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Cablegate: Senegal Asks Donors to Speed Budget Support and Taxes

VZCZCXRO3515
PP RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHDK #0852/01 2041703
ZNR UUUUU ZZH
P 221703Z JUL 08
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 0852
INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0060
RUEHTC/AMEMBASSY THE HAGUE 0150
RUEHOT/AMEMBASSY OTTAWA 0131
RUEHMT/AMCONSUL MONTREAL 0001
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MCC WASHDC
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 02 DAKAR 000852

SIPDIS
SENSITIVE

DEPARTMENT FOR EBB/IFD/ODF, A/EPS, AND AF/W
ABU DHABI FOR TREASURY/GRIFFERTY
TREASURY FOR RHALL AND DPETERS

E.O. 12958: N/A
TAGS: EFIN EAID EAIR ECON PGOV SG
SUBJECT: SENEGAL ASKS DONORS TO SPEED BUDGET SUPPORT AND TAXES
INTERNATIONAL AIRLINES

REF: A. DAKAR 813 (notal)
B. DAKAR 661 (notal)
C. DAKAR 601 (notal)

DAKAR 00000852 001.2 OF 002


1. (SBU) SUMMARY: The Government of Senegal (GOS) appears
increasingly desperate to find the means to cover its current
accounts deficit. At the request of the Minister of Finance, on July
10 the IMF Resrep sent an email to a number of donors imploring them
to accelerate their disbursements of direct budget assistance. The
IMF states that without this money, Senegal must make swift and
serious budget cuts with "disastrous" consequences. Following
Senegal's recent undersubscribed bond issuance (Ref A), the
government's scramble for money is also impacting the prolonged
fight between the GOS and ASECNA regarding the rights to aviation
overflight fees. Delta Airlines is also facing new taxes.
President Wade has yet to admit that his country is facing a
financial crisis. END SUMMARY

SENEGAL GOES TO INTERNATIONAL COMMUNITY FOR FUNDING
--------------------------------------------- ------
2. (SBU) On July 10th, the IMF representative to Senegal, Alex
Segura, wrote an email to representatives of the donor community
imploring them, on behalf of the GOS, to accelerate their direct
budget support to the government citing a drastic fiscal deficit
without such funds. In particular, the GOS hopes that Canada, the
Netherlands, and the European Union will quickly provide their
pledged contribution. In his message, Segura asked donors to
provide their timetable for providing the funds. [Note: The USG
does not provide budget support to Senegal. End note.] As outlined
in Ref. B, Segura has been quite public in expressing his concerns
about the GOS' current accounts deficit and has pushed for some
immediate budget cuts. In his current message, Segura claimed that
without the funds from the international community the GOS would
face a financial crisis and be forced to cut funding to programs
beyond the IMF's requests.

3. (SBU) Segura assured donors that the IMF would strictly oversee
the budget contributions to ensure that the money was not used to
subsidize commodities but rather to support the most desperate of
the population directly. He also said that the GOS would shortly
make difficult decisions regarding its subsidies program. To date,
however, no sign of such a tough decision has emerged from the
government. Rather, the Minister of Commerce publicly stated the
government plans to maintain its subsidies on staple commodities.
Segura has highlighted for donors and the government that the food
and energy subsidies are generalized, and are not targeted to
relieve the poorest segments of society, and are more aligned to
assuage possible urban discontentment.

4. (SBU) We have heard from a number of contacts, both in and out
of government that the GOS's budget situation is indeed grave.
Subsidies have actually increased lately, and new unpaid bills are
being added to the government's stock of arrears. One contact
stated that the near term deficit could be as much as CFA 100
billion (USD 238 million). If the budget deficit is not brought
under control, it could derail Senegal's Policy Support Instrument
(PSI) program with the IMF when the next review takes place in
September.

SQUEEZING INTERNATIONAL AVIATION FOR REVENUE
--------------------------------------------
5. (SBU) With the government's recent bond issuances falling USD 83
million short of expectations, the government appears to be
targeting civil aviation for additional revenue. It continues to
collect overflight fees over the objections of the regional civil
aviation Agency for Navigation Security in Africa and Madagascar
(ASECNA) that Senegal has no right to those fees since it remains a
member of the organization (Ref. C). We have also recently learned
that the government is imposing a new and unannounced tax on
passengers transiting Dakar's LLS airport, and the most implicated
flights are Delta Airlines routes between South Africa and the U.S.,
which include service to Dakar.

COMMENT
-------
6. (SBU) The pledged budget support by certain donors is clearly
needed to head off significant budget cuts. The IMF's Segura has
played a positive role in publically raising the alarm about
Senegal's weakening public finances, but even under the PSI, the IMF
has not yet been able to adequately monitor budget payments or

DAKAR 00000852 002.2 OF 002


convince the GOS to rationalize its massive food and energy
subsidies. In its scramble for money, the government is facing a
threatened lawsuit by ASECNA, and perhaps a reassessment by Delta
Airlines of its Dakar stops.

7. (SBU) Although the nitty-gritty of the GOS's potential budget
crisis has largely been kept out of the public eye, discontent is
growing as suppliers are not being paid for subsidies, companies are
still awaiting payments for arrears owed them, and many government
services are in stopgap mode awaiting funds. Increasingly,
Senegalese are asking why President Wade continues to circle the
globe to promote his personal diplomatic and development agendas
rather than remain in Dakar to deal with the difficult realities
facing the government.

SMITH

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