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