline diplomatic representation. - Initial census led to elimination of nine agencies in May; further reductions after audit. - Reduce waste and abuse in public service (mobile phones, cars, fuel, electricity, public housing, leasing). - Improve procurement of goods and services. - Identify nonpriority expenditures to cut; postpone nonpriority investment projects not yet started or with limited impact on growth/poverty. - Medium-term measures: - Rationalize subsidies/transfers (energy, food, water) to improve targeting and efficiency. - Rationalize expenditures in education, health, and agriculture with World Bank support, drawing on 2011 Public Expenditure Review. - Financing and arrears: - Financing gap to be closed by large concessional loan from France and proceeds from a mobile phone license; continued reliance on grants and concessional external financing. - Arrears to suppliers: estimated at CFAF 26 billion at end-2011 and increased to CFAF 39 billion at end-March 2012; significant decrease since end-March reported and arrears programmed to be cleared in 2012. ### Key fiscal and program numbers (excerpted figures, percent of GDP) - Total revenue and grants: 22.6, 22.4, 23.4, 23.4, 0.0, 23.3, 23.3 - Tax revenue: 19.0, 18.9, 20.0, 19.5, -0.5, 20.0, 19.2 - Taxes on petroleum products: 3.2, 3.1, 3.2, 2.8, -0.4, 3.2, 3.6 - Total expenditure and net lending: 28.8, 29.0, 28.9, 29.8, 0.8, 28.0, 28.0 - Current expenditure: 17.4, 18.1, 16.3, 17.3, 0.9, 15.7, 16.4 - Electricity subsidies: 1.8, 1.8, 0.5, 1.4, 0.9, 0.4, 1.0 - Capital expenditure and net lending: 11.4, 11.0, 12.6, 12.5, -0.1, 12.4, 11.6 - Drought-related spending: 0.0, 0.0, 0.0, 1.0, 1.0, 0.0, 0.0 - Overall fiscal balance: -6.2, -6.7, -5.6, -6.4, -0.8, -4.7, -4.7 ### Strengthening tax, PFM, and debt management - Tax code reform: - New tax code to be submitted to parliament by end-September 2012 (structural benchmark) to enter into force with 2013 budget. - New customs code to be finalized by end-2012. - Modernization of tax and customs administration to continue with FAD technical assistance. - PFM and governance measures: - Create/reactivate special courts to fight corruption and illicit enrichment. - Census and audit of agencies to prepare rationalization plan by end-2012 (structural benchmark). - Adopt draft law transposing WAEMU directive on fiscal transparency (requires asset declaration by high-level officials). - Finalize guidelines for project evaluation with World Bank assistance (missed benchmark rescheduled for end-2012). - Progress toward single treasury account; finalization expected by end-February 2013 (structural benchmark). - Debt management: - First medium-term debt management strategy reprogrammed for end-September 2012 for parliamentary discussion in fall. ### Structural benchmarks and timelines (selected) - Adopt action plan on subsidies to electricity consumers — Implementation Date: 31 August 2012 - Prepare medium-term debt strategy — Implementation Date: 21 September 2012 - Finalize new tax code and submit to parliament — Implementation Date: 22 September 2012 - Prepare plan for restructuring public agencies — Implementation Date: 27 December 2012 - Prepare project evaluation guide — Implementation Date: 28 December 2012 - Finalize single treasury account — Implementation Date: 29 February 2013 ### Sectoral reforms and private sector development - Electricity sector: - Authorities committed to reform; investments to increase capacity under way with delays. - Compensation to SENELEC now estimated at about CFAF 105 billion; budgeted CFAF 40 billion. - Plan Takkal reviewed in May; operational and financial restructuring plan for SENELEC to be prepared by end-August 2012 and implemented immediately; action plan on subsidies to electricity consumers rescheduled for end-August 2012 and implementation from beginning of 2013 proposed. - Other reforms: - Rationalize microfinance resources; establish private credit registries. - Reinforce competence and independence of the Audit Court (Cour des Comptes); improve public land management. --- ### Macroeconomic projections and key tables (selected) - GDP at constant prices (annual percent change): 2009: 2.1; 2010: 4.1; 2011: 4.0; 2012: 2.6; 2013: 4.4; 2014: 3.9; 2015: 4.8; 2016: 5.1; 2017: 5.4. - Consumer prices, annual average (percent): 2009: -1.7; 2010: 1.2; 2011: 3.4; 2012: 3.4; 2013: 2.5. - Current account balance (percent of GDP, including current official transfers): 2009: -6.7; 2010: -4.4; 2011: -7.9; 2012: -6.4; 2013: -9.2. - Gross official reserves (imputed, US$ billions): 2009: 2.1; 2010: 2.0; 2011: 2.4; 2012: 2.0; 2013: 2.5. - Total public debt (percent of GDP): 2009: 34.2; 2010: 35.7; 2011: 38.4; 2012: 40.8; 2013: 40.5. - Energy subsidies and fiscal cost: - Energy subsidies expected to reach 2 percent of GDP in 2012 (CFAF 150 billion highlighted elsewhere). - Balance of payments (CFAF billions): Current account balance: 2009: -403; 2010: -281; 2011: -538; 2012: -435. --- ### Financial sector and banking soundness (selected) - Capital to risk-weighted assets (percent): 2011: 16.0. - Gross NPLs to total loans (percent): 2011: 16.2. - Provisions to NPLs (percent): 2011: 54.0. - NPLs net of provisions to total loans (percent): 2011: 8.1. - Sectoral distribution of loans (2011): Services, transportation and communication: 34%; Retail and wholesale trade: 19%; Industrial: 22%; Other: 25%. --- ### Appendix I — Letter of Intent and MEFP (highlights) - Government Letter of Intent dated June 22, 2012 requesting completion of third review under the 2010-2013 PSI; attaches MEFP and TMU. - Short-term priorities of new government: - Support rural population after disappointing 2011/2012 crop year. - Price reductions for staple food items (rice, oil, sugar) coordinated with traders. - Resumption of Casamance peace discussions. - Reform of central government to reduce running costs and streamline public expenditure. - Continue energy sector reforms. - 2011 macro performance and fiscal outcome: - Primary sector growth: -10.8 percent; Secondary sector growth: +7.2 percent; Tertiary sector growth: 4 percent. - Real GDP growth revised to 2.6 percent. - Fiscal deficit for 2011: CFAF 455 billion (6.7 percent of GDP) versus target CFAF 427 billion. - Money supply expansion: 5.2 percent. - 2012 policy response: - Draft supplementary budget law adopted by Council of Ministers on June 14, 2012; new deficit target 6.4 percent of GDP (previous 5.6 percent). - Operating expenditure measures target CFAF 35 billion savings and sharp reductions in available allocations for operating expenditure (except priority spending). - Investment expenditure deferrals expected to save about CFAF 91 billion. - Energy-related fiscal burden described as "exorbitant," amounting to about CFAF 150 billion in (text ends). ### Transparency, reporting, and TMU obligations - TMU defines program quantitative assessment criteria, indicative targets, and structural benchmarks; explains program definition of overall fiscal balance and adjusters. - Adjusters to overall fiscal balance: - Budget grants shortfall adjuster: up to maximum CFAF 15 billion downward. - Concessional loans excess/shortfall adjuster: up to maximum CFAF 50 billion upward/downward. - Energy sector and autoroute investment domestic-financed adjuster: upward adjustment capped at CFAF 50 billion. - Reporting requirements include monthly provisional overall fiscal balance within 30 days, central bank monthly balance sheet, consolidated bank balance sheets, SIGFIP tables, and prompt reporting of external borrowing (within two weeks of contracting or guaranteeing). ### Program monitoring adjustments and timetable proposals - Make adjuster on fiscal deficit symmetric for concessional financing deviations. - Revise floor on 2012 fiscal deficit upwards (starting with end-June 2012). - Reschedule unimplemented measures; propose indicative targets for 2013. - Fourth review of PSI-supported program normally by end-December 2012; fifth review by end-June 2013. --- *Source: IMF staff report (Senegal), selected tables and figures from the document.* ### Executive Summary ...................................................................................................... ### Executive Summary ### Macroeconomic performance and risks - Political transition: - After a tense campaign, the presidential elections led to a peaceful administration changeover. Mr. Macky Sall was elected president with a large majority and appointed a new coalition government in April 2012. - The new authorities confirmed their commitment to the main objectives of the program and their willingness to pursue its implementation. - Growth and inflation: - 2011 growth limited to 2.6 percent (compared to 4 percent in the program) because cereal and groundnut production declined by about a third in 2011. - Growth projected to rebound to 3.9 percent in 2012 driven by higher public investment in infrastructure and a recovery of agricultural production (assuming normal rainfall). - Excluding agriculture, activity projected to grow by 3.2 percent in 2012. - Inflation averaged 3.4 percent in 2011, driven by high food and transport prices; inflation declined to below 1 percent in May year-on-year and is expected to remain moderate in 2012, at about 2.5 percent. - External and balance of payments: - Current account deficit widened to 6.4 percent of GDP in 2011, largely because of high prices for imported food and oil; the balance of payments was in deficit. - The current account deficit is projected to increase further in 2012 reflecting higher imports of food and capital goods and weak export demand. - Risks: - External risks: continued weakness in the global environment, particularly in Europe; higher oil prices; persistent instability in neighboring countries (Mali). - Domestic risk: high public expectations for job creation and lower cost of living under the new government, complicating medium-term fiscal consolidation. ### Program performance - Overall assessment: - Program implementation slowed significantly ahead of the presidential elections. - All end-2011 quantitative assessment criteria were met except the overall fiscal balance, missed by CFAF 28 billion (0.4 percent of GDP). - The fiscal deviation reflected administrative weaknesses leading to expenditure overruns; interest payments underestimated by CFAF 20 billion. - Some structural reforms were delayed or not implemented; missed structural benchmarks were reprogrammed. - End-March 2012 targets: - Quantitative program targets for end-March 2012 were met despite difficulties mobilizing budget revenue and financing. - Revenue underperformance resulted from the economic slowdown, political tensions, and a decision to reduce petroleum product taxation ahead of the elections. - Financing in the regional market was more difficult than expected, resulting in underexecution of expenditures and further accumulation of arrears to suppliers by agencies. - Policy documents: - The new Document of Economic and Social Policies (the third PRSP) will be finalized in the next few months; the new government wishes to review and possibly update it before transmission by end-October 2012. ### Policy discussions and priorities - Authorities’ commitments: - New authorities committed to program objectives: improving the tax system, strengthening public financial and debt management, promoting private sector development and good governance. - Fiscal targets: reduce the fiscal deficit below 5 percent of GDP in 2013 and below 4 percent of GDP by 2015. - Need for accelerated structural reforms: - Priority 2012 reforms: comprehensive tax reform and reform of the energy sector. - Other priorities: public financial and debt management, tax and customs administration, financial sector measures, addressing bottlenecks to growth, improving business climate and governance. - Missed structural benchmarks of early 2012 were rescheduled. A. Fiscal policies in 2012 - Fiscal gap and sources: - A large fiscal gap could emerge in 2012 in the absence of corrective actions. The total fiscal gap is estimated at 2.4 percent of GDP. - Absent any measures, the overall fiscal deficit would reach about 8 percent of GDP, a level inconsistent with debt sustainability and not financeable. - Box 1 — Estimated fiscal losses (as presented): - Total: 2.4 percent of GDP; 174 CFAF billions - Lower growth and revenue base: 0.3 percent of GDP - Petroleum prices stabilization: 0.5 percent of GDP - Drought-related spending (net of grants): 0.6 percent of GDP (CFAF 76 billion gross; CFAF 30 billion financed by donor grants; net CFAF 46 billion) - Increase in SENELEC compensation: 0.9 percent of GDP (compensation now estimated at about CFAF 105 billion; budgeted CFAF 40 billion; additional CFAF 65 billion needed) - Food prices stabilization: 0.1 percent of GDP - Revised 2012 fiscal stance: - Fiscal deficit target for 2012 raised from 5.6 percent to 6.4 percent of GDP to accommodate exogenous factors. - This revised target still requires an adjustment effort of 1.6 percent of GDP. - Staff urged consideration of reducing energy subsidies (about 2 percent of GDP) because of their large size and poor targeting; authorities prefer time to design alternative schemes better targeting the poor. - The 2012 adjustment will be achieved through a mix of: - Current expenditure cuts: 0.4 percent of GDP - Postponement of certain investment projects: 1.2 percent of GDP - The cabinet adopted in June a supplementary budget for 2012 reflecting these understandings. - Authorities intend to review policies to sustain savings on operating expenditures and rationalize government spending, with World Bank assistance in some areas. ### Risks to program implementation - External risks: - Continued weakness in Europe, higher oil prices, and instability in neighboring countries (notably Mali). - Domestic risks: - High expectations from the new government on job creation and reducing the cost of living could complicate medium-term fiscal consolidation. *Prepared from the Executive Summary of the IMF staff report.* ### Box 2. Senegal: Expenditure Control and Rationalization ### Box 2. Senegal: Expenditure Control and Rationalization ### Short-term measures - Reduction of the size of the government: - Number of ministries reduced from 37 to 25. - Many ministerial offices and directorates eliminated or merged. - Streamlining of diplomatic representation abroad announced. - Initial census of agencies and other public entities led to the elimination of nine agencies in May; the number of agencies will be further reduced after an audit of their purpose and performance. - Reduction of waste and abuse in the public service, including in the use of mobile phones, cars, fuel and electricity, public housing, and leasing of offices. - Improved procurement of goods and services targeted. - Reduction of other nonpriority current expenditure: - Recognized that the above measures are unlikely to generate the needed savings in 2012 as they will take time to implement; government has identified nonpriority expenditures to be cut as needed. - Postponement of nonpriority investment projects: - Focus on projects (i) not yet started; and (ii) with a more limited impact on growth and poverty reduction. ### Medium-term measures - Rationalization of subsidies and transfers to certain sectors and population groups to improve targeting and efficiency, including in particular energy, food, and water subsidies. - Rationalization of expenditures in education, health and agriculture with support from the World Bank, drawing on the 2011 Public Expenditure Review. ### Financing and arrears - The additional financing requirements for 2012 will be covered through new sources of funding. Financing needs in 2012 have increased because of a higher fiscal deficit, the need to clear arrears to suppliers, and lower net financing from the regional market than earlier expected. - The financing gap is expected to be closed by a large concessional loan from France and the proceeds from a mobile phone license. - Authorities will continue relying predominantly on grants and concessional external financing. - Arrears to suppliers: - Estimated at CFAF 26 billion at end-2011 and increased to CFAF 39 billion at end-March 2012. - More recent data indicate a significant decrease since end-March. These arrears are programmed to be cleared in 2012. The loan from France is expected to be used partly for this purpose. ### Key fiscal and program numbers (as presented) - Excerpted figures from Text Table 2 (Percent of GDP): - Total revenue and grants: 22.6, 22.4, 23.4, 23.4, 0.0, 23.3, 23.3 - Tax revenue: 19.0, 18.9, 20.0, 19.5, -0.5, 20.0, 19.2 - of which: taxes on petroleum products: 3.2, 3.1, 3.2, 2.8, -0.4, 3.2, 3.6 - FSE revenue: 0.6, 0.6, 0.5, 0.5, 0.0, 0.4, 0.5 - Other: 3.0, 2.9, 2.9, 3.4, 0.5, 2.9, 3.6 - Total expenditure and net lending: 28.8, 29.0, 28.9, 29.8, 0.8, 28.0, 28.0 - Current expenditure: 17.4, 18.1, 16.3, 17.3, 0.9, 15.7, 16.4 - of which: electricity subsidies: 1.8, 1.8, 0.5, 1.4, 0.9, 0.4, 1.0 - food subsidies: 0.0, 0.0, 0.0, 0.1, 0.1, 0.0, 0.0 - Capital expenditure and net lending: 11.4, 11.0, 12.6, 12.5, -0.1, 12.4, 11.6 - of which: drought-related spending: 0.0, 0.0, 0.0, 1.0, 1.0, 0.0, 0.0 - Overall fiscal balance: -6.2, -6.7, -5.6, -6.4, -0.8, -4.7, -4.7 ### Strengthening tax reforms, public financial management, and debt management - Tax code reform: - Authorities committed to an ambitious reform of the tax code to make the tax system simpler, more transparent, and more efficient. - New tax code to be submitted to parliament by end-September 2012 (a structural benchmark), so it can enter into force with the 2013 budget. - New customs code being prepared, to be finalized by end-2012. - Modernization of tax and customs administration to continue with technical assistance from FAD. - Public governance and PFM measures: - Creation or reactivation of special courts to fight corruption and illicit enrichment. - A census and commissioning of an audit of agencies to prepare a rationalization plan by end-2012 (a structural benchmark). - Adoption by the cabinet of a draft law transposing the WAEMU directive on fiscal transparency (requires a declaration of assets by high-level officials). - With World Bank technical assistance, finalize guidelines for project evaluation (a missed benchmark rescheduled for end-2012) and use them for systematic cost-benefit analysis of budget-financed projects. - Progress toward a single treasury account; finalization of the process, including closing unnecessary accounts, expected by end-February 2013 (a structural benchmark). - Debt management: - A first medium-term debt management strategy will be ready for parliamentary discussion in fall (reprogrammed to end-September 2012 to account for delay in setting up the new public debt directorate). ### Structural benchmarks and timelines (Text Table 3 highlights) - Adopt an action plan on subsidies to electricity consumers — Implementation Date: 31 August 2012 — Review: 4th — Macroeconomic significance: Reform the energy sector. - Prepare a medium-term debt strategy — Implementation Date: 21 September 2012 — Review: 4th — Macroeconomic significance: Improve debt management. - Finalize the new tax code and submit it to parliament — Implementation Date: 22 September 2012 — Review: 4th — Macroeconomic significance: Improve efficiency of the tax system. - Prepare a plan for restructuring of public agencies and similar entities — Implementation Date: 27 December 2012 — Review: 5th — Macroeconomic significance: Reinforce PFM. - Prepare a project evaluation guide — Implementation Date: 28 December 2012 — Review: 5th — Macroeconomic significance: Improve investment planning. - Finalize the single treasury account — Implementation Date: 29 February 2013 — Review: 5th — Macroeconomic significance: Reinforce PFM. ### Promoting private sector development and sectoral reforms - Electricity sector: - Authorities committed to reforming the electricity sector; planned investments to increase production capacity are being implemented with some delays. - Progress in restructuring SENELEC has been limited. - Authorities reviewed the existing energy sector reform plan (“Plan Takkal”) in May and intend to address identified weaknesses, including greater focus on transportation and distribution. - Proposed to reschedule for end-August 2012 the missed program benchmark on adopting an action plan on subsidies to electricity consumers (and implementing it from the beginning of 2013) and to prepare a plan for the operational and financial restructuring of SENELEC for immediate implementation. - Other reforms: - In the financial sector, authorities intend to rationalize resources dedicated to microfinance and establish private credit registries. - To strengthen governance, plan to reinforce the competence and independence of the Audit Court (Cour des Comptes) and improve public land management. ### Program monitoring and staff appraisal — findings and targets - Program monitoring changes: - End-June and end-December 2012 fiscal deficit targets would be raised; benchmarks not yet implemented would be reprogrammed. - Adjustor on the ceiling on the fiscal deficit, if concessional financing deviates from programmed level, would be made symmetric to ensure a lower deficit in the event of a shortfall in concessional financing. - Proceeds from the 2011 eurobond could be used to finance completion of existing sections of the highway, not only its extension to, and beyond, the new airport. - Staff appraisal and fiscal targets: - Program implementation slowed significantly ahead of presidential elections; fiscal deficit target for 2011 was missed due to current expenditure overruns and tax revenue shortfalls; arrears to suppliers accumulated. - The higher cost of energy subsidies will reach 2 percent of GDP in 2012. - Absent any measures, a large fiscal gap would raise the deficit to about 8 percent of GDP in the year (described as an unsustainable level). - Higher deficit target for 2012 is 6.4 percent of GDP to accommodate exogenous factors (drought in the Sahel and less favorable macroeconomic environment); this target still requires a large adjustment through current expenditure cuts and deferral of certain investment projects. - Staff welcomes authorities’ endorsement of targeting a fiscal deficit below 5 percent of GDP in 2013 and 4 percent by 2015 to keep debt on a sustainable path and reconstitute fiscal buffers. - Reform priorities urged by staff: - Accelerate implementation of structural reforms, with key priorities: comprehensive tax reform, reform of the energy sector, public financial and debt management, tax and customs administration, financial sector reforms, and measures to remove bottlenecks to growth and improve the business climate and governance. - Missed benchmarks of early 2012 have been reprogrammed for the second half of 2012. *Source: IMF staff report excerpt — Box 2. Senegal: Expenditure Control and Rationalization.* ### 22. Staff recommends completion of the third review based on the strength of the new ### 22. Staff recommends completion of the third review based on the strength of the new authorities’ commitments ### Staff recommendation and program conditionality - Staff recommends completion of the third review based on the strength of the new authorities’ commitments. - Staff supports a waiver for nonobservance of the end-December 2011 assessment criterion on the overall fiscal deficit because "the deviation was small and corrective action is being taken to prevent its recurrence." - Staff supports the authorities’ request for modification of the end-June and end-December 2012 assessment criteria. ### National income and prices (selected projections and historicals) - GDP at constant prices (annual percent change): 2009: 2.1; 2010: 4.1; 2011: 4.0; 2012: 2.6; 2013: 4.4; 2014: 3.9; 2015: 4.8; 2016: 5.1; 2017: 5.4. - Nonagriculture GDP (annual percent change): 2009: 0.8; 2010: 4.0; 2011: 4.0; 2012: 4.8; 2013: 4.5; 2014: 3.2; 2015: 4.6; 2016: 5.1; 2017: 5.5; 2018: 5.6; 2019: 5.7. - GDP deflator (annual percent change): 2009: -1.4; 2010: 1.4; 2011: 3.4; 2012: 4.3; 2013: 2.9; 2014: 2.2; 2015: 2.4; 2016: 2.5; 2017: 2.6; 2018: 2.5; 2019: 2.6. - Consumer prices, annual average (percent): 2009: -1.7; 2010: 1.2; 2011: 3.4; 2012: 3.4; 2013: 2.5; 2014: 2.5; 2015: 2.1; 2016: 2.1; 2017: 2.1; 2018: 2.1; 2019: 2.1. - Consumer prices, end of period (percent): 2009: -3.4; 2010: 4.3; 2011: 2.7; 2012: 2.7; 2013: 2.3; 2014: 2.2; 2015: 2.1; 2016: 2.1; 2017: 2.1; 2018: 2.1; 2019: 2.1. ### External sector (selected items, CFA francs unless noted) - Exports, f.o.b. (annual percent change): 2009: 0.2; 2010: 8.3; 2011: 3.3; 2012: 10.1; 2013: 7.9; 2014: 3.2; 2015: 5.1; 2016: 5.3; 2017: 6.6; 2018: 9.0; 2019: 9.4. - Imports, f.o.b. (annual percent change): 2009: -22.4; 2010: 3.8; 2011: 9.1; 2012: 11.5; 2013: 9.4; 2014: 9.0; 2015: 1.0; 2016: 4.0; 2017: 3.9; 2018: 7.7; 2019: 8.4. - Export volume (annual percent change): 2009: 33.4; 2010: 5.8; 2011: 10.3; 2012: -2.1; 2013: 4.1; 2014: 0.4; 2015: 5.5; 2016: 5.8; 2017: 6.1; 2018: 6.1; 2019: 6.1. - Import volume (annual percent change): 2009: -2.6; 2010: -0.9; 2011: 5.0; 2012: 3.5; 2013: 8.7; 2014: 4.7; 2015: 2.4; 2016: 5.3; 2017: 5.4; 2018: 5.8; 2019: 5.7. - Terms of trade ("–" = deterioration) (annual percent change): 2009: 6.4; 2010: -1.4; 2011: -5.7; 2012: 4.6; 2013: 0.8; 2014: -0.4; 2015: 1.0; 2016: 0.4; 2017: 1.8; 2018: 0.9; 2019: 0.8. - Gross official reserves (imputed, US$ billions): 2009: 2.1; 2010: 2.0; 2011: 2.4; 2012: 2.0; 2013: 2.5; 2014: 1.9; 2015: 1.9; 2016: 2.0; 2017: 2.1; 2018: 2.2; 2019: 2.4. - Current account balance (percent of GDP, including current official transfers): 2009: -6.7; 2010: -4.4; 2011: -7.9; 2012: -6.4; 2013: -9.2; 2014: -8.3; 2015: -6.7; 2016: -6.4; 2017: -6.3; 2018: -6.3; 2019: -6.2. - Current account balance (percent of GDP, excluding current official transfers): 2009: -7.5; 2010: -5.4; 2011: -8.8; 2012: -7.1; 2013: -10.1; 2014: -8.9; 2015: -7.2; 2016: -7.0; 2017: -6.9; 2018: -6.8; 2019: -6.8. ### Money and credit; monetary conditions - Net domestic assets (changes in percent of beginning-of-year broad money): 2010: 6.2; 2011: 8.3; 2012: 7.2; 2013: 9.0; 2014: 13.4; 2015: 7.6. - Domestic credit (change percent of beginning-of-year broad money): 2010: 6.8; 2011: 10.9; 2012: 11.3; 2013: 10.3; 2014: 12.9; 2015: 7.0. - Credit to government (net) (change percent of beginning-of-year broad money): 2010: 4.2; 2011: 4.0; 2012: 5.5; 2013: -1.8; 2014: 5.2; 2015: 1.7. - Credit to the economy (percentage growth): 2010: 3.6; 2011: 10.4; 2012: 8.9; 2013: 18.6; 2014: 12.4; 2015: 5.6. - Broad money (annual percentage change): 2010: 1.7; 2011: 10.9; 2012: 14.1; 2013: 12.4; 2014: 6.8; 2015: 14.6; 2016: 7.5. ### Government financial operations and fiscal balances - Revenue (percent of GDP): 2009: 18.6; 2010: 19.4; 2011: 20.2; 2012: 20.2; 2013: 21.1; 2014: 20.7; 2015: 20.7; 2016: 20.7; 2017: 20.8; 2018: 20.5; 2019: 20.6. - Grants (percent of GDP): 2009: 3.0; 2010: 2.5; 2011: 2.4; 2012: 2.2; 2013: 2.3; 2014: 2.7; 2015: 2.6; 2016: 2.6; 2017: 2.6; 2018: 2.6; 2019: 2.5. - Total expenditure and net lending (percent of GDP): 2009: 26.7; 2010: 27.1; 2011: 28.8; 2012: 29.0; 2013: 28.9; 2014: 29.8; 2015: 28.0; 2016: 27.6; 2017: 27.3; 2018: 26.9; 2019: 26.8. - Overall fiscal balance, payment order basis, excluding grants (percent of GDP): 2009: -7.9; 2010: -7.8; 2011: -8.6; 2012: -8.9; 2013: -7.8; 2014: -9.1; 2015: -7.3; 2016: -6.9; 2017: -6.5; 2018: -6.4; 2019: -6.2. - Overall fiscal balance, payment order basis, including grants (percent of GDP): 2009: -4.8; 2010: -5.2; 2011: -6.2; 2012: -6.7; 2013: -5.6; 2014: -6.4; 2015: -4.7; 2016: -4.3; 2017: -3.9; 2018: -3.8; 2019: -3.7. - Primary fiscal balance ¹ (percent of GDP): 2009: -4.1; 2010: -4.2; 2011: -5.1; 2012: -5.2; 2013: -4.1; 2014: -4.9; 2015: -3.2; 2016: -2.7; 2017: -2.4; 2018: -2.3; 2019: -2.1. - Gross domestic investment (percent of GDP): 2009: 29.3; 2010: 29.7; 2011: 30.7; 2012: 28.7; 2013: 32.5; 2014: 30.8; 2015: 29.9; 2016: 30.1; 2017: 30.7; 2018: 30.6; 2019: 30.6. - Gross domestic savings (percent of GDP): 2009: 12.4; 2010: 14.2; 2011: 13.0; 2012: 12.2; 2013: 14.3; 2014: 12.8; 2015: 13.9; 2016: 14.7; 2017: 15.8; 2018: 16.4; 2019: 16.9. (¹ Total revenue and grants minus total expenditure and net lending, excluding interest expenditure.) ### Public debt and debt service - Total public debt (percent of GDP): 2009: 34.2; 2010: 35.7; 2011: 38.4; 2012: 40.8; 2013: 40.5; 2014: 44.9; 2015: 46.5; 2016: 47.5; 2017: 48.0; 2018: 48.3; 2019: 48.3. - Central government domestic debt (percent of GDP): 2009: 7.2; 2010: 8.2; 2011: 10.6; 2012: 11.3; 2013: 11.5; 2014: 12.2; 2015: 12.2; 2016: 12.2; 2017: 12.1; 2018: 12.0; 2019: 11.7. - External public debt (percent of GDP): 2009: 26.9; 2010: 27.5; 2011: 27.8; 2012: 29.5; 2013: 28.9; 2014: 32.6; 2015: 34.3; 2016: 35.3; 2017: 35.9; 2018: 36.3; 2019: 36.6. - External public debt service: percent of exports: 2009: 5.0; 2010: 5.7; 2011: 12.5; 2012: 13.8; 2013: 7.3; 2014: 7.4; 2015: 7.6; 2016: 6.7; 2017: 7.5; 2018: 7.2; 2019: 6.9. - External public debt service: percent of government revenue: 2009: 6.5; 2010: 7.4; 2011: 14.7; 2012: 17.2; 2013: 8.1; 2014: 8.7; 2015: 8.7; 2016: 7.4; 2017: 8.1; 2018: 8.0; 2019: 7.7. ### Balance of payments (selected CFAF billions) - Current account balance (CFAF billions): 2009: -403; 2010: -281; 2011: -538; 2012: -435; 2013: -679; 2014: -601; 2015: -520; 2016: -537; 2017: -571; 2018: -612; 2019: -659. - Exports, f.o.b. (CFAF billions): 2009: 990; 2010: 1,072; 2011: 1,122; 2012: 1,180; 2013: 1,211; 2014: 1,218; 2015: 1,280; 2016: 1,347; 2017: 1,437; 2018: 1,567; 2019: 1,714. - Imports, f.o.b. (CFAF billions): 2009: -1,948; 2010: -2,022; 2011: -2,252; 2012: -2,255; 2013: -2,465; 2014: -2,459; 2015: -2,485; 2016: -2,584; 2017: -2,684; 2018: -2,892; 2019: -3,134. - Unrequited current transfers (net) (CFAF billions): 2009: 695; 2010: 768; 2011: 747; 2012: 774; 2013: 750; 2014: 778; 2015: 798; 2016: 821; 2017: 840; 2018: 859; 2019: 880. - Capital and financial account (CFAF billions): 2009: 480; 2010: 392; 2011: 649; 2012: 365; 2013: 697; 2014: 582; 2015: 500; 2016: 550; 2017: 612; 2018: 660; 2019: 724. - Gross official reserves (imputed, US$ billions): 2009: 2.1; 2010: 2.0; 2011: 2.4; 2012: 2.0; 2013: 2.5; 2014: 1.9; 2015: 1.9; 2016: 2.0; 2017: 2.1; 2018: 2.2; 2019: 2.4. ### Government and FSE financial operations (levels, CFAF billions; and percent of GDP) - Total revenue and grants (CFAF billions): 2009: 1,305; 2010: 1,398; 2011: 1,545; 2012: 1,526; 2013: 1,717; 2014: 1,692; 2015: 1,812; 2016: 1,956; 2017: 2,122; 2018: 2,264; 2019: 2,452. - Revenue (CFAF billions): 2009: 1,123; 2010: 1,236; 2011: 1,383; 2012: 1,376; 2013: 1,551; 2014: 1,497; 2015: 1,608; 2016: 1,736; 2017: 1,884; 2018: 2,012; 2019: 2,185. - Tax revenue (CFAF billions): 2009: 1,086; 2010: 1,195; 2011: 1,299; 2012: 1,287; 2013: 1,467; 2014: 1,411; 2015: 1,495; 2016: 1,617; 2017: 1,759; 2018: 1,914; 2019: 2,079. - Total expenditure and net lending (CFAF billions): 2009: 1,607; 2010: 1,729; 2011: 1,972; 2012: 1,980; 2013: 2,126; 2014: 2,155; 2015: 2,179; 2016: 2,313; 2017: 2,472; 2018: 2,634; 2019: 2,839. - Current expenditure (CFAF billions): 2009: 997; 2010: 995; 2011: 1,191; 2012: 1,233; 2013: 1,198; 2014: 1,250; 2015: 1,274; 2016: 1,336; 2017: 1,374; 2018: 1,471; 2019: 1,591. - Capital expenditure (CFAF billions): 2009: 607; 2010: 736; 2011: 674; 2012: 717; 2013: 893; 2014: 691; 2015: 390; 2016: 697; 2017: 710; 2018: 1,098; 2019: 1,164. - Primary fiscal balance (CFAF billions): 2009: -247; 2010: -270; 2011: -348; 2012: -356; 2013: -304; 2014: -357; 2015: -247; 2016: -229; 2017: -219; 2018: -223; 2019: -227. - Overall fiscal balance (including grants) (CFAF billions): 2009: -292; 2010: -334; 2011: -427; 2012: -455; 2013: -410; 2014: -463; 2015: -367; 2016: -357; 2017: -350; 2018: -370; 2019: -387. ### Fiscal program monitoring and assessment criteria (selected) - Quantitative assessment criteria, 2011 (CFAF billions): Floor on the overall fiscal balance cumulative since beginning of year: March 31, 2011: -237 (met); June 30, 2011: -355 (met); September 30, 2011: -318 (met); December 31, 2011: -427 (not met). - For 2012–13 program ceilings/targets include: ceiling on contracting nonconcessional external debt by the government (US$ millions): 500 (various dates); ceiling on budgetary float: 50 (various dates); ceiling on nonconcessional debt with minimum grant element of 15 percent: 300–444 (various dates). (See tables for full schedule of targets and status entries.) - Indicative target: floor on social expenditures (percent of total spending): 35 (target) with 37 noted as "met" in some periods. ### Financial sector and banking soundness indicators - Capital to risk-weighted assets (percent): 2004: 11.5; 2005: 10.8; 2006: 12.9; 2007: 13.5; 2008: 13.8; 2009: 16.3; 2010: 18.0; 2011: 16.0. - Gross NPLs to total loans (percent): 2004: 12.6; 2005: 11.9; 2006: 16.8; 2007: 14.8; 2008: 17.4; 2009: 18.7; 2010: 20.2; 2011: 16.2. - Provisions to NPLs (percent): 2004: 75.7; 2005: 75.4; 2006: 52.0; 2007: 53.8; 2008: 51.5; 2009: 53.1; 2010: 54.9; 2011: 54.0. - NPLs net of provisions to total loans (percent): 2004: 3.4; 2005: 3.2; 2006: 8.8; 2007: 8.6; 2008: 9.3; 2009: 9.7; 2010: 9.1; 2011: 8.1. - NPLs net of provisions to capital (percent): 2004: 25.1; 2005: 27.2; 2006: 67.9; 2007: 60.7; 2008: 63.9; 2009: 62.3; 2010: 52.3; 2011: 50.4. - Sectoral distribution of loans (2011): Services, transportation and communication: 34%; Retail and wholesale trade: 19%; Industrial: 22%; Other: 25%. - Banking sector indicators: Credit to the economy as percent of GDP series shows increase from 2003 to 2011; Nonperforming loans remain high; lending concentrated in a few sectors and to top borrowers. ### Medium-term outlook and staff analysis (high-level points) - Growth slowed in 2011 but is expected to rebound; output growth projected to be driven by services and the energy and construction sectors related to large investment projects. - Inflation increased in 2011 but is subsiding; projected to return to historical trends absent renewed energy and food price pressures. - Current account deficit widened in 2011 and is projected to be financed mainly by public flows; economy remains largely dependent on foreign financial resources. - Fiscal policy cushioned the 2011 economic slowdown, with spending increases including energy subsidies and capital projects; the fiscal deficit will need to decline in the medium term through a combination of revenue mobilization and expenditure control. - Financial sector has been gradually deepening but is held back by obstacles to credit access; banking sector well capitalized but high nonperforming loans and lending concentration. *Source: IMF staff report (Senegal), selected tables and figures from the document.* ### APPENDIX I ### _cr12227 - APPENDIX I ### Introduction - Letter of Intent dated June 22, 2012 from the Government of Senegal to the Managing Director, IMF, requesting completion of the third review of the 2010-2013 macroeconomic program supported by the Policy Support Instrument (PSI). - Attached documents: Memorandum of Economic and Financial Policies (MEFP) and Technical Memorandum of Understanding (TMU). - Government reaffirms commitment to PSI objectives and requests modification of the end-June and end-December 2012 assessment criteria on the overall fiscal deficit. - Short-term priorities of the new government: - support for the rural population following the disappointing 2011/2012 crop year; - price reductions for staple food items (rice, oil, and sugar), in coordination with traders; - resumption of peace discussions in Casamance, working with the Gambia and Guinea-Bissau; - reform of the central government (reducing cost of running government and streamlining public expenditure); - continuing reforms in the energy sector. - Medium- and long-term priorities: jobs, SME and private sector development, economic and financial governance, food security, and infrastructure. ### Recent economic developments and program implementation - 2011 macroeconomic performance: - Primary sector growth: -10.8 percent. - Secondary sector growth: +7.2 percent. - Tertiary sector growth: 4 percent. - Real GDP growth revised to 2.6 percent (from 4 percent). - Current account balance: deficit of 6.4 percent of GDP. - Money supply expansion: 5.2 percent. - 2011 fiscal outcome: - Fiscal deficit for 2011: CFAF 455 billion (6.7 percent of GDP) versus target CFAF 427 billion. - Shortfall explained by current expenditure overruns (regularization of contractual staff in education) and revenue shortfalls (taxes on goods and services). - Structural reform implementation status (selected items): - NINEA mandatory for customs operations as of January 1, 2012; information exchange with tax administration needs improvement. - New directorate for debt management created; director designated; to become fully operational on June 30, 2012. - Study on microfinance sector resources completed end-January as planned. - Comprehensive survey of agencies delayed but now well advanced. - Project evaluation guide delayed due to competitive bidding timing. - Audit of highway extension resources not performed because works have not started and project being re-examined. - Action plan on subsidies to power consumers not drawn up; new government requests more time for analysis. - End-March 2012 monitoring: - Quantitative assessment criteria and indicative targets met overall. - Fiscal balance estimated well below program floor of CFAF -102 billion. - Budgetary float: CFAF 49 billion. - Increase in payment arrears of agencies due to tight treasury around presidential elections. - Indicators on nonconcessional external debt, external payments arrears, and public sector single-tender contracts observed. ### Macroeconomic context and outlook for 2012 - External and domestic risks: - World economic slowdown (particularly in Europe), increased petroleum product prices, sociopolitical tensions in sub-region (Mali and Guinea-Bissau), and drought impacts. - 2012 projections and drivers: - GDP growth expected to increase to 3.9 percent from 2.6 percent in 2011, contingent on agricultural recovery assuming normal rainfall and timely provision of inputs. - Inflation expected to decline to about 2.5 percent in 2012. - Current account deficit expected to swell; overall balance of payments expected to register a deficit. - Growth support from public investment: electricity sector reform plan, toll highway, Blaise Diagne airport, Millennium Challenge Account (MCA) projects, and social sector projects. - Main downside risks: - Resurgence of the crisis in Europe. - Rising international oil prices. - Domestic high expectations post-elections. ### Fiscal challenges in 2012 and government response - Factors worsening public finances in 2012: - Revenue shortfalls from downward revision of growth projection: about CFAF 20 billion. - Freeze of fuel prices at the pump in context of high international oil prices: negative revenue impact about CFAF 35 billion. - Electricity tariff gap upward revision: expected to reach CFAF 105 billion in 2012; budget allocation CFAF 40 billion will fall far short. - Cost of measures to assist rural population after the poor 2011/2012 crop season: exceeds 1 percent of GDP (government expects support from partners including grants in kind). - Temporary subsidy measures for staple foods: - Price reductions for rice, sugar, and cooking oil via targeted subsidies (not reduction/suspension of taxes). - Expected additional budget expenditure: 0.1 percent of GDP (traders and producers to bear a portion of the cost). - Fiscal target revision: - In absence of corrective measures, fiscal deficit would exceed 8 percent of GDP in 2012, overshooting the program target by about 2.5 percent of GDP. - Government proposes new deficit target of 6.4 percent of GDP for 2012, compared with earlier 5.6 percent. - A draft supplementary budget law reflecting this was adopted by the Council of Ministers on June 14, 2012. ### Measures to reduce deficit and contain operating and investment spending - Operating expenditure measures (aim to guarantee savings of CFAF 35 billion and sharp reductions in available allocations for operating expenditure, except priority spending): - Reduce number of ministries from 37 to 25 to generate savings on operation of ministerial offices and associated units. - Initiate efforts to streamline agencies and diplomatic services. - Substantially reduce purchases of goods and services by combating abuses and inefficiencies: - Potential 40 percent reduction in government telecommunications costs by cancelling unauthorized mobile phone lines, restricting beneficiaries, and imposing usage ceilings on landline and mobile subscriptions. - Substantial savings on renting of buildings for office space and housing, and on the government vehicle fleet. - Initiate a civil service audit in the months ahead. - Note: these measures will have only limited impact in 2012. - Investment expenditure adjustments: - Some investment expenditures to be deferred. - Expected savings about CFAF 91 billion primarily from new domestically financed projects not yet started, nonpriority projects, and projects with limited impact on poverty reduction and growth. - Medium-term fiscal stance: - Fiscal deficit to be brought below 5 percent in 2013 and to 4 percent by 2015. - Government will propose to parliament in autumn 2012 to discuss medium-term outlook based on documents accompanying the draft budget law for 2013. - Full effects of cost-reduction measures expected in the medium term to ensure sustainability of current-expenditure compression undertaken in 2012. - Streamlining of subsidies to improve targeting and effectiveness. - Energy-related fiscal burden: - The cost of supporting energy prices (electricity, petroleum products) described as "exorbitant for public finances," amounting to about CFAF 150 billion in (text ends). *Source: Letter of Intent and Memorandum of Economic and Financial Policies, Dakar, June 22, 2012.* ### 2012. This price support (including for food prices and water) will be reconsidered in the ### _cr12227 - 2012. This price support (including for food prices and water) will be reconsidered in the ### Social protection, subsidies, and household purchasing power - The current price support (including for food prices and water) will be reconsidered in the months ahead, with a view to replacing it with measures that better target the poorest (extension of the social safety net, for example). - Reduced taxation of households is expected to support purchasing power during a period of subsidy reductions. ### Expenditure streamlining: education, health, and agriculture - With support from the World Bank, the government will streamline expenditure in the education, health, and agriculture sectors. - Awarding scholarships or other aid to all students is judged unsustainable in a poor country like Senegal. - After completion of the civil service audit, the government undertakes to streamline the recruitment and management of educational personnel. - The government will: - Increase the effectiveness of expenditure in the health area. - Improve the targeting of agricultural subsidies. - A seminar on these topics was organized with the World Bank in June. ### Public debt management and borrowing policy - A prudent borrowing policy will be guided by a medium-term debt management strategy. - Main financing sources: concessional resources mobilized from donors and recourse to domestic/regional financing raised through auctions. - Delay in establishing the new Public Debt Directorate (DDP) means the medium-term debt strategy could not be finalized before June 30, 2012. - Revised timetable: - Draft by mid-August 2012. - Final version by September 30, 2012, to be annexed to the draft budget law for 2013. - Use of remaining Eurobond resources (CFAF 57 billion) will finance investment projects in the energy sector and the government contribution to the toll highway to Diamniadio and its extension to the new airport. ### Tax reform and revenue mobilization (2013 reform) - The government is resolved to implement an ambitious reform of the tax system in 2013 to achieve a simpler, more transparent and efficient tax system and reduce tax exemptions in favor of a general regime with a better incentive structure. - Reform of the General Tax Code (CGI): - Technical work completed by the tax administration in consultation with private sector and labor unions. - Preparation of the new draft code should be completed by July 31, 2012. - A feedback seminar for stakeholders is planned prior to adoption by the Council of Ministers. - A strategy note for the public presenting objectives and broad outlines of the tax reform was sent to the Council of Ministers and published on the Internet sites of the Ministry of Economy and Finance and the DGID. - New code expected to enter into force on January 1, 2013. - Draft will be submitted to Parliament no later than end-September 2012 to be included in the draft budget law for 2013. - Specific tax-administration changes: - The use of withholding will be substantially reduced. - The repayment system of VAT tax credit will be improved. ### Modernization of tax administration (DGID) - Sweeping DGID reform initiated as part of the tax administration modernization plan with objectives including reorganization and better taxpayer classification. - Organizational changes by end-2012: - Creation of a large enterprise directorate. - Creation of interregional operational directorates in Dakar and selected larger cities. - Taxpayer classification underway; first Center for Mid-Sized Enterprises already in place and scheduled to be fully operational by July 2012. - Improvements to taxpayer registration with IMF technical assistance. - A memorandum of understanding between the DGD and the DGID will be signed by end-August 2012. - Modernization of procedures: - New platform to be introduced by January 1, 2013, allowing taxpayers registered in the SIGTAS to submit tax declarations online. - Online payments to be introduced by end-2013. - Implementation will require close cooperation of all relevant offices. ### Modernization of customs administration (DGD) - DGD implementing reforms from the 2011-2013 Strategic Plan and Performance Contract with the Ministry of Economy and Finance. - Reform targets: improve revenue collection, strengthen partnership with businesses, automate customs clearance, streamline resources, and revitalize communications. - Action plan highlights: - Speed up formalities at first-line units and strengthen controls after customs clearance. - Emphasize collection of customs debts, particularly suspended VAT, and control of duty suspension regimes. - Reform Decree No. 83-504 of May 17, 1983 on duty-free entry conditions to reduce revenue shortfalls from exemptions. - Strengthen surveillance via new territorial mapping and deploy an electronic surveillance system for goods in transit. - Following stabilization of the new comprehensive version of GAINDE, begin computerization of customs-clearance procedures. - Contribute to business-climate improvement via reform of economic regimes and implementation of the Special Partners Program to offer personalized procedures to businesses. - Draft reform of the customs code to be finalized by December 31, 2012. ### Public financial management and governance reforms - Transposition of WAEMU’s harmonized framework for public financial management is underway. - Transposition completed for four directives: organic law on budget laws (LOLF), government accounting, government chart of accounts, and table of government financial operations. - Decree on transposition of the directive on budget nomenclature will be issued by end-September 2012. - Draft law on a transparency code to be adopted by end-June 2012 by the Council of Ministers. - Fiscal and financial reform plan (PRBF) 2012-2014 updates PRBF 2008-12 to address PEFA June 2011 weaknesses; PRBF implementation aims to meet PEFA indicators and apply the new framework by 2017. - Government accounts and audit: - Continue preparation of government accounts with a draft budget execution law for 2011 to be transmitted with the draft budget law for 2013. - Draft organic law on the Audit Court to be aligned with international best practices and adopted by the government by end-July 2012. - Payroll and financial systems: - New payroll management software will be tested by end-June 2012. - Target date for integrating the wage bill into SIGFIP is end-August 2012. - Recourse to budget reallocations by decree will be strictly limited. ### Transparency in government real estate transactions - Computerization of the Urban Property Management Project will be strengthened to improve transparency in real estate transactions and advertisement of government property sales. - Computerization timetable: - Begin with the Office of Property Conservation of Dakar-Plateau starting in 2013 and continue in the regions in 2014. - Publication and electronic processing: - With effect from 2012, the Ministry of Economy and Finance will publish annually on a website accessible by the public all information relating to the number of files involving final property sales from government property, indicating the land areas sold, the geographic location of the land, and the corresponding revenue received. - With effect from June 1, 2012, collection of property revenue in the Dakar region must be electronically processed in SIGTAS; computerization for the remainder of the territory will be completed by end-2012. - All payments made since January 1, 2012, will be regularized in SIGTAS. ### Survey and streamlining of government agencies and budgetary units - Agency Evaluation Commission actions and decisions: - Comprehensive census of agencies and similar bodies through consolidation of files from the Parapublic Sector Directorate (DSP), the State Reform Delegation (DREAT), and the Directorate-General of Finance. - Proposals for an initial list of agencies to be eliminated on grounds of streamlining administrative organization and budgetary savings. - Conduct a study for other agencies and propose measures (rehabilitation, restructuring, regrouping, elimination, etc.) by end-2012. ### Investment project preparation and evaluation - With Decree No. 2012-437, a planning unit has been created within every ministry. - A guide on the preparation of projects/programs is being disseminated to prepare projects with cohesive documentation for evaluation. - Process: - New projects submitted for the investment budget will be analyzed by the submitting ministry (when it has an operational planning unit) and then jointly with the Ministry of Economy and Finance. - Analysis to be strengthened by a cost-benefit analysis once the evaluation guide and trained staff are available (end-December 2012). - Two or three completed projects will be selected each year for impact analyses to draw lessons and consolidate gains. ### Single Treasury Account implementation - Implementation progress noted but some delays exist. - Three aspects: 1. Survey and streamlining of government agencies (ongoing). 2. Survey and streamlining of bank accounts delayed due to insufficient stakeholder cooperation; government targeting finalization of closing unnecessary bank accounts by end-February 2013. 3. Opening Treasury accounts for all public bodies receiving budget subsidies. - New obligation to submit quarterly cash flow plans introduced to rationalize cash outflows; compliance has been uneven but the measure reduced idle cash resources held with banks. - Effort will focus on ensuring compliance by all parties concerned. ### Energy sector: Plan Takkal and electricity reforms - Delays occurred with implementation of Plan Takkal; arrival of more efficient units to replace rented power generation groups was delayed by several months, negatively impacting operating costs. - Measures taken: - Securing fuel supplies to Senelec. - Rental of 150 MW to address electricity production shortfall and reduce power outages. - Installation program for low consumption lamps initiated to manage demand and reduce peak consumption and electricity bills of the poorest. - Re-examination of Plan Takkal: - Assessment conducted in the second half of May 2012 with major stakeholders to define corrective measures and new strategies. - Emphasis on rehabilitation of transmission and distribution grids. - Plan for operational and financial restructuring of Senelec to be prepared by end August 2012 and implementation to begin immediately. - Institutional reform and possible rebalancing of roles of APIX and Senelec, and exploration of alternatives to avoid excessive reliance on coal. - An action plan on subsidies to electricity consumers to be prepared by end-August 2012 and implemented by early 2013. ### Financial sector reforms - Status and actions: - Draft law regulating credit registries was discussed by the Council of Ministers in January 2012 and forwarded to Parliament; next steps to be defined by a working party established jointly with the BCEAO per recommendations of the regional conference on credit rating agencies within WAEMU held in May 2012. The working party should lay down a roadmap for a uniform subregional framework. - Draft law on financial leasing was adopted and promulgated in January 2012. Next steps: (a) publicize the law among bankers, SMEs, and the legal and tax administrations; and (b) introduce a registry of guarantees. - Final report assessing the performance of Poste Finances over the 2006-2010 period submitted; main recommendation is to upgrade Poste Finances within two-year by improving its management, restoring third-party assets, and recapitalizing the parent company before contemplating eventual conversion into a credit institution. - Report on rationalization of resources dedicated to micro-finance prepared; main recommendations include systematic assessment of projects and programs and reinforcement of sector supervision. ### Program monitoring - Section IV indicates program monitoring activities follow the described reform and implementation measures. *IMF country report excerpt.* ### 33. In view of the discussion in the preceding sections, it would appear necessary to ### _cr12227 - 33. In view of the discussion in the preceding sections, it would appear necessary to ### Proposed changes to program monitoring and timetable - Make symmetrical the adjuster on the fiscal deficit in the event that concessional resources exceed or fall short of program forecasts. - Revise the floor on the 2012 fiscal deficit upwards (starting with the floor for end-June 2012). - Reschedule program measures that have not yet been implemented. - Propose indicative targets for 2013. - Review timetable: - The fourth review of the PSI–supported program should normally be completed by end-December 2012. - The fifth review should be completed by end-June 2013. ### Quantitative assessment criteria and indicative targets (selected entries from Tables 1–3) - Table 1 (June 30, 2011; September 30, 2011; December 31, 2011) — selected assessment-criteria outcomes and statuses: - Floor on the overall fiscal balance: 2 3 -237 -155 met -355 -318 met -427 -455 not met - Ceiling on the contracting or guaranteeing of new nonconcessional external debt by the government (in US$ million): 4 500 300 met 500 300 met 500 300 met - Ceiling on spending undertaken outside normal and simplified procedures: 4 0 0 met 0 0 met 0 0 met - Ceiling on government external payment arrears (stock): 4 0 0 met 0 0 met 0 0 met - Ceiling on the amount of the budgetary float: 50 45 met 50 40 met 50 50 met - Ceiling on nonconcessional debt with a minimum grant element of 15 percent: 4 300 met 300 met 440 met - Indicative targets — Quarterly ceiling on single-tender share (percent): 20 6 met 20 4 7 not met 20 16 met - Floor on social expenditures (percent of total spending): 35 41 met ......... 35 37 met - Maximum upward adjustment of the overall deficit ceiling due to: - Shortfall in program grants relative to program projections: 15 ...... 15 ...... 15 ...... - Excess in concessional loans relative to program projections: 70 ...... 70 ...... 50 ...... - Excess in energy sector and autoroute investment relative to program projections: ......... ............... 50 ...... - Table 2 (June 30, 2012; September 30, 2012; December 31, 2012) — selected entries: - Floor on the overall fiscal balance ² ³: -427 -455 not met; -102 -70 met; -231 -347 -463 - Ceiling on contracting or guaranteeing of new nonconcessional external debt (US$ millions): 4 500 300 met 500 300 met 500 500 500 - Ceiling on spending undertaken outside normal and simplified procedures: 4 0 0 met 0 0 met 0 0 0 - Ceiling on government external payment arrears (stock): 4 0 0 met 0 0 met 0 0 0 - Ceiling on the amount of the budgetary float: 50 50 met 50 49 met 50 50 50 - Ceiling on nonconcessional debt with minimum grant element of 15 percent: 4 440 met 440 met 444 444 44 - Indicative targets — Quarterly ceiling on single-tender share (percent): 20 16 met 20 14 met 20 20 20 - Floor on social expenditure (percent of total spending): 35 37 met ...... met 35 ... 35 - Maximum upward adjustment of the overall deficit ceiling owing to: - Shortfall in program grants relative to program projections: 15 ...... 15 ...... 15 15 15 - Excess in concessional loans relative to program projections: 50 ...... 50 ...... 50 50 50 - Excess in energy sector and autoroute investment relative to program projections: 50 ...... 50 ...... 50 50 50 - Memorandum items: - Program grants: 37 37 ... 9 ...... 19 28 32 - Concessional loans: 210 175 ... 52 ...... 105 157 328 - Investment in the energy sector and the autoroute 5: 66 66 ... 44 ...... 81 122 162 - Table 3 (December 31, 2012; March 31, 2013; June 30, 2013; September 30, 2013; December 31, 2013) — selected projections: - Floor on the overall fiscal balance ² ³: -463 -92 -184 -275 -367 - Ceiling on contracting or guaranteeing of new nonconcessional external debt (US$ millions): 4 500 500 500 500 500 - Ceiling on spending undertaken outside normal and simplified procedures: 4 0 0 0 0 0 - Ceiling on government external payment arrears (stock): 4 0 0 0 0 0 - Ceiling on the amount of the budgetary float: 50 50 50 50 50 - Ceiling on nonconcessional debt with minimum grant element of 15 percent: 4 44 44 44 44 44 - Indicative targets — Quarterly ceiling on single-tender share (percent): 20 20 20 20 20 - Floor on social expenditures (percent of total spending): 35 ... 35 ... 35 - Maximum upward adjustment of the overall deficit ceiling owing to: - Shortfall in program grants relative to program projections: 15 15 15 15 15 - Excess in concessional loans relative to program projections: 50 50 50 50 50 - Excess in energy sector and autoroute investment relative to program projections: 50 50 50 50 50 - Memorandum items: - Program grants: 32 8 162 434 - Concessional loans: 328 82 164 246 282 - Investment in the energy sector and the autoroute 5: 162 ............ Notes attached in tables: - ² Cumulative since the beginning of the year. - ³ The ceiling on the overall fiscal deficit will to be adjusted in line with the TMU definition. - 4 Monitored on a continuous basis. - 5 Investment in the autoroute plus investment under the plan Takkal financed from internal and external concessional resources. - Indicative targets shown in italics. ### Structural benchmarks (Table 4, 2011–2012) — selected measures, dates, and status - CONTAIN FISCAL DEFICIT - Adoption by the Council of Ministers of the Budget Execution Law (LFR) for 2012 — June 20, 2012 — Prior action — Met - INCREASE TAX REVENUE, IMPROVE THE QUALITY OF EXPENDITURE AND DEBT MANAGEMENT - Prepare an evaluation guide for productive projects — March 31, 2012 — 3rd — Reset to 5th — Improve investment planning — Not met. Reprogrammed at end-2012 - Operationalize the new public debt directorate — January 15, 2012 — 3rd — Improve debt management — Completion expected by June 30, 2012 - Prepare a medium-term debt strategy — June 30, 2012 — 3th — Reset to 4th — Improve debt management — Reprogrammed at end-September 2012 - Finalize the new general tax code and submit it to Parliament — September 30, 2012 — 4th — In progress - CONSOLIDATE PROGRESS IN PUBLIC FINANCIAL MANAGEMENT - Make use of the national registration number for businesses and associations (NINEA) mandatory for customs operations — January 1, 2012 — 3rd — Met - Launch and complete a comprehensive survey of agencies and their missions — January 31, 2012 — 3rd — Met, with delay (May 2012) - Produce a plan for restructuring all agencies and comparable entities — December 31, 2012 — 5th — New - Finalize the Single Treasury Account — February 28, 2013 — 5th — New - PROMOTE PRIVATE SECTOR DEVELOPMENT, GOVERNANCE, FINANCIAL AND ENERGY SECTORS - Publish complete information on FSE and related projects monthly on a specialized government website — July 31, 2011 — 2nd — Continuous - Finalize an initial audit of resources allocated to the highway extension and publish the report — April 30, 2012 — 3rd — Not met - Finalize a study on resources allocated to the microfinance sector and their impact — January 31, 2012 — 3rd — Met - Adopt an action plan on subsidies to electricity consumers — April 30, 2012 — 3rd — Reset to 4th — Not met. Reprogrammed for end-August 2012 ### Technical Memorandum of Understanding (TMU) — definitions, adjusters, and reporting requirements - Scope: - TMU defines quantitative assessment criteria, indicative targets, and structural benchmarks for monitoring the PSI-supported program in 2011-2013. - “Government” means the central administration of the Republic of Senegal and excludes local administrations, the central bank, or other autonomous public entities not included in the government flow-of-funds table (TOFE). - Overall Fiscal Balance (program definition): - Definition: difference between government’s total revenue (revenue and grants) and total expenditure and net lending; FSE operations integrated in the TOFE; revenues exclude privatization receipts and sales of mobile phone licenses or other state-owned assets; government expenditure defined on basis of payment orders accepted by the Treasury and expenditures executed with external resources. - Example: Floor on the overall fiscal balance including grants as of December 31, 2011 is CFAF 427.3 billion, calculated as total government revenue (CFAF 1545.5 billion) minus total expenditure and net lending (CFAF 1972.8 billion). - Adjusters to the overall fiscal balance: - Adjusted downward by the amount that budget grants fall short of program projections up to a maximum of CFAF 15 billion at current exchange rates. - Adjusted downward/upward by the amount that concessional loans exceed/fall short of their programmed amount, up to a maximum of CFAF 50 billion at current exchange rates. Concessional loans denominated in CFAF and in foreign currency are taken into account. - Adjusted upwards/downwards by the amount that investment for the energy sector and the autoroute financed with domestic resources exceeds/falls short of programmed amounts in MEFP tables 2 and 3. Upward adjustment capped at CFAF 50 billion. - Reporting requirements: - Authorities will report provisional data on the overall fiscal balance and its components monthly to Fund staff with a lag of no more than 30 days. - Final data to be provided as soon as final balances of Treasury accounts are available, but not later than two months after reporting provisional data. - Social expenditure: - Definition: spending on health, education, the environment, the judicial system, social safety nets, sanitation, and rural water supply. - Criterion set as a floor in percent relative to total spending (including the FSE) excluding capital expenditure related to the extension of the autoroute and Plan Takkal investment projects. - Authorities will report semiannual data to Fund staff within two months following the end of each period. - Budgetary float: - Definition: outstanding stock of government expenditure for which bills have been received and validated but not yet paid by the Treasury (difference between dépenses liquidées and dépenses payées). - Assessment criterion set as a ceiling on the budgetary float, monitored at the end of the quarter. - Authorities will transmit weekly and monthly SIGFIP tables showing committed, certified, payment orders, payment orders accepted by the Treasury, and payments made by the Treasury. SIGFIP table will exclude delegations for regions and embassies and list payments without cash impact. - Spending undertaken outside simplified and normal procedures: - Applied continuously to any procedure other than normal and simplified procedures; excludes supplemental appropriation order (décret d’avance) in absolute urgency requiring signatures of President and Prime Minister. - Authorities will report any such procedure monthly to Fund staff with a maximum delay of 30 days, together with the SIGFIP table. - Government external payments arrears: - Definition: sum of payments owed and not paid on external debt contracted or guaranteed by the government. - Monitored on a continuous basis; authorities to promptly report any accumulation of external payments arrears. - Definition of debt for contracting or guaranteeing new nonconcessional external debt: - Follows Executive Board Decision No.6230-(79/140), as revised August 31, 2009 (Decision No. 14416-(09/91)). - Debt defined to include loans, suppliers’ credits, leases (present value at inception), and arrears, penalties, and judicially awarded damages arising from failure to make payment under contractual obligation that constitutes debt. *Source: Technical Memorandum of Understanding, Dakar, June 22, 2012 (extracts and tables as provided).* ### 19. Debt guarantees. For the purposes of the relevant assessment criteria, the guarantee ### 19. Debt guarantees. ### Definitions and scope - Guarantee of a debt: any explicit legal obligation of the government to service a debt in the event of nonpayment by the debtor (involving payments in cash or in kind). - External debt: debt borrowed or serviced in a currency other than the CFA franc. This definition also applies to debt among WAEMU countries. - Assessment criteria coverage: contracting and guaranteeing of new nonconcessional external debt by the government, local governments, SENELEC, the Energy Sector Support Fund (FSE), and any other public or government-owned entity. Also applies to private debt with official guarantees (contingent liabilities). - Timing: the assessment criteria are measured on a cumulative basis from the time of approval of the PSI by the Executive Board and will be monitored on a continuous basis. No adjuster will be applied to these criteria. ### Debt concessionality: grant element and discounting - Concessional debt criterion: a debt is considered concessional if it includes a grant element of at least 35 percent. - Grant element definition: the difference between the present value (PV) of debt and its nominal value, expressed as a percentage of the nominal value of the debt. - PV calculation: discount the future stream of payments of debt service due on the debt at the time of contracting. - Discount rates: - Use currency-specific commercial interest reference rates (CIRRs), published by OECD. - For debt with a maturity of at least 15 years, use the ten-year-average CIRR. - For debt with a maturity of less than 15 years, use the six-month average CIRR. - Margins for differing repayment periods to be added to the ten-year and six-month CIRR averages: - 0.75 percent for repayment periods of less than 15 years - 1 percent for 15 to 19 years - 1.15 percent for 20 to 29 years - 1.25 percent for 30 years or more - Calculation details: the calculation of concessionality will take into account maturity, grace period, payment schedule, upfront commissions, and management fees. - CIRR exception: for debts in foreign currencies for which the OECD does not calculate a CIRR, use the composite CIRR (weighted average) of the currencies in the SDR basket. ### Debt-related assessment criteria and exclusions - Applicability: criteria apply to debt and commitments contracted or guaranteed for which value has not yet been received. - Exclusions (assessment criteria do not apply to): - (i) Debt rescheduling transactions of debt existing at the time of the approval of the PSI. - (ii) Debt contracted by the airport project company (AIBD) to finance construction of the new Dakar Airport. - (iii) Short-term external debt (maturity of less than one year) contracted by SENELEC to finance the purchase of petroleum products. ### Special ceilings and provisions - Ceiling for nonconcessional external debt tied to toll highway and energy sector: - A total ceiling of US$500 million applies over the period 2011–13 for nonconcessional external debt financing tied to the toll highway to Diamniadio and its extension to the Diamniadio-International Airport Blaise Diagne/Thiès/Mbour or investments in the energy sector. - Nonconcessional funds obtained in this way will be deposited in a special account from which only such highway-related payments and energy sector investments provided in Plan Takkal will be made. - Following the issuance of a US$500 million Eurobond in May 2011, with an exchange offer for the outstanding 2009 Eurobond, the remaining ceiling for non-concessional borrowing for 2011-13 is US$ 200 million (equivalent to the amount of the 2009 bonds actually redeemed or exchanged in 2011). - Separate ceiling for partially concessional untied financing: - A separate ceiling equivalent to CFAF 44 billion in 2011-13 applies for untied nonconcessional external debt financing with a grant element of at least 15 percent. - Projects financed under this ceiling are expected to meet the same economic and social profitability criteria as other capital spending. - Notification and information requirements: the government will inform Fund staff in a timely manner before contracting any debt of this type and will provide sufficient information ahead of time to verify the degree of concessionality; it will also provide a brief summary of the projects to be financed and their profitability, including an evaluation by the lender or the government. - Reporting: the government will report the use of funds and project implementation in subsequent MEFPs. ### Reporting requirements for new external borrowing - Timing: the government will report any new external borrowing and its terms to Fund staff as soon as external debt is contracted or guaranteed by the government, but no later than within two weeks of such external debt being contracted or guaranteed. --- ### G. Public Sector Contracts Signed by Single Tender ### Definition and scope - Public sector contracts: administrative contracts, entered into by the government or any entity subject to the procurement code, for procurement of supplies, delivery of services, or execution of work. - Single-tender contracts: contracts signed by the contracting agent with the chosen contractor without competitive tender. - Quarterly indicative target: applies to total public sector contracts entered into by the government or any entity subject to the procurement code. - Exclusion: the ceiling on contracts executed by single tender will exclude fuel purchases by SENELEC for electricity production (exclusion reflects regulation requiring SENELEC to buy fuel directly from SAR based on the existing price structure). ### Reporting requirements - Frequency and lag: the government will report quarterly to Fund staff, with a lag of no more than one month from the end of the observation period, the total value of public sector contracts and the total value of all single-tender public sector contracts. --- ### III. ADDITIONAL INFORMATION FOR PROGRAM MONITORING ### Immediate and regular reporting obligations - 3 days after adoption: transmit any decision, circular, edict, supplemental appropriation order, ordinance, or law having economic or financial implications for the current program. This includes acts that change budget allocations included in the budget law being executed (for instance: supplemental appropriation orders (décrets d’avance), cancellation of budget appropriations (arrêtés d’annulation de crédit budgétaires) and orders or decisions creating supplemental budget appropriations (décrets ou arrêtés d’ouverture de crédit budgétaire supplémentaire)). - With a maximum lag of 30 days, provide preliminary data on: - Tax receipts and tax and customs assessments by categories, accompanied by the corresponding revenue on a monthly basis; - The monthly amount of expenditures committed, certified, and for which payment orders have been issued; - The quarterly report of the Debt and Investments Directorate (DDI) on the execution of investment programs; - The monthly preliminary government financial operations table (TOFE) based on the Treasury accounts; - The provisional monthly balance of the Treasury accounts; and - Reconciliation tables between the SIGFIP table and the consolidated Treasury accounts, between the consolidated Treasury accounts and the TOFE for "budgetary revenues," between the consolidated Treasury accounts and the TOFE for "total expenditure and net lending," and between the TOFE and the net government position (NGP), on a quarterly basis. - The amount of checks issued by agencies but not paid to beneficiaries with the dates of issuance of the checks. - Final data: final data will be provided as soon as the final balances of the Treasury accounts are available, but not later than one month after the reporting of provisional data. ### Monthly reporting on expenditures executed through advances - During the program period: authorities will transmit provisional data on current nonwage noninterest expenditures and domestically financed capital expenditures executed through cash advances on a monthly basis with a lag of no more than 30 days. Final data will be provided as soon as the final balances of the Treasury accounts are available, but no more than one month after the reporting of provisional data. ### Central bank and financial sector reporting - Central bank to transmit to Fund staff: - The monthly balance sheet of the central bank, with a maximum lag of one month; - The consolidated monthly balance sheet of banks with a maximum lag of two months; - The monetary survey, on a monthly basis, with a maximum lag of two months; - The lending and deposit interest rates of commercial banks, on a monthly basis; - Prudential supervision and financial soundness indicators for bank financial institutions, as reported in the Table entitled Situation des Etablissements de Crédit vis-à-vis du Dispositif Prudentiel (Survey of Credit Institution Compliance with the Prudential Framework), on a quarterly basis, within a maximum delay of two months. *IMF staff report text.* ### 30. The government will update on a monthly basis on the website established for this ### _cr12227 - 30. The government will update on a monthly basis on the website established for this purpose the following information ### Monthly fiscal and project transparency requirements (paragraph 30) - The government will update on a monthly basis on the website established for this purpose the following information: - a) Preliminary TOFE and transition tables with the delay of 2 months. - b) SIGFIP execution table, the table for the central government and a summary table including regions, with the delay of 2 weeks. - c) The amount of the airport tax collected, deposited in the escrow account, and used for the repayment of the loan financing the construction of the new airport, with the delay of 1 month. - d) Full information on: - (i) the operations of Energy Sector Support Fund (FSE); - (ii) Plan Takkal investment project; - (iii) planning and execution of these projects; - (iv) details of financing and updated costs; and - (v) the balance of the escrow account with the resources of the Eurobond issued in 2011 allocated to the Takkal project (within 3 weeks). - e) Full information on: - (i) the status of the projects related to the extension of the autoroute to Diamniadio, AIDB, Mbour and Thies; - (ii) costs of the projects and their updates; - (iii) financing and cost of financing linked to the projects; - (iv) the balance of the escrow account with the resources of the Eurobond issued in 2011 and allocated to the extension of the autoroute (with the delay of 3 weeks). ### Relations with the Fund and financial position (Informational Annex) - Outstanding purchases and loans amounted to SDR 134.52 million (83.14 percent of quota) at end-May 2012. - Quota and holdings: - Quota: 161.80 (SDR Million) 100.00 percent of quota. - Fund holdings of currency (Exchange Rate): 159.97 (SDR Million) 98.87 percent of quota. - Reserve Tranche Position: 1.85 (SDR Million) 1.14 percent of quota. - SDR Department: - Net cumulative allocation: 154.80 (SDR Million) 100.00 percent of allocation. - Holdings: 130.20 (SDR Million) 84.11 percent of allocation. - Outstanding Purchases and Loans by facility: - ESF Arrangements: 121.35 (SDR Million) 75.00 percent of quota. - ECF Arrangements: 13.17 (SDR Million) 8.14 percent of quota. - Latest financial arrangements (selected): - ESF: Date of Expiration Dec 19, 2008; Arrangement Date Jun 10, 2010; Amount Approved 121.35 (SDR Million); Amount Drawn 121.35 (SDR Million). - ECF: Apr 28, 2003–Apr 27, 2006; Amount Approved 24.27 (SDR Million); Amount Drawn 24.27 (SDR Million). - Projected payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): - Principal: 2012 1.73 2013 .47 2014 11.56 2015 24.15 2016 25.66 - Charges/Interest: 2012 0.02 2013 0.34 2014 0.35 2015 0.31 2016 0.25 - Total: 2012 1.75 2013 3.80 2014 11.90 2015 24.46 2016 25.90 ### Macroeconomic developments, projections, and program execution (IMF mission statement, May 2–15, 2012) - 2011 outcomes: - GDP growth: 2.6 percent (limited by steep decline of agricultural production due to the drought in the Sahel). - Inflation: 3.4 percent in 2011 (driven by increase of food and transport prices). - 2012 projections and outlook: - Growth: An upturn to 3.9 percent is anticipated in 2012, supported by recovery of agricultural production (assuming normal rainfall patterns) and public investment in infrastructure. - Inflation: Should remain moderate, at about 2.5 percent, in 2012. - Program implementation and fiscal stance: - There was a significant slowdown at end-2011/early 2012 in program implementation, in a tense pre-electoral context. - The fiscal deficit target for 2011 was not met because of current expenditure overruns and tax revenue shortfalls. - In the absence of remedial measures, the fiscal deficit could exceed 8 percent of GDP in 2012. - Energy price subsidies (electricity tariffs, petroleum product) are expected to reach CFAF 150 billion in 2012 (2 percent of GDP), imposing a very high cost on public finances. - The 2012 deficit target was raised from 5.6 percent to 6.4 percent of GDP. - The new target should be achieved through major efforts to reduce government current spending and the postponement of some non-priority capital expenditure. - The government committed to make up for late payments to the private sector accumulated before the presidential elections. ### Policy advice, reforms, and commitments (from mission and Annex) - Policy priorities and recommended measures: - Keep public finances under control to maintain macroeconomic stability. - Increase fiscal revenue to create greater fiscal space for priority expenditures. - Pursue consolidation of public financial management and improve governance. - Promote private sector development and improve the business climate and governance to stimulate private-sector growth. - Replace broad energy price subsidies with measures that are more efficient and better targeted to the poorest segments of the population. - Reduce government current spending and postpone non-priority capital expenditure to meet the revised 2012 deficit target of 6.4 percent of GDP. - Improve liquidity and debt management and strengthen investment planning and evaluation to ensure high productivity of government spending. - Structural reform progress: - Progress was made in implementation of structural reforms but at a markedly slower pace than envisaged in the program. - Authorities announced measures such as reduction of the size of government and restructuring of agencies and confirmed intent to pursue taxation and energy reforms. ### Technical assistance, collaboration, and program reviews - Joint Bank-Fund activities and TA: - A Joint Management Action Plan Implementation table lists planned deliveries (Public Expenditure Review, Public Finance Management TA, Development Policy Operation, energy sector credit, social protection policy notes, poverty assessment, IMF PSI reviews). - IMF missions: Third PSI Review mission May 2-15, 2012; Fourth PSI Review and Article IV consultations mission Sept. 6-19, 2012. - Resident IMF representation: Stationed in Dakar since July 24, 1984; position held by Ms. Valeria Fichera since September 2009. - Technical assistance and capacity building were detailed across AFRITAC and IMF headquarters (areas including debt management, public expenditure management, tax administration, national accounts, customs administration, and public financial management) for 2003–2012. *Source: Third Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria - Informational Annex, Prepared by the African Department; Approved June 26, 2012.* ### 1. Discussions under the third PSI review were held with the new Senegalese ### _cr12227 - 1. Discussions under the third PSI review were held with the new Senegalese ### Overview - The new government reaffirmed continuation of the country’s close program relationship with the Fund and expressed commitment to the PSI-supported program and to its objectives. - The PSI-supported program is presented as a useful channel to implement a comprehensive reform agenda encompassing public financial management, fiscal transparency, civil service, public debt management, and financial and private sector development. - Authorities value the policy dialogue with Management and staff in Washington and Dakar and seek Executive Directors’ continued support for Fund’s PSI engagement in Senegal. ### Recent achievements under the Policy Support Instrument - Macroeconomic and debt management proceeded broadly in line with program commitments amid a difficult policy environment. - At end-December 2011: - All quantitative assessment criteria were observed except the one on the fiscal deficit, which was missed as current spending overshot and revenue fell short of targeted levels. - By end-March 2012: - Authorities’ policies helped meet all end-March 2012 quantitative assessment criteria and indicative targets set forth under the program. - Structural reform progress (with some delays relative to the initial schedule) included: - Introduction of a unique taxpayer identification number in customs operations. - Establishment of a new public debt bureau. - Completion of a survey of agencies and public entities. - Lessons learnt from an impact analysis of the resources allocated to the microfinance sector. - Expected economic effects: - Economic activity is expected to recover in 2012, notably on account of the implementation of supportive policies in the agricultural sector and public investment programs. ### Policy and reform agenda for 2012 onwards #### Preserving macroeconomic stability - Authorities commit to prudent fiscal policy aimed at keeping the fiscal deficit "hovering around the level consistent with fiscal sustainability." - Objective to contain inflation below the related WAEMU convergence criterion. - Rationale for fiscal adjustment: - Need to accommodate pressing social needs and drought relief measures. - Mitigate adverse impact of the weaker external environment on growth and revenue performance. - Specific actions taken under a supplementary budget adopted by the Cabinet: - Significant spending adjustment, including large cuts in current expenditures. - Postponement of the launch of a number of public investment projects, particularly those that have yet to start or with limited positive impact on growth and poverty reduction. - Significant reduction of the number of ministries and public agencies. - Efforts to contain government consumption, notably in terms of communication and transportation services. - Authorities intend to explore further efficiency gains in government spending by: - Better targeting agricultural subsidies. - Rationalizing social sector outlays. - Fiscal target: - The timely policy response is expected to enable the achievement of the revised program deficit target of 6.4 percent of GDP in 2012. #### Building fiscal space for priority expenditure - Actions underway to boost revenue mobilization and free space for priority spending: - Pursue reform program to streamline tax legislation and incentives, improve efficiency and transparency of the tax system, boost tax revenue, and enhance tax compliance. - Establishment of a new general tax code scheduled to be submitted to the parliament by end-September 2012 and enacted along with the 2013 budget. - Rationale and objectives of the reform program already placed in the public domain to garner stakeholder consensus. - Improvements in tax and customs administration to continue: - Modernization of tax collection and customs operations remains a high priority. - Recognition: Senegal is a 2012 United Nations Public Service Awards winner in the category “Improving the Delivery of Public Services” for steps taken by the customs administration to introduce innovative technologies. - Work to improve information-sharing between the tax directorate and other tax collecting entities reporting to the finance ministry such as customs administration. - Continued improvements to the taxpayer registration process with valued Fund technical assistance. #### Strengthening public financial management, fiscal transparency and governance - Progress toward implementing the six directives of WAEMU’s harmonized public financial management framework: - Four directives transposed to date: budget laws, public accounting, central government operations summary table and chart of accounts. - A decree transposing the fifth directive on budget classification is expected to be issued by the end of September 2012. - A draft law implementing the sixth directive on fiscal transparency was adopted last month by the Cabinet. - Treasury single account implementation: - Ongoing; scheduled to be finalized early in 2013. - Debt management: - A new public debt bureau became recently operational. - The bureau will endeavor to finalize within the next few months a medium-term debt strategy expected to be annexed in the forthcoming budget law. - Streamlining government agencies: - Reorganization and elimination of several public entities has already occurred. - Authorities intend to extend this exercise to all public agencies and similar entities and finalize it by the end of this year. - Other governance and transparency measures underway or planned: - Efforts to improve transparency in real estate transactions involving the State. - Finalization of guidelines for project evaluation. #### Promoting private sector development - Private sector development is a main objective of the reform agenda, with priority reforms in the energy and financial sectors due to their macrocriticality and implications for program success. - Energy sector actions: - Assessment of the emergency plan for recovery and restructuring of the energy sector (Plan Takkal) to explore ways of sustaining adequate electricity production and distribution. - Planned measures to improve sector efficiency and address fiscal risks, including: - Planning the restructuring of the electricity company. - Developing an action plan to reduce subsidies on electricity consumption. - Financial sector reforms (in collaboration with BCEAO): - Pursued to bring about financial innovations and development, including laying the groundwork for financial leasing and credit rating services. - Efforts with regional authorities to ease credit access are expected to contribute to jumpstarting private sector development. ### Conclusion and requests to Executive Directors - The authorities demonstrate strong commitment to program objectives and an ambitious policy and reform agenda under the PSI. - The author calls on Directors to: - Support the completion of the third review of the PSI. - Support the authorities’ request for modification of the end-June and end-December 2012 assessment criteria. - Support the waiver for nonobservance of the end-December 2011 assessment criterion on the overall fiscal deficit. *IMF staff report: Discussions under the third PSI review with the new Senegalese administration.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12227.pdf_