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Cablegate: Senegal: Imf Mission Gave Positive Mark, but Urged The

VZCZCXRO7351
PP RUEHMA RUEHPA
DE RUEHDK #1438/01 3281710
ZNR UUUUU ZZH
P 241710Z NOV 09
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 3390
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/USDOC WASHDC
RUEHLMC/MCC WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 02 DAKAR 001438

SIPDIS
SENSITIVE

STATE FOR EB/IFD, AF/EPS AND AF/W
AND PASS AID/AFR/SWA
USAID FOR AFR/WAA
TREASURY FOR OIASA/IDB: EBARBER
USDOC FOR 3136/OIO/MDBO
AND FOR 4510/IEP/ANESA/OA: PMICHELINI

E.O. 12958: N/A
TAGS: ECON EFIN EAID PGOV PINR PREL SG
SUBJECT: SENEGAL: IMF MISSION GAVE POSITIVE MARK, BUT URGED THE
PAYMENT OF CLAIMS ON EXTRA-BUDGETARY SPENDING

REF: DAKAR 1358

DAKAR 00001438 001.2 OF 002


1. Summary: An IMF team visited Senegal in mid-November to carry
out a fourth review of the Policy Support Instrument (PSI) and a
second review of the Exogenous Shocks Facility (ESF). The IMF team
met with government officials as well as donors, private sector and
civil society representatives. Norbert Funke, the team leader,
termed FY 2009 a "difficult year", and said that Senegal has made
positive progress in structural reforms despite some delays in their
implementation. (Note: Senegal's fiscal year runs concurrent with
the calendar year. End Note.) All quantitative programs targets
have been met and are in line with the PSI, except for the payment
of extra-budgetary spending estimated at CFA 103 billion (USD 229
million). End Summary.

FY09 A "DIFFICULT YEAR", BUT...
-----------------------------

2. In reviewing the state of the economy, Funke said that FY09 had
been extremely difficult as the consequences of the world economic
crisis and internal difficulties due to extra-budgetary spending
were felt throughout the economy. He projected that in FY09, GDP
growth will reach 1.4 percent and that fiscal deficit will represent
4.5 percent of GDP. "The situation is difficult but sustainable,"
said Funke.

GOOD PROSPECTS FOR FY2010
-------------------------

3. For FY10, Funke predicted a GDP growth of 3.4 percent, a budget
deficit of 5.0 percent of GDP and inflation at less than 2 percent
as a result of the expected rebound in world economy and the
implementation of remaining economic reforms. (Note: The budget
deficit figure may be a source of concern, keeping in mind that the
West African Economic and Monetary Union (WAEMU) convergence
criteria call for current account deficit, excluding grants, not to
exceed 5 percent of GDP. End Note.) He noted that the FY10 budget
and macroeconomic objectives are in line with the PSI program
despite last year's discovery of significant unauthorized budget
expenditures, debt to the private sector and efforts by the
Government of Senegal (GOS) to misrepresent both to IMF officials.


GOS IMPLEMENTED REFORMS
-----------------------

4. Funk said that Senegalese authorities have made good progress in
bringing the PSI program back on course. All quantitative program
targets have been met and the GOS has managed to reduce the number
of unpaid bills owed to private enterprises through money borrowed
from foreign sources, banks and donors. Other important steps
implemented include:
- The audit of the budget monitoring system called the "Systeme
Integre de Gestion des Finances Publiques" (SIGFIP) aimed at
improving the reliability, coverage, and ability to produce periodic
budget execution data;
-The completion of an external audit on extra budgetary spending,
which represented an important step for the continuation of the PSI
program. The audit showed that CFA 36 billion and CFA 67 billion
had been spent by Ministries and Agencies respectively without
budget appropriation; and
- Renewed commitment to adhere to budgetary laws and regulations.
As in many French-influenced systems, the government is supposed to
submit a balanced budget to the National Assembly. In this system,
revenues are a minimum target, while expenditures represent maximum
authorization. In reality, the GOS consistently underestimates both
revenues and expenditures and any subsequent changes during the year
require an amendment to the budget known as "loi de finance
rectificative". So far the government has, in most cases, bypassed
this regulatory avenue. However, in this latest round of talks,
Funke said that they had urged the government that from now on every
time there is unanticipated revenues or expenditures, that the
President sends to the parliament amendments to the budget as
required by law. The first test of the government's adherence to
this promise will come in May 2010 when the IMF wants to see an
amendment to budget detailing how the government plans on paying off
debts to the private sector that were promised by the aforementioned
extra budgetary allocations.

5. Funke noted that his team will not recommend further expanding
the scope and scale of the current ESF. Positing that, in spite of

DAKAR 00001438 002.2 OF 002


falling tax receipts, Senegalese authorities are committed to the
pursuit of prudent fiscal policy, albeit with temporary spending
flexibility to avoid large cuts in budgetary outlay, as a means to
help them reach eventual full compliance with IMF recommendations.
Funke also indicated that remittances and foreign direct
investments, slow in the first quarter of 2009, are looking to
rebound in the third quarter of 2009.

SOME PROBLEMS TO SOLVE
----------------------

6. Funke underlined that some problems remained and that the GOS
must deal with them promptly:
- The payment of claims by the private sector;
- the approval of a supplemental budget by May 2010 that takes into
account the payment of extra-budgetary debt in the amount of CFA 103
billion (USD 229 million);
- The publication in mid-January 2010 of the audit of the FY2008
budget. Currently, according to Chief of Staff of the Ministry of
Finance, the Ministry has completed and submitted all the actual
budgets figures between FY01 to FY07, called a "loi de reglements",
to the Accounting Court for auditing. The Accounting Court is in
the process of doing its final review of all of these budgets and
Funke said that they want them to complete their work by December
2009. In the meanwhile, the Ministry of Finance is currently
completing the audit of the 2008 budget and early next year it will
begin to audit the 2009 budget. Funke said that they have asked
that the Ministry of Finance and then the Accounting Court complete
the audit of both of these budgets by June 2010;
- the continuation of the study to identify the level of, and
justification for, tax exemptions to help safeguard tax revenues and
tax system coherence; and
- the improvement of public finance by favoring transparency such
as publishing the budget as approved at the beginning of the fiscal
year as well as expenditures at the conclusion of that fiscal year.

DONORS CONCERNS
---------------

7. The donors, during the course of a full donor group
(approximately 40 countries and organizations) and a core donor
group (consisting of the Ambassadors of the U.S., France, Germany,
Holland, Canada, the European Union, the World Bank and IMF) meeting
with the Finance Minister, expressed their deep concerns about the
deterioration of the country's economic situation and increasing
corruption, indicating that they remained pessimistic over the
capacity and will of the GOS to make reforms. The core donors made
clear that many GOS actions, including the alleged bribery of the
recently departed IMF Rep to Senegal known as the "Segura affair"
(Reftel) had raised many unanswered questions about Senegal's
commitment to good governance among the donors, especially within
their governments and legislatures. These concerns, the donors
insisted, could only be addressed by the GOS' concrete
acknowledgment of institutional priorities; chief among them reform
of the energy sector, mandating transparency in land deals and
empowering the country's anti-corruption commission to actually
investigate cases and bring them to trial. The IMF rep seconded
this approach, but declared the Segura Affair closed. Funke
referred to the IMF's matter of fact press communique as the
organization's definitive word on the issue.

8. (SBU) COMMENT: Considering that it was only last year that the
IMF discovered the cover up of massive extra budgetary expenditures
by the government, this latest assessment of Senegal's economic
health strikes most observers as far too rosy. While Funke
repeatedly complimented the government for its structural reforms
efforts, Senegal will have to undertake far deeper economic and
budget reforms to improve the business climate by establishing
transparency, especially in budget expenditure. Further, the IMF's
passing of the buck to the World Bank when asked about the country's
ailing energy sector is worrisome. Never-ending power shortages and
rumored corruption in its power sector have always strained the
government's already tight budget and in turn deterred foreign
investors, thus reducing GDP growth. It seems overly optimistic in
Post's opinion that Senegal will achieve a growth rate of 3.4
percent (which is less than the 4 percent the government predicts),
considering the fact that there is very little in terms of new
investments in the near future that would account for such a massive
increase in growth. End Comment.
BERNICAT

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