VZCZCXRO9411
PP RUEHMA RUEHPA
DE RUEHDK #1379 1801110
ZNR UUUUU ZZH
P 291110Z JUN 07
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 8672
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHLMC/MCC WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS DAKAR 001379 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EBB/IFD/ODF, AF/EPS AND AF/W 
TREASURY FOR DO/GCHRISTOPOLUS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD SG
SUBJECT: POPULAR SENEGAL TREASURY BOND ISSUANCE A STOPGAP MEASURE 
 
REF: DAKAR 1223 
 
SUMMARY 
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¶1.  Through the regional central bank, Senegal recently sold 
approximately USD 100 million worth of treasury bonds, all of which 
were purchased very quickly by over-liquid commercial financial 
institutions anxious for investment opportunities.  Individual 
investors were not able to directly participate.  Senegal is facing 
a serious budget deficit, and this issuance, and a likely second 
round in the coming months, will be used to ease the Treasury's 
burden on current accounts.  Unfortunately, the underlying factors 
contributing to Senegal's budget problems are not yet being 
addressed.  END SUMMARY. 
 
¶2.  In an effort to minimize the detrimental impact of its budget 
deficit (Reftel), on June 18, Senegal, under the auspices of the 
West African Central Bank (Banque Centrale des Etats de l'Afrique de 
l'Ouest or BCEAO), launched a CFA francs (CFAF) 50 billion 
(approximately USD 100 million) treasury bond offering.  With a face 
value of CFAF 10,000 (USD 20), and a minimum subscription of 100 
titles (USD 2,000) at a 5.5 percent annual interest rate, all bonds 
were purchased within five days. 
 
¶3.  The speed at which the bonds were bought by commercial banks, 
insurance companies and financial institutions (that maintain the 
required current accounts at the BCEAO), demonstrates the vast 
demand for even routine investment opportunities and confirms the 
excess liquidity currently burdening Senegal's financial sector. 
Although the bond requirements were affordable for thousands of 
middle and upper class Senegalese who also are frustrated by the 
lack of local investment opportunities, only those few individuals 
with high-level personal relations with the acquiring financial 
institutions were able to directly benefit from this offering.  One 
factor creating excess liquidity for Senegal's banks is that the 
BCEAO has imposed limits on the ability of banks to invest outside 
the WAEMU region, significantly hindering linkages to international 
capital markets. 
 
¶4.  The bond issuance will help the Government of Senegal finance a 
portion of its budget deficit at rates lower than those routinely 
available via commercial and international markets, given Senegal's 
current risk profile.  Ministry of Finance officials have told 
EmbOffs that they plan to use the infusion of cash to finance short- 
and medium-term capital needs including civil servants' salaries, 
payment of internal debt, and the on-going road construction 
projects that have been suspended since April 2007. 
 
COMMENT 
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¶5.  The rapid expansion of Senegal's budget deficit over the last 
two years (currently estimated at 8 percent of GDP or higher) is a 
serious concern to the Ministry of Finance, as well as Senegal's 
development partners.  We expect the GOS will go forward with a 
second bond offering within a few months.  While these bond 
issuances may ease a bit of the pressure on current accounts, they 
do little to address Senegal's underlying problems:  huge subsidies 
to underperforming government agencies, a rapidly expanding wage 
bill, and poor return on expenditures due to non-competitive public 
contracts.  END COMMENT. 
 
¶6.  Visit Embassy Dakar's Intranet site at 
http://dakar.state.gov/htdocs/section/econSec tion.aspx and Embassy 
Dakar's SIPRNET Web site at http://www.state.sgov.gov/p/af/dakar. 
 
Jacobs