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Cablegate: Senegal's Economic Indicators Drop As the Government

VZCZCXRO9782
PP RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHDK #1246/01 3050741
ZNR UUUUU ZZH
P 310741Z OCT 08
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 1336
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/USDOC WASHDC
RUEHLMC/MCC WASHDC
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 02 DAKAR 001246

SENSITIVE

SIPDIS

STATE FOR EBB/IFD/ODF, A/EPS AND AF/W
TREASURY FOR RHALL AND DPETERS

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD EAID SG
SUBJECT: SENEGAL'S ECONOMIC INDICATORS DROP AS THE GOVERNMENT
STRUGGLES TO OVERCOME CURRENT FISCAL CRISIS

REF: A) DAKAR 1190, B) DAKAR 0588

DAKAR 00001246 001.2 OF 002


1. (SBU) SUMMARY: Senegal continues to struggle to find the means
to pay off its large stock of internal debt owed to private
suppliers. The accumulated effects of financial indiscipline and
adverse exogenous factors are negatively impacting projected GDP
growth, inflation, and government deficits. The IMF is again on the
scene, but some observers are critical of the Fund's passive
attitude towards Senegal's current poor economic conditions. The
two main employer associations have called for the government's
immediate and urgent commitments to pay its internal debt as many
local companies in the construction and service sectors are in dire
straits. The government hopes for new financing, perhaps from
France, and is looking at other measures to solve the 2008 budget
deficit. We are not convinced that President Wade is willing to
acknowledge the depth of Senegal fiscal crisis. We do not yet see a
full commitment from the GOS for much-needed budget management
reforms. END SUMMARY.

BAD NEWS ON ECONOMIC INDICATORS
-------------------------------
2. (SBU) The large cumulative internal debt arrears, now estimated
by MinFin officials at up to CFA 323 billion (USD 718 million),
coupled with the lack of budget transparency -- which caused
unauthorized and unjustified overspending of at least CFA 116
billion (USD 259 million) -- and some exogenous factors (world oil
price increase) have greatly contributed to a deterioration of
Senegal's economic performance, particularly in the formal sector.

3. (U) According to Senegal's National Statistics Agency, the
country is experiencing a significant slowing in the services and
construction sectors -- where companies are most affected by unpaid
bills -- leading to a drop in projected GDP growth, now estimated at
3 percent in 2008 compared to 4.7 percent in 2007. Inflation could
rise to 6.0 percent as the result of increase in energy and food
prices. Senegal's external current account deficit is expected to
reach 12 pct of GDP in 2008 compared to 10.5 percent of GDP in 2007.
The overall fiscal deficit will rise to 7.0 percent after being at
5.9 percent of GDP in 2007.

4. (SBU) The lack of budget transparency is also reflected in the
government's reluctance to submit corrective legislation for its FY
2008 budget ("loi de finance rectificative") despite a
constitutional requirement to do so. The corrected budget should
explain the current budget deficit and how the ledger will be
balanced. It should also account, finally, for the proceeds from
the September 2007 sale of Senegal's third telecommunication license
to Sudatel, estimated at USD 200 million, and last summer's issuance
of treasury bonds estimated at USD 154 million. Our contacts at the
Ministry of finance have been unable or unwilling to clearly explain
how this revenue has been used.

5. (U) Given this gloomy, but realistic, outlook, our MinFin
contacts have questioned the credibility of the IMF's fairly
positive assessment of Senegal economic conditions (Ref A), arguing
that "the IMF criticizes the government's financial difficulties in
private, but presents an optimistic view in public."

ANGRY WORDS FROM THE EMPLOYERS' ASSOCIATIONS
--------------------------------------------
6. (U) While it has been known for two years that the government
has been carrying a significant stock of arrears owed to the private
sector and, even though in July the IMF announced that this internal
debt was much larger than previously estimated, the bills have not
yet been paid. On October 13, both the National Confederation of
Employers (CNP) and the National Council of Employers (CNES)
publically expressed their anxiety over the difficult financial
situation their members are facing as the result of the government's
non-payment of its debts. Senegal's "Patronat" blasted the
government's "passive, wait-and-see" attitude towards the damages it
has already caused to private suppliers in the service and
construction sectors. "We are agonizing and can no longer operate
efficiently since the government has no apparent viability to pay
its debts in the near future," noted Abdoul MBaye, CNP Vice
President and President of the Bankers' Associations.

7. (U) Mansour Cama, the President of CNES called for a general
dialogue with the government since the latter failed to keep its
promise to pay the debt owed to private suppliers. He claimed that
"several" companies affiliated to CNES are closing their businesses
or selling their land, property, or houses in order to meet their
financial commitments to their suppliers and banks. "We have lost
our confidence and trust to the government." Cama added, "the
economy is sick and many businesses in the construction and service

DAKAR 00001246 002.2 OF 002


sectors are closing or reducing their workforce."

GOS LOOKS TO FRANCE AND ITS OWN ASSETS
--------------------------------------
8. (SBU) The GOS is reportedly in discussions with France for a
large (perhaps Euro 300 million) loan (via the French Development
Agency) to help cover the current arrears. However, MinFin contacts
have noted that France has conditioned the assistance on the money
being used primarily to pay off the GOS' debts to French firms. The
GOS is apparently also continuing to explore the possible sale of
its commercial holdings, including its shares in the
telecommunications company Sonatel (Ref B), and sale of the Meriden
President Hotel, with an eye to raising at least USD 952 million.
The French loan is not yet a done deal, and the government has had
difficulties for weeks in sorting out the possibilities of selling
assets. President Wade has stated that he has given Finance
Minister Abdoulaye Diop "full authority" to resolve the country's
fiscal crisis.

THE IMF FACTOR
--------------
9. (SBU) IMF Missions are in Senegal the week of October 27, both
to continue their investigation of the GOS's poor budget control and
for a regularly-scheduled review of the country's Policy Support
Instrument (PSI) Program. The two-pronged thrust of the PSI review
will be to assure Senegal has an actionable plan for getting out of
the current crisis and confirm commitments from the government to
implement reforms leading to improved transparency, accountability,
and management of the country's public finances. The IMF's
end-of-mission assessment for the donors will be instrumental in
determining whether or not budget support pledges and new loans are
feasible before the end of the year. Any stonewalling by the GOS on
the needed reforms could lead to a December IMF Board decision to
suspend Senegal's PSI.

COMMENT
-------
10. (SBU) There is a great deal of frustration in Senegal among
donors, businesses, and the general population that a clear action
plan to solve the arrears has not yet been publicized. While
ministry of finance officials are scrambling to make ends meet for
Senegal's 2008 budget, President Wade appears to be carrying on with
business as usual. In an October 28 meeting with the Ambassador and
visiting MCC Vice President John Hewko, Wade stated that Senegal's
internal debt was very sustainable, amounting to only CFA 130
billion (USD 289 million). This assertion does not match
information provided by our Ministry of Finance contacts, nor does
it reflect the massive arrears owed to the private sector.

11. (SBU) We believe the government is still counting on a big
bailout from France, other donors, and perhaps commercial financing.
That would help in the near term, but will only truly benefit the
country if it doesn't diminish the momentum for reform.

BERNICAT

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