## _cr14177 ## Source details **Canonical URL:** [_cr14177](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14177.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14177.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14177.pdf.json) --- ### Plan Sénégal Emergent (PSE): political and strategic context - Local elections scheduled for end-June 2014; return of former President Wade increased political tensions. - PSE unveiled early 2014 with objective: make Senegal an emerging economy by 2035. - PSE core: priority action plan of 17 major reforms and 27 major projects over 2014–18, total cost of about $19 billion (about 125 percent of the 2013 GDP). - Authorities sought about $3.7 billion from donors over 2014–18; pledges from traditional donors "about twice this amount". Detailed timing and terms of pledges not yet available. ### Recent economic developments (findings and indicators) - Real GDP growth in 2013: about 3.5 percent (preliminary), below the expected 4 percent. - Nonagriculture GDP growth in 2013: 3.7 percent. - Inflation in 2013: 0.7 percent (average). - External current account deficit in 2013: about 10 percent of GDP (improved less than expected; elsewhere reported as 10.4 percent). - Money supply growth in 2013: about 8 percent. - Sectoral notes: weak agricultural production (uneven rainfall); temporary problems in industry and mining; buoyant telecommunications and construction sectors. ### Outlook and risks (projections and scenarios) - Real GDP growth projection for 2014: 4.9 percent. - Nonagriculture growth projection for 2014: 4.5 percent. - Agriculture expected to rebound in 2014 assuming normal rainfalls. - Main domestic risk: insufficient progress in reform implementation combined with strong expenditure pressures; potential prioritization of public investment over hard reforms. - Main external risk: possible increase in the cost of international borrowing related to the unwinding of unconventional monetary policies in advanced economies. ### PSE ambitions versus PSI/ macro framework (comparative findings) - PSE projects real GDP growth to reach 7–8 percent over the medium term. - Medium-term macro projections under the PSI do not fully reflect the higher capital spending and growth envisaged under the PSE. - Under the PSE, annual deficit over 2014–18 would be on average 0.8 percent of GDP higher than in the PSI. - Accommodating the PSE scaling-up requires substantial current expenditure streamlining and new revenue sources. ### Program performance, fiscal developments, and 2013 fiscal response - Program performance: all quantitative assessment criteria and all but one indicative targets for end-2013 met. - Structural reform implementation: slow, with many benchmarks met after deadlines. - Revenue shortfalls in 2013: total shortfalls close to 1.5 percent of GDP compared to program target (mostly tax revenue); specific shortfall around CFAF 10 billion in personal income tax noted. - Fiscal response in 2013: deficit target met via compression of current expenditures (~¾ percent of GDP) and domestically-financed investment projects (0.6 percent of GDP). - Budget deficit (payment order basis, including grants) reported: -5.9; -5.4; -5.5; -4.9; -5.1; -3.9; -3.6; -3.4; -3.2 (series across years as presented in program tables). ### Fiscal policy for 2014: measures, savings, and targets - Deficit reduction objective: reduce deficit from 5.5 percent of revised GDP in 2013 to 5.1 percent in 2014. - Revenue mobilization: revenue-to-GDP ratio expected to increase by 0.5 percentage point (about half from tax policy measures). - Specific revenue measures: - higher tax on telecommunications (levy of 1 percent of turnover for telecommunication companies), - modification of the personal income tax to recoup excess reduction implemented in 2013, - strengthened revenue administration (increased staffing, resolution of tax arrears, comprehensive audit of VAT credits). - Expenditure streamlining identified savings: - 0.1 percent of GDP on wages (wage suspensions following civil service audit; measures to reduce overtime). - 0.4 percent of GDP on goods and services. - 1.3 percent of GDP from low-priority domestically-financed investment projects. - Allocation of savings: part allocated to new PSE-related projects (¾ percent of GDP); remainder to offset lower revenue. - Noted measures: suspension of salaries for 1,136 civil servants at end-March 2014 with annual saving of CFAF 4.4 billion; new payroll management software operational in May 2014. ### Financing, debt plans, and market access - Authorities intend to issue a US$500 million Eurobond in mid-2014; expectation of a much lower interest rate than on the 2011 Eurobond (yield currently about 6 percent). - Part of Eurobond proceeds to repay the euro tranche of the syndicated loan contracted in 2013 (short maturity). - Preference to continue concessional and semi-concessional financing where possible. - Program monitoring change requested: raise ceiling on nonconcessional loans to US$1006 million to allow the US$500 million Eurobond; raise ceiling on semi-concessional loans to CFAF 224 billion (grant element between 15 and 35 percent). - Debt sustainability: Senegal remains at a low risk of debt distress provided fiscal consolidation continues and recourse to nonconcessional borrowing remains prudent. ### Public financial management (PFM), governance, and agency reform - Improve fiscal transparency: budget and execution documents posted; accelerate implementation of WAEMU directives on public financial management (implementation plan due by end-September 2014). - Clarity of fiscal accounts: joint work shows many expenditure items misclassified (true wage bill about 45 percent higher than headline number; true capital expenditure about 45 percent lower). - 2015 finance law: will include an annex detailing direct and indirect budgetary support to energy prices (new structural benchmark). - Agency reform: rationalization, closures and mergers begun; increased agency monitoring with quarterly financial operation reports; 2015 budget law to include annex listing all agencies and update reform strategy (new structural benchmark). - Performance contracts: expected for the largest 7 agencies by mid-2014; government planned to sign performance contracts by end-June 2014 with ASER, ANSD, ADIE, AGEROUTE, ANAM, FERA, and ADS. - PFM reform timetable: WAEMU directives implementation realistically FY2019; reform implementation strategy through 2019 to be prepared by end-September 2014; ASTER–SIGFIP interface ongoing (outgoing operational; incoming in test phase). ### Energy sector and subsidies - Direct and indirect support for energy prices cost over CFAF 130 billion in 2013 (breakdown: 80 billion in tariff compensation for SENELEC; nonpayment of taxes and duties by SENELEC of 55 billion). - Comparative 2012 figure: around CFAF 160 billion (105 billion tariff compensation; nonpayment of taxes and duties 37 billion; 18 billion foregone tax revenue to stabilize pump prices). - Production plan 2013-2017 key projects and timelines: - 125MW coal-fired power plant in Sendou in October 2015; - 70MW dual fuel plant in Taïba Ndiaye at end-2015; - Import from Mauritania of 20MW in October 2014, increased to 80MW from April 2015, transition to gas starting July 2016; - 270MW coal-fired plant in Mboro starting January 2017; - 150MW from renewable sources (medium term). - Emergency rural electrification plan target: 60 percent rural electrification in 2016. - SENELEC performance contract: of 28 objectives, nine were met in 2013. ### Public investment management, tax modernization, and social protection - Public investment management improvements to focus on: - strengthen linkages between PSE, PTIP, macro framework, and sectoral objectives; - strengthen ex-ante project evaluation and rigorous project selection; - prepare systematic project execution reports and a comprehensive capital project database. - Tax policy and administration modernization: - New general tax code implementation ongoing. - New regime for VAT refunds to take effect 30 days after passage of the 2014 supplementary budget law. - Consideration of broad-based taxes in finance and telecommunications; land taxation modernization actions expected completed by end-2014. - Social protection targets: - PNBSF: quarterly allowances of CFAF 25,000; pilot covered 48,000 households; scale up to 250,000 vulnerable households in 2017. - Universal Medical Coverage objective: reach minimum of 75 percent coverage by 2017. ### Debt sustainability analysis (DSA) — key findings and stress tests - Staff view: Senegal remains at a low risk of debt distress conditional on continued fiscal consolidation and prudent nonconcessional borrowing. - Baseline DSA assumptions and projections: - Total public debt to GDP ≈ 47 percent in 2013, up from around 25 percent in 2008. - Stock of total external public and publicly guaranteed debt ≈ 32 percent of GDP at end-2013, up from around 20 percent in 2008. - External public debt service increased from 4.3 percent of exports in 2008 to about 9 percent in 2013. - Discount rate used in DSA: 5 percent. - CPIA score = 3.82 in 2012; average 3.76 over 2010–12. - DSA baseline projections (selected series as presented): - Real GDP growth series includes entries: 3.4 4.0 3.5 4.6 4.9 5.0 5.1 5.1 5.1 (table excerpts). - Consumer prices, annual average series includes entries: 1.4 0.8 0.7 1.4 0.0 1.2 1.2 1.1 1.1. - Current account balance (percent of GDP) series: -10.8 -9.4 -10.4 -8.9 -10.0 -8.9 -8.7 -8.4 -8.0. - Total public debt (percent of GDP) series: 43.4 45.9 46.8 47.4 50.0 50.3 50.4 50.4 50.4. - Stress tests show small and temporary breaches of thresholds under extreme shocks (e.g., repayment of Eurobonds), but probability approach yields favorable outlook. - DSA highlights the need for caution in recourse to nonconcessional borrowing and limited space for higher fiscal deficits. ### Program monitoring, conditionality changes, and staff recommendations - Monitoring changes proposed: - Raise ceiling on nonconcessional loans to US$1006 million to allow US$500 million Eurobond issuance. - Raise semi-concessional borrowing ceiling to CFAF 224 billion (grant element 15–35 percent) to finance high-return power and sanitation projects costing CFAF 92 billion combined. - Revise end-June indicative target on tax revenue downward to reflect 2013 shortfalls. - Continuous structural benchmark reworded to require "opportunity studies" before creation of new agencies. - Staff urges authorities to: - increase revenue mobilization efforts, - improve composition and quality of public expenditures, - continue reducing the fiscal deficit to more sustainable levels, - focus on raising economic efficiency (not solely increasing investment volume), - accelerate reforms to improve the business environment and undertake a deep reform of the state to finance public investment without jeopardizing fiscal sustainability. - Program implementation status: all quantitative assessment criteria and all but one indicative targets for end-2013 met; structural reform implementation slow due to focus on PSE design and coordination issues. *Source — IMF staff report excerpt titled "Plan Sénégal Emergent (PSE)".* ### 1. Plan Sénégal Emergent (PSE) ____________________________________________________________________4 ### Plan Sénégal Emergent (PSE) ### Political and strategic context - Local elections scheduled for end-June 2014; return of former President Wade increased political tensions. - New growth strategy “Plan Sénégal Emergent” (PSE) unveiled early 2014; objective: make Senegal an emerging economy by 2035. - PSE core: priority action plan of 17 major reforms and 27 major projects over 2014–18, total cost of about $19 billion (about 125 percent of the 2013 GDP). - Financing: authorities sought about $3.7 billion from donors over 2014–18; pledges from traditional donors "about twice this amount". Detailed timing and terms of pledges not yet available. ### Recent economic developments (findings) - Real GDP growth in 2013: about 3.5 percent (preliminary), below the expected 4 percent. - Nonagriculture GDP growth in 2013: 3.7 percent (in line with program projections). - Inflation in 2013: 0.7 percent (average), driven by softer agricultural commodity prices. - External current account deficit in 2013: decreased less than expected, to about 10 percent of GDP (in part due to decline in gold prices and volumes). - Money supply growth in 2013: about 8 percent. - Sectoral notes: weak agricultural production (uneven rainfall); temporary problems in industry and mining; buoyant telecommunications and construction sectors. ### Outlook and risks (projections and scenarios) - Real GDP growth projection for 2014: 4.9 percent. - Nonagriculture growth projection for 2014: 4.5 percent. - Agriculture expected to rebound in 2014 assuming normal rainfalls. - Main domestic risk: insufficient progress in reform implementation combined with strong expenditure pressures; potential prioritization of public investment over hard reforms. - Main external risk: possible increase in the cost of international borrowing related to the unwinding of unconventional monetary policies in advanced economies. ### PSE ambitions versus macro framework (comparative findings) - PSE projects real GDP growth to reach 7–8 percent over the medium term. - Medium-term macro projections under the PSI do not fully reflect the higher capital spending and growth envisaged under the PSE. - Under the PSE, annual deficit over 2014–18 would be on average 0.8 percent of GDP higher than in the PSI. - PSE envisages massive scaling-up of public investment; accommodating this requires substantial current expenditure streamlining and new revenue sources. ### Program performance and fiscal developments (findings) - Program performance: all quantitative assessment criteria and all but one indicative targets for end-2013 met. - Structural reform implementation: slow, with many benchmarks met after deadlines; some delays due to focus on designing the PSE and coordination issues. - Revenue shortfalls in 2013: total shortfalls close to 1.5 percent of GDP compared to program target (mostly tax revenue). Causes: slower activity, lower inflation, optimistic tax yield assumptions, tax arrears accumulation by SENELEC. - Fiscal response in 2013: deficit target met via compression of current expenditures (~¾ percent of GDP) and domestically-financed investment projects (0.6 percent of GDP). ### Fiscal policy for 2014 (measures and targets) - Deficit reduction objective: reduce deficit from 5.5 percent of revised GDP in 2013 to 5.1 percent in 2014; further reduction expected in 2015 and medium term. - Revenue mobilization: revenue to GDP ratio expected to increase by 0.5 percentage point (about half from tax policy measures). - Specific revenue measures: higher tax on telecommunications; modification of the personal income tax to recoup excess reduction implemented in 2013; strengthened revenue administration (increased staffing, resolution of tax arrears, comprehensive audit of VAT credits, more intensive use of information sources). - Expenditure streamlining identified savings: - 0.1 percent of GDP on wages (wage suspensions following civil service audit; measures to reduce overtime). - 0.4 percent of GDP on goods and services. - 1.3 percent of GDP from low-priority domestically-financed investment projects. - Allocation of savings: part allocated to new PSE-related projects (¾ percent of GDP); remainder to offset lower revenue. ### Financing and debt considerations - Authorities intend to issue a US$500 million Eurobond in mid-2014; expectation of a much lower interest rate than on the 2011 Eurobond (whose yield is currently about 6 percent). - Part of Eurobond proceeds to repay the euro tranche of the syndicated loan contracted in 2013 (short maturity). - Continued preference for concessional and semi-concessional financing where possible. - Latest debt sustainability analysis: Senegal remains at a low risk of debt distress provided fiscal consolidation continues and recourse to nonconcessional borrowing remains prudent. ### Public financial management and governance reforms (policy actions) - Improve fiscal transparency: budget and execution documents posted on finance general directorate website; need to accelerate implementation of WAEMU directives on public financial management (implementation plan due by end-September 2014). - Improve clarity of fiscal accounts: joint work shows many expenditure items misclassified (true wage bill about 45 percent higher than headline number; true capital expenditure about 45 percent lower). - 2015 finance law: will include an annex detailing direct and indirect budgetary support to energy prices (new structural benchmark). - Reform of agencies: ongoing rationalization, closures and mergers begun; increased agency monitoring with quarterly financial operation reports; 2015 budget law to include annex listing all agencies and update on reform strategy (new structural benchmark). - Performance contracts: preparation on track for remaining agencies; expect performance contracts ready for the largest 7 agencies by mid-2014. _Italic: Source — IMF staff report excerpt titled "Plan Sénégal Emergent (PSE)"._ ### 12. The PSE offers a good diagnostic and a vision for Senegal. It is more focused than earlier ### 12. The PSE offers a good diagnostic and a vision for Senegal. It is more focused than earlier ### Overview and overall assessment - The PSE offers a good diagnostic and a vision for Senegal and is more focused than earlier strategies on key projects and reforms. - Ownership of the plan at the highest level and strong support from the international community should facilitate implementation. - The authorities’ reiterated strong commitment to preserving fiscal sustainability is welcome. ### Growth challenges and the role of efficiency (Box 2) - Growth analysis suggests that insufficient economic efficiency is the main reason behind Senegal’s modest growth performance in recent years. - Total factor productivity declined over 1995-2012, implying that efforts to raise growth should focus on improving efficiency rather than only raising capital accumulation. - Simulation using a standard production function: the envisaged PSE-related investment would increase growth, but raising growth to 7-8 percent would require major efficiency gains. - Improving the quality of public investment is critical; existing indicators suggest Senegal is outperformed even by other WAEMU countries in public investment efficiency. - Compared to fast-growing SSA countries (Cape Verde, Ethiopia, Ghana, Mozambique, Uganda, Rwanda, and Tanzania), Senegal has a more unfavorable business environment, making reforms to improve the business environment critical to attract private investment and raise its efficiency. ### Progress on reforms and sectoral developments - Significant efforts have been made to improve the business environment, focusing on: - facilitating the creation of new businesses and real estate transactions, - accelerating the delivery of building permits, - adoption of a new legal framework for public-private partnerships. - Progress in the electricity sector with implementation of major generation projects expected to improve supply and reduce production costs. - SENELEC’s financial situation improved in 2013 due to lower-than-expected fuel prices and renovated plants coming on stream, but remains shaky, illustrated by substantial tax and domestic suppliers arrears incurred in 2013. - The performance contract between SENELEC and the state has increased transparency in the ongoing reform of the power utility; some progress recorded in 2013. ### Fiscal and structural reform priorities - Ongoing reform of the state under the PSI, while welcome, would not suffice to generate the fiscal space needed for additional PSE-related investment. - Major revenue mobilization efforts will be required, potentially from: - further reduction of tax exemptions, - extension of tax reform to sectors not covered by the 2013 reform (e.g., finance, mining, and telecommunications). - On the expenditure side, streamlining current expenditure will require substantial savings on the wage bill and transfers. - Staff urged the authorities to communicate on these issues; communication on the PSE has so far focused on investment projects and external support. ### Program monitoring changes proposed - Ceiling on non-concessional loans would be raised to US$1006 million to allow issuance of a new US$500 million Eurobond, part of which will be used to repay the Euro tranche of the syndicated loan obtained in 2013. - Ceiling on semi-concessional loans (with a grant element of between 15 and 35 percent) would be raised to CFAF 224 billion to help finance four additional high-return infrastructural projects in power and sanitation with a combined cost of CFAF 92 billion. - The end-June indicative target on tax revenue would be revised downwards to take into account the 2013 revenue shortfall. - The continuous structural benchmark calling for a “cost-benefit analysis” before creation of new agencies would require now "opportunity studies" to better align with current legislation. ### Staff appraisal, performance, and recommendations - Program performance has remained mixed: all quantitative assessment criteria and all but one indicative targets for end-2013 were met, including on the budget deficit despite a significant revenue shortfall. - With focus on design of the PSE since the last review, structural reform implementation has been slow, with a number of benchmarks met after their respective deadlines. - Staff urges the authorities to: - increase revenue mobilization efforts, - improve the composition and quality of public expenditures, - continue reducing the fiscal deficit to more sustainable levels. - Strong efforts on the revenue side are needed to offset part of the revenue shortfalls recorded in 2013. - The recent review of current and capital expenditures to identify less productive spending is welcome and a step toward increasing the efficiency of public spending and aligning the budget with PSE priorities. - Efforts should be made to further improve fiscal transparency and make fiscal accounts more meaningful, including: - accelerating implementation of the WAEMU directives on public financial management, - being more explicit about the cost of certain transfers and subsidies (including those in favor of the energy sector), - reporting on the implementation of the reform of public agencies. - Staff regrets that the recent creation of new agencies was not preceded by opportunity analyses and welcomes the authorities’ commitment to address the coordination issues that led to this outcome. - Overall recommendation: focus more on raising economic efficiency than solely increasing the volume of investment; accelerate reforms to improve the business environment and undertake a deep reform of the state to finance the public investment effort without jeopardizing fiscal sustainability. *Source: IMF staff report text provided.* ### 21. Staff supports the requested modification of the assessment criteria on debt and ### _cr14177 - 21. Staff supports the requested modification of the assessment criteria on debt and ### Program status and staff recommendation - Staff supports the requested modification of the assessment criteria on debt and recommends completion of the seventh PSI review. - The government requests completion of the seventh review under the Policy Support Instrument (PSI) and attached MEFP/TMU (Washington, June 6, 2014). - Program implementation at end-2013: "All quantitative criteria and indicative targets under the program at end-2013 were met, including the budget deficit target despite significant tax revenue shortfalls." ### Policy priorities and strategy - Launch in 2014 of the Plan Sénégal Emergent (PSE) to scale up and increase efficiency of public investment. - To implement the PSE without affecting fiscal sustainability, the government will: - Create ample fiscal space starting in 2014 through strong revenue mobilization efforts. - Streamline the government’s operating costs and broaden recent government reform efforts. - Improve the quality of public spending, including investment spending. - Structural reforms: progress made, but some measures implementation delays; government reiterates commitment to conducting opportunity studies prior to creation of public agencies in future. ### Requested changes to program monitoring and financing - Two new structural benchmarks improving fiscal transparency are proposed in the attached memorandum. - Requests to modify assessment criteria on borrowing: - Raise the ceiling on nonconcessional borrowing to $1006 million to allow for the issuance of a US$500 million Eurobond (partly to repay the euro-denominated tranche of the syndicated loan contracted in 2013). - Increase semi-concessional borrowing (financing having a grant element of 15–35 percent) from CFAF 132 billion to CFAF 224 billion to facilitate financing of high-return investment projects in the electricity and sanitation sectors. - Government commits to consult the IMF before adopting any additional measures or revising policies in the MEFP, and to provide information requested by the IMF on program implementation. ### Key macroeconomic and fiscal indicators (selected, as reported) - GDP at constant prices (annual) (selected entries): 3.4 4.0 3.5 4.6 4.9 5.0 5.1 5.1 5.1 - Consumer prices, Annual average (selected entries): 1.4 0.8 0.7 1.4 0.0 1.2 1.2 1.1 1.1 - Current account balance (including current official transfers, percent of GDP): -10.8 -9.4 -10.4 -8.9 -10.0 -8.9 -8.7 -8.4 -8.0 - Overall fiscal balance, payment order basis, including grants (percent of GDP): -5.9 -5.4 -5.5 -4.9 -5.1 -3.9 -3.6 -3.4 -3.2 - Primary fiscal balance (percent of GDP): -4.4 -3.8 -3.9 -3.3 -3.5 -2.3 -1.9 -1.7 -1.5 - Total public debt (percent of GDP): 43.4 45.9 46.8 47.4 50.0 50.3 50.4 50.4 50.4 - External public debt (percent of GDP): 31.0 33.9 32.4 35.4 35.6 36.1 36.3 36.3 35.8 - Gross domestic product (CFAF billions) (memorandum item): 7,165 7,485 7,308 8,002 7,782 8,356 8,981 9,664 10,398 ### Commitments and authorizations - The government believes policies and measures in the MEFP are appropriate to achieve PSI objectives and will promptly take additional measures as needed to meet program objectives. - The government authorizes the IMF to publish this letter, the attached MEFP, and the Staff Report relating to the current review. *Source: Letter of Intent and MEFP (Washington, June 6, 2014) contained in _cr14177.* ### 1. Senegal has adopted a new development strategy aimed at accelerating the pace of ### _cr14177 - 1. Senegal has adopted a new development strategy aimed at accelerating the pace of ### Plan Senegal Émergent (PSE): objectives and alignment with PSI - PSE is the national medium- and long-term economic and social policy framework document focused on: - (i) achieving structural transformation of the economy by consolidating today’s growth engines and developing new wealth-creating, job-rich sectors conducive to promoting social inclusion; - (ii) strengthening well-being by protecting the vulnerable and improving access to basic social services; and - (iii) enhancing governance, promoting peace and security, and consolidating the rule of law. - Reforms under the Policy Support Instrument (PSI) are fully in line with the PSE and aim at increasing fiscal space and improving the business environment to maintain macroeconomic stability and enhance growth potential. ### Recent economic developments and program implementation - 2013 performance and indicators: - Real GDP growth in 2013 is estimated to have grown by 3.5 percent (initial projection 4 percent; actual performance in 2012 was 3.4 percent). - Inflation stood at 0.7 percent on average in 2013. - Current account deficit improved to 10.4 percent (as a share of GDP). - Overall balance of payments deficit fell from CFAF 53 billion in 2012 to 21 CFAF billion in 2013. - Credit to the economy rose by 12.6 percent. - Money supply increased by 8 percent. - Program implementation status: - All quantitative assessment criteria and indicative targets for end-2013 were met. - Budget deficit target met with actual deficit figure of 5.5 percent of revised GDP, despite significant revenue shortfalls (around CFAF 10 billion shortfall in personal income tax noted). - Expenditure-side savings: lower interest on public debt and reduced wage bill; slower implementation of some current and certain capital expenditures. - Specific reform actions and outcomes: - Electronic tax filing and payment system ready for use in the Dakar region; remains optional; subscription form published on the website to obtain access codes. - Civil service audit processing completed for civilian personnel; suspension of salaries for 1,136 civil servants at end-March 2014 with an annual saving of CFAF 4.4 billion; final audit results to be published by June 15, 2014. New payroll management software became fully operational in May 2014. - Monitoring committee for SENELEC performance contract produced first report; external audit postponed due to World Bank tendering procedures. Main findings and electricity sector survey published on May 21, 2014. - Progress on Treasury single account, with improved cash management and Treasurer access to accounts held by direct accountants of the Treasury at the BCEAO; some delays in closing bank accounts. - Three new agencies established since the sixth review: National Youth Employment Promotion Agency (ANPEJ), Senegalese Tourism Promotion Agency (ASPT), and National Rail Agency (ANCF); opportunity studies were not conducted prior to creation of ASPT and ANCF. ### Macroeconomic outlook for 2014 and risks - 2014 projections and drivers: - Real GDP growth is projected to reach 4.9 percent in 2014, driven by higher agricultural production, a recovery in the industrial sector, and continued buoyancy in the services sector. - Inflation expected to remain moderate in 2014. - Current account deficit as a percentage of GDP is expected to improve with rising exports; overall balance expected to show a surplus. - External and domestic risks: - External: sharper-than-expected slowdown in emerging countries, deflation risks in the euro area, tightening of international financial conditions with tapering of unconventional monetary policies. - Domestic: possible delays in implementation of government and energy sector reforms that could weigh on growth and fiscal developments. ### Fiscal policy, public finance and debt strategy (policy actions and targets) - Fiscal strategy for PSE implementation: - PSE requires significant scaling up and increased efficiency of public investment; ample fiscal space must be created starting in 2014 through strong revenue mobilization and streamlining of operating costs. - Government committed to further strengthening public financial management and governance and fostering private sector development by increasing competitiveness and promoting high growth and employment investments. - Tax administration reforms (DGID measures): - (i) set up functional directorates and operational directorates; - (ii) reform staff performance assessment; - (iii) increased staffing; - (iv) intensified tax audits and arrears collection; - (v) audit of VAT credits followed by action on fraud cases; - (vi) expand tax base using information and cooperation with customs via NINEA national identification numbers. - Short-term tax policy measures: - Raise the ceiling for the minimum flat tax rate to CFAF 20 million (envisaged from previous review). - Set a uniform rate of 45 percent for the special tax on cigarettes (envisaged from previous review). - Review personal income tax to offset the 2013 revenue shortfall (around CFAF 10 billion), with corrections mainly affecting the highest income brackets. - Introduce a levy of 1 percent of turnover for telecommunication companies payable to the government budget. - Spending streamlining and savings: - Substantial decrease in the ratio of current expenditure to GDP over the next five years envisaged. - Savings recorded under miscellaneous supplies, telephone bills, housing for officials, transfers to agencies, and through a nominal wage freeze in 2014 and stricter overtime use. - Suspension of 1,136 salaries following civil service audit contributed to wagebill savings. - Electricity sector reform expected, over time, to reduce or eliminate fiscal burden which amounted to over CFAF 130 billion in 2013. - Social protection scaling and targets: - National household allowance program (Programme National de Bourse de Sécurité familiale, PNBSF) to provide households living in extreme poverty with quarterly allowances of CFAF 25,000. - Pilot phase covered some 48,000 households; program to be scaled up to reach 250,000 vulnerable households in 2017. - Universal Medical Coverage (UMC) objective: reach a minimum of 75 percent coverage by 2017. - UMC focus: (i) develop universal basic health care coverage through mutual health insurance schemes; (ii) reform provident institutions; (iii) strengthen existing free care policies; (iv) implement new free health care initiative for children under five. - Close to 51,000 new members have been covered by mutual health insurance schemes. - Budget execution and contingency: - 2014 revenue projections revised downward and deliberately more prudent; fiscal contingency reserve to be drawn down only in cases of extreme urgency. - In the event of tax revenue shortfalls, remaining reserves will not be spent; lowest-priority spending executed at a slower pace if necessary. - Debt management and financing plans: - Medium-term focus on lowering debt vulnerabilities via gradual lengthening of average maturities and greater flexibility in borrowing rates. - 2014 financing plans include mobilizing semi-concessional debt with ceiling increased to CFAF 224 billion and issuing international sovereign bonds (Eurobonds) in the amount of $500 million. - Part of Eurobond proceeds to be used by the end of 2014 to buy back the euro-denominated tranche of the syndicated financing mobilized in 2013. - Gross recourse to local capital markets expected to remain significant. - Risk of debt distress expected to remain low, albeit with signs of vulnerability. ### Public investment management, revenue modernization and tax/customs administration - Public investment management improvements to focus on six areas: - (i) strengthen linkages between the PSE, three-year public investment program (PTIP), macroeconomic framework, and sectoral objectives; - (ii) strengthen ex-ante project evaluation; - (iii) more rigorous project selection using PSE criteria; - (iv) classification of capital transfers by expenditure category; - (v) systematic preparation of project execution reports; - (vi) develop a comprehensive database and shared management system for capital projects. - Tax policy and administration modernization: - New general tax code implementation ongoing. - New regime for VAT refunds to take effect 30 days after passage of the 2014 supplementary budget law. - Consideration of broad-based taxes in the financial sector and on telecommunications, and taxation issues related to the environment, mining, the business license tax (la patente), and e-commerce to lead to formalized proposals. - Modernization objectives include reducing time to settle tax disputes and transitioning to paperless procedures. - Land taxation modernization actions expected to be completed by end-2014, including: (a) simplification of lease procedures; (b) harmonization of land documentation on Dakar Plateau, Ngor - Almadies, Grand Dakar, and Mbour; (c) conversion of occupancy permits and similar titles in the Dakar region to title deeds; (d) preparation of a general table of government property holdings. - Customs (DGD) strategic planning: - Directorate General of Customs prepared a new Strategic Plan for 2014-2017 with objectives to support enterprise competitiveness, improve customs revenue mobilization, fight fraud and participate in national security policy, streamline resources, and increase DGD influence nationally and internationally. ### Strengthening public financial management, governance, and agency reform - Treasury and accounting modernization: - Directorate General of Government Accounting and the Treasury (DGCPT) created a Modernization and Strategy Division reporting to the Director General. - Strategic Development Plan of the Treasury Administration (PDSAT 2014-2018) prepared and backed by a performance contract to modernize cash management, strengthen the Treasury Single Account, reorganize deposit account management procedures, and improve public expenditure management. - Reorganization of the Office of the Paymaster General of the Treasury into three separate accounting offices planned by end-2014. - Establishment of an electronic banking platform envisaged and paperless handling of financial and accounting documents planned over the medium term. - Agency reform plan: - Agency reform plan to be completed by the end of 2014. - Of around fifty executing agencies covered by the plan: 16 will be closed and eight merged (into three agencies); most of those maintained will need reorganization. - Four entities dealing with youth affairs have been dissolved. - Savings in 2014 limited by social costs (retrenchment indemnities). - Government plans to sign performance contracts by end-June 2014 with seven agencies: ASER, ANSD, ADIE, AGEROUTE, ANAM, FERA, and ADS. - An initial report on agency budget execution monitoring was published on the website of the Directorate for forecasting and economic studies of the Ministry of Economy and Finance in May 2014; subsequent reports to be published. The 2015 draft budget law will include an annex with the complete list of agencies and funds and an update on agency reform implementation. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 23. Implementation of the WAEMU directives on public financial management, a long- ### Implementation of the WAEMU directives on public financial management, a long-term undertaking, has fallen somewhat behind schedule ### Public financial management (PFM) reform implementation - Implementation has fallen somewhat behind schedule; Senegal unlikely to be ready to apply these fiscal innovations by as early as 2017. - FY2019 would be a more realistic timeframe. - Structures created in 2013 to steer and monitor the process will be made operational. - A new unit will be put in place within the DGF to spearhead the fiscal reforms that fall within the purview of the DGF. - A reform implementation strategy through 2019 will be prepared by end-September 2014. - Particular attention will be paid to the functional changes needed to the information system (ASTER et SIGFIP). - A fiscal framework unit will be created at the DGF to produce the medium-term public expenditure framework. - The DGCPT has already begun the phased implementation of the new government chart of accounts. - Functional configuration completed, but practical difficulties—particularly with developments in ASTER—have delayed startup, now scheduled to take place within this year or in early 2015. - A mini opening balance sheet comprising the government’s equity holdings and financial debt will be incorporated at that stage. ### Accounting, fiscal, and financial information improvements - In the context of the Single Treasury Account: - A report showed most accounts opened by the Ministry of Finance were opened based on agreements signed with economic and financial partners. - 14 accounts have already been closed and six others are to be closed. - For public institutions and agencies: - A provisional report on the closure of accounts was produced and published in May 2014 on the website of DPEE. - For ministries and other institutions: - A circular reminder letter from the MEF set a final deadline for response (June 30, 2014) after which precautionary measures will be taken by the Minister of Finance suspending the execution of transactions through the accounts. - Banking reporting: - Some banks are now regularly reporting information to the DGCPT on balances of bank accounts opened in the name of direct accountants of the Treasury (CDT); this process is being extended to all banks. - The balance sheet to be produced for this single account limited to direct accountants of the Treasury will make it possible to consider its extension to accounting personnel in agencies and public institutions. - ASTER–SIGFIP interface: - The “outgoing” component is operational and sends information from SIGFIP to ASTER and automatically generates accounting entries for recording fiscal operations. - The “incoming” component (ASTER to SIGFIP) is in the test phase for the senior accounting units (postes comptables supérieurs), which will facilitate automatic signature generation in SIGFIP. - Accounting quality: - The “clean-up” of the general balance of accounts (clearing of various accounts for which the balances prior to 2011 could not be confirmed by supporting documents) has been launched and is expected to be completed by end-2014. ### Governance and anti-corruption efforts - Mo Ibrahim index 2013 ranking: - Senegal ranked 10th place in Africa as a whole and 3rd place among the 16 countries of West Africa — its biggest progression since 2000. - National good governance strategy (SNBG) actions relate to: - (i) strengthening the rule of law and democracy; - (ii) strengthening the effectiveness of public administration; - (iii) promoting public integrity, transparency, and accountability; - (iv) strengthening local governance; - (v) strengthening the governance of strategic sectors (mines, lands, education, health, etc.); - (vi) developing social communication to foster citizen ownership of good governance. - Short-term goals: - Complete and streamline the legal and organizational framework for oversight of government actions to increase transparency and efficiency in public governance. - Implement the transparency code (law on the declaration of assets adopted by the National Assembly on March 21, 2014). - Administrative indicators: - Number of decrees on advances in 2013: 5, compared to 36 in 2012. - CENTIF (national financial intelligence unit) activity in 2013: - 112 suspicious transaction reports were received in 2013; - The unit analyzed and examined 123 suspicious transaction reports; - Following processing, 24 reports signaling money laundering were forwarded to the Public Prosecutor’s Office. - CENTIF is implementing the national AML-CFT strategy for the period 2013 to 2017. - Update of the community legal framework is underway, coordinated by the BCEAO, to address shortcomings identified in 2007 and ensure conformity with FATF standards revised in 2012. - Senegal will be prepared for the next round of evaluations tentatively scheduled to start in 2015. ### Energy sector developments and policy - Service quality improvements in electricity sector since restructuring rollout: - Achieved through rental of generators, new capacity coming on stream, and rehabilitation of existing generating sets. - SENELEC’s financial situation has improved. - Direct and indirect support for energy prices cost Senegalese taxpayers over CFAF 130 billion (breakdown): - 80 billion in tariff compensation for SENELEC; - nonpayment of taxes and duties by SENELEC of 55 billion. - Comparative figure for 2012: around CFAF 160 billion (105 billion in tariff compensation for SENELEC; nonpayment of taxes and duties by SENELEC of 37 billion; and 18 billion in foregone tax revenue to stabilize prices at the pump). - Transparency measure: estimates and an analysis of direct and indirect support for energy prices will be included in the draft budget laws submitted to Parliament. - Production plan 2013-2017 (validated January 2014) — key projects and timelines: - 125MW coal-fired power plant in Sendou in October 2015; - 70MW dual fuel power plant in Taïba Ndiaye at end-2015; - Import from Mauritania of 20MW of power produced from fuel oil in October 2014; increased to 80MW from April 2015, with transition to gas generation starting in July 2016; - 270MW coal-fired power plant in Mboro, starting in January 2017; - 150MW from renewable sources of energy (medium term). - These new units will be accompanied by the phaseout of the electricity subsidy and, beyond, lower costs for consumers. - Emergency rural electrification plan adopted to reach objective of 60 percent rural electrification in 2016. - SENELEC performance contract monitoring: - Government met commitments except with respect to the easements and the improvement of SENELEC’s cash flow. - Of the 28 objectives set for SENELEC, nine were met (including generator availability rates, variable unit production costs, specific fuel consumption, a plan to control nontechnical losses, and collection of fresh electricity bills from private customers). - Objectives not met include compliance with standards and obligations to customers, and overall performance. - SAR (refinery) policy: - Government intends to maintain industrial oil refining activities in the short and medium term due to SAR’s role in supply security. - An emergency program will address refinery technical problems presenting major incident risk. - Payment of the margin of support grant should cease once the debt is paid, by 2016 at the latest. - Government intends to reduce its holding through Petrosen in SAR by selling a portion of its shares to private partners. ### Financial sector: access to finance and dispute resolution - Government priorities: - Develop factoring in Senegal. - Facilitate resolution of banking disputes. - Second national dialogue on credit recommendations: - Promote innovative financing instruments and diversify financial products and services. - Establish a framework for consultation bringing together banks, judges, and the government to discuss banking disputes and court rulings. - Two studies to be conducted by end-March 2015: - A plan of action for the promotion and development of factoring in Senegal. - An inventory of banking disputes and court rulings, analysis of decisions and duration of proceedings, and recommendations for improvement. ### Business climate, governance, and competitiveness reforms - Three-year reform program for the business climate and competitiveness (2013–2015) achievements: - Formalities for setting up enterprises reduced to a two-step process. - Status of entrepreneur recognized in legislation to support enterprises in the informal sector. - One-stop windows for filing and technical advice for construction permits set up at end-2013. - Electronic filing procedure operational since March 31, 2014 and expected to deliver construction permits within 40 days. - Single procedure for connections to water, electricity, sanitation, and telecommunications in place since January 2014; connections within a maximum of 40 days for all four services via APIX. - Rates, procedures, and timeframes for transfer of ownership reduced to ten percent, three stages, and 30 days, respectively. - Full use of automated procedure for cross-border trade reduced average administrative import and export formalities to 10 days. - Commercial courts and updated code of civil procedures reduced timeframe for contract execution to around 550 days from 770 days. - Costs related to pledging of collateral capped at CFAF 50 million; pre-trial judges’ powers strengthened; delaying tactics curtailed; direct dialogue between parties now allowed. - New legal and institutional framework for PPP projects adopted in early 2014. - 2014–2015 expectations: - Electronic trade register entered into force at end-April 2014. - Electronic procedures for starting a business to be fully operational in the first half of 2014. - These actions are expected to significantly improve Senegal’s ranking in the Doing Business Survey. ### Medium-term outlook - Implementation of the Plan Senegal Emergent expected to require sweeping changes to raise growth potential and foster private initiative. - Implementation of the Plan should make it possible for Senegal to show average GDP growth of 7.1 percent a year over the period 2014-18, compared to the trend scenario that puts average GDP growth at around 5 percent. ### Program monitoring and conditionality - Ceiling on non-concessional borrowing would be increased to US$1006 million to allow issuance of a US$500 million Eurobond, used in part to repay the euro-denominated tranche of the syndicated loan contracted in 2013. - In net terms, there will be no increase in nonconcessional debt. - Ceiling on semi-concessional borrowing (grant element in the range of 15–35 percent) would be increased to CFAF 224 billion to facilitate infrastructure financing (electricity and sanitation). - Indicative target for tax revenue at end-June 2014 will be revised downward to account for shortfalls recorded in 2013. - Continuous criterion on the creation of new agencies will be reworded to replace “cost-benefit analysis” by “opportunity study” for consistency with prevailing legislation. *Source: IMF staff and Senegal authorities (Technical Memorandum of Understanding and program documents, June 6, 2014).* ### 2. The assessment criteria for end-June 2014, and the indicative targets for end-March and ### _cr14177 - 2. The assessment criteria for end-June 2014, and the indicative targets for end-March and ### Assessment criteria overview - Assessment criteria for end-June 2014, and indicative targets for end-March and end-September 2014, are shown in Table 1 of the MEFP. Prior actions and structural benchmarks are presented in Table 2. - Definitions, adjusters, and data reporting requirements are specified for government aggregates, fiscal balances, social expenditure, budgetary float, exceptional spending procedures, external payments arrears, contracting/guaranteeing of new nonconcessional external debt, single-tender public sector contracts, and tax revenue. ### A. The Government - “Government” means the central administration of the Republic of Senegal and does not include any local administration, 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), unless otherwise indicated. ### B. 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 420 billion. - Calculated from total government revenue = CFAF 1,670 billion and total expenditure and net lending = CFAF 2,090 billion. - Adjustments: - Adjust downward by the amount that budget grants fall short of program projections up to a maximum of CFAF 15 billion at current exchange rates. - Adjust 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. - Data drawn from preliminary Treasury account balances. - Final data to be provided as soon as final Treasury account balances are available, but not later than two months after provisional data reporting. ### C. 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 highway 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. ### D. 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 weekly (end of each week) and at month-end 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 payments without cash impact on Treasury accounts. ### E. Spending Undertaken Outside Simplified and Normal Procedures - Scope: - Assessment criterion applies continuously to any procedure other than normal and simplified procedures to execute spending. - Excludes spending undertaken on the basis of 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 and Prime Minister. - Reporting: - Authorities will report any such procedure, together with the SIGFIP table, monthly to Fund staff with a maximum delay of 30 days. ### F. Government External Payments Arrears - Definition: - External payments arrears = sum of payments owed and not paid on the external debt contracted or guaranteed by the government. - The definition of external debt given in paragraphs 17 and 20 applies. - Assessment criterion monitored on a continuous basis. - Reporting: - Authorities will promptly report any accumulation of external payments arrears to Fund staff. ### G. Contracting or Guaranteeing of New Nonconcessional External Debt by the Government - Definition of debt (Executive Board Decision No.6230-(79/140) revised by Decision No. 14416-(09/91)): - Debt = direct (non-contingent) liability from a contractual arrangement providing value (assets or services) requiring the obligor to make payments to discharge principal and/or interest according to a repayment schedule. - Primary forms include: - loans (advances of money, including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements) - suppliers’ credits (deferred payments after delivery of goods/services) - leases (debt = present value at inception of all lease payments during agreement, excluding payments covering operation/repair/maintenance) - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt 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 (cash or in kind). - Debt concessionality: - Debt is concessional if it includes a grant element of at least 35 percent. - Grant element = difference between PV of debt and nominal value, expressed as a percentage of nominal value. - PV calculated by discounting future debt service payments; discount rate = 5 percent. - External debt: - External debt = debt borrowed or serviced in a currency other than the CFA franc. Applies to debt among WAEMU countries. - Coverage of debt-related assessment criteria: - Apply to 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. - Apply to debt and commitments contracted or guaranteed for which value has not yet been received, and to private debt with official guarantees. - Measured cumulatively from time of PSI approval and monitored on a continuous basis. No adjuster applies. - Special provisions: - Assessment criteria do not apply to: - (i) debt rescheduling of debt existing at PSI approval; - (ii) debt contracted by the airport project company (AIBD) to finance the new Dakar Airport construction; - (iii) short-term external debt (maturity < one year) contracted by SENELEC and the FSE to finance petroleum product purchases. - A total ceiling of US$1006 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. - A separate ceiling equivalent to CFAF 224 billion in 2011–14 applies for nonconcessional debt financing with a grant element of at least 15 percent. Projects financed this way expected to meet same economic and social profitability criteria as other capital spending. - Government will inform Fund staff in a timely manner before contracting any debt of this type and provide sufficient information to verify concessionality and a brief summary of projects and profitability; government 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. ### H. Public Sector Contracts Signed by Single Tender - Definition: - Public sector contracts = administrative contracts entered into by the government or entities 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 excludes fuel purchases by SENELEC for electricity production (reflects regulation requiring SENELEC to buy fuel directly from SAR). - Reporting requirements: - Government will report quarterly to Fund staff, with lag no more than one month from period end, the total value of public sector contracts and total value of single-tender contracts. ### I. Tax Revenue - Definition: - Tax revenue = sum of revenue from taxes on income, goods and services, and petroleum products. - Indicative target assessed on data provided in the quarterly TOFE. ### Additional information for program monitoring - Authorities will transmit the following to Fund staff with specified maximum lags: - Within 3 days after adoption: any decision, circular, edict, supplemental appropriation order, ordinance, or law with economic or financial implications for the current program (including supplemental appropriation orders, cancellations, and orders creating supplemental budget appropriations). - With maximum lag of 30 days, preliminary data on: - Tax receipts and tax and customs assessments by categories, with corresponding revenue monthly. - 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 Debt and Investments Directorate (DDI) report on execution of investment programs. - Monthly preliminary TOFE based on Treasury accounts. - Provisional monthly balance of the Treasury accounts. - Reconciliation tables between SIGFIP and consolidated Treasury accounts; consolidated Treasury accounts and TOFE for "budgetary revenues"; consolidated Treasury accounts and TOFE for "total expenditure and net lending"; and between TOFE and net government position (NGP), on a quarterly basis. - Final data to be provided as soon as final Treasury balances are available, but not later than one month after provisional data reporting. - Additional monthly transmission: - Provisional data on current nonwage noninterest expenditures and domestically financed capital expenditures executed through cash advances, monthly with lag no more than 30 days, from preliminary consolidated Treasury account balances; final data no more than one month after provisional data. - 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 monthly, maximum lag two months. - Lending and deposit interest rates of commercial banks, monthly. - Prudential supervision and financial soundness indicators for bank financial institutions (Table: Situation des Etablissements de Crédit vis-à-vis du Dispositif Prudentiel), quarterly within maximum delay of two months. - Government web updates (monthly basis): - a) Preliminary TOFE and transition tables with delay of 2 months. - b) SIGFIP execution table, central government table and summary table including regions, with delay of 2 weeks. - c) Amount of the airport tax collected, deposited in the escrow account, and used for repayment of loan financing the new airport construction, with delay of 1 month. - d) Full information on: (i) operations of Energy Sector Support Fund (FSE); (ii) investment projects in the power sector; (iii) planning and execution of these projects; (iv) details of financing and updated costs. ### Debt sustainability analysis — key findings and background - Key findings (summary): - Senegal remains at a low risk of debt distress. - Under the baseline scenario (consistent with higher program ceilings for nonconcessional and semi-concessional borrowing), all debt burden indicators remain way below their policy-dependent indicative thresholds. - Debt ratios in present value terms are lower than in the previous DSA reflecting the use of a higher discount rate. - Stress tests show small and temporary breaches of the threshold on the debt to GDP ratio and on the debt service to revenue ratio; the latter corresponds to the repayment of two Eurobonds. - Probability approach shows a favorable outlook, reflecting Senegal’s high CPIA score. - DSA suggests limited space for higher fiscal deficits if the low risk rating is to be preserved and indicates a need for caution in recourse to nonconcessional borrowing. - CPIA and procedural notes: - Senegal’s CPIA score = 3.82 in 2012, and on average 3.76 over 2010–12. Under DSF rules, this corresponds to a “moderate” performance. - Maintenance of an average CPIA score above 3.75 would ultimately lead to reclassification to “high” performance. - DSA presented is based on the LIC DSF Guidance note (2013). - Background statistics: - Total public debt to GDP ≈ 47 percent in 2013, up from around 25 percent in 2008. - Stock of total external public and publicly guaranteed debt ≈ 32 percent of GDP at end-2013, up from around 20 percent of GDP in 2008. - External public debt service increased from 4.3 percent of exports in 2008 to about 9 percent in 2013. - These debt levels are close to those that prevailed before debt relief under MDRI in 2006. *Prepared by the staffs of the International Monetary Fund and the International Development Association; June 9, 2014.* ### 2. In terms of composition, the bulk of Senegal’s debt remains largely external, and provided ### 2. In terms of composition, the bulk of Senegal’s debt remains largely external, and provided ### Composition of public and external debt - Most of the public debt is external (i.e., owed to non-residents of the West African Economic and Monetary Union, WAEMU). - The share of domestic debt to GDP increased from 5.3 percent in 2008 to around 16 percent in 2013. - Almost two thirds of Senegal’s external debt is owed to multilateral creditors—primarily the World Bank and the African Development Bank. - Private external debt: - Private external debt has averaged about 20 percent of GDP over the last decade. - Estimated at about 36 percent of GDP at end-2013. - About half of this debt was in the form of trade credits and bank deposits; the rest consisted of debt securities, loans, and other liabilities. - Private external assets amounted to 8 percent of GDP (partly offsetting exposure). - Shares of central government total external debt (Percent of GDP, as of end of year; table excerpt as presented): - Total: 19.6 (2008), 26.8 (2009), 27.3 (2010), 27.4 (2011), 31.0 (2012), 32.4 (2013), 100.0 (2013 % of total column) - Multilateral creditors: 12.0 (2008), 17.5 (2009), 18.1 (2010), 16.5 (2011), 19.0 (2012), 20.7 (2013), 63.7 (2013 % of total column) - IDA/IBRD: 7.0 (2008), 8.0 (2009), 8.0 (2010), 8.8 (2011), 9.2 (2012), 9.6 (2013), 29.6 (2013 % of total column) - AfDB/AfDF: 1.5 (2008), 2.2 (2009), 2.5 (2010), 2.9 (2011), 3.0 (2012), 3.6 (2013), 11.0 (2013 % of total column) - IMF: 0.5 (2008), 1.8 (2009), 2.9 (2010), 0.0 (2011), 1.9 (2012), 2.4 (2013), 7.4 (2013 % of total column) - OFID/BADEA/IsDB: 1.7 (2008), 3.2 (2009), 2.7 (2010), 2.8 (2011), 2.6 (2012), 2.6 (2013), 8.0 (2013 % of total column) - EIB: 0.2 (2008), 0.3 (2009), 0.3 (2010), 0.3 (2011), 0.2 (2012), 0.3 (2013), 0.8 (2013 % of total column) - Others (multilateral category): 1.2 (2008), 2.0 (2009), 1.8 (2010), 1.7 (2011), 2.1 (2012), 2.2 (2013), 6.8 (2013 % of total column) - Bilateral creditors: 7.6 (2008), 7.9 (2009), 7.6 (2010), 7.2 (2011), 8.1 (2012), 8.1 (2013), 26.2 (2013 % of total column) - OECD countries: 2.2 (2008), 2.7 (2009), 2.6 (2010), 2.1 (2011), 3.2 (2012), 3.3 (2013), 10.1 (2013 % of total column) - Arab countries: 4.1 (2008), 3.8 (2009), 2.8 (2010), 2.2 (2011), 2.1 (2012), 2.0 (2013), 6.1 (2013 % of total column) - Others (bilateral category): 1.2 (2008), 1.3 (2009), 2.1 (2010), 2.3 (2011), 2.8 (2012), 2.8 (2013), 8.8 (2013 % of total column) - Commercial creditors: 0.0 (2008), 1.5 (2009), 1.6 (2010), 3.7 (2011), 3.5 (2012), 3.3 (2013), 10.1 (2013 % of total column) - Memorandum item: - Nominal GDP (CFAF billions): 599,460 (2008), 506,395 (2009), 677,571 (2010), 657,308 (2013) [as presented in the table]. ### Market access and recent issuances - The share of market debt is still relatively small but has grown rapidly in recent years: - Issuance of two Eurobonds in 2009 and 2011. - Contracting of a syndicated loan in 2013, which includes a tranche in euro targeting nonresidents. - Authorities planned a US$500 million Eurobond in mid-2014 (postponed from 2013). - The 2011 Eurobond yield is currently about 6 percent. - Part of proceeds from new issuance intended to repay the euro tranche of the 2013 syndicated loan, which has a short maturity. ### Institutional capacity and debt management - Improvements noted: - Continued strengthening of capacity to manage debt and assess project loans. - Improvement in sub-CPIA score indicating progress in debt management. - Creation of a new public debt directorate combining previously separate domestic and external debt units. - First medium-term debt strategy completed in fall of 2012; a second strategy being finalized. - Progress in project appraisal and selection, including developing capacity for cost-benefit analysis. - As a result of favorable developments, Senegal was upgraded to the “higher capacity” category during the 2013 assessment of macroeconomic and public financial management capacity. ### Borrowing plan and underlying assumptions (DSA baseline) - Macroeconomic and policy assumptions: - Real GDP growth is expected to increase to slightly above 5 percent (baseline: Real GDP growth: Current DSA 2012: 3.4, 2013: 3.5, 2014: 4.9, 2015: 5.0, Long term: 5.4; Previous DSA: 2012: 3.5, 2013: 4.0, 2014: 4.6, 2015: 4.7, Long term: 5.3). - Fiscal deficit: overall fiscal deficit projections broadly unchanged beyond 2014 and in line with authorities’ commitment to meet the WAEMU convergence criterion on the fiscal deficit. - Overall fiscal deficit (percent of GDP): Current DSA 2012: 5.9, 2013: 5.5, 2014: 5.1, 2015: 3.9, Long term: 2.6; Previous DSA 2012: 5.9, 2013: 5.3, 2014: 4.6, 2015: 3.9, Long term: 2.8. - Current account deficit projected to narrow gradually from 10.8 percent in 2013 to 8 percent of GDP in 2018 and slightly further down in the long term. - Current account deficit (percent of GDP): Current DSA 2012: 10.8, 2013: 10.4, 2014: 10.0, 2015: 8.9, Long term: 7.6; Previous DSA 2012: 10.3, 2013: 9.3, 2014: 8.7, 2015: 8.3, Long term: 7.6. - Inflation expected to remain moderate, on average close to 2.0 percent. - Financing: - Increasing reliance on external nonconcessional or semi-concessional borrowing for infrastructure; trend expected to continue. - Projections assume a rollover of the 2011 and 2014 bonds at maturity, as well as a moderate annual amount of nonconcessional borrowing in the medium and long term. - Authorities intend to continue relying on semi-concessional project financing (grant element above 15 percent) for infrastructure. - Average grant element of new external borrowing is projected to decrease from about 20 percent to below 10 percent over the projection period. - Discount rate: A discount rate of 5 percent has been used for this DSA (note: the discount rate used in the 2013 DSA was 3 percent). ### External DSA highlights - Remittances: - Remittances are high and stable; since 2000 they have grown every year except 2009 (fell 6 percent). - Over 2010–2012, remittances averaged 52 percent of exports of goods and services and 13 percent of GDP (backward-looking, three-year average basis). - Remittances are an important and reliable source of foreign exchange and this pattern is expected to continue. - Debt burden and stress tests: - Taking remittances into account, external PPG debt ratios remain below thresholds in the baseline scenario. - Under extreme stress tests (including a 30 percent depreciation of the currency), two spikes in debt service reflect repayment of Eurobonds at maturity and lead to one-year breaches under the most extreme stress test. - Small temporary breach of the threshold on the debt to GDP ratio under the most extreme stress test. - These breaches disappear using the probability approach, which incorporates more country-specific features for Senegal. ### Public DSA highlights - Under the PSI baseline scenario: - Indicators of overall public debt (external plus domestic) do not show significant vulnerabilities. - The PV of total public debt to GDP and the PV of total public debt to revenue gradually decrease over the projection period. - PV of public debt to GDP remains well below the benchmark level of 56 percent associated with heightened public debt vulnerabilities for medium performers. - Authorities’ effort to increase maturities (from slightly over one year at the time of the previous DSA) should reduce exposure to rollover and interest rate risks for regional market financing. - Alternative scenarios and stress tests: - In a scenario that assumes an unchanged primary deficit (as a percent of GDP) over the entire projection period, the PV of public debt to GDP grows rapidly and quickly breaches the 56 percent benchmark level. - The benchmark level is also breached in the “historical” scenario (holding real GDP growth and the primary deficit constant at their historical levels). - These stress tests highlight the importance of continuing fiscal consolidation and raising output growth despite overall low risks in the baseline. ### Views of authorities, Plan Sénégal Emergent (PSE), and debt limits - Authorities broadly agreed with staff’s assessment of debt sustainability under the PSI baseline scenario and highlighted recent fiscal consolidation efforts, including actions to reduce the fiscal deficit in 2012–13 and further in 2014. - On PSE: - Under the authorities’ PSE macroeconomic framework, the expected growth dividend from implementing the PSE is assumed to eventually offset the impact on debt ratios of higher fiscal deficits in the next few years. - Authorities acknowledged that fiscal consolidation and a cautious approach to nonconcessional borrowing are critical to safeguard debt sustainability. - Staff emphasized that preserving debt sustainability under the PSE would depend on achieving a high growth dividend and implementing a comprehensive and ambitious reform of the state to make room for investment and improve spending efficiency. - The external debt impact of the PSE is not considered in this DSA due to the absence of balance of payments projections consistent with the authorities’ PSE framework. - Revised debt limits: - Following Senegal’s reclassification as a “higher capacity” country under the debt limits policy, authorities and staff discussed options for debt limits. - Given limited time remaining in the current Fund-supported program, it was agreed to keep the current design for debt limits while raising existing ceilings as needed—particularly the ceiling on semi-concessional borrowing to facilitate financing of four high-return infrastructure projects (electricity and sanitation). - These higher ceilings are taken into account in the present DSA. *Source: Senegalese authorities and IMF staff estimates as presented in the DSA chapter.* ### 11. In staff’s view, Senegal continues to face a low risk of debt distress. This assessment, however, ### _cr14177 - 11. In staff’s view, Senegal continues to face a low risk of debt distress. This assessment, however, ### Debt distress assessment - Staff’s view: Senegal continues to face a low risk of debt distress. - This assessment hinges critically on: - a continued reduction of the fiscal deficit; and - a prudent shift towards less concessional financing. ### Indicators of public and publicly guaranteed external debt (selected levels and dynamics) - Historical and projection horizon: 2014-2034 (figures and scenarios presented across this horizon). - Key indicator observations (from Table 1 and figures): - PV of external debt (selected years): 60.2; 66.1; 68.2; 69.9; 70.7; 70.4; 69.5; 63.4; 68.7 (presentation in table). - PV of PPG external debt (in percent of exports): 219.0; 242.4; 255.0; 262.3; 265.4; 261.3; 255.1; 266.3; 265.8 (presentation in table). - PV of PPG external debt (in percent of government revenues): 120.6; 140.2; 140.2; 137.2; 135.7; 132.9; 131.4; 119.3; 100.4 (presentation in table). - Debt service-to-exports ratio (in percent): 17.8; 9.7; 8.9; 11.6; 7.1; 7.3; 7.1; 7.4; 8.4; 15.7; 8.0 (as reported). - PPG debt service-to-revenue ratio (in percent): 17.2; 9.6; 9.2; 12.6; 7.0; 7.7; 7.8; 8.3; 9.7; 16.3; 10.4 (as reported). - Total gross financing need (Billions of U.S. dollars): 1.4; 1.5; 1.5; 1.7; 1.4; 1.5; 1.5; 1.6; 1.5; 2.8; 6.1 (table presentation). - Key macro assumptions (Table 1 / Table 2): - Real GDP growth (in percent): 1.7; 3.4; 3.5; 3.8; 1.4; 4.9; 5.0; 5.1; 5.1; 5.3; 5.1; 5.4; 5.5; 5.4 (series as shown). - GDP deflator in US dollar terms (change in percent): 9.3; -5.5; 1.8; 4.3; 8.0; 4.6; 4.1; 3.5; 3.9; 3.8; 2.3; 3.7; 2.6; 2.7; 2.6 (series as shown). - Effective interest rate (percent): 2.2; 1.6; 1.4; 1.8; 0.4; 1.5; 1.5; 1.4; 1.4; 1.4; 1.4; 1.3; 1.4; 1.4 (series as shown). - Grant element of new public sector borrowing (in percent): 8.8; 21.5; 21.6; 21.7; 22.3; 22.5; 19.7; 17.6; 12.3; 16.7 (table presentation). - Government revenues (excluding grants, in percent of GDP): 20.3; 20.4; 20.1; 20.4; 20.6; 21.1; 21.2; 21.3; 21.6; 22.0; 22.7; 22.2 (series as shown). - Aid flows (in Billions of US dollars): 0.7; 1.0; 0.8; 0.9; 1.1; 1.1; 1.2; 1.3; 1.4; 1.8; 3.1 (table presentation). - Grant-equivalent financing (in percent of GDP): 3.4; 3.7; 3.7; 3.6; 3.5; 3.4; 3.2; 2.5; 2.9 (series as shown). - Nominal GDP (Billions of US dollars): 14.4; 14.0; 14.8; 16.2; 17.7; 19.3; 21.1; 23.0; 24.8; 36.5; 80.4 (table rows present nominal GDP series). - PV of PPG external debt (in Billions of US dollars): 3.7; 4.7; 5.2; 5.6; 6.1; 6.6; 7.0; 9.6; 18.3 (table presentation). - Gross workers' remittances (Billions of US dollars): 1.9; 1.9; 2.1; 2.2; 2.5; 2.7; 3.0; 3.2; 3.3; 3.4; 7.2 (series as shown). ### Stress tests and sensitivity analyses - The most extreme stress test for each indicator is the test that yields the highest ratio on or before 2024. - Figures and notes indicate: - For PV of debt-to-GDP+remittances ratio (figure b): most extreme shock = Combination shock. - For PV of debt-to-exports+remittances ratio (figure c): most extreme shock = Combination shock. - For PV of debt-to-revenue ratio (figure d): most extreme shock = Combination shock. - For Debt service-to-exports+remittances ratio (figure e): most extreme shock = Exports shock. - For Debt service-to-revenue ratio (figure f): most extreme shock = One-time depreciation shock. - Sensitivity analysis highlights (Table 3A / 3B / Table 4 excerpts): - PV of debt-to-GDP+remittances ratio (projections): baseline values and alternative scenarios presented (examples from Table 3A): Baseline 70; A1 scenarios: 70, 72, 73, 75, 76, 82, 115, 102 (table rows). - PV of debt-to-exports+remittances ratio (Table 3A): baseline 140; alternative and bound tests produce higher ratios (examples: A1 values 140; 143; 142; 145; 148; 156; 174; 157). - PV of debt-to-revenue ratio (Table 3A): baseline 140; alternative and bound tests show increases (examples: A1 values 140; 143; 142; 145; 148; 156; 174; 157). - Sensitivity “Bound Tests” include shocks: Real GDP growth at historical average minus one standard deviation; Export value growth shock; US dollar GDP deflator shock; Net non-debt creating flows shock; Combination using one-half standard deviation shocks; One-time 30 percent nominal depreciation in 2015. - A2 scenario: New public sector loans on less favorable terms (interest rate on new borrowing by 2 percentage points higher than baseline) yields substantially higher debt ratios in multiple indicators (Table 3A / 3B summaries). - Memorandum item: Grant element assumed on residual financing = 16 in all stress scenarios except A2. ### Public sector sustainability (Table 2 highlights) - Public sector debt (in percent of GDP): 40.7; 43.4; 46.8; 50.0; 50.3; 50.4; 50.4; 50.4; 50.3; 45.4; 36.1 (series as shown and averages). - Of which: foreign-currency denominated (percent of GDP): 29.4; 31.0; 32.4; 35.6; 36.1; 36.3; 36.3; 35.8; 35.6; 32.6; 27.4 (series as shown). - Change in public sector debt (percent of GDP): 5.2; 2.7; 3.4; 3.2; 0.3; 0.1; 0.0; 0.0; 0.0; -1.1; -0.7 (series as shown). - Identified debt-creating flows (percent of GDP): 4.9; 3.2; 3.3; 3.2; -0.1; -0.3; -0.7; -0.8; -0.5; -1.2; -0.7 (series as shown). - Primary deficit (percent of GDP): reported series across years (e.g., 5.2; 4.4; 3.9; ...; 2.0; 0.8; 0.7; 0.8). - Revenue and grants (percent of GDP): 22.5; 23.3; 22.7; 23.2; 23.4; 23.9; 24.0; 24.0; 24.2; 24.4; 24.8 (series as shown). - Primary (noninterest) expenditure (percent of GDP): 27.7; 27.7; 26.6; 26.6; 25.7; 25.8; 25.6; 25.5; 25.4; 25.2; 25.5 (series as shown). - Automatic debt dynamics and contribution from interest rate/growth differential are negative in many years (examples: automatic debt dynamics -0.3; -0.6; -0.6; -1.3; -2.4; -2.3; ...). ### Policy recommendations, program status, and IMF relations - Directors (2012 Article IV concluding remarks) noted: - Senegal still faces a low risk of debt distress, but high fiscal deficits and rising debt ratios need to be addressed. - Authorities committed to keep the deficit under 6 percent in 2012 and to reduce the deficit further in the medium term to levels consistent with fiscal and debt sustainability. - Importance of stronger debt management; welcomed the medium-term debt strategy and encouraged reliance primarily on concessional financing. - Need to improve public financial management and government spending efficiency and transparency. - Priority: phase out costly and poorly targeted energy price subsidies while strengthening social safety nets. - Need to address infrastructure gaps, remove inefficiencies in government operations, and improve business climate. - Program implementation (Press Release No. 14/300, June 24, 2014): - GDP growth preliminary estimate for 2013: 3.5 percent. - Growth projected to increase to 4.9 percent in 2014. - Inflation declined to 0.7 percent on average in 2013. - Authorities intended to reduce fiscal deficit from 5.5 percent of GDP in 2013 to 5.1 percent in 2014. - All quantitative assessment criteria and all but one indicative target for end-2013 were met; structural reform implementation was slow. - Technical assistance and capacity-building (2008–2014) covered debt management; national accounts; tax administration; public expenditure management; customs administration; public financial management; and other areas, with multiple AFRITAC and headquarters missions listed across 2008–2014. *Prepared by the Staff of the International Monetary Fund (excerpted content from the provided chapter/PDF).* ### 2013. The authorities’ commitment to improve transparency by being more explicit about ### _cr14177 - 2013. The authorities’ commitment to improve transparency by being more explicit about ### Transparency and reporting - The authorities’ commitment to improve transparency by being more explicit about the cost of certain transfers and subsidies, including those in favor of the energy sector, and by reporting on the implementation of the reform of public agencies is welcome. ### Plan Sénégal Emergent (growth strategy) - The authorities’ new growth strategy—the Plan Sénégal Emergent—offers a good diagnostic and a vision for Senegal. - Ownership of the plan at the highest level and strong support from the international community should facilitate implementation. ### Fiscal sustainability and public investment - The renewed strong commitment to preserving fiscal sustainability is welcome. - In light of the poor productivity performance in recent years, the focus should be on raising economic efficiency more than increasing the volume of investment. - Accelerating reforms to improve the business environment and a deep reform of the state are critical for this purpose. - Reforming the state would also help create the fiscal space needed to raise public investment without jeopardizing debt sustainability. *Source: _cr14177 - 2013. The authorities’ commitment to improve transparency by being more explicit about* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14177.pdf_