## _cr13170

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---

### Macroeconomic performance and risks
- Growth picked up in 2012 thanks to a strong post-drought rebound in agriculture; growth is estimated to have reached 3.5 percent in 2012 and is projected to increase slightly to 4 percent in 2013.
- Inflation averaged 1.4 percent in 2012 and is expected to remain below 2 percent in 2013.
- External current account deficit increased to 10.3 percent of GDP in 2012; projected to decrease as a share of GDP in 2013 owing to an improvement in the terms of trade and the non-recurrence of some exceptional 2012 import factors.
- Key transmission channels from Europe: trade, worker remittances, foreign direct investment, terms of trade, and aid; financial sector has limited direct exposure to Europe.
- Downside risks:
  - External: possible intensification of the euro area crisis; adverse security developments in Mali and the Sahel.
  - Domestic: insufficient reform momentum due to vested interests and the election calendar; insufficient reform of the state and energy sector could hamper fiscal consolidation and growth.

### Program implementation and structural reform progress
- All assessment criteria for end-2012 were met.
- Fiscal outturn and composition:
  - Fiscal deficit reduced to 5.9 percent of GDP in 2012 despite significant revenue shortfalls.
  - Revenue shortfalls due to difficulties collecting VAT from public agencies and underperformance of taxes on petroleum products, partly related to SENELEC’s financial constraints.
  - Offsetting factors: lower expenditure on goods and services, interest payments, and externally-financed investment.
- Selected structural benchmark outcomes and status:
  - Project evaluation guide: Done (implementation date December 31, 2012).
  - Publication of information on government land transactions: Done with delay (March 2013; implementation date January 31, 2013).
  - Single Treasury Account: Progress recorded; completion expected end-September 2013 (implementation date February 28, 2013); completion delayed pending a study on impact of closing accounts on the banking system.
  - Survey of bank accounts completed but took longer than expected.
- Selected indicators (percent of GDP, 2012 actual and program comparisons):
  - Total revenue and grants: 23.9 (2012 actual)
  - Tax revenue: 19.7
  - Other revenue: 4.2
  - Total expenditure and net lending: 29.7
  - Current expenditure: 17.7
  - Wages and salaries: 6.3
  - Energy subsidies: 1.5
  - Capital expenditure and net lending: 12.0
  - Overall fiscal balance: -5.9
  - Memorandum: Flood-related expenditure 0.1; Security-related expenditure 0.3

### Fiscal outlook and 2013 fiscal policy
- Fiscal position under strain from exogenous factors (notably the situation in Mali) and high direct and indirect cost of energy subsidies.
- Expenditure pressures for 2013:
  - Security-related spending: about 0.3 percent of GDP.
  - Additional capital expenditures for flood prevention: 0.1 percent of GDP.
  - Energy sector pressures from delayed reforms, delayed investments, and absence of tariff adjustment; risk to SENELEC’s tax payments.
  - Continued subsidies to SAR and for butane gas.
  - Pressures on the wage bill from conversion of contractual education staff to permanent staff.
- Authorities’ revised target and measures:
  - New fiscal deficit target of 5.3 percent of GDP for 2013 (initial target 4.9 percent of GDP).
  - Revenue mobilization measures expected to yield at least 0.4 percent of GDP, including:
    - New tax on cosmetic products.
    - Increase in the tax on tobacco.
    - Inclusion in the VAT base of certain telecommunication activities.
    - End of exemption from VAT of certain activities financed by external resources.
    - Advanced payment on income tax at importation stage to bring more small and medium businesses into the tax net.
  - Expenditure adjustments: downward revision of externally-financed investment due to delays; interest payments expected lower than programmed partly because of lower interest rates.
  - Cabinet approved in May 2013 a supplementary budget for 2013 reflecting these changes.

### Budget support to the energy sector (Box 1 findings)
- 2012 components and amounts:
  - Tariff compensation to SENELEC: CFAF 105 billion (1.5 percent of GDP); 2013 budgeted cap at CFAF 80 billion.
  - Shortfall in tax collection from SENELEC: CFAF 38 billion (0.5 percent of GDP); about half cleared via cross-debt settlement and recapitalization.
  - Cost of renting mobile power generators: CFAF 15 billion (0.2 percent of GDP).
  - Domestically-financed investment for rehabilitation/extension of power plants: CFAF 23 billion (0.3 percent of GDP).
  - Total budget cost supporting electricity sector in 2012: CFAF 181 billion, or 2.5 percent of GDP (not including on-lending of government-contracted resources).
  - Foregone revenue from petroleum price stabilization: CFAF 24 billion in 2012 (0.3 percent of GDP).
  - Butane gas price support cost: about 0.1 percent of GDP.
  - Direct and indirect supports to SAR: average CFAF 40 billion over past few years (0.6 percent of GDP).
- Despite significant budgetary support, SENELEC’s financial situation remained shaky with accumulated arrears to suppliers.
- Tariff compensation formula is being revised; current formula does not reflect full extent of SENELEC’s losses.

### Debt management and financing
- Authorities plan to issue a new 10-year Eurobond of $500 million to close the financing gap and improve the public debt profile (previously considered using $200 million space under program ceiling).
- Rationale for Eurobond:
  - Close a financing gap higher than the $200 million expected at 4th PSI review.
  - Reduce recourse to relatively costly short-term regional market financing (yields generally above 5.5 percent at issuance and short maturities increase rollover risks).
  - Substituting Eurobond financing would increase the average maturity at issuance of market debt issued in 2013 by about 2 years at about unchanged interest cost.
- Market conditions appear favorable (yield on the 2011 Eurobond below 6 percent at the time).
- Authorities expect to raise new external financing with a grant element between 15 and 35 percent to fund road and flood-prevention projects.
- Companion Debt Sustainability Analysis indicates limited deterioration of external debt outlook and continued low risk of debt distress, assuming fiscal consolidation proceeds as envisaged.

### Policy discussions and strategic priorities
- National Strategy for Economic and Social Development (NSESD) completed as the new poverty reduction strategy; provides diagnostic and framework for resource mobilization and expenditure prioritization.
- Authorities reaffirm commitment to program objectives:
  - Reduce fiscal deficit below 4 percent of GDP by 2015.
  - Improve the tax system.
  - Strengthen public financial and debt management.
  - Promote private sector development and good governance.
- Key policy focus areas:
  - Reforming the state to ensure fiscal sustainability.
  - Energy sector reform to support private sector development and improve the business environment.
  - Accelerating implementation of the reform agenda to raise potential growth and boost job creation.

### Program monitoring, PSI review, and requested modifications
- Staff recommends completion of the fifth PSI review and supports the requested program extension and modification of assessment criteria.
- Authorities requested a one-year extension of the PSI-supported program to end-2014.
- Proposed program monitoring changes and ceilings:
  - Raise end-June and end-December 2013 fiscal deficit targets as explained in the text.
  - Raise program’s ceiling on nonconcessional borrowing to $800 million to accommodate the new Eurobond; remaining ceiling for nonconcessional borrowing for 2013–14 is US$500 million after earlier issuances.
  - Raise ceiling for external borrowing with a grant element between 15 and 35 percent to CFAF 67 billion.
  - Addition of seventh and eighth reviews for program monitoring in 2014 and indicative targets and benchmarks proposed for the period beyond the 6th review.

### Growth, inflation, and external projections (selected series, 2011–2018)
- GDP at constant prices (annual percent change): 2.6, 3.7, 3.5, 4.3, 4.0, 4.6, 4.7, 4.9, 5.1, 5.1.
- Consumer prices, annual average (percent): 3.4, 1.5, 1.4, 1.6, 1.5, 1.7, 1.8, 1.8, 1.8, 1.8.
- Exports, f.o.b. (CFA francs, annual percent change): 15.4, 4.4, 5.8, 6.9, 5.6, 4.2, 4.5, 6.8, 7.2, 8.3.
- Imports, f.o.b. (CFA francs, annual percent change): 19.7, 9.5, 13.9, 4.2, 0.4, 4.2, 4.0, 5.9, 6.0, 7.9.
- Gross official reserves (imputed, US$ billions): 2.0, 1.9, 2.1, 1.9, 2.1, 2.0, 1.9, 1.9, 2.0, 2.2.
- Current account balance including current official transfers (percent of GDP): -7.9, -7.6, -10.3, -7.1, -9.3, -8.7, -8.3, -8.1, -7.8, -7.5.

### Fiscal sector medium-term projections (selected indicators, percent of GDP)
- Revenue: 20.2, 20.9, 20.4, 20.8, 20.7, 20.6, 20.8, 20.6, 20.7, 20.9 (2011–2018).
- Grants: 2.2, 2.9, 2.9, 2.7, 2.7, 2.7, 2.7, 2.7, 2.6, 2.6.
- Total expenditure and net lending: 29.0, 29.7, 29.1, 28.4, 28.7, 27.9, 27.4, 27.0, 26.8, 26.9.
- Overall fiscal deficit (including grants): -6.7, -5.9, -5.9, -4.9, -5.3, -4.6, -3.9, -3.7, -3.5, -3.5.
- Total public debt (percent of GDP): 40.0, 45.0, 41.6, 46.8, 45.4, 47.2, 48.8, 49.0, 49.0, 49.1.
- External public debt (percent of GDP): 28.8, 32.7, 30.5, 34.6, 33.9, 34.5, 34.8, 35.4, 35.9, 36.4.

### Balance of payments, government finances, and monetary/financial sector highlights
- Current account (CFAF billions): -537, -546, -740, -551, -710, -712, -731, -765, -788, -818 (2011–2018).
- Total revenue and grants (CFAF billions): 1,526; 1,723; 1,670; 1,813; 1,784; 1,903; 2,055; 2,187; 2,358; 2,548.
- Total expenditure and net lending (CFAF billions): 1,980; 2,149; 2,090; 2,190; 2,190; 2,280; 2,399; 2,537; 2,712; 2,924.
- Broad money (percent change, y/y): 14.1, 6.7, 6.0, 6.8, 6.8 (selected series).
- Banking sector indicators (2006–12): Gross NPLs to total loans: 16.8, 18.6, 17.4, 18.7, 20.2, 16.2, 18.4; Provisions to NPLs: 52.0, 53.8, 51.5, 53.1, 54.9, 54.0, 56.1.

### Public financial management, governance, and structural reform agenda
- WAEMU directives on PFM fully transposed into national law; full implementation of the transparency code expected in 2014 with preparatory legal work in 2013 (including a law on assets disclosure to be transmitted to parliament by end-2013 as a proposed benchmark).
- Treasury Single Account (STA) and bank account rationalization:
  - Survey identified 3,305 bank accounts opened by central government and agencies; about half to be integrated into STA framework.
  - Impact study on eliminating/reducing bank accounts to be completed by end-June 2013; rationalization process completion by end-September 2013.
- Public service and agency audits:
  - Physical and biometric audit of public service completed to help streamline payroll.
  - Audit of public agencies to prepare (by end-July 2013) and implement a plan to rationalize recourse to agencies.
- Tax policy and administration:
  - New tax code effective January 2013; immediate priority to ensure satisfactory implementation.
  - Customs code submission to parliament rescheduled to end-September 2013 to allow consultations.
  - E-filing and e-payment of taxes to be available to all taxpayers in the region of Dakar by end-2013 (proposed new benchmark) and rolled out to all taxpayers in Dakar area by January 1, 2014 (new benchmark).
- Business environment and competitiveness:
  - Three-year reform program adopted by the Presidential Council on Investment to improve business environment and international rankings.
  - Actions include automation of investment procedures, full automation of business registration, automatic construction permit procedure, and reforms to expedite economic dispute resolution.

### Energy sector production plan and SENELEC restructuring (timelines and capacities)
- Production plan 2013–2017 and planned capacities/timings:
  - Félou hydroelectric: 15 MW in 2013.
  - IPP (LNG): 150 MW in April 2014.
  - IPP Tobéne (Taiba Ndiaye): 70 MW in 2014.
  - Coal-fired IPP (Sendou): 125 MW in April 2015.
  - Import from Mauritania natural gas powered plant: 80 MW in October 2015.
  - Coal-fired IPP with Kepco: 250 MW between 2016 and 2017.
- Expected impact: coming on stream of these units, at current oil prices, will be accompanied by the phase-out of the electricity subsidy and over time lead to lower costs for the user.
- SENELEC restructuring measures: consolidation of cross-claims under share capital, accounting investments by the State as a capital subsidy, optimization of power plants, reduction of network losses, improved billing, and shorter payment processing times; performance contract between the State and SENELEC to be signed in early June 2013 and independently audited.

### Debt Sustainability Analysis (DSA) — key conclusions and stress test findings
- Staff view: Senegal continues to face a low risk of debt distress, despite a marginal deterioration in the outlook for PPG external debt.
- Key macro assumption changes (Current DSA vs Previous DSA, selected):
  - Real GDP growth: 2013 Current DSA 4.0 vs Previous DSA 4.3; Long term Current DSA 5.3 vs Previous DSA 5.2.
  - Overall fiscal deficit: 2013 Current DSA 5.3 vs Previous DSA 4.9.
  - Current account deficit: 2012 Current DSA 10.3 vs Previous DSA 7.6.
- Eurobond and borrowing assumptions:
  - Expected new 10-year, $500 million Eurobond in 2013 at about 6 percent interest.
  - External borrowing 2013–2014: expected CFAF 67 billion in external debt with a grant element of between 15 and 35 percent.
- External DSA stress-test outcomes:
  - PV of debt to the sum of GDP and remittances breaches the threshold under a one-time 30-percent depreciation of the exchange rate; breach lasts 13 years and is relatively small (less than 2 percentage points at its peak).
  - Debt service-to-revenue threshold breached by a small margin in 2021 under the one-time 30-percent depreciation shock.
- Public DSA findings:
  - PV of total public debt to GDP peaks at 44 percent, below the benchmark level of 56 percent for medium performers.
  - Stress tests with unchanged primary deficit or historical scenario breach the 56 percent benchmark in 2023, underscoring need for fiscal consolidation and higher potential growth.
- Policy implications from DSA:
  - Sustain fiscal consolidation efforts in the medium term.
  - Approach nonconcessional borrowing with caution.
  - Continue to improve debt management capacity.
  - Lengthening domestic debt maturity via Eurobond issuance reduces rollover risk but increases exchange rate risk.

### Staff appraisal and policy recommendations (selected)
- Program implementation: satisfactory; staff supports slightly slower fiscal adjustment in 2013 while keeping the medium-term target unchanged.
  - Revised fiscal deficit target for 2013: 5.3 percent of GDP.
  - Medium-term commitment: reduce fiscal deficit below 4 percent of GDP by 2015.
- Priority recommendations:
  - Accelerate electricity sector reform and revert to full pass-through of international oil price changes to domestic petroleum product prices.
  - Phase out explicit and implicit subsidies to SENELEC and replace them with more effective and targeted social safety nets (e.g., family transfers under consideration).
  - Deep reforms to streamline expenditures and improve state efficiency (payroll audit follow-up, agency rationalization, higher education reform).
  - Strengthen public financial management, transparency, and tax administration; implement e-filing and e-payment, complete STA rollout, and adopt assets disclosure law.
  - Approach nonconcessional external borrowing cautiously and strengthen debt management capacity.

*International Monetary Fund staff report, June 4, 2013.*

### 2014. The military intervention in Mali has led to heightened regional uncertainty and

### 2014. The military intervention in Mali has led to heightened regional uncertainty and 

### Macroeconomic performance and risks
- Growth picked up in 2012 thanks to a strong post-drought rebound in agriculture; growth is estimated to have reached 3.5 percent in 2012 and is projected to increase slightly to 4 percent in 2013.
- Inflation averaged 1.4 percent in 2012 and is expected to remain below 2 percent in 2013.
- The external current account deficit increased to 10.3 percent of GDP in 2012, driven by higher imports of food, fuel, and capital goods; financing was mainly from public sector flows (grants and loans).
- The external current account deficit is projected to decrease as a share of GDP in 2013 owing to an improvement in the terms of trade and the non-recurrence of some exceptional 2012 import factors.
- Downside risks to the program have increased:
  - External: possible intensification of the euro area crisis; adverse security developments in Mali and the Sahel.
  - Domestic: insufficient reform momentum because of vested interests and the election calendar; insufficient reform of the state and energy sector could hamper fiscal consolidation and growth.
- Note on channels: trade, worker remittances, foreign direct investment, terms of trade, and aid are key transmission channels from Europe; financial sector has limited direct exposure to Europe.

### Program implementation and structural reform progress
- All assessment criteria for end-2012 were met.
- Fiscal deficit was reduced to 5.9 percent of GDP in 2012 despite a significant revenue shortfall.
- Revenue shortfalls reflected difficulties in collecting VAT from public agencies and underperformance of taxes on petroleum products, partly related to SENELEC’s financial constraints.
- Offsetting factors: lower expenditure on goods and services, interest payments, and externally-financed investment.
- Structural reform implementation: mixed progress
  - Project evaluation guide: Done (implementation date December 31, 2012).
  - Publication of information on government land transactions: Done with delay (March 2013; implementation date January 31, 2013).
  - Single treasury account: Progress recorded; completion expected end-September 2013 (implementation date February 28, 2013). Completion delayed pending a study on impact of closing accounts on the banking system.
  - Survey of bank accounts completed but took longer than expected.
- Text Table summary (selected indicators, percent of GDP):
  - Total revenue and grants: 23.9 (2012 actual) ; Prog. 23.3 ; Act. 23.5 ; Prog. 23.4 ; Diff. -0.1
  - Tax revenue: 19.7 ; 19.2 ; 19.3 ; 19.1 ; Diff. -0.2
  - Other revenue: 4.2 ; 4.0 ; 4.2 ; 4.3 ; Diff. 0.1
  - Total expenditure and net lending: 29.7 ; 29.1 ; 28.4 ; 28.7 ; Diff. 0.3
  - Current expenditure: 17.7 ; 17.5 ; 16.6 ; 17.3 ; Diff. 0.8
  - of which: wages and salaries: 6.3 ; 6.4 ; 6.1 ; 6.3 ; Diff. 0.2
  - energy subsidies: 1.5 ; 1.7 ; 1.0 ; 1.3 ; Diff. 0.3
  - Capital expenditure and net lending: 12.0 ; 11.6 ; 11.8 ; 11.4 ; Diff. -0.4
  - Overall fiscal balance: -5.9 ; -5.9 ; -4.9 ; -5.3 ; Diff. -0.4
  - Memorandum: Flood-related expenditure 0.1 ; Security-related expenditure 0.3

### Fiscal outlook and 2013 fiscal policy
- Fiscal position under strain from exogenous factors (notably the situation in Mali) and high direct and indirect cost of energy subsidies.
- Expenditure pressures for 2013:
  - Security-related spending: about 0.3 percent of GDP.
  - Additional capital expenditures for flood prevention: 0.1 percent of GDP.
  - Energy sector pressures due to delays in reform, delayed investments, and absence of tariff adjustment; risk to SENELEC’s tax payments.
  - Continued subsidies to SAR and for butane gas add to budget expenditure.
  - Revenue base weakened by 2012 shortfalls; pressures on wage bill from conversion of contractual education staff to permanent staff.
- Authorities proposed a slightly slower fiscal consolidation in 2013: new fiscal deficit target of 5.3 percent of GDP (initial target 4.9 percent of GDP).
- Revenue mobilization measures expected to yield at least 0.4 percent of GDP:
  - New tax on cosmetic products.
  - Increase in the tax on tobacco.
  - Inclusion in the VAT base of certain telecommunication activities.
  - End of exemption from VAT of certain activities financed by external resources.
  - Advanced payment on income tax at importation stage to bring more small and medium businesses into the tax net.
- Expenditure adjustments: downward revision of externally-financed investment due to delays; interest payments expected lower than programmed partly because of lower interest rates.
- Cabinet approved in May 2013 a supplementary budget for 2013 reflecting these changes.

### Budget support to the energy sector (Box 1 findings)
- Components and 2012 amounts:
  - Tariff compensation to SENELEC: CFAF 105 billion (1.5 percent of GDP) in 2012; 2013 budgeted cap at CFAF 80 billion.
  - Shortfall in tax collection from SENELEC: CFAF 38 billion (0.5 percent of GDP) in 2012; about half cleared via cross-debt settlement and recapitalization.
  - Cost of renting mobile power generators: CFAF 15 billion (0.2 percent of GDP) in 2012.
  - Domestically-financed investment for rehabilitation/extension of power plants: CFAF 23 billion (0.3 percent of GDP) in 2012.
  - Total budget cost supporting electricity sector in 2012: CFAF 181 billion, or 2.5 percent of GDP (not including on-lending of government-contracted resources).
  - Foregone revenue from petroleum price stabilization: CFAF 24 billion in 2012 (0.3 percent of GDP).
  - Butane gas price support cost: about 0.1 percent of GDP.
  - Direct and indirect supports to SAR: average CFAF 40 billion over past few years (0.6 percent of GDP).
- Despite significant budgetary support, SENELEC’s financial situation remained shaky with accumulated arrears to suppliers.
- Tariff compensation formula is being revised; current formula does not reflect full extent of SENELEC’s losses.

### Debt management and financing
- Authorities plan to issue a new 10-year Eurobond of $500 million to close the financing gap and improve the public debt profile (previously considered using $200 million space under program ceiling).
- Rationale:
  - Close a financing gap higher than the $200 million expected at 4th PSI review.
  - Reduce recourse to relatively costly short-term regional market financing (yields generally above 5.5 percent at issuance and short maturities increase rollover risks).
  - Substituting Eurobond financing would increase the average maturity at issuance of market debt issued in 2013 by about 2 years at about unchanged interest cost.
- Market conditions appear favorable (yield on the 2011 Eurobond below 6 percent at the time).
- Authorities expect to raise new external financing with a grant element between 15 and 35 percent to fund road and flood-prevention projects.
- Companion debt sustainability analysis (updated for new borrowing assumptions) indicates limited deterioration of external debt outlook and continued low risk of debt distress, assuming fiscal consolidation proceeds as envisaged.

### Policy discussions and strategic priorities
- Authorities completed the National Strategy for Economic and Social Development (NSESD) as the new poverty reduction strategy; it provides a diagnostic and framework for resource mobilization and expenditure prioritization.
- Authorities reaffirmed commitment to program objectives:
  - Reduce fiscal deficit below 4 percent of GDP by 2015 to preserve long-term debt sustainability and restore fiscal maneuver margins.
  - Improve the tax system.
  - Strengthen public financial and debt management.
  - Promote private sector development and good governance.
- Key policy focus areas identified:
  - Reforming the state to ensure fiscal sustainability.
  - Energy sector reform as critical to private sector development and improving the business environment.
  - Accelerating implementation of the government’s reform agenda to raise potential growth and boost job creation.

### Program monitoring and PSI review
- Fifth PSI review: Staff recommends completion of the review and supports the requested program extension and modification of assessment criteria.
- Program monitoring notes:
  - All assessment criteria for end-2012 were met.
  - Some indicative ceilings (e.g., share of value of public sector contracts signed by single tender) were missed by a relatively small margin in September and December 2012.
  - Structural benchmarks experienced delays but progress recorded on key items.

_International Monetary Fund staff report, June 4, 2013._

### 10.      Deep reforms to streamline expenditures and improve the efficiency of the state are

### 10.      Deep reforms to streamline expenditures and improve the efficiency of the state are

### Reforms to streamline expenditures and state efficiency
- Twin objectives: strengthen fiscal sustainability and do so in an efficient and growth-friendly manner.
- Recently completed physical and biometric audit of the public service will help streamline the government payroll and better control it in the future.
- Audit of public agencies to be used to prepare (by end-July 2013) and implement a plan to rationalize the recourse to agencies, which proliferated in the 2000s; expected positive impact on public governance, transparency, and efficiency.
- A high-level commission made a number of propositions to reform higher education and allocate scarce public resources better.

### Tax policy and revenue administration reforms
- Immediate priority: ensure satisfactory implementation of the new tax code.
- Subsequent focus: taxation of mining, telecommunications, and financial activity.
- Finalization and submission to parliament of the new customs code rescheduled to end-September 2013 to allow sufficient time for close consultation with the private sector.
- Modernization of tax and customs administration progressing; information sharing and coordination between the two departments increased substantially.
- E-filing and e-payment of taxes to be available to all taxpayers in the region of Dakar by end-2013 (proposed new benchmark).

### Public financial management (PFM) and public governance
- Senegal first country to complete transposition of the WAEMU directives on PFM into national law.
- Full implementation of the transparency code expected in 2014; requires in-depth legal impact assessment, work on institutional and reporting arrangements, preparing implementation decrees, and adopting a law on assets disclosure (transmission to parliament by end-2013 is a proposed new benchmark).
- Structural Benchmarks (selected, as presented):
  - Implement e-filing and e-payment for taxes at large enterprises directorate — Implementation Date: June 30, 2013 — Review: 6th — Macroeconomic significance: Improve efficiency of public policy and the business climate.
  - Prepare a plan for restructuring agencies and similar entities — Implementation Date: July 31, 2013 — Review: 6th — Macroeconomic significance: Strengthen public financial management.
  - Use cost-benefit analysis for projects of over CFAF 10 billion included in the 2014 budget — Implementation Date: July 31, 2013 — Review: 6th — Macroeconomic significance: Improve efficiency of government expenditure.
  - Start using the new payroll management software — Implementation Date: August 31, 2013 — Review: 6th — Macroeconomic significance: Strengthen public financial management.
  - Transmission to parliament of the new Customs Code — Implementation Date: Rescheduled to Sept. 30, 2013 — Review: 6th — Macroeconomic significance: Enhance government revenue and private sector development.
  - Roll out on-line filing and on-line payment of taxes for all tax payers in the Dakar area (new) — Implementation Date: January 1, 2014 — Review: 7th — Macroeconomic significance: Improve efficiency of public policy and the business climate.
  - Transmission to parliament of a draft law on assets disclosure (new) — Implementation Date: January 1, 2014 — Review: 7th — Macroeconomic significance: Increase transparence of public finances.

### Promoting growth and private sector development (energy and business environment)
- Electricity sector:
  - Rehabilitation and extension of existing power plants continued but somewhat behind schedule; coming on stream in 2013 expected to reduce recourse to costly rental generators and improve the power sector’s financial situation.
  - Operational and financial restructuring of SENELEC started; performance contract between the government and SENELEC to be signed in early June2013, with a 5-month delay.
  - Cabinet approved a new reform strategy for the sector in February 2013: change power generation mix, invest in transportation and distribution networks, and restructure SENELEC.
  - Donors (World Bank, African Development Bank, French Development Agency) provide substantial advisory and financial support.
- Staff recommendations on energy sector:
  - Accelerate implementation of all components of the power sector reform strategy, including large medium-term investment projects that are key to durably reducing production costs, electricity subsidies, and the fiscal deficit.
  - Staff noted construction of two coal-fired plants expected to start soon.
  - Staff urged reversion to full pass-through of international oil price changes to domestic petroleum product prices.
  - Authorities to prepare a strategy on the future of SAR by end-August 2013; staff urged consideration of eliminating budget support to refining activities.
  - Explicit and implicit subsidies to SENELEC should be phased out and replaced by more effective and targeted social safety nets (e.g., family transfers under consideration).
- Business environment and financial sector:
  - Authorities will update action plan to improve access to credit for households and small and medium firms and improve coordination among stakeholders.
  - Start implementation of a three-year reform program to improve the business environment adopted by the Presidential Council on Investment, aiming to improve Senegal’s ranking in international competitiveness and doing business surveys.

### Program monitoring and adjustments
- Authorities requested a one-year extension of the PSI-supported program to end-2014 to benefit from continued Fund support during key reform implementation and ahead of the 2014 elections.
- Proposed changes to program monitoring:
  - Raise end-June and end-December 2013 fiscal deficit targets (as explained in the text).
  - Raise program’s ceiling on nonconcessional borrowing to $800 million to accommodate the new Eurobond.
  - Raise ceiling for external borrowing with a grant element between 15 and 35 percent to CFAF 67 billion to facilitate financing of priority projects.
  - Addition of a seventh and eighth review for program monitoring purposes; targets and benchmarks for the period beyond the 6th review proposed in Table 9.

### Staff appraisal and fiscal outlook
- Implementation of the program: satisfactory; all assessment criteria for end-2012 were met.
- Fiscal deficit target for end-2012 was met: target of 5.9 percent of GDP achieved despite a significant revenue shortfall, owing to tight expenditure control.
- Staff supports a slightly slower pace of fiscal adjustment in 2013 while keeping the medium-term target unchanged.
  - Revised fiscal deficit target for 2013: 5.3 percent of GDP — described as consistent with a significant further reduction in the deficit while accommodating exogenous shocks (mostly the security situation in Mali and the Sahel).
  - Achieving the 5.3 percent of GDP target requires revenue mobilization efforts and strict expenditure control.
  - Authorities’ renewed commitment: reduce the fiscal deficit to below 4 percent of GDP by 2015 to restore fiscal buffers and ensure long-term debt sustainability.
- Energy sector concerns:
  - Direct and indirect support to SENELEC exceeded 2.5 percent of GDP in 2012.
  - Staff regrets delays in electricity sector reforms and urges acceleration of all reform components and reversion to full pass-through of international oil price changes to domestic prices.
  - Staff welcomes authorities’ intention to prepare a strategy on the future of SAR and urges due consideration to eliminating budget support to refining activities.
- Staff encourages acceleration of deep reforms to streamline expenditures and improve state efficiency, noting upcoming studies and audits (e.g., on streamlining the government payroll, restructuring public agencies, and reforming higher education) as opportunities to increase reform momentum.

*Source: _cr13170 - 10.      Deep reforms to streamline expenditures and improve the efficiency of the state are*

### 22.      Staff recommends completion of the fifth PSI review and supports the authorities’

### _cr13170 - 22.      Staff recommends completion of the fifth PSI review and supports the authorities’

### Staff recommendation and program request
- Staff recommends completion of the fifth PSI review and supports the authorities’ request for program extension and modification of assessment criteria.

### Growth and inflation (2011–18; projections)
- GDP at constant prices (annual percent change): 2.6, 3.7, 3.5, 4.3, 4.0, 4.6, 4.7, 4.9, 5.1, 5.1 (2011–2018 series as shown).
- Nonagriculture GDP (annual percent change): 4.8, 2.9, 2.6, 4.0, 3.7, 4.3, 4.6, 4.8, 5.0, 5.0.
- GDP deflator (annual percent change): 4.3, 2.2, 1.7, 2.4, 2.2, 2.3, 2.4, 2.4, 2.4, 2.3.
- Consumer prices, annual average (percent): 3.4, 1.5, 1.4, 1.6, 1.5, 1.7, 1.8, 1.8, 1.8, 1.8.
- Consumer prices, end of period (percent): 2.7, 1.6, 1.1, 1.8, 1.7, 1.7, 1.8, 1.8, 1.8, 1.8.

### External sector (levels and volumes)
- Exports, f.o.b. (CFA francs, annual percent change): 15.4, 4.4, 5.8, 6.9, 5.6, 4.2, 4.5, 6.8, 7.2, 8.3.
- Imports, f.o.b. (CFA francs, annual percent change): 19.7, 9.5, 13.9, 4.2, 0.4, 4.2, 4.0, 5.9, 6.0, 7.9.
- Export volume (annual percent change): 10.3, -1.0, 2.7, 4.4, 4.1, 4.3, 4.7, 4.9, 5.3, 5.5.
- Import volume (annual percent change): 8.9, 3.4, 9.3, 3.2, 4.2, 4.4, 4.5, 4.6, 4.7, 5.3.
- Terms of trade ("–" = deterioration): -4.4, -0.4, -1.7, 1.7, 5.5, -0.2, 0.2, 0.4, -0.4, 0.4.
- Gross official reserves (imputed, US$ billions): 2.0, 1.9, 2.1, 1.9, 2.1, 2.0, 1.9, 1.9, 2.0, 2.2.
- WAEMU gross official reserves (US$ billions): 14.7, 13.9, 13.9 (only up to 2013 shown).

### Fiscal sector (selected indicators; percent of GDP unless indicated)
- Revenue: 20.2, 20.9, 20.4, 20.8, 20.7, 20.6, 20.8, 20.6, 20.7, 20.9 (2011–2018 series).
- Grants: 2.2, 2.9, 2.9, 2.7, 2.7, 2.7, 2.7, 2.7, 2.6, 2.6.
- Total expenditure and net lending: 29.0, 29.7, 29.1, 28.4, 28.7, 27.9, 27.4, 27.0, 26.8, 26.9.
- Overall fiscal surplus (+) or deficit (-), payment order basis, excluding grants: -8.9, -8.8, -8.7, -7.6, -8.0, -7.3, -6.6, -6.4, -6.1, -6.0.
- Overall fiscal surplus (+) or deficit (-), payment order basis, including grants: -6.7, -5.9, -5.9, -4.9, -5.3, -4.6, -3.9, -3.7, -3.5, -3.5.
- Primary fiscal balance (percent of GDP): -5.2, -4.3, -4.4, -3.1, -3.8, -3.0, -2.3, -2.0, -1.8, -1.8.
- Gross domestic investment (percent of GDP): 29.1, 30.3, 30.1, 30.1, 30.3, 30.4, 30.5, 30.6, 30.7, 30.5.
- Gross domestic savings (percent of GDP): 10.8, 12.8, 9.0, 13.5, 10.8, 11.5, 12.0, 12.7, 13.5, 13.6.
- Total public debt (percent of GDP): 40.0, 45.0, 41.6, 46.8, 45.4, 47.2, 48.8, 49.0, 49.0, 49.1.
- Central government domestic debt (percent of GDP): 11.3, 12.3, 11.1, 12.2, 11.6, 12.7, 14.0, 13.6, 13.1, 12.7.
- External public debt (percent of GDP): 28.8, 32.7, 30.5, 34.6, 33.9, 34.5, 34.8, 35.4, 35.9, 36.4.
- External public debt service: percent of exports: 13.2, 7.3, 7.2, 7.6, 6.9, 6.3, 6.9, 6.9, 6.8, 6.7; percent of government revenue: 17.2, 8.4, 9.3, 8.7, 8.7, 7.8, 8.2, 8.1, 7.9, 7.7.
- GDP in CFAF billions: 6,818; 7,225; 7,182; 7,718; 7,631; 8,164; 8,756; 9,404; 10,117; 10,876 (2011–2018 series).

### Balance of payments and current account (CFAF billions; selected)
- Current account (including current official transfers): -537, -546, -740, -551, -710, -712, -731, -765, -788, -818 (2011–2018).
- Balance on goods: -1,184, -1,215, -1,449, -1,232, -1,387, -1,446, -1,496, -1,571, -1,646, -1,769.
- Exports, f.o.b. (levels): 1,237, 1,199, 1,308, 1,282, 1,382, 1,440, 1,505, 1,607, 1,724, 1,867.
- Imports, f.o.b. (levels): -2,421, -2,414, -2,758, -2,514, -2,769, -2,886, -3,002, -3,178, -3,370, -3,636.
- Services and incomes (net): -187, -126, -179, -122, -230, -214, -220, -212, -190, -176.
- Unrequited current transfers (net): 833, 795, 888, 803, 907, 948, 985, 1,018, 1,049, 1,127.
- Overall balance (CFAF billions): -70, -137, -75, -18, -5, -100, -65, 29, 32, 60.
- Financing (CFAF billions): 70, 137, 75, 85, 100, 65, -29, -32, -60.
- Net foreign assets (BCEAO; change): 80, -490, -138, 146, -47, -51, -78.
- Net use of IMF resources (CFAF billions): -23, -33, -3, -9, -18, -20, -19, -19.
- Memorandum: Current account balance including current official transfers (percent of GDP): -7.9, -7.6, -10.3, -7.1, -9.3, -8.7, -8.3, -8.1, -7.8, -7.5.

### Government finances (detailed fiscal operations; CFAF billions and percent of GDP)
- Total revenue and grants (CFAF billions): 1,526; 1,723; 1,670; 1,813; 1,784; 1,903; 2,055; 2,187; 2,358; 2,548.
- Revenue (CFAF billions): 1,376; 1,511; 1,464; 1,605; 1,577; 1,680; 1,817; 1,936; 2,093; 2,269.
- Tax revenue (CFAF billions): 1,287; 1,421; 1,379; 1,492; 1,459; 1,572; 1,704; 1,852; 2,003; 2,172.
- Total expenditure and net lending (CFAF billions): 1,980; 2,149; 2,090; 2,190; 2,190; 2,280; 2,399; 2,537; 2,712; 2,924.
- Current expenditure (CFAF billions): 1,233; 1,282; 1,257; 1,278; 1,321; 1,352; 1,409; 1,483; 1,584; 1,718.
- Capital expenditure (CFAF billions): 718; 875; 814; 912; 869; 928; 990; 1,053; 1,127; 1,206.
- Primary fiscal balance (CFAF billions): -356; -307; -317; -236; -288; -242; -202; -189; -182; -193.
- Overall fiscal balance (excluding grants; CFAF billions): -605; -637; -626; -585; -613; -600; -582; -601; -619; -655.
- Overall fiscal balance (including grants; CFAF billions): -455; -425; -420; -377; -406; -377; -343; -350; -353; -376.
- External financing (CFAF billions): 422; 362; 473; 328; 432; 321; 306; 344; 354; 379.
- Drawings (selected): program loans and project loans, various years shown: program loans: 40, 118, 183, 75, 160, 64, 69, 74, 80 (series includes program loans, see table for full breakdown).

### Monetary and financial sector
- Broad money (percent change, y/y): 14.1, 6.7, 6.0, 6.8, 6.8 (2010–2014 series shown).
- Net foreign assets (change in percent of beginning-of-period broad money): 5.8, -2.3, -4.4, -1.9, 0.4.
- Net domestic assets (change in percent of beginning-of-period broad money): 8.3, 9.0, 10.4, 8.7, 6.4.
- Net domestic credit (percent change): 1,847; 2,106; 2,364; 2,240; 2,424 (levels in monetary survey; units shown in table).
- Credit to the economy (percentage growth): 10.4, 18.8, 10.6, 9.6, 9.6.
- Credit to the economy/GDP (percent): 25.9, 28.7, 30.0, 29.8, 30.8.
- Central bank refinance rate (eop; percent): 4.25, 4.25, 4.25, 4.00, 4.00 (series shows a break).

### Banking sector indicators (2006–12; percent unless indicated)
- Capital to risk-weighted assets: 12.9, 13.5, 13.8, 16.3, 18.0, 16.0, 16.7.
- Gross NPLs to total loans: 16.8, 18.6, 17.4, 18.7, 20.2, 16.2, 18.4.
- Provisions to NPLs: 52.0, 53.8, 51.5, 53.1, 54.9, 54.0, 56.1.
- NPLs net of provisions to total loans: 8.8, 8.6, 9.3, 9.7, 9.1, 8.1, 8.2.
- Average interest rate on loans (break in series in 2010): 11.3, 11.6, 13.9, 15.4, 8.1, 8.4, 8.6.
- After-tax return on average assets: 1.6, 1.6, 1.4, 1.3, 1.6, 2.2, 1.7.
- After-tax return on average equity: 14.6, 15.3, 13.0, 16.0, 15.4, 22.6, 17.4.
- Liquid assets to total assets and to total deposits (selected years): Liquid assets to total assets: 31.7, 39.8, 36.1, 37.0 (selected series); Liquid assets to total deposits: 49.8, 52.4, 76.7, 52.3 (selected series).
- Sectoral distribution of loans (June 2012): Services, transportation and communication 34%; Retail and wholesale trade 19%; Industrial 22%; Other 25%.
- Financial system composition (2012): Banks 84.6%; Microfinance institutions 7.0%; Pension fund 4.4%; Non-deposit taking institutions 4.0%.

### Medium-term outlook and policy implications (high-level statements from figures and tables)
- Output growth is projected to be driven by services, the energy sector and investment projects, with inflation returning to historical trends.
- A decreasing current account deficit is projected to be financed largely by public flows; the economy remains dependent on foreign financial resources.
- The fiscal deficit is projected to decline in the medium term, reflecting mostly expenditure rationalization.
- Raising competitiveness requires improvements in institutions, infrastructure, and the business climate.

*Source: IMF staff estimates and projections as presented in the cited document.*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Request to the IMF and program scope
- The government of Senegal requests completion of the fifth review and an extension to end-2014 of support under the Policy Support Instrument (PSI).
- The attached Memorandum of Economic and Financial Policies (MEFP) takes stock of program performance at end-December 2012, defines macroeconomic objectives for the rest of 2013 and for 2014, and updates structural reforms monitored under the program.
- The government authorizes the IMF to publish this letter, the attached MEFP, and the Staff Report relating to the current review.

### Program implementation and recent performance (end-2012)
- Program implementation remains satisfactory.
- All quantitative assessment criteria and indicative targets were met except:
  - Ceiling on public procurements signed by single tender missed by a small margin due to emergency expenditures.
- Fiscal outturn:
  - Fiscal deficit target met at 5.9 percent of GDP for 2012.
- Macroeconomic outcomes in 2012:
  - GDP growth: 3.5 percent (2012) versus 2.1 percent (2011).
  - Agriculture growth: 17.4 percent.
  - Consumer prices: increase of 1.4 percent (2012) versus 3.4 percent (2011).
  - Current account deficit: 10.3 percent of GDP (2012) from 7.9 percent of GDP (2011).
  - Credit to the economy growth: 9.6 percent.
  - Money supply increase: 6.8 percent.
- Revenue shortfalls in 2012 were primarily attributable to:
  - Non-transfer to the treasury of VAT withheld by public agencies and entities.
  - SENELEC’s inability to pay all its taxes and duties.
- Expenditure developments:
  - Wage bill recorded a slight slippage due to greater-than-anticipated tenure for education contractuals.
  - Savings recorded on interest on public debt and current expenditure.
  - Slower implementation of certain capital expenditures, particularly externally funded ones.
- Structural reform progress highlights:
  - General tax code reformed using a participatory approach.
  - Public investment assessment guide completed at end-2012; user training begun.
  - Publication of information on transactions pertaining to the State’s private property began in March 2013.
  - Rollout of the Single Treasury Account (STA) has progressed but remains incomplete.

### Revised 2013 fiscal outlook and requested program modifications
- Government proposes revising the fiscal deficit target for 2013 upward to 5.3 percent of GDP to accommodate:
  - Additional security expenditures related to the situation in Mali and the Sahel.
  - Additional expenditure needs for a flood prevention program after major floods in the second half of 2012.
- Requested modifications to program monitoring and ceilings:
  - Modify the end-June 2013 assessment criterion on the overall fiscal deficit.
  - Revise the ceiling on nonconcessional borrowing upward by US$300 million to allow issuance of an international bond on favorable terms.
  - Raise the ceiling on semi-concessional borrowing (financing having a grant element in the range of 15-35 percent) to CFAF 67 billion to facilitate financing of important investment projects.
  - Reschedule the structural benchmark on submission to Parliament of a new Customs Code to end-September 2013 for additional private sector consultations.

### Fiscal consolidation priorities and measures
- Objective: reduce the fiscal deficit to levels consistent with debt sustainability and to reduce deficit below 4 percent of GDP by 2015.
- Additional 2013 expenditures from exogenous shocks:
  - Approximately CFAF 30 billion in total additional expenditures, including CFAF 20 billion for security expenses.
- Revenue mobilization measures to reverse 2012 erosion:
  - Abolition of the VAT exemption for externally funded operations in form of subsidies or nonreimbursable grants.
  - VAT taxation of the traffic balance of telecommunications operators.
  - Introduction of a tax on cosmetics.
  - Increase in the tobacco tax rate.
  - Application of an advance payment on the industrial and commercial profits tax levied on imports of a number of products.
  - Phasing out withholding to facilitate VAT collection.
  - Cooperation between DGD and DGID: joint control brigade, memorandum on information exchanges, use of the single identifier (NINEA).
  - Revenues from mining activities revised downward (no numeric revision provided).
- Current expenditure control:
  - Curtailment of wages of education contractuals through new software for real-time staffing monitoring and a survey to improve deployment.
  - Physical and biometric audit of civil service personnel completed; results to be published shortly with disputed cases reviewed and sanctions (including possible layoffs) to be implemented before July.
  - Computerized management module established for permanent expenditures (water, electricity, telephone) to validate invoice data.
- Targeting priority sector expenditures:
  - Subsidy allocation criteria for public health establishments made more objective; rationalization of health ministry directorates underway.
  - Agriculture budget allocations focused on seed capital and equipment replenishment.
  - Audits of scholarships and university finances underway to rationalize resources for advanced education.
  - Ongoing government agency evaluation to propose restructuring and a model performance contract.

### Energy subsidies and social protection
- 2012 direct or indirect support for energy prices cost over CFAF 160 billion, comprised of:
  - CFAF 105 billion in tariff compensation for Senelec.
  - CFAF 37 billion in nonpayment of taxes and duties by SENELEC.
  - CFAF 24 billion in foregone tax revenue to stabilize pump prices.
- Policy stance:
  - Plan to reduce energy subsidies and replace them with better targeted social protection measures.
  - Expansion of the Family Security Allowance (Bourse de Sécurité Familiale) to benefit 50,000 vulnerable families in 2013 and to be expanded in subsequent years.

### Debt management and market borrowing
- Continue efforts to lengthen maturity of market public debt as per the 2012 debt management strategy.
- Strategy outcomes to date: medium-term and long-term instruments have a more substantial share of domestic/regional debt.
- Proposed international bond:
  - New bond of US$500 million with a maturity of 10 years.
  - Rationale: complete 2013 budget financing at a rate close to domestic financing, reduce reliance on short-term regional borrowing, lengthen average maturity, and reduce refinancing and interest rate risks.
  - Intention to follow best practices and target a scale sufficient to be included in international indices.
- Increase envelope for semi-concessional lending from CFAF 44 billion to CFAF 67 billion to partially finance road infrastructure (e.g., Samba Dia-Joal-Djiffère) and flood prevention projects.

### Tax policy, administration, and customs reform
- Tax code and tax policy:
  - New tax code effective January 2013; implementation focus in 2013 with personnel training and user communication.
  - Planned further reforms: rationalization of stamp duties, comprehensive taxation of the financial sector (banks and insurance) and telecommunications, taxes on e-commerce, and environmental taxation. Research slated for 2014 with possible implementation in early 2015.
- Tax administration modernization:
  - Structural reorganization began with creation of the medium-sized enterprises tax center.
  - Completion by end-June 2013: establishment of a large enterprises directorate and interregional operational directorates in Dakar and other major municipalities.
  - Human resources reforms including recruitment to eliminate shortages.
- Customs modernization (DGD):
  - 2011-2013 Strategic Plan implementation continued; 2013 targets focus on boosting customs revenue mobilization and collection.
  - Continued privileged partners program providing personalized and simplified customs clearance for eligible firms.
  - Extension of the GAINDE program to border offices and integration of special modules (modules-métiers); computerization of administrative and customs procedures effective March 11, 2013.
  - Draft reform of the customs code rescheduled to September 30, 2013 for wider private sector consultation.
  - Midterm evaluation of the strategic plan recorded a rate of execution of 51 percent; final evaluation scheduled for early 2014.

### Governance, public financial management, and structural reforms
- Overall program aim: reform the State, safeguard macroeconomic stability and debt sustainability, enhance revenue, strengthen public financial management and governance, and promote private sector development to achieve strong, sustainable, and inclusive growth.
- National strategy context:
  - SNDES focuses on three pillars: (i) growth, productivity, and wealth creation; (ii) human capital, social protection, and sustainable development; and (iii) governance, institutions, peace, and security.
- Structural measures under way to strengthen PFM and governance include:
  - Completion and rollout of the Single Treasury Account (STA) (progress noted but incomplete).
  - Publication of State private property transactions (begun March 2013).
  - Public investment assessment guide completed and training initiated.
  - Civil service audit, biometric verification, and forthcoming personnel adjustments to improve payroll management.

*Source: Letter of Intent and attached Memorandum of Economic and Financial Policies, Dakar, June 3, 2013.*

### 19. Efforts to improve public financial management are continuing. Quarterly budget

### _cr13170 - 19. Efforts to improve public financial management are continuing. Quarterly budget execution reports, specified by the new organic law on budget laws, will be produced for the year 2013, transmitted periodically to the national Assembly, and published on the dedicated website at the Ministry of finance. The first report is now available.

### Public financial management — reforms, reporting, and legal framework
- Quarterly budget execution reports for 2013 will be produced, transmitted periodically to the National Assembly, and published on the Ministry of Finance website. The first report is now available.
- The new WAEMU directives on government finance have been fully transposed into domestic positive law and will be implemented progressively with test stages to consolidate results.
- An implementation plan for WAEMU directive transposition will be prepared by end-July 2013 and shared with Fund staff.
- Work on the Transparency Code’s impact on the existing legal framework will be completed in 2013 to ensure effective implementation as of early 2014, following adoption of a law on the disclosure of assets.
- Draft budget execution laws and Audit Court interaction:
  - The draft budget execution law for 2011 was prepared and submitted to the Audit Court in early July 2012; the provisional report was not transmitted to the government until end-February 2013.
  - Responses to the comments in the provisional report have been transmitted to the Audit Court in preparation for hearings.
  - The draft budget execution law for 2012 is being prepared and will be transmitted to the Audit Court by no later than end-June 2013.
- Supplemental appropriation orders (décrets d’avances) will be used in exceptional cases only, in accordance with current regulations, and will be transmitted to the Finance Commission of the National Assembly upon signature, per the 2011 Organic Law on budget laws.

### Land governance and PAGEF (Urban Property Management Support Project)
- PAGEF objectives: ensure availability, reliability, and accessibility of real estate information; rationalize and ensure transparency of land management.
- Measures and timelines:
  - Full inventory of government properties by end-2014.
  - Inventory of laws on real estate, establishment of a manual of procedures, and development of a conceptual model for IT data by no later than mid-2014.
  - Automation of land and government property procedures to be completed by end-2015.

### Treasury Single Account (STA) and bank account rationalization
- A survey identified 3,305 bank accounts opened by the central government and central government agencies; about half will be integrated into the STA framework.
- A study on the impact of eliminating or reducing bank accounts on the banking system shall be completed by end-June 2013.
- Short-term approach: maintain for each autonomous structure—except in thoroughly justified exceptional cases—one single bank account financed from deposit accounts at the Treasury based on a duly justified estimate of needs; this account will include agencies’ own resources.
- For accounts retained after rationalization, agreements with banks will specify operating conditions including reporting and sweeping modalities.
- The rationalization process will be completed by end-September 2013.
- Restructuring of the legal framework for opening, functioning, and closure of Treasury deposit accounts of agencies, public entities and related public entities is in progress.

### Energy sector — production plan and SENELEC restructuring
- New energy production plan adopted February 2013 covering 2013-2017 with an energy mix combining coal, natural gas, hydroelectricity, and renewable energies.
- Planned additional capacities and timing:
  - Félou hydroelectric power station: 15 MW in 2013.
  - IPP (liquefied natural gas): 150 MW in April 2014.
  - IPP Tobéne (Taiba Ndiaye): 70 MW in 2014.
  - Coal-fired IPP (Sendou): 125 MW in April 2015.
  - Import from Mauritania natural gas powered plant: 80 MW in October 2015.
  - Coal-fired IPP with Kepco: 250 MW between 2016 and 2017.
  - Renewable energy projects (unspecified capacities and dates).
- A standing interministerial committee for monitoring energy projects has been instituted.
- Expected impact: coming on stream of these units, at current oil prices, will be accompanied by the phase-out of the electricity subsidy and will lead over time to lower costs for the user.
- SENELEC restructuring:
  - Operational and financial restructuring plan adopted November 2012; implementation in progress.
  - Measures include consolidation under share capital of cross-claims accruing to the State, accounting investments by the State as a capital subsidy, optimization of power plants, reduction of network losses, reduction of operating outlays, anti-fraud efforts, improved billing, and shorter payment processing times.
  - The performance contract between the State and SENELEC will be signed in early June 2013 and independently audited.

### Hydrocarbons sector reforms
- The Société Africaine de Raffinage (SAR) receives direct or indirect support of about CFAF 40 billion per year from the State.
- A strategy to address SAR’s support will be finalized by end-August 2013.
- Revision of the petroleum code and standard contracts for research and sharing of hydrocarbon production began in February 2013 and will be completed in 2013; aims to improve legal/regulatory framework and sector attractiveness without new tax exemptions.

### Financial sector — measures to improve access and stability
- Update of the action plan from the national dialogue on credit (2010) will be completed at end-June 2013.
- Achievements to date:
  - Preparation of the law on leasing.
  - Inclusion of tax reforms (Islamic financial products and venture capital) in the new general tax code.
  - Launch of the body monitoring quality of financial services.
  - Study on the stable portion of demand deposits and special accounts resulted in reduction of the transformation ratio from 75 percent to 50 percent.
  - Establishment of a formal framework for dialogue.
- Implementation performance: an execution rate of just 31 percent was recorded for measures under the plan with deadlines.
- An update of the action plan has begun to expedite implementation of 33 actions (out of a total of 65) not yet implemented; the update is participatory and focuses on identifying implementation problems.
- SME finance instruments under development:
  - National Economic Development Bank (BNDE): expected to be a universal bank with a minority public stake specifically dedicated to SME financing.
  - Sovereign Strategic Investment Fund (FONSIS): wholly held by the State and State agencies; required to invest in strategic, vital, profitable, and job-creating projects; support SMEs through a secondary fund; manage certain government holdings.
  - Priority Investment Guarantee Fund (FONGIP): to provide guarantees for loans granted by financial institutions for projects, including from economic interest associations of women or young people, in priority sectors.

### Business climate, governance, and competitiveness measures
- Presidential Investment Council adopted a new three-year (2013-2015) program for improving the business climate and competitiveness, focusing on four strategic pillars: automation of investment-related administrative procedures; strengthening competitiveness of factors of production; assistance to concerned departments and communication on reforms; promotion of investment with substantial social impact.
- The program includes 56 priority measures, about 20 urgent measures for 2013 aimed at improving international rankings.
- Main measures for 2013:
  - Implementation of the automatic construction permit procedure (current processing times: 210 days).
  - Full automation of the procedure for registering a new business.
  - Adoption of the law on the status of small entrepreneurs.
  - Revision of the Code of Civil Procedure to ensure expeditious treatment of economic disputes and improved protection for investors.
  - Computerization of the clerk of court service.
- A National Commission on Land Reform has been established.

### Program implementation, PSI extension, and program design changes
- A one-year extension of the Policy Support Instrument (PSI) is requested to continue Fund assistance; a seventh and an eighth review should be added in 2014 to monitor program implementation.
- Proposed program design changes:
  - End-2013 target for the budget deficit set at 5.3 percent of GDP.
  - Ceiling on nonconcessional borrowing to be revised upward by US$300 million to allow issuance of an international bond on favorable terms.
  - Ceiling on semi-concessional borrowing (financing having a grant element in the range of 15-35 percent) to be raised from CFAF 44 billion to CFAF 67 billion.
  - Indicative targets are proposed for 2014, in addition to new structural benchmarks.

### Selected quantitative targets and timelines (as presented)
- Identified government and agency bank accounts: 3,305 accounts; about half to be integrated into the STA framework.
- STA-related studies and completion dates:
  - Impact study on banking system: to be completed by end-June 2013.
  - Rationalization process completion: by end-September 2013.
- Land governance deadlines:
  - Full inventory of government properties: by end-2014.
  - Inventory of laws, manual of procedures, conceptual IT data model: by no later than mid-2014.
  - Automation of procedures: by end-2015.
- Energy capacity additions and dates:
  - Félou hydroelectric: 15 MW in 2013.
  - IPP (LNG): 150 MW in April 2014.
  - IPP Tobéne (Taiba Ndiaye): 70 MW in 2014.
  - Sendou (coal IPP): 125 MW in April 2015.
  - Import from Mauritania: 80 MW in October 2015.
  - Kepco coal IPP: 250 MW between 2016 and 2017.
- SAR State support: about CFAF 40 billion per year.
- Financial sector indicators:
  - Execution rate of plan measures with deadlines: 31 percent.
  - Transformation ratio reduced from 75 percent to 50 percent.
- Program ceilings and targets (selected):
  - End-2013 budget deficit target: 5.3 percent of GDP.
  - Increase in nonconcessional borrowing ceiling: US$300 million (upward revision).
  - Semi-concessional borrowing ceiling: from CFAF 44 billion to CFAF 67 billion.

*International Monetary Fund — Technical Memorandum of Understanding, Dakar, June 3, 2013 (Program Conditionality and Monitoring details as presented in the source).*

### 2. The quantitative assessment criteria for end-June 2013 and end-December 2013, the

### _cr13170 - 2. The quantitative assessment criteria for end-June 2013 and end-December 2013, the

### Definitions, Adjusters, and Data Reporting — The Government
- "Government" means the central administration of the Republic of Senegal and excludes local administrations, the central bank, or any other public or government-owned entity with autonomous legal personality not included in the government flow-of-funds table (TOFE).

### Overall Fiscal Balance (Program Definition)
- Definition:
  - The overall fiscal balance including grants (program definition) = government’s total revenue (revenue and grants) − total expenditure and net lending.
  - Operations of the Energy Sector Support Fund (FSE) are integrated in the TOFE.
  - Revenues exclude privatization receipts and sales of mobile phone licenses or of any other state-owned assets.
  - Government expenditure is defined on the basis of payment orders accepted by the Treasury (dépenses ordonnancées prises en charge par le Trésor) and expenditures executed with external resources.
  - The assessment criterion is set as a floor on the overall fiscal balance including grants as of the beginning of the year.
- Example:
  - Floor on the overall fiscal balance including grants as of December 31, 2012: minus CFAF 425.4 billion.
  - Calculated from: total government revenue = CFAF 1,723.2 billion; total expenditure and net lending = CFAF 2,148.7 billion.
- Adjustments:
  - 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.
- Reporting requirements:
  - Authorities will report provisional data on the overall fiscal balance (program definition) and its components monthly to Fund staff with a lag of no more than 30 days.
  - Final data to be provided as soon as final Treasury account balances are available, but not later than two months after reporting of the provisional data.
  - Data on revenues and expenditure included in the calculation, and on expenditure financed with HIPC- and MDRI-related resources, drawn from preliminary Treasury account balances.

### Social Expenditure
- Definition:
  - Social spending = 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 the investment projects of the power sector reform plan.
- Reporting requirements:
  - Authorities will report semiannual data to Fund staff within two months following the end of each period.

### Budgetary Float
- Definition:
  - Budgetary float (instances de paiement) = outstanding stock of government expenditure for which bills have been received and validated but not yet paid by the Treasury (difference between dépenses liquidées and dépenses payées).
  - Assessment criterion is a ceiling on the budgetary float, monitored at the end of the quarter.
- Reporting requirements:
  - Authorities will transmit to Fund staff on a weekly basis (end of each week), and at the end of each month, a SIGFIP table showing:
    - committed expenditures (dépenses engagées);
    - certified expenditures not yet cleared for payment (dépenses liquidées non encore ordonnancées);
    - payment orders (dépenses ordonnancées);
    - payment orders accepted by the Treasury (dépenses prises en charge par le Trésor);
    - payments made by the Treasury (dépenses payées).
  - SIGFIP table will exclude delegations for regions and embassies and will list any payments that do not have a cash impact on the Treasury accounts.

### Spending Undertaken Outside Simplified and Normal Procedures
- Scope:
  - Assessment criterion applies continuously to any procedure other than the normal and simplified procedures to execute spending.
  - Excludes spending based on a supplemental appropriation order (décret d’avance) in cases of absolute urgency and need in the national interest (Article 12 of the Organic Budget Law). Such spending requires signatures of the President of the Republic and Prime Minister.
- Reporting requirements:
  - Authorities will report any such procedure, together with the SIGFIP table, to Fund staff monthly with a maximum delay of 30 days.

### Government External Payments Arrears
- Definition:
  - External payments arrears = sum of payments owed and not paid on external debt contracted or guaranteed by the government. The definition of external debt in paragraph 20 applies.
  - Assessment criterion monitored on a continuous basis.
- Reporting requirements:
  - Authorities will promptly report any accumulation of external payments arrears to Fund staff.

### Contracting or Guaranteeing of New Nonconcessional External Debt by the Government
- Definition of debt (per Executive Board Decision No.6230-(79/140), revised by Decision No. 14416-(09/91)):
  - "Debt" = direct, non-contingent liability created under a contractual arrangement requiring future payments in assets or services (loans, suppliers’ credits, leases, repurchase agreements, official swaps, bonds, debentures, buyers’ credits).
  - Arrears, penalties, and judicially awarded damages arising from failure to make payment under such contractual obligations are debt.
- Debt guarantees:
  - Guarantee arises from any explicit legal obligation of the government to service a debt in the event of nonpayment by the debtor (payments in cash or in kind).
- Debt concessionality:
  - A debt is concessional if it includes a grant element of at least 35 percent.
  - Grant element = (PV of debt − nominal value) / nominal value, where PV is calculated by discounting future debt-service payments.
  - Discount rates used are currency-specific commercial interest reference rates (CIRRs) published by OECD.
  - For maturity ≥ 15 years: ten-year-average CIRR used. For maturity < 15 years: six-month average CIRR used.
  - Margins added to CIRR averages: 0.75 percent (repayment < 15 years), 1 percent (15–19 years), 1.15 percent (20–29 years), and 1.25 percent (30 years or more).
- External debt:
  - Defined as debt borrowed or serviced in a currency other than the CFA franc; applies to debt among WAEMU countries as well.
- Coverage of debt-related assessment criteria:
  - Apply to contracting and guaranteeing of new nonconcessional external debt by the government, local governments, SENELEC, FSE, and any other public or government-owned entity.
  - Apply to debt and commitments contracted or guaranteed for which value has not yet been received, and to private debt with official guarantees.
  - Measured on a cumulative basis from the time of PSI approval by the Executive Board; monitored continuously. No adjuster will be applied.
- Special provisions:
  - Assessment criteria do not apply to:
    - debt rescheduling of debt existing at PSI approval;
    - debt contracted by the airport project company (AIBD) to finance the new Dakar Airport;
    - short-term external debt (maturity < one year) contracted by SENELEC to finance petroleum product purchases.
  - Ceilings:
    - Total ceiling of US$800 million applies over 2011–14 for nonconcessional external debt financing for investment projects (road infrastructure, energy sector, urban water and sanitation) and to reduce recourse to regional market financing.
    - Following issuance of a Eurobond in May 2011 (with an exchange offer for the outstanding 2009 Eurobond), the remaining ceiling for non-concessional borrowing for 2013–14 is US$500 million.
    - Separate ceiling equivalent to CFAF 67 billion in 2011–14 applies for untied nonconcessional external debt financing with a grant element of at least 15 percent.
      - Government will inform Fund staff in a timely manner before contracting any debt of this type and provide sufficient information ahead of time to verify the degree of concessionality, a brief summary of projects and their profitability (including lender or government evaluation), and will report use of funds and project implementation in subsequent MEFPs.
- Reporting requirements:
  - Government will report any new external borrowing and its terms to Fund staff as soon as external debt is contracted or guaranteed, but no later than within two weeks of contracting or guaranteeing.

### Public Sector Contracts Signed by Single Tender
- Definition:
  - Public sector contracts = administrative contracts entered into by the government or any entity subject to the procurement code for supplies, services, or works.
  - "Single-tender" contracts = contracts signed 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.
  - Ceiling on single-tender contracts excludes fuel purchases by SENELEC for electricity production (SENELEC required to buy fuel directly from SAR based on existing price structure).
- Reporting requirements:
  - 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.

### Additional Information for Program Monitoring — Reporting Timelines and Data Items
- Authorities will transmit the following to Fund staff, in electronic format if possible, with the maximum time lags indicated:
  - 3 days after adoption: any decision, circular, edict, supplemental appropriation order, ordinance, or law having economic or financial implications for the current program (including acts changing budget allocations: supplemental appropriation orders (décrets d’avance), cancellation of budget appropriations (arrêtés d’annulation de crédit budgétaires), and orders creating supplemental budget appropriations (décrets ou arrêtés d’ouverture de crédit budgétaire supplémentaire)).
  - With a maximum lag of 30 days, preliminary data on:
    - Tax receipts and tax and customs assessments by categories, accompanied by corresponding revenue on a monthly basis;
    - Monthly amount of expenditures committed, certified, and for which payment orders have been issued;
    - Monthly situation of checks issued by agencies from their deposit accounts at the Treasury but not paid to beneficiaries, with dates of issuance;
    - Quarterly report of the Debt and Investments Directorate (DDI) on execution of investment programs;
    - Monthly preliminary government financial operations table (TOFE) based on Treasury accounts;
    - Provisional monthly balance of the Treasury accounts;
    - Reconciliation tables on a quarterly basis between: SIGFIP table and consolidated Treasury accounts; consolidated Treasury accounts and TOFE for "budgetary revenues"; consolidated Treasury accounts and TOFE for "total expenditure and net lending"; TOFE and the net government position (NGP).
  - Final data provided as soon as final Treasury account balances are available, but not later than one month after reporting of provisional data.
- Additional monthly provisional reporting:
  - 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 (drawn from preliminary consolidated Treasury account balances). Final data no more than one month after provisional reporting.
- Central bank reporting to Fund staff:
  - Monthly balance sheet of the central bank, maximum lag one month;
  - Consolidated monthly balance sheet of banks, maximum lag two months;
  - Monetary survey on a monthly basis, maximum lag two months;
  - Lending and deposit interest rates of commercial banks, monthly;
  - Prudential supervision and financial soundness indicators for bank financial institutions (Table entitled Situation des Etablissements de Crédit vis-à-vis du Dispositif Prudentiel), quarterly, within a maximum delay of two months.
- Government public website updates (monthly basis):
  - a) Preliminary TOFE and transition tables with delay of 2 months.
  - b) SIGFIP execution table, the table for the central government and a summary table including regions, with delay of 2 weeks.
  - c) 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 delay of 1 month.
  - d) Full information on:
    - operations of Energy Sector Support Fund (FSE);
    - investment projects in the power sector;
    - planning and execution of these projects;
    - details of financing and updated costs;
    - balance of the escrow account with the resources of the Eurobond issued in 2011 (within 3 weeks).

### Debt Sustainability Analysis (summary excerpt)
- Key conclusions and considerations:
  - Senegal continues to face a low risk of debt distress, although the external outlook has worsened somewhat since the previous assessment.
  - A slightly larger fiscal deficit in 2013, expected to be financed in part by a new $500 million Eurobond, should lead to a marginal deterioration in external public debt ratios while reducing financing risks and lengthening average maturity of overall debt.
  - To maintain the low risk rating, Senegal will need to:
    - sustain fiscal consolidation efforts in the medium term;
    - approach nonconcessional borrowing with caution;
    - continue to improve debt management capacity.
- Analytical basis:
  - The DSA is based on the Debt Sustainability Framework (DSF) for low-income countries.

*Source: IMF staff report text as provided in the content unit.*

### 1.      This debt sustainability analysis (DSA) updates the joint IMF-World Bank DSA produced in

### _cr13170 - 1.      This debt sustainability analysis (DSA) updates the joint IMF-World Bank DSA produced in

### Key changes to macroeconomic assumptions
- Real GDP growth: Current DSA and Previous DSA projections by year and long term 1/
  - 2011: Current DSA 2.6; Previous DSA 2.6
  - 2012: Current DSA 3.5; Previous DSA 3.7
  - 2013: Current DSA 4.0; Previous DSA 4.3
  - 2014: Current DSA 4.6; Previous DSA 4.8
  - 2015: Current DSA 4.7; Previous DSA 5.0
  - Long term 1/: Current DSA 5.3; Previous DSA 5.2
- Overall fiscal deficit (percent of GDP): Current DSA and Previous DSA
  - 2011: Current DSA 6.7; Previous DSA 6.7
  - 2012: Current DSA 5.9; Previous DSA 5.9
  - 2013: Current DSA 5.3; Previous DSA 4.9
  - 2014: Current DSA 4.6; Previous DSA 4.3
  - 2015: Current DSA 3.9; Previous DSA 3.9
  - Long term 1/: Current DSA 2.8; Previous DSA 2.7
- Current account deficit (percent of GDP): Current DSA and Previous DSA
  - 2011: Current DSA 7.9; Previous DSA 6.1
  - 2012: Current DSA 10.3; Previous DSA 7.6
  - 2013: Current DSA 9.3; Previous DSA 7.1
  - 2014: Current DSA 8.7; Previous DSA 6.7
  - 2015: Current DSA 8.3; Previous DSA 6.3
  - Long term 1/: Current DSA 7.6; Previous DSA 5.3
- Notes:
  - 1/ Defined as the last 15 years of the projection period. For the current DSA, the long term covers the years 2019-2033; for the previous DSA, it covers 2018-2032.
  - The 2013 and 2014 fiscal deficits have been revised upward to accommodate the impact of exogenous shocks; projected fiscal deficits beyond 2014 are essentially unchanged.
  - Medium- and long-term current account deficit projections have been revised upward following much higher-than-expected imports in 2011 and 2012.

### Financing and borrowing assumptions
- Eurobond issuance:
  - The government is expected to issue a new 10-year, $500 million Eurobond this year at an interest rate of about 6 percent, in line with current yields on the 2011 Eurobond.
  - Previous DSA assumption: a $200 million Eurobond in 2013 on the same terms as the 2011 Eurobond (10-year maturity, 8.75 percent interest rate).
- Nonconcessional borrowing timing:
  - Previous DSA assumed borrowing 0.5 percent of GDP per year on nonconcessional terms starting in 2014; this has been shifted to 2016 due to anticipated frontloading of nonconcessional borrowing in 2013.
- External borrowing 2013-2014:
  - Senegal is expected to borrow CFAF 67 billion (about $136 million) in external debt with a grant element of between 15 and 35 percent, revised upward from CFAF 44 billion and consistent with the new ceiling in the program.

### Remittances-based indicators
- Policy change:
  - New guidance issued in March 2013 requires remittances presented as the base case in the DSA if both greater than 10 percent of GDP and greater than 20 percent of exports of goods and services.
- Senegal remittances 2010-2012:
  - On average, remittances equaled 52 percent of exports of goods and services and 13 percent of GDP.
  - Gross remittances inflows grew 6.1 percent in 2012 in local currency terms.

### External DSA findings
- Baseline:
  - Public and publicly guaranteed (PPG) external debt ratios remain comfortably below indicative thresholds in the baseline scenario.
- Stress tests:
  - PV of debt to the sum of GDP and remittances breaches the threshold under a stress test simulating a one-time 30-percent depreciation of the exchange rate.
    - The breach lasts for 13 years and is relatively small (less than 2 percentage points at its peak).
  - The same threshold is breached under a scenario with less favorable borrowing terms than the baseline; breach is smaller and of shorter duration.
  - Debt service-to-revenue threshold breached by a small margin in 2021 under the one-time 30-percent depreciation shock.
  - Spikes in debt service in 2021 and 2023 reflect repayment of the 10-year Eurobonds issued in 2011 and 2013.
- Attribution of deterioration:
  - Slightly worse outlook for PPG external debt compared to the last DSA partly due to the expected 2013 Eurobond issuance of $500 million (vs. $200 million assumed previously).
  - Authorities’ objectives for larger Eurobond: inclusion in international bond indexes for higher liquidity and lower interest rate, and lengthening average maturity of public debt.
  - Substituting a 10-year Eurobond for short-term WAEMU market financing would lengthen average maturity at issuance without significantly affecting interest cost.
  - Switching from domestic to external debt, combined with slightly slower fiscal consolidation and downward GDP growth revisions, projects marginal deterioration in PPG external debt ratios.

### Public DSA findings (overall public debt including domestic)
- Baseline:
  - PV of total public debt to GDP and PV of total public debt to revenue are expected to decline gradually over time.
  - PV of public debt to GDP peaks at 44 percent, below the benchmark level of 56 percent associated with heightened public debt vulnerabilities for medium performers.
    - Note: Senegal’s three-year average CPIA score is 3.71, which places the country at the upper end of the medium policy performance category.
- Stress tests:
  - Scenario with unchanged primary deficit (as percent of GDP) over the projection period, starting with the level projected in 2013:
    - PV of public debt to GDP grows rapidly, breaching the 56 percent benchmark level in 2023.
  - Historical scenario (holding real GDP growth and the primary deficit constant at historical levels) also breaches the 56 percent benchmark.
  - These stress tests underscore the importance of reducing fiscal deficits and raising potential output growth.
- Domestic debt risks:
  - Indicators do not point to significant vulnerabilities related to the level of domestic debt in the baseline.
  - Short average maturity of domestic debt (slightly over one year) is a vulnerability, exposing the government to rollover and interest rate risks in an unreliably liquid regional market.
  - The 2013 Eurobond issuance—expected to carry an interest rate similar to one-year Treasury bills—should help reduce financing risks in 2013 and beyond but will increase exchange rate risk.

### Additional notes and contextual points
- Exchange rate shock caveat:
  - The one-time 30-percent depreciation shock may be overstated for Senegal given the peg to the euro (guaranteed by the French Treasury) and the large share of public external debt denominated in euro and SDR (partially linked to the euro).
- Market issuance detail (authorities’ initial plan and revision):
  - Authorities initially planned to issue CFAF 538 billion on the regional market in 2013 with average maturity at issuance of about 1.5 years.
  - With a 10-year Eurobond substituting for CFAF 145 billion and remaining CFAF 393 billion issued on the market with average maturity about 2 years, the average maturity of the whole CFAF 538 billion would increase by about 2 years.
  - Current yields on short-term local currency debt and the 2011 Eurobond are comparable, at about 5.5 percent.
  - Issuing in US dollars increases exchange rate risk.

*Source: IMF staff summary of the DSA as presented in the provided content.*

### 7.      In staff’s view, Senegal continues to face a low risk of debt distress, despite a marginal

### _cr13170 - 7.      In staff’s view, Senegal continues to face a low risk of debt distress, despite a marginal

### Debt risk assessment
- Staff view: Senegal continues to face a low risk of debt distress, despite a marginal deterioration in the outlook for PPG external debt.
- Stress-test outcome: Stress tests result in two breaches of thresholds in the external DSA, though the overall picture is judged more balanced.
- Role of 2013 Eurobond: The 2013 Eurobond raises PPG external debt ratios but is expected to help reduce vulnerabilities associated with short-term domestic debt, aligning with the authorities’ medium-term debt strategy.
- Risk factors that could raise risk to moderate:
  - High fiscal deficits in recent years.
  - Sensitivity of debt indicators to less favorable borrowing terms if nonconcessional borrowing increases.
  - Need for further improvements in debt management capacity.

### DSA findings and indicators (selected)
- Debt sustainability hinges on fiscal consolidation: "To maintain debt sustainability and avoid a downgrade to moderate risk, it will be critical to reduce fiscal deficits from levels seen in recent years."
- If CPIA score trends continue, Senegal "stands to be upgraded to the strong performer category next year and will face higher indicative thresholds for PPG external debt."
- Stress-test detail: "The most extreme stress test is the test that yields the highest ratio in 2023." (examples cited: One-time depreciation shock; Terms shock; Exports shock.)

### Key macro and fiscal projections and recent outturns (selected)
- Growth and inflation:
  - Growth in 2012: "3.5 percent"
  - Projected growth in 2013: "4 percent"
  - Inflation (2012): "1.4 percent" and expected to remain subdued.
- Fiscal balances and program targets:
  - Fiscal deficit target for 2012: "5.9 percent of GDP" — target met despite a significant revenue shortfall.
  - Authorities’ commitment: keep the deficit under "6 percent in 2012".
  - 2013 fiscal stance: envisaged deficit of "5.3 percent of GDP rather than 4.9" to accommodate exogenous shocks.
  - Medium-term objective: reduce the fiscal deficit below "4 percent of GDP by 2015".
- Energy sector burden:
  - Direct and indirect support to SENELEC in 2012: "exceeded 2.5 percent of GDP".
- Financing and debt management:
  - New Eurobond planned/expected in 2013 to close the financing gap and reduce recourse to short-term regional market financing.
  - Caution advised as Senegal shifts toward nonconcessional external borrowing while moving toward emerging market status.

### Policy recommendations and priorities
- Fiscal consolidation:
  - Reduce fiscal deficits from recent high levels to preserve long-term debt sustainability and avoid a classification change from low to moderate risk.
  - Maintain the medium-term objective of bringing the deficit below "4 percent of GDP by 2015".
- Debt strategy and management:
  - Approach nonconcessional external borrowing with caution given current debt levels and indicator sensitivity to borrowing terms.
  - Further strengthen debt management capacity to consolidate the low risk rating.
- Public financial management and spending efficiency:
  - Improve public financial management and government spending efficiency and transparency.
  - Continue efforts to reduce the cost of running government, streamline public agencies, and rationalize expenditure in key sectors.
  - Phase out costly and poorly targeted energy price subsidies while strengthening social safety nets.
- Energy sector reforms:
  - Accelerate implementation of electricity sector reforms, including reform of SENELEC and investment projects to reduce production costs and the fiscal subsidy burden.
- Structural reforms to boost growth:
  - Accelerate the government’s reform agenda to raise potential growth and job creation, including infrastructure investments, removing inefficiencies, and improving the business climate.
  - Deepen and strengthen the financial system; monitor rising NPLs and concentration of lending.

### Selected program implementation notes
- Program performance: "Program implementation has been satisfactory. All assessment criteria for end-2012 were met."
- Structural reforms: mixed progress — examples:
  - Finalized evaluation guide for public investments.
  - New tax code implemented in January 2013.
  - Survey of bank accounts for establishing a single treasury account completed with delays.
- Financing outlook and operational actions:
  - A new Eurobond is expected in 2013 to reduce short-term regional market financing.
  - Tight expenditure control enabled meeting the 2012 deficit target despite revenue shortfalls.

*Prepared by the Staff of the International Monetary Fund in Consultation with the World Bank (excerpt)._

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13170.pdf_