VZCZCXRO3414
PP RUEHMA RUEHPA
DE RUEHDK #0760/01 1700820
ZNR UUUUU ZZH
P 190820Z JUN 09
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 2587
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHAD/AMEMBASSY ABU DHABI 0089
RUCPDOC/USDOC WASHDC
RUEHLMC/MCC WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 04 DAKAR 000760 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR AF/W, AF/EPS, EB/IFD 
TREASURY FOR RHALL AND DPETERS 
ABU DHABI FOR OTA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV ETRD EAID SG
SUBJECT:  POST'S PERSPECTIVE ON SENEGAL'S IMF PROGRAM REVIEW ON JUNE 
19 
 
REF:  Dakar 748 
 
DAKAR 00000760  001.2 OF 004 
 
 
¶1.  (SBU) Summary:  Senegal's Policy Support Instrument (PSI) 
program with the IMF will be presented for its 3rd Board review on 
June 19.  We understand that the IMF Staff recommends a positive 
review.   Post continues to believe it is essential to keep the IMF 
engaged in fiscal reform efforts through the PSI and that, absent a 
positive review that is unlikely.  That said, the performance from 
the government, especially related to the political will to conform 
to the program, has not been stellar.  From all appearances, Finance 
Minister Diop, recently departed Budget Minister Sow (Reftel), and 
their key staff were committed and effective in bringing the 
gQernment's budget slippages into some order.  They also held the 
line against requests for treasury advances and other non-conforming 
processes, often likely in the face of strong political pressure. 
IMF Resrep Segura was very active, and at times outspoken, in his 
efforts to assure that the government met the program's specific 
criteria.  At the same time, it is not clear why the government 
failed to submit a revised budget in a timely manner, why it was not 
able to arrange new external financing, and why the independent 
audit of extra-budgetary commitments in 2007 and 2008 was not 
completed.  As the IMF is offering new financial assistance under 
its Exogenous Shock Facility (ESF), hopefully it will also gain new 
assurances of very high-level political commitments to the program. 
This will especially be necessary should the IMF pursue additional, 
much-needed reforms for the fourth review, including fiscal 
responsibility from Senegal's energy sector.  End summary. 
 
THE GOOD NEWS 
------------- 
¶2.  (SBU) The IMF Resrep for Senegal, Alex Segura, and his staff, 
were apparently once again scrambling to assure that the GOS 
fulfilled the program criteria under Senegal's Policy Support 
Instrument (PSI).  Some of the most important criteria were met 
quickly following the December review, including, Segura believes, 
the total discontinuation of the treasury advances that created a 
massive stock of arrears owed to the private sector in 2008.  These 
and other "budget slippages" appear to be largely contained. 
However, there are indications that since the end of March there 
have been some increase in arrears.  This may be due to payment 
difficulties due to unexpectedly lower customs and tax receipts as a 
result of the global economic slowdown.  Also encouraging, compared 
to a year ago, the GOS has drastically reduced the number of 
single-source or other non-competitive public tenders, and the 
government reportedly has now passed a Presidential Decree 
establishing an investigative unit within the Regulatory Agency for 
Public Procurement (ARMP), which was one criterion that had not been 
met as of the end of May. 
 
STILL TROUBLING 
--------------- 
¶3.  (SBU) The IMF Staff report recommends a positive Board Review on 
June 19.  While it may be that Senegal has again met the letter of 
the program conditions (in part due to IMF flexibility), there were 
a number of issues that apparently caused Segura heartache, based on 
our conversations with him and a number of sources.  Segura was 
working until the "last minute" to put pressure on senior officials, 
particularly in the Presidency, to assure that these basic measures 
were met. 
 
¶4.  (SBU) In the run-up to the third review, the GOS agreed to an 
independent audit of extra-budgetary spending and commitments in 
2007 and 2008.  The report was to have been completed by the end of 
March and then released publicly by the end of May.  It is not yet 
finished and the IMF has apparently extended the deadline to the end 
of June.  The reason for the delay is that "ministries and agencies" 
were not being cooperative.  Segura reported that he had to visit 
President Wade personally and present a list of unresponsive 
Ministries in order to move the process forward.  The lack of a 
report not only undercuts any claim of responsiveness by the GOS 
broadly under the PSI, but it will also create new fiscal 
difficulties as a yet undetermined number of unpaid prior year 
contracts will likely need to be paid where the supplier acted in 
good faith with GOS offices.  The results of the audit will 
therefore play a role in Senegal's likely requirement for another 
budget revision later in the year. 
 
¶5.   (SBU) The government was apparently required to pass a 
supplementary (revised) budget that protected social spending by 
June 5.  This deadline was extended to June 12, and the IMF 
apparently accepted that the budget has been presented to the 
National Assembly (having been approved by the Council of Ministers) 
 
DAKAR 00000760  002.2 OF 004 
 
 
but not actually passed by the legislature.  [Comment:  This is less 
worrisome than it might appear in that the National Assembly is 
dominated by President Wade's PDS party and will undoubtedly pass 
the budget -- perhaps before the end of June.  The IMF is also 
apparently reluctant to impose criteria that require legislative 
action.  End comment.]  Still, political players both inside and 
outside the National Assembly could still try to manipulate this 
budget.  The actual final text and funding priorities will need to 
be verified as part of the next review. 
 
¶6.  (SBU) More troubling than the delay in passing a budget are 
reports that officials close to the President and his son (Minister 
Karim Wade), initially presented a budget that was outside the 
framework agreed to with the IMF.  This apparently included 
significant cuts in social spending.  Moreover, the total amount of 
budget cuts was not sufficient to meet the current funding gap.  Our 
sources tell us that Segura and his staff noticed these 
discrepancies and insisted that the budget be revised.  In the end, 
the IMF apparently allowed some social spending to be reduced, given 
the need to cut CFA 30 billion (USD 61 million).  The revised budget 
also shifts some resources in order to meet Senegal's CFA 55 billion 
commitment to build its new toll road, a project that has also 
received financing from the World Bank, the African Development 
Bank, and the French Development Agency (AFD), and is supposed to 
have a major contribution from a private concessionaire.  This item 
was not included in Senegal's original 2009 budget. 
 
¶7.  (SBU) Most donors understood that before the third review the 
GOS needed to secure new financing of up to CFA 200 billion in order 
to close its current budget gap.  The government originally wanted 
to sell a portion of its shares in the telecom company Sonatel to 
raise these funds.  However, that deal fell apart in April when 
Sonatel's union and others strongly objected to the government 
ceding its controlling share of the company to France Telecom.  We 
understand that the current GOS plan is to use its Sonatel shares as 
collateral for new commercial financing within the West Africa 
Economic and Monetary Union (WAEMU) region.  To achieve that, the 
GOS apparently received a waiver on its public procurement 
regulations in order to sign a contract with the Moroccan firm BMCE 
Capital to act as an investment consultant in helping to raise 
funds.  It is not clear why the waiver was needed or if the IMF has 
reviewed the contract, but the details of the steps to fill this 
budget gap are not in place for the Board Review.  [Note:  BMCE 
Capital has played a similar role for a number of President Wade's 
high profile projects.  End note.]  The IMF, through its Exogenous 
Shock Facility (ESF) and the World Bank are apparently also offering 
new financing to the GOS. 
 
TOUGH QUESTIONS SHOULD BE ASKED AT THE REVIEW 
--------------------------------------------- 
¶8.  (SBU) Post understands that the IMF Staff Report, the result of 
the March 23-April 2 IMF Mission, recommends a positive review and 
approval.  While Senegal clearly met most of the program criteria 
for this review, the delay in the audit, revised budget, and new 
financing in some ways makes this review incomplete, at least 
compared to its initial framework.  We recommend that Board members 
ask some tough questions: 
 
-- Why was the audit of external budget commitments not completed? 
(Post believes the government had sufficient time to contract for 
the auditing firm and that ministries and agencies had sufficient 
time to respond to the inquiry, if they were motivated to do so.) 
 
-- Why was the revised budget delayed?  In formulating this budget, 
what were the government's priorities?  What steps did it take to 
protect important social spending (health, education, sanitation)? 
Given the other financing coming on line, does the GOS really need 
to provide funds for the toll road at this time?  Couldn't it 
negotiate with the donors to reschedule its contribution? 
 
-- Why couldn't financing be concluded to help close the current 
budget gap and provide the Board with a better sense of the state of 
Senegal's finances for the next six months?  If a consultant was 
necessary, how does that contract qualify as an "emergency" for 
public procurement waivers?  How can the Board be assured that the 
government is getting the best value for its money in a transaction 
like this? 
 
-- If the IMF feels that Senegal qualifies for even greater 
financial assistance under the ESF, what demands are being placed on 
the GOS in return in terms of transparency, accountability, and 
commitment to the goals of the PSI? 
 
DAKAR 00000760  003.2 OF 004 
 
 
 
-- The former Budget Minister apparently did a highly credible job 
in ending the practices of treasury advances that caused so much 
difficulty in 2007 and 2008.  What assurances has the Board received 
that the new Budget Minister will be able to continue to hold the 
line against this or other abuses of the Treasury? 
 
-- What has happened with the budgetary float since the end of 
March?  There are indications that it has increased. 
 
THE FOURTH REVIEW COULD BE EVEN MORE DIFFICULT - IF THE RIGHT 
CRITERIA ARE SET 
--------------------------------------------- ------ 
¶9.  (SBU) Regarding Senegal's situation vis-a-vis the fourth review 
under the PSI, critical economic and budget reforms should be 
considered.  The Staff Report mentions Senegal's energy sector, 
which is costly, unreliable and subject to fluctuating fuel prices. 
Senelec's weak financial situation and the continued power shortages 
are negatively impacting the government's budget and its ability to 
attract and retain investors.  In short, the energy sector needs to 
greatly improve transparency, accountability, and performance. 
 
¶10.  (SBU) There are growing concerns about backsliding in 
governmental accountability.  In the drafting of the revised budget, 
there was apparently an attempt to dangerously reduce funding to 
Senegal's audit court.  In addition, though there have been 
improvements in the number of government contracts filled under 
effective public procurement procedures, there are indications that 
pressure continues to be applied on financial control agents to 
allow single-source contracts (such as the one for BMCE Capital). 
Press reports have indicated this was one of the factors leading to 
former Budget Minister Sow's resignation.  The Energy Ministry's 
plans for a second, new coal-fired plant were derailed by the lack 
of a public tender for the operator.  This plan to increase badly 
needed productive capacity remains in the Ministry's timeline for 
2011 -- with no apparent movement towards organizing a public 
tender. 
 
¶11.  (SBU) The IMF could also include within the scope of the 
program improved practices on land reform, and issuances.  On more 
than one occasion, government officials have pursued one of 
President Wade's "special projects" by offering land to contractors 
in lieu of establishing a budget item.  The most visible case is the 
Statue of the African Renaissance in Dakar, which was reportedly 
financed through gifts of land to a middleman.  President Wade is 
apparently working to pass new laws that would remove much of the 
land use control from local governments and centralize it within the 
national government. 
 
¶12.  (SBU) In December 2009, Senegal will host the Fesman Festival 
of African Arts, which will be a major international event, drawing 
comparisons to Senegal's hosting of the Organization of Islamic 
States Summit in March 2008.  That event is credited as one of the 
causes of Senegal's budget crisis last year.  Hopefully, the new 
controls established as part of Senegal's PSI will preclude any 
repeat of similar pressures on the budget. 
 
¶13.  (SBU) All of the above described areas are critical for 
Senegal's fiscal health.  They will not be easy to address under an 
IMF program since they directly impact the portfolios of senior 
officials who may choose to be unresponsive, but the odds of them 
being responsibly managed absent such international oversight are 
even lower. 
 
COMMENT 
------- 
¶14.  (SBU) Senegal's economic situation has likely legitimately 
deteriorated since the IMF's last mission.  That may account for 
some of the disparity in the Staff Report's summary findings and the 
broader continued skepticism of the government's performance.  To be 
more specific, this skepticism rests largely with the lack of a 
clear political commitment to meeting the program's goals and 
achieving lasting fiscal reform.  If there had been high-level 
political will directing the government's efforts on this third 
review, many, if not all of the problems outlined here could have 
been addressed, and in a timely manner. 
 
¶15.  (SBU) However, Post continues to have confidence in the Finance 
Minister and his staff, and we believe we should give the new Budget 
Minister the benefit of the doubt.  One new hurdle for the soundness 
of this program will be Resrep Segura's scheduled September 
departure.  He has been not only very active in following the 
 
DAKAR 00000760  004.2 OF 004 
 
 
government's response, but also admirably willing to raise his 
legitimate concerns in public when the response was lacking. 
 
BERNICAT